VAT is a tax on consumer expenditure. It is collected on business transactions and imports. Most business transactions involve the supply of goods or services and VAT is payable if the supplies :
- are made in the Kingdom of Cambodia;
- are made by a taxable person;
- are made in the course or furtherance of a business; and
- are not specifically non-taxable or zero rated.
Supplies which are made in the Kingdom of Cambodia which are not non-taxable are called taxable supplies.
A taxable person is an individual, partnership, corporation, etc which is, or is required to be registered for VAT. Certain categories of persons and a person who makes taxable supplies above certain value limits are required to be registered.
Supplies are outside the scope of the tax if they are :
- made by someone who is not a taxable person; or
- not made in the course or furtherance of business.
2. What are taxable supplies ?
If you are in business and sell goods ( making a supply of goods ) or if you do something for someone else and you are paid for doing it ( making a supply of services ) it is likely that you are making taxable supplies.
Anything you do by way of business can be a taxable supply and not just those things that you do in the ordinary course of your day-to-day business.
3. Are there other kinds of supplies ?
Apart from taxable supplies, there are a number of other supplies that the Law on Taxation has determined as non-taxable. It is important to know whether you make any non-taxable supplies because this may affect the amount of VAT you can reclaim on things you buy for your business.
Non-taxable supplies are :
- Public postal service;
- Hospital, clinic, medical and dental services, and the sale of medical and dental goods incidental to the performance of such services;
- Transportation of passengers by a wholly state owned public transportation system;
- Insurance services;
- Primary financial services;
- Imported articles for personal use that are exempt from customs duties;
- Non-profit activities in the public interest that have been recognized by the Ministry of Economy and Finance;
4. What is output tax ?
This is the VAT you charge your customer when you are a taxable person making supplies. When you are registered, VAT is chargeable on all the taxable supplies you make. This is your output tax.
5. What are the rates of VAT ?
There are two rates of tax. The standard rate which is 10%, and the zero-rate which is NIL.
6. How do I know if my supplies are non-taxable or zero-rated ?
Paragraph 3 above lists the supplies which are non-taxable. If you are not sure about any of your supplies, ask the Department of Large Taxpayer for advice.
The export of goods from the Kingdom of Cambodia, taxable supply of a service rendered outside the Kingdom of Cambodia, and supplies of international transport of goods or passengers, and goods and services in connection with the export of goods and the international transport of passengers are zero rated.
Remember any taxable supply, which is not zero-rated is standard rated.
7. What is the difference between non-taxable and zero-rated supplies ?
With both zero-rated and non-taxable supplies, you don't charge tax on your supplies, but if you make non-taxable supplies you may not be able to get back all the tax which you have paid.
8. What other taxable supplies maybe liable to VAT ?
Other than your day-to-day sales, you should also account for VAT on the following supplies :
a.) Sales to your staff ( e.g. meal - even if supplied free of charge, or goods at reduced prices or free ), or sales from vending machines.
b.) Sales of business assets ( e.g. equipment, furniture, commercial vehicles );
c.) Hire or loan of goods to someone else;
d.) Gifts to friends or business representatives;
e.) Goods which you or your family have taken from the business for your own use;
f.) Commission received in return for selling something on behalf of someone else.
9. Do I still have to account for VAT if no money is paid ?
You must account for VAT on any gift of goods or services from the business based on the fair market value of the goods or services at the time the supply is made.
Similarly you must account for VAT on the full value of anything you supply if you receive goods or services in return ( e.g. in a barter situation ). If you have not charged VAT when you should have, you will still have to account for output tax. Whatever price you charge to your customer is treated as including VAT.
10. What is input tax ?
Many of the things you buy will carry a VAT charge, but if you are registered for VAT you can normally claim a credit for the VAT charged on business purchases and expenses. This is your input tax. It includes not only the VAT on your purchases of raw materials or on goods purchased for resale but also the VAT on things like :
a.) Office equipment for your business;
b.) Commercial vehicles used in the business for the carriage of goods;
c.) The supply of electricity for the business;
d.) Your telephone bill when used for the business;
e.) Payments for services to do with your business ( e.g. Accountants' or Lawyers' fees ).
It does not include VAT paid on goods or services for someone else's business nor VAT on private purchases, such as furnishings for your home. VAT charged in these circumstances is not your input tax.
11. Can I always get back my input tax ?
When you spend money and have to pay VAT ask yourself. Is this expense wholly for my business ? If it is, you will more than likely be able to deduct, in other words reclaim, your input tax.
Remember that there are some purchases on which you cannot claim a credit for your input tax.
These are :
a.) Passenger automobiles, unless your business is dealing in or hiring such automobiles;
b.) Entertainment, amusement, or recreation unless you are in the business of providing entertainment, amusement, or recreation;
12. What if I make non-taxable supplies ?
If as well as making taxable supplies, you make non- taxable supplies as list in paragraph 3, you may only be entitled to claim a credit for the part related to a taxable supply.
13. What proof do I need to claim input tax ?
You must have an original copy of a tax invoice, or a certified customs bill of entry to substantiate a claim for input tax credit. If you do not possess such documents you must obtain one or you will be unable to claim a credit.
14. How do I claim my input tax credit ?
When you complete your VAT return each month the amounts you enter in Box 8 or Box 10 is your claim for credit.
If the total in Box 11 exceeds the amount in Box 15 of the return then the General Department of Taxpayer will refund the balance to you if you are an exporter or you have carried forward a credit for 3 months. In other cases you must insert the amount of credit in Box 18 and carry it forward to your next tax return.
15. What should I do to obtain further information ?
Any person conducting a business enterprise or intending to conduct a business enterprise may apply to be registered for VAT. However all corporations, importers, exporters and investment enterprises must register for VAT from the date they commence business. All other taxpayers must register for VAT if their taxable turnover in respect of goods exceeds 125 million Riels or their taxable turnover in respect of services exceeds 60 million Riels for the preceding three consecutive calendar months or is likely to exceed this level in the future three months. In addition the taxpayers with government contracts which will produce taxable turnover exceeding 30 million Riels must register for VAT. Taxable turnover is the gross income of a business excluding VAT and excluding income from non-taxable supplies as defined in Article 57 of the Law on Taxation.
The term any person for purposes of VAT registration includes :
- Sole Proprietor;
- Private Company;
- Public Company ;
- Joint Venture ;
- Pass through ;
- Club or Association.
A business enterprise : This refers to any business of whatever nature and it includes examples such as :
(a) Ordinary business e.g. Shops, Contractors, Manufacturers, Wholesalers, Services Providers etc.
(b) Trades and Professions e.g. Architects, Engineers, Accountants , Lawyers etc.
(c) Activities of non-profit making bodies e.g. Societies, Associations, Sporting Clubs etc.
17. How do I work out whether I have to register or not?
You are obliged by law to register during 15 days after doing business activity (after registered in Ministry of Commerce).
18. How do I become liable to register ?
Taxpayers other than corporations, importers, exporters, investment enterprises and government bodies only have to consider their business turnover over the past 3 calendar months. If during the past 3 calendar months you made taxable supplies whose value exceeded the limits in paragraph 1 then you must register for VAT.
Also if you reasonably expect that during the next 3 calendar months the total value of your taxable supplies is likely to exceed the limits in paragraph 1 then you must register for VAT.
Remember that even if you do not have to register at present and in the future if your business improves and your taxable turnover increases to the level mentioned above you must register as required by the Law on Taxation.
Please note that your taxable turnover is the value, not just the profit, of all your taxable supplies made in the Kingdom of Cambodia including zero-rated exports.
19. How do I calculate my taxable turnover ?
Your taxable turnover is calculated on an ongoing basis. Two periods need to be considered, the past 3 calendar months and the next 3 calendar months, on a month by month basis. You should calculate at the end of each business calendar month the total value of taxable goods and services supplied by all your businesses for the past 3 calendar months. Where the total exceeds the defined limits you are required to register for VAT. Or if after estimating the total value of supplies for the next 3 calendar months you expect to exceed the limits you are required to register.
20. Can I be registered if my turnover is below the threshold level ?
If your taxable turnover is below the limits in any three months of business activity you may apply for voluntary registration. You will have to satisfy the Director of the General Department of Taxation that your activities constitute a business for VAT purposes. Before applying you should consider whether registration will really be of benefit to you.
21. What factors do I have to consider in deciding whether to apply for registration or not ?
In considering whether you should register for VAT, you should ask yourself these questions :
Is my creditable input tax likely to exceed the tax I have to charge on my sales?
For example if you are a trader dealing in zero-rated exports of services, you should consider whether you wish to register voluntarily to claim refunds of tax paid on purchases.
Do I make taxable supplies to other VAT registered taxable persons ? If you are not registered for VAT you cannot issue tax invoices on which your registered customer can claim credit for the tax . Your customer will therefore have to charge a higher price for his supplies than he would have to charge if he could claim a credit for the VAT. In this case he might have to choose to trade with another VAT registered supplier and you would lose business.
Do I trade principally with non-VAT registered taxable persons ?
In this case it is likely to be in your interest not to register for VAT until you are liable to register as described in paragraph 1.
You should also consider the obligations of registration.
Once registered, you will have to account for Output tax on all your taxable supplies and you may only take credit for Input tax that is attributable to your taxable supplies. You will also have to submit VAT returns regularly to the General Department of Taxation and keep proper business books of accounts for inspection by officers of the General Department of Taxation at any given time.
If you decide to apply for voluntary registration, enclose a letter with your Application Form, explaining the nature of your business, why you want to be registered and from what date.
If you do not want to register from a current date, you should state the reason. If you decide to register voluntarily the Law requires that you must remain registered for a period of two years regardless of the value your taxable business turnover.
22. If I want to register voluntarily. Can the General Department of Taxation refuse to register me ?
Voluntary registration is at the discretion of the General Department of Taxation. The General Department of Taxation can refuse to register any person who :
- has no fixed place of abode or business;
- does not keep proper accounting records;
- has not opened a banking account with any bank;
- has previously been registered for VAT purposes and has failed to perform his duties under the VAT provisions.
23. Can I register before I commence business ?
If you are not yet making taxable supplies, but have started a business activity in which you intend to make taxable supplies, e.g. building a factory, you may apply to be registered as an Investment Enterprise from a date before you start making such supplies.
You must produce evidence satisfactory to the General Department of Taxation of your firm intention to make taxable supplies by way of business e.g. investment license, proposed contracts, details of stock and capital asset purchases, etc.
If your application is accepted, you will be able to provisionally re-claim Input tax that is wholly attributable to your intended taxable supplies. Full details of the input tax rules which appear in the VAT Sub-decree will be given to you in writing, but if you fail to make taxable supplies within a two year period you will be required to repay to the General Department of Taxation all the input tax you have been refunded.
24. What about turnover and comsumption tax paid before registering for VAT ?
At the commencement of VAT, if you have in stock capital goods and other goods on which the turnover or consumption tax was paid, you shall be entitled to claim a credit only for those taxes paid on goods purchased within 60 days prior to the date of commencement of VAT .
25. What about any VAT I pay before I register ?
Any VAT you are charged on goods that you used in setting up your business can be re-claimed provided that such VAT was incurred not earlier than 60 days prior to the date of registration and the goods or assets are in stock on the date of registration. You should obtain an application form from the Department of Large Taxpayer to claim a credit.You must have documentary evidence that VAT had been paid on the goods in stock.
26. How do I register for VAT ?
Applications for compulsory as well as voluntary registration must be made on form VAT101, "Application for VAT registration",which is obtainable from the Department of Large Taxpayer. You must fill in this form and take it to the Department of Large Taxpayer before commencing your business activity if you are a corporation, importer, exporter, investment enterprise, or a government body. Otherwise you should fill in this form and provide any extra information required and take it to the Department of Large Taxpayer by the 15th of the month following the month you exceed the turnover limit requiring registration.
There are penalties for a delayed application. Once the application for registration has been made, the General Department of Taxation will advise you of your VAT Registration Number which will be your VAT TIN ( VAT Tax Identification Number ). A certificate of registration will be issued to you which you will have to display at your main business premises. If registration is refused, you will be notified and the reasons for the refusal explained.
27. When do I start to charge VAT ?
You should start keeping VAT records and charging VAT to your customers from the date notified to you by the General Department of Taxation. This will be the date shown on your Certificate of Registration.You will have to account for VAT from the date on which you were registered which will be noted on your Certificate of Registration.
28. What records do I need to keep for VAT purpose ?
You must keep records of all supplies and purchases you make and receive and a summary of VAT for each period covered by your VAT returns. This is called a “ VAT Account ”.
If you are already in business, you will find that your normal business records can be adapted to give this information.
29. What about my VAT returns ?
Every month, you must file a VAT return Form VAT 200. The period covered by the return is called a Tax Period.
You have to fill in details of the supplies you have made and received in that period and pay the total tax you owe to the General Department of Taxation or claim a repayment or a credit if tax is owed to you.
Your VAT return and VAT payment must reach the Department of Large Taxpayer by 20th day of the month following the tax period covered by the return .
There are penalties for late filing of the return and for late payment or failure to pay the tax.
30. What should I do to obtain further information ?