Legal Update

Draft Law on E-commerce has been adopted by the National Assembly on 08 October 2019.

The Draft Law on Construction has been adopted by the National Assembly on 07 October 2019.

Registered taxpayers in Cambodia are now in the process of completing their Annual Tax on Income (“TOI”) declarations for the 2018 tax year. This applies equally to those entities that hold real estate in Cambodia and we provide below some of the key tax issues that those entities should be aware of when submitting their TOI declarations.

– Implications on Land and Share Arrangements Under Landholding Companies

Most landholding companies are structured under loans between the foreign shareholder and the landholding company and/or between the shareholders in the landholding company. As reflected in our Tax Alert of 23 August 2018, Instruction 11946 issued by the General Department of Taxation (“GDT”) on the 21st of August 2018 (“Instruction 11946”) had important implications on the qualification of related party loans. Indeed, Instruction 11946 provided an essential clarification regarding the determination of interest rates between related parties so that the interest rate to be charged on related party loans should be determined based on the rate of interest that would have been charged between independent parties under similar circumstances.

– Interest

Instruction 11946 has now put the speculation to rest by clearly stating that when Cambodian taxpayers lend to, or borrow money from, related parties, the rate of interest to be applied to those loans must adhere to the “arm’s length principle” as set out in the Transfer Pricing regulation – Prakas 986.

In light of the above development, where loans between related parties have been used to acquire land in Cambodia these loans may be impacted by transfer pricing rules and may have to be updated.

When completing the TOI declaration all taxpayers are now required to complete the schedules at the back of the declaration which require all related party transactions to be listed and a declaration to be signed that the taxpayer has contemporaneous transfer pricing documentation in place to support those transactions. 

In recent discussions with the GDT they have confirmed that the loan between related parties should adhere to the transfer pricing regulations. The GDT has further clarified that interest-free loans or low interest rate loans between related parties may still be acceptable in some cases provided they are supported with proper documentation.

In order to confirm that the interest rates used are in line with the taxpayer’s risk profile (credit rating), or to support the application of interest free or low interest rate it is suggested that an independent economic benchmarking study be prepared and included in the taxpayer’s transfer pricing documentation in accordance with Prakas 986.

Further, on 18 March 2019, the GDT issued Circular 4909 on the required documents to support the interest charge of the related party loan (“Circular 4909”). Enterprises are required to maintain and provide the following documents to the tax administration to support the interest charged under a related party loan even if the interest charged is different from the market interest rate:

  • Loan agreement stating the specific borrowing period;
  • Business plan related to the borrowing;
  • Documents explaining the basis of the interest determination;
  • Board resolution passed in relation to the borrowing.

The requirements to maintain the documents outlined above for related party loans come into effect from the date of signing of Circular 4909.

– Booking Assets

It is important that any immovable property – be it land or buildings – is correctly recorded in the TOI return. Land would be typically be recorded at cost and for tax purposes is considered as a non-depreciable asset. Buildings are considered as a depreciable asset and are usually categorized as a Class 1 asset for tax purposes which would be depreciated at the rate of 5% on a straight line basis.

– Withholding Tax Credits

If during the year the real estate entity has leased real estate to a registered taxpayer who has withheld withholding tax on the lease payments then the real estate entity would be able to claim an equivalent withholding tax credit in its TOI declaration to offset against any taxable income it may have for that year.

It is advisable that the real estate entity request from the lessee formal confirmation that the withholding tax payments have been paid to the GDT in addition to ensuring that any lease payments referred to in the underlying lease agreement are stated as inclusive of WHT.

 Disposal of Assets

If during the tax year the real estate entity has disposed of land and building that it owns it will need to account for this in its TOI declaration. For a disposal of land any consideration received from the sale which is in excess of the initial booked cost price will be subject to 20% Tax on Income.

For buildings any consideration received from the sale which is in excess of the adjusted tax book value of the building i.e. Cost – depreciation, will be subject to 20% Tax on Income.

For completeness we note that the sale of a building by a real estate entity would be subject to 10% Value Added Tax (“VAT”). The output VAT received by the real estate entity from the sale of the building would be included in their monthly VAT return which covers the month is which the building as sold.

In the event that the real estate entity sells both land and building, it would require to separate the value of land and building for the VAT purposes as land is not considered a good or service for VAT purposes.

Any resulting Tax on Income from the disposal of land or buildings will need to be paid by the due date of 31 March 2019 which is the same date as the TOI declaration is due.

On 10th October 2017, the Cambodian Ministry of Economy and Finance issued Prakas No. 986. MEF.P. (“Prakas 986”) in order to combat perceived transfer pricing abuses and loss of tax revenue in the country’s state budget.

Cambodia has been relatively slow in focusing on transfer pricing and is now seeking to bridge the gap with its Asian neighbors (including Thailand, China, Vietnam, Malaysia and Indonesia) in respect of transfer pricing documentation rules and a more structured audit process.

In a nutshell, Prakas 986 regulates that Cambodian enterprises that have transactions with related parties must comply with new compliance requirements consisting of:

  1. An annual transfer pricing declaration, to be submitted together with the annual declaration on tax on income.
  2. Annual transfer pricing documentation, to be submitted upon request by the General Department of Taxation (“GDT”).

This form and documentation will then be used the tax authorities to identify taxpayers with significant related party transactions for review, audit and potential adjustment if found not to be “arm’s length”. Put simply the arm’s length principle states that the amount charged by one related party to another for a given product/service must be the same as if the parties were not related.

What is a related party?

To be caught by Prakas 986, the transactions need to occur between two related parties. This is defined in Article 4 as one of the following:

  • Member of the same immediate family
  • One enterprise is directly or indirectly entitled to 20% of the dividend in the direct capital of the other enterprise or equivalent voting rights in the taxpayer’s Board of Directors
  • A third-party enterprise or an individual possesses directly or indirectly at least 20% of the dividend in the direct capital of both enterprises or equivalent voting rights in Board of Directors of both enterprises.


The five methodologies endorsed by Prakas 986 to determine an arm’s length price in a related party transaction are as per those set out by the Organization for Economic Co-operation and Development (“OECD”).

Target transactions

Prakas 986 does not identify any specific target transactions within the scope of the guidelines or potential audit activity, however Articles 15-17 highlights intangible assets and services, which is an indication of one of the likely initial focus areas.

Article 15 introduces the term from the OECD BEPS Actions 8-10 of “DEMPE” functions (development, enhancement, maintenance, protection, exploitation) related to intangible assets. This reflects the application of a “substance over form” principle and the need to show that the party performing these key functions and incurring the associated costs is entitled to the reward. For example, if a Cambodian entity argues that its brand is owned by a related party in the Cayman Islands but the marketing team and associated marketing cost is in Cambodia, such a mismatch is likely to raise scrutiny under these measures.

In respect of intra-group services Prakas 986 requires the following criteria to be strictly applied to support a deduction:

  • Services are delivered, necessary to taxpayer’s business and bring economic benefits/ commercial value to taxpayer

  • The service charge must be at arm’s length.

Timeline and penalties

Prakas 986 is effective from the signing date of 10th October 2017, with no clear indication of the first fiscal year to be applied. However, considering many Cambodian enterprises have fiscal years ending 31 December and the annual corporate tax filing deadline is 3 months from fiscal year end, the assumption is that both the transfer pricing form and documentation should be completed by 31 March 2018.

Failure to comply with the above requirements would lead to:

  • Transfer pricing adjustments, which would result in additional tax
  • Tax penalties, which range from 10% to 40% of the additional tax for violations of the Law on Tax (LOT) according to Article 133 of the LOT, plus an interest charge of 2% on late payment
  • A law suit filed by the local tax administration against enterprises for charges stipulated under the LOT.

It is possible that an extension may be granted to prepare documentation given this is the first year of implementation.

Our recommendations

Transfer pricing is not something that can be addressed at the time of lodging the tax return or preparation of the documentation. It needs to be considered at the time the transactions are entered into, to ensure the outcome is an arm’s length transfer pricing policy and defensible level of profitability.

It is recommended that taxpayers in Cambodia:

  • Identify related parties under Prakas 986 and related party transactions in 2017
  • Revisit significant related party transactions in 2017 (particularly royalties, service fees etc.) and consider potential exposures and the best way to manage them.  This step would be particularly relevant if the company is forecast to have a loss result or low profit in 2017.
  • Kick-start the preparation of documentation following Prakas 986 as soon as possible. The actual preparation of the first year TP documentation may require significant information from the Group entities as well as more analysis, which take time to request, follow up and process.
  • Revisit whether the company has any significant TP risks in years from the 2007-2016 period which could be challenged in an upcoming tax or TP audit. Although there is no retrospective provisions introduced in Prakas 986 practically speaking the tax authorities may seek to roll back the audit period if they identify exposures resulting in adjustments for 2017.

Prakas № 080, Ministry of Commerce dated 05 March 2018.

The Ministry of Commerce of Cambodia (“MOC”) has imposed the business permit requirement for all Cambodian nationals engaging in business, service and commerce activities who are not classified as self-assessment taxpayers as determined under Prakas 025 SHV. BRK. GBD dated 24 January 2018 of the Ministry of Economic and Finance on adjustment of the classification of self- assessment taxpayers. The business permit must be filed with the provincial/municipal Department of Commerce. 
For Cambodian or non-Cambodian nationals who are classified as self-assessment taxpayers, the business permit must be filed via the MOC automated system. 
A business permit is valid for one year from issuance date and renewable.

Any persons engaging in business, services and commercial activities without holding a business permit pursuant to this Prakas will be subject to applicable penalties.

On 21 June 2018, the new amendment to Cambodian law on Nationality has been promulgated.

Prakas No. 012/17 of the Securities and Exchange Commission of Cambodia, dated 12 September 2017

This prakas provides conciliation and resolution mechanisms and procedures for certain types of disputes arising between securities investors and entities regulated and licensed, or otherwise permitted or recognized, by the Securities and Exchange Commission of Cambodia (“SECC”), including securities firms, derivatives brokers and securities issuers, among others. Under this prakas, a party may file a complaint for conciliation with the SECC for disputes related to the securities sector, after which the SECC will appoint one of more conciliators. The conciliation decision is non-binding. In the event there remain any unsettled issues follows the conciliation process, a party may file a complaint for dispute resolution with the SECC or with an arbitration tribunal if agreed by the parties or with a competent court.

Notification 272, dated 31 August 2017, issued by the Ministry of Labour and Vocational Training (“MLVT”)

Under Notification 272, quota application for foreign employees must be submitted via the MLVT online system from 1 September 2017 to 30 November 2017. Once the foreign employee quota approval is secured, work permits must be obtained or renewed for each foreign employee from 1 January 2018 to 31 March 2018 via the MLVT online system. Please bear in mind that this requirement applies to every employer in Cambodia, including representative offices, branches, limited liability companies and NGOs.

Foreign employees must hold a valid work permit in order to apply for a multiple entry business visa (also known as a Visa E). 
Failure to comply with the foreign employee quota and work permit requirements could result in fines being imposed by the labour authority and other relevant authorities in Cambodia. In serious circumstances, imprisonment for up to three months and/or deportation orders may be imposed upon the foreign employee concerned.

We would be pleased to assist your organization in preparing and submitting the 2018 foreign employee quota and work permit applications.

Prakas № 160, 25 October 2017, issued by the Ministry of Tourism (“MOT”).

This Prakas aims to enforce the implementation of codes of professional conduct and ethics for tour operators and travel agents in Cambodia. Segregated into two annexes, the code of professional conduct and code of ethics as per listed below under Annex 1 and 2 respectively.

Annex 1: The code of professional conduct aims to protect, enhance and maintain the propriety of tour operators and travel agents. This will also help to boost and foster greater trust among tourists. This code applies to all tour operators and travel agents operating in Cambodia. Tour operators and travel agents must engage in business activities within the parameters of relevant legal regulations and under an applicable tourism license. When operating its business, a tour operator or travel agent must have its own policy book regarding the delivery of its services to tourists. Of important note, tour operators must not sell tour packages with a zero-rated price or that is below net cost. Any practices violating this code of professional conduct may be investigated by MOT inspectors and, if there is a violation, the MOT will issue a warning letter to the violating party. In case of repeated violations, the violating party will be subject to penalties as set out in Chapter 6 of the Prakas on Licensing of Tour Operators and Travel Agents, and other applicable Cambodian laws.

Annex 2: The code of ethics aims to ensure that tour operators and travel agents provide quality services at appropriate standards to tourists in an ethical and responsible manner in order to foster trust among tourists and promote tourism sector in Cambodia. This code applies to tour operators and travel agents who are members of any tourism association in Cambodia. Of important note, tour operators and travel agents will be held liable under applicable laws if a tourist suffers damages during the provision of tourism services by a tour operator or tour agent. A tour operator or tour agent found to be in violation of the code of ethics will be subject to investigation by the MOT inspectors and other relevant competent authorities.

Prakas no. 1130 MEF.Prk dated 27 October 2017.

The Ministry of Economy and Finance (“MEF”) recently issued a Prakas no. 1130 MEF.Prk dated 27 October 2017, to extend the suspension of the 1% Prepayment Tax on Income for enterprises in textile and garment industry. This suspension only applies to enterprises which are recognized as Qualified Investment Projects until the year-end 2022.

Under this Prakas, the enterprises in the textile and garment industry are referring to enterprises that produce garment, textiles, footwear, bag, handbag and hat for export.  

To be eligible for this suspension, the enterprises in the textile and garment industry is required to:

  • keep proper accounting records in accordance with the provisions of Law on Taxation and the provisions of Law on Accounting;
  • fill and pay taxes by the applicable due date; and
  • Provide an independent annual audit report to the Tax Administration.

Prakas No. B7-017-326 Pror Kor, issued by the National Bank of Cambodia dated 25 October 2017

In order to enhance the effectiveness of the management and supervision of rural credit institutions providing small-scale credit (“RCIs”), the National Bank of Cambodia (“NBC”) has established certain terms and conditions on granting certificates to RCIs.

Effective on 25 October 2017, this Prakas provides that any person wishing to provide small-scale credit must obtain prior authorization from the NBC, having met its particular terms and conditions. RCIs may not engage in any other financial services apart from providing small-scale credit unless otherwise authorized to do so by the NBC.

Under this Prakas, where an RCI wishes to apply for an operating license to conduct micro-finance institution activities, it must satisfy certain conditions, one of which is that it has conducted rural credit operations for at least three years.

This Prakas replaces Prakas No. B7-02-49 Pror Kor on Registration and Licensing of Microfinance Institutions dated 25 February 2002.

Prakas No. B7-017-300 Pror Kor, issued by the National Bank of Cambodia dated 27 September 2017

In force since 27 September 2017, this Prakas aims to enable banking and financial institutions to mobilize and increase funds for business development, by being permitted to list securities on the Cambodia Securities Exchange, so as to more actively participate in the development of the Cambodian Economy.

Any institutions wishing to list securities as mentioned must obtain authorization from the NBC and satisfy certain conditions set out in this Prakas.

Prakas № 636 dated 29 June 2017 issued by Ministry of Economy and Finance

This Prakas is established with a goal to determine a rule and procedure on management and supervise professional on appraisal service on real estate and real estate agent service in Cambodia.

This Prakas provides the classifications of professional certificate and license on appraisal service on real estate and real estate agent service, supervisor authority, method of controlling these business activities, function and obligation of the certificate and license holder, dispute resolution and penalty for non-compliance.

Under this Prakas, all professional certificates and licenses for appraisal service on real estate and real estate agent service are required to obtain a professional certificate and license on appraisal service on real estate and real estate agent service issued by the Ministry of Economy and Finance.

License on Appraisal Service on Real Estate is divided in three categories as follows:

  1. Appraisal Service on Real Estate License;
  2. Real Estate Agent License; and
  3. Immovable property Management License.

Professional Certificate on Real Estate is divided in two categories as follows:

  1. Real Estate Evaluation Certificate; and
  2. Real Estate Agent Certificate.

The business operating license and professional certificate are valid for 3 years (renewable) and are cannot be transferred or sold.

Sub-Decree № 110 from the Ministry of Post and Telecommunication (“MPTC”), dated 21 July 2017

This Sub-Decree aims (i) to set out conditions and procedures for granting, suspending, transferring and revoking a permit when performing operations in the information and telecommunication technology sector and (ii) controlling and monitoring the implementation of permits, certificates and licenses.

Under this Sub-Decree, no person may conduct operations in information and telecommunication technology in Cambodia unless such a person obtains a permit, certificate or license from the MPTC. The General Department of Information and Telecommunication Technology of the MPTC is now vested with the authority to manage, grant, control, and monitor the implementation of these permits, certificates, and licenses to operators.

This Sub-Decree identifies business activities that are subject to permits, certificates or licenses. Of note, the sale of computer equipment, electronic devices or other information technology tools are subject to a relevant permit being obtained. On the other hand, online services and technical services must now hold a certificate issued by the MPTC. The creation and operation of data centers similarly must be licensed by the MPTC.

There are certain regulatory obligations imposed on operators including the submission of audited financial statements and non-financial information to the MPTC on an annual basis, data protection obligations, security, and information technology safety for users.

Prakas № 463 of the Ministry of Labour and Vocational Training (“MLVT”), dated 28 October 2016.

Prakas 463 aims to regulate private agencies providing local recruitment services in Cambodia (“Private Agency”). This Prakas applies to all types of Private Agencies. For the purpose of this Prakas, an entity will be deemed to be a Private Agency if it performs any of the following services: (1) matching job vacancies with job seekers, in which the Private Agency is not a party to the employment relationship; (2) introducing a job seeker to a third party, either an individual or an entity, which will manage and supervise the work; or (3) providing other services related to recruitment in accordance with the Labour Law and other applicable regulations

This Prakas imposes requirements upon entities involved in ‘local’ recruitment services in Cambodia to obtain a licence from the MLVT in form of a Prakas and a certificate confirming the MLVT’s authorization to the Private Agency to perform local recruitment services. This license is valid for a period of five years and can be renewed. In the case of an extension, the application must be filed with the MLVT within 30 days prior to the expiry date.

This Prakas imposes further obligations on the Private Agency, including the obligation to ensure confidentiality, document retention, notice to the local administration in which the recruitment services are performed, disclosure of recruitment data, and reporting of the work results to the relevant labour authorities.

Following the issuance of this Prakas, the MLVT recently issued Notification No. 001/18 dated 9 January 2018 to remind Private Agencies of their obligations to comply with this licensing requirement.

Guide for Investor

Under Construction

Under Construction

Visa applicants must submit passport, application forms, a recent passport photo, and other documents as determined by the status of stay.

1 - T-Type (Tourist) - VOA

• Cost = $30

• Length of stay = 1 month

• Extension = Can be extended once in country for a further period of 1 month

The T-Type visa can also be pre-purchased online in the form of an e-Visa (electronic visa)

• Cost = $37 + $3 credit card processing fee

• Length of stay = 1 month

• Extension = Can be extended once in country for a further period of 1 month

• Apply for online at

2 - E-Type (Ordinary/business)

• Cost = $35

• Length of stay = 1 month

• Extension = Can be extended for the following periods:

                    - 1 Month    appx. $40 (Single entry)

                    - 3 Months   appx. $75 (Single entry)

                    - 6 Months   appx. $145 (Multiple entry)

                    - 12 Months appx. $280 (Multiple entry)

(Note: The approximate prices above for visa extensions are based on the cost of having your visa extended through a 3rd party, not the official price from the Immigration Department)

3 - A-Type (Diplomatic)

• For visiting foreign diplomats, embassy personnel, invited foreign military, etc.

4 - B-Type (Official)

• For NGO/Aid workers, etc.

5 - C-Type (Courtesy)

6 - K-Type (Special) - VOA

• Issued to Cambodian national's entering Cambodia on a foreign passport. (The applicant has to provide well-documented evidence, such as proof that one's parents were Cambodian).

• Cost = Gratis

Visa Exemption:

•The nationals of the Laos, Malaysia, Philippines, Singapore, Vietnam, Thailand, Indonesia do not need a tourist visa and may stay in Cambodia for 21 and 30 days respectively.

NOTE: Some nationalities are required to get visa in advance at Royal Embassy of Kingdom of Cambodia in their country: Afghanistan, Algeria, Saudi Arabi, Bangladesh, Iran, Iraq, Pakistan, Sri Lanka, Sudan, Nigeria.

The tourist (T) and ordinary (E) visas can be extended at the Immigration Department, National Police, or for less hassle can be extended at most guest houses and travel agencies/tour operators.

The Diplomatic (A), Official (B) and Courtesy (C) visas can be extended at the Consular Department, Ministry of Foreign Affairs.

Overstaying your visa will incur a fine of $5 per day of your overstay.

Law Library

Under Construction!