Tax on Individual Income in Cambodia

As an individual, you may be unsure whether you need to declare or pay any tax on your income to the tax authority in Cambodia. Until now, the Cambodian government hasn’t issued any guidelines for the implementation of Personal Income Tax yet. Personal Income Tax is a type of tax imposed on a physical person or an individual’s income. Our below article will not focus on the income of a legal entity (e.g. income from business activities which should be subject to Tax on Income or Corporate Income Tax).

Though the tax authority has not yet implemented Personal Income Tax, it is still possible for them to collect tax from an individual or a physical person through various mechanisms under the current tax laws. To understand how your income is taxed, we have classified the personal or individual income into the following types.

1. Income from employment activities

Income from employment activities generally includes salary, bonus, allowance and fringe benefits etc. You earn this kind of income if you are an employee working for a company.

Based on the Law on Taxation, the term “employee” refers to any physical person receiving salary from their employment activity including a director of an enterprise, governmental officer, elected officials except for members of parliament and state. Under Prakas 1173 of the Tax on Salary, employee is considered fulfilling the employment activity for employer if at least two of the following criteria are met.

1. There is no risk of not receiving payment if the physical person comes to work at the place determined by the employer and perform duties as stated in a verbal or written employment contract.
2. The physical person is not able to determine the time and place for fulfilling the employment activities by himself.
3. The physical person is not required to have a significant investment in the equipment necessary for rendering the employment services.
4. The physical person does not supply employment services to several recipients at the same time.

Thus, if you are an employee, you shall be subject to Tax on Salary on the salary that you received from your employer, who is a registered entity in Cambodia, for the performance of employment activities at a progressive tax rate. On top of salary, if your employer also provides you with fringe benefits such as housing, transportation or meal allowances, such benefits will be subject to Tax on Fringe Benefits at a flat rate of 20%. Your employer has an obligation to withhold the Tax on Salary and Tax on Fringe Benefits from your salary and fringe benefits before making payment to you and then remit these tax payables to the tax authority on your behalf.

For more details on Tax on Salary and Tax on Fringe Benefits, please read our article on monthly tax obligations.

2. Income from freelancing or independent service

If you are a freelancer who performs service independently, currently you are not liable to Personal Income Tax yet as Cambodia still doesn’t have official implementation for this tax. However, if you provide independent service to an entity in Cambodia which is registered as a legal entity, your income from the performance of such freelancing service to the entity will be subject to 15% Withholding Tax (if you are a resident) or 14% Withholding Tax (if you are non-resident). By laws, the entity, who engages you for service, must withhold the tax from the payment and remit the tax payable to the tax authority on your behalf.

However, the tax authority grants WHT exemption on any service performed by individual but which the payment amount is below KHR50,000 per transaction. This exemption is applicable from January 2020 onwards under TOI Prakas No.098 dated 29 January 2020.

3. Income from rental of immovable property

If you, as an individual, lease or rent your property such as building or house to a legal entity in Cambodia, then the entity will be required to withhold 10% Withholding Tax on the rental payment. Thus, your rental income will be subject to 10% Withholding Tax.

4. Income from sale of immovable property

If you sell your immovable property including land, shares, building, house, etc., any gains from the sale will be subject to 20% Capital Gains Tax. This tax only applies to a resident individual, a non-resident individual and a non-resident entity. It does not apply to a resident legal entity.

For more details, please refer to our article on Capital Gains Tax.

5. Interest income

If you, a resident employee, provide loan to a legal entity in Cambodia, the interest income that you receive from that entity will be subject to 15% Withholding Tax. The entity has an obligation to withhold and pay the tax to the General Department of Taxation before making an interest payment to you.

In addition, if you deposit money at local financial institution, the interest income from fixed and current deposit is subject to 6% and 4% Withholding Tax respectively. The financial institution has an obligation to withhold and pay the tax to the General Department of Taxation before making an interest payment to you.

6. Dividend income

If you are a resident individual and receive dividend from an entity which is a resident taxpayer, your dividend income will not be subject to any tax. This is because the entity has already paid 20% Corporate Income Tax or Advanced Tax on Dividend Income on that income at the time of dividend distribution.

If you require our detailed analysis or you seek advice on the tax implication on any of your personal income, which is not listed above, please feel free to drop us an email.