Expat income tax in Cambodia is an important financial responsibility for a foreigner living in the Kingdom. If you are an expat living and working in Cambodia, then you must have already heard about the income tax obligations in the country.
In this article, we’ll break down the ins and outs of the Cambodian tax system, including the specific rules that apply to expats, the taxable types of income, and how to file and pay your taxes.
Meant to assist long-term residents and new expatriates in Cambodia, this guide will help you navigate the tax landscape and ensure tax compliance in the country.
If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or WhatsApp (+44-7393-450-837).
This article isn’t formal tax advice and the facts might have changed since we first wrote it.
What is the current tax system in Cambodia?
The current tax system in Cambodia is based on the Tax Law of Cambodia, enacted in 2007. The General Department of Taxation (GDT) oversees the tax system and is responsible for enforcing tax laws and collecting taxes.
The country’s tax system is divided into two main categories: direct taxes and indirect taxes. Direct taxes include personal income tax and corporate income tax, while indirect taxes include value-added tax (VAT) and excise taxes.
Personal income tax in Cambodia is progressive, with tax rates ranging from 0% to 20%. The corporate income tax rate is 20% for all companies.
Meanwhile, value-added tax (VAT)is imposed at a rate of 10% on most goods and services.
The deadline for filing personal income tax returns is the 31st of March of each year, while the deadline for filing corporate income tax returns is the 30th of June of each year.
What are the rules and regulations that apply to expats in Cambodia?
Expats living and working in Cambodia are subject to the same tax laws and regulations as Cambodian citizens. However, certain rules and regulations specifically apply to expats in Cambodia.
One key rule for expats is that they are only taxed on income earned in Cambodia. This means that foreign income earned outside of Cambodia is not subject to Cambodian income tax.
Additionally, expats are only required to pay taxes on income earned during the period of time they are considered a resident in Cambodia.
Expats considered residents of Cambodia for tax purposes have lived in the country for more than 183 days in a calendar year.
Expats who do not meet this criterion are considered non-residents and are only taxed on income earned in Cambodia.
Expats in Cambodia may be eligible for certain exemptions and deductions to lower their tax liability. For example, there is an exemption for the first 12,000,000 Cambodian Riel (approximately $3,000) of taxable income for residents and non-residents.
Additionally, some expenses, such as travel, accommodation, and education expenses, may be deductible. Some expats, such as diplomats and international organization staff, may also be eligible for special exemptions or deductions per their agreement with Cambodia.
Cambodia also has double tax agreements with several countries, which can help to avoid double taxation of income earned in Cambodia by an expat who is a resident of one of those countries.
What are the types of expat income tax in Cambodia?
Expats living and working in Cambodia are subject to income tax on a variety of different types of income.
The most common type is the employment income earned from working as an employee in Cambodia. This includes salary, wages, bonuses, and other forms of remuneration. Expats considered residents of Cambodia are also subject to social security contributions on their employment income.
Another type is the rental income which is earned from renting out property in Cambodia. This includes income from both residential and commercial properties. Expats who own property in Cambodia should keep accurate records of their rental income and expenses to calculate their taxable income accurately.
On the other hand, business income is earned from running a business in Cambodia. This includes income from self-employment, partnerships, and corporations.
There is also an investment income that comes from investments such as interest, dividends, and capital gains.
Income received from pensions, whether from a foreign or Cambodian source, is also subject to income tax.
Additionally, gains from selling assets such as property and stocks are also subject to tax in Cambodia.
How to calculate the expat income tax in Cambodia?
Calculating your expat income tax in Cambodia can be a complex process, but by following a few basic steps, you can ensure that you have a clear understanding of your tax liability.
The first step is to gather all necessary documentation. This includes your salary slips, rental income and expenses, business income and expenses, and any other relevant documentation that will be used to calculate your taxable income.
Then, determine your residency status: Expats in Cambodia are considered residents for tax purposes if they have lived in the country for more than 183 days in a calendar year. Non-residents are only taxed on income earned in Cambodia.
Next, calculate your gross income. This includes all forms of income earned in Cambodia, such as employment income, rental income, business income, and investment income.
After that, you will need to determine your deductions and exemptions. Expats in Cambodia are eligible for certain deductions and exemptions to lower their tax liability.
You can get your taxable income once you subtract your deductions and exemptions from your gross income to arrive at your taxable income.
Use the progressive tax rate schedule to calculate your tax liability. And finally, file your tax return with the General Department of Taxation (GDT) by the deadline.
What are the double taxation agreements for expat income tax in Cambodia?
A double taxation agreement (DTA) is an agreement between two countries that aims to prevent double taxation of the same income by both countries.
Cambodia has entered DTAs with several countries to avoid double taxation of income earned in the country by an expat who is also a resident of one of those countries.
DTAs that Cambodia has signed with other countries include China, South Korea, Malaysia, Singapore, Thailand, Vietnam, Laos, Indonesia, Hong Kong, and Myanmar.
These agreements typically include provisions for the taxation of different types of income, such as employment income, business income, and investment income. The agreements also provide for the exchange of information between the two countries’ tax authorities.
The DTA may provide reduced tax rates or exemptions for certain types of income, or it may provide for the credit of taxes paid in one country against taxes due in another.
How is the taxation of foreign currency earnings works in Cambodia?
In Cambodia, the taxation of foreign currency earnings is determined by converting the foreign currency amount into Cambodian Riel (KHR) at the exchange rate prevailing on the income receipt date. The National Bank of Cambodia (NBC) determines the exchange rate used for this purpose.
Expats who receive income in foreign currency must convert the income into KHR at the NBC’s exchange rate before calculating their taxable income.
The same applies to expenses incurred in foreign currency. They should be converted to KHR using NBC’s exchange rate before calculating the tax-deductible expenses.
For example, if an expat receives a salary of $1,000 and the NBC’s exchange rate is 4,000 KHR to 1 USD, the salary would be converted to 4,000,000 KHR for tax purposes.
If the expat incurred expenses of $500, they would be converted to 2,000,000 KHR for tax purposes.
It’s important to note that NBC’s exchange rate may fluctuate, so expats should keep track of the exchange rate when calculating their taxable income and expenses.
Additionally, it’s also important for expats to maintain accurate records of their foreign currency transactions, including the date of the transaction, the exchange rate used, and the amount in both foreign currency and KHR.
How is the taxation of investment income works in Cambodia?
Investment income, such as interest, dividends, and capital gains, is subject to Cambodia’s income tax at the progressive tax rate schedule, which ranges from 0% to 20%.
Interest income from bank deposits, bonds, and other financial instruments are subject to income tax. Dividend income from stock investments is also subject to income tax.
Capital gains from selling assets such as property and stocks are also subject to income tax in Cambodia.
However, some investment income may be eligible for deductions or exemptions. Hence, it is recommended to consult with a tax professional or seek advice from the General Department of Taxation (GDT) to understand your tax obligations and to take advantage of any deductions or exemptions that may be available to them.
How is the Social Security and Health Insurance Contributions system work in Cambodia?
Social security and health insurance contributions in Cambodia are mandatory for expats considered residents of the country for tax purposes. The contributions are deducted from an employee’s salary and are paid by the employer.
Social Security contributions are paid to the National Social Security Fund (NSSF) and are used to provide old-age pensions, disability pensions, and survivor benefits.
The contribution rate for social security is currently 2% of an employee’s gross salary, with a maximum contribution of 4,000,000 KHR (approximately $1,000) per month.
Health Insurance contributions, meanwhile, are paid to the Ministry of Health and are used to provide benefits such as medical treatment, prescription drugs, and hospitalization.
The contribution rate for health insurance is currently 1% of an employee’s gross salary, with a maximum contribution of 2,000,000 KHR (approximately $500) per month.
Expats who are considered residents of Cambodia are required to make social security and health insurance contributions on their employment income. The contributions are calculated based on an employee’s gross salary, which means they are calculated before deductions and exemptions.
It’s important to note that social security and health insurance contributions are separate from income tax and are not tax-deductible. However, social security contributions are considered when calculating income tax.
How to file and pay expat income tax in Cambodia?
Filing and paying expat income tax in Cambodia is a process that the GDT oversees.
You must gather all necessary documentation to file and pay your expat income tax in Cambodia. This includes your salary slips, rental income and expenses, business income and expenses, and any other relevant documentation that will be used to calculate your taxable income.
Then, calculate your taxable income using your documentation information and subtracting deductions and exemptions from your gross income.
Next, you can submit your tax return to the GDT by the 31st of March for personal income tax and the 30th of June for corporate income tax. Tax returns can be filed electronically using the GDT’s e-filing system or by submitting a paper tax return.
Once you have filed your tax return, you will need to pay any taxes due to the GDT. Payment can be made electronically using the GDT’s e-payment system or by paying in person at a GDT office.
GDT may also require additional documentation or forms to be submitted with the tax return, such as a certificate of residence from the Ministry of Foreign Affairs or a certificate of income from the employer.
Failing to file and pay taxes on time may result in penalties and interest. Therefore, filing and paying your taxes well before the deadline is always recommended to avoid any issues.
What are the common tax pitfalls for expats in Cambodia?
Income tax filing has always been complicated whether you’re a regular individual or an expatriate.
For those working and living in Cambodia, it is important to be familiar with the tax laws and regulations in the country to ensure an understanding of tax obligations.
Expats should also be aware of the deductions and exemptions available to them and ensure that they calculate their taxable income correctly.
Not keeping accurate records is also a crucial mistake, as this will affect the accurate calculation of their taxable income. It is also important to keep records of tax returns and payments in case of an audit.
Conclusion
In conclusion, expat income tax in Cambodia is easy to follow as long as you understand your obligations and fully comply with the country’s tax rules and regulations.
Just like in any country, it is important to remember that failing to file and pay taxes on time may result in penalties and interest.
But with the right knowledge and approach, expats can navigate the Cambodian tax system confidently and make the most of their time in this beautiful and vibrant country.
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