MyanmarLegal Wire

Client Alert: Tax treatment of seniority payments clarified and VAT exemption on recruiting and training fees


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On 11 April 2019, the Ministry of Economy and Finance issued Circular 003 to confirm the tax treatment of seniority payments introduced by a 2018 amendment to the Labor Law and the issuance of Prakas 443 in September 2018.

One of the many uncertainties that had been identified since the introduction of seniority payments as a replacement for termination indemnity payments was whether Tax on Salary (“TOS”) would apply. Termination indemnity payments had not been subject to TOS; however, prior to the issuance of Circular 003, it was unclear how the retroactive and ongoing seniority payments would be treated for TOS purposes, given that the payments are received during the course of a person’s employment.

In this respect Circular 003 is a model of clarity, as it explicitly states that both types of seniority payments (retroactive and ongoing) are exempt from TOS, and are deductible expenses (when paid) for the purposes of the employer’s Tax on Income calculation. The Circular also clearly states that the TOS exemption is applicable only on payments to Cambodian nationals; thus, it follows that seniority payments made to expatriate employees are subject to TOS at the normal rates.

On another subject, the Circular confirms that fees for recruiting and training services provided by private recruitment agencies relating to Cambodian nationals going overseas to work are exempt from VAT. Exactly why such fees are exempt from VAT rather than being zero-rated is not clear at this stage.

If you have any questions about this client alert, please contact the undersigned or your usual VDB Loi adviser.

VDB Loi is a network of leading law and tax advisory firms with offices in Cambodia, Indonesia, Laos, Myanmar and Vietnam. We provide the highest quality solutions for transactions and taxation. Our general areas of practice are corporate, finance, licensing and disputes. Our principal specialized areas of practice are energy, infrastructure, real estate and construction, telecom, and taxation.

You can find more information on our Cambodia office here.

Kind regards,

Tepwinuth Chhim | Tax Manager
M: +855 93 288 008
T: +855 23 964 430~434
F: +855 23 964 154
No. 33, Street 294 (corner of Street 29)
Sangkat Tonle Bassac, Khan Chamkarmorn
Phnom Penh 120101
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