Tax Forum 2016 | Value Added Tax - Common Issues
Speaker: Mr. Clint O’Connell, Director, Head of Cambodia Tax Practice, DFDL
Mr. Clint O’Connell started his presentation by saying the most common issues affecting VAT are invoicing requirements, refunds and the provision of exported services. He went into great detail about how Instruction 1127, released in January 2016, is affecting invoicing requirements in Cambodia.
As per Notification 1127 a VAT invoice is now required to include the following:
Name, address, and value-added tax identification number (VATTIN) of the seller or supplier;
Clear invoice number in a chronological order and date of issuance of the invoice;
Name and address of the purchaser and value-added tax identification number in case the purchaser is a taxpayer under the self-assessed regime;
Description, quantity, and selling price of the goods or services;
Total prices excluding tax and separate tax amount;
The ink quality printed in the invoice and the invoice paper shall be able to be kept for a long period of time; and
All invoices shall be written or printed in Khmer, or both Khmer and English, and the English text shall be under the Khmer text.
Mr. O’Connell said the most important components of the new Instruction are:
All VAT registered taxpayers under the revised real regime of taxation are required to issue an invoice for every sale or supply of goods or services in accordance with Instruction 1127.
Any invoice which does not conform to the requirements of Instruction 1127 shall not be permitted to be used to obtain a VAT input credit or to claim as an expense with respect to tax on profit.
After this, Mr. O’Connell clarified some of the issues related to this new system of invoicing. He mentioned that an invoice template used by a taxpayer can be modified from the templates that have been provided by the GDT if they still contain the first six criteria listed above in some form. He also stated that the GDT is not interested where a taxpayer puts its logo on an invoice or how an invoice is designed.
Crucially, Mr. O’Connell stated that the GDT has agreed to provide all taxpayers with a 6-month grace period (starting from 24 March 2016) to implement the Khmer language requirement into their invoices and to update their invoicing systems accordingly. He also said that if taxpayers find it difficult to adjust their systems to meet the Khmer language requirement, particularly with respect to technical terms, that they can still use the English language. In addition to this, he said that to be eligible to claim a VAT input credit the issuer of the VAT invoice must sign and stamp the invoice and the recipient must also sign and stamp the invoice.
He mentioned that the serial number sequencing for VAT invoices should be restarted at the beginning of each tax year too. For businesses operating in multiple locations they can issue a separate serial number for each location or if the system is centralized they can issue the serial numbers from their head office.
He made it very clear that a VAT registered taxpayer can choose whether to issue a tax invoice or a commercial invoice. If the recipient of the good or service is a VAT registered taxpayer then they will want to obtain a valid tax invoice to ensure that they can claim both a VAT input credit and a deduction of the expense for tax on profit purposes. If the recipient of the good or service is not a VAT-registered taxpayer then they can receive a commercial invoice instead.
Mr. O’Connell then moved onto the issue of VAT refunds. He said taxpayers with excess VAT input for three consecutive months or more are able to apply for a refund. He also said an exporter and investment entity can only apply for a refund on a monthly basis provided their export certification and documents are in order.
He mentioned that as per Instructive Circular 006 and 004, the VAT refund process should be completed within 30-40 days following the submission of the VAT return. In reality however, it takes much longer than this.
Mr. O’Connell also discussed the issue of VAT Output and highlighted why its unfeasible for taxpayers to still be responsible for the underpaid Output liability of many suppliers in Cambodia. He stressed his desire for VAT input credits to be offset against other forms of re-assessed tax.
He then broke down the different features of the three VAT categories that exist in Cambodia (gold, silver and normal) in the following way:
Gold:
- Proper accounting books – 3 years
- Regular taxable supplies
- Filed and paid on time
- No re-assessed taxes more then 10%
- Refund request less then KHR 20 million – no need for audit
Silver:
- Proper accounting books – 1 year
- Regular taxable supplies
- Filed and paid on time
- No re-assessed taxes more then 10%
- Refund request less then KHR 5 million – no need for audit
Normal:
-Audit Required
After going through the features of the three different VAT categories in Cambodia, Mr. O’Connell moved onto the final part of his presentation and talked about the issues associated with exported services in Cambodia. He started by saying that taxpayers in Cambodia that export goods are zero-rated for VAT purposes, however, organisations that export services to non-residents are often not zero-rated.
He then talked about zero-rated supply and referred to article 45 of The Sub-Decree on Value Added Tax. He also spoke about VAT Leaflet 07 entitled “VAT Imports and Exports”. The leaflet states that in order “To qualify for a zero rating as an export, an exporter of services has to be able to demonstrate that the service they have provided was used or consumed outside the Kingdom of Cambodia”.
Before moving onto the Q&A section of the presentation, Mr. O’Connell discussed the factors influencing whether you can establish “overseas precedent” for exporting purposes. The categories used to determine overseas precedent are as followed:
I. Services supplied to a non-resident
II. The services must be supplied:
III. Under a contract with an overseas person; and
IIII. Which directly benefit an overseas person
Q+A Session:
Q) What do you think is the most important change to the VAT invoices the GDT requires now?
A) I don’t think there is one change in particular that has and will continue to improve VAT invoicing in Cambodia but a combination of a lot of them. All the changes have a created a streamlined, regulated way in which VAT invoicing can take place.
Q) The 6 month grace period is supposed to finish this month, do you think it will be extended?
A) I can’t speak on behalf of the GDT but I expect it would as a large number of companies are only becoming aware of the changes related to paying VAT.
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