Tax on Real Estate of Cambodia

• 10 November 2018
• Local News
• 7478 Views

Cambodia has seen tremendous growth in the real estate sector, both in residential and commercial developments. This growth has bought changes in the landscape of the country and also in the law and regulations relevant to the sector, including the tax code. Under tax law, the term “immovable property” defines not only land but also includes houses, buildings and other improvements that are built on the land. All immovable property is subjected to 0.1% annual tax determined by the market price. On transfers, a 4% tax rate applies to registration of the immovable property that includes the transfer of ownership for buildings, condominiums, and other improvements.

A 10% withholding tax is applied to any income received from rentals. This tax is calculated based on the lease agreement entered between the lessor and lessee. A Prakas dated 3 November 2016 (Instruction 18410) provides guidance on obligations for implementation of the withholding tax (WHT) for real estate entities that operate in Cambodia. The Prakas guidance is to avoid being taxed twice on WHT; if the owner of the property enters into a lease agreement with the real estate entities or any property management company it is to be subjected to 10% WHT. However, if the property is subleased then it’s exempted from further 10% WHT. The exemption and the WHT depend on the agreement entered between the parties.

In addition, a Prepayment of Tax on Profit (ToP), equal to 1% of monthly turnover inclusive of all taxes except VAT, is required to be paid on a monthly basis. This prepayment tax on profit applies to all corporate entities including those holding real estate.

Recently, Cambodia entered into double taxation agreements with countries like Singapore, Thailand, Brunei, Vietnam, and China, so the benefit of the treaty can be obtained for any income from immovable property situated in these countries which are owned by a national of any of the relevant nations.

Cambodia levies a 2% tax on unused land, including attached abandoned buildings. With the recent introduction of the Transfer Pricing regulations that may apply to real estate transactions subject to the arms-length standards, such transactions may include services to tenants, sharing resources, leasing transactions and financing transactions. As Transfer Pricing regulations cover related parties’ transactions between Cambodian entities and offshore companies, under Prakas no. 986 issued by the Ministry of Economic and Finance, the term “related party” is defined as any immediate relatives of the taxpayer or any enterprise that controls or is controlled by 20% or more of direct equity share of an enterprise.

With these recent changes in the tax law and additional tax treaties being currently negotiated, it can be expected that the Royal Government of Cambodia will continue to adjust the tax environment as relates to the real estate sector. For example, Cambodia tax laws do not have specific regulations classifying long-term capital gains and short-term capital gains, but such regulation may be adopted in the near future. The changes may also result in providing for various new investment vehicles, such as REITs, and establishing new tax holidays.

© Sciaroni & Associates 2018

• Laws and Regulation