Education Government Ministries Business Chambers & Associations

Tax Audit In Cambodia – Development & Challenges

on Oct, 09 2024

Cambodia Tax Forum 2024 featured an informative panel discussion on tax audits. We break down the main talking points and information from the discussion, including gold taxpayer status, penalties for failing to file tax statements, compliance issues for SMEs, and comments on the negative list and appeals process regarding tax in Cambodia.

Cambodian Gold Taxpayer Status And Comprehensive Audits

H.E. Te Jeudi, Director of the Department of Enterprise Audit at the GDT (General Department of Taxation), announced that under the new Cambodia Special Tax Audit Unit, companies recognised as Gold Taxpayers will only undergo one comprehensive audit.

“What you will face is just one comprehensive audit; that is the final one and that is the primary benefit of being under the special tax unit, unless the GDT finds any irregularities,” he explained.

Cambodia has three types of taxpayer compliance categories: Gold Taxpayer (Score 16-20 points), Silver Taxpayer (11-15 points), and Bronze Taxpayer (1-10 points).

Watch a snippet of H.E. Te Jeudi's contribution to the panel:

Penalties For Inactive Registered Businesses

Regarding penalties for inactive companies registered in Cambodia, these can also face penalties of up to USD 40,000 if they fail to file tax returns as required.

Chour Se, Deputy Director of the Department of Enterprise Audit, clarified that even if a company is inactive or has no business activities, it is still required to file a tax return.

He clarified:

If they have no business activity but comply with the tax law, they do file the tax return, and they [can] close the company. However, if we find out information - such as declaring they have no activity - but when we cross-check that information, they have provided other services to other companies - then we have to do the reassessments again.

Watch a snippet of Chour Se's contribution to the panel:

Balancing Penalties and Compliance

Anthony Galliano, CEO of Cambodian Investment Management (CIM), mentioned that the tax amnesty for businesses affected by COVID-19 was a great initiative by the government.

However, regarding the challenges of Cambodian tax audits, he believes there are over 500 licensed tax agents in Cambodia and they need better training and certification to become effective tax agents.

“I like the entrepreneurial spirit of people creating their own businesses, but I think there needs to be a little bit of improvement, along with more training, certification, and qualifications for tax agents. [...] There are more than 500 - maybe not all of them are doing the greatest jobs,” he said.

He emphasised that improving accreditation, providing additional training, and renewing those accreditations every year would be helpful to ensure the best tax compliance in Cambodia.

Watch a snippet of Anthony Galliano's contribution to the panel:

Compliance Issue For SMEs

The CEO of CIM also raised compliance issues for small and medium enterprises (SMEs) regarding the need to maintain proper accounting records.

He stated, “As the market becomes more regulated and professional, I have companies in the SME space complaining that they have to file annually, which costs them every year with the tax department (GDT). Now they are being asked to file with the Accounting and Auditing Regulator (ACAR), [which increases costs even further].”

Galliano added that those businesses also have to work with other government institutions every year, such as the Ministry of Commerce and Ministry of Labour to renew various documents, including work permits for foreign workers.

“So for these smaller businesses, it's becoming a little bit more expensive, and the cost of doing business in the country is getting higher. So again, it becomes a cash flow profitability issue,” he said.

Negative List And Appeals Process

In a case where a company’s director, shareholder, or representative encounters tax difficulties, they may face challenges in establishing new companies, assuming directorships, transferring shares, or even engaging in importation.

Galliano discussed recent improvements in the company closure process, noting that it has become more streamlined compared to previous years. He pointed out that many directors and legal professionals from 10-15 years ago are now on a “negative list”, complicating their ability to serve as directors today.

During the panel, he made two key recommendations:

Appeals Process: Independent directors should have a mechanism to appeal their status on the negative list, particularly for issues dating back several years.
Awareness of Status: There should be a way for individuals to inquire about their status on the negative list before incurring legal or government fees, especially when they are in the process of establishing a new company.

Galliano concluded that independent directors in Cambodia, given their limited power and responsibilities, should not be held accountable for past financial obligations.