In May and June 2024, Cambodia’s General Department of Taxation (GDT) issued two notable tax incentive packages that aim to encourage business growth in the country. The details of these incentives are outlined below.
Tax Incentives for Expansion of Qualified Investment Projects
The GDT’s May 10, 2024, regulation (Prakas No. 313 MEF. PrK. PD) provides income tax incentives for expansion of qualified investment projects (QIPs), including an income tax exemption for the following types of expansion:
- Expansion of existing production.
- Expansion through product line diversification within the same lines.
- Implementation of new technologies that enhance productivity or protect the environment.
- Other forms of expansion set out in future sub-decrees.
The number of years for the income tax exemption depends on the investment activities of the QIP, in accordance with the business groupings provided in the Sub-Decree on the Implementation of the Investment Law in Cambodia—9 years for group 1, 6 years for group 2, and 3 years for group 3.
After receiving approval for the QIP expansion from the Council for the Development of Cambodia (CDC) or one of its Provincial-Municipal Investment Sub-Committees (PMISs), the GDT will certify the income tax exemption period. The exemption begins on the date the enterprise first receives income from the QIP expansion.
QIPs seeking this tax exemption need to declare the amount of money that they intend to use for the expansion. Once allowed, the company must use that money for construction materials or new production equipment before the expiration of the tax exemption period.
The income tax exemption can be revoked if:
- The enterprise does not use the capital to expand the QIP by purchasing the construction material and new production equipment as requested for the expansion.
- The enterprise fails to invest the prescribed amount before the expiration of the tax exemption period.
- The enterprise does not fulfill its other tax obligations as required by law.
Tax Incentives for Micro, Small, and Medium Enterprises
On June 20, 2024, the GDT issued Instruction No. 18412, which provides tax incentives to micro, small, and medium enterprises (MSMEs) to encourage companies in the informal economy to join the formal economy. This instruction sets out the eligibility, conditions, and procedures for the tax incentives.
The exemption will be granted to MSMEs that voluntarily register with the GDT and operate in the following priority sectors:
- Wholesale, retail, and repair.
- Accommodation and food services.
- Handicrafts.
- Agriculture.
Taxpayers can voluntarily register with the GDT in person or online at the government’s business registration website. Registered enterprises will receive a tax incentive certificate and official document for tax registration in a printable, digital format.
Enterprises that are registered unilaterally by the Tax Administration after failing to register within 15 days of receiving a second invitation letter from the Tax Administration will not be considered to have registered voluntarily and will not be eligible for the tax incentives.
The available tax incentives vary based on the size of the registering enterprise, as follows:
- Micro enterprises that register with the GDT voluntarily in 2023–2024 will receive fee exemptions for tax registration, annual declaration of commercial enterprise (ADCE) requirements, and issuance of their GDT registration certificate.
- Medium enterprises that register with the GDT voluntarily in 2023–2028 will receive exemptions from the following:
- Penalties and tax debts such as tax payable, additional tax, interest, and monetary fines related to noncompliance with past voluntary GDT registration requirements.
- Fees for tax registration, ADCE, and registration certificate issuance.
- Patent tax at the time of tax registration and the two years following successful registration with the GDT in 2024 or 2025.
- Prepayment of income tax, income tax, and minimum tax for two years starting from the year the tax registration is completed.
- Small enterprises that register with the GDT voluntarily in 2024–2025 will receive exemptions from all of the items listed for medium enterprises, as well as fee exemptions for tax registration, ADCE, and registration certificate issuance.
MSMEs that receive the tax incentives must fulfill certain obligations.
- Micro enterprises must report the following to the tax administrator:
- Annual turnover in a form determined by the tax administrator from January 1 to March 31 of the next financial year.
- Changes in address, name, telephone number, email, business objectives, or status of the business (i.e., transfer or dissolution of the business) within 15 days of the change.
- Small and medium enterprises must do the following:
- Notify the tax administrator within 15 days of any changes in address, telephone number, email, other contact information, legal structure, name, business objectives, shareholding (including transfers), management of the enterprise or branches, taxpayer, or bank account information, as well as any pending dissolution of the enterprise.
- File tax returns in accordance with accounting statements, regardless of any tax relief or exemptions.
- Submit tax declarations and pay other value-added tax monthly and annually as required by applicable tax laws.
For more information on these tax incentives, or on any aspect of tax laws and regulations in Cambodia, please contact Tilleke & Gibbins at [email protected].
