The 2023 Law on Taxation
On 16 May 2023, the new Law on Taxation was promulgated by the Royal Kram No. NS/RKM/0523/004 (the “New Taxation Law”). The New Taxation Law abrogates the 1997 Law on Taxation, its 2003 amendment (the “Old Taxation Law”), and other relevant rules and regulations that are contrary to the New Taxation Law.
The New Taxation Law consists of 20 chapters and 255 articles compared to the 7 chapters and 155 articles under the Old Taxation Law. The New Taxation Law is intended to consolidate taxation information and rules spread across varying legislation, fill in loopholes that arose under the old legal regime and ensure practical consistency. Aside from now combining existing tax regulations and practices into one legislation for ease of reference, it has also introduced new definitions, crimes, and penalties, and has made changes to the scope of the tax authority’s power. Below are the significant changes introduced in the New Taxation Law.
New Definitions
• Permanent Establishment (the “PE”): based on the new definition of PE, any of the following is deemed to constitute a PE: (i) having a consistent business place in Cambodia; (ii) a foreign branch; or (iii) where Cambodian residents act as agents for non-residents. PE further includes other activities or communications that enable non-residents to conduct business and earn profit in the Kingdom of Cambodia.
• Related Person refers to (i) any person that is the taxpayer’s relative; (ii) an enterprise that manages, directly or indirectly, a taxable person; (iii) an enterprise that is managed by a taxable person directly or indirectly; (iv) the enterprise and taxable person jointly managing one another; (v) a relationship between a PE and the non-resident. “Manage” under the New Taxation Law means having at least a 20% shareholding, with effective voting rights, in the company. Notwithstanding this definition, the tax authority also has discretion in determining what is considered as ‘managing directly and indirectly’ on a case-by-case basis depending on the factual situation.
• Business Alliance refer to a joint business between a taxable person or non-taxable person, having two or more person, without forming a separate legal entity.
New Chapters
The forms of taxes under the new chapters already exist under present tax rules and regulations but have been consolidated into the New Taxation Law to allow taxpayers to have simpler and more comprehensive, one-stop access to their tax responsibilities. The new chapters centralize information regarding special tax, public lighting tax, accommodation tax, patent tax, billboard tax, tax on petroleum and mineral resources transactions, tax on real estate fees, tax on real estate, stamp tax, income tax, unused land tax, and transportation tax – all existing tax forms across various legislations, now in one place.
Tax Authority Power
The New Taxation Law makes substantial changes to how the tax authority operates, including its power and obligations. The tax authority has the power, amongst others, to create an incentive scheme for tax officials, to fully or partially waive penalties and interest on taxpayer re-assessments, to prioritize tax liens over general creditors’ rights and to reject and/or re-determine the real elements of any transactions if it is found that the taxpayer has prepared or had any transactions that represent false or unreal intention to reduce or eliminate the tax payable contrary to the intention of the tax provisions.
It is also worth noting that electronic communication has been added to the current methods for the tax authorities to communicate with taxpayers. The crucial issue is that the tax authority is assumed to have notified the taxpayer on the day that the electronic communication is transmitted to the most recent address that the taxpayer has registered. This requires the taxpayers to keep their registered business email address up to date.
New Crimes
The New Taxation Law has also introduced four (4) new crimes as follows:
(1) Practicing as a tax agent without a license;
(2) Failing to pay collected taxes;
(3) Collecting taxes without permission; and
(4) Criminal liability for legal entities.
Those who are found guilty of any of the above offenses are subject to a monetary penalty of up to USD 25,000 and/or potentially to imprisonment of up to 3 years. In addition, third parties such as banks must respond to tax authority requests for taxpayer information within a fixed timeframe of 30 days or face a penalty.
Increases in penalties
| Offenses | Penalties |
| Failure to register with the tax administration in accordance with this Law on Taxation and other relevant regulations | 5,000,000 Khmer Riels |
| Failure to inform the tax administration of any charge in the registration related information | |
| Failure to file tax returns | |
| Failure to use the recording system as determined by the tax administration | 10,000,000 Khmer Riels |
| Failure to issue invoices | |
| Failure to provide information or submit requested reports | |
| Not permitting the tax administration to check the accounting records or any other documents | |
| Failure to keep accounting records and other documents | |
| Attempt to obstruct the tax assessment and collection | Imprisonment from 1 month to 1 year and fines from 50,000,000 Khmer Riels to 100,000,000 Khmer Riels |
| Producing or providing fake records, documents, reports, or information | |
| Concealment or intentional destruction of accounting records, documents, reports, or other information | |
| Issuance of fake invoices | |
| Not permitting the tax administration to enter the business premises to assess and collect taxes | |
| Tax evasion | Imprisonment from 1 year to 5 years and fines from 100,000,000 Khmer Riels to 200,000,000 Khmer Riels |
| Revealing the confidential information of the General Department of Taxation | Imprisonment from 1 month to 1 year and fines from 50,000,000 Khmer Riels to 100,000,000 Khmer Riels |
| Practicing as a tax service agent without a license | Imprisonment from 1 month to 1 year and fines from 10,000,000 Khmer Riels to 20,000,000 Khmer Riels |
| Failure to pay tax | Imprisonment from 1 year to 3 years and fines from 50,000,000 Khmer Riels to 100,000,000 Khmer Riels |
| Collecting tax without governmental authorization | Imprisonment from 1 year to 3 years and fines from 50 000 000 Riels to 100 000 000 Riels |
| Criminal liability of legal entity | Violation of Article 242 of the New Taxation Law will result in fines from 100,000,000 Khmer Riels to 200,000,000 Khmer Riels |
| Violation of Articles 243, 246, and 247 of the New Taxation Law will result in fines from 50,000,000 Khmer Riels to 100,000,000 Khmer Riels | |
| Violation of Article 245 of the New Taxation Law will result in fines from 10,000,000 Khmer Riels to 20,000,000 Khmer Riels | |
| Violation of Article 250 of the New Taxation Law will result in fines from 50,000,000 Khmer Riels to 200,000,000 Khmer Riels |
If you have any questions or require any additional information, please contact Matthew RENDALL or Sreypich HOUT of Sok Siphana & Associates.
This alert is for general information only and is not a substitute for legal advice.
