Cambodia’s General Department of Taxation (GDT) has revoked its requirement for taxpayers to adhere to its own US dollar to Khmer riel exchange rate after accounting concerns were raised by the business community of issues when deviating from the a uniform and official exchange rate.
The previous directive was issued in June 2022, stating the new GDT exchange rate would take over the previous official rate based on the National Bank of Cambodia which is commonly found on the department’s website and official telegram channel.
DFDL Cambodia Partner Clint O’Connell spoke to Cambodia Investment Review on the updated changes explaining that Instruction No. 26118 GDT on the Use of Official Exchange Rate for
Self-Assessment Taxpayers dated 28 October 2022 (“Instruction 26118”) has abrogated Instruction No. 10362 GDT, dated May 17, 2022 (“Instruction 10362”).
The key points contained within Instruction 26118 are set out below:
The General Department of Taxation (“GDT”) has set out the following instructions with respect to the application of the official exchange rate to ensure that self-assessment taxpayers (“taxpayers”) can accurately declare and pay their taxes and issue invoices:
1. Daily official exchange rate
Taxpayers shall use the daily official exchange rate issued by the National Bank of Cambodia (“NBC”) or the market exchange rate, provided it is not lower than the rate issued by the NBC, when using Khmer Riel currency in their invoices.
In the event that an invoice is issued on a public holiday/weekend, or before the NBC issues their daily official exchange rate, taxpayers shall use the daily official exchange rate issued by the NBC from the previous day.
Non-resident e-commerce suppliers, who have registered for VAT with the GDT, are not required to use Khmer Riel currency, as the total amount, in the invoices that they issue. However, for the purpose of filing their monthly VAT tax declarations, registered non-resident e-commerce suppliers shall use the monthly exchange rate as stated in Point 3 below.
2. Exchange rate for Tax on Salary
Taxpayers shall use the official exchange rate issued by the NBC on the 15th of each month for the calculation of Tax on Salary. If the 15th of the month falls on a holiday/weekend where the NBC does not issue their official exchange rate, taxpayers shall use the official exchange rate issued by the NBC from the previous day.
3. Monthly official exchange rate
Taxpayers shall use the official exchange rate issued by the NBC on the last day of each month
to calculate their monthly taxes. This includes registered non-resident e-commerce suppliers, persons who are not under the self-assessment regime, and non-residents who do not reflect the Khmer Riel currency in their invoices.
4. Annual official exchange rate
Taxpayers shall use the official exchange rate issued by the NBC on the last day of December of each year, assuming they have a December tax year-end, for the preparation of their annual Tax on Income declaration and the calculation of their annual tax liability.
A welcome compromise for the business community
According to O’Connell the previous Instruction 10362 had mandated a GDT official exchange rate which was to run in parallel to the official NBC exchange rate from 1 June 2022.
“The primary issue with having two official exchange rates, as noted by a number of Cambodian publications, was the exchange rate loss suffered by businesses when using the official published GDT rate to convert currency as the GDT official exchange rate was inevitably higher than its NBC equivalent,” O’Connell said.
“Following a meeting with the NBC on October 24, 2022 the GDT decided to forfeit its official exchange rate introduced under Instruction 10362 in favour of the official exchange rate issued by the NBC,” he added.
O’Connell believes that this was a welcome compromise by the GDT as the NBC official daily exchange rate represents a truer reflection of the market rate being based on the closing time volume-weighted exchange rate traded on the National Bank of Cambodia Platform (“NBCP”) from the previous day with Notification 26118 took effect from 28 October 2022.
Anthony Galliano, AmCham President told Cambodia Investment Review that with the issuance of Instruction No. 26118 the market now has harmonization of exchange rate application for tax reporting purposes, and more importantly an unquestionable benchmark exchange rate for market reference, issued by the country’s central bank.
“The duality of exchange rate references created by Instruction No. 10362 was understandable from the General Department of Taxation’s perspective as factually the National Bank of Cambodia’s reported exchange rate was perceived as stronger, and as a result tax revenues collected were lower. The end result will be an exchange rate more precise of the market conditions which is beneficial to the business community, investors, and traders alike,” he said.