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Feb 20, 2014

Instruction 151 Tax Assessment on Interest Expense of the Enterprise

By Tim Holzer

Cambodia’s Government Private Sector Forum (G-PSF) was established in 1999.  Its function is  to provide a forum for the government and the private sector to discuss policy and mutual concerns.  The G-PSF has multiple Working Groups 
Working Group D on Tax, Law and Governance met yesterday (19 February 2014) at the Ministry of Economy and Finance to discuss multiple matters. One of these was the private sector’s request for clarification of Instruction 151 (Tax Assessment on Interest Expense of The Enterprise) issued by the General Department of Taxation.
Instruction 151 requires the borrowing enterprise to “notify [the] tax administration within 30 days after the loan transaction incurred [and have as attachments] the loan contract or agreement or supporting documents” (Article 5, Instruction 151). Failure to register the loan may result in the lent amount being treated as taxable profit at a 20% rate.
In response to our request for clarification, H.E. Kong Vibol, the General Director of the General Department of Taxation advised with respect to Instruction 151 that:
1.  It is not necessary to file the actual loan with the General Department of Taxation; a copy is sufficient.  A pro-forma should not be used since it is too general.  However, other documents may be used provided they set out the critical terms.  [Sciaroni comment – This is very helpful.  At times lenders and borrower put highly confidential provisions into loan agreement.  Since “other documents” may be used for loan registration purposes, it should be possible to keep these confidential terms confidential];
2. Certification is not required. [Sciaroni comment – this is very helpful.  The requirement of a document having to be certified by a lawyer for each party was costly, time consuming and confusing.  Certification was particularly difficult where one of the parties was offshore];
3. Instruction 151 does not apply retrospectively [Sciaroni comment – This is very helpful, since this should greatly minimize the risk that unregistered loans made prior to 22 January 2014 would be automatically be treated as taxable profit at a 20% rate.  Still some caution is recommended for pre 22 January 2014 loans.  We continue to feel it would be wise to document such pre 22 January 2014 loans]; and
4. It would be best if amendments were not made, but if changes occur (e.g., changes of parties, major terms) then a notice of amendment may be filed.  [Sciaroni comment – This is very helpful, since it clarifies that notices of amendment may be used.]
If further developments arise with respect to Instruction 151 we will provide updates as we become aware of them.  Should you have questions or concerns on this issue please contact us at info@sa-asia.com
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Since 1993, Sciaroni & Associates has provided clients with informed counsel, guidance and insight by our national and expatriate staff to help maximize the value of investments in the Kingdom of Cambodia. Our Taxation Practice Group has extensive experience in advising clients on the application of Cambodian tax law and on implementing a suitable tax strategy to reduce tax risk to an acceptable level. The firm assists clients in understanding the complex business conditions of Cambodia while efficiently solving problems following strict international ethical standards.

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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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