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Jun 27, 2017

Prakas No 559 dated 25 May 2017 on the Implementation for VAT on nontaxable supplies

By Simon Burlinson

On 25 May 2017 the General Tax Department (“GDT”) issued Prakas No. 559 relating to VAT for non-taxable supplies (“Prakas 559”) in accordance with Article 57 of the Law on Taxation (“LoT”) which is amended by  the Law on Financial Management for 2017.

The purpose of Prakas 559 is to set out clearly the goods or services which are the deemed non-taxable supplies for the purposes of Article 57 of the LoT in order to stimulate economic activity and reduce the cost to citizens on the use of goods or services necessary in everyday life. Usually, tax registered entities charge VAT at the rate of 10% on the goods or services they provide.  However, the LoT provides for certain circumstances where entities do not need to charge VAT.  Prakas 559 clarifies these circumstances.

Expanding on the list of non-taxable supplies provided by Article 57 of the LoT, Prakas 559 provides for the following as non-taxable supplies:

  1. Public postal services;
  2. Hospital, clinic, medical and dental services and the sale of medical and dental goods incidental to the performance of such services;
  3. The service transportation of passengers by a wholly state owned public transportation system;
  4. Insurance service;
  5. Primary financial services;
  6. The importation of personal which are exempt from custom duties;
  7. Non profit activities in the public interest;
  8. Education services;
  9. Electricity and water supplies;
  10. Unprocessed agriculture products; and
  11. Solid and liquid waste removal or collection services.

Prakas 559 also provides some useful definitions to help clarify the scope of Article 57 of the LoT:

1. “Primary financial services” (which had previously been undefined) refers to any financial service that derives profit from the following:

  • Money deposit operations and the provision of credit or loans, but excluding service fees related to the provision of credit or the loan;
  • Trading of securities or other financial instruments, and clearance and settlement services with respect to the Cambodia Securities Exchange;
  • Money exchange services;
  • Surety services; and
  • Trading of unprocessed gold.

2. The term “electricity” refers to electricity which is supplied for use in daily life or business. The supply of electricity does not include the supply of network services or measuring equipment.

3. The term “clean water” refers to water that has been supplied for use in daily life or business, but does not apply all types of drinking water. Clean water supply excludes the placement of pipelines and other measuring devices.

4. The term “unprocessed agriculture products”  refers to tree bark, leaves, flowers, fruit, nuts or the resin of plants that come from faming cultivated land, whether or not sliced and which has not been processed into finished products.

5. The term “solid and liquid waste” refers to solid and liquid substances which are no longer used or required or which have been abandoned.

Additionally, Prakas 559 references the provisions of the VAT Sub-Decree that deal with claims for input VAT credit (Articles 29-41).  Essentially, Prakas 559 states that Articles 29-41 of the VAT Sub-Decree must be complied with when claiming input tax credit, which effectively means that entities engaging in the provision of non-taxable supplies may not claim input tax credit. 

Sciaroni & Associates Taxation Practice Group offers a full range of tax compliance, advisory and dispute resolution services, from the filing of monthly and annual tax returns and patent tax filings, tax registrations and structuring advice to conducting due diligence in corporate transactions and assisting clients with disputes involving the tax authorities.  We advise many of our clients on tax optimization strategies and assist them during tax audits.  At every stage of a company’s life, our advisers ensure clients are fully compliant with the dynamic field of taxation in Cambodia. To our local clients we bring international standards of professional service and to our international clients we merge our understanding of local compliance and legislative practices with quality of service and financial information required for global business.

Sciaroni & Associates, one of Southeast Asia’s leading professional services and investment advisory firms, has been providing skilled counsel and knowledgeable business insights for over two decades. Based in Cambodia with legal offices in  Laos and Myanmar, our experienced team of advisors brings considerable general and sector-specific expertise to the challenges confronting companies doing business in emerging markets.  We are proud that our clients comprise many of the world’s premier companies, banks, financial institutions, governments and global development organizations.

For more information please visit www.sa-asia.com or contact us at info@sa-asia.com

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Sciaroni & Associates is a leading professional and investment advisory firm doing business in Southeast Asia since 1993. Based in Cambodia with legal offices in Laos and Myanmar, we provide experienced advice and business insights to many of the world’s leading companies, governments, economic think tanks, global development funds, international NGOs and the Royal Government of Cambodia in accordance with strict international standards.
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