This week, we interviewed Mr. Chum Socheat, Tax Manager at R&T Sok & Heng Law Office and co-chair of EuroCham’s tax committee. Mr. Chum will moderate a panel discussion at EuroCham’s upcoming Breakfast Talk on Unpacking the New Law on Taxation, happening on 13 July at Raffles Hotel Le Royal. We talk to Socheat about the recently promulgated Law on Taxation (which went into effect 16 May) and which areas draw the most attention.

EuroCham: Could you please tell us a little bit about yourself and your work?

Socheat: Yes, I’m the tax manager at R&T Sok & Heng and also the co-chairperson of the tax committee at EuroCham. Over the years, I’ve assisted many multinational and local clients on various tax and accounting issues, because I came from mainly an accounting background. Some of the things I’ve worked on are tax disputes, tax planning, tax audits, and tax compliance.

I work alongside Rajah & Tann’s Tax Regional Practice Group because our firm is part of the Rajah & Tann Asia network. [Rajah & Tann is a regional network of law firms based in Southeast Asia]. Mainly we advise both inward and outward investment from a Cambodian perspective, considering regional Southeast Asian perspectives as well.

If we look back at the last ten years, we see a lot of development, especially in Phnom Penh, Siem Reap, and Sihanoukville with high rises and infrastructure improvements. There’s also been a lot of updates in terms of the GDT. For example, now we can file taxes easily with e-filing. We don’t have to spend time going to the office in person, which has been a nice improvement.

EuroCham: Could you inform us about the most recent changes/key features to the new Law on Taxation which came into force on 16 May 2023?

Socheat: Yes, I think taxpayers had been waiting for at least four to five years for this new tax law and people welcome it.

It doesn’t mean that it’s a completely new tax law. It’s more about compiling various tax-related regulations. In the past, there’s been different prakas or regulations, and different taxes for different sectors. Now, everything is contained within one tax law.

It can be difficult for taxpayers to stay on top of all the regulations and updates. In the new law, certain definitions of words have been updated to catch up with norms used by international tax laws/rules. The term “permanent as establishment”, for example, has been changed to be more aligned with international tax law. The revision of the term “related parties”, and a revision to the term “Cambodian-sourced income”, these are all key terms that have been updated.

There’s been a change in how the public lighting tax will be imposed as well. In the past, the GDT imposed this tax at every stage of the supply chain, but now they will impose it only one time at the first stage of the supply chain. The public lighting tax used to be three percent but now we are waiting for a new prakas from the Ministry of Economy and Finance to see what the new rate might be.

Another big change occurred regarding Stamp Duty. Under the new tax law, if a company holds more than 50% of its asset value in immovable properties like land and buildings, it is considered a real estate company concerning stamp duties tax purpose. So, the Stamp Duty rate for share transfer for a company that falls in this category would be 4% instead of the previous 0.1%. This will affect holding companies that hold much of their assets in land or buildings.

The GDT has also started rolling out electronic notifications, which can be received via fax or e-mail. In the past, these notifications had to be hand-delivered or sent by post. This is certainly faster and more effective, but the taxpayer must be sure that their e-mails are updated and don’t re-direct GDT messages to spam folders.

One thing that will affect all taxpayers is the increase in penalties for infractions. In some cases, fines were increased, for example, from 2 million riel ton 5 million riel.

EuroCham: Are there any immediate concerns that should be addressed by taxpayers or businesses with the promulgation of the new tax law

Taxpayers exist in all industries, so they will have to read the law comprehensively and take notes of articles and clauses that impact their specific businesses. They should also pay attention to the timeframe for enforcement of the new tax law.

The public lighting tax, for example, we expect there to be an increase in this tax rate. But so far we are still implementing the 3% rate. We will have to wait for a new prakas on this. But for the case of increased penalties, this should be in effect now and will affect all taxpayers.

I think the new tax law is basically in line with expectations of the majority of tax practitioners in Cambodia. However, the increase in penalties came as a bit of a surprise though.

It’s true that a number of taxpayers in Cambodia do not pay enough attention to their accounting and the taxation, especially small and medium-sized companies. They only focus on their operation on the business side. But a majority of international companies, I believe they pay more attention to taxes and accounting. Most of the good international corporations have less tax bills (tax reassessments) than the small and medium-sized companies due to their focus on tax and accounting compliance.

EuroCham: How does the new tax law affect the Law on Investment?

Socheat: The GDT did include certain points in the new tax law that relate to the Law on Investment. Qualified Investment Projects can benefit from extra deductions for expenses if they apply. QIPs can also receive exemptions on minimum tax, but these companies will need to provide financial reports audited by a licensed external auditor. In addition, QIPs can be exempt from VAT for purchases of local services, goods, or materials.

Depending on the sector and investment type, QIPs are exempt from tax on income or corporate income tax for three to nine years. Even after the expiry of  this timeframe they can enjoy reduced income tax rates.

After the expiry of the income tax exemption period, QIP companies pay income tax at a progressive rate as follows:

• 25% of the applicable income tax rate for the first two years;
• 50% of the applicable income tax rate for the next two years; and
• 75% of the applicable income tax rate for the last two years.

EuroCham: Lastly, why should people attend the upcoming breakfast talk Unpacking the New Law on Taxation?

Socheat: Yes, this is arranged by EuroCham, one of the prominent tax advocacy entities in Cambodia, and we will be joined by several prominent tax practitioners.

We’ll go into detail about the new points in the law on taxation and how they may work in practice and we highly encourage people to join to stay on top of tax procedures. The event will be especially useful to business owners or employees who deal with tax processes and accounting. We hope to see you there!