As a general rule the Cambodia tax regulations contemplate Value Added Tax (VAT) being charged at zero percent (“zero-rated”) for services invoiced by a Cambodian taxpayer that are deemed to be performed outside of Cambodia (“exported services”). The uncertainty facing taxpayers in Cambodia centers upon what constitutes an exported service and what evidence do they need to maintain in order to avoid being re-assessed on VAT in later tax audits should they decide to zero-rate VAT invoices.
In an attempt to clarify this uncertainty, the General Department of Taxation (GDT) issued Notification 9898 on 10 June 2019. We outline the main points of this Notification below.
Exported Services
A service is considered to be exported if that service is provided outside of Cambodia by a Cambodian resident enterprise. The provision of such a service outside of Cambodia may be conducted by a Cambodian resident enterprise through the dispatching and/or hiring of employees or technicians outside Cambodia to perform related tasks outside Cambodia.
Example:
Enterprise A (a Cambodian resident) dispatches its employees or technicians from Cambodia or hires employees or technicians outside Cambodia to provide consultancy services, such as legal, accounting, taxation, trade, data research or analysis, etc. for a non-resident customer who resides outside of Cambodia. This service provision shall be zero-rated for VAT.
Services for use outside Cambodia
The provision of a service is considered to be for use outside Cambodia if that service is provided by a Cambodian resident enterprise to a non-resident customer which will not in any way be used in connection with any economic activity or presence in Cambodia of the customer.
Example:
Enterprise A (a Cambodian resident) provides services for construction design, programming software, or drafting an article for Enterprise B that resides outside of Cambodia.
Enterprise A is considered to have provided services for use outside of Cambodia on the basis that Enterprise B will use the design, software program or article outside Cambodia.
Enterprise A may need to provide documentary evidence to the GDT of the intended or actual use of the services outside of Cambodia by Enterprise B (see below).
Thus if the services are used outside of Cambodia by Enterprise B then VAT will be zero-rated.
It should be noted that the provision of a service shall not be considered to be for use outside of Cambodia where that service is used by the non-Cambodian resident for any business objective or economic interest that relates to Cambodia.
In the example provided above, Enterprise A is liable to the GDT for the 10% VAT if they incorrectly zero-rate the invoice for VAT, and the GDT then subsequently discovers that Enterprise B has used those services inside Cambodia. Examples of a service not qualifying for zero-rated VAT are provided below:
Example 1:
Enterprise A (a Cambodian resident) provides consulting services, such as legal, accounting, tax, trade, data research or analysis, etc. relating to Cambodia for Enterprise B that resides outside Cambodia. Enterprise A is considered to have provided the service in Cambodia for use in Cambodia as this service will be used for a business purpose or economic interest that is connected to the country. The provision of these services shall be subject to 10% VAT.
Example 2:
Enterprise A (a Cambodian resident) provides services for testing or checking the quality of goods for export from Cambodia for Enterprise B that resides outside of the country. In this scenario, the service is considered to be provided and used in Cambodia as it is performed on the goods before they are exported from Cambodia. The provision of these services shall be subject to 10% VAT.
Documentary Evidence:
- Taxpayers in Cambodia looking to charge zero-rated VAT invoices must maintain the following supporting documents:
- A contract clearly specifying the service charge, type of services and the place where the services are provided;
- Documents showing payments remitted from outside of Cambodia to a bank in Cambodia for the services;
- Original invoice; and
- Verifiable accounting records.
The DFDL tax team, as always, stand ready to answer any questions you may have on this and other tax issues.
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This article is written by DFDL Lawyers.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.