EXAM PAPER

CAMBODIAN TAXATION
(QUESTIONS)

FOR JUNE 2023

Time allowed
Reading and planning: 15 minutes
Writing: 3 hours

All FIVE questions are compulsory and MUST be attempted.

Tax rates and rebates are printed on page 1.

DO NOT open this paper until you are instructed to by the supervisor.

During the reading and planning time, you may only make notes on the
question paper. DO NOT write in your answer booklet until you are
instructed to by the supervisor.

DO NOT remove this question paper from the examination hall.

SUPPLEMENTARY INSTRUCTIONS

1. Calculations and answers should be rounded to the nearest US dollar (USD) or Khmer riel (KHR). Amounts of
0.5 and above are to be rounded up.
2. Make all allocations to the nearest month.
3. Show all your workings, except for multiple-choice questions.
4. Computations for any items, income or expenses that are tax-exempt, not taxable or don’t require an adjustment
should be indicated with a ‘0’, so that marks can be given accordingly.

TAX RATES AND REBATES

Use the following tax rates and rebates to answer the questions.

Value-added tax (VAT)

Standard rate: 10%
Exports: 0%
Exempt supplies: Nil (input-taxed supplies)

Tax on income (ToI)

Standard rate: 20%
Tax holiday: 0%

Minimum tax (MT)

Rate: 1%

Withholding tax (WHT)

Interest income from fixed-term deposits with a local bank: 6%
Interest income from non-fixed term deposits with a local bank: 4%

Tax on salaries (ToS)

Rebates for dependent children and a non-working spouse: KHR150,000 per dependent, per month

ToS rates for residents (effective from January 2023)

Cumulative tax
Monthly taxable salary (KHR) Rate
(KHR) at top of band

0 – 1,500,000 0 0%
1,500,001 – 2,000,000 25,000 5%
2,000,001 – 8,500,000 675,000 10%
8,500,001 – 12,500,000 1,275,000 15%
12,500,001 and up 20%

ToS rate for non-residents

Flat rate: 20%

Tax on fringe benefits (ToFB)

Flat rate: 20%

Public lighting tax (PLT)

Rate: 3%

Accommodation tax (ACT)

Rate: 2%

Specific tax (ST) on certain merchandise and services

Rate: 3%, 10%, 30% or 35%, depending on the product or service

Page 1 of 15
 ALL FIVE questions are compulsory and MUST be attempted

Question 1 – Multiple choice (each question is worth 2 points)

i. For income recognition for tax purposes under the ToI Prakas, which of the following statements is/are correct?

1. The enterprise must record income supplied as a gift when the goods are put into use.
2. A financial lease company must record income when the payment is due, regardless of when it is
received.
3. A deposit paid in advance by the purchaser at the time of ordering a good or service that is a part of the
purchase price of such good or service, the supplier must record this deposit as income at the date it’s
received.

A. 1 only
B. 2 only
C. 3 only
D. None of the above

ii. Under Article 10 of the ToI Prakas, taxable incomes include:

1. cancellation of a debt
2. reduction of a debt that a creditor has granted to the enterprise
3. equity and debt accounts which don’t exist and with no supporting documents

A. 1 only
B. 2 and 3
C. 3 only
D. All of the above

iii. Based on the ToI Prakas, deductible tax expenses are:

1. patent tax
2. tax on means of transportation
3. specific tax
4. non-creditable input VAT

A. 1 and 2
B. 2, 3 and 4
C. 3 only
D. All of the above

iv. Based on Article 25 of the ToI Prakas, the enterprise can claim a salary deduction if:

1. the salary is paid within 180 days after the tax year ends. This 180-day principle also applies to the reserve
fund for the employees’ pensions
2. if the payment is made after 180 days, the expense shall be allowed for deduction in the following taxable
year only for the payment made in the following taxable year.

A. 1 only
B. 2 only
C. 1 and 2
D. None of the above

v. For fixed assets classification purposes under the ToI Prakas, those in class 2 include:

1. IT systems
2. data handling equipment.
3. computer and its software license
4. electronic instruments
Page 2 of 15
 A. 1, 2 and 3
B. 1, 2 and 4
C. 2, 3 and 4
D. All of the above

vi. For fixed assets are both used in business and served outside the business, the enterprise must comply with
the following:

1. the use of fixed assets to serve the personal needs of the enterprise’s owner or an employee must be
considered as the supply of services at the market price (to be recorded in subsidiary income)
2. the provision of fixed assets to the employee is allowed as deductible expenses and is not subject to tax
on fringe benefits.

A. 1 only
B. 2 only
C. 1 and 2
D. None of the above

vii. Based on the Law on Taxation (LoT) and VAT sub-decree, which of the following statements are true?

1. VAT which is paid on the purchase or production of an asset and which cannot be claimed as the input tax
credit shall be allowed to be included in the asset cost.
2. After completing the VAT registration, the taxable person shall be allowed a credit for input tax paid or
payable for taxable supplies of goods, excluding capital assets acquired by the person before the
registration.
3. One of the criteria for VAT exemption is the taxable person transferring the business to another taxable
person shall notify the GDT of the business transfer within ten days of the transfer date.

A. 1 and 2
B. 1 and 3
C. 2 and 3
D. All of the above

viii. Which of the following goods and service is/are VAT state-charge based on the VAT regulation?

1. Sugar, including in the form of candy

2. Medicine
3. Electricity
4. Public postal service

A. 1, 2 and 3
B. 1, 3 and 4
C. 2, 3 and 4
D. None of the above

ix. Based on Prakas No. 209 MEF dated 2 March 2020 on incentives for educational institutions, WHT exemption
applies to:

1. interest payment to non-self-declaration resident taxpayer and non-resident

2. dividend distributed to non-resident
3. rental of movable property
4. royalty

A. 1 only
B. 2 only
C. 1 and 2
D. 3 and 4
Page 3 of 15
 x. Based on Prakas No. 217 MEF dated 14 March 2022 on the incentives for voluntary amendment of tax returns,
if the taxpayer files the amended tax returns before the GDT conducts the tax audit, it is:

A. subject to additional tax of 10% and entitled to a 20% interest deduction on the late payment if the
amendment is done within six months after the deadline for filing the tax returns
B. subject to additional tax of 10% and entitled to a 50% interest deduction on the late payment if the
amendment is done within six months after the deadline for filing the tax returns
C. exempt from additional tax and entitled to a 20% interest deduction on the late payment if the amendment
is done within six months after the deadline for filing the tax returns
D. exempt from additional tax and entitled to a 50% interest deduction on the late payment if the amendment
is done within six months after the deadline for filing the tax returns.

xi. Which of the following payments are exempt from ToS and ToFB:

1. baby allowance, as stated in the Labour Law

2. seniority payment before 2019 for both Cambodian and foreign employees, as required in the Labour Law
3. transportation allowance from home to the workplace, as stated in the Labour Law

A. 1 and 2
B. 1 and 3
C. 2 and 3
D. All of the above

xii. Under Circular No. 007 MEF dated August 2017, a taxpayer who obtains gold compliance status can request a
VAT refund up to:

A. KHR250m without being VAT audited

B. KHR300m without being VAT audited
C. KHR500m without being VAT audited
D. KHR1,000m without being VAT audited

xiii. Based on Prakas No. 193 MEF dated 26 March 2021 on patent tax collection, which of the following statements
is/are correct?

A. Large taxpayer is subject to a patent tax of KHR30,000,000 if the turnover exceeds KHR1000m.
B. If the taxpayer ceases the business operation in any month of the taxable year, it’s subject to a full patent
tax.
C. In the case of cessation of business, the taxpayer can request a refund of the patent tax that has been paid.
D. In the case of changing business ownership, the new owner isn’t required to pay the patent tax, which the
old owner already paid, if there is no change of the business activity, and the new owner is the parent,
spouse, child or legal successor of the old owner.

xiv. Based on the MEF’s Prakas No. 1470 on the procedure to resolve the tax audit, which of the following statement
is/are correct?

1. The taxpayer who disagrees with the reassessed taxes can submit an objection letter to the GDT within
30 days of receiving the NoTR.
2. The GDT must issue a decision to solve the case within 30 days of receiving the objection letter from the
taxpayer.
3. If the taxpayer still disagrees with the GDT’s decision, they could further submit an objection letter to the
Tax Arbitration Committee within 30 days of receiving the GDT’s decision.

A. 1 only
B. 2 only
C. 1 and 3
D. 2 and 3

Page 4 of 15
xv. Based on Article 12 of the Prakas No. 962 MEF dated 20 November 2020 on managing tax debt, the debt is
considered uncollectable if it meets three of the following conditions:

1. it’s outstanding for at least five years

2. enterprise suffered by force majeure, acknowledged by a competent authority
3. bankruptcy with a decision from the court
4. the taxpayer has no property to settle the debt

A. 1, 2 and 3
B. 1, 2 and 4
C. 2, 3 and 4
D. All of the above

Page 5 of 15
 Question 2

A. Multiple choice (each question is worth 2 points)

Jim is a Malaysian resident who comes to work as an accounting manager at Valleybeer Co., Ltd., a local beer
producer owned 100% by a Cambodian individual and registered as a large taxpayer with the GDT.

i. Below is a summary of his payroll for June 2023.

Description Amount (USD) Note

Monthly salary 6,500 -
Seniority payment (from January to June 2023) 3,250 -
Medical reimbursement 700 N1
Transportation allowance 30 N2
Reimbursement of management training costs 1,200 N3
Other deduction: pension fund paid to NSSF (6)
Total 11,674 -

• N1: Based on its HR policy, all manager levels and above could claim medical reimbursement at the
maximum of USD700 yearly. All supporting invoices and payment receipts must be submitted to HR and
the finance team.
• N2: The transportation allowance is also provided with the same amount to all employees. The company
has maintained an internal policy for such provisions that were properly submitted to the GDT.
• N3: The reimbursement of training costs required by the company, including accommodation, meals and
airfares, which Jim paid by himself during the training and later reimbursed to the company with proper
invoices and payment receipts.
• Other information:

- ToS exchange rate for June 2023 is USD1 = KHR4,000

- Jim has no dependent child or spouse.

In June 2023, he is subject to:

A. ToS of KHR6,570,200 and ToFB of KHR584,000

B. ToS of KHR6,170,200 and ToFB of KHR560,000
C. ToS of KHR6,170,200 and nil ToFB
D. ToS of KHR6,570,200 and nil ToFB

ii. Jim understands that the company must follow Prakas No. 723 MEF and Instruction No. 3812 MEF on the use
of invoices as well as recent Instruction No. 27380 GDT dated 16 November 2022 when issuing a tax invoice
for the beer sold to self-declaration distributors based on the order of taxes below:

A. PLT, SPT and VAT

B. SPT, PLT and VAT
C. SPT, VAT and PLT
D. VAT, SPT and PLT

iii. Besides sales to distributors, Jim has categorised other use of inventory (beer) as below. Which of the following
items are taxable supplies for VAT purposes?

1. Beer sold to related parties below market price

2. Beer sponsored to entertaining events
3. Beer used for an annual staff party
4. Beer gifted to a distributor

A. 1 only
B. 1 and 2
C. 1, 2 and 4
D. All of the above

Page 6 of 15
iv. The same month, a shareholder sold all his shares to a new Cambodian resident owner. Jim assigns his team
to process the share transfer documents. Based on the ST regulation, this share transfer is:

A. exempt from ST
B. subject to ST at the rate of 4%
C. subject to ST at the rate of 0.1%
D. subject to ST of KHR1,000,000

v. The company intends to enter a short-term cash advance of USD0.5m from the above shareholder to finance
its operation. Based on Instruction No. 10979.GDT dated 25 May 2022 on the supporting documents for interest
payments between related parties, which of the following statements is true?

A. Cash advance from a related party with a period of less than one year (counting from the receiving date to
repayment date) is exempt from the ‘arm’s length principle’.
B. Cash advance from a related party with a period of less than one year (counting from the receiving date to
repayment date) is considered a loan and shall follow the ‘arm’s length principle’.
C. Enterprises that obtain loans from related parties must ensure that the interest rate doesn’t exceed the
market interest rate at the borrowing time. This market interest rate is the average rate collected from at
least three commercial banks.
D. Enterprises that obtain loans from related parties must ensure that the interest rate doesn’t exceed the
market interest rate of the previous taxable year issued by the GDT. This market interest rate is the average
rate collected from at least three commercial banks.

Page 7 of 15
B. Multiple choice (each question is worth 2 points)

Branch of Go Airline Co., Ltd., a self-declaration airline company registered with the MoC and GDT. Below is a
summary of the Branch’s revenues in February 2022.

Revenue Amount (USD)

Air ticket for local flight 250,000
Air ticket for international flight 550,000
Air ticket for overseas management meeting 8,000
Excess baggage fee (for international flight) 60,000
Interest income on a fixed deposit 1,300
Proceeds from the disposal of furniture 200
Total 869,500

Note: all payments are inclusive of all applicable taxes, except VAT (if any).

i. As of January 2022, the Branch has a VAT credit of USD9,000 and VAT input from creditable purchases in
February 2022 of USD35,000. In its February 2022 tax declaration, its VAT position is:

A. VAT credit of USD12,980

B. VAT credit of USD18,980
C. VAT payable of USD17,800
D. VAT payable of USD42,820

ii. In its February 2022 tax declaration, the Branch is subject to SPT of:

A. USD50,727
B. USD73,455
C. USD78,909
D. USD80,800

iii. The accountant knows that payments of Cambodian-sourced income to non-residents are subject to 14% WHT.
These payments include:

1. property or risk reinsurance premiums in Cambodia

2. royalties from right to use paid by a resident person
3. income from business activities conducted by a non-resident through a PE in Cambodia

A. 2 only
B. 3 only
C. 1 and 2
D. 2 and 3

iv. On 10 July 2022, the Branch received an invoice of USD60,000 from HQ for technical service assistance after
its employees fully completed their service for the Branch in June 2022. Based on the invoice, the Branch must
settle the payment within 60 days of receiving the invoice, so the finance team made the payment in mid-August
2022. It’s noted that based on its internal accounting policy, the Branch booked an accrual for the service fee
in April 2022.

Based on the WHT regulation, the WHT is due:

A. in April 2022, when the payment was accrued in the accounting book (i.e. based on an accrual basis)
B. in June 2022, when the service was completed (i.e. based on the completion date)
C. in July 2022, when the Branch received the invoice from HQ (i.e. based on the invoice date)
D. in August 2022, when the payment was made (i.e. based on a payment basis)

Page 8 of 15
v. In its 2022 accounting record, the Branch booked a provision for the tax reassessment of USD80,000 for the
desk audit. In 2023, it agreed to settle the reassessed tax liability. Based on the ToI regulation, the Branch
needs to do the following.

A. Treat it as a permanent non-deductible expense and add it back in the 2022 ToI calculation when it was
booked. So, no adjustment is made in the 2023 ToI calculation.
B. Treat it as a deductible expense and claim a deduction in the 2022 ToI calculation when it was booked.
C. Treat it as a permanent non-deductible expense and add it back in the 2023 ToI calculation when it’s paid
in 2023
D. Treat it as a non-deductible expense and add it back in the 2022 ToI calculation when it was booked. In the
2023 ToI calculation, the Branch can claim the deduction of this expense as it was paid in 2023.

Page 9 of 15
C. Fill in the gaps (each question is worth 2 points)

Rina is a senior tax consultant working in a large tax and accounting consulting firm. Recently, she has been
assigned to train her juniors on tax depreciation for ToI calculation purposes. Rina has researched the current tax
regulation and noted the following.

i. Tangible property subject to special depreciation shall be used for a minimum of years after the tax
year in which the special depreciation is claimed.

ii. If the asset is disposed of before the above period, the investor shall be required to recognise taxable income
at an amount equal to the special depreciation deduction reduced by of the special depreciation,
which has been claimed, as a deduction for each month or any part of the month that the asset was put in
use.

iii. Rubber crops shall be depreciated for 20 years with different depreciation rates. For the first two beneficial
years, the depreciation is applied at the rate of .

iv. For agricultural crops besides rubber, the depletion deductible for a tax year shall be calculated using the
straight-line depreciation method for the life of the beneficiary result or at a rate of per annum,
whichever is sooner.

v. For animal husbandry, the depletion deductible for a tax year shall be calculated using the straight-line
depreciation method for the life of the beneficiary result or at a rate of per annum, whichever is
sooner.

Page 10 of 15
Question 3

Home Depot Co., Ltd. (HD or the company) is a retail business that supplies construction materials and home
furnishings in Cambodia. It was duly registered with relevant local authorities, including the GDT, in 2020 to operate
a shop selling a wide range of home construction materials. It also obtained a gold tax compliance certificate
approved by the GDT for the 2021 and 2022 tax years.

Below is the company’s financial statement for the year ended 31 December 2022.

Income statement: Note USD Balance sheet Note USD

Sale of product 2,700,000 ASSETS

Cost of goods sold 1 (945,000)
Gross profit 1,755,000 Current assets
Cash 253,535
Other income:
Accounts receivable 80,150
Interest income 2.a 34,300
WHT credits 2,058
Dividend 2.b 100,000
Gains on fixed assets disposal 2.c 4,000 Inventory 1,472,000
138,300 Allowance for inventory write-off 19 (44,160)
Cost of sales: 1,763,583
Delivery 3.a (20,000)
Marketing campaign 3.b (5,000) Non-current assets
(25,000) Property and equipment 878,800
General and administrative expenses: Accumulated depreciation (184,800)
Depreciation and amortisation (95,000) Investment in other enterprise 885,000
Salaries and other remuneration 4 (291,200) 1,579,000
Management's phone and car allowance 5 (34,240)
Employee benefit 6 (72,100) TOTAL ASSETS 3,342,583
Relocation cost 7 (6,300)
Inventory write-off (21,160)
LIABILITIES AND EQUITY
Recharge cost 8 (31,000)
Legal and consultation fee 9 (12,200)
Office management (31,000) Current liabilities
Maintenance 10 (41,100) Customer advance deposit 20 95,800
Entertainment expense 11 (30,500) Accrued employee bonuses 21 45,200
Donation 12 (80,000) Payables to a related party 22 607,000
Travel and accommodation expense 13 (12,000) Tax payables 15,500
Consulting services 14 (25,000) 763,500
Other taxes expense 15 (30,400)
Utilities (29,700) Non-current liabilities
Exchange loss 16 (6,000) Loans from bank 305,000
Custom and import charge 17 (46,800) Loans from shareholder 500,000
Administrative expense (9,600) 805,000
(905,300)
Total liabilities 1,568,500
Operation profit 963,000

Interest expense 18 (60,620) Equity

Capital 1,000,000
Profit before income tax 902,380 Retained earnings 52,179
Current year profit 721,904
Income tax expense (180,476) 1,774,083

Net profit for the year 721,904 TOTAL LIABILITIES AND EQUITY 3,342,583

Page 11 of 15
Notes to the financial statement

1. HD sold the materials at the cost of USD30,000 to one of its related parties, a tax-registered entity in Cambodia.
It’s noted that the company normally marks up the cost at 35% for its sale to general customers.
2. Besides the main income generated from product sales, HD earned the following other income.
a. Interest income: HD had a fixed savings account at a local bank and received annual net interest income
after withholding 6% WHT. The interest income was recorded at gross, and a WHT credit of USD2,058 was
recorded separately in the ‘WHT credits’ account of the balance sheet.
b. Dividend: HD received a dividend of USD100,000 from its subsidiary, which the applicable ToI has been
calculated and paid to the GDT by the subsidiary.
c. Disposal of assets: HD disposed of computer equipment purchased in 2020 and registered as a fixed asset
in the same year. Its accounting net book value at the disposal date is USD27,000.
3. HD incurred the following expenses from its ‘Cost of sales’ account.
a. Delivery: As part of the sale, HD delivered the products and materials to customers whose residents were
in the city. For the products and materials that needed to be delivered outside the city, HD outsourced the
work to delivery agents, who were individual and small taxpayers. This account includes a non-creditable
VAT input from the small taxpayers of USD350 and WHT borne on behalf of the individual suppliers of
USD600.
b. Marketing campaign: The company gave vouchers for free drinks and snacks (i.e. up to USD50 each) at a
newly opened restaurant for mid-sale promotion to customers. The customers used all vouchers with a total
value of USD2,200 by 31 December 2022.
4. HD recorded all salaries and other remuneration paid to employees in the ‘Employee salary’ account, including
ToS borne by the company of USD23,500 and accrued bonus (to be paid in April of the following years) of
USD45,200.
5. The company provided phone and car allowances to management. Applicable ToFB on these expenses has
been paid to the GDT.
6. The ‘Employee’s benefit’ account recorded medical care provided to all employees equally. The 20% ToFB on
these expenses that the company paid on behalf of the employees is recorded in the ‘Tax expenses’ account.
7. The company also recorded a relocation cost of its new finance supervisor from Singapore of USD6,300 in its
accounting book. No ToFB has been paid to the GDT.
8. HD incurred a recharged cost on marketing training to its parent company in Singapore of USD31,000. This
includes a final payment of USD3,000 that the financial manager couldn’t release until August 2023 due to an
internal communication error.
9. The company recorded a reimbursement from a supplier for penalty on late filing for the annual declaration of
the commercial enterprise of USD100 in the account ‘Legal and consulting fee’.
10. The company hired a self-declaration supplier for office and shop maintenance services. The total maintenance
cost for 2022 is USD41,100, with supporting documents of USD800 not found.
11. Account ‘Entertainment’ represents meals for staff parties and entertainment events. The company paid 20%
ToFB on this expense to the GDT.
12. HD donated USD60,000 to the Cambodian Red Cross for charity events. The Cambodian Red Cross awarded
a certificate of appreciation to HD for this donation. The remaining USD20,000 represents a donation to the local
community to build libraries for students.
13. Based on the company’s policy, employees could reimburse cash back for mission expenses or request a cash
advance for missions. In January 2022, the junior accountant recorded a reimbursement for mission travelling
expense of USD400, reimbursed by the staff in December 2021 in the account ‘Travel and accommodation
expenses’ of 2022 IS.

Page 12 of 15
14. The consultation fee of USD25,000 included a 14% WHT which the company failed to withhold on the payment
made to a non-resident IT consulting firm.
15. The ‘Tax expenses’ account includes a patent tax of USD1,250, non-creditable VAT of USD14,730 and ToFB
expense as specified in Note 6 of USD14,420.
16. The ‘Exchange loss’ represents a loss on currency translation and includes realised exchange loss of USD4,300
and an unrealised exchange loss of USD1,700.
17. Account ‘Custom and import charge’ records relevant customs duties and clearance fees. The clearance fee
included a 15% WHT expense borne by HD of USD300, which was paid to an individual agent.
18. Interest expenses

• HD accrued annual interest expenses at the rate of 7% on a USD500,000 loan received from its overseas
shareholder. They expected to pay the accrued interest expense on the loan until mid of July 2023.
• Another loan principal of USD305,000 was obtained from a local bank at an annual interest rate of 8.4%,
resulting in a USD25,620 interest expense in 2022.
19. As required by its accounting policy, the company booked a provision for inventory write-off of USD44,160 for
2022 to account for the obsolete products and materials stored in the warehouse. The closing balance of this
provision as at December 2021 is USD23,000.
20. In December 2022, it received an advance deposit (non-refundable) of USD95,800 from an interior design
company for the material supplies for a new condominium project.
21. This is the accrued bonus for its employee, which is expected to be paid in April 2023.
22. Besides the accrued interest expenses to the shareholder, as noted in Section 18, HD also recorded payables
to the related party representing the amount payable to non-resident shareholders for the purchased inventory
during 2022 of USD572,000. To assist HD’s financing operation, the parent company allowed HD to delay the
payment of this purchase up to November 2023.

Other information
a) Below is the tax depreciation based on the 2021 ToI return submitted to the tax authority and the additional fixed
asset information in 2022.

Historical cost Depreciation Tax written down Addition

Assets
2021 2021 value 2021 2022
Building (concrete) 186,000 9,300 176,700 -
Office equipment/furniture and cars 582,000 145,500 436,500 79,000
Computer and electronic devices 130,000 65,000 65,000 -
Total 898,000 219,800 678,200 79,000

b) HD’s capitalisation of assets for accounting follows the tax regulations on the cost of assets recognition.
c) All expenses and income exclude VAT and other applicable taxes unless otherwise specified.
d) HD received confirmation from the GDT that it maintained proper accounting records for 2022.
e) HD paid USD27,000 to the GDT for ToI prepayments in 2022.
f) HD’s lodged 2021 ToI return shows:
• a nil tax loss carried forward
• unutilised interest carried forward of USD51,240, and
• prepayments of USD750 in ToI credit carried forward.

Required: Calculate HD’s ToI/minimum tax liability for the year ended 31 December 2022 based on the above
information. (20 points)

Page 13 of 15
 Question 4

Easy Electronic Co., Ltd. (EE or the company) is a supplier of household smart devices in Cambodia, registered with
the Ministry of Commerce and the GDT since 2018. The company entered into a land rental agreement with an
individual Cambodian landowner from January 2021 to December 2023 to build a warehouse to store its products.

Required

i. Based on the agreement, the company is required to deposit 10% of the total rental price in January 2021 to
the owner when the agreement is effective. This deposit will be offset with the last two-month rental payments
at the end of the contract term (i.e. 2023). EE recorded the deposit amount in BS in January 2021 and has not
accrued the deposit in its accounting book before.

Based on the current tax regulations, please advise the tax implications of the above rental deposit for EE as a
payer. (3 points)

ii. The company built a warehouse with three floors on the rented land as below.

Size Amount per metre square (USD)

Description
issued by GDT
Land price 20m x 25m 60
Ground floor 15m x 20m 50
First floor 15m x 20m 45
Second floor 15m x 20m 40

As stated in the rental agreement, EE, the beneficiary, is responsible for paying the tax on immovable property
for the whole contracting period. Assuming the exchange rate is USD1=KHR4,000, calculate the property taxes
the company must pay for 2021. (4 points)

iii. EE's tax manager understands that the company could be entitled to MT exemption if it maintains proper
accounting records.

Based on MEF’s Prakas No. 638, the MEF set certain criteria to determine ‘maintaining improper accounting
record’. So, if EE doesn’t fall into any set criteria above, it could be entitled to the MT exemption. Please advise
three criteria for maintaining improper accounting records based on MEF’s Prakas No. 638. (3 points)

Page 14 of 15
 Question 5

Ryan is a finance manager who works for Creative Co Limited (CC or the company), a professional interior design
company registered as a medium taxpayer in Cambodia. CC works on architectural design and renovation and
imports decorating materials from Thailand for its projects.

Required

i. Due to a delay in shipping materials, the supplier paid USD3,400 compensation to the company as stated in
the supply agreement. Ryan wonders whether it’s subject to VAT and any other applicable taxes. Please advise.
(3 points)

ii. In December 2023, Ryan noted that the outstanding account receivable of USD5,000 is long overdue. Though
CC has been actively following up and trying its best to collect the payment, it’s not expected to be collected as
the customer is bankrupt. So, he decided to write off this bad debt and got approval from the management
team. Based on the ToI regulation, please advise if the write-off is deductible for ToI calculation purposes along
with the required supporting documents (if any). (3 points)

iii. Recently, CC has been working on a new showroom design project to be constructed in Loas. He has sent the
draft design done in Cambodia by his team to the customer and is expected to issue a 50% service fee after
the client agrees on the draft. Ryan wonders if this supply is entitled to the normal VAT rate or 0% VAT and
what type of invoice the company should issue to the customer. Please advise. (4 points)

Page 15 of 15
 CAMBODIAN TAXATION
EXAM PAPER
FOR JUNE 2023

ANSWERS
Answer 1:

i. C
ii. D
iii. D
iv. B
v. B
vi. A
vii. B
viii. D
ix. C
x. B
xi. B
xii. C
xiii. D
xiv. C
xv. C

Page 1 of 8
Answer 2:

Part A:

i. B

Amount Amount
Description Note Taxable/exemption
(USD) (KHR)
Monthly salary 6,500 26,000,000 - ToS
Seniority payment (from January to June 2023) 3,250 13,000,000 - ToS
Medical reimbursement 700 2,800,000 N1 ToFB
Transportation allowance 30 120,000 N2 Exempt
Reimbursement of management training costs 1,200 4,800,000 N3 Exempt
Other deduction: pension fund paid to NSSF (6) (24,000) - Exempt
Total 11,674 46,696,000 -

• N1: Based on its HR policy, all manager levels and above could claim medical reimbursement at the
maximum of USD700 yearly. All supporting invoices and payment receipts must be submitted to HR and
the finance team.
• N2: The transportation allowance is also provided with the same amount to all employees. The company
has maintained an internal policy for such provisions that were properly submitted to the GDT.
• N3: The reimbursement of training costs required by the company, including accommodation, meals and
airfares, which Jim paid by himself during the training and later reimbursed to the company with proper
invoices and payment receipts.
• Other information:

- ToS exchange rate for June 2023 is USD1 = KHR4,000

- Jim has no dependent child or spouse.
ToS calculation Amount (KHR)
Monthly salary 26,000,000
Seniority payment (from January to June 2023) 13,000,000
(Less): Seniority payment not subject to ToS (2,000,000)
(Less): Other deduction: pension fund paid to NSSF (24,000)
Total taxable salaries 36,976,000
(Less): Rebate -
Total ToS base 36,976,000
ToS rate 20%
Cumulative tax at top of band 1,275,000
ToS: (36,976,000 - 12,500,000) * 20% + 1,275,000 6,170,200

ToFB calculation Amount (KHR)

Medical reimbursement 2,800,000
Total fringe benefit base 2,800,000
ToFB rate 20%
ToFB: (2,800,000 *20%) 560,000

ii. B
iii. D
iv. C
v. A

Page 2 of 8
Part B

i. B

Note: all payments are inclusive of all applicable taxes, except VAT (if any).

Revenue Amount (USD) VAT output (USD) [a]

Air tickets for local flights 250,000 25,000
Air tickets for international flights 550,000 -
Air tickets for overseas management meetings 8,000 -
Excess baggage fees (for international flights) 60,000 -
Interest income on a fixed deposit 1,300 -
Proceeds from the disposal of furniture 200 20
Total 869,500 25,020

[b] VAT input on creditable purchases for February 2022: USD35,000

[c] VAT credit carried forward from January 2022: USD9,000

a – b – c = USD25,020 – USD35,000 – USD9000 = USD (18,980) (VAT credit)

ii. B

Revenue subject to SPT Amount (USD) [a]

Air tickets for local flights 250,000
Air tickets for international flights 550,000
Air tickets for overseas management meetings 8,000
Total 808,000
SPT base [b=a/1.1] 734,545
SPT [c=b*10%] 73,455

iii. D
iv. A
v. A

Part C

i. 4
ii. 2%
iii. 3%
iv. 5%
v. 10%

Page 3 of 8
Answer 3: HD’s 2022 ToI calculation

Note USD USD

Accounting profit after tax 721,904

Add: income tax expenses 180,476
Accounting profit before tax 902,380

Add back: non-deductible expenses

Accounting depreciation 95,000
WHT borne by the company [3,070 on consulting services + 6,000300 on custom clearance + 600 on delivery] 3,970
ToS borne by the company 23,500
Accrued bonus not paid within 180 days -
Other benefits provided to staff (of which ToFB have not been paid) 6,300
Increase in provision [44,160 - 23,000] 21,160
Penalty 100
Expenses without supporting documentation 800
Entertainment expense [already paid ToFB] N1 -
Donation 20,000
Gift 2,200
Expenses from the previous year 400
Tax expenses [ToFB borne by the company] 14,420
Unrealised exchange loss 1,700
Accrued recharge costs to related parties unpaid within 180 days after year-end N2 3,000
Accrued interest expenses to related parties unpaid within 180 days after year-end N2 35,000
Accrued inventory purchase expenses to related parties unpaid within 180 days after year-end N2 -
Subtotal 227,550

Add back: other taxable income not recorded in IS

Adjustment on the sale of goods to a related party at market value [30,000*135%] 40,500
Customer's deposits (non-refundable) 95,800
Subtotal 136,300

Less: expenses not recorded but deductible in the period

Tax depreciation W1 (155,175)
Decrease in provisions -
Subtotal (155,175)

Less: income recorded but not taxable during the period

Dividends (100,000)
Gains on fixed assets disposal (4,000)
Subtotal (104,000)

Net profit before charitable contribution adjustment 1,007,055

Add: non-deductible charitable contribution expenses W2 6,647

Net profit before interest adjustment 1,013,702

Add: non-deductible interest expenses W3 -

Less: interest expenses carried forward N3 (51,240)

Taxable profit during the period 962,462

Less: tax losses carried forward N4 -

Taxable profit for ToI calculation 962,462

ToI @ 20% 192,492

Minimum tax is exempt N5 -

ToI Payable (ToI>MT) 192,492

Less: WHT credit on interest [34,300 x 6%] (2,058)

Less: PToI paid during the year (27,000)
Less: PToI credit carried forward from last year N6 (750)
(29,808)

ToI liability 162,684

Page 4 of 8
Notes:
• N1: Personal living or family expenses in cash or in kind, where applicable ToFB has been paid,
are deductible.
• N2: An accrued expense to a related party paid within 180 days after year-end is permanently
non-deductible, except for the inventories and depreciable assets payable.
• N3: Non-utilised interest expenses carried forward from the 2021 ToI return is USD51,240.
• N4: The company has no tax loss carried forward.
• N5: Minimum tax is exempt from proper accounting record-keeping.
• N6: PToI credit carried forward from last year is USD750.

Working 1: tax depreciation

Tax written Sale Dep. in

Historical down value Addition proceeds Dep. Dep. the
Assets cost (2021) (2021) in 2022 in 2022 base Class rate period
Building (concrete) 186,000 176,700 - - 186,000 1 5% 9,300
Office equipment/furniture & cars 582,000 436,500 79,000 - 515,500 3 25% 128,875
Computer & electronic devices 130,000 65,000 - 31,000 34,000 2 50% 17,000
Total 898,000 678,200 79,000 31,000 155,175

Working 2: charitable contribution calculation

Charitable contribution
Net profit before charitable contribution adjustment 1,007,055
Add: Charitable contribution (a) 60,000 *Red Cross
Adjusted profit for a calculated maximum deductible contribution 1,067,055
Maximum deductible charitable contribution @ 5% 53,353
Deductible contribution during period (b) 53,353

Charitable contribution to be added back 6,647

Working 3: Maximum interest deduction

USD USD
Maximum interest deduction calculation
Interest income 34,300
Net non-interest income:
Adjusted profit before interest adjustment 1,013,702
Add: Interest expense during the year 60,620
Less: Accrued interest to a related party unpaid within 180 days (35,000)

Less: Interest income (34,300)

Net non-interest income 1,005,022
50% of net non-interest income 502,511
Maximum interest expense deduction allowable for the year 536,811
Current year interest expenses
(excluding accrued interest to a related party unpaid within 180 25,620
days)
Current year interest expenses to be added back -

Page 5 of 8
Thus, the year’s total interest expenses of USD60,620 are not fully deductible. Only the USD25,620 portion paid to
the bank is deductible in 2022. The remaining USD35,000 paid to the overseas shareholder is permanently non-
deductible.

As HD has accumulated interest expenses carried forward of USD51,240 which has not been utilised, it can fully
utilise this by deducting them from the net profit before the interest adjustment in 2022.

Page 6 of 8
Answer 4

i. Below are the tax implications on the rental deposit:

a) WHT:
- As it’s a non-refundable rental deposit, it is part of the rental expenses which are paid in advance.
Based on the WHT regulation, rental payments made to a non-self-declaration supplier are subject to
10% WHT.
- WHT is due when the payment is made to the supplier. For WHT purposes, the payment is considered
made/paid when it is recorded as an expense in the accounting book (on an accrual basis) or actually
paid, whichever earlier. As EE has never accrued this payment in its accounting book, WHT was due
when EE made the deposit (rental payment) to the supplier in January 2021, Accordingly, it has an
obligation to withhold the tax and remit it to the GDT on behalf of the supplier by 25 February 2021.

b) ToI:
- ToI Prakas 098 Article 24, 2d states that a prepaid expense shall only be deducted from the income of
the taxable year when the expense is actually incurred. Although the deposit was made to the supplier
in 2021, it is still a prepayment and not recorded as an expense in the income statement. When the
expense is realised in 2023 (in form of the final two months of rental expenses), EE can claim it as a
deductible expense in the 2023 ToI calculation.

ii. Property taxes calculation:

Amount per metre square Total property price in

Description Size [a]
(USD) issued by GDT KHR @4,000
Land price 20m x 25m 60 120,000,000
Ground floor 15m x 20m 50 60,000,000
First floor 15m x 20m 45 54,000,000
Second floor 15m x 20m 40 48,000,000
Total [a] 282,000,000
Property price at 80% [b=a*80%] 225,600,000
Less: Exemption portion [c] (100,000,000)
Property tax base [d=b-c] 125,600,000
Tax rate [e] 0.1%
Property tax payable [f=d*e] 125,600

As EE is the current beneficiary, it is liable for KHR125,600 in property tax for 2021.

iii. The conditions for determining improper accounting records is defined in MEF Prakas 638 dated 4 July 2017,
which include:
- accounting records that don’t meet the requirements set out by the GDT and the MEF
- failure to issue invoices for business transactions following the Law on Taxation (LoT)
- serious negligence as defined in the LoT
- tax evasion as defined in the LoT
- not obtaining an audit report from an independent auditor if annual turnover is more than KHR2bn
(approx. USD500,000).

Page 7 of 8
Answer 5

i. Creative Co Limited (CC or the company) is a professional interior design company registered as a medium
taxpayer in Cambodia. Thus, its main business income derives from providing architectural design and
renovation services.
- ToI: Based on MEF Prakas 098 on ToI, the compensation from the supplier is not considered its main
business income but as ‘other income’ which is subject to 20% ToI (exempt from 1% PToI and 1% MT).
- VAT: Based on the VAT regulations, the supply of goods of services in Cambodia (except for land and
money) is considered a taxable supply that is subject to 10% VAT. As this income is merely the supplier
compensating for failing to fulfil its obligation under the service agreement, which is not a payment to
CC for any supply of goods or services made by CC, it’s arguable that the compensation received is
not considered as CC’s taxable supply. Accordingly, it should not subject to 10% VAT.

ii. Under ToI Prakas Article 33, the write-off of the uncollectible debt is deductible only if the impossibility to recover
that debt can be clearly shown, such as with:
- documented attempts to collect the debt
- clear evidence of the efforts
- definitive insolvency of the debtor with the debt having been written off from the enterprise’s accounting
books.

Thus, the write-off of the uncollectible receivables of USD5,000 is deductible for ToI calculation purposes
because the customer is bankrupt and CC has been trying its best to collect the debt but it’s unlikely to be
collected. On the same basis, CC also obtained approval from its management to witness that the expense has
been written off from its accounting book.

iii. Based on Article 15 of the VAT sub-decree, suppling services for use or consumption outside of Cambodia is
subject to 0% VAT. GDT Instruction 9898 Section 2 also further defines that the service is considered being
consumed outside Cambodia if it is performed in Cambodia by a Cambodian resident but is exclusively used
for purposes outside of Cambodia. Although the draft design was done in Cambodia by CC’s team, the
showroom will be built and designed in Laos, ultimately serving a business outside of Cambodia (i.e. in Laos).
Thus, the service fee for the design is subject to 0% VAT. As the client is a non-resident, CC is required to issue
a commercial invoice charging 0% VAT to the client.

To be entitled to this 0% VAT incentive, CC is required to maintain:

- the service agreement clearly indicating the service fee, type of service and place that the service is
rendered
- supporting documents for the service fee from Laos to Cambodia
- the original invoice
- other accounting records which can be verified.

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