Cambodia is one of the world's poorest nations. In 1999 its total Gross Domestic Product (GDP) was $3.1 billion, yielding a per capita GDP of just $270, among the lowest in the world.
Even before being plunged into civil conflict in the 1970s, Cambodia lacked significant industrial development, with most of the labor force engaged in agriculture. The country was self-sufficient in food and produced exportable surpluses of its principal crops of rice and corn. In spite of relatively low yields and a single harvest per year, Cambodia annually exported hundreds of thousands of tons of rice.

Civil unrest disrupted Cambodia's fledgling manufacturing industry and severely damaged road and rail networks.
The civil war from 1970 to 1975, the Khmer Rouge regime from 1975 to 1979, and the Cambodia-Vietnam War from 1978 to 1979 virtually destroyed Cambodia's economy. By 1974, under wartime conditions, rice had to be imported, and production of Cambodia's most profitable export crop, rubber, fell off sharply. The civil unrest also disrupted Cambodia's fledgling manufacturing industry and severely damaged road and rail networks.

In 1975 the newly installed Khmer Rouge government nationalized all means of production in Cambodia. Money and private property were abolished, and agriculture was collectivized (ownership was transferred to the people as a group, represented by the state). The Khmer Rouge Four-Year Plan, a utopian document drafted in 1976, envisaged multiple plantings of rice and a vastly expanded irrigation system. The plan aimed to increase income from exports of rice and other products and to use this income to buy machinery with which to industrialize the country. The Four-Year Plan was poorly thought out, brutally enforced, and unsuccessful. Rice production rose slightly, but between 1976 and 1978, hundreds of thousands of people died from malnutrition, overwork, and mistreated or misdiagnosed diseases. The Khmer Rouge executed hundreds of thousands more people whom they judged to be enemies of the regime. The atrocities of the Khmer Rouge period decimated Cambodia's labor force.

After the Khmer Rouge was overthrown in early 1979, the government's grip on agricultural production loosened, and millions of Cambodians attempted to resume their lives as subsistence farmers. By the mid-1990s Cambodia once again achieved self-sufficiency in rice production and began to export small quantities of rice. The country's infrastructure improved gradually in the 1990s, largely due to massive infusions of foreign assistance. Other sectors of the economy were less fortunate, however. By 1995 the country's economy as a whole was performing at only 40 to 50 percent of its pre-1970 capacity. For many visitors to the country, Cambodia's poverty is masked by the apparent prosperity of sections of Phnom Penh.
Value Added Tax(VAT)

General overview
Value Added Tax (VAT) was implemented for "real regime" (i.e. large and/or incorporated) taxpayers on I January 1999.
Under the VAT system, "output tax" is collected from a customer by adding VAT to the amount charged. However, a business also pays an "input tax" to its suppliers on purchases made. The business must pay the output tax after deducting the input tax paid to its suppliers. In theory, the business therefore pays tax on the value that it adds in the supply chain. The tax is ultimately borne by the consumer or a business that is exempt from the tax, as consumers/exempt businesses cannot recover input tax paid. 
Scope of application
Cambodia's VAT system is currently restricted to the business activities of real-regime taxpayers producing taxable supplies (and certain importers, see below). Real-regime taxpayers include most large and/or incorporated taxpayers involved in the production, trade and provision of services. In each case, the business must charge VAT on the value of goods or services supplied. Non-real regime taxpayers may be included in the VAT system at a later stage.

VAT also applies to the duty-paid value of imported goods. There are concessions, however, for exporters, certain tax-exempt bodies, and cigarette , alcoholic and automotive products imported for the purposes of re-export. Imported goods may be treated as including associated services. The importer must pay VAT to Customs at the same time as the importer pays Import Duties.
VAT may be payable on the appropriation of goods for personal use and on gifts.
Exempt goods and services
VAT is not payable on a number of activities, including the supply of
• Public postal services
• Hospital and medical services, and the provision of goods for these activities
• Public transportation activities operated by owned providers
• Insurance activities
• Certain financial services
• The importation of certain personal effects
• Non-profit activities in the public interest (as approved)
If a business sells exempt goods or services, it will be unable to recover any input tax paid on its purchases. This contrasts with "zero rating", where sales are within the VAT system (albeit at a VAT rate of zero), and hence input tax can be recovered. Where a business generates both taxable and exempt sales, it will only be able to claim a deduction of input for that portion of inputs used in the taxable activity.
Rates of tax
There are two rates of VAT as follows:
• 0% - This rate applies only to goods exported from Cambodia and services 'consumed" outside Cambodia. Exports are defined as including the international transportation for passengers or goods, and the services connected to this international transportation.
• 10% - This standard rate applies to all other non-exempt supplies.
Basis of taxation
The output tax is generally calculated by multiplying the taxable value (net of VAT) taken from the invoice price by the applicable VAT rate. With respect to imported goods, VAT is calculated on the CIF imported price plus Import Duty plus any Specific Tax on Certain Merchandise and Services.

For goods sold on a hire-purchase or financial-lease basis, VAT is calculated on the total price at the time of supply, as opposed to the installments actually received. For goods made available under rental or periodic payment arrangements, the goods are treated as being successively supplied.

Input credits are available for VAT charged on entertainment, certain petroleum products and the purchase of passenger motor vehicles
All real-regime taxpayers producing supplies of taxable goods and services in Cambodia should register for VAT. Voluntary registration for non-real regime taxpayers and CDC-licensed entities in the pre-operation phase is also possible.
For domestic supplies, taxpayers are required to file VAT returns and make VAT declarations and payments on a monthly basis, by the 20th day of the following month. For imports, VAT is payable to Customs at the time of importation.
Where a taxpayer's input VAT for the month exceeds output VAT, the business generally has to carry the excess forward for three months. The business can then apply for a refund from the tax authorities. Special refund rules apply for exporters and CDC-licensed entities in the pre-operating phase. Detailed rules exist with regard to specific invoicing and record-keeping obligations. Invoices vary according to whether a VAT registered or non-registered person is being invoiced.
Turnover Tax

General overview
Until 31 December 1998, Turnover Tax applied to all persons or entities (whether local or foreign, company or individual) deriving revenue in Cambodia. With the introduction of VAT on 1 January 1999, Turnover Tax no longer applied to real-regime (large and/or incorporated) taxpayers. The former 4% Consumption Tax was also lifted on all importers (although VAT may still apply).
Turnover Tax continues to apply to non-real regime taxpayers at the flat rate of 2%. For Turnover Tax purposes this includes revenue from the supply of goods or services (although most exports are exempt).
Turnover not subject to Turnover Tax is limited to the following areas:

• the sale of unprocessed agricultural produce, where sold by the producer
• certain small-business activities
• the majority of exports.
Basis of taxation
Turnover Tax is a tax on gross turnover received. It is not a VAT. It is generally calculated by multiplying the total amount invoiced by the applicable rate. It is common for the tax to be passed on by the invoicing party. In such a case the Turnover Tax collected is generally accepted as the full Turnover Tax liability (i.e. there is no grossing up).
Rates of tax
Since 1 January 1999, Turnover Tax has been levied at the flat rate of 2%.
Taxpayers must make monthly Turnover Tax declarations and payments, not later than the 10th day of the following month. Detailed rules exist with regard to specific invoicing and record-keeping obligations.
Specific Tax on Certain Merchandise and Services

General overview
The Specific Tax on Certain Merchandise and Services is a form of excise tax that applies to the importation or domestic production and supply of certain goods and services.
The goods/ services and rates of tax are as follows:
Goods/Service Rate
• Most automobiles and parts displacement >2000cc : 30%
• Most automobiles and parts displacement >2001cc : 20%
• Most large automobiles (e.g. buses, trucks) 10%
• Motorcycles - displacement >124cc 10%
• Certain petroleum products 20%
• Certain carbonated and similar non-alcoholic drinks 10%
• Beer, wines and most other alcoholic beverages : 10%
• Cigarettes and cigars 10%
• Hotel accommodation and entertainment charges: 10%
• International air tickets - commencing in Cambodia: 2%
• Certain international telecommunication activities: 2%

Note that the implementation of the Specific Tax on hotel room rental has been postponed until further notice.
Basis of taxation
For domestically produced goods, Specific Tax is generally due on the "ex-factory selling price" For imported goods, the tax is due on the CIF value inclusive of Customs Duty. For air, hotel and telecommunication services, the tax is generally payable on the invoice price, although for air tickets this is limited to tickets issued in Cambodia.
For domestic sales, taxpayers must make Specific Tax declaration fund payments on a monthly basis, not later than the 10th day of the following month. For imports, Specific Tax is payable to Customs at the time of importation. Detailed rules exist with regard to invoicing and record-keeping obligations.
Import and Export Duties

Import Duties
Import Duties are levied on a wide range of products. Rates are generally 7%, 15%, 20%, 3 5% or 50%.Investment incentives
Import Duty exemptions can be granted by the CDC as an investment incentive. Exemptions can apply to:
• Construction materials.
• Plant and equipment (and related spare parts) to be used in production.
• Raw materials and intermediate goods to be used in production.
• Investment projects typically entitled to Import Duty incentives include:
• Export orientated (minimum 80%) projects.
• Projects located in Special Promotion Zones.
• Projects in the tourism industry.
• Labor-intensive production projects.
• Projects in infrastructure and energy.
Export Duties
Export Duties are levied on only a limited number of items, such as timber and certain animal products (including most seafood).
Salary Tax

General Overview
Cambodia's Salary Tax regulations follow internationally accepted residency and source principles. A Cambodian resident's worldwide salary is subject to Cambodian Salary Tax. For non-residents, only the Cambodian sourced salary is subject to Salary Tax. The location of the salary payment is not relevant in determining the source.
Cambodia draws a distinction between cash salary and "fringe benefits". Cash salary is taxable to the employee while Salary Tax due on fringe benefits is payable by the employer.

Salary Tax extends to employment-related remuneration only, as opposed to general personal income per se. Genuine consulting income is also excluded (although such income is subject to Tax on Profit). These rules enable the authorities to consider certain consultants as employees.
A Cambodian resident is defined as an "employee, taxpayer, or person" who is:

• domiciled in Cambodia, or
• has his/her principal place of abode in Cambodia, or
• is physically present in Cambodia for more than 182 days in a calendar year.
Taxable Salary
A distinction is made between cash and fringe benefit salary components. Different tax scales apply. Cash salary includes remuneration, wages, bonus payments, overtime, compensation and employer-provided loans and advances.
Fringe Benefits
Fringe benefits include:

• the use of motor vehicles;
• the provision of accommodation support (including utilities and domestic helpers);
• low-interest loans and discounted sales;
• educational assistance (unless employment related, for example for training);
• certain insurance support;
• Excessive or unnecessary" cash allowances, and social welfare and pension contributions;
• Entertainment or recreational expenditure (which may additionally be non-deductible to the provider for Tax on Profit purposes).
Exempt Salary
Exempt salary includes:

• certain redundancy payments;
• reimbursement of employment-related expenses;
• certain traveling allowances;
• certain uniform entitlements;
• the salaries of employees of approved diplomatic, international and aid organizations;
• the salaries of non-residents where the salary cost is not deducted in Cambodia.
These are limited to small statutory amounts for an employee's dependents, and for the repayment of employer loans or advances.
Salary Tax Rate
Cash Salary - Resident
Monthly salary (Riels) Rate:
0 - 500,000 0%
500,001 - 1,250,000 5%
1,250,001 - 8,500,000 10%
8,500,001 - 12,500,000 15%
12,500.001 - upwards 20%

Cash Salary - Non-resident

The rate for non-residents is a flat 15%. This tax also constitutes a final tax.
Fringe Benefits
Fringe benefits are taxable on the employer (not the employee) at the flat rate of 20% of the market value of the benefit.
As the rate scales are stated in Cambodian Riel, earnings in foreign currency have to be converted into Riel. Official exchange rates are provided for this purpose.
Employees must make monthly salary tax declarations and payments, not later than the 15th of the following month. There is no annual return.
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