Cambodia’s tax threshold changes designed to ease burden caused by external factors for businesses, individuals: DFDL

Tom Starkey

In a recent interview with AquariiBD, DFDL Cambodia, a business advisory and tax services firm, has said that recent income tax and tax on salary threshold changes enacted by the government are proactive measures against inflationary pressures, rising living costs, and a rising minimum wage.

The company added that the monthly progressive tax on salary thresholds for resident employees and the annual progressive tax on income thresholds for individuals, sole proprietorships, and partnerships are intended to provide relief to those most vulnerable to external economic circumstances out of their control.  

Read more: The full interview with Aquarii can be found here.

Changing monthly tax on salary bands

“Most employees are responsible for the cost of tax on salary that is applied to their monthly gross salaries, with employment agreements typically negotiated on a gross salary basis,” said Partner, Cambodia Deputy Managing Director & Head of the Cambodia Tax Practice at DFDL, Clint O’Connell.

“This means that any reduction in the monthly tax on salary bands provides a tangible benefit that is passed on to the employee. The tax on salary changes raises the lowest monthly tax on salary band from Khmer riel 1,300,001 (approximately USD 325) to Khmer riel 1,500,001 (approximately USD 375). Simply put, that means that a larger proportion of most resident employees’ salaries will be subject to 0%, which means that most employees will receive a bit more cash each month,” he added.

General Department of Taxation headquarters in Phnom Penh.

Read more: Clint O’Connell on Cambodia’s modernizing taxation system

“Like the change in the monthly tax on salary bands, the lowest tax on income band threshold for individuals and sole proprietorships has been increased from Khmer riel 16,000,000 (approximately USD 4,000) to Khmer riel 18,000,000 (approximately USD 4,500). Again, that means a larger component of an individual’s or sole proprietor’s annual taxable income will be subjected to 0% tax on income, leading to savings.

Wider economic impact

Speaking on how the changes could impact economic growth and mobility for taxpayers, Mr. O’Connell said for most taxpayers – who will receive a bit of extra cash due to these changes – may go to paying for increased living costs.

“The additional cash in circulation will no doubt help to some extent with spending in the local economy, although we note that in the current environment, most taxpayers are being fiscally conservative with any spare cash that they receive.”

Read more: New 2023 Annual Compliance Obligations For Enterprises In Cambodia

“With respect to the annual progressive tax on income rates, this will provide some relief to the SME sector in Cambodia –  individuals and sole proprietorships being most impacted by this change.”

Key takeaway for investors

“The key takeaway for investors considering these changes is that there can be continued optimism and faith in the pro-active and fiscally prudent stance of the Royal Government in taking appropriate action where necessary to support businesses and vulnerable workers during difficult economic times. We saw this throughout the Covid-19 period, and we will continue to see it in the future,” Mr. O’Connell said.

He finished that going forward, he expects to see the Royal Government to continue to review and assess these rates, considering the external factors present at that time.

Clint O’Connell, Partner & Head of Cambodia Tax Practice Group,

The revised tax on salary and tax on income thresholds can be found on the General Department of Taxation website

For members of the DFDL-Tax Plus Telegram group, the Khmer and English translations of Sub-Decree 196 and Instruction 018 along with a detailed analysis of both measures are provided.

For information about subscribing to the DFDL-Tax Plus Telegram group, which provides real-time updates on tax regulations, analysis, publications, and news, contact [email protected]

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