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Cambodia: Taxable presence and commercial presence


Clint O'Connell, VDB Loi

When a business begins activity in a state where it does not intend to open a formal presence, both tax rules and commercial laws must be considered. Here we analyse whether it is possible, in Cambodia, to have a commercial presence without also having a tax liability, or to have a taxable presence where there is not a commercial presence.

Commercial presence in Cambodia

The Law on Commercial Enterprise (LCE) has clear regulations regarding when a foreign business must register a formal presence in Cambodia, as follows;

Article 272: Doing business A foreign business shall be considered to be "doing business" if the foreign business performs any of the following acts in the Kingdom of Cambodia: a) Rents office or any other space for manufacturing, or processing, or performing services for more than one month; b) Employs any person to work for it for more than one month; c) Performs any other act that laws of the Kingdom of Cambodia authorised for foreign natural and legal persons.

If deemed to be "doing business in Cambodia", then it must open some type of commercial entity; a subsidiary, branch or representative office.

Interpretation of regulations

The very brief rules of the LCE on "carrying on business in Cambodia" require some further construction to be given their proper meaning.

Article 272 of the LCE only refers to "manufacturing, or processing, or performing services" and makes no mention of other commercial activity of trading, agriculture, mining, investing or leasing. It also makes no reference to assets that may be held in Cambodia such as stock or equipment. In addition, the presence of employees and office rental are given criteria; however, situations may arise where there is not actual office rental if, for instance, the use of an office is provided at no charge. Or there may be no actual employees, but rather independent workers hired as subcontractors. Based on these possible situations, the LCE definition is found to be lacking and if taken literally, there would be problems in applying the rules to many different circumstances.

Is it possible that subparagraph c) ("any acts permitted to foreign business") covers all these lacunas? However, it could be argued that renting an office for less than a month or employing someone for less than a month is permitted by law, hence if interpreted literally, sub-paragraph c) renders sub-paragraphs a) and b) redundant. Therefore, the literal interpretation of article 272 seems unreasonable in this way, as the articles then become inoperative.

Also, there is clear inconsistency between article 272 and the practice currently carried out by the Ministry of Commerce (MOC) officials. The law requires commercial presence registration if the one month rental or employment period is exceeded, however the MOC requires that a rental agreement for at least one year is signed before the foreign business may register.

Taxable presence in Cambodia

In contrast the rules on taxable presence are less strict, given in greater detail and are more aligned with the practice of other countries. The definition of permanent establishment (PE) is similar to that outlined by the UN Model Double Taxation Agreement with a few exceptions including the absence of the independent agents rule, or negative case rule.

A PE refers to a fixed place of business or resident agent through which a non-resident carries out business in Cambodia. A PE also includes any other associate or connection via which a non-resident engages in economic activities in Cambodia. A PE is treated as a resident legal person in relation to Cambodian source income only. The Cambodian tax system can tax income derived in Cambodia by non-residents, either via withholding tax (WHT) on interest, dividends, royalties, rent and most services, however, not from the sale of goods, or via net profit taxation on the non-resident's business income.

The General Department of Taxation (GDT) in practice may prefer to tax non-residents via WHT as:

  • Gross income is easier to calculate than net income; and

  • It is simpler from an administrative perspective.

Tax liability in the absence of commercial presence

If a non-resident does not have a commercial presence, it is still possible that they have a taxable presence and hence may have a tax liability. If the GDT determines that a non-resident who derives Cambodian source income from doing business in the Kingdom they may be subject to tax assessment regardless of lack of LLC or branch.

In practice, however, this is not possible without the existence of premises, assets and people in Cambodia. If WHT applies to the non-resident's income, the GDT has thereby collected tax on gross income rather than taxing income on net basis.

Commercial presence in the absence of a tax presence

There are situations which may arise where business activity would not trigger a PE per the Law on Taxation (LOT); however, abiding by the LCE regulations would require a commercial presence to be registered.

For example, if a non-resident were to carry out a service project that lasted for four months, per the LCE this would trigger a commercial presence (because it is in excess of one month), however per the LOT there would not be a PE therefore the services would not be subject to tax on profit (TOP).

This situation would not be ideal because if the LLC or branch is set up, as per the LCE, this would create a PE which then would be subject to TOP on income, along with the requirement to charge VAT on supplies in Cambodia and withhold WHT on dividends paid overseas.

Careful interpretation

The LCE must be interpreted carefully so the full legal context is properly understood and applied. If interpreted in certain ways, there are clear lacunas requiring further construction to understand article 272 fully, as described above. As well as the lack of clarity in the relevant regulations, the implementation in practice by the government authorities must be considered. However, it cannot be excluded that if article 272 is not taken literally, the following actions might be considered to be in contradiction of the law; therefore, sanctions and penalties could be imposed – although this does not appear to be current practice. Therefore, foreign entities looking to do business in Cambodia must assess whether they prefer to pay additional and potentially unnecessary taxes, or bear some degree of legal risk.

Clint O'Connell (


Tel: +855 23 964 430


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