25 July 2017: MEF Prakas on the Clarification of Minimum Tax

Cambodia Tax Alert: Ministry clarifies conditions for exemption from minimum tax

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Cambodia’s Ministry of Economy and Finance (MEF) issued guidance on 4 July 2017 (Prakas 638) that clarifies the conditions that must be fulfilled for an enterprise to qualify for an exemption from the 1% monthly minimum tax on turnover. The exemption will be available only to taxpayers that comply with stringent rules governing the maintenance of proper accounting records.

The accounting records of an enterprise will be deemed to be improperly maintained in the following cases:

  • The records are not kept in accordance with the requirements of the General Department of Taxation (GDT) and the accounting standards set by the MEF(1);
  • The enterprise fails to issue sales invoices;
  • The enterprise’s actions are seriously negligent; or
  • The enterprise engages in tax evasion activities.

Enterprises with annual turnover exceeding KHR 2 billion must have their financial statements audited by independent auditors to qualify to apply for the exemption from the minimum tax. Based on this Prakas, accounting records will be reviewed twice a year by a committee established by the GDT. If a taxpayer believes that the review is incorrect, it may request a second review.

Registered taxpayers that maintain proper accounting records will be exempt from the minimum tax on their annual turnover, inclusive of all taxes except VAT. However, such taxpayers still are subject to the monthly advance payment of tax on profit (PTOP), with any unused PTOP at year-end available to be carried forward indefinitely or available for refund.

Additional Comments

The circumstances in which an enterprise is required to have its financial statements audited by a third party have been revised. Under the new rules, the only relevant criterion is that the enterprise must have annual turnover in excess of KHR 2 billion. Previously, under guidance issued in 2007, two out of three criteria had to be satisfied, i.e. the enterprise had to have (i) annual turnover exceeding KHR 3 billion; (ii) total assets of more than KHR 2 billion; and/or (iii) more than 100 employees.

The guidance is somewhat unclear as to whether the accounting records of all registered taxpayers will be reviewed, although it seems likely that the committee will only perform the review at the of the taxpayer’s request.

If you have any questions on this tax alert, please contact Ms. Kimsroy CHHIV, via kchhiv@deloitte.com

 

 

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