Harrison White
The international business community is seeking further clarification on trust tax rules as approximately $300 million in assets is now under trust management, according to leading stakeholders in the industry.
Concerns were raised at the American Chamber of Commerce trust tax workshop that hosted several players in the industry including the trust regulator, AmCham Tax committee members, and trust firms. `
In 2019, the Royal Cambodian Government implemented its Trust Law to set out rules and procedures to establish, register, manage and control four types of trusts which are Commercial Trust, Public Trust, Social Trust, and Personal Trust.
However, for the majority of users safely holding land in Cambodia as a foreigner is tipped as its main attraction, as holding land for a non-Cambodian is currently illegal under Cambodia’s 1993 constitution.
To read more about a foreign investors’ rights to buy land in Cambodia click here.
Investors have previously navigated this requirement through a Nominee structure or a Land Holding Company when investing in Cambodian property.
However, perceived safety and hidden charges have remained an issue. To address these ongoing problems the Cambodian government has decided to implement the current Trust structure to better protect investors.
Opening the event Director-General of the Trust Regulator H.E. Sok Dara explained the trust concept while well established in developed economies around the world was relatively new in Cambodia and the region more broadly.
“The Trust Law of 2019 is guided by the three principles of providing certainty, security, and flexibility to the investor,” he added.
More questions than answers
However, the lack of details provided by Cambodia’s General Department of Taxation has raised more questions than answers for investors who would like to use the framework but are unsure of both the short and long-term tax implications.
During the panel discussion moderated by Partner of DFDL Cambodia Clint O’Connell and Tax Director at DFDL Thailand Jonathon Blaine both conceded it was too early for them to provide definitive answers however forecast given the short lead-in time that a simplified approach to the taxation of trusts would lead to the best outcome for all.
“Clarification is required on the taxation of the salient steps that make up the creation of a trust including whether and when the settlement of property into a trust by a trustor may be taxed, and at what value, as well as how income derived during the life of the trust may be taxed,” Jonathon Blaine said.
To read more about DFDL Cambodia click here.
“It would seem that the obvious target to act as a withholding agent for some of these events would be the registered corporate trustee however at the same time we need to ensure that ideally a ‘substance over form’ approach is taken by the taxation authorities when taxing trusts to ensure a commonsense out-come,” he added.
Country Director of IPS Cambodia Adam Fitzpatrick explained that while he had never personally had any negative experiences with foreign buyers using the nominee or company structure he had received interest in the new trust framework.
“For many of our international buyers they come from countries where trust structures have been well established and are well understood, however, that said the ongoing questions on taxations as well as valuations are concerns,” he said.
“As a real estate company we are unsure what the requirements are for valuations of property titles that are being transferred to the trust as well as the potential capital gains tax implications,” he added.
Cambodia’s 20% Capital Gains Tax (CGT) will most likely be implemented in 2024 after originally intended to be implemented in July 2020.
Trust is fundamental
Hans Chen Managing Director of Stronghold Trustee, one of Cambodia’s leading and most well-known trust companies, highlighted in reference to the regulator preventing possible misuse of the titles it was fundamental for an investor to choose trusted firms adding they were legally bound to follow client instructions.
“Because the trust structure is still a new concept in Cambodia the market is currently ironing out any issues that need to be solved between regulators, trustees, and investors, and this is where Stronghold Trustee’s expertise is important when promoting this to the market,” Hans said.
“Even after all the legal requirements of licenses and regulations all trust firms are required to adhere to in Cambodia it was fundamental that investors trusted the people they were choosing to work with. At Stronghold Trustee the client is always our main priority and we are legally bound to follow their requests as long as it is within the law,” he added.
To read more about Stronghold Trustee helping international investors click here.
AmCham President Anthony Galliano summarized the large turnout for the event showcasing both the interest and need to learn more about the potentially game-changing framework that has been introduced.
“AmCham Tax Committee will ensure they continue to work with all stakeholders in the industry to fully understand as well as properly advocate for all AmCham members and the international business community as a whole,” he said.
