Introduction

The Ministry of Economy and Finance (“MEF”) issued Prakas No.346 dated 1 April 2020 regarding the Capital Gain Tax (“Prakas No.346”) consisting of twenty (20) Articles. The objective of the Prakas is to set out the rules and procedures on collecting tax on capital gains to be paid in the Kingdom of Cambodia. The effective date of Prakas No. 346 has been delayed and is now 1 January 2021.

Under this Prakas, “Capital” means immovable property, lease, investment asset, brand and business reputation, intellectual property, and foreign currency. “Capital Gain” means tax on income generated from the sale or transfer of capital after deducting expenses.

The capital gain is determined when:

• Selling, transferring or establishing the right to manage the property;
• Registration of ownership or possession of a property with the competent authority; and
• Upon transferring of ownership or possession of a property by order of a competent court.

Tax Exemption

Tax on capital gain shall be exempted from the sale and transfer of:

• State property,
• Property of a foreign embassy or a foreign consulate and international organizations or other foreign state technical cooperation agencies,
• Current main residence of a taxpayer which has been occupied for at least five (5) years before the sale or transfer. In the event that the taxpayer owns many residences or the spouse of the taxpayer owns a different residence, then the taxpayer shall consider one residence as the main residence,
• Property under a relatives’ ownership as stipulated under the provisions of stamp duty tax except the transfer of ownership of immovable property between siblings, and between in-laws, and
• Property to be sold or transferred for the purpose of serving the public interest in respect with the expropriation law.

Deductible Rule of Expenses

The deductible rule of expense shall be categorized into two methods such as: Fixed Expense Deduction (80% of income from the sale or transfer of the property) and Actual Expense Deduction.

A Taxpayer can choose to deduct expenditures from the sale or transfer of immovable property with the above two methods.  In the event that the Actual Expense Deduction, namely the cost of acquisition, expense for consultancy, amount of tax on immovable property or tax on unused land which had been paid, expense on administrative service of a cadastral office, expense on business advertisement fee, expense on property evaluation, administrative expense for a loan and interest (if any) that had been paid during the period of occupying the property, expense on maintenance or renovation, expense on creation or protection of the right of occupation of property. If such expenses are higher than the amount of the sale proceeds then there shall be no capital gain and therefore, no tax.     

A Taxpayer can also choose to deduct 80 percent of the gain and pay the 20 percent of the gain under the Fixed Expense Deduction.

Tax Rate and Tax Calculation

Capital Gain Tax shall be subject to a fixed rate of 20%.

For example:

1. Fixed Expense Deduction:

                        “A” sold the house and received capital gain in the amount of 500,000,000 Riel.

1. Actual Expense Deduction:

                        “B” sold the house at the price of 900,000,000 Riel. Last year, “B” bought the house at 500,000,000 Riel with the expense on the stamp duty tax of 10,000,000 Riel and spent 8,000,000 Riel for the commission fee.

Capital Gain Tax of the property outside the Kingdom of Cambodia

In the event that the capital gain from the sale of the property outside of the Kingdom of Cambodia and the non-resident taxpayer had duly paid tax on capital gain in the country where the property is located but if the amount of paid tax is lower than the amount of tax to be paid under this Prakas, accordingly the non-resident taxpayer shall pay the difference of such to the General Department of Taxation.

Tax filling

Taxpayer shall file at least 3 months after the capital gain has been determined, if the property is located in Phnom Penh then the taxpayer shall file with the General Department of Taxation (“GDT”). For the property located in the province, the tax payment shall be filed with that Provincial Department Taxation.

This Summary was prepared by Ms. HONG Monyneat, Paralegal at RHTLaw Cambodia.