Cambodia Tightens Tax Regulations: New Scrutiny on Related-Party Transactions

Cambodian businesses are navigating a new landscape of tax regulations that impose greater scrutiny on related-party transactions and adjust mandatory audit requirements. At a recent breakfast briefing hosted by DFDL Cambodia and EuroCham, experts outlined these changes, emphasizing the importance of reviewing tax exposure and financing arrangements before the year-end.

The briefing, attended by chief financial officers, tax directors, and other stakeholders, highlighted a new capital gains tax regime that imposes a 20% tax on gains from specified capital assets, including share transfers and intellectual property. According to DFDL Tax Partner Vajiravann Chamnan, businesses must file applicable documents within three months of a sale, which has implications for those planning restructurings or ownership changes.

“Businesses must file applicable documents within three months of a sale.”Vajiravann Chamnan, DFDL Tax Partner

Chamnan noted that the General Department of Taxation (GDT) is particularly focused on loans, management fees, and royalties exchanged between related companies. Potential audit outcomes could include disallowance of related-party expenses and penalties ranging from 10% to 40%, with additional enforcement measures for cases of deliberate tax evasion.

Vandana Vijayakumar, DFDL’s transfer pricing lead, discussed updates to Cambodia’s transfer pricing regulations, which could expose companies to additional tax liabilities following pricing adjustments. The new rules allow the tax authority to recharacterize adjusted pricing as dividends or loans, potentially triggering further taxation. Companies are advised to maintain thorough documentation to demonstrate that their pricing reflects arm’s-length terms.

“The new rules allow the tax authority to recharacterize adjusted pricing as dividends or loans.”Vandana Vijayakumar, DFDL Transfer Pricing Lead

In addition to these tax changes, Michelle Cielo, DFDL's Accounting Director, outlined revisions to annual financial statement requirements and independent audits. The new regulations increase turnover and asset thresholds for mandatory audits, potentially exempting some small and medium-sized enterprises. However, certain sectors, such as branches of foreign companies and casino operators, remain subject to audit regardless of size.

Businesses and NGOs that fall outside the new thresholds can apply for exemptions, but must do so within 30 days of their accounting year-end. Cielo also pointed out that penalties for late filing escalate significantly, doubling after 30 days and tripling after 60 days.

“This system will enhance transparency and efficiency in tax administration.”Kun Vibol, Deputy Prime Minister and GDT Director General

These changes come as Cambodia’s tax administration seeks to modernize its operations. The GDT recently introduced the Cambodia Tax Administration System (GDT HomeTax), a digital platform aimed at improving taxpayer services and compliance. According to Kun Vibol, Deputy Prime Minister and GDT Director General, this system will enhance transparency and efficiency in tax administration, aligning with the government’s vision for a digital economy.

The recent briefing underscored the practical challenges finance teams will face in determining applicable obligations and preparing for upcoming filing deadlines. With the landscape evolving, companies must remain vigilant in managing their tax affairs to mitigate risks associated with non-compliance.