Q&A: New Capital Gains Tax & the Impacts on the Cambodian Real Estate Sector
After the Department of General Taxation (GDT) announced that all capital gains, including the profit gained from selling real estate, are subject to a 20% tax after 01 January 2022, there have been doubts regarding how exactly the new tax will be implemented.
One of the leading law firms in Cambodia DFDL and renowned real estate agent CBRE Cambodia organised a seminar on 30 September to clarify all audience questions and in particular on how the new tax will impact the Cambodian real estate sector.
The panellists in the discussion included Mr. Clint O’Connell, Cambodia Deputy Managing Director & Head of Cambodia Tax Practice of DFDL, Mr. Charles Amar, Head of the Real Estate Practice Group of Cambodia DFDL, Ms. Sothida Ann, Managing Director of CBRE Cambodia and Mr. James Hodge, Senior Director of CBRE Cambodia.
1. What will be the impacts of the capital gains tax on the real estate sector?
The impact is different depending on the parties involved in the real estate sector. If you are a company which is a Cambodian tax resident, you will not be impacted by this new regulation on capital gains tax which is not applicable to such companies. Therefore, most of the real estate developers will not be directly impacted by this new regulation. The company, which is a Cambodian tax resident, is subject to the tax on income.
On the other hand, the companies which are not taxed resident in Cambodia and the individuals will be subject to this regulation. Consequently, investors (which are not tax residents or Cambodian companies) will pay attention to this new regulation as they will need to pay this capital gains tax when they decide to resell their properties subject that them making a gain.
This may impact the real estate market as it may slow down the process of sales and avoid the speculation of investors. However, the impact may be limited considering the rate of this tax which is low for the real estate sector compared to other countries.
It should be also noted that individuals who sell the main residence that they have owned for at least five years will not be subject to this new regulation.
2. Should we sell the property now before the tax is implemented?
It is true that this regulation will apply as from 01 January 2021. Therefore, it may be interesting to sell your property in order to avoid this tax. However, it will really depend on each situation and in particular if you are subject to this capital gain if you have made a gain, if you need cash considering the COVID-19 crisis in order to make other investments. On the other hand, if you consider that you don’t need cash and that the value of your property can increase more in the future, you may decide to keep your property longer even if you will need to pay this capital gains tax. Thus, it really depends on each individual calculation and current financial status.
3. Do we have to pay both stamp duty and capital gains?
Indeed, when selling a property located in Cambodia, it will be required to pay the capital gains tax (subject to the conditions being applicable for this tax are fulfilled) and the stamp duty tax. However, the parties who will pay these taxes are different. The capital gain tax needs to be paid by the seller while the stamp duty tax is paid by the buyers. In practice, it is possible for the parties to agree that the seller will pay the stamp duty tax but in such a case, the price is increased in order to take into account this cost for the seller. It may be less interesting for the sellers in the future to pay the stamp duty tax as it will increase the selling price and consequently it will increase the capital gains tax that they will need to pay. Therefore, in the future, it is better that the seller pays the capital gains tax and that the buyer pays the stamp duty tax in accordance with the laws and regulations applicable in Cambodia.
4. Can we include stamp duty as the expense when we sell a property?
Subject to the buyer having paid the stamp duty tax when he/she has acquired the property, he/she can take into account this stamp duty tax as an expense when calculating the capital gains tax to be paid when reselling this property.
5. There are two ways to calculate the expense, the actual expense-based deduction and the determination-based expense deduction (i.e. 80% deductible expense). Can we decide the methods on our own?
Yes, the parties are free to choose the best method when the capital is relating to an immovable property. The GDT is not able to challenge the parties on the choice of the method used for the calculation of the expenses. However, the GDT is entitled to challenge on the value of the property or the value of the expenses (should you choose the actual expense-based deduction and that you don’t have proper supporting documents). In practice, we can consider that the taxpayer will choose the actual expense-based deduction only if the expenses that he/she has spent are higher than 80% of the value of the property sold.
It should also be noted that if the taxpayer decides to choose the determination-based expense deduction, the capital gains tax will correspond to 4% of the value of the property sold like for the stamp duty tax. This is why the rate is low for the real estate sector compared to other countries and in particular western countries such as France.
6. Does the 80% detectable expense apply to other capital gains like shares?
No, the 80% deductible method is not eligible for other capital gains. It only applies when the capital is relating to an immovable property and in particular in case of sale or transfer of immovable property. For the other capitals, only the actual expense method will be applicable.
7. Are registered companies subject to capital gains tax? Can the company use the 80% deductible method?
The capital gains tax does not apply to a company which is a tax resident in Cambodia. They fall under the general tax regime with the tax on profit.
8. I am converting my properties into strata-title properties. When I sell them, are they subject to capital gains tax?
Converting or changing the form of property is not an event that triggers this capital gains tax. However, if you sell the units that you have converted, this sale may be subject to capital gains tax if the conditions required for the application of this tax are fulfilled. In other words, the capital gains tax will apply when the ownership transfer occurs, and you earn a profit.
9. When do you have to pay the capital gains tax, on the date of signing the contract or the date of ownership transfer?
The capital gains tax is triggered with respect to an immovable property when:
- there is a sale, a transfer or the creation of the right to occupy;
- at the time of the transfer of ownership or the right to occupy is registered with the authorities in Cambodia; or
- at the time a decision is made to transfer ownership of the immovable property or the right to occupy through a court judgment
Taxpayers are required to submit a prescribed tax return and pay capital gains to the GDT within three (3) months after the capital gain has been triggered as outlined above.
10. If I transfer my property to my company, will this transfer be subject the capital gains tax?
Yes, the contribution of your real estate property to your company is considered as a transfer and is subject to the capital gains subject that the conditions applicable for this tax are fulfilled and in particular that you make a profit and that the transfer occurs on or after 01t January 2021.
- Video Advertisement -
