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Apr 22, 2014

Prakas 311 – Implementation of VAT for Supporting Industries

By Dary So and James Roberts
Introduction to Prakas 311
On the 19th of March 2014 the Ministry of Economy and Finance under the authority of HE Aun Pornmoniroth issued Prakas 311 on the implementation of Value Added Taxes (VAT) for supporting industries or contractors that supply goods or services for the export of the Garment Industry, Textile Industry, Footwear Industry, Carry-bag and Handbag Industry and the Hat Industry (Prakas 311).
The introduction of Prakas 311 provides enhanced guidance for those industries seeking to be recognized as support industries to the export sector and thus become entitled to charge output VAT at the rate of 0%. Prakas No. 311 MEF replaces Prakas No. 298 MEF On the implementation of VAT for supporting industries.
Key Provisions of Prakas 311
The key provisions of Prakas 311 set forth the following:
Provisions in Relation to Input VAT
Input VAT on the importation of goods and equipment for direct supply to a qualifying industry shall be treated as a state burden.
All local purchases of production inputs and equipment shall be subject to VAT at the rate of 10%.
Provisions in Relation to Output VAT
The supply of qualifying goods & services by qualifying persons to qualifying industries shall be eligible to charge VAT at the preferential 0% rate.
The supply of goods or services to local markets shall be subject to the application of VAT at the rate of 10%.
Which are Qualifying Goods & Services?
Prakas 311 provides specific limitations over the nature of goods and services which qualify to be subject to VAT at the preferential rate, these include:
• Packaging
• Yarns, Fabric, Buttons, Zippers, Hangers, Clips and Accessories for Garments, Footwear, Bags and Hats.
• Service of Washing, Dyeing, Printing Fabric or Garment, Sewing, Embroidering.
Who are Qualifying Industries?
Prakas 311 provides limitations with respect to the industries which are able to apply the preferential rates prescribed, these include:
• Garment Industry
• Textile Industry
• Footwear Industry
• Carry Bag & Hand Bag Industries
• Hat Industry
Only qualifying persons in qualifying industries supplying qualifying goods and services as prescribed above may apply the preferential rates of Value Added Tax delineated above.
Who are Qualifying Persons?
Prakas 311 provides guidance over the persons who are eligible to apply the preferential VAT rates as prescribed above. This is limited to those persons classified as either a “supporting industry” or “contractors”
Supporting Industries
A supporting industry is a Qualified Investment Project (QIP) which directly supplies goods or services to a qualifying industry from which the production outputs will be exported.
A contractor is a real regime tax payer  which directly supplies 80% or more of their goods or services to support the export of products from a qualifying Industry as defined above.
Qualifying persons must make an application to the General Department of Taxation in order to use the preferential rates of Value Added Tax as prescribed above. This application must be made annually for a period not exceeding 1 year.
Obligations of Supporting Industries & Contractors
Prakas 311 sets out a number of key compliance requirements for qualifying persons wishing to utilise the preferential rate of VAT. These requirements include:
• Submission of a monthly report to the department of customs and excise
• Taxpayers must provide a copy of all contracts to supply goods under preferential rates of VAT to qualifying industries
• Issuance of Tax invoices in accordance with Prakas 2172 GDT at the rate of 0% VAT
• Obtain a letter of undertaking for all taxable supplies confirming the customers intent to export the goods
The failure to comply with the compliance provisions as set out in Prakas 311 shall result in the inability of the persons to utilise the preferential rates of VAT as prescribed above.
Assistance with Implementation of Prakas 311 – Sciaroni & Associates Taxation Practice Group
Sciaroni & Associates Taxation Team has extensive experience in advising clients on the application of Cambodia tax law and on implementing a suitable tax strategy to reduce tax risk to an acceptable level.
Should you require any assistance with the implementation of Prakas 311 or to ensure compliance with the documentation and compliance requirements set forth above, please contact info@sa-asia.com  and someone from our tax department will be in touch.
Sciaroni & Associates
Sciaroni & Associates is a leading legal and investment advisory firm with offices in Cambodia, Laos and Myanmar. Serving SE Asia since 1993, Sciaroni & Associates provides experienced advice and business insights to many of the world's leading companies, governments, economic think tanks, global development investment funds and international NGOs in accordance with international standards. For more information about our firm, please contact info@sa-asia.com or visit www.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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