Cambodia: New tax introduced on the transfer of shares in a Cambodian company

On December 26 2012, the Cambodian government passed the 2013 Financial Management Law which updated the registration tax (sometimes referred to as a seal tax). In some instances the scope of the tax was modified and in others completely new categories of "transfers" that will also be subject to the tax were created.

Based on what we have been advised by the field office of the General Department of Taxation (GDT), they consider the new registration tax provisions as already in force. This is in line with the wording of the 2013 Financial Management Law as well as our interpretation of the Cambodian constitution.

Of particular note is the law's introduction of a new 0.1% registration tax, which was introduced for the transfer of shares in a Cambodian company. The tax is triggered by a transfer in ownership or right to possession of such shares.

There is in place a well-recognised and regulated practice in Cambodia with respect to the transfer of shares in a Cambodian company. When such shares are transferred, the amended articles of incorporation (AOI) of the company need to be submitted to the Ministry of Commerce (MOC) for approval. Following receipt of the approval from the MOC, a notification has to be sent to the GDT, along with the MOC approvals and amended AOI, for their records. It will be at this second stage that the Cambodian company will be required to pay, on behalf of the purchaser of the shares, the 0.1% registration tax to the GDT. Technically under the new law the company has three months to pay the registration tax, but it is common practice to pay at the time of notification.

Under the new law, the party that is acquiring the shares technically has the liability to pay the 0.1% registration tax, but as noted above, the practice in Cambodia is that that the company whose shares are being transferred will physically pay the registration tax to the GDT as agent for the shareholder at the time the GDT is notified of the share transfer.

There is still uncertainty about what the GDT will use as the tax base for imposition of this tax. We understand that a implementing Prakas (regulation) will soon be enacted that will detail that the tax base to be used for the new registration tax will be the consideration paid for the shares as opposed to their par value. In addition it is predicted that shares that are traded on the Cambodian stock exchange will receive a five year exemption from this new tax.

In addition to the imposition of a new tax on the transfer of shares in a Cambodian company, the 2013 Financial Management Law also created and or updated the tax applicable to certain other property transfers and registrations, the relevant changes are highlighted below.

Clint O'Connell (clint.oconnell@vdb-loi.com)

VDB Loi

Tel: +855 23 964 430

Website: www.vdb-loi.com