spot_img

GDT launches online e-commerce VAT registration for non-residents

Brian Badzmierowski

The General Department of Taxation’s efforts to register non-resident e-commerce companies for value-added tax (VAT) payments received a boost recently, with its registration website and e-filing system going live this month.

Sixteen companies registered with the GDT ahead of the March 31 deadline – a deadline extended multiple times – including some of the largest e-commerce players in the market such as Google, Tik Tok, Meta, and Netflix.

The efforts represent the government’s desire to tax the growing number of digital services and goods transactions originating from overseas in Cambodia.

DFDL assisted several of the sixteen companies that registered ahead of the April 1 deadline set by the GDT and O’Connell said it was a smooth process, although it had to be completed manually because of the GDT’s web registering service had not yet been finished. Four to five more companies should be registered after Khmer New Year, he added.

O’Connell said the first batch of registrants represented a good start because many of the largest e-commerce players have already registered.

Ironing out the kinks

Sub-Decree 65 on the Implementation of Valued Added Tax on E-Commerce was published last April and the following Prakas, the Rules and Procedure for the Implementation of VAT on E-Commerce was published last September offering clarity on the new rules.

There are still some kinks to work out with the newly implemented tax rules, however.

Clint O‘Connell, a partner at legal services firm DFDL Cambodia, said the GDT is in the process of designating bank accounts to receive overseas transfers from the likes of Meta, Google, and Netflix.

All registered companies will now be required to pay 10 percent VAT on all digital goods and services offered from April 1 2022, with some of those costs potentially being passed down to consumers at the company’s discretion.

online e-commerce VAT registration
DFDL’s Clint O’Connell

O’Connell said there is also still some grey area surrounding what constitutes an e-commerce transaction of digital goods and services.

“One of the biggest issues is what constitutes an e-commerce service activity, product, or service. That’s one of the key points that need to be clarified,” he said.

For B2B transactions of digital goods and services, registered taxpayers in Cambodia are required to pay the 10 percent VAT under a reverse charge mechanism, whether the supplying non-resident company is registered or not. 

This puts the responsibility on the taxpayer to determine whether they have purchased a digital good or service that falls under the e-commerce umbrella. One of these grey areas could include professional advice services offered through e-mail or teleconferences.

Interestingly, Ernst and Young Asia Pacific, an accounting firm with offices in Cambodia, registered with the GDT, indicating this type of service may be subject to VAT.

Banks and insurance firms will end up paying higher rates than most, as they provide non-taxable supplies and therefore are not eligible for VAT input credit. Most taxpayers in B2B transactions involving digital goods and services can claim the tax back as a credit, offsetting their tax expense. 

Since banks and insurance companies are not eligible for this credit, they can only deduct their tax expenses at the corporate tax rate of 20 percent.

O’Connell said a private sector working group is discussing ways to mitigate some of these losses incurred by banks and insurance companies.

Enforcing guidelines

American Chamber of Commerce President Anthony Galliano said the country stands to gain the most if it ensures big e-commerce players that sell to the mass consumer market register and the GDT enforces its new guidelines.

“For me, I would focus on the big names, those that are doing the most volume in the market, especially with consumers. 

Consumers will not have VAT credits and they don’t pay withholding tax. For the good of the country and increased tax collection from a new tax base, non-resident suppliers of scale to consumers would be the primary target,” he said.

He added that he expects registration to be slow until it’s made clear that these rules will be enforced.

“I expect registration to be slowly embraced as there is not much incentive to do so, until enforcement is used as a deterrent and incentive,” he said.

Anthony Galliano AmCham President for 2022..

The GDT has plenty of options at its disposal to enforce the new tax laws, including unilaterally registering companies that don’t register themselves. They may also publish a list of companies not in compliance and levy fines against companies that do not register.

Penalties can range from $2,500 fines to up to a year in jail.

The biggest risk for companies not registering, however, is the reputational damage they may suffer for being outed as a non-compliant institution, O’Connell said.

Time will tell how successful the launch of this new tax implementation will be in the future and the first indicator will arrive on May 25, the deadline for e-filing VAT taxes for April.

O’Connell said the first batch of registrants represented a good start because many of the largest e-commerce players have already registered.

One thing to look for in the future, O’Connell said, was if Cambodia would add a corporate tax to its VAT. Laos recently implemented a similar tax regime and has also decided to charge a profit tax on top of their digital transactions.

Telegram Channel

Cambodia's best investment news & views direct into your Telegram account.

spot_img

Related Posts