Taxation

Cain Gamalo, CPA, LLB Lecturer Mobile: 012 530 662 Email: cain_gamalo@yahoo.com

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General Introduction

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Introduction Definition of taxation
 Taxation is a system of raising money to finance government.  Taxation is the most important source of revenues for modern governments.  All governments require payments of money—taxes—from people. Governments use tax revenues to pay soldiers and police, to build dams and roads, to operate schools and hospitals, to provide food to the poor and medical care to the elderly, and for hundreds of other purposes. Without taxes to fund its activities, government could not exist.

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Introduction Functions of taxation
 Governments may raise or lower taxes to achieve social and economic objectives or to achieve political popularity with certain groups.  Taxation can redistribute a society’s wealth by imposing a heavier tax burden on one group in order to fund services for another.  Also, some economists consider taxation an important tool for maintaining the stability of a country’s economy.

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taxing poorer people more harshly.with higher rates for higher incomes.takes the same percentage of income from all people 5 .Introduction Taxation schemes  Progressive taxation . describes a tax system in which those with low incomes pay proportionally higher taxes than the wealthy  Uniform taxation . describes a form of taxation in which the tax rate increases in proportion to the taxable income  Regressive taxation .describes a taxation system where same amount of tax is levied on everyone  Proportional tax .

and other earnings from one’s occupation.Introduction Types of taxes  Individual income tax . royalties earned on sales of patented or copyrighted items.an individual income tax. which are profits from the sale of stock. real estate. is a tax on a person’s income.  Income also includes capital gains. and dividends from stock. salaries. or other investments whose value has increased over time. also called a personal income tax. interest earned by savings accounts and certain types of bonds. such as inventions and books. rents (earnings from rented properties). 6 .  Income includes wages.

7 . and a second time when it is paid out to shareholders in the form of dividends.  Corporate income tax may lead to double taxation of corporate income.e.corporations must pay tax on their net income (profits) to the national or federal governments and also to most city or provincial governments.Introduction Types of taxes  Corporate profit tax . income is taxed once when it is earned by the corporation. i.

a payroll tax applies only to wages and salaries. unemployed. Payroll taxes are the main sources of funding for various social insurance programs.Introduction Types of taxes  Payroll taxes .whereas an income tax is levied on all sources of income. Employers automatically withhold payroll taxes from employees’ wages and forward them to the government. such as those that provide benefits to the poor. elderly. 8 . and disabled.

Introduction Types of taxes  Consumption tax .  Value-added taxes.  Excise taxes. 9 . and  Tariffs. The most important kinds of consumption taxes are  General sales taxes.a consumption tax is a tax levied on sales of goods or services.

and tariffs.Introduction Types of taxes  Consumption tax . The most important kinds of consumption taxes are general sales taxes.levied on sales of goods or services. excise taxes. 10 . value-added taxes.

11 . in some cases.imposes the same tax rate on a wide variety of goods and.Introduction Types of taxes  General sales taxes . services.

such as per package of cigarettes or per liter or gallon of gasoline. goods subject to excise may include tobacco products.Introduction Types of taxes  Excise taxes . 12 .sales taxes on specific goods or services. gasoline. also called selective sales taxes. and some luxury items applied either on a per unit basis. or as a fixed percentage of the sales price. alcoholic beverages.

The value added at each stage of production is the difference between the seller’s costs for materials and the selling price. the seller pays the government a percentage of the value added to goods or services at each stage of production. a VAT is just a general sales tax that is collected at multiple stages. 13 .in this system. In essence.Introduction Types of taxes  Value-added taxes .

are taxes levied on imported or exported goods.Introduction Types of taxes  Tariffs .also called duties or customs duties. 14 . Import duties also protect domestic industries from foreign competition by making imported goods more expensive than their domestic counterparts. Import duties are considered consumption taxes because they are levied on goods to be consumed.

and artwork).tax on an individual’s wealth—the value of all of the person’s assets. both financial (such as stocks and bonds) and real (such as houses. In practice. property taxes are usually more limited.Introduction Types of taxes  Property tax . 15 . cars.

The inheritors pay the tax. Most governments levy estate taxes before the deceased person’s property passes to heirs. although many governments do not impose an estate tax on property inherited by a spouse. real estate.tax on the deceased person’s estate. and material possessions.is a tax on the transfer of property between living people. but after the estate passes to heirs. bonds. which includes everything the person owned at the time of death—money.Introduction Types of taxes  Estate tax . stock. Estate and inheritance taxes are sometimes collectively called death taxes.  Gift tax .also taxes the value of the deceased person’s estate. 16 . proceeds from insurance policies.  Inheritance tax .

property taxes are usually more limited.tax on an individual’s wealth—the value of all of the person’s assets.Introduction Types of taxes  Property tax . 17 . cars. both financial (such as stocks and bonds) and real (such as houses. and artwork). In practice.

collects the same amount of money from each individual regardless of income or circumstances 18 .Introduction Types of taxes  Poll tax .also called a lump-sum tax or head tax.

Introduction Types of taxes  Pollution tax . The tax provides an incentive for companies to pollute less and thus reduce damage to the environment. 19 . water.levied on a company that produces air. or soil pollution over a certain level established by the government.

usually as measured by income or wealth.fairness  Ability-to-pay principle .states that people in equal positions should pay the same amount of tax.Introduction Principles of taxation .  Vertical equity .tax system should distribute the burden fairly across people with different abilities to pay. This idea implies that a person with higher income should pay more in taxes than one with less income.holds that people’s taxes should be based upon their ability to pay. 20 .  Horizontal equity .

Introduction Principles of taxation .fairness  Benefits principle . The benefits principle regards public services as similar to private goods and regards taxes as the price people must pay for these services 21 .benefits principle of taxation states that only the beneficiaries of a particular government program should have to pay for it.

efficiency  Efficiency principle . consumers are influenced by taxes. 22 .  Administration cost .  Compliance cost .paying taxes costs taxpayers money above and beyond the actual tax bill thus the government should strive to minimise this burden on taxpayers  Excess burden -instead of choosing what goods to buy solely on the basis of their intrinsic merits.Introduction Principles of taxation . wasting as little money and resources as possible.no tax system is perfectly efficient. but government should strive to minimize the costs of administration.a good tax system should be efficient.

failing to pay legally due taxes  Tax avoidance .refers to its actual effects on people’s incomes  Tax evasion .Introduction Effects of taxes  Tax incidence .the way a tax affects people  Statutory incidence .refers to the individuals or groups who must legally pay the tax  Economic incidence .occurs when people change their behavior to reduce the amount of taxes they legally owe  Tax affects labour supply  Tax affects savings  Tax affects physical investments 23 .

tribute from conquered countries. Assyria. instead of taxing individuals to support the government. It levied poll taxes only on slaves and aliens (noncitizens) and made failure to pay a capital crime. Also.  The government of ancient Athens.Introduction A very brief history of taxation  In the ancient civilizations of Palestine. and voluntary contributions from citizens for revenue. 24 . and Babylonia. a few customs duties. Greece.  In the early years of the Roman republic all Roman citizens paid a poll tax. relied on publicly owned silver mines. the king could simply force them to work for him. tributes are exerted on conquered subjects. Egypt.

including land taxes. England started imposing various taxes on transactions. tolls (payments for the use of bridges. states relied heavily on revenues generated by the king’s own estates and by taxes on land. coffee. and soap. from about the 5th century ad to the 15th century. taxation varied from region to region. and miscellaneous fees and fines  During the 16th and 17th centuries. poll taxes. Taxes on imported goods (tariffs) assumed great importance. candles. alcohol. Europeans were subject to many forms of taxation. chocolate. inheritance taxes. roads. including sugar.  By the 18th century. as did taxes on a wide variety of commodities. or seaports). 25 . meat.Introduction A very brief history of taxation  During the Middle Ages.

concerns about both fairness and the ability of tax systems to generate sufficient revenue led governments to enact income taxes. 26 . including Britain in 1907. In 1799 Britain enacted the first national income tax. the United States in 1913. and France in 1917. to finance the Napoleonic Wars.  The first progressive income tax—which imposed a greater tax burden on people with higher incomes—was introduced in Prussia in 1853.  Other countries introduced progressive income taxation in subsequent decades.Introduction A very brief history of taxation  In the late 19th and early 20th centuries. The government discontinued the tax when the war ended in 1815. but revived it in 1842.

effective 01 Jan 2004  Investment law . effective 01 Jan 2004  Note that tax rates may change from time to time! 27 .Introduction Cambodian tax system  Relevant laws  Law on taxation .promulgated 31 Mar 2003.promulgated 31 Mar 2003.

Introduction Cambodian tax system
 Taxes affecting investors in Cambodia  Tax on profit  Minimum tax  Various withholding taxes  Payroll tax  Value added tax  Import duties  Various specific taxes  Other taxes

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Introduction End of presentation

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Taxation
Cain Gamalo, CPA, LLB Lecturer Mobile: 012 530 662 Email: cain_gamalo@yahoo.com

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Profit tax

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Profit tax Scope  The assessment of the tax on profit shall be made according to the taxation system of the real regime. The tax payers’ regime shall be determined according to the form of the company. 32 . Law on Taxation). type of business activities and the level of turnover (Article 4. Incorporated taxpayers are governed by the real regime. simplified regime or estimated regime.

Profit tax Residency and source  Resident taxpayers – they include companies organised or managed or having their principal place of business in Cambodia. they can receive tax credits. taxed on world-wide income/profits. for taxes paid on foreign-sourced income/profits. 33 .  Non-residents – taxed on Cambodian sourced income/profits only. Internationally recognisable permanent establishment (PE) is taxed on its Cambodian source income only.

certain mineral Insurance Resident individuals 20% 9% or 0% 30% 5% 20% 34 . gas.Profit tax Tax rates      Standard Preferential rate Oil.

35 .  Unutilised prepayments can be used to offset the current amount due and no physical payment is needed.Profit tax Prepayments  1% of turnover inclusive of all taxes except VAT to be paid on a monthly basis by the 15th day of the succeeding month and may be offset against the Profit Tax and Minimum Tax  Taxpayers on tax holiday are exempt from the prepayment but must lodged a nil monthly return  Taxpayers not subject to minimum tax needs monthly prepayments on the Profit Tax.

first sale).e.  Means a total exemption from the profit tax  Begins from the earlier of the year the QIP becomes profitable or 3 years from the commencement of business (i. 36 .  Duration period is from 3 to 6 years.Profit tax Tax holidays  QIPs (Qualified Investment Project recognised and registered by the Council for the Development of Cambodia or CDC) will be entitled to a tax holiday.

i. rent 37 .Profit tax Calculation of taxable profits  For Cambodian resident taxpayers Total revenue (domestic and foreign sourced) Less: expenses paid or incurred to carry on the business Add: passive income. interest. royalties.e.

Profit tax Expenses  Designated reasonable payments to company officers and directors .deductible  Plant and building related interest and taxes to the extent incurred during construction/ acquisition phase. The nondeductible portion maybe carried forward to the succeeding year’s calculation 38 .deductible  Interest not mentioned above are deductible to the extent of interest income and 50% of residual income. the expenditure must be capitalised and depreciated with the relevant property .

declining balance  All other tangible property – 20%. straight-line  Computers. declining balance  Automobiles. office furniture and equipment – 25%. electronic information systems. software and data handling equipment – 50%. trucks. declining balance 39 .Profit tax Expenses  Expenditure on tangible property are depreciable (and deductible) according to designated rates and methods of depreciation  Building and structures – 5%.

deductible. 40 .  Amusement.  Charitable contributions – deductible to the extent the amount does not exceed 5% of taxable profit. recreation or entertainment – not deductible  Tax on profit. including where paid on another’s behalf – not deductible  Various accrued expenses depending on stipulated conditions .Profit tax Expenses  Expenditure constituting exploration and development costs – amortisable (and deductible) with reference to the exploitation of the relevant natural resource.

This applies only to assets used in “manufacturing and processing” and only if taxpayer has not elected to use a tax holiday. A clawback provision exists for assets held for less than 4 years 41 .Profit tax Expenses  Special depreciation  QIPs are entitled to an additional 40% special depreciation in the later of the year of purchase or first use.

Carryback is not permitted.Profit tax Losses     Taxpayers may carry forward their losses for 5 years. 42 . No provision for any form of group loss relief Taxpayer must not change its activities or ownership to be eligible to carry forward losses.

 No deduction is available for certain losses incurred on dealings between 51% commonly owned parties.Profit tax Transfer pricing  The CTA can redistribute income and deductions between parties under common ownership in order to prevent the avoidance or evasion of taxes. Common ownership will exist at a relatively low level of 20%. 43 .

 Standard tax year is the calendar year although different accounting year-ends can be granted upon application.Profit tax Administration  Profit tax returns are to be filed annually within 3 months after year end.  The 1% prepayment on profit tax is due on a monthly basis . 44 . by the 15th day of the succeeding month.

 It is an annual tax liability of 1% of turnover inclusive of all taxes except VAT  QIPs are exempted  Imposed irrespective of the taxpayer’s profit or loss. 45 .Profit tax Minimum tax  General overview  Real regime taxpayers are subject to a separate minimum tax.

Profit tax Minimum tax  Administration  Minimum tax returns is due 3 months after year-end. 46 .  May be reduced by tax on profit payments including prepayments.

Profit tax End of presentation 47 .

com 48 . CPA. LLB Lecturer Mobile: 012 530 662 Email: cain_gamalo@yahoo.Taxation Cain Gamalo.

Value added tax 49 .

 Applies also to appropriation of goods for personal use or a result of gifting goods and services. 50 .Value added tax Scope  Applies to real regime taxpayers making taxable supplies (goods or services)  Applies also on the duty paid value of imported goods including the associated services thereto (except in certain concessions for exporters. The importer must pay VAT to the customs at the same time they pay the import duties. tax-exempt bodies and cigarette. alcoholic and motor vehicle products imported for the purpose of re-export).

Exports are defined to include international transportation of passengers or goods.Value added tax Tax rates  0% .applies to goods exported from Cambodia and services consumed outside Cambodia.applies to all non-exempt supplies 51 .  10% . or services in connection thereto.

Value added tax Exempt goods and services  Pubic postal services  Hospital and medical services and the provision of goods incidental thereto  Public transportation activities operated by state owned providers.  Insurance activities  Import of certain personal effects  Non-profit activities in the public interest (as approved)  Electricity 52 .

Value added tax Basis of taxation  Output tax – calculated by multiplying the taxable value (net of VAT) by the applicable VAT rate  Imported goods – CIF import price plus any specific tax on certain merchandise and services  Goods sold on a hire purchase or financial lease basis – total price at the time of supply rather than installments received. 53 .  Input credits will not be made available for VAT charged on entertainment.  Goods under rental or periodic payment arrangement are treated as being successively supplied. petroleum products. mobile telephone calls or the purchase of passenger motor vehicles.

 All companies must complete registration for VAT before commencing business.Value added tax Registration  All real regime taxpayers making supplies of taxable goods and services in Cambodia must register for VAT. 60 million Riel for services  CDC licensed investment enterprises may register for VAT prior to making taxable supplies. Others must register within 30 days after their taxable turnover for the preceding consecutive three months exceeds 125 million Riel for goods. 54 . and in theory obtain monthly refunds  Invoices vary according to whether a VAT-registered or non-registered person is being invoiced. This allows the taxpayer to claim VAT input credits.

Value added tax Administration  For domestic supplies. taxpayers will be required to file VAT returns and make VAT declarations and payments on a monthly basis. VAT is payable to customs at the time of import  If input VAT for the month exceeds output VAT. by the 20th day of the succeeding month  For imports. the business can carry forward the excess for three months forward. It can apply for a refund from the CTA (CDC licensed taxpayers in pre-operating stage may qualify for monthly refunds) 55 .

Value added tax End of presentation 56 .

LLB Lecturer Mobile: 012 530 662 Email: cain_gamalo@yahoo. CPA.Taxation Cain Gamalo.com 57 .

Withholding and payroll taxes 58 .

other than domestic banks or financial institutions -15%  Income from the rental of movable or immovable property – 10%  Interest payment by domestic banks to residents with fixed term deposit account – 6% 59 .Withholding taxes Rates  Income received by individuals for services such as management. consulting. etc. – 15%  Payment of royalties for intangibles and interests in mineral resources – 15%  Payment of interest by a resident taxpayer carrying on business.

interest. rent and other income connected with the use of property. payment for management or technical services – 14% 60 . dividends.e. royalties.Withholding taxes Rates  Interest payment by domestic banks to residents with nonfixed term deposit account – 4%  Payment to non-residents i.

Withholding taxes Additional tax on profits  Distributions of dividends are subject to “Additional Tax on Profit” or additional ToP as follows: Add’l ToP calculation  Dividends subject to profit tax 0% distribution x 20/10 9% distribution x 11/91 20% nil 30% nil  A shareholder is entitled to establish a special dividend account from which the relevant dividend is on-paid without additional ToP obligations.  A dividend will be exempt from tax in the hands of the shareholder if additional ToP (and withholding tax for nonresident shareholders) has been paid. 61 .

 Withholding tax is required to be remitted by the payer on a monthly basis by the 15th day of the succeeding month. For this purpose. 62 . an expense is paid when it is recorded in the accounting books.Withholding taxes Administration  Withholding tax is due when the amount is paid.

500.500.000 Riels (Over 312.215 .000 Riels (Approx. USD 125 or less) – 0%  500.001 Riels .500.8.2.000 Riels (2.312.250.500.5 .1.215) – 10%  8.001 Riels .3.125) – 20%  For fringe benefits – 20% on MV  Non-residents – 20% 63 .12.250.125) – 15%  Over 12.000 Riels (Over 125 .500.000 Riels (Over 3.Withholding taxes Payroll taxes  0 Riels .5) – 5%  1.001 Riels .

Withholding taxes End of presentation 64 .

com 65 . CPA.Taxation Cain Gamalo. LLB Lecturer Mobile: 012 530 662 Email: cain_gamalo@yahoo.

& export duties 66 . import duties.Specific taxes.

67 .Specific taxes Overview  Specific tax is a form of excise tax that applies to the importation or domestic production and supply of certain goods and services.

raw material for producing engine oil 10%  Motorcycles including motor tricycles with capacity of more than 12cc and its spare parts – 10%  Local & international air tickets sold in Cambodia – 10%  Local & international telecommunications services – 10%*  Certain carbonated and similar non-alcoholic drinks – 10% 68 . brake oil.Specific taxes Tax rates  Diesel fuel – 4.35%  Lubricant.

3%**  * March 2005 upwards  ** Temporarily maintained at 20% 69 .Specific taxes Tax rates      Cigarettes – 10% Hotel accommodation and entertainment charges -10% Tires.15% Cigars – 25% Beer – 30% Wine – 33. inner tubes and inner tube covers .

Specific taxes Basis of taxation     Domestically produced – ex-factory selling price Imported goods – customs duty inclusive CIF value Hotel and telecom services – invoice price Air tickets – value of travel within and outside Cambodia 70 .

not later than the 10th day of the succeeding month  Imports – payable to Customs at the time of import 71 .Specific taxes Administration  Domestic sales – taxpayers must make declarations and payments on a monthly basis.

72 .  Rate of 35% for finished products and government protected goods.  Rate of 15% for machinery and equipment.  Rate of 7% for primary products and raw materials.Import duties Rates  Rate of 0% for goods that government policy provides not to collect duties.  Rate of 50% for luxurious goods.

Import duties Clearing imports       Invoice Packing list Bill of lading/airway bill Import license Report of Finding Report of finding Other documents 73 .

and uncut precious stone. 74 . government protected goods.Export duties Rates  Rate of 2%.  Rate of 10% for fish and other aquatic products. 5% and 10% for natural rubber (Cambodia temporary uses cascade rates for this product).  Rate of 5% and 10% for processed wood (depends on level and type of processing).  Rate of 7% for primary products and raw materials.

Export duties Clearing exports  An invoice  A packing list or airway bill  An export license 75 .

Specific taxes. import & export duties End of presentation 76 .

LLB Lecturer Mobile: 012 530 662 Email: cain_gamalo@yahoo.com 77 .Taxation Cain Gamalo. CPA.

Property taxes. & statutory audit requirements 78 . patent. other taxes.

79 . Note: it is prohibited to issue certificates of ownership of property until the Property Transfer Tax has been paid.Property taxes Property transfer tax  Property transfer tax .for the transfer of ownership of real property and certain types of vehicles as a result of direct transfer or a contribution of share capital to an enterprise.  Tax rate – 4% of the transfer value.

 Taxable for the portion over 1.Property taxes Unused property tax  The Committee for Evaluation of Undeveloped Land.200 square meters  Tax Rate – 2% on the assessed value of unused land. decides whether a plot is “unused” or not and the amount of tax liability. 80 . in cooperation with municipal and provincial authorities.

81 . USD 300  Tax on house and land rent . other taxes Fees and tax rates  For annual business registration .10% of the relevant rental fees.approx.Patent.

000)  More than 100 employees  A QIP registered with the CDC is required to have its financial statements audited by an independent external auditor registered with the KICPAA (Kampuchea Institute of Certified Public Accountants and Auditors.000)  Total assets above 2B Riels (approximately USD 500.  Annual turnover above 3B Riels (approximately (USD 750. 82 .Introduction Statutory audit  All enterprises (physical or legal persons) that meet 2 of the following criteria are required to have their financial statements audited by an independent external auditor registered with the KICPAA (Kampuchea Institute of Certified Public Accountants and Auditors.

statutory requirements End of presentation 83 . patent & other taxes.Property taxes.

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