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Dec 09, 2014

Residency and Taxation Issues for Directors

By Tim Holzer

In an earlier Client Alert (18 November 2014) we discussed Prakas 1139 which deals with tax registration of Cambodian registered companies.  We focused on the question of whether there was now a residency requirement for directors of Cambodian companies.
In particular, we noted the following language: the chairman of the board of directors “shall present directly at tax administration for photo taking and fingerprint scanning and shall bring with [him] the following original documents [or copies thereof, certified by respective ministries-institutions]”:  the “family book or residential book or residential certification issued by competent authority (emphasis added).”
We further noted that actual language of the Prakas implies that the residential documents are required for the “chairman, directors, owners or shareholders and managers”, but that informally, tax department officials are indicating that the residential documents may only be required for the chairman of the board of directors.  
In this alert we note that under Cambodian tax law, Cambodian residents are taxed on worldwide income.  
Take, for example, an executive living and working in Hong Kong, who has Asia-Pacific responsibilities. This executive decides it would be good to become the chairman of the board on director of a Cambodian company and make a few trips a year to Cambodia to attend board of directors meetings.  When the Cambodian company is notified that it must complete tax registration under Prakas 1139, this Chairman of the Board will be required to personally present at the department of taxation and provide “residential certificate issued by competent authority.”   
This may cause that executive to be taxed on his worldwide income.
As of this date, and to the best of our knowledge, the taxation department has not been seeking tax on worldwide income simply because a chairman or other board member registered a “residential certificate” in compliance with Prakas 1139.  We anticipate that the issue will be further socialized with the department of taxation and at the Working Group D (public and private sector) on Tax Law and Governance meeting now being tentatively planned for early 2015. 
Sciaroni & Associates Banking & Finance Practice Group’s expertise in banking and finance encompasses a broad range of advisory experience, much of it related to ensuring compliance with prevailing laws. Sciaroni & Associates’ talented team of professionals can help with drafting of security documentation and all aspects of bank licensing in the countries in which we operate. Our staff of expat and Cambodian experts review loan agreements, ensures banking corporate compliance and provide advice on finance structure.
Sciaroni & Associates Taxation Practice Group is a full service Accounting and Advisory practice, servicing the needs of expatriate and international businesses. 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 is a leading business and investment advisory firm serving Southeast Asia since 1993 with offices in Cambodia, Laos and Myanmar.  Sciaroni & Associates assists clients in understanding the complex business conditions in those markets while efficiently identifying and resolving issues following strict international ethical standards.  Our firm provides experienced advice and seasoned business insights to many of the world’s leading companies, governments, economic think tanks, global development funds and international NGOs. 
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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