General Department of Taxation

Sunday, January 1, 2023
Source/Copyright: General Department of Taxation (GDT) Cambodia

Tax on Income

A. What is Tax on Income?

Tax on Income (ToI) is an annual tax that must be declared and paid from January 1 to March 31 of the following tax year on Cambodia-sourced income and foreign-sourced income for resident persons, and Cambodia-sourced income for non-resident persons.

• Minimum Tax: Set at 1% of annual turnover inclusive of all taxes except Value Added Tax (VAT), applicable only to enterprises that do not maintain proper accounting records.

Prepayment of Tax on Income:

• Enterprises subject to Tax on Income under the self-declaration regime and Qualified Investment Projects (QIPs) whose Tax on Income exemption period has expired are obligated to pay a monthly Prepayment of Tax on Income at the rate of 1% of the total turnover inclusive of all taxes except VAT achieved in the previous month.
• The Prepayment of Tax on Income will be used to offset against the annual Tax on Income during the annual tax settlement.

B. Definition of Key Terms

• Resident Taxpayer: Refers to:
  • a. Any physical person (individual) who has a residence or principal place of stay in the Kingdom of Cambodia, or who is present in the Kingdom of Cambodia for more than 182 days in any 12-month period ending in the current tax year.
  • b. Any legal person (entity) or partnership organized or managed in the Kingdom of Cambodia, or which has its principal place of business in the Kingdom of Cambodia.
• Non-resident Taxpayer: Refers to any person who is not a resident taxpayer and who receives Cambodia-sourced income.
• Legal Person: Refers to an enterprise or entity engaged in business, whether or not officially recognized by the competent institutions of the Royal Government, including government institutions, religious organizations, charitable organizations, non-profit organizations, associations, political parties, and permanent establishments of non-resident persons located in the Kingdom of Cambodia. For the purpose of implementing Tax on Income regulations, the term “legal person” does not include partnerships or sole proprietorships.
• Partnership: Refers to an enterprise established by a contract between two or more persons who combine their property, knowledge, or activities to conduct a joint business or commerce for profit.
• Sole Proprietorship: Refers to an enterprise established by a single physical person, where the asset of the sole proprietorship owner is the capital of the enterprise. In this definition, a husband, wife, and dependent children are considered a single physical person.
• Qualified Investment Project (QIP): Refers to an investment project that has received a Registration Certificate from the Council for the Development of Cambodia (CDC) or a Capital-Provincial Investment Sub-Committee.

C. Tax-Exempt Income

Tax on Income does not apply to:

• Income of the Royal Government or income of Royal Government institutions.
• Income of:
  • Any organization organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, where no part of its property or income is used for private benefit.
  • Any association, in the event that the income of that association is not used for the private benefit of shareholders or physical persons.
• Dividends received from a resident enterprise, provided that the tax under Article 20, Article 23, and Article 26 of the Law on Taxation has already been fully paid.

D. Income Rules

Income is divided into three types: Income from Business Activities, Ancillary Income, and Other Income.

General Principles of Income Recognition:

• Income must be recorded in the tax year in which the income item arises, whether the income has been paid or not.
• For financial lease supplies, multiple payments, continuous services, and financial services, the earliest date among the due date of payment and the date payment is received shall be taken.
• For construction enterprises or construction service enterprises, the enterprise must record income for each fully supplied section at the earliest date among the due date of payment according to the contract and the date required to record as income in the accounting book adhering to the accounting rules under the effective accounting system of the Kingdom of Cambodia.

Taxable Income is the net income achieved from business activities and activities other than business of a physical person and legal person. Taxable income results from the deduction between gross income and all expenses incurred from all types of operations of the enterprise during the course of operation or at the conclusion of the business.

E. Expense Rules

Allowed deductions are determined as follows:

• Expenses for business paid or incurred during the tax year.
• Expenses that do not reinvent an asset or do not involve the cancellation of any debt.

Principles for deductible expenses are met only if the following conditions are fulfilled:

• The event causing the expense has occurred.
• The economic activity results related to the expense have occurred.
• The expense has been recorded in the accounting books and is supported by verifiable evidence.

F. Accounting Rules

• Small taxpayers must use simple accounting rules.
• Medium and large taxpayers must use the effective accounting rules of the Kingdom of Cambodia:
  • Income must be included in the year it occurs, whether it has been paid or not.
  • Any expense deduction can be made only when the event confirming the taxpayer’s expense has occurred, the economic activity results related to that expense item have occurred, and the amount of money borne by the taxpayer can be clearly demonstrated.

G. Tax on Income Rates

For taxable income realized by a physical person, sole proprietorship, and each member of a partnership not considered a legal person, a progressive tax rate from 0% to 20% shall apply.