The Royal Government of Cambodia has been working hard to stimulate investment and economic growth. The General Department of Taxation (“GDT”) is playing an important role in this process and many new tax regulations and procedural changes have been introduced to improve transparency and eliminate disincentives to investment. Many companies have not yet fully considered the impact of these changes, or recognized the potential opportunities for developing tax saving strategies when entering into new commercial arrangements, transactions, or investments.
In some circumstances, the development of a tax saving strategy may involve complex business structuring or restructuring, and convoluted commercial arrangements. In many cases however, it may just involve simple considerations, such as:
- The correct timing of transactions: This requires an understanding of how to legitimately defer taxable income, or bring forward all deductions of allowable expenses.
- Utilization of the lowest tax rates available: This requires an intelligent analysis of the tax rates applicable to the contemplated transaction and the mechanisms available to legitimately minimize the tax rate. This would include, for example, the application of a reduced withholding tax rate under a double taxation agreement, or a consideration of whether a transaction or an investment can be split to benefit from lower available tax rates.
- Utilization of tax incentives: A sound understanding of investment and taxation laws, and laws governing the Cambodian Securities Exchange is required in order to determine the tax incentives available, the eligible sectors, and the criteria and application procedures to access such tax incentives. There also needs to be an understanding of the difference between permanent and temporary tax incentives, whereby the latter only provide temporary tax relief, with claw-back provisions if future conditions are met.
- Utilization of an appropriate cash repatriation strategy: Various cash repatriation strategies are available. If applied wisely, these can be used to reduce effective tax rates as well as the overall tax cost. Such strategies may also need to comply with transfer pricing regulations.
The correct application of one or a combination of more than one of the above strategies could save a considerable amount of tax: do NOT pay more than what you are legally required to pay. Readers should be reminded that the success of any tax saving strategy will depend on individual circumstances. An incorrect application could have an adverse impact and attract unnecessary tax penalties.
Therefore, it is highly recommended that you consult with the undersigned or your usual VDB Loi adviser to help identify areas of potential tax savings and help develop tax saving strategies for your company.
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.
Tepwinuth Chhim | Tax Manager
+855 93 288 008
+855 23 964 430~434
+855 23 964 154
No. 33, Street 294 (corner of Street 29)
Sangkat Tonle Bassac, Khan Chamkarmorn
Phnom Penh 120101
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