Cambodia Introduces Tax Incentives to Integrate Informal Enterprises into Formal Economy

• 19 June 2024
• Local News
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The Cambodian government has announced new tax incentives aimed at formalising the informal economy, targeting micro, small, and medium enterprises (MSMEs) in specific sectors. According to Sub-Decree No. 113, dated 21 May 2024, these incentives apply to businesses in wholesale, retail, and repair; accommodation and food services; craft; and agricultural communities, encouraging them to voluntarily register for tax between 2023 and 2028.

These enterprises are entitled to the following tax incentives:

1. Micro-enterprises that voluntarily register for tax between 2023-2028 are exempted from tax registration fees and information update fees.
2. Small enterprises that voluntarily register for tax between 2023-2028 will be exempted from penalties and tax liabilities for non-compliance before registration, as well as exempted from the tax registration fee and update fee. They will also be exempt from income tax and minimum tax for two years after registration.
3. Medium-sized enterprises that voluntarily register for tax between 2024-2025 are exempted from penalties and tax liabilities for non-compliance before registration, as well as exempted from income tax and minimum tax for two years after registration.
4. Small and medium enterprises voluntarily registering for tax in 2024 or 2025 are exempted from paying patent tax for two years after receiving the decision to register.

Despite these incentives, registered enterprises must maintain proper accounting records and submit tax returns as per the prevailing tax laws and regulations. The government’s initiative is aimed at transitioning businesses from the informal to the formal economy, which is not legally required to be registered but plays a significant role in job creation, employment, and income. However, the informal economy also poses challenges in environmental management, food safety, and tax collection.

By offering these incentives, the Cambodian government seeks to bolster tax compliance and enhance the overall economic structure, providing a supportive environment for MSMEs to thrive within the formal sector.

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