Cambodia: Revision of Taxpayer Classification
by Segolene Leffy
On 12 January 2021, the Ministry of Economy and Finance issued Prakas N0. 009 on the Reclassification of Taxpayers under the Self-Assessment Taxpayer Regime (“Prakas 009”). The purpose of Prakas 009 is to amend the previous classification of taxpayers to ensure that the collection of taxes are carried out in a transparent and equitable manner which is in line with the growth of the Cambodian economy. The changes brought about by Prakas 009 will apply to all taxpayers who fall under the Self-Assessment Regime from 1 January 2021.
By way of background the categories of Self-Assessment Taxpayer that is in operation currently came about from the 2016 Law on Financial Management 2016 which abolished the Simplified and Estimated Regimes of Taxation and renamed the Real Regime of Taxation to the Self-Assessment Taxpayer Regime. Under the Self-Assessment Taxpayer Regime taxpayers are categorised as Small, Medium, and Large. Small Taxpayers in particular operate under different rules and processes for accounting and tax purposes then those taxpayers that operate as Medium and Large Taxpayers.
The changes brought about by Prakas 009 replace and update the taxpayer classification that was provided in Prakas No. 025 on the Classification of Taxpayers under the Self-Assessment Regime that came into effect in January 2018 (“Prakas 025”).
We set out the new taxpayer classification as provided in Prakas 009 and highlight in red the updated changes between Prakas 009 and Prakas 025.
| SELF-ASSESSED REGIME |
CRITERIA |
| SMALL TAXPAYER |
A small taxpayer is any sole proprietorship or partnership that:
- Has annual turnover* from KHR 250 million (USD 62,500) to KHR 1,000 million (USD 250,000) for agricultural, service and commercial sectors;
- Has annual turnover from KHR 250 million (USD 62,500) to KHR 1,600 million (USD 400,000) for the industrial sector;
- Has had, or expects to have, turnover in any period of three consecutive calendar months**, exceeding KHR 60 million (USD 15,000); and
- Participates in any bidding or quotation for the supply of goods and services.
|
| MEDIUM TAXPAYER |
A medium taxpayer includes any sole proprietorship or partnership that has:
- Annual turnover from KHR 1,000 million (USD 250,000) to KHR 4 billion (USD 1,000,000) for taxpayers in the agricultural sector;
- Annual turnover form KHR 1,000 million (USD 250,000) to KHR 6,000 million (USD 1,500,000) for taxpayers in the service and commercial sectors; and
- Annual turnover from KHR 1,600 million (USD 400,000) to KHR 8,000 (USD 2,000,000) in the industrial sector;
A medium taxpayer also includes:
- Enterprises incorporated as legal entities or as a representative office;
- National and sub-national government institutions, associations or non-governmental organizations, or projects under these institutions;
- Foreign embassies and consulates, international organizations and technical cooperation agencies of other countries.
|
| LARGE TAXPAYER |
A large taxpayer includes a sole proprietorship, partnership or legal entity that
has:
- Annual turnover above KHR 4,000 million (USD 250,000) for taxpayers in the agricultural sector; (Companies/Sole Prop/Partnership);
- Annual turnover 6,000 million (USD 1,500,000) for taxpayers in the service and commercial sectors; and
- Annual turnover above KHR 8,000 (USD 2,000,000) in the industrial sector.
A large taxpayer also includes:
- Branches of foreign companies;
- Subsidiary of multinational companies; and
- Enterprises registered as Qualified Investment Projects (QIP)***
|
*The term “turnover” refers to the level of a taxable supply of goods and services related to a taxpayers business activities.
**Calendar months: Within the same tax year
*** As approved by the Council for the Development of Cambodia
Under Prakas 009 the GDT now has the authority to re-determine the classification of a taxpayer if the declared turnover does not reflect actual turnover. In this circumstance a taxpayer will be classified using the value of their assets (current and non-current) as follows:
| SMALL TAXPAYER |
A sole proprietorship or partnership that:
- Has assets valued at KHR 200 million (USD 50,000) to KHR 1,000 million (USD 250,000) in the agricultural, service and commercial sectors; and
- Has assets valued at KHR 200 million (USD 50,000) to KHR 2,000 million (USD 500,000) for the industrial sector.
|
| MEDIUM TAXPAYER |
A sole proprietorship, partnership or legal entity that:
- Has assets valued at KHR 1,000 million (USD 250,000) to KHR 2,000 million (USD 500,000) for taxpayers in the agricultural, services and commercial sectors; and
- Assets valued at KHR 2,000 million (USD 500,000) to KHR 4,000 million (USD 1,000,000) in the industrial sector.
|
| LARGE TAXPAYER |
- Assets valued above KHR2,000 million (USD 500,000) for taxpayers in the agricultural, services and commercial sectors;
- Assets valued above KHR 4,000 million (USD 1,000,000) industrial.
|
Commentary
The annual starting turnover threshold for small taxpayers under Prakas 009 remains the same as before at KHR 250 million (approximately USD 62,500) however the top annual turnover is now different depending on whether the small taxpayer falls under the agricultural, service or commercial sector who have the top annual turnover threshold of KHR 1,000 million (approx. USD 250,000) or whether the small taxpayer falls under the industrial sector which has a top annual threshold of KHR 1,600 million (approx. USD 400,000).
It should be noted that the Law on Taxation exempts income derived from agriculture to the extent that it is not used for the benefit of any shareholder or physical person and to the extent that a person who is not in the self assessment system produces by themselves the agricultural product, unprocessed or semi-processed, as a result of their habitual agricultural activity. This in practice refers to small scale farmers who do not operate on a large commercial basis i.e. are not involved in processing or commercial packaging.
It would now seem that those who now work as individuals, sole proprietorships or partnerships in the agricultural sector and earn more then USD 62,500 per annum are no longer exempted from tax and are required to register as small taxpayers.
The other key point to come out of Prakas 009 is the ability of the GDT to re-determine whether someone should be a small, medium or large taxpayer based on their determined asset value in the event that the declared turnover is questionable. There are of course tangible benefits to be regarded as a small taxpayer for example including simplified accounting obligations, withholding tax exemptions and minimum VAT input credit thresholds. In theory should the GDT suspect a taxpayer of artificially declaring their turnover to remain as a small taxpayer the GDT now has the ability to unilaterally to change the status of the offender to that of a medium or large taxpayer.
Finally, it should be noted that under Prakas 701 on Taxpayer Registration and Updates, passed in August 2020, that taxpayers (defined as individuals, legal or physical, who are obligated to pay tax) are required to register with the GDT within 15 working days after their economic activities commence.
Consequently, even if you are sole proprietorship, partnership or physical person that receives less than USD 62,500 per year technically you are still required to front up to the GDT after commencing economic activity (defined as the activities of individuals who conduct businesses or activities continuously or occasionally, for profit or not for profit, through the supply or aim to supply goods or services to other individuals in exchange for any kind of benefit) whereby you should be presented with a Tax registration certificate and/or card.
The DFDL tax team stands ready to answer any questions that you may have on this and other tax issues of concern.
Tax services required to be undertaken by a licensed tax agent in Cambodia are provided by Mekong Tax Services Co., Ltd, a member of DFDL and licensed as a Cambodian tax agent under license number – TA201701018.
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
Contact
Clint O’Connell
Partner, Cambodia Deputy Managing Director & Head of Cambodia Tax Practice
[email protected]
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