Experience • Insight • Local Knowledge • International Standards
Major Potential Issues for Directors of Cambodian Companies
By Tim Holzer
As background, neither Cambodia’s company law nor its investment law impose nationality or residency requirements on a company’s directors or managers, even when the company is 100% foreign owned. Indeed Cambodia has long prided itself on being a welcoming environment for foreign investment.
Yet, in an earlier Client Alert (18 November 2014), we discussed a possible new residency requirement for directors of Cambodian companies. In this alert, we note that the requirement extends to all companies registered in Cambodia, that compliance may expose directors (and others) to tax on their world wide income, and that the compliance date is prior to April 2015.
On 9 October 2014, Cambodia’s Ministry of Economy and Finance (the “MEF”) issued Prakas 1139 on Tax Registration (“Prakas 1139”). More recently, on 9 January 2015, the MEF issued Notification 286 on the Lodgment of Patent Tax Return and Payment of 2015 Patent Tax (“Notification 286”).
Patent Tax is a yearly business registration tax, and is normally considered routine. Notification 286 now requires “updating a company’s information and submit[ing] it to tax administration prior to receiving a new patent certificate.” In effect, Notification 286 extends the residency requirements of Prakas 1139 to all companies registered in Cambodia, even those registered before Prakas 1139 came into effect.
Prakas 1139 and Notification 286 appear to impose Cambodian residency requirements on the chairman of the board of directors (and possibly others, including the “directors, owners or shareholders and managers”) for an enterprise doing business in Cambodia. Specifically registration requires that “the chairman of the Board of Directors or owner of the enterprise or president of the organization shall present directly at tax administration for photo taking and fingerprint scanning and shall bring with [him] the following original documents” . . . “identification documents of chairman, directors, owners or shareholders and managers” including their:
“Cambodian National Identification Card (ID) or passport;
Family book or residential book or residential certification issued by competent authority.”
There are two problems with an offshore director (owner, shareholder or manager) providing a “residential certificate issued by a competent authority”: (a) it might be difficult to obtain, particularly if the director does not in fact live in Cambodia; and (b) it may subject that individual to tax on his world wide income.
Cambodian tax law provides that a Cambodia resident is liable for tax on worldwide income. Note: there is some debate as to what constitutes a “resident.” The Law on Taxation notes three possible triggers: having a residence, having a principal place of abode, or being present in Cambodian more that 182 days in a tax year.
As noted, above, Patent Tax renewal is required prior to April of each year. And as Notification 286, so bluntly puts it, a failure to timely renew may subject the enterprise to “punishment under the Law on Taxation.”
The issues discussed above are under discussion within government and private sector forums. As more information is obtained, we will update this news alert.
© 2015 Sciaroni & Associates
Sciaroni & Associates is a leading investment advisory firm serving Southeast Asia since 1993. Based in Phnom Penh, Cambodia, Vientiane, Laos and Yangon, Myanmar, we provide knowledgeable business insights and experienced guidance to many of the world’s leading companies, governments, economic think tanks and global development investment funds to help maximize the value of our clients’ investments.
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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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