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Cambodia: Tax audits part 1: Spero optimus instruo pro pessimus


Clint O’Connell

As with most difficult things in life, when dealing with tax audits in Cambodia the Latin expression, spero optimus instruo pro pessimus comes to mind – "hope for the best but prepare for the worst". Tax audits are commonplace in Cambodia, and all registered taxpayers will be subject to an audit at some point. There are several different types of audits in Cambodia, and these are carried out independently of each other. In this month's article, we discuss the various types of audits that exist in Cambodia and some common issues that arise during the course of an audit. Next month we will detail the audit procedure in more detail.

The three types of tax audits in Cambodia are:

  • Desk audit;

  • Limited audit; and

  • Comprehensive audit.

As per Prakas No. 1059, desk audits are "a control of the accuracy and sincerity of the declared data by just checking and cross-checking various information that the tax administration has received from the taxpayer's tax return or clarification…or from information received through the use of the right to receive information…" Desk audits therefore re-examine information already submitted to the General Department of Taxation (GDT).

Limited audits are more in-depth than desk audits, and tax auditors may go on-site to the taxpayer's premises to examine additional documents; however, they will not fully investigate all potential tax issues of the enterprise and will focus on specific areas or type(s) of tax.

Comprehensive audits are more thorough and may uncover potential tax exposures through examination of any area of the business, to ensure that all tax compliance obligations have been met.

Desk audits and limited audits are carried out by the local Khan branch of the GDT at which the company files its tax returns, unless the business is classified as a large taxpayer. In this case, both desk audits and limited audits are carried out by the Department of Large Taxpayers. Large taxpayers are deemed as such if they are one of the following:

  • A qualified investment project;

  • A branch of a foreign enterprise or multinational company; or

  • An enterprise with annual turnover of over KHR1 billion ($250,000).

All comprehensive audits are carried out by the Department of Enterprise Audit.

Some common audit issues

Transactions between related parties

When related parties enter into transactions or profits are allocated between entities under common control, especially across borders, many countries enforce transfer pricing regulations as part of their tax law. Transfer pricing requires that transactions between related parties be at arm's-length, or in other words, conducted under the same conditions as if the parties were independent of each other.

Cambodia does not have any actual transfer pricing regulations in place; however, the Law on Taxation (LOT) does provide that the director of the GDT has the authority to adjust the allocation of income and expenses between related entities.

"In the case of two or more enterprises, whether incorporated or organised in or outside of the Kingdom of Cambodia, which are under common ownership, the tax administration may distribute, gross income, deductions, or other benefits among such enterprises and their owners to prevent the avoidance or evasion of taxes or to clearly reflect the income of such enterprises, or their owners.

For purposes of this article, two or more enterprises are under common ownership if a person owns 20% or more in the value or the equity interests of each enterprise."

Thus, transactions between related parties will come under scrutiny in the event of a tax audit to ensure that sales are at the market rate. However, as there is no particular guidance in the LOT as to what constitutes market rate and arm's-length, and the GDT has little experience with applying internationally-accepted transfer pricing principles, this is often a point of contention in audits. Therefore, we advise that supporting documents should be in place to support the pricing used in related party transactions.

Interest-free loans

In addition to sales transactions between related parties, interest-free loans are also likely to be raised as an issue in the event of a tax audit. It is probable that the auditor would deem interest on the loan and apply withholding tax (WHT) on this deemed interest. Note: This may also occur in connection with deferred interest payments.

Tax on salary (TOS) and fringe benefit tax (FBT)

Payments to employees, in cash or in kind, will be subject to TOS or FBT depending on their classification as per the tax law.

Normally, calculation of TOS is straightforward; however, there may be issues with benefits provided not being appropriately taxed because of an oversight by the employer that these are taxable fringe benefits.

Withholding tax (WHT)

WHT should be withheld on certain payments, including service payments to resident non-real regime taxpayers and for service payments to non-residents, at the rates of 15% and 14%, respectively.

It is not unusual for taxpayers to make errors when calculating WHT, and the taxpayer may omit this tax altogether if they do not realise that WHT is applicable to the payment. Even small service items, such as the use of a taxi, are subject to service WHT, and 15% WHT should be applied, withheld and paid over to the GDT.

However, it is not always clear to taxpayers what the nature of the payment is, and whether it comes under the scope of service, or whether it is a good and hence, not subject to WHT. For example, the purchase of leaflets that are printed to custom specifications may be considered the performance of a printing service, or it could be considered to be simply the supply of leaflets, that is a supply of goods. If there is a contract between the two parties, this would usually clarify the matter; however, for one-off purchases there is often no contract but only a very basic invoice. The description on the invoice may not be sufficient to support the taxpayer's position.


Dealing with tax audits in Cambodia is very much a matter of being well prepared. All of the issues raised above, and others not mentioned, can be dealt with effectively by ensuring that a taxpayer has strong supporting documentation in place and is aware of the unique features of Cambodian tax law. We advise the use of a qualified tax adviser to assist in these areas.

Clint O'Connell (

Tel: +855 23 964 430


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