Tax Forum 2016 | Withholding Tax
Speaker: Mr. Chum Socheat, Tax Manager at R&T Sok & Heng
Mr. Chum Socheat [CS], Tax Manager at R&T Sok & Heng, provided an explanation of the Kingdom’s laws on Withholding Tax, which he explained are “short in the law, and yet complex in practice”. Cambodia’s principle of withholding tax requires self-assessed tax-payers (ie. taxpayers within the Real Regime) to withhold certain amounts from payments made to resident and nonresident taxpayers and to remit to the GDT.
The applicable rate of Withholding Tax to resident taxpayers is:
15% for services to a physical person, including management, consulting and other similar services
15% for royalties for intangible assets and interests in minerals, oil or natural gas
15% interest payments made to a physical person or an enterprise, except for interest paid to a domestic bank or savings institution.
10% for rental of movable or immovable properties
6% for interest payments on a fixed deposit made by a domestic bank or savings institution
4% for interest payments on a savings account made by a domestic bank or savings institution
Payments to non-resident taxpayers incur a Withholding Tax of 14% if relating to any of the following:
Royalties, rent and other payments connected with use of property
Compensation for management or technical services
Keeping his presentation short so as to provide more time for Q+As, Mr. Chum Socheat did note that taxpayers often fail to understand their obligations and to withhold the required amounts on all applicable local services by non-VAT registered suppliers, and also raised an issue of interpretation whereby it can be difficult to determine what constitutes “compensation for overseas management or technical services” and therefore whether Withholding Tax should be due.
[Question from the audience]: If, for example, I take a tuk-tuk, the driver is never likely to accept me withholding a proportion of the agreed fee as Withholding Tax. So in practice the payer has to pay extra – how can we avoid this?
[A from HEVP]: This is indeed what the Law on Taxation requires of you, and therefore you would have to negotiate with the tuk-tuk beforehand to agree a net price that takes into account the Withholding Tax. I recognize that this may seem crazy but these are the provisions of the Law – payers of services must remit the applicable rates of Withholding Tax to the GDT even if you have ignored the Law and failed to withhold the applicable amount from the service provider.
[Question from the audience]: If I contract services from a company registered abroad but the service is implemented in Cambodia by their staff, who are Cambodian residents, which rate of Withholding Tax should apply?
[A from CS]: If making payment for services to a non-resident entity, the rate of 14% would apply.
[Question from the audience]: If I am exporting goods to a client abroad, and am making a commission payment to a third-party agent (who is also non-resident in Cambodia) for their role in helping me to identify the client, am I required to withhold 14% on that payment?
[A from CS]: If it’s a commission payment then withholding tax would not apply.