The Kingdom of Cambodia (Cambodia for short) is located in Southeast Asia. Cambodia has a tropical monsoon climate with two main seasons: rainy season which from May to October and dry season which from November to May. The annual average temperature is about 27.7 degrees centigrade, and the temperature exceeds 30 degrees centigrade in the hottest months, April and May.

Economically, over the past two decades before COVID-19 struck in 2020, Cambodian economy blossomed and grew at an average rate of 7.6 percent between 1995 and 2019, which was driven largely by tourism, manufacturing exports, real estate, and construction, making it one of the fastest-growing economies in the world. After reaching lower middle-income status in 2015, it set its sights on becoming an upper middle-income economy by 2030 and higher-income economy by 2050. The COVID-19 pandemic triggered the first economic contraction in 25 years, where in 2020, the economy contracted 3.1 percent. During the post-COVID-19 period, the economy continues to gradually recover, growing at 3.0 percent and 5.2 percent in 2021 and 2022, respectively. Cambodia’s economic growth is estimated to have reached 5.4 percent in 2023.

Culturally, Buddhism is established as a national religion by the Constitution and 90% of the population is Buddhist. Other religions are also practiced in Cambodia, which include Islam, Christianity and others.

Cambodia is a constitutional monarchy with the king is the head of state and reign but not govern. The present King, His Majesty Norodom Sihamoni, acceded to the throne on 29 October 2004. The Constitution stipulates that Cambodia adopts a policy of liberal democracy and pluralism.

The General Department of Taxation (GDT) is the only institution under the Ministry of Economy and Finance that manages the collection of internal tax revenue. GDT is led by a director general and assist by deputy director generals. GDT has 12 departments and units such as: Department of Administration and General Affairs; Department of Finance and Personnel; Department of Law, Tax Policy and International Tax Cooperation; Department of Tax on Movable and Immovable Properties; Department of Information and Communication Technology; Department of Tax Crime Investigation; Department of Large Taxpayers; Department of Small and Medium Taxpayers; Department of Enterprise Audit; National Tax School; Phnom Penh Municipality Tax Division; and Unit of Special Tax Audit. In addition, GDT also has 35 provincial/district tax branches in order to provide quick access and convenience for taxpayers to directly communicate.

Cambodia practices a unified national tax system based on the principle of territorial jurisdiction. Moreover, Cambodia implements worldwide tax system. Currently, there are 13 types of taxes as below table:

Cambodia has provided a series of preferential policies such as tax exemptions, tax credits, and tax refunds in order to attract foreign investment, promote economic growth, and enhance the competitiveness of the country. These policies focus on income tax, VAT and customs duty.

1. Qualified Investment Project (QIP) Incentives

Basic Incentives:

Investment activities registered as QIP are entitled to choose basic incentives under the following two options:

Option 1: Tax Exemption

· Tax on income exemption for 3 to 9 years, depending on the sector and investment activities, from the time of earning its first income. After the income tax exemption period has expired, QIP is entitled to an incentive to pay income tax at a progressive rate proportional to the total tax due as follows:

 - 25 percent for the first 2 years

 - 50 percent for the next 2 years, and

 - 75 percent for the last 2 years.

· Prepayment of tax on income exemption during income tax exemption;

· Minimum tax exemption provided that an independent audit report has been carried out;

· Export Tax exemption, unless otherwise provided in other laws and regulations.

Option 2: Special Depreciation

· Deduction of capital expenditure through special depreciation as stated in the tax regulations;

· Eligibility of deducting up to 200 percent of specific expenses incurred for up to 9 years;

· Prepayment of tax on income exemption for a specific period of time based on sectors and investment activities;

· Minimum tax exemption provided that an independent audit report has been carried out;

· Export Tax exemption, unless otherwise provided in other laws and regulations.

Additional Incentives:

· VAT exemption for the purchase of locally made production inputs for the implementation of the QIP.

· Deduction of 150 percent from the tax base for any of the following activities:

a. Research, development, and innovation

b. Human resource development through the provision of vocational training and skills to Cambodian workers/ employees

c. Construction of accommodation, food courts or canteens where reasonable priced foods are sold, nurseries and other facilities for workers/employees

d. Upgrade of machinery to serve the production line, and

e. Provision of welfare for Cambodian workers/ employees, such as comfortable means of transportation to commute from their homes to factories, accommodation, food courts or canteens where foods are sold at reasonable prices, nurseries and other facilities.

· Entitlement to tax on income exemption for the expansion of QIP which will be determined in the Sub-Decree.

2. Tax Incentives for Small and Medium Enterprises (SMEs) in the Priority Sector

The SMEs in the priority sectors that are promoted and receive incentives are: (1) production of agricultural or agro-industrial products; (2) food production and processing; (3) manufacturing which produce domestic consumer goods, recycle waste and produce goods for the tourism sector; (4) manufacturing which produce finished products or assembling parts to supply other manufacturers; (5) research and development of information technology (IT) including services for management through IT systems which are considered innovative; and (6) enterprises locating in the SME cluster and enterprises which develop the area. The tax incentives include:

· Tax on income exemption for a 3-year period;

· Tax on income exemption for a 5-year period if the enterprise meets any conditions which are (1) using 60% or more of raw material from local sources; or (2) employing 20% more staff; or (3) locating in the SME cluster;

3. Tax Incentives for Listed Companies

Enterprises having issued shares for the first time to the public on the Cambodia Securities Exchange are entitled to tax incentives such as (1) tax on income exemption up to 50% of income tax payable for 3 years and (2) relief on tax arrears of certain kinds of taxes with the specific timeframes and conditions.

4. Tax Incentives for Real Estates

Cambodia has reduced the tax burden of enterprises and individuals in the real Estates sector through tax incentives to stimulate economic growth and investment activities. The incentives include:

· The implementation of capital gains tax on real estate has been further delayed until the end of 2025;

· Stamp duty exemption for properties developed by recognized developer if value lower than or equal to USD 70,000 until the end of 2025;

· Stamp duty exemption for all types of properties developed by recognized developer with value at more than USD 70,000 by allowing the deduction of USD 70,000 from the tax base until the end of 2025;

· For first-time home buyers, stamp duty exemption is applied to all types of properties developed by recognized developer with value lower than or equal to USD 210,000 until the end of 2025.

Under the leadership of His Excellency Kong Vibol, Minister Attached to the Prime Minister, Delegate of the Royal Government in charge as Director General, GDT has established information technology infrastructure and systems to modernize and digitally transform the Cambodian tax administration. These modernization and digitalization contribute to strengthening good governance and good administration. Currently, most tax services can be completed through mobile applications and systems, enabling taxpayers to handle tax affairs anytime and anywhere. Namely, GDT has implemented tax registration through online platform known as CamDX, E-filling for tax declaration, E-payment System, GDT Tax Prefilling App for Small taxpayer declaration, GDT Check & Track App, Tax certificate Management System, Online Tax Vehicle Transferring System, Tax Learning Management System, Incentive Request Management System, Double Taxation Avoidance System, GDT Taxpayer App to pay tax on property and tax on means of transportation, etc. Moreover, GDT has also developed the GDT e-Administration letter, which provide more convenient access to taxpayers to submit and track administrative letters without having to be physically present.

Cambodia has shown a positive attitude towards international cooperation in taxation. At present, Cambodia has ratified and implemented the Agreement for the Elimination of Double Taxation with respect to Taxes in Income and the Prevention of Tax Evasion and Avoidance (DTA) with Singapore, China, Thailand, Brunei, Vietnam, Indonesia, Hong Kong SAR, Malaysia, Republic of Korea, Macao SAR, and Türkiye. Recently, Cambodia has signed DTA with Laos and Philippines while DTA with Myanmar has been concluded at the technical level. Cambodia is also negotiating with Japan, United Arab Emirates, Morocco, France, Qatar and Azerbaijan.

Apart from DTA, Cambodia became the 144th member of the Global Forum on Transparency and Information Exchange for Tax Purposes in August 2017, joining efforts led by the OECD to address tax compliance risks associated with highly preferential tax jurisdictions. Moreover, Cambodia was re-admitted to full membership by the Study Group on Asian Tax Administration and Research (SGATAR) at the 44th Annual Meeting of SGATAR held in November 2014 in Sydney, Australia. Historically, Cambodia had been a member of SGATAR since its inception in 1970 in Manila, Philippines, but Cambodia lost its membership in 1975 after the genocidal Pol Pot regime came to power.

Regular meetings on the tax cooperation mechanism between Cambodia and China have been established to resolve tax issues and difficulties encountered by Chinese enterprises operating in Cambodia. These meetings not only provide opportunities for direct dialogue between the tax authorities of the two countries, but also promote bilateral in terms of tax collection and administration, and tax dispute resolution.