Investing and engaging in financial transactions in Cambodia comes with certain tax responsibilities, one of which is the Capital Gains Tax.

This tax applies to the gains derived from the sale or transfer of various assets, and understanding its nuances is essential for taxpayers in Cambodia.

In April 2020, the Government introduced a new type of tax that is specifically imposed on the gains from the sale or transfer of immovable property, finance leases, investment property, goodwill, intellectual property, and foreign currency.

What is Capital Gains Tax?

Capital Gains Tax is a tax applied to the profits realized from the sale or transfer of specific assets, both within Cambodia and abroad.

The tax is relevant to those who are residents in Cambodia and applies to both residents and non-resident legal entities for assets located within the country.

Who has to pay Capital Gains Tax?

A resident individual or non-resident individual or entity who receives gains from the sale or transfer of immovable property, finance lease, investment property, goodwill, intellectual property and foreign currency is liable to pay Capital Gains Tax to the tax authority.

Tax Declaration and Procedures

Taxpayers must adhere to specific obligations and procedures for declaring and paying Capital Gains Tax.

Declaration

Taxpayers are required to submit a declaration and pay the tax on capital gains for each transaction within three months after receiving the capital gain.

Location-based Submission: For assets located in Phnom Penh, the declaration must be submitted to the General Department of Taxation, with tax payment facilitated through a partnering bank under the Ministry of Economy and Finance.

For assets situated in the provinces, the declaration must be submitted to the provincial tax branch where the property is located. Tax can be paid either at the provincial tax branch or through a partnering bank.

What is the Capital Gains Tax rate in Cambodia?

Tax Rate

Capital Gains Tax is calculated at a fixed rate of 20 percent of the capital gains. The tax base for this calculation is the capital gains, which is essentially taxable income derived from the proceeds of the sale or transfer of capital assets, minus allowable deductible expenses.

How it is calculated

Taxpayers have options for calculating their capital gain, including the specific Identification Method and Determination-Based Deduction Method.

Specific Identification Method

This method involves identifying and calculating the gain or loss for each individual asset sold.

It requires keeping detailed records of the acquisition cost and selling price for each asset. This method is often used when you want to track the gain or loss of specific assets within a larger investment portfolio.

Specific Identification Method can be calculated by subtracting the cost of assets from the sale or transfer price as specified in the contract and related documents.

Formula: Capital gain = Price of sale - cost of assets

Price of sale: the price set in the contract and related documents

Cost of assets: Cost of purchase of property, including any related expenses that may be deducted

Example

Home

Sale price = $400,000

Deductible expense

Purchase price = $300,000

Loans = $20,000

Stamp tax = $10,000

Renovation New = $30,000

Total Expenses = $360,000

Capital gain = sale price - cost of assets

= $400,000 - $360,000

= $40,000

CGT payable (20%) = $8,000

Method one for calculation is employed when there are valid supporting documents to substantiate deductible expenses incurred during the property purchase. In this case, you aim to subtract your actual expenses from the sale price to establish the foundation for calculating a 20 percent Capital Gains Tax.

Determination-Based Deduction Method

Taxpayers can choose to deduct 80 percent of the sale or transfer the value of assets from the capital gain.

Also known as the lump-sum or 80 percent method, this approach simplifies the calculation by assuming that 80 percent of the sale price represents the cost basis (acquisition cost) of the asset. The gain is then calculated as the difference between the sale price and 80 percent of the sale price.

This method is often used when it is challenging to identify the cost basis of individual assets within a larger group or when specific records are not available.

The choice of method depends on factors such as the complexity of investments, record-keeping capabilities, and the tax regulations in your jurisdiction.

It is essential to consult with a tax professional or accountant to determine which method is most appropriate for your specific situation and to ensure compliance with tax laws.

Formula: Capital gain = sale price - (80 percent x sale price)

Example

Sale Price: = $500,000

Capital Gain = sale price - (80% x sale price)

= $500,00 - $400,000

= $100,000

CGT payable (20%) = $20,000

Molika's capital gain, based on the Determination-Based Deduction Method, is $100,000. Applying the 20 percent capital gains tax rate, he will owe $20,000 in Capital Gains Tax when he sells his investment property.

Method two for calculation is employed when there is a lack of documentation for expenses.

In this case, tax authorities establish the basis for calculating a 20 percent Capital Gains Tax by taking 20 percent of the sale price.

Put differently, they permit an 80 percent deduction for expenses from the sale price before applying the 20 percent Capital Gains Tax.

The sale price is the market value or the actual price you receive from the sale or transfer, whichever is higher.

What are the criteria for deductible expenses?

According to Article 7 of this Prakas, the deductible expense shall meet the three criteria below:

The facts determining the taxpayer’s charge or expense have occurred

The results of economic activities (or economic performance) with respect to that expense have occurred

The expense is supported by an invoice or documents as evidence

Tax Exemptions and Incentives

While Capital Gains Tax is generally applicable, there are exemptions and incentives in place:

Agricultural land farmed by local residents is exempt.

State-owned properties are exempt.

Foreign embassies, international organizations, and government cooperation agencies are exempt.

The seller's primary residence held for at least five years is exempt.

Some immovable property may be exempt in specific familial transfers per stamp duty provisions.

Property sold for public interest reasons under expropriation laws is exempt.

When will it become effective?

After a delay of three years on Capital gain tax, the General of the Department of Taxation of Cambodia announced the implementation on January 1, 2024.

---

Contact author of the article