Cambodia – Tax Changes and Relief Affecting Your 2020 Corporate Income Tax Return

Prakas 1059 (Old)

Prakas 098 (New)

Taxable income

There is no indication in the Prakas on taxable income arising from an asset that is not sold.

In Article 10.2.c, taxable income includes an asset that is not sold on the day an entity suspends its business activities. Assets (e.g. fixed assets, stock, raw materials, and work-in-progress assets) are deemed as transferred from business to private assets, and must be valued at market value and included in taxable income.

Turnover

Not defined

The term “turnover” refers to income both from an entity’s main business activities and its subsidiary income, except for other income as specified under Article 21.

Deductible expenses

Per Section 5.2, an entity can deduct in the current tax year the below unpaid expenses:

• Remuneration related to employment activities paid within 60 days after the end of the tax year.
• Expenses associated with a related party paid within 180 days after the end of the tax year.

Otherwise, these expenses become permanently non-deductible, despite an actual payment being made later.

Under Article 25.2 an entity can deduct in the current tax year the below unpaid expenses:

• Remuneration (excluding pension fund) related to employment activities paid within 180 days after the end of the tax year. If not, it can be deducted in the year that the actual payment is made.  
• Expenses associated with a related party paid within 180 days after the end of the tax year – except for expenses with a related party that is resident and not under the self-declaration regime, which can only be deducted when actual payments are made. Otherwise, the related party expenses become permanently non-deductible, despite an actual payment being made later.

Self-amendment is allowed to add back the unpaid expenses in the current tax year when an entity cannot pay within 180 days. No penalty is imposed on the underpaid tax if the amendment is made within 30 days after the said 180 days.  

Interest

In Section 5.9, any interest expense that is disallowed for deduction in the current tax year can be carried forward to succeeding years until the disallowed part of the interest expense is completely utilized.

In Article 32.3, non-deductible interest expense can be carried forward for only five years after the year the interest expense was incurred. After that any unutilized expense becomes permanently non-deductible.

Depreciation

In Section 6.5, Asset Class I (i.e. buildings, structures, and basic structure components) is individually depreciated using the straight-line method at 5% of the acquisition cost yearly.

In addition to what was specified in Section 6.5 of Prakas 1059, Article 35.2.b extends Asset Class I to cover roads, railways, and transport ships.

With regard to the 5% straight-line depreciation for Class I assets, Article 38.2 specifies that taxpayers should use a 10% rate per year (straight-line) for buildings with non-concrete structures.

An additional guideline is given for long-term agricultural assets that are not under Classes I – IV. Article 38.4 provides three depreciation methods for the following assets:

For rubber plantations, the 20-year depreciation is allowed at the below rates:

For agricultural plantations other than rubber plantations, the amount of depreciation is calculated by the straight-line depreciation method over the life of harvest or 5% per year, whichever is shorter.

Similarly, the amount of depreciation for animal husbandry is under the straight-line depreciation method over the life of the harvest or 10% per year, whichever is shorter.

Rules on Capital Gains and Capital Losses

In Section 7.1.4.b, capital gains arising from an unauthorized revaluation of a fixed asset for accounting purposes become the taxable profit of the entity.

In Article 42.3.b, the realization of capital gains arising from a fixed asset’s revaluation for accounting purposes does not affect taxable income if the value is not used for the purpose of tax depreciation.

Rules on the Carry Forward of Losses

Section 9.5.2.b: If there is a change in ownership of the entity, the tax losses of the former owner cannot be brought forward for deduction against the taxable profit of the new owner. Such change includes the sale of the enterprise, the death of the owner, and so on.

This condition has been removed.

Advanced Tax on Dividend Distributions

Section 10.2 discusses the Additional Profit Tax on Dividend Distributions. The distribution of dividends is subject to additional TOI unless the profit has already been subject to income tax that has been fully paid at the prevailing rate (20% or 30%).

The Additional Profit Tax on Dividend Distribution  has been replaced with the Advanced Tax on Dividend Distributions in Article 58, which states:

“Except for Qualified Investment Projects during the tax exemption period, if an entity distributes dividends from its annual profit before paying TOI to its local or foreign shareholders, it shall pay advance tax on dividend distribution by grossing up the dividend to be distributed by the TOI rate and multiplied by the TOI rate.”