Cambodia Tax Alert: 2024 Annual Compliance

By November 16, 2023 No Comments
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Cambodia Tax Alert: 2024 Annual Compliance

 

With 2023 quickly coming to an end, DFDL Cambodia would like to take the opportunity to remind its readers of the most updated and important annual compliance obligations for enterprises in Cambodia.

Compliance requirements may vary for different enterprises. In all cases, we encourage you to seek expert advice from a professional advisor about the compliance requirements that may be applicable to you.

2023 Tax on Income Return

The standard tax year in Cambodia runs from 1 January to 31 December. Electronic filing for the 2023 annual Tax on Income (“TOI”) declaration with the General Department of Taxation (“GDT”) must be completed by the 31st of March 2024, or within three months after the end of the tax year for enterprises that have a non-standard tax year.

Read more: What is the tax rate in Cambodia?

Those self-assessment taxpayers (taxpayers that are registered with the GDT) that have local branches are required to file a consolidated 2023 TOI declaration attaching the financials of the respective local branches with the return. Self-assessment taxpayers that have both Qualified Investment Project (“QIP”) and non-QIP activities are required to submit their annual 2023 TOI return in accordance with Prakas 1127 MEF.P dated 11 October 2016.

All self-assessment taxpayers filing annual 2023 TOI returns with the GDT are required to include a balance sheet, profit and loss account and an annexed list of any related party transactions carried out during the 2023 tax year.

2023 Local Transfer Pricing Report

The prevailing Cambodia transfer pricing regulation, requires self-assessment taxpayers that have related party transactions (RPTs) during the 2023 tax year to comply with two annual requirements:

  • Completion of a transfer pricing declaration which is annexed to the 2022 annual TOI return and submitted to the GDT;
  • Completion of a 2023 local transfer pricing file, the completion of which is acknowledged in the 2023 TOI return.

Some important points that self-assessment taxpayers should pay attention to:

(1) A local transfer pricing file that has been prepared for an earlier tax year does not in itself meet the requirement for the 2023 tax year. In other words – a stand-alone local transfer pricing file needs to be prepared for each tax year for those Cambodian entities that have ongoing or new RPT’s in 2023.

(2) Self-assessment taxpayers should also be aware that transfer pricing benchmarks used in a local transfer pricing file should be tested annually and updated when appropriate. It is also recommended that the benchmarking analysis is refreshed in full every three (3) years.

(3) Penalties may apply for non-compliance with the requirements set out above. Perhaps more importantly not having local transfer pricing documentation in place to support a taxpayers RPT’s allows the GDT to more easily argue that payments that are made or received do not follow the arm’s length principle and to then re-assess taxes, penalties and interest accordingly.

2024 Patent Tax

Self-assessment taxpayers operating in Cambodia are required to register and pay their 2024 Patent Tax with the GDT by the 31st of March 2024 for each business activity that they carry out. The amount of Patent Tax payable in 2024 is dependent on the particular classification of the enterprise under the self-assessment regime of taxation. The 2024 Patent Tax fees are as follows:

 Self-Assessment Tax Regime 2024 Patent Tax Fee
Khmer Riel (KHR)
2024 Patent Tax Fee
United States Dollars (USD)
 Small Taxpayer KHR 400,000 USD 100
 Medium Taxpayer KHR 1,200,000 USD 300
 Large Taxpayer KHR 3,000,000
or
KHR 5,000,000*
USD 750
or
USD 1,250

*If the annual turnover of the Large Taxpayer exceeds KHR 10,000 million (USD 2.5 million) then the Patent Tax payable will be USD 1,250. If the annual turnover of the Large Taxpayer is less than KHR 10,000 million (USD 2.5 million) the Patent Tax payable will be USD 750.

Application for Annual Certificate of Compliance

All Cambodia enterprises that are recognized as a QIP are required to submit an annual application for a Certificate of Compliance (“COC”) to the Council for the Development of Cambodia (“CDC”). Sub-Decree 139 issued on 26 June 2023 requires the investment projects to submit semester and annual report to the CDC within 20 days following the closing date for submitting tax returns in order to avoid losing its investment and tax incentives. Following the receipt of the semester and annual reports from the investors, the CDC will issue a COC to the investors. If a QIP entity fails to obtain a COC, it may lose its investment and tax incentives.

Submission of Annual Financial Statements

Enterprises with Audited Financial Statements

Entities that are required to obtain external audited financial statements are obliged to submit their audited financial statements with the Accounting and Auditing Regulator (“ACAR”), using the ACAR e-filing system, no later than 6 months and 15 days after the close of their accounting period which for most entities will be 15 July 2024.

Enterprises without Unaudited Financial Statements

Entities that are not required to have their 2023 financial statements externally audited are required to submit their 2023 financial statements through ACAR’s e-filing system no later than 3 months and 15 days after the close of the accounting period which for most entities will be by 15 April 2024.

To complete the submission process entities are required to first register with the ACAR online system and then secondly complete the templates provided by ACAR regarding the presentation of their financial statements. Once completed, these documents need to be uploaded and submitted to ACAR.

Penalties for non-submission or late submission of financial statements to ACAR range between KHR 800,000 (approx. USD 200) to KHR 2,000,000 (approx. USD 500).

Notification regarding use of English

Enterprises that have been registered before 21 July 2022 are required to submit an application to ACAR for the use of English language in their accounting system before the 31st of December 2023.

Enterprises established after 21 July 2023 are required to submit an application within 180 days from the date of their registration with the GDT.

Penalties for not using Khmer Language, without the ACAR approval outlined above, in an enterprise’s accounting books and financial statements range between KHR 800,000 (approx. USD 200) to KHR 2,000,000 (approx. USD 500).

Corporate Secretarial Services

Amendments to the Law on Commercial Enterprises dated 29 January 2022 provide that all limited liability companies incorporated in Cambodia are required to appoint a corporate secretary who permanently resides in Cambodia.

Annual Declaration of Commercial Enterprise

Following the issuance by the Ministry of Commerce (“MOC”) of the Prakas on the filing of Annual Declaration of Commercial Enterprises (“ADCE”) dated 5 April 2017, an ADCE must now be submitted by each enterprise to the MOC using its online system.

Use of the online system for submission of an ADCE is now compulsory and must be performed within three months from the anniversary of the enterprise’s re-registration on the MOC’s online system. A submission made after the three-month period will be subject to a penalty of KHR 2,000,000 (approx. USD 500) imposed by the MOC.

National Domain Name

On 1st April 2022, the MOC and the Ministry of Posts and Telecommunications issued a Joint Notification (Notification 0837) which set out requirements for locally registered companies to use a level 2 national domain name “.com.kh” and e-mail address with a level 2 national domain name “.com.kh.”

If a locally registered company does not have an e-mail address with a level 2 national domain name, it must apply for such domain name from the Telecommunication Regulator of Cambodia as soon as possible in order to comply with the requirements set out under Sub-Decree 287 dated 31 December 2021.

Under Article 5 of Sub-Decree 287, a level 2 national domain name includes:

(1) a domain name ending with “.com.kh” designated for a business enterprise or public enterprise;
(2) a domain name ending with “.org.kh” designated for an organization, association and union;
(3) a domain name ending with “.edu.kh” designated for a public and private educational institution;
(4) a domain name ending with “.net.kh” designated for a company or institution providing computer network services; and
(5) a domain name ending with “.gov.kh” designated for ministries and state institutions.

Except for a domain name ending with “.gov.kh”, all other domain names have a validity of one year from the date of registration and are renewable by paying an annual fee. After expiration, if the renewal fee is not paid, the domain name will be suspended temporarily. After sixty days without payment, the domain name will be deleted from the system. The domain name may also be deleted if requested by the domain owner or pursuant relevant laws and regulations.

In addition, from 1st January 2023 onwards, when filing an ADCE, all companies must provide the MOC with an email address having a level 2 national domain name. Joint Notification 0837 does not specify whether non-compliance with the above requirements will subject a company to any monetary fines.

Labour Compliance

Foreign Employee Quota for 2024

Enterprises employing or intending to employ foreign employees are required to apply for a foreign employee quota via the Ministry of Labour and Vocational Training (“MLVT”) online system.

All applications must be submitted by the required deadline each year. Typically, the foreign employee quota application window is open from early September to 30 November each year for the use of foreign employees in the following year.

According to Inter-ministerial Prakas 659 on the Monetary Fines for Those who Violate the Labour Law dated 06 June 2016 (“Joint Prakas 659”) and Inter-ministerial Prakas 326 on Base Daily Wage dated 25 November 2022 (“Joint Prakas 326”), if an enterprise hires foreign employees without the approved quota, it may be subject to a fine of up to KHR 12.6 million (approximately USD 3,150) by the MLVT or KHR 18 million (approximately USD 4,500) by the court. Please note that fines may be imposed in triple in the event of repeat offenses. Additional sanctions, as imposed by the Labour Law, include terms of imprisonment from six days to one month. To our knowledge to date, terms of imprisonment have yet to be strictly enforced.

Foreign Employee Work Permits for 2024

A foreign national must hold a valid work permit in order to lawfully work in Cambodia.

A work permit for foreign employees is valid for only one year. No matter when the work permit for foreign employees is issued by the MLVT, it expires on 31st December of that year. If an enterprise continues to employ foreign nationals in Cambodia for the following year, the enterprise needs to apply for an extension of their foreign work permits by 31st March of the following year.

While pursuant to Prakas 352 on the Launch of Workforce Data Management by Online System dated 17 August 2016, a work permit or an extension thereof can be requested online, foreign employees may also be called to present themselves in person before the MLVT after submission of their work permit applications subject to the discretion of the MLVT.

According to Joint Prakas 659 and Joint Prakas 326, if an enterprise hires foreign employee(s) without a work permit, it may be subject to a fine of up to KHR 12.6 million (approximately USD 3,150) by the MLVT or KHR 18 million (approximately USD 4,500) by the court.

Recently, the MLVT issued Guideline 517 on Administrative Fines for Owners or Directors of Factories, Enterprises or Establishments that Employ Foreign Employees without Work Permits and Employment Cards dated 17 January 2023 (“Guideline 517”) to clarify the administrative fines that may be imposed by the MLVT’s labour inspector for failure to obtain a work permit pursuant to the Labour Law and Joint Prakas 659. Guideline 517 provides that if the labour inspector finds less than five foreign employees working without work permits in an enterprise, the labour inspector may impose administrative fine based on the actual number of foreign employees holding no work permits. If there are five or more foreign employees working without work permits, the labour inspector may impose a maximum administrative fine of KHR 63 million (approximately USD 15,750), which is five times the administrative fine imposed by the MLVT.

Please note that fines may be imposed in triple in the case of subsequent and repeat offenses. Additional sanctions, as imposed by the Labour Law, include terms of imprisonment from six days to one month and, in the case of repeat offences, from one to three months. In addition, pursuant to the Law on Immigration dated 26 August 1994 and its implementing regulations, the non-compliant enterprise may be subject to a fine of up to KHR 500,000 (approximately USD 125) as imposed by the Ministry of Interior, and in case of subsequent offense(s), imprisonment of up to three months (noting that the foreign employee may be subject to deportation in accordance with the Law on Immigration).

Additionally, the abovementioned annual fee of KHR 520,000 (approximately USD 130) may be required to be paid accumulatively for each year of non‐compliance by an enterprise (per foreign employee).

National Social Security Fund (“NSSF”)

An enterprise employing one or more employees is required to register itself and all of its employees with the NSSF within 30 days after the date of its opening. Once registered, the enterprise must pay a monthly contribution for:

(1) occupational risk insurance (work‐related accidents and occupational diseases);
(2) health care insurance; and
(3) pension scheme.

(The pension scheme has been implemented from July 2022, although the contribution payment has effectively commenced from October 2022.)

Each registered enterprise must pay the contribution by the 15th of each month and report to the NSSF the number of employees before the 20th of each month. These dates may be changed subject to periodic notifications issued by the NSSF. The monthly contribution for the pension scheme must be made together with contributions for the occupational risk and health care schemes.

Seniority Pay for Employees under Unspecified Duration Contract (“UDC”)

Seniority pay equal to 15 days of wages and fringe benefits per year must be paid to employees who are employed under UDCs during on-going employment every six months per year, divided into 7.5 days of wages and other benefits to be paid in June and 7.5 days of wages and other benefits to be paid in December.

Large Employer Obligations

When an enterprise employs 100 or more employees, the company must employ 1% of its total workforce as qualified disabled persons and report to the MLVT and the Ministry of Social Affairs, Veteran and Youth Rehabilitation in January each year.

An enterprise employing more than 60 employees is required to conduct annual training of apprentices based on the following quota in proportion to the enterprise’s total workforce:

(1) 10% for enterprise that employs between 61 to 200 employees;
(2) 8% for enterprise that employs between 201 to 500 employees; and
(3) an additional 4% for every further 500 employees at the enterprise that employs more than 51 employees, provided that a maximum of 110 apprentices may be trained by an enterprise in one year.

The deadline for fulfilling the training of apprentices is 31 October each year.

It is important to note that the enterprises that have not fulfilled the obligations regarding the training of apprentice must submit a request to the MLVT for payment of tax in lieu of training the apprentices, in an amount equivalent to 1% of total annual salary of all employees per year.

Want to know more?

If you need help with your annual compliance obligations or would like more information on any of DFDL Cambodia services, please email [email protected]

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.