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Tax experts clarify Cambodia’s VAT requirements for international e-commerce transactions

Brian Badzmierowski

The first round of VAT collection on e-commerce transactions in Cambodia is just around the corner, with VAT registered non-resident companies and affected medium and large self-assessment taxpayers required to e-file their VAT declarations by the 25th of this month.

It has been a long and winding process for the General Department of Taxation (GDT) to get to this point, with a slew of instructions, Prakas, and annexes being released since Sub-Decree 65 made it official on April 8, 2021.

While the outline for the system to work exists, there are still some questions swirling around the process.

During a webinar hosted by tax and legal advisory firm DFDL Cambodia, the firms partner Clint O’Connell said it’s not yet clear if non-resident e-commerce suppliers need to obtain e-commerce licenses and permits to carry out e-commerce activity in the Kingdom. This is a requirement under the E-Commerce Law but may only apply to Cambodian e-commerce businesses.

Concerning the actual payment of VAT, the DFDL team said they are expecting further instruction to be issued by the GDT soon, which would give more clarity to VAT registered non-residents on the e-filing and VAT payment process.

The GDT recently paired up with ABA Bank and Acleda Bank to allow for easier overseas payments, and details are expected to be released in the upcoming instruction.

One of the most glaring question marks is how the reverse-charge mechanism will work. In Cambodia, B2B customers of digital goods or services offered by non-resident entities bear the full responsibility to declare and pay the 10 percent VAT on behalf of unregistered and VAT registered non-resident suppliers.

One tricky component is that for a transaction to be considered a B2B transaction, the registered taxpayer in Cambodia must provide a bank account to the non-resident supplier and that bank account must match the name they used to register for their tax identification number (TIN.)

To read more about the GDT’s online tax payment portal click here.

“One of the key points that most taxpayers, resident and non-resident alike, struggle with is the need for verification of the customer’s bank account details before a transaction can be considered B2B. If the registered bank account of a self-assessment taxpayer is not provided to or verified by a non-resident e-commerce provider who is VAT registered, then the transaction would be treated as B2C and not B2B,” O’Connell said.

This was implemented, he added, because of the potential for fraud. For example, a customer could use someone else’s TIN when buying a product or service, and the non-resident supplier may not add VAT to the transaction price because it would resemble a B2B transaction.

For now, the responsibility lies with the supplier to ensure the taxpayer’s provided information matches when considering whether to treat it as a B2B or B2C transaction.

The necessity to tax e-commerce

The idea behind charging VAT for e-commerce is more straightforward. With the explosion of e-commerce, which was aided immensely by the pandemic, the region has responded by implementing different versions of the same concept.

 “Cambodia is definitely not alone in introducing e-commerce tax regulations. A number of other Asian countries have to some degree incorporated similar regulations,” O’Connell said.

Most recently, Laos implemented regulations that require non-resident companies to register and collect VAT, as well as pay corporate tax, and in some cases, collect withholding tax on transactions.

Vietnam also collects VAT on e-commerce transactions and O’Connell said the country has pondered using banks and financial institutions as tax agents to collect payments from customers not registered as taxpayers in the country.

Indonesia created a digital-physical establishment (PE) definition to govern e-commerce, looking at estimated revenue and amount of sales in place of an actual physical presence in the country.

To read more Cambodia’s e-commerce sector and its regulatory requirements click here.

DFDL Cambodian Partner Mr. Clint O’Connell

O’Connell said the definition of a PE could change sometime in the future as well, something that would change the tax landscape governing e-commerce transactions.

Thailand and Singapore, meanwhile have implemented more traditional and simplified VAT procedures that require foreign companies to register for and collect VAT.

The list of e-commerce services and goods has been made clear as well, with O’Connell separating them into four categories: online purchases of tangible and intangible goods, software licensing and related services, online auctions, and advertising or streaming services.

This covers everything from professional advice through e-mail, data warehousing services, and subscription services such as anti-virus software. In short, it covers everything ordered electronically overseas.

Making it all work

Cambodia’s proprietary tax system may still need some tweaking. O’Connell said the reverse charge mechanism should only apply to non-resident e-commerce companies that are not registered under the Simplified VAT Regime. He said this would help simplify the process and follows similar laws applied overseas.

The bank account verification system and reverse charge mechanism could pose problems, he said. For example, registered taxpayers could avoid the reverse charge mechanism simply by using a bank account that differs from their TIN registration. This would render the sale a B2C transaction and the responsibility to invoice and charge VAT would swing back to the supplier.

“In short, I think that this will change quickly, it’s too problematic. It’s causing too many issues. What we have recommended to the tax department is that the reverse charge obligation should only apply when a self-assessment taxpayer is dealing with a non-resident e-commerce provider who has not registered for VAT in Cambodia,” O’Connell said. 

“For all other transactions, including transactions with registered VAT non-residents, we believe the reverse charge obligation should not apply, which means that the registered non-resident when they’re dealing with individuals or dealing with companies, they charge VAT and collect VAT themselves. That’s where I think it’s going to end up.”

For withholding tax, registered taxpayers are still required to withhold and pay the 14 percent withholding tax to the government on transactions involving services.

DFDL Tax Director Vajiravann Chamnan said this should not be considered a double tax, because VAT payments made on behalf of suppliers can be claimed back at the end of each month for most taxpayers. Withholding taxes are a cost that should be absorbed by the non-resident supplier, she said.

While the details for using debit or credit cards to make VAT payments to the GDT have not yet been released, Chamnan said these payments should be initiated one week before the filing deadline to ensure they arrive on time.

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