All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Cambodia: Key tax issues for leasing in Cambodia


Clint O’Connell

When it comes to offices, retail and factories in Cambodia, most often the lease agreement is concluded between two Cambodian corporate entities. The landlord could be a property development/investment company and the tenant is usually a corporate entity as well. In Cambodia, a unique set of tax obligations, in terms of VAT and withholding taxes, applies to the rental payments. In some extreme cases, unforeseen tax implications can render the project uneconomical.

Do you have to pay or charge VAT on a lease?

Every company in Cambodia is a VAT taxpayer unless their entire activity is exempt from VAT. This means that a company that leases you an immovable property should charge you 10% VAT.

There are almost no exceptions to this rule. Even a company with a mainly VAT-exempt activity, such as a bank, an insurance enterprise or a hospital would still have to charge VAT when it leases property to tenants, because leasing is a VAT-able activity in and of itself.

What happens if your corporate landlord should charge you VAT, but does not? In that case the landlord is breaking the law, but you are not. The tenant is not liable for the VAT towards the tax authorities.

Nevertheless, it is preferable for various reasons that your landlord has the proper tax registrations.

If your landlord is not VAT-registered, for example because he is an individual, he may not charge you VAT. You can check the registration with the tax authorities.

Why is VAT a problem for commercial developers?

There is one significant reason, above all others, why VAT can be an issue for developers of commercial property in Cambodia.

Obtaining a VAT refund may be an extremely lengthy process or may be difficult to obtain for other reasons.

A developer will normally have paid quite a bit of input VAT on materials purchased, imported, equipment and services during the construction. Input VAT is deducted from the output VAT for each VAT taxpayer. Any excess input VAT in Cambodia is refundable. If you decide not to wait for the offset with future output VAT, you can ask for a refund. So a developer would theoretically be able to claim a refund for the excess VAT which he paid during the construction phase.

But that is the theory. In practice it will be time consuming and difficult to actually receive a VAT refund in a number of situations.

First of all, tax authorities will first have to complete a tax audit to verify whether you are really owed what you claim to be owed in VAT terms. This may take a while, depending on the circumstances. There may be other difficulties associated with receiving the VAT return as well. As a result, the financing cost for the developer increases.

How can there be 10% withholding tax as well?

This question is often asked. The withholding tax (WHT) of 10% applies each time a business enterprise pays or incurs rent or lease for an immovable good to any recipient. Even if the recipient is a company itself, the 10% WHT nevertheless applies.

Individuals that pay rent or lease do not have to pay the WHT. So, companies that rent offices, shops, warehouses or any other property (including residential) will have to deduct this 10% WHT from the rent. It does not matter whether the recipient of that payment is a company or an individual.

In most cases, landlords dictate the terms of the lease and they provide that the tenant must bear the cost of this WHT. In other words, the rental fee is an amount that is "net", regardless of deduction of WHT.

The WHT remains a tax that is levied on the income of the landlord but parties are of course free to agree that between these two parties the tenant will assume the cost of this tax. If nothing is provided in the contract, normally the landlord will have to assume the cost.

The WHT and the VAT both apply but there is no double taxation, legally speaking. The VAT is payable by the tenant and is a tax on the supply of a service not on an income. The WHT is levied on the income of the landlord and collected from the payer/tenant. So both can apply simultaneously.

Why is the 10% WHT such a problem for developers?

The withholding tax that a tenant applies on the rent paid to the landlord is not supposed to be a cost for the landlord. It is a tax, or rather advance on the tax, of the landlord/company. In other words, any WHT that the tenant pays can be offset by the landlord/company from its final tax on profit liability.

The problem is that many developers may not have a tax on profit liability, particularly in the beginning. The heavy construction costs, depreciation and financial costs may easily push the company into a loss or just barely making a profit. Even though the WHT credit can be carried forward, some enterprises might wonder how long it will take before they can actually utilise the credits.

The economic effect of having 10% of your receipts deducted in exchange for a tax credit can be very burdensome, particularly for projects with a small profit margin. In effect, the profit margin itself may be smaller than 10%. There are thus situations where the developer has no benefit at all from the project, only the Treasury, at least for some time. Developers then have no choice but to raise the rental fee and pass on this cost to the tenants, for example by providing for "net" prices in the rental agreements.

Developers are therefore warned to take on board the tax implications of their projects, even more so than in other countries. Between the 10% VAT which might have to be financed, and the 10% withholding tax which might become a real cost, a number of projects may upon closer reflection not be economical.

Clint O'Connell (


Tel: +855 23 964 430


more across site & bottom lb ros

More from across our site

Vikas Garg talks to reporter Siqalane Taho about how regulation, technology and the goods and services tax has affected the manufacturing company.
A major shift is underway in tax as the profession transitions from a mostly accounting and finance sector to a hybrid industry that requires significant IT skills, say tax experts.
The Biden administration is about to give $80 billion to the Internal Revenue Service to enhance the tax authority’s enforcement processes and IT systems.
Audi, Porsche, and Kia say their US clients will face higher prices under the Inflation Reduction Act after the legislation axes an important tax credit for electric vehicle production.
This week Brazil’s former President Luiz Inacio Lula da Silva came out in support of uniting Brazil’s consumption taxes into one VAT regime, while the US Senate approved a corporate minimum tax rate.
The Dutch TP decree marks a turn in the Netherlands as the country aligns its tax policies with OECD standards over claims it is a tax haven.
Gorka Echevarria talks to reporter Siqalane Taho about how inflation, e-invoicing and technology are affecting the laser printing firm in a post-COVID world.
Tax directors have called on companies to better secure their data as they generate ever-increasing amounts of information due to greater government scrutiny.
Incoming amendments to the treaty could increase costs on non-resident Indian service providers.
Experts say the proposed minimum tax does not align with the OECD’s pillar two regime and risks other countries pulling out.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree