Mock Exam

CAMBODIAN TAXATION
MOCK EXAM PAPER

ANSWERS

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 Mock Exam

1) (a)

Greener Wares Co., Ltd.

For the year ended 31 December 2010
Tax on Profit calculation

Notes USD USD

Accounting profit before tax 300,000

Add back:
Accrued bonus 25,000
Non-deductible donation 2,000
Increase in provision for annual leave 39,000
Increase in provision for debtor 6,000
Accounting depreciation 8,000
Unrealised loss on exchange 1,900 81,900

Less:
Accounting gain on disposal (8,700)
Dividend received (18,000)
Tax depreciation Working 1 (11,640) (38,340)
Adjusted profit 343,560
Adjustment of charitable contribution Working 2 0
Adjusted profit before interest 343,560
Adjustment of interest expense Working 3 0
Adjusted taxable profit 343,560
Tax on Profit @20% 68,712

Minimum Tax at 1% x USD1,200,000 12,000

Higher of ToP or Minimum Tax 68,712
Less:
WHT credit withheld by bank (60)
Prepayment of ToP paid (12,000)
ToP payable by 31 March 2011 56,652

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Working 1
Tax depreciation
Historical
Proceeds Depre- Tax
cost/Un- Depreciation
Class from ciation depre-
depreciated Addition base
disposal rate ciation
value

Class 1 47,000 6,300 53,300 5% 2,665

Class 2 4,950 4,950 50% 2,475

Class 3 1,000 34,000 (9,000) 26,000 25% 6,500

11,640

Working 2
Charitable contribution

Adjusted profit 343,560

Qualified charitable contribution - Red
Cross 3,000
Adjusted profit for calculating maximum
deductible contribution (a) 346,560
Maximum deductible charitable
contribution [(a) x 5%] 17,328
The USD3,000 charitable contribution is fully deductible. No
adjustment is required.

Working 3
Interest deduction calculation

Interest income 1,000

Adjusted profit before interest 343,560
Add: Interest expense 40,000
Less: Interest income (1,000)
382,560
@50% 191,280

Maximum interest allowable for (a) 192,280

deduction

Total interest expense (b) 40,000

Since (b) is less than (a), no interest expense adjustment is required.

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1) (b)

The differences between real regime taxpayer and estimated regime taxpayers include:

i. The amount of taxes declared by a real regime taxpayer is based on self-

assessment. The amount of taxes of an estimated regime taxpayer is
determined by the tax authority, after verification and consultation with the
business owner or his representative (Article 30 of the Law on Taxation).

ii. Tax audits are done on real regime taxpayers but not on estimated regime
taxpayers.

iii. A real regime taxpayer is required to submit to the tax authority a balance
sheet, income statement (or profit and loss accounts) and complementary
information in addition to the tax declaration form. An estimated regime taxpayer
is not required to do so.

iv. A real regime taxpayer is required to keep accounting records and all supporting
documents but this obligation is not imposed on an estimated regime taxpayer.

v. The deadline of tax payment is different.

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2) (a)

Mrs. Tung Nalin

For the month of September 2011
Income that is subject to Tax on Salary

Basic salary
Overtime compensation
Bonus
Living away compensation
House rental in Siem Reap
Health insurance premium
Flight ticket
Petrol cost
Total taxable salaries before
rebate adjustment
USD Explanation
1,200 Basic salary falls within the definition of
“salary” that is a taxable salary (under
Article 42-8 of the Law on Taxation).
380 Overtime falls within the definition of
“salary” that is a taxable salary (under
Article 42-8 of the Law on Taxation).
0 Bonus falls within the definition of “salary”
that is a taxable salary (under Article 42-8
of the Law on Taxation); however, it is not
taxable in September 2011 as it is to be
paid in October 2011. The Bank is
required to withhold the Tax on Salary at
the time of the salary payment (Section
1.1-1 of the ToS Prakas).
250 Living away compensation falls within the
definition of “salary” that is a taxable
salary (under Article 42-8 of the Law on
Taxation).
0 House rental is not a taxable salary but is
taxable under the Tax on Fringe Benefits
(Section 3.1-c of the ToS Prakas).
0 Health insurance premium is not a taxable
salary and is exempt from Tax on Fringe
Benefits (under Section 3.1-j of the ToS
Prakas).
0 Flight ticket is not a taxable salary but is
taxable under the Tax on Fringe Benefits
(under Section 3.1-n of the ToS Prakas).
0 Petrol cost is not a taxable salary or
benefit, as it is for business purposes.
However, any portion that is for private
use is subject to Tax on Fringe Benefits.
1,830

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2) (b)

Mrs. Tung Nalin

For the month of September 2011
Tax on Salary (ToS) calculation

USD Riel
Taxable salaries before rebate adjustment 1,830
Exchange rate, Riel per USD 4,014
In Riel 7,345,620
Less: rebate for one child and a husband 150,000 *
Taxable amount in Riel 7,195,620

ToS liability:

ToS on first Riel 1,250,000 of salary 37,500

ToS for remaining balance

(7,195,620 – 1,250,000 = 5,945,620)
ToS at 10% 594,562

ToS for September 2011 632,062

*Note: The unemployed husband and child qualify as dependents.

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2) (c)

Based on Section 3.2 of the Prakas on Tax on Salary No. 1173 dated 31 December
2003, the use of motor vehicles for transportation of employees should not be subject
to Tax on Fringe Benefits (ToFB) if all of the conditions below are met:

i. The vehicle is parked on the business premises after business hours and on
non-working days.

ii. The vehicle is not specially assigned to any employee or to the family members
of an employee after business hours.

iii. The vehicle is not used by an employee or a dependent of the employee in the
conduct of personal affairs.

2) (d)

Mrs. Tung Nalin

For the month of September 2011
Tax on Fringe Benefits (ToFB)

USD Riel Remark

House rental 380 1,525,320 Taxable fringe benefit under
Section 3.1-c of the ToS
Prakas.
Health insurance 0 0 Exempt fringe benefit under
Section 3.1-j of the ToS Prakas.
Flight ticket for home trip 160 642,240 Taxable fringe benefit under
Section 3.1-n of the ToS
Prakas.
Petrol cost refund 0 0 Not fringe benefit as it serves
business purpose.
Total taxable fringe benefits 540 2,167,560
ToFB at 20% 108 433,512

2) (e)

Based on Section 3.1-J of the Prakas on Tax on Salary No. 1173 dated 31 December
2003, life and health insurance premiums paid for employees qualify for ToFB
exemption if the same benefits are provided to all employees regardless of
employment or job classification.

Since the health insurance for the management team, including Mrs. Tung Nalin, has
been upgraded, the benefit provided to Mrs. Tung Nalin is not the same as for non-
management employees. In this case, the incremental premium of USD440 (800 – 360)
per annum provided to Mrs. Tung Nalin to cover dental treatment would be subject to
ToFB.

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3) (a)

Under Article 2 of the VAT Sub-decree, all persons subject to real regime taxation who
make taxable supplies (as stated in Article 60 of the Law on Taxation) are taxable
persons.

If they are corporations, import-export enterprises or investment enterprises, they are

required to apply to the GDT to complete registration prior to the commencement of
their business activities.

Other persons must apply for complete registration within a period of 30 days from the
date on which they become a taxable person. Those persons are:

i. Any other enterprise that has a taxable turnover in any period of three
consecutive calendar months exceeding Riel 125 million in the case of the
supply of goods or Riel 60 million in the case of the supply of services.

ii. Any enterprise, at the beginning of any period of three calendar months, which
has reasonable grounds to expect that its taxable turnover will exceed Riel 125
million in the case of the supply of goods or Riel 60 million in the case of the
supply of services.

iii. Any enterprise, at the beginning of any period of three calendar months, which
has any government contracts the value of which will produce a taxable turnover
exceeding Riel 30 million.

Any person supplying both goods and services who has a taxable turnover exceeding
any of the taxable turnover threshold levels defined in sub-paragraphs (i), (ii) and (iii)
above must apply to be registered.

3) (b)

Based on Article 64 of the Law on Taxation, a zero-rated supply is a taxable supply

and subject to VAT at the rate of 0%. Based on Article 57 (of the same law), a VAT-
exempt supply is a supply not subject to VAT.

Taxpayers that provide a taxable supply can claim input VAT incurred in respect of a
taxable supply (including a zero-rated supply) they purchase. However, input VAT
cannot be claimed as a credit by a taxpayer that provides VAT-exempt supplies and
subsequently, the input VAT becomes part of the cost of such taxpayer.

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3 (c)

Good Luck Trading Co., Ltd.

For the month of August 2011
Value Added Tax calculation

Transaction Input VAT Output VAT

USD USD

Local sales - taxable supply [ (25,000 + 10,000) x 10% ] 3,500

Export sales - taxable supply at 0% 0
Sales of fixed assets - taxable supply [ 800 x 10% ] 80
Purchase of motor vehicle - creditable [ 27,000 x 10% ] 2,700
Office rental - creditable [ 2,900 x 10% ] 290
Lawyer fee - creditable [ 800 x 10% ] 80
Petrol - non-creditable 0
Air conditioner - creditable [ 1,100 x 10% ] 110
Admission fee - non-creditable 0
3,180 3,580

VAT payable [ 3,580 - 3,180 ] 400

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4) (a)

Based on Article 26 of the Law on Taxation, a non-resident is subject to Withholding

Tax (WHT) in Cambodia on the following sources of income:

a. Interest
b. Royalties, rent, and other income connected with the use of property
c. Compensation for management and technical services
d. Dividends

Based on paragraph 2 of Section 8.1 of the Prakas on Tax on Profit (2003), for WHT
purposes, the expense is treated as having been paid when it is recorded as an
expense in the accounting book. Hence, the WHT is triggered at the earlier of when the
expense is physically paid or recorded as an expense in the accounting book.

4) (b)

CCCS is a resident taxpayer and the Australian company is a non-resident for

Cambodian tax purposes. As the payment is in relation to the purchase of a control
system that includes software, the payment for the software would be treated as a
royalty or other income connected with the use of property. The term “royalty” is
defined in the Prakas on Tax on Profit in Chapter 8. Based on Article 26 of the Law on
Taxation, the payment of royalties or other income connected with the use of property
to a non-resident will be subject to WHT at 14%.

The 50% interim payment made by CCCS to the Australian company is likely to be
subject to WHT at 14%. The remaining 50% will also likely be subject to WHT at 14%
at the earlier of when the payment is made or when it is recorded as an expense in the
accounting book.

4) (c)

If the suggestion of the accountant is adopted, the costs of the software and hardware
will be clearly separated. Based on paragraph 2 of Section 8.5 of the Prakas on Tax on
Profit (2003), for a payment to a non-resident that includes the cost of materials, the
tax base for the WHT should exclude the material cost. In this regard, WHT will be
levied on the software portion only, instead of the total contract value.

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5) (a)

Based on Section 12.2 of the Prakas on Tax on Profit (2003), if a business

establishment meets any of the following three conditions, it should be taxed under the
real regime:

a) Legal form: Enterprises that are not sole proprietorships are taxed under the
real regime.

b) Level of turnover: A sole proprietorship will be taxed under the real regime if it
reaches the thresholds below:

• Supply of goods or mixed supply – Turnover of Riel 125 million or more

in three consecutive months, or annual turnover of Riel 500 million.
• Supply of services – Turnover of Riel 60 million or more in three
consecutive months, or annual turnover of Riel 250 million.
• Government contract – Riel 30 million or more in three consecutive
months, or annual turnover of Riel 125 million.

c) Type of business activity: A sole proprietorship that is an import-export

enterprise or a qualified investment project will be taxed under the real regime.

5) (b)

The general procedures of a comprehensive tax audit are briefly explained below
[Reference: Article 92, 99, 100, 116, 117 and 118 of the Law on Taxation and Section
13.3 of the Prakas on Tax on Profit (2003)]:

Stage 1: The tax authority will issue a letter to inform the taxpayer that a
comprehensive tax audit will be conducted. The letter will state the name of the tax
audit officers, the period under audit and a list of required documents.

Stage 2: The tax audit officers will visit the taxpayer, inquire about the business
operation and collect information. The tax audit officers and the taxpayer may have
subsequent meetings to discuss complex tax issues before the Notice of Tax
Reassessment is issued.

Stage 3: The tax authority will issue the Notice of Tax Reassessment to the taxpayer. If
the taxpayer agrees with the outcome of the tax reassessment, the tax audit is ended.
If the taxpayer disagrees with the tax reassessment, the taxpayer has the right to
protest against the tax reassessment within 30 days after the Notice of Tax
Reassessment is received.

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5) (c)

Based on Article 131 of the Law on Taxation, the penalty for the underpayment of
taxes will be imposed at the rate of 10%, 25% or 40% of the amount of the underpaid
taxes depending on the level of the violations of the tax law.

- 10% penalty if the taxpayer is negligent

- 25% if the taxpayer is seriously negligent
- 40% if it is a unilateral tax reassessment

In addition, interest will also be charged at the rate of 2% of the amount of the
underpaid taxes for each month or part of the month that the tax is outstanding.

5(d)

Based on paragraph 3 of Article 116 of the Law on Taxation, the tax officer could issue
a unilateral tax assessment based on:

i. information mentioned in various tax declarations or in other documents

submitted by the taxpayer to the tax administration

ii. information mentioned in an information declaration

iii. other information received by the tax administration, such as from bank,
supplier, customer etc.

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