Asia Insurance (Cambodia)

The provisions for the tax on profit as stated in the Finance Act of 1994 promulgated by the Royal Kram No. 02NS dated 28 December 1993, the Amendment to the Finance Act of 1994 promulgated by the Royal Kram No. 08NS dated 30 November 1994, the Finance Act of 1995 promulgated by Royal Kram No. 11NS94 dated 31 December 1994, and the Amendment to the Finance Act of 1995 promulgated by Royal Kram No. CS/RKM/0995/01 dated 01 September 1995 shall be amended as follows for the benefit of the State budget.

The tax of profits is the debt of a resident person on income from Cambodian sources and income from foreign sources and of a non-resident person on income from Cambodian sources.

a. any physical person who is domiciled in or has a principal place of abode in, the Kingdom of Cambodia, or who is present in the Kingdom of Cambodia on more than 182 days during the calendar year;

b. any legal person or pass-through organized or managed in the Kingdom of Cambodia, or having its principal place of business in the Kingdom of Cambodia. A permanent establishment shall be considered a resident legal person with respect to its Cambodian source income only.

3. The term “legal person” means any enterprise or organization carrying on a business whether or not officially recognized by the competent institutions of the Royal Government. The term “legal person” includes any government institution, religious organization, charitable organization, or non-profit organization. For a non-resident person, the term “legal person” means any permanent establishment in the Kingdom of Cambodia. The term “legal person” does not include a pass-through or a sole proprietorship.

4. The term “permanent establishment” means a fixed place of business in the Kingdom of Cambodia, the branch of a foreign company or an agent resident in the Kingdom of Cambodia, through which the non-resident person carries on their business. The term “permanent establishment” also includes any other association or connection through which a non-resident person engages in economic activity in the Kingdom of Cambodia.

5. The term “pass-through” means a general partnership with up to 10 resident individual partners in which the proportional sharing by the partners of items of capital, profit, and loss meet the criteria which shall be determined by sub-decree. In this definition, a “pass-through” cannot be a member of another partnership and does not include a corporation, a permanent establishment, or a sole proprietorship.

6. The term “sole proprietorship” means a business enterprise owned 100 percent by one physical person. In this definition, a husband and wife and their dependent children shall be treated as one physical person.

7. The term “business” means a person’s economic activity the aim of which is to derive income from the production and sale of goods, the supply of services, the lease, rental or sale of property, or any other activity.

8. The term “dividend” means any distribution of money or property that a legal person distributes to a shareholder with respect to the shareholder’s equity interest in such legal person, with the exception of stock dividends and distributions in complete liquidation of the company. Whether or not a distribution is a dividend shall be determined under the preceding condition without regard to whether or not the legal person has current or accumulated income or profits or earnings.

9. The term “shareholder” means any person owning an equity interest in a legal person. For the purposes of this tax a legal person which is not a corporation shall be treated as if it were a corporation and any person who holds an equity interest in, or may otherwise gain income or profit as a participant in such a legal person shall be treated as a shareholder of such legal person.

10. The term “investment enterprise” means an enterprise that the Council for the Development of Cambodia has recognized as an investment enterprise and that has registered with the tax administration.

11. The term “related person” means:

a. a member of the taxpayer’s family;

b.an enterprise which controls or is controlled by, or is under common control with, the taxpayer. The term “Control” means the ownership of 51 percent or more in the value or voting power of the equity interests in the enterprise. For determining the degree of control of a taxpayer who is a physical person, shall be taken into consideration all equity interest owned by the taxpayer and those owned directly or indirectly by the taxpayer’s spouse.

1. The assessment of the tax on profit shall be made according to the real regime, simplified regime, or estimated regime system of taxation.

2. The rules and procedures for the assignment of taxpayers to one of the three regimes as above will be determined by sub-decree and shall be based on the form of the business, the type of business activity, and the level of turnover.

1. The tax on profit for the real regime system of taxation is calculated from the balance sheet results realized in the previous tax year.

2. If there is no closing balance sheet during any one year the tax to be paid for the following year is assessed on the profit made in the previous period from the end of the last taxable period. For new enterprises the calculation is made from the start of business operations up to the 31st of December of the year for which the tax is calculated.

3. If many successive balance sheets are drawn up during the same year the results of these balance sheets are added up to have the base for the tax to be paid.

4. The tax on profit for the simplified and estimate regime systems of taxation shall be calculated on a cash method of accounting on the past calendar year.

5. Directives on the reporting and the filing of a final declaration for enterprises that cease activities, are reorganized, or are sold or transferred during the calendar year shall be determined by prakas of the Ministry of Economy and Finance.

1. For a taxpayer under the simplified regime system of taxation using cash method of accounting, income is reported in the year that cash or other property is actually received even if as payment pertaining to other years, and expenses or deductions are taken in the year in which the expenses or other items are actually paid except for prepaid expenses and depreciation allowances.

2. For a taxpayer under the real regime system of taxation using the General Chart of Accounts method of accounting, income is reported in the year it is earned whether that income is already paid or not. The deduction for an expense may be taken when all facts determining the taxpayer’s liability have occurred, the results of economic activities with respect to the item has occurred, and the amount of the taxpayer’s liability can be actually determined.

3. For real regime taxpayers, expenses incurred to a related person under the simplified regime system of taxation is not allowed as a deduction before actual payment.

4. Domestic banks and savings institutions shall be allowed to establish provisions for bad debts for the determination of the taxable profit. The rules and procedures on deductions shall be provided by sub-decree.

The taxable profit is the net profit obtained from all the results of all types of operations realized by the enterprise including capital gains from the sale of various parts of the asset during the operation or at the close of the business, as well as income from financial or investment operations and interest, rental, and royalty income.

The taxable profit is made up of the excess gross product realized on the expenditure that is made with the view of acquiring and preserving profit.

1. Except for contrary provisions and for income that is taxable under article 22 of this law the tax on profits shall not apply to:

· organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes;

c. the income of any labor organization, or any chamber of commerce, industry, or agriculture, in the case where the income of these organizations is not used for the private benefit of any shareholder or physical person.

d. The profit from the sale of agricultural produce that a person who is not a real regime system of taxation taxpayer has produced by himself whether the produce is sold in its raw state or after transformations that are an extension of habitual agricultural work. Operations by industrial means including transformation, preservation, and commercial packaging are not considered part of habitual agricultural work.

2. The Ministry of Economy and Finance shall define by prakas the procedures for the application for tax exemptions, the loss of tax exemptions, for tax declarations, and for registration.

1. With regard to a pass-through, each member in determining one’s income for a taxable year shall take into account separately one’s distributive share of the items of income, gain, loss, deduction, credit, and charitable contributions for such year. For this purpose each item shall retain its character and shall be treated as distributed during the taxable year whether or not actually distributed. The loss to be carried forward will be determined after the items have been distributed.

2. The rules for determining the amount distributed, the treatment of contributions, and the adjustment to each member’s base distributive share in the pass-through in any taxable year shall be determined by sub-decree.

1. Except as provided in articles 12 through 18 of this law, expenses that are allowed as a deduction include expenses that the taxpayer has paid or incurred during the tax year to carry on a business.

2. Any rent, interest, compensation, payments, or fees paid to an officer or director of an enterprise, a partner, a member of a pass-through, a member of the taxpayer’s family or other related person where there is proof that the payment is for services actually performed and to the extent that such payment is reasonable.

3. Amounts paid on new buildings and other tangible assets, permanent improvements or betterments including any construction or acquisition period interest and taxes. These amounts are to be recorded in the relevant asset account and shall be deductible as depreciation as provided in article 13 of this law.

There shall be allowed as a deduction interest expenses paid or incurred by the taxpayer during the tax year to carry on a business but not in excess of an amount equal to the sum of the taxpayer’s interest income and 50 percent of the taxpayer’s net noninterest income in the tax year.

The “net noninterest income” is the gross income other than interest income, reduced by the allowable expenses except for interest expense.

Any interest expense remaining from the above mentioned deduction shall be treated as an interest expense for the next tax year and the deduction shall be made according to the content of this same article.

1. The allowance for depreciation shall be calculated using the straight-line method or the declining balance method. Depreciable tangible property is tangible property used

in a business which is likely to lose value because of use or obsolescence. Land is not

a. Category 1 shall include buildings and their basic components. Each asset in this category shall be depreciated according to the straight-line method at a rate of 5 percent per year.

b. Category 2 shall include property having a useful life of up to 4 years and have a straight line depreciation rate of 25 percent on each property.

c. Category 3 shall include property having a useful life of greater than four years through eight years and have a straight line depreciation rate of 12.5 percent on each property.

d. Category 4 shall include all other tangible property and have a straight line depreciation rate of 10 percent on each property.

3. Those taxpayers electing the declining balance method of depreciation shall use a rate of depreciation equal to 200 percent of the straight line method rate and shall apply it to the aggregate remaining undepreciated value of all assets in each category. The declining balance method shall be allowed only for category 2, 3, and 4 property.

4. Enterprises under the Law on Investment shall use the straight line method for all categories.

5. Procedures for establishing property categories, adding a new asset to a category, disposing of an asset from a category, and the treatment of repairs and various expenses shall be determined by sub-decree.

6. A taxpayer subject to the tax on profit prior to 1 January 1997 must make an irrevocable election to depreciate either by the straight line method or the declining balance method the remaining undepreciated value of property by 31 December 1997. For a new taxpayer the election must be made by the 31st of December of the year of registration.

For intangible property including patents, copyrights, drawings, models, and franchises, having a limited life the depreciation rate on each property shall be calculated on the life of that property according to the straight line method of depreciation. If the life of the intangible cannot be determined the annual depreciation deduction shall be at the rate of 10 percent of the value of the intangible property.

1. The allowance for the depletion of any natural resource, including any oil and gas, shall be determined as follows.

a. All exploration and development costs, including interest attributable to these costs, shall be added to the asset account of the resource.

b. The amount of the depletion for each natural resource deductible for the tax year shall be determined by multiplying the balance of the account for the natural resource with the ratio of the quantity produced from the natural resource during the year to the estimated total production from the natural resource.

2. Procedures for the determination of the estimated total production shall be provided by sub-decree.

A deduction shall be allowed for charitable contributions to an organization as provided in article 9 of this law. But it shall not exceed 5 percent of taxable profit determined before taking the charitable contribution deduction.

In case of a loss in any one tax year, this loss is considered as a charge to the following tax year and shall be deducted from the profit realized in that following year. If this profit is not sufficient to definitively settle it, the remaining part of the loss is carried over successively to following tax years until the fifth tax year.

When losses occur in more than one year, this article shall be applied to the losses in the order in which they arose.

In the case of two or more enterprises, whether incorporated or organized in or outside of the Kingdom of Cambodia, which are under common ownership, the tax administration may as may be necessary distribute, gross income, deductions, or other benefits among such enterprises and their owners in order to prevent the avoidance or evasion of taxes or to clearly reflect the income of such enterprises, or their owners.

For purposes of this article, two or more enterprises are under common ownership if a person owns 20 percent or more in the value or the equity interests of each enterprise.

For the provisions for the Tax on Profit, expenses that shall not be allowed as a deduction are:

1. Any expense on activities generally considered to be amusement, recreation, or entertainment or the use of any means in connection with such an activity.

2. Personal living or family expenses except for fringe benefits in cash or in kind subject to withholding tax according to the provisions for the Tax on Salary,

3. Any tax imposed by the provisions for the Tax on Profit or withholding tax imposed by the provisions for the Tax on Salary.

4. For the loss on any sale or exchange of property, directly or indirectly, between related persons.

5. For any expense except for expenses already incurred and for which the taxpayer can establish the amount of the expense, and the business purpose of the expense in a manner as determined by sub-decree.

2. 30 percent for profit realized under an oil or natural gas production sharing contract and the exploitation of natural resources including timber, ore, gold, and precious stones.

5. According to the progressive tax rate by tranche for the table below for the profit realized by the physical person and the distributive share to each member of a pass-through that is not classified as a legal person.

1. For an enterprise having principal activity in the insurance or reinsurance of life, property, or other risks, the tax on profit shall be determined as follows:

a. 5 percent of the gross premiums received in the tax year for the insurance or reinsurance of risk in the Kingdom of Cambodia,

b. according to the rates in article 20 of this law for other of activities that are not insurance of reinsurance.

2. The rules and procedures for the payment of the tax on profit for an insurance company shall be determined by prakas of the Ministry of Economy and Finance.

1. The tax on profit shall be fixed at 20 percent of taxable income from unrelated business income of organizations as stated in article 9 of this law.

2. For purposes of the tax on profit, the term “unrelated business taxable income” is the gross income realized from an unrelated business regularly carried on by any organization, reduced by the deductions which are directly related to the carrying on of such business and which are allowed by the provisions of tax on profit.

3. The term “unrelated business” means any commercial or industrial business, or any other business of the organization aiming to obtain profit or funds and which are not substantially related to the purpose or function constituting the basis for tax exemption as stated in article 9 of this law.

1. If an enterprise distributes dividends to its domestic and foreign shareholders during the tax year, it shall withhold and pay as tax an amount equal to the product of the amount of the dividend grossed up by the tax on profit rate and multiplies by the appropriate annual tax rate as stated in article 20 of this law.

2. The above mentioned withheld tax shall become a tax credit against the tax on profit of the dividend distributing enterprise for the tax year in which the withholding takes place. If the tax credit exceeds tax on profit such excess shall be carried forward and shall become a tax credit for the following year. The tax withheld on dividend distributions made by an insurance enterprise taxable under article 21 of this law cannot be used for tax credit.

3. An enterprise (hereinafter called the “first enterprise”) owning 20 percent or more in value of the equity in a second enterprise shall establish a dividend account. Whenever the first enterprise receives a dividend on which the tax has been paid from the second enterprise it shall record the amount of that dividend into its dividend account. When the first enterprise subsequently distributes dividends to its shareholders the amount distributed which are taken out of the dividend account shall not be subject to withholding tax under paragraph 1 of this article.

4. A physical person or enterprise receiving a dividend from an enterprise required to withhold tax under paragraph 1 of this article or a dividend from a dividend account described in paragraph 3 of this article shall not include such dividend in income.

A minimum tax is imposed on taxpayers subject to the real regime system of taxation. The minimum tax is a separate and distinct tax from the tax on profit. This tax is payable by a taxpayer subject to the real regime system of taxation even if the taxpayer has been granted the status of an investment enterprise. The minimum tax is imposed at the rate of 1 percent of the annual turnover inclusive of all taxes and is payable at the time of the annual liquidation of the tax on profit.

The minimum tax may be reduced by the annual tax on profit that is actually paid according to the rules found in articles 37, 38, and 39 of this law.

1. Any resident payor making any payment in cash or in kind to a resident person shall withhold, and pay as tax, an amount according to the below mentioned rates which are applied to the amount paid before withholding the tax:

· income received by a physical person from the performance of services including management, consulting, and similar services;

· royalties for intangibles and interests in minerals, oil or natural gas, and interest paid to a physical person or an enterprise except interest paid to a domestic bank or savings institution.

b. The rate of 10 percent on the income from the rental of movable and immovable property.

c. The rate of 5 percent on interest paid by a domestic bank or savings institution to a resident physical person having a non-fixed term savings account.

2. The withholding in this article shall not apply to the payment of tax exempt income as stated in article 9 of this law.

3. For purposes of this article and article 26 of this law, the term “resident payor” means:

b. any physical person, but only with respect to payments made by such physical person in carrying on a business in the Kingdom of Cambodia.

A resident payor making any payment of Cambodian source income to a non-resident person shall withhold, and pay as tax, an amount equal to 15 percent of the payment before withholding.

The tax withheld on distributions under article 23 of this law, on payments to a resident physical person under article 25 of this law, and on payments to a non-resident person under article 26 of this law shall be considered the final tax on the recipients of the payments or distributions described in those articles.

An enterprise liable to the tax on profit according to the real regime system of taxation including an investment enterprise liable to the tax on profit at the rate of 9 percent, has the obligation to make a monthly prepayment of the tax on profit at the rate of 1 percent of turnover inclusive of all types of taxes realized in the previous month. This prepayment will be deducted from the tax on profit at the annual liquidation of the tax.

1. All taxpayers liable to the tax on profits who must pay taxes according to the real regime or simplified regime system of taxation shall send every year to the tax administration a declaration of the profit they have realized in the previous tax year. This declaration must absolutely be registered in the period of 3 months after the end of the tax year.

2. Real regime system taxpayers must submit to the tax administration a tax declaration to which is attached:

3. Simplified regime system taxpayers must submit to the tax administration a tax declaration with attached documents in the form provided by the tax administration.

4. An enterprise with a loss must submit a tax declaration in the same manner and period of time.

1. The taxpayer subject to estimated regime system of taxation must submit the tax declaration to the tax administration every year by October 31, in the form provided by the tax administration.

2. The amount of estimated profit is determined by the tax administration after verification and consultation with the businessman or his representative. This estimated profit is calculated according to the profit rate with consideration to the type and activities of the business which shall be determined by Prakas of the Ministry of Economy and Finance.

3. This tax level on estimated profit shall be kept constant for a period of 3 months, 6 months or 1 year.

4. The taxpayer subject to the tax on profit under estimated regime system of taxation shall pay this tax every month at the time fixed by the tax administration.

The person or designated payor who withholds tax under articles 25, and 26 of this law, or withhold tax on dividends under article 23 of this law shall submit a tax declaration and pay the tax withheld to the tax administration in the form as specified by the tax administration by the 15th day of the month following the month in which the withholding is made.

Article 32: Obligations of Persons Required to Make Prepayments of the Tax on Profit

Persons required to make prepayments for the tax on profit shall submit a tax declaration and pay the prepayment of the tax on profit to the tax administration in the form as specified by the tax administration by the 15th day of the month following the month in which the liability arose.

Except for contrary provisions in this law, the income as below shall be treated as from sources within the Kingdom of Cambodia:

1. interest paid by a resident enterprise or resident pass-through, or a governmental institution of the Kingdom of Cambodia;

4. income from the rental of movable or immovable property for use in the Kingdom of Cambodia;

5. royalties from the use, or right to use intangible property in the Kingdom of Cambodia;

6. gain from the sale of immovable property located in the Kingdom of Cambodia or from the transfer of any interest in immovable property situated in the Kingdom of Cambodia;

7. gain from the sale of movable property, other than inventory, where the seller is a resident of the Kingdom of Cambodia;

8. premiums from the insurance or reinsurance of risks in the Kingdom of Cambodia.

Article 34: Income from Foreign Sources

The definition of foreign source income is obtained by taking the income definition as stated in article 33 of this law and substituting the term “a country other than the Kingdom of Cambodia” for the term “the Kingdom of Cambodia”

Where there is insufficient information to determine the source of income, or where the rules set forth so far cannot clearly reflect the income is from any one source the tax administration is the one to decide on the source of that income.

A resident taxpayer who has received income from foreign sources and who has paid taxes according to foreign tax law shall receive a tax credit for deduction from the tax on profit to be paid in the Kingdom of Cambodia under the condition that there is presentation of documents confirming this tax payment abroad.

In order to calculate the tax to be paid in the Kingdom of Cambodia before deduction of this tax credit, the total amount of income received from Cambodian sources and foreign sources shall be taken into account.

The tax credit is determined separately for the tax paid by a Cambodian resident in each foreign country. But, the tax credit to be allowed for deduction in the tax year is the smaller of:

b. the amount obtained by multiplying the total tax on profit from all sources for the same period calculated according to the tax rate in article 20 of this law with the ratio of income received in that foreign country to the total income from all sources.

The foreign tax credit is possible only if the resident taxpayer has complied with the formalities and supplied various documents as specified by the tax administration especially certification from the foreign tax payor and from the foreign tax administration.

In the case where the tax credit exceeds the tax liability, the amount of the excess may be carried forward to be used in succeeding years up to the fifth counting from the year following year in which the credit arose. In the case of tax credits in more than one year the credits must be taken in the order in which they arose.

2. minus any article 36 foreign tax credit but not in excess of the tax liability in paragraph 1 of this article,

3. minus any tax paid by the taxpayer on dividend distributions under article 23 of this law but not in excess of any tax liability after the reduction for the foreign tax credit as in paragraph 2 of this article.

The determination of tax due or tax credit for the tax year shall be as follows:

1. If the result from the calculation in article 37 of this law is greater than the sum of any withholding tax made on the behalf of the taxpayer under article 25 of this law, and the prepayments for the tax on profit made by the taxpayer for the tax year under article 28 of this law, the taxpayer shall pay the difference to the tax administration.

2. If the result from the calculation in article 37 of this law is less than the sum of any withholding tax made on the behalf of the taxpayer under article 25 of this law, and the prepayments for the tax on profit made by the taxpayer for the tax year under article 28 of this law, the taxpayer may, after properly accounting for any minimum tax liability, apply for a refund of the difference, or carry the difference forward to be used as a prepayment in the following year.

3. Before making any tax payment under paragraph 1, or claiming any refund under paragraph 2, the taxpayer must first determine any liability for the minimum tax according to the procedures as stated in article 39 of this law.

Article 39: Determination of the Minimum Tax, and the Tax Due or the Tax Credit for the Tax Year

The determination of the minimum tax, the tax due or the tax credit for the tax year shall be as follows:

1. The taxpayer must pay the minimum tax at the time of the liquidation of the tax on profit. The minimum tax due may be reduced by any liability for the tax on profit under article 20 of this law for the same tax year.

2. If the liability for the tax on profit exceeds the liability for the minimum tax:

a. the taxpayer shall pay any tax due under article 37 of this law at the time of submission of the tax declaration;

b. if the withholding in articles 25 and 28 of this law exceeds the minimum tax liability the taxpayer may claim a tax credit;

c. in the case as stated in paragraph 2 of this article, the taxpayer is not liable for minimum tax.

3. If the liability for the tax on profit is less than the liability for the minimum tax:

a. the taxpayer’s tax credit under paragraph 2 of article 38 of this law will be reduced by the difference;

b. the amount by which the tax credit is reduced in complying with the sub-paragraph a of this paragraph, shall be considered as payment of the minimum tax for the tax year.