CAMBODIAN TAXATION

EXAM PAPER
FOR DECEMBER 2023

ANSWERS
Answer 1:

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

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Answer 2:

Part A:

i. B

ATDD and WHT calculation USD

Interim dividend (a=400,000/2) 200,000
To Haiken Pte. Ltd. (b=a*40%) (not subject to WHT) 80,000
To Haiken Investment Cambodia (c=a*60%) 120,000
14% WHT (d=b*14%) 11,200

Gross-up dividend (e=a/0.80) 250,000

ATDD (f=e*20%) 50,000

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

Part B:

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

Other information: Mr Naroth is married with two children. His youngest child is 10 years old while his oldest
child is 14 years old studying at one of state-owned high school. His wife is working as an accountant in one
local company. The HR in the company that his wife working with has already claimed the rebate from his
youngest child.

Assuming the exchange rate for December 2023 is USD1 = KHR4,000, what amount of ToS and ToFB is Mr
Naroth subject to in December 2023?

Amount
ToS calculation
(KHR)
Paid by ECC (Home country)
Salary 14,000,000
Year-end bonus 20,000,000
Seniority payment (from January to June 2023) 4,000,000
Deduction: repayment of advance salary in November 2023 (6,000,000)
(Less): Seniority payment not subject to ToS (2,000,000)
(Less): Pension fund paid to NSSF (24,000)
Total taxable salaries 29,976,000
(Less): Rebate -
Total ToS base 29,976,000
ToS rate 20%
Cumulative tax at top of band 1,275,000
ToS: (29,976,000 - 12,500,000) * 20% + 1,275,000 [a] 4,770,200

ToFB calculation Amount (KHR)

Paid by Egarette Switzerland (Host country)
Housing allowance in Switzerland 12,000,000
Living allowance in Switzerland 16,000,000
Health insurance in Switzerland 8,000,000
Total fringe benefit base 36,000,000
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 ToFB rate 20%
ToFB: (36,000,000 *20%) [b] 7,200,000

ToS and ToFB payable in December 2023 [a + b] = 4,770,200 + 7,200,000 = 11,970,200

v. B

Part C

i. 1,200,000
ii. 200,000,000
iii. 80%
iv. 5%
v. 4%

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Answer 3: HC’s 2023 ToI calculation

Note USD USD

Accounting profit after tax 112,036

Add: income tax expenses 28,009
Accounting profit before tax 140,045

Add back: non-deductible expenses

Accounting depreciation 109,250
Unclaimable input VAT on delivery services from small taxpayers N1 -
WHT borne by the company 913
ToS and ToFB borne by the company 4,000
Other benefits provided to staff of which ToFB have been paid [medical allowace of USD500 (Note 4)] N2 -
Expenses from the previous period 200
Gift 800
Entertainment expense [No ToFB paid] 9,575
Donation 2,000
Other tax expenses [tax reassessment] 33,710
Fine and all types of penalties 500
Accrued interest expenses to related parties unpaid within 180 days of year-end N3 18,250
Accrued expenses on purchase of inventory to related parties unpaid within 180 days of year-end N3 -
Accrued bonus for staff paid within 180 days of year-end N3 -
Subtotal 179,198

Add back: other taxable income not recorded in IS

Free goods marked up to market value [10,500*140%] 14,700
Customers' deposit (Unearned revenue) 17,000
Subtotal 31,700

Less: expenses not recorded but deductible in the period

Tax depreciation W1 (37,713)
Decrease in provisions [17,580-27,600] (10,020)
Subtotal (47,733)

Less: income recorded but not taxable during the period

Unrealised gain on currency translation (700)
Accounting gains on fixed assets disposal (4,600)
Subtotal (5,300)

Net profit before charitable contribution adjustment 297,911

Add: non-deductible charitable contribution expenses W2 4,104

Net profit before interest adjustment 302,015

Add: non-deductible interest expenses W3 -

Less: interest expenses carried forward N4 (16,860)

Taxable profit during the period 285,155

Less: tax losses carried forward N5 -

Taxable profit for ToI calculation 285,155

ToI @ 20% 57,031

Minimum tax is exempt N6 -

ToI Payable (ToI>MT) 57,031

Less: WHT credit on interest [17,000 x 6%] (1,020)

Less: PToI paid during the year (12,860)
Less: PToI credit carried forward from last year N7 (1,125)
(15,005)

ToI liability 42,026

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 Notes:
 N1: Unclaimable input VAT for purchases from small taxpayers is deductible.
 N2: Personal living or family expenses in cash or in kind, where applicable ToFB has been
paid, are deductible.
 N3: 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.
 N4: Non-utilised interest expenses carried forward from the 2022 ToI return: USD16,860
 N5: The company has no tax loss carried forward.
 N6: Minimum tax is exempt from proper accounting record keeping.
 N7: PToI credit carried forward from last year is USD1,125.

Working 1: tax depreciation

Historical Tax written Sale Dep. In

Dep. Dep.
Assets cost down value Addition proceeds Class the
Base Rate
(2022) (2022) in 2023 in 2023 period
Building (concrete) 180,000 171,000 - - 180,000 1 5% 9,000
Office equipment/furniture & cars 59,000 44,250 - 15,000 29,250 3 25% 7,313
Computer & electronic devices 65,600 32,800 10,000 - 42,800 2 50% 21,400
Total 304,600 248,050 10,000 15,000 37,713

Working 2: charitable contribution calculation

Charitable contribution
Net profit before charitable contribution adjustment 297,911
* To Kantha Bopha
Add: Charitable contribution (a) 20,000
Children’s Hospital
Adjusted profit for a calculated maximum deductible contribution 337,911
Maximum deductible charitable contribution @ 5% 15,896
Deductible contribution during period (b) 15,896

Charitable contribution to be added back (a-b) 4,104

Working 3: Maximum interest deduction

USD USD
Maximum interest deduction calculation
Interest income 17,000
Net non-interest income:
Adjusted profit before interest adjustment 302,015
Add: Interest expense during the year 28,810
Less: Accrued interest to a related party unpaid within 180 days (18,250)

Less: Interest income (17,000)

Net non-interest income 295,575
50% of net non-interest income 147,788
Maximum interest expense deduction allowable for the year 164,788
Current year interest expenses
(excluding accrued interest to a related party unpaid within 180 10,560
days)
Current year interest expenses to be added back -

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Thus, the year’s total interest expenses of USD28,810 are not fully deductible. Only the USD10,560 interest
expense paid to the bank is deductible in 2023. The remaining USD18,250, to be paid to the overseas shareholder
by the end of Q3 2024, is permanently non-deductible.

As HC has accumulated interest expenses carried forward of USD16,860 which has not been utilised (i.e. less
than 5 years), it can fully utilise this by deducting from net profit before the interest adjustment in 2023.

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Answer 4

i. Based on Article 27 of the ToI Prakas, HCP can claim deduction of the preliminary expenses in its ToI
calculation. It is allowed to claim such deduction through the two options below:

- fully deducting the whole expense in the first tax year, or

- deducting the expenses through deprecation based on straight-line method for two years.

ii. WHT implication of the interest expenses paid to a self-declaration taxpayer:

Based on Articles 45 and 46 of the ToI Prakas, interest payments paid by a self-declaration taxpayer, other
than domestic banks to resident taxpayers, are subject to 15% WHT. So, HCP is required to withhold 15%
WHT on interest expenses paid to HAL and remit this 15% WHT to the GDT on behalf of HAL.

Under Article 45 of the ToI Prakas, WHT is due when an expense is paid. The expense is considered paid
when it is actually paid or recorded as an expense in the accounting records of the taxpayer, whichever is
earlier (i.e. accrual basis). Thus, the above 15% WHT on interest expenses is due when HCP accruals such
expenses in its accounting book or makes actual payment to HAL, whichever is earlier.

iii. Tax implications of loan and interest waive-off for HCP’s tax perspectives:

- ToI: Based on Article 10 of the ToI Prakas, cancellation of debt (i.e. loan waiver) is considered a taxable
income and subject to 20% ToI. Thus, the remaining loan principal and interest waived shall be
considered as taxable income for HPC that’s subject to 20% ToI in the tax year that the waived amount is
granted.
- MT: Loan principal and interest waived are not HCP’s main business income (but ‘other income’). So,
based on Articles 21 and 23 of new ToI Prakas, they are not subject to 1% MT.
- PToI: Similar to MT above, loan principal and interest waived are not HCP’s main business income (but
‘other income’). So, based on Article 21 of the new ToI Prakas, they are not subject to 1% PToI.
- VAT: The loan and interest waive-off are not incomes resulting from making taxable supplies and so they
are not subject to 10% VAT.

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Answer 5

i. Based on the VAT regulations, the supply of pharmaceutical products is considered a taxable supply. So,
GPC is required to charge 10% VAT when it sells the products to the pharmacies, hospitals and all customers
in Cambodia. Accordingly, its input VAT during import of the products (which was paid to the General
Department of Custom and Excise) can be claimed as input VAT credit for offsetting with the above output
VAT on sale.

For VAT purposes, time of supply is the earlier of when:

- GPC issues the invoice, or

- GPC has an obligation to issue the invoice, whether within 7 days of the delivery of goods or within 7
days of receiving the payment.

ii. Due to broken packages, the customer has returned some diabetic products to GCP. Thus, GCP could issue
a credit note to the customer for the returned products as it is consistent with the rule to issue credit note
based on the VAT Sub-decree and GDT’s Instruction 1280 GDT dated 24 January 2022.

Based on the VAT Sub-decree and GDT’s Instruction 1280 GDT dated 24 January 2022, a taxable person
can make an adjustment to previously paid VAT if the following circumstances arise:

- The supply is cancelled, or

- The nature of supply has been fundamentally varied or altered, or
- The previously agreed consideration for the supply has been altered by the agreement with the recipient
of the supply, whether due to an offer of a discount or any other reasons, or
- The goods or part thereof or any packaging has been returned to the supplier or services haven't been
completed.

iii. Based on Article 10 of Prakas 270 MEF on the tax audit, GPC can request a delay in the tax audit process as
follows:

- If the delay is less than 10 days, taxpayers can verbally request the tax auditors.
- If the delay is from 10 to 30 days, taxpayers need to submit a written request to the GDT or tax branch.

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