Cambodia: GDT sets market interest rates for enterprise internal loans in 2022

• Feb 17, 2023

The General Department of Taxation (GDT) has set the annual market interest rates for loans made in enterprises in 2022 from directors to employees or related parties or from related parties to enterprise directors based on the calculated average rates of the average interest rates annual charged by 11 local banks, according to a statement issued by GDT.

GDT of the Ministry of Economy and Finance (MEF) has set the annual market interest rates at 8.78 percent per annum for loans in riel and 8.35 percent per annum for loans in US dollar, according to the statement released on Wednesday a day after its issuance. The changes were made in accordance with some taxation policies on internal salaries and additional benefits.

“The interest rates were set for use for implementing obligations of withholding tax on additional benefits on provision of loans to employees and determining the interest rates on loans from related parties of enterprises,” the internal tax authority GDT pointed out in the statement. “All tax authorities and taxable enterprises are obliged to comply with this notification properly and effectively.”

Khun Darith, Managing Partner of audit, accounting and tax solutions at accountancy and auditing firm K Professional Accountants (KPA), told Khmer Times yesterday based on these observations that the market interest rate for such internal loans in US dollar has increased from 8.28 percent per annum, while that in riel has decreased from 8.87 percent per annum.

Darith, who is an accounting and tax expert further explained that the loan to employees is usually short terms—3 months to a maximum of 18 months, but loans to and from related parties usually have either short term from 1 to 2 years or long terms three to five years or more depending on the nature and context of the business and the needs of the cash flows.

Darith pointed out that GDT will set the average exchange rate for every year, adding that in early 2023 it sets the average exchange rate for 2022 and in 2024 they will do so for 2023 when the data are available. He also explained that a ‘related party’ is defined as a relative of the taxpayer or an enterprise that controls, is controlled by, or is under common control with the taxpayer.

“The fluctuation of interest rates is due to inflation and economies, because these are average exchange rates from commercial banks,” said Darith, adding that the term ‘control’ means ownership of 20 percent or more of the equity interest in the enterprise or voting power of the board of directors of enterprises that are legal entities and taxable persons.

The accounting and tax experts explained that all parties of such loan agreements are required to calculate the amounts of principal and interest based on these rates set by GDT for any of such loans that were made from January to December 2022. “Normally, enterprises and employees have already loan contracts that may set interest rates lower or higher than those.”

“However, it is fine if their contracts set interest rates at a higher level, but if they set the rates lower, they have to follow these set rates,” Darith said. “The settings are good
as they will provide economic value to those loans to avoid free borrowing and tax authority can collect withholding tax on interest that is one of the revenues for the government,” the expert said.

Director General of GDT Kong Vibol said during the meeting that GDT would have to continue strengthening the implementation of measures and tax policies such as the expedition of making new draft law on taxation and modernisation of e-Filing and information technology systems to collect approximately $3.57 billion this year as set in the budget law for 2023.

“I am committed and do my best in completing the mission to collect the tax revenue unwaveringly … to further fully support the implementation of the government’s policies,” Vibol said. In December 2022 alone, GDT collected nearly $241 million or 8.45 percent of the budget law 2022, said Vibol, who has received appreciation from Prime Minister Hun Sen.

Source: https://www.khmertimeskh.com/501240203/gdt-sets-market-interest-rates-for-enterprise-internal-loans-in-2022/