Presentation tax talk december 14 (1)

SIEM REAP

TAX TALK

December 14th, 2016

Anthony GallianoChairman, EuroCham Tax Committee

CEO, Cambodia Investment Management

TAX TALK SIEM REAP

TOPICS COVERED IN PRESENTATION

- The three steps to Company Incorporation

- What are the basic taxes for an Enterprise in Cambodia

- Recent changes in tax regulations materially impacting

taxpayers 2015/2016

- Law of Financial Management 2017, material new changes

for next year

- Initiatives from Eurocham Cambodia

TAX TALK SIEM REAP

ABOUT THE SPEAKER –ANTHONY GALLIANO

- CEO OF CAMBODIAN INVESTMENT MANAGEMENT, CHAIRMAN OF

PHNOM PENH BG SERVICES OFFICES, PREMIUM HUMAN RESOUCRES, CAMBODIAN INVESTMENT MANAGEMENT INSURANCE AGENT,

DYNAMO DIGITAL AND JUMP DIGITAL

- CORPORATE AND INVESTMENT BANKER FOR 27 YEARS WITH CITIBANK

AND ANZ (N.Y., U.K., BELGIUM, H.K., THAILAND, INDONESIA, CAMBODIA)

- DEGREE IN ACCOUNTING, DIPLOMA IN CAMBODIAN TAX, PASSED

NASD LICENSES FOR GENERAL SECURITIES REPRESENTATIVE, GENERAL

SECURITIES PRINCIPAL, UNIFORM STATE LAW, and REGISTERED INVESTMENT ADVISER.

TAX TALK SIEM REAP

The three steps to Company Incorporation

- Ministry of Commerce

- General Department of Taxation

- Ministry of Labor and Vocation Training

TAX TALK SIEM REAP

Ministry of CommerceMain Documents:

- Certificate of Incorporation

- Business License

- Articles of Association

Important Inputs:

- Company Name, Shareholder (%), Type of Co. (Limited Liability, Branch,

Subsidiary), Directors, Chairman/Country Representative. Passport copies

(signed) by each shareholder and Director as well as address, telephone

number, email, and photos

- Business Activity, Registered Address (Commercial Lease), Capital

TAX TALK SIEM REAP

General Department of TaxationMain Documents:

- Tax Patent and VAT Certificate

- Tax Id Card

- Instruction to File

Important Inputs:

- MOC Documents, Bank Confirmation Letter, Residency Letter for Country

Representative/Chairman, Photos, same subsidiary docs for MOC and info

- Property Tax Receipt of Commercial Residence

- Take a picture at GDT and fingerprint for Country Rep Chairman

- Docs delivered to business address and picture of office may be taken

TAX TALK SIEM REAP

Basic Taxes in for Enterprise in Cambodia

- Withholding Tax

- Tax on Salary and Fringe Benefits

- Prepayment of Profit Tax (Minimum Tax)

- Value Added Tax

- Public Lighting and Accomodation Tax

TAX TALK SIEM REAP

Withholding Tax

Withholding tax (“WHT”) regulations require a self-assessed taxpayer to withhold certain amounts from payments made to resident and nonresident taxpayers.

The liability for WHT rests with the remitter or payer. The tax authorities has no recourse to recover WHT from the recipient of the payment.

TAX TALK SIEM REAP

Withholding Tax (Continued)

Payments, being subject to WHT, can either be made to resident or non-resident taxpayers but the rates are different.

Payments to a resident taxpayer with applicable WHT rate of 15%

–For services to a physical person, including management, consulting and other similar services.

TAX TALK SIEM REAP


Payments to a resident taxpayer with applicable WHT rateof10%:-Income from rental of movable or immovable properties

TAX TALK SIEM REAP


WHT is payable in either the month the payment is made, or the month the expense is recorded in the books, whichever arrives first.

The amounts withheld are remitted to the tax authorities by the 15th of the following month along with other monthly tax returns such as prepayment of profit tax and tax on salary.

TAX TALK SIEM REAP


Payments to a non-resident taxpayer with applicate WHT

rate of 14%

i.Interestii.Royalties, rent and other payments connected with use of propertyiii.Compensation for management or technicalservicesiv.Dividends

TAX TALK SIEM REAP

Tax on SalaryThe tax on salary is a monthly tax imposed on salary that has been received within the framework of fulfilling employment activities. A physical person resident in the Kingdom of Cambodia is liable to the tax on salary for Cambodian source salary and foreign source salary

MONTHLY SALARY RIEL RATE

0 - 800,000 0%800,001 - 1,250,000 5%1,250,001 - 8,500,000 10%8,500,001 - 12,500,000 15%12,500,000 upwards 20%

For fringe benefits, every month, the employer shall withhold and pay tax at the rate of 20% of the total value of fringe benefits given to all employees. The value of fringe benefits is the fair market value inclusive of all taxes.

TAX TALK SIEM REAP

Pre-payment of Profit Tax An enterprise liable to the tax on profit according to the real regime sytem of taxation including a qualified investment project liable to the tax on profit at the rate of 9 percent, has the obligation to pay a monthly prepayment of tax on profit at the rate of 1 percent of turnover inclusive of all taxes, except Value Added Tax, realized in the previous month. The prepayment will be deducted from the tax on profit at the annual liquidation of the tax.

If the Enterprise has an annual loss the prepayment

becomes a minimum tax.

TAX TALK SIEM REAP

VATTaxpayers who are making taxable supplies are obliged to register for VAT, and collect VAT from the supplying of goods or services.

Taxable supply- The term taxable supply means: The supply of goods or services by a taxable person in the Kingdom of Cambodia. - The appropriation of goods for his own use by a taxable person;- The making of gift or supply at below cost of goods or services by a taxable person;The import of goods into the customs territory of the Kingdom of Cambodia.

TAX TALK SIEM REAP

VAT (Continued)Non-taxable supplies are as follows:

- Public postal service;- Hospital, clinic, medical, and dental services and the sale of medical and dental goods incidental to the performance of such services;- The service of transport of passengers by wholly state owned public transportation system;- Insurance services;- Primary financial services;- The imports of articles for personal use that are exempted from customs duties;

TAX TALK SIEM REAP

VAT (Continued)

Rates of taxThe rates of VAT are as follows:

0% This rate applies only to goods exported from the Kingdom of Cambodia and services consumed outside Cambodia. Exports are defined as including international transportation of passengers and goods.

10% This standard rate applies to all supplies other than exports and non-taxable supplies.

TAX TALK SIEM REAP

VAT (Continued)

Calculation of tax due

The VAT paid on import of goods or the VAT on locally purchase of goods or services for the business is called “Input Tax”.

The VAT charged on supplying of goods or services to customers is called “Output Tax”.

VAT due = Output Tax – Input Tax.

TAX TALK SIEM REAP

VAT (Continued)Non-deductible input tax are the VAT paid on:

Entertainment, amusement and recreation expense unless the taxable person carries on a business as a provider of entertainment, amusement or recreation;

Purchases or imports of automobiles, unless the taxable person carries on the business of dealing in, or hiring such automobiles; or

Purchases or imports of certain petroleum products, unless the taxable person carries on the business as a supplier of such petroleum products.

TAX TALK SIEM REAP

Public Lighting and Accommodation Tax

The Public Lighting Tax is an indirect tax with the rate of 3% to be imposed on all alcoholic drinks and cigarettes. The person who supplies these products is responsible for the payment of this tax.

The Accommodation Tax is an indirect tax with the rate of 2% to be imposed on accommodation in hotels and guest houses. The person who supplies accommodation services is responsible for the payment of this tax

TAX TALK SIEM REAP

A CHANGING ENVIRONMENT FOR TAXPAYERS

- Increased Regulation

- Procedural Changes

- More skilled and professional tax department

- Stricter enforcement and heightened supervision

- Expanding Tax Base

TAX TALK SIEM REAPRecent Changes

2016 Law on Financial Management (LoFM)

(Promulgated on 17 December 2015) Prakas on

classification of taxpayers under Real Regime System

(Prakas no. 1819. MEF.Prk dated 25 December 2015)

Prakas on procedure for the management of patent tax

collection and Instruction on the declaration and

payment of the 2016 patent tax

(Prakas no. 1821.MEF.Prk dated 25 December 2015 and

notification no. 032.GDT dated 4 January 2016)


WHAT WAS THE IMPACT

- Abolished the Simplified and Estimated regimes in

Cambodia, only the Real Regime remained

- Significantly expanded the Tax Base

- Eliminated the competitive advantage of

Estimated Regime Taxpayers

- Increased efficiency in the GDT/Tax Branches


WHAT ARE THE MAIN POINTS

Categorization of Taxpayers by Size

- Small

- Medium

- Large


Small taxpayers are Sole Proprietorships or Partnerships that:

Have annual taxable turnover from Khmer Riel (“KHR”) 250 million

(USD62.5k) to KHR700 million (USD175k);

Have taxable turnover, in any period of three consecutive

calendar months (within this tax year), exceeding 60 million KHR

(USD15k);

Expected taxable turnover of 60 million KHR (USD15k) or more in

the next three consecutive months;

Participate in any bidding, quotation or survey for the supply of goods and services including duties.


Medium taxpayers include:

Enterprises that have annual turnover from KHR700

million (USD175k) to KHR2,000 million (USD500k);

A Registered legal entity with competent institution;

Sub-national government institutions, associations,

and non-governmental organizations.


Large taxpayers include:

Enterprises that have annual turnover over KH2,000 million

(USD500k);

Branch of a foreign companies;

A Qualified Investment Project (“QIP”) as approved by the

Council for the Development of Cambodia;

Government Institutions, diplomatic missions and foreign

consulates, international organizations and other

Government Technical Cooperation Agency


Type of Taxpayer2016 Patent Tax Fee

Khmer Riel (KHR)

2016 Patent Tax Fe

United States Dollars (US)

Small Taxpayer KHR400,000 USD100

Medium Taxpayer KHR1,200,000 USD300

Large TaxpayerKHR3,000,000

KHR5,000,000

USD750 or

USD1,250 (over 2,5m rev)


Additional Patent Tax shall be paid:

- If an enterprise carries out different types of

businesses, a separate patent tax certificate is

required for each activity.

- If the enterprise carries out any branch,

warehouse or business in different cities or

provinces, a separate patent tax certificate for

each location is required.


- Large Taxpayers are required to pay KHR3,000,000 (~USD750)

for each additional patent tax certificate, if the enterprise

carries out any branch, warehouse or business in different cities

or provinces.

- Taxpayers are obliged to display their valid patent tax

certificates on their business premises.

- Taxpayers who commence business within the first 6 months of

the year shall pay patent tax in full while those that commence

business in the last 6 months of the year shall pay half the

patent tax fee.


Prakas no. 1820. MEF.Prk dated 25 December 2015

- Rules and procedures for the implementation of

the simplified accounting for small taxpayers.

- The objective of this Prakas is stated to provide

guidance on simplified accounting requirement in

order to facilitate the small and family businesses

operations.


Small taxpayer is required to maintain only 3 simplified

accounting books:

- Purchase Day Book is to record daily purchases

- Sales Day Book is to record transactions on the

supply of goods or services.

- Inventory Book is to record the beginning stock,

purchase during the year, and ending stock for

enterprises who making supply of goods.


SPECIAL INCENTIVES FOR SMALL TAXPAYERS

- 2% VAT payment rather than 10%

- Withholding Tax only on Rent

- Progressive Tax Tranches for Tax on Profit


Instruction No. 1127 issued by the General Department of

Taxation (“GDT”) dated 26th of January 2016

- Instruction on invoicing requirements (including invoice

criteria) for self-declaration taxpayers (i.e. real regime).

- In addition to the existing criteria of a tax invoice as

stated in the Value Added Tax (VAT) regulations,

taxpayers are now required to use good quality ink and

paper for printing invoices to ensure that they can be

maintained in good condition for 10 years.


- 4 invoice templates have been provided by the GDT, can be

modified as long as the invoice contains the criteria

- Buyers also have to sign on the invoices, however Customers

do not need to return signed invoices to the Supplier.

- Invoice must be issued either in the Khmer language or two

languages (i.e. Khmer with English language underneath).

- Any tax invoices not issued in accordance with the existing

and new criteria above won’t be accepted as valid invoices

to claim input VAT credit, nor to support the deductibility of

expenses


VAT invoice requirements as set out in the Law on Taxation

- Name, address, and value-added tax identification number (VATTIN) of the

seller or supplier

- Clear invoice number in a chronological order and date of issuance of the

invoice. Invoice sequencing restarts at beginning of tax year.

- Name and address of the purchaser and value-added tax identification

number

- Description, quantity, and selling price of the goods or services

- Total prices excluding tax and separate tax amount


Prakas on Tax Registration No. 496 MEF.P. (Prakas

496), April 6th, 2016.

Any company’s chairperson/owner of foreign

nationality who resides outside of Cambodia and is

unable to be physically present for their photo taken

and finger prints scanned can issue a written

authorization to a board representative to act on

their behalf by having their picture taken and fingers

scanned


Circular No. 011 dated 06 October, 2016 from The Ministry of Economy and Finance on “The Implementation of Withholding Tax on Fringe Benefits” which supersedes Circular 002 MEF, dated 20 January, 2015, on the obligations of Withholding Taxes and Tax on Fringe Benefits.

The Circular details employee allowances and benefits, whether in cash or in-kind, that are provided to all employees and workers within the framework of fulfilling employment activities, that shall be exempt of Tax on Salary (ToS) and Tax on Fringe Benefit (ToFB).


The exempt employee allowances and benefits are:

- Transportation allowance - A housing allowance, or the provision of housing facilities inside the

factory or enterprise area, as provided for within the Labor Law- Meals or meal allowance, if provided to all employees- National Social Security Fund or Social Welfare Fund contribution within

the limit as stated in the law- Health or life insurance premium if provided for all employees and

workers regardless of their duties and positions.- Infant allowance or child-care center (nursery) expenses as specified in

the Labor Law.

TAX TALK SIEM REAP

Law of Financial Management 2017

Amendment of Article 24 of the Law on Taxation regarding the imposition of the 1% Minimum Tax. In brief, for those taxpayers who qualify – the 1% monthly Pre-payment of Tax on Profit and Annual Minimum Tax obligations will no longer apply.

The obligation to pay Minimum Tax shall be imposed on any enterprise which does not keep a proper record of accounts.

TAX TALK SIEM REAP


The monthly Tax on Salary rates will have their ceilings raised. The salary of employees that is currently taxed at 0% will have its ceiling raised from USD 200 to USD 250 and salary that is taxed in the 5% tier will have its ceiling raised from the current threshold of USD 312 to USD 375.

Monthly tax on salary effective from 1 January 2017

Khmer Riel (KHR) Equivalent to US$* Progressive tax rate

From 0 to 1,000,000 0 to 250 0%

From 1,000,001 to 1,500,000 250 to 375 5%

From 1,500,001 to 8,500,000 375 to 2,125 10%

From 8,500,001 to 12,500,000

2,125 to 3,125 15%

Over 12,500,001 Over 3,125 20%

TAX TALK SIEM REAP


Dependent Allowance

Currently an allowance of KHR 75,000 (approx. USD 19) per month may be deducted from a employees taxable salary base for dependent family members (minor dependent child & employee’s spouse whose only occupation is as a homemaker)

The allowance will be increased to KHR 150,000.

TAX TALK SIEM REAPEurocham Initiatives

What is the “White Book”

- EuroCham has developed an Advocacy pillar dedicated to promoting dialogue with its Cambodian counterparts, both within the Royal Government and the private sector.

- EuroCham relies on the works of its Sectorial Committees, the Tax Committee is one of 9 committees

TAX TALK SIEM REAPEurocham Initiatives

- The committees contributed to the publication of

the “White Book”, a collective expression of the

views of EuroCham member companies on

specific aspects of the business environment in

Cambodia.

- In July, a delegation from Eurocham Cambodia

met with H.E. Kong Vibol and his deputy director

generals to discuss the tax recommendations

raised in the “White Book”.

RECENT TAX CHANGES/WHITE BOOK RECOMMENDATIONS

Next Steps

Discussing MOU to continue dialogue and

collaborate on 2017 White Book

QUESTIONS

THANK YOU

Presentation tax talk december 14 (1)

Economy & Finance

Transcript of Presentation tax talk december 14 (1)