Unofficial English Translation

Kingdom of Cambodia
Nation Religion King

Ministry of Economy and Finance

No. 1173 MoEF.TD.Prk
Phnom Penh, 31 December 2003

Prakas
on
Tax on Salary

Senior Minister
Minister of Economy and Finance

Having seen:

- The constitution of the Kingdom of Cambodia

- Royal Kret No. NS/RKT/1198/72 dated 30 November 1998 on the appointment of
the Royal Government of Cambodia.
- Royal Kram No. 02/NS/94 dated 20 July 1994 promulgated the Law on the
Organization and Functioning of the Cabinet of Council of Ministers.
- Royal Kram No. NS/RKM/0196/18 dated 24 January 1996 promulgated the Law
on the creation of the Ministry of Economy and Finance.
- Royal Kram No. 02/NS dated 28 December 1993 promulgated the Finance Act of
1994 and the Royal Kram No. 08/NS/94 dated 30 November 1994 promulgated
the Amendment to the Finance Act of 1994.
- Royal Kram No. 01/NS/93 dated 28 December 1993 promulgated the Law on
financial system which was amended by the Law on Financial Management 1995
promulgated by Royal Kram No. 10/NS/94 dated 31 December 1994 and the
amendment to the Law on Financial Management 2000 promulgated by Royal
Kram NS/RKM 1299/15 dated 25 December 1999 shall be amended by the Law
on Amendment Article 26 of the Law on Financial System promulgated by Royal
Kram NS/RKM/1202/029 dated 30 February 2002.
- Royal Kram No. NS/RKM/0297/03 dated 24 February 1997 promulgated the Law
on Taxation.
- Royal Kram NS/RKM/0303/010 dated 31 March 2003 promulgated the Law on
Amendment to the Law on Taxation.
- Prakas No. 396 BrK.MEF.TD dated 27 June 1997 on the Law on Taxation of
Ministry of Economy and Finance.
- Refer to the necessity of tax collection of Tax Department.

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DECIDE

CHAPTER I

GENERAL PROVISION

Section 1.1: Taxable Salary

1- As stated in Article 41 of the Law on Taxation (“LoT”), salary receives from

employment is subject to salary tax, refers to as (“ToS”), which is a monthly tax.
Paragraph 1 of Article 52 of the LoT states that ToS is the liability of a physical
person who receives salary. This tax shall be collected through a withholding
procedure by employer when making salary payment.

2- Paragraph 8 of Article 42 (new) of the Law on Amendment to the Law on Taxation

(“LALOT”) broadly defines salary to include remuneration, redundancy payments,
bonuses, overtimes, any compensation and fringe benefits which are paid to the
employee or which are directly or indirectly benefited the employee for the
fulfillment of employment activities except for any payment which is exempted
under Article 43 and 44 of the LoT.

Section 1.2: The Situation of Employment Fulfillment.

1- If compare to the professional or other activities, the fulfillment of employment

activities characterize with situation in which employee performs under the advice
of the employer. If any physical person is employed in accordance with any two
of the following conditions, he/she shall be considered as an employee and is
subject to ToS:

a- There is no risk of not being paid for employment services if the physical
person does come to work at the place determined and perform his/her
duties as stated on a general employment contract whether orally or in
writing.
b- The physical person cannot determine the time and place for fulfilling the
employment activities by himself.
c- The physical person does not need to spend large capital in buying
equipment for use in his/her employment activity.
d- The physical person does not perform his/her employment activities for
many persons at a time.

Section 1.3: The Rule of Residency and Source

1- The carrying out of ToS must be determined according to the residence situation
of employee, taxpayer or physical person as provided in paragraph 1 of Article 42
of LALOT. For the purpose of the ToS, employee, taxpayer or physical person
mean has his residence or his principal place of abode in the Kingdom of
Cambodia or who is present in the Kingdom of Cambodia on more than 182 days
in any period of twelve months ending in the current tax year is considered as
Cambodian resident. For the criteria of residency in the Kingdom of Cambodia,
any physical person who has condition conform with more than one of the
following three criteria are considered as resident in the Kingdom of Cambodia:

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a- The first criteria shall be considered base on the place where the person
stays. A person has staying place in the Kingdom of Cambodia if he
owns rents, leases, or has available for use a house, apartment,
dormitory, in which he usually stays or occupies;

b- The second criteria shall be determined base on the person’s domicile

which is determined by the actual image of living base on some factors
such as economic center individual, the period to stay, the staying
characteristic, the place where the employee’s family stay, bank account
and the place where the person always contribute to the social activities.

c- The third criteria is the present of physical person in the Kingdom of

Cambodia on more than 182 days in one time or plenty of time in any
period of twelve months ending in the current tax year. In determining
the number of days in Cambodia, the present in any part of the day is
considered one full day.

2- As stated in Article 41 of the LoT, the salary of resident in the Kingdom of

Cambodia received in and outside Cambodia must be liable to ToS.

3- As stated in Article 49 new of the LALOT, the salary of non-resident in the

Kingdom of Cambodia received from the fulfilling of employment activities in
Cambodia must be liable to ToS except any salary which is used to be paid for
technical service or other services and salary payer is not present under the image
of permanent establishment or specific operational base in the Kingdom of
Cambodia.

4- Employee shall be free to pay ToS as stated in paragraph 3 of this section if the
following three conditions are fulfilled:

a- Employee present in the Kingdom of Cambodia not more than 182 days
in one time or plenty of times in any period of twelve months ending in
the current tax year.
b- Employee received salary which is paid by employer or in the name of
employer who is not Cambodian resident.
c- Employee receives salary, which is not the liabilities of permanent
establishment, or specific operational base, which is operated by employer
in the Kingdom of Cambodia.

5- In order to determine whether employee is liable to ToS, the tax administrative has
to consider the following causes:

a- Person who is response for or undertake to the damage of the work done.
b- Person who has the right to make order to employee
c- Person who control the workplace, person who determine the basic of
remuneration and other relationship with employer.
d- Person who supplies equipment and tool needed to be used by employer
e- Person, who determine the quantity and capacity level of employee
employed to do the work.

6- For the purpose of ToS the characteristic of resident should be determined base on
Article 42 new of the LALOT without taken into account the situation of
immigration.

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Section 1-4: Salary Tax Exemption

1- In order to free from ToS any indemnity for the lay off and additional
remuneration with social characteristics as provided in paragraph 2 and 3 of
Article 44 of the LoT under the limitation and condition of Labor Law.

2- Supply gratis or below acquisition cost of the special uniform or professional

equipment as provided in paragraph 4 of Article 44 of the LoT should be
exempted from ToS if employee had transferred all these equipments back to
employer when the employment is terminated. While, all the uniform should
contain the characteristic for fulfilling the employment and is provided in the same
manner to all employees with the same position.

3- Flat allowance for mission and travel expenses are granted in lieu of the actual
payment, which have to be paid back as provided in paragraph 5 of Article 44 of
the LoT, cannot exceed the state granted amount for the same work.

Section 1-5: Personnel of Diplomatic Mission And Foreign Government

1- Salary and other additional benefit that the official and personnel of diplomatic
mission or consulate of any government who carries official or diplomatic passport
of that country has received in the framework of employment fulfillment officially
in the Kingdom of Cambodia is not liable to ToS.

Section 1-6: The Personnel of International Organization

1- Salary and other additional benefits granted to the representative, official and
personnel who is employed for fulfilling the employment activities by head office
of the international organization and technical cooperation agency of other foreign
government for the fulfilling of employment activities officially for those
organization is not liable to ToS.

Section 1-7: Personnel of Foreign aid Project

1- Beside resident physical person in the Kingdom of Cambodia employs in the

position of administrative or normal assistant in technical aid project which is
liable to ToS any employee listed in the document of international technical aid
project or technical cooperation agency of any other foreign government as
technical assistant is free from ToS after the project document is accepted by the
Ministry of Economy and Finance.

2- if any international organization or technical cooperation agency inter into

agreement to deliver the project to any contractor, the contractor’s employee
employs as technical assistant as specified in the project raised in paragraph 1 of
this section should be free from ToS. Contractor should record clearly about the
wok of technical assistant and separate between out of project work or other own
employees.

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Unofficial English Translation

CHAPTER II

MONTHLY TAXABLE SALARY AND

THE DETERMINATION OF WITHHOLDING TAX

Section 2-1: Monthly Taxable Salary

1- The basis to calculate the monthly taxable salary is all the payments even though
in cash or in kinds except any payments which are determined as fringe benefits as
stated in chapter 3 of this Prakas.

2- As stated in paragraph 1 of Article 46 of the LoT, all the money that the employer
provides to the employee even though in the form of advance, debt or prepayment
should be included in monthly taxable salary of the month that those money was
paid to employees. The amount which has to be included in monthly taxable
salary is the amount of advance, debt or prepayment without tax withholding.

3- The advance, debt or prepayment that employee payback should be deducted from
monthly taxable salary when the employee paid back. For debt, the deduction is
possible only on the principle whereas interest is recorded as employer’s income.

4- For the family which both father and mother are subject to taxable salary, the
deduction on tax basis for minor children as provided in sub-paragraph A of
paragraph 2 of Article 46 of the LoT should be allowed only on the taxable salary
of father or mother.

5- As provided in paragraph 4 of Article 52 of the LoT, monthly salary of resident or

non-resident physical person should be liable to ToS even though that salary was
paid at wherever.

Section 2-2: Minor dependent children

1- Minor dependent children are employee’s children under 14 years old or

employee’s children being a full-time study pupil or student under 25 years old at
the officially educational departments.
2- Minor person should have birth certification certified properly.
3- If the minor person over 14 years old up to 25 years old still be a pupil or student
studying full-time at the officially educational department the employer should
show educational certification confirming that the minor person is really a full-time
studying pupil or student.
4- Tax administrative have the right to refuse the educational confirmation
certification of any educational department where it used to make fake educational
confirmation certification.
5- Minor person is still treated as a minor one in the month when that person become
15 years old or when the pupil or student give up his study or become 26 years old.

Section 2-3: The Determination of Monthly Withholding Tax

1- The monthly withholding tax to be withheld, employers should use the progressive
rates by tranche as stated in Article 47 of the LoT or the table of ToS determined
by the Tax Department or withhold taxable amount for non-resident taxpayers as
stated in Article 49 new of LALOT.

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Unofficial English Translation

CHAPTER III

FRINGE BENEFITS

Section 3-1: The Determination of Fringe Benefits

1- As provided in paragraph 8 of Article 42 new of LALOT, fringe benefits included

goods, services or cash benefits or other things that employer gives directly or
indirectly to physical person for the fulfilling of employment activities that one
has performed for the employer’s benefits.

2- As stated in Article 48 of the LoT, the benefits that employer provides directly or
through third party to physical person should be liable to tax on fringe benefits.
Those benefits include:

a- All kinds of vehicle

b- Food
c- House, accommodation
d- Water, electricity, telephone
e- Home servant
f- Loan with interest lower than market rate. The market interest rate being
used should be determined by the Ministry of Economy and Finance.
g- Sale with Discount
h- Educational assistant offered to employees that is not a part of training
program relates directly to the job performance of employees.
i- Educational assistant offered to employee’s minor.
j- Life or health insurance except the same fringe benefits giving to all
employees without concerning their positions or function.
k- Part of aid for unreasonable expenses and un-necessary in employer’s
business.
l- Amount of payment made to social welfare fund exceed the level
permitted by Law.
m- Amount of payment for pension fund which is over 10% of monthly salary
exclusive employee’s fringe benefits.
n- Expenses made for reception, entertainment, leisure or the use of any other
method relating to those activities that is not a part of employment
connection.

Section 3-2: The Use of Vehicle

1- The use of vehicle to carry employee is not liable to tax on fringe benefits if:
a- The vehicle was parked in the business area after working hour and during
day off.
b- The vehicle was not given to specific employees or family member of any
employee after working hour.
c- The vehicle was not used by employee or the person in care of
employee for personal work.

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Section 3-3: Taxable Value of Fringe Benefits

1- The price of fringe benefits is the fair market price inclusive all the taxes of the
given fringe benefits. For depreciable things, the fair market price of fringe
benefits is the amount of depreciation using permitted as provided in paragraph 1
Article 13 new of the LALOT. In the case that the tax administrative disagree with
the market price of fringe benefits set by employer, they would have the right to
reset the amount of tax to be paid as stated in Article 119 of the LoT.

2- Fringe benefits should be taxable in the month when they were given to employees
without taking into account the date when they become the employer’s burden.

3- As stated in Article 48 of the LoT, the taxable price of fringe benefits is the total
price of all of them inclusive all kinds of taxes and taxes on fringe benefits itself.
To calculate the taxable price of fringe benefits in any month, the employer should
take the total price of them giving to all physical person in that month divides by
0.8.

CHAPTER IV

TAX CREDIT FOR FOREIGN TAX PAID

Section 4-1: Principle

1- Resident taxpayers can claim back tax credit for ToS that they had paid in any
foreign country, any year in order to offset against salary tax that they have to pay
in the Kingdom of Cambodia in that year. However, the tax credit provided for
ToS paid in any foreign country is the smallest amount of:

- The tax amount actually paid in that foreign country

- The amount obtained by multiplying the tax on total salary from all sources
for the same period calculated base on the table of progressive tax rates by
tranche in Article 47 of the LoT with the ratio of salary receive in that foreign
country to the total salaries from all sources.

Section 4-2: Credit for foreign tax that resident taxpayer had paid

1- The possible tax credit should be determined annually base on total salary received
exclusive other fringe benefits that are liable to tax on fringe benefits.

2- As provided in paragraph 2 of Article 50 of the LoT, documentary evidence

confirming the tax payment in abroad are as follows:

a- Certification of employer or employment contract confirming the work done,

Date and amount of salary settled for employment in abroad.
b- A copy form of document that employer submitted to the tax administrative in
abroad for paying tax.
c- Receipt of foreign tax that the tax administrative in abroad issued.

3- The documents as specified in paragraph 2 of this section which were written in

other languages other than Khmer, English or French should be accompanied with
a translation being certified officially.

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CHAPTER V

OBLIGATIONS OF EMPLOYER

Section 5-1: The Payment of Withholding Tax and Tax on Fringe Benefits

1- As stated in Article 53 of the LoT, the withholding tax on resident physical

person’s salary as in Article 47 of the LoT, the withholding tax on non-resident
physical person as in Article 49 new of the LALOT, withholding tax on fringe
benefits as in Article 48 of the LoT, employer should pay to the tax administrative
at the latest by 15th day of the following month of payment or giving fringe benefits
conforming to the form determined by the Tax Department. If there is no
withholding tax or inaccuracy withholding that the employer can not resolve, tax
administrative has the right to enforce physical person receiving salary to pay tax
properly.

Section 5-2: Obligations of Employer to record, retain and provide other document
and report

1- As stated in Article 54 paragraph 3 of the LoT, employer should:

a- Keep in the employment contract for each employee of the following

information:

- Name and surname of employees

- Sex
- Date of birth & place of birth
- Nationality
- Home and abode
- Position
- Date of starting and quitting the job if any
- Gross monthly salary exclusive fringe benefits
- Fringe benefits that were recorded in the employment contract

b- Recorded in the payment document on each payment to employees the

following information:

- Total monthly salary exclusive fringe benefits paid to employees

- Detail information on overhead expenses which are not liable to tax on fringe
benefits such as overtime fees, refunding of expenses and payment or other
bonuses.
- The payment to social welfare fund as required by the Labor Law.
- Monthly taxable salary of employee, which is liable to ToS as in Article 47 of
the LoT.
- Withholding tax as in article 47 of the LoT.

c- Recorded the fringe benefits that were paid to employees and clearly clarified
the type and price of that fringe benefits.

d- In case that the employer bought fringe benefits for the benefits of employees,
the employer should keep invoices or buying contract of those fringe benefits in
the enterprise’s accounting records.

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e- Record in the salary and fringe benefits payment journal the following
information for each employee:

- Employee’s gross remuneration which is liable to ToS

- The tax basis that has to be carried out the tax withholding as in Article 47 of
the Law on ToT of the amount of withholding tax
- The price of the fringe benefits provided

CHAPTER VI

FINAL PROVISION

Section 6-1: Any provision contrary to this Prakas shall be abrogated.

Section 6-2: This Prakas is effective from 01 January 2004.

Senior Minister

Minister of Economy and Finance

Cc:
Secretariat General of Senate Signature
Secretariat General of the National Assembly
The Cabinet of the Council of Ministers Keat Chhon
All Ministry and Core Institutions
All Provincials-Municipalities “for information”
All entities under Ministry of Economy and Finance supervision
Every Tax Office (“for functioning”)
Archives-Chronological

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