Cambodia: Experts discuss capital gains tax and share transfers in Kingdom

Financial experts say the introduction of a capital gains tax (CGT) next year will have major implications for foreign investors in Cambodia.

The CGT was delayed because of the financial downturn triggered by the Coronavirus pandemic but is due to come into force on Jan 1, 2022. It is a 20 percent tax on capital assets such as buildings, leases, currency and shares. “When it is implemented, I believe there will be a lot of questions such as… is it a new tax, how will it be imposed, what will be the taxable assets that will be subject to the capital gains tax or fall under the scope of Prakas 346, as well as any exemption of capital assets?” asked Chhiv Kimsroy, Tax Partner at financial advisers Deloitte (Cambodia) Co Ltd. CGT has been applicable in other countries for a long time but Kimsroy said the tax was not aligned from one country to another so it was not possible to come up with a single international regulation. For Cambodia the ruling in Prakas 346 was that CGT would be a one-off tax at source. It is still unclear as to whether the tax will actually come into force at the start of next year because the pandemic continues to put a strain on the economy and many companies are struggling to survive, let alone deal with an additional tax burden.

“Whether the government will delay it, I’m not sure but, so far, there is no news in terms of the delay of implementation,” Kimsroy said.

Her comments came during a European Chamber of Commerce tax briefing. Participants also heard from Clint O’Connel, partner and head of the Cambodia Tax Practice Group at legal, tax and investment advisers DFDL. He talked about the tax implications of taking a stake in a Cambodian company through a share transfer.

O’Connel said the situation has changed since he first started advising companies.

“There were no taxes applicable to share transfers at that time but the environment in Cambodia has changed remarkably since 2008 and there are a number of issues on which advisers need to advise clients on whether they are selling or buying shares,” he said. “When the buyer is looking to acquire shares in a Cambodia company, they are effectively going to be inheriting all of the historical undisclosed tax issues that Cambodian company may have,” he added. Cambodian companies disclose tax on a self-assessment basis so it is only when a comprehensive tax audit is carried out that anyone really knows all the tax liabilities.

“If you were a buyer looking to acquire shares, one of the first things that you would want to be aware of is: Am I going to be potentially inheriting a company with a large amount of undisclosed tax liabilities due to earlier disclosure?” O’Connel questioned. He said there were two options: hiring an adviser to carry out tax due diligence, reviewing tax declarations and documents to see if the company has been compliant or asking the company to obtain a tax clearance certificate.