Cambodia has become a popular destination for business not only with Japanese companies but with companies from all over the world. We asked legal, tax and accounting professionals about the current situation of the legal and tax systems in the Kingdom.
■ Improvement and operation of law
The legal environment defies any attempt at a quick and simple solution such that the difficulty is still being observed in the operation while maintaining and revising rules are continuing further.
The government is strengthening tax collection system such as enhanced management of tax inquiry and liability of tax, incentive payment system to personnel in charge collecting additional tax, based on the budget set by each fiscal year’s financial law. Furthermore, as a main measure, promotion of registering businesses for those who have neglected registration despite the obligation, a new system operation, re-registration procedure of all taxpayers and ICT conversion such as electronic registration application system is all progressing.
In February 2017, to promote tax registration, a Sub-Decree was issued announcing a two-year corporate tax exemption for small and medium-sized enterprises that complete the tax registration to the Ministry of Economy and Finance by the end of 2018.
Mak Brathna ＆Duc Dalin -Manager of I-Glocal
■ The characteristic of Cambodian taxation
As a characteristic of Cambodian taxation, although the framework of the tax system has been improved, it is difficult to foresee tax payment because the implementation of detailed regulations are delayed, and tax interpretation is often diverse. When failing to organize documented evidence such as receipts, contracts, and invoices, lack of logical explanation to the authorities may result in unexpected taxation costs such as retroactive tax.
Tomohiro Miyata-Director of SCS Global Consulting
Mr. Shotaro Nishiyama from Tokyo Consulting Firm has said “In entering to Cambodia, it is necessary for us to know changes in real-time situation in Cambodia. In recent years, the minimum wage for workers engaged in sewing, clothing and shoes industry has been increasing from year to year. In addition, Chinese enterprises entering the market has become active, and we expect that the system will be tightened further from economic perspective from now on.”
Also, Mr. Motohiro Miyata from SCS Global Consulting (hereinafter referred to SCS) has said “In Cambodia, many businesses do not perform tax registration, and there is a case that we cannot pass on the portion of value added tax to the price when providing products and services to such businesses. Therefore, when considering of investment in Cambodia, it is very important to conduct an effective preliminary survey and planning on the external environment surrounding for the products and services target. ”
■ Procedure of Tax Declaration/Return
Cambodia’s tax return obligation is characterized by being more complicated compared to that in neighboring countries. It is mandatory to prepare and submit tax return documents every month, also there are tax to be paid on a monthly basis before the annual corporate tax amount is finalized. While rules and procedures are extremely complicated, many cases are such that sudden changes on the underdeveloped system are implemented, and this is also one of the risk factors that constantly plague the enterprises entered there.
Ms. Mak Brathna from I-Glocal has said “In Cambodia, it is often seen the cases of receiving taxation retroactively back-dating to the past so that it is important to properly update legislation as well as proper tax payment for future from now. We will provide appropriate tax payment support to mitigate future risks from now.” urging the need to prepare for tax inquiry unique to Cambodia
At any rate, there is a difficult part to respond to Cambodian tax problems, and it is important to hear opinions from experts who have correct knowledge.
■ Tax Inspection
From the latter half of 2016, the number of personnel of tax officials who conduct such as tax investigation has been further increased by the number of manpower and their knowledge and experience-value, and some further mitigation measures have been planned for taxation that has been unclear or over-burdened by the past so that the recent tax bureau has also increased its experience-value, and the number of detailed content point-outs are increasing. Highly professional knowledge and experience-value are being increasingly required in negotiations; therefore, more expertise and negotiating skills are required to the accounting firms from now on.
In addition, as a new movement that we are paying attention to, Ms. Duk Darin from I-GLOCAL advises by saying “Even if a representative of a Cambodian corporation or a long-term business trip personnel from the headquarter worked at a Cambodian corporation had not received the payroll and the compensation, in the most recent tax investigation, there are many cases such that the taxable payroll and compensation are frequently estimated and taxed. Therefore, we recommend to set up the payroll amount or the compensation amount for business trip for tax purposes in Cambodia.”
While the tendency towards strengthening the regulatory reinforcement for penetrating appropriate taxation remains unchanged by increasing the number of tax officials and others who have knowledge and experience of accounting and tax, the complexity of the tax system in Cambodia and the additional taxation risk reflected unreasonably to the enterprises are gradually being recognized by the enterprises entered. The Cambodian government seems to be taking measures to prevent excessive hindrance to the incentives of foreign enterprises entered there.
It is the matter how practically face the customer’s legal and accounting practices and problems and work together towards the solution rather than experts who lecture on an academic judicial precedent. Real work experience and collaboration style seem to be an important point in choosing partners rather than qualifications and titles.
■ Accounting firms & Accounting services
Mr. Miyata from SCS has said, “Cambodia is one of the countries where few noticeable restrictions lie in foreign investment and is easy to participate. However, due to such easiness, initial management for entering the market becomes obscure, and many cases are often pointed out later in the tax investigation; therefore, we recommend that the enterprises shall consult the experts about points to notice at the planning stage.”
Director-Shotaro Nishiyama&HR Consultant-Tomomi Ando of Tokyo Consulting Firm
Mr. Nishiyama from the Tokyo Consulting firm has said, “The cost of accounting and tax is not really expensive for the enterprises right after entering the market. Hiring a low-cost and less-experienced accounting personnel to proceed the work; as a result, in the audit and tax inspection of a few years later, the deviation from accounting principle and the omission of accounting are pointed out, then there are also many cases that a huge subsequent collection is requested. It is important for professional work such as accounting, tax, and labor affairs to adopt experts proactively not only for avoiding risks but leading the business to the future. “