American Chamber of Commerce (AmCham) 2022 Tax Forum has highlighted Cambodia’s modernizing taxation system bringing together senior management from the General Department of Taxation (GDT) and leading international tax experts to discuss the latest updates as well as hot topics including e-commerce registration and transfer pricing.
Opening the forum at Raffles Hotel in Phnom Penh, AmCham President Anthony Galliano explained tax was one of his member’s most important areas of business adding he was extremely grateful for the presence of His Excellency Kong Vibol and other senior officials from the GDT.
According to Galliano, AmCham members needed to remain informed and stay current with any new tax requirements, as they want to understand best practices to stay compliant, mitigate business risks, and keep pace with the changing regulatory environment and digitalization initiatives.
Speaking to Cambodia Investment Review after the event Galliano said he was encouraged that the market is rapidly shifting in requiring companies to maintain accounting records and proper financial statements.
He also reflected on some points for improvement adding that for the past few years the GDT has required taxpayers to provide a Balance Sheet, Profit and Loss and General Ledger on audits. Failure to do so is an Obstruction Penalty and without accounting records, the audit will likely be very challenging, Galliano explained.
Furthermore, he said the Accounting and Auditing Regulator requires enterprises to submit annual financial statements, audited by a licensed audit firm for Large Taxpayers. He added that this will enforce stricter compliance and better corporate governance, however, the regulator needs to keep pace with the swift changes.
“The process to obtain an auditing license is cumbersome and extraordinarily slow, and this is negatively impacting the market. First, an applicant needs approval from a peer group, effectively the competition to approve the applying firm,” he said.
According to Galliano, the approval from the Kampuchea Institute of Certified Public Accountants and Auditors can take six months to one year or more than the applying firm needs approval from the National Accounting Council.
“The current process is inhibiting market progress and is unreasonable slow. Having an association comprised of competitors choose whether a new entrant firm can enter the market, isn’t optimal. This is the only government regulator that I am aware of, having this extra layer,” he added.
Developing human resources is key for GDT
H.E. Kong Vibol Director-General Department of the General Department of Taxation in his keynote commented the GDT is always aiming to progress the tax services on offer for companies adding the GDT can be considered like a shareholder in all tax-paying companies through its 20% tax on income that is levied on taxpayer profits.
“While the GDT prefers self-compliance of course there are issues with using a system such as cross-checking our e-filing as well as real-time collection from every transaction to the Ministry of Economy and Finance,” Vibol said.
To read more about the tax rate in Cambodia for business click here.
According to Vibol, he inherited a tax department that faced a number of human resource issues explaining that the department had hired many skilled employees in recent times from the private sector to resolve existing gaps in tax officer knowledge were in cases officers where unable to read financial statements.
Under the civil worker law, he explained there were limits in making existing staff redundant so the department was focusing on upskilling staff and if needed redeploying them to other departments within the GDT that were more suited to their skill set.
“We have also been trying to recruit staff from private sector companies and employ them in the GDT so we can have more professional services that understand how company finances work,” Vibol said.
“In addition, the GDT will also be developing its new headquarter in Choy Changva that will cover over 2.5 hectares and provide a one-stop shop for meeting with auditors as well as meeting rooms to discuss tax-related matters,” he added.
Voluntary disclosures to encourage more self-compliance
Mr. Clint O’Connell Tax Partner at DFDL provided information on the latest voluntary disclosure allowance designed to encourage more self-compliance, explaining if business owners have discovered they have made a mistake they can rectify it before a tax audit.
“Companies that do self-declare may be able to receive a reduced penalty rate of 10% and a 50% reduction on the monthly 1.5% late interest penalty, if declared within six months from the original tax submission, after that firms may receive a 20% reduction on the 1.5% per month interest penalty,” O’Connell said.
“However, ultimately it will be the GDT who will make the decision where the under-declaration of tax arose from an unintended error which is defined as a lack of understanding, negligence, and/or misunderstanding. O’Connell noted that the voluntary disclosure should be submitted before a taxpayer receives formal notification of a tax audit for the same period,” he said.
To read more CIR Leader Talks with Clint O’Connell click here.
O’Connell also discussed allowances for companies to pay outstanding tax in installments if experiencing financial difficulties over a possible maximum period of three years with benefits for paying in the first, second, and third years.
Clarification on VAT on E-Commerce
A recently introduced rule for non-residents expecting to earn $62,500 annually or at least $15,000 over three consecutive months will now be required to register for 10% VAT payments with the GDT.
There had been some confusion as to exactly what was defined as an e-commerce transaction in the business community however according to the GDT 62 entities have signed up from April 2022 raising around $22 million in only a few months.
To read more about the GDT’s requirements for e-commerce click here.
Speaking at the panel discussion Oknha KM Tan, Tax Partner of Baker Tilley explained that he has received a lot of feedback from the private sector regarding non-resident directors living oversea and whether they need to register for VAT for E-commerce purposes for their quarterly meeting fees if they crossed the threshold.
In response, Mr. Eng Ratana, Director Department of Large Taxpayer explained that regarding the director’s fees from residents to non-residents it depends on the transaction if those non-resident directors work under employment under the resident company.
“If they are living overseas as a non-resident but working for a resident company in Cambodia they should pay the 20% tax on salary applicable on non-resident so it ensures fairness,” he said.
Transfer pricing for international firms
Another hot topic for international companies was transfer pricing an accounting practice that represents the price that one division in a company charges another division for goods and services provided.
According to convention, there are generally two approaches to transfer pricing which are based on using a whole-of-entity approach or a single transaction approach.
Speaking at the second-panel discussion Mr. Kieron Gaffney, Executive Director and Global Head of Transfer Pricing Services explained with many things in transfer pricing it depend on the taxpayer’s circumstances.
To watch the AmCham interview with Kieron Gaffney on transfer pricing click here.
“For those with limited sales and other costs, the whole of entity would be the better approach. While for a business like a financial institution a better process could be a single transaction process. Costs are always a factor that said from a protection point of view it’s always better to be on the front foot first,” Gaffney said.
“Regarding the high scrutiny of auditing regarding management and technical service charges companies must identify the economic and commercial relations of the service and evidence the benefit that is being provided. In addition, companies must compare the services on a like-for-like basis with third-party firms to evidence that payments made are on an arm’s length basis,” he added.