Cambodia Investment Review
Cambodia’s General Department of Taxation (GDT) has issued a significant update on the tax obligations of directors and board members, reinforcing a stricter interpretation of compensation and service arrangements. This development, outlined in Instruction 19116 dated 20 June 2025, introduces clear distinctions between employment income and service fees, both for resident and non-resident directors.
Legal structuring alone will no longer shield companies from local tax obligations. DFDL Cambodia warns that the new guidance carries major implications for corporate governance, especially for foreign or regional businesses operating in the Kingdom.
Read More: Business Alert: Cambodia Clarifies Tax Treatment of Share Premium Contributions
New Framework: Salary vs. Services – What Triggers Tax
Under the guidance, directors are classified as employees—subject to Tax on Salary (ToS)—if they meet at least two of the following four criteria:
- No risk of non-payment for their work
- No control over schedule or work location
- No personal capital investment in tools or resources
- Exclusive engagement with a single company
Failing to meet these conditions classifies the role as an independent service provider, requiring 14% Withholding Tax (WHT). Notably, this applies regardless of whether payments are made by a Cambodian company or by a foreign parent entity. Work performed in Cambodia remains taxable in Cambodia.
Real-World Examples Show Broader Reach
Several scenarios illustrate the impact:
- A seconded CEO from Japan, paid partly by the local branch and partly offshore, is considered an employee. Full compensation is taxable under ToS.
- A non-resident director providing services from abroad, even if unpaid or paid by a parent company, may trigger WHT obligations through cost allocations.
- Meeting fees and ad hoc allowances are classified as service income if employment criteria are not met, subject to 15% WHT.
- Passive directors who are named but not involved in decision-making are exempt, but documentation must be kept to demonstrate their limited role.
Business Actions Now Required
DFDL recommends companies in Cambodia—especially those with cross-border operations—take urgent steps to mitigate risks:
- Review all director contracts to ensure alignment with actual working arrangements.
- Re-audit salary splits and compensation structures to avoid under-reporting liabilities.
- Apply WHT on intercompany cost allocations, even when no invoice is issued.
- Assess reverse charge VAT for electronically delivered services from non-resident board members.
- Maintain proper documentation showing the role, involvement, and compensation status of each board member.
- Ensure work permit compliance for non-resident directors listed on the Patent Tax Certificate, following recent updates from the Ministry of Labor.
DFDL Commentary: Increased Risk, Stricter Enforcement
“This new instruction underscores the GDT’s commitment to aligning tax treatment with economic substance,” said DFDL’s tax team. “Firms with cross-border boards or seconded executives should immediately reassess their internal policies to avoid exposure to audits, penalties, or compliance failures.”
📌 Call to Action: Are You at Risk?
To assess your exposure and ensure full compliance with the latest tax rules, connect with DFDL’s expert team today. Their Cambodia tax professionals can support with contract reviews, restructuring, and risk mitigation planning.
👉 Get in touch now via DFDL’s official update or reach out to:
- Clint O’Connell, Partner & Head of Cambodia Tax and Accounting Practice
- Vajiravann Chamnan, Tax Partner, Cambodia
Take proactive steps today—before these new rules turn into tax risks for your business.
