UNOFFICIAL ENGLISH TRANSLATION

KINGDOM OF CAMBODIA
Nation Religion King

Ministry of Economy and Finance

No. 1173 SHV.PD.Brokor Phnom Penh, December 31, 2003

PRAKAS

ON

TAX ON SALARY

The Senior Minister;

Minister of the Ministry of Economy and Finance

 Considering the constitution of the Kingdom of Cambodia;

 Considering the Royal Decree NS/RKT/1198/72, dated November 30, 1998 on
Appointment of the Royal Government of the Kingdom of Cambodia;
 Considering Royal Kram Nº 02/NS/94, dated July 20th, 1994, promulgating the law on
the organization and functioning of Council of Ministers;
 Considering the Royal Kram Nº NS/RKM/0196/18, dated January 24, 1996, promulgating
the law on the Creation of Ministry of Economic and Finance;
 Considering the Royal Kram Nº 02/NS dated 28 December 1993, promulgating the
Finance Law for 1994 and the Royal Kram Nº 08/NS/94 dated 30 November 1994,
promulgating the Amendments to the Finance Law for 1994;
 Considering the Royal Kram Nº 01/NS/93, dated December 28, 1993, promulgating the
law on the Financial System, which has been amended by the Financial Law for 1995
promulgated by the Royal Kram Nº 11/NS/94 dated December 31, 1994 and by the
Financial Law for 2000 promulgated by the Royal Kram Nº NS/RKM/1299/15 dated
December 25, 1999, and which has been amended by the law on the amendment on
article 26 of the law on the Financial System promulgated by the Royal Kram Nº
NS/RKM/1202/029, dated December 30, 2002;
 Considering the Royal Kram Nº NS/RKM/0297/03 dated 24 February 1997, promulgating
the Law on Taxation;
 Considering the Royal Kram Nº NS/RKM/0303/010 dated March 31, 2003 promulgating
the law on the amendment to the Law on Taxation;
 Considering Prakas Nº 396 BrK.SHV.BD dated June 27, 1997 on the tax on salary of the
Ministry of Economic and Finance;
 According to the necessity for the tax collection of the Tax Department;

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HEREBY DECIDES

CHAPTER 1
GENERAL PROVISIONS

Section 1.1: - Taxed Salary

1- In compliance with article 41 of the Law on Taxation (LOT), all salaries received form
employment activities shall be taxed, called Tax on Salary (TOS) that is monthly tax.
The first paragraph of article 52 of LOT stipulates that TOS is a debt of physical person
who has the salary. This tax shall be collected by withholding by the employer once
paying the salary.

2- The paragraph 8 of the new Article 42 of the Law on Amendment to the Law on
Taxation (LALOT) largely stipulates the definition of salary, which included bonus,
remuneration, premium, overtime, various honorarium and other fringe benefits paid to
employee or directly or indirectly paid for the employment activities of the employee,
except for payments exempted in articles 43 and 44 of the LOT.

Section 1.2: - The Employment Situation

1- Compared with professional activities or other activities, employment activities have the
characteristics noticeable through a situation when the employee engages in his
employment activities under the employer's instructions. Is deemed "employee" and
subjected to TOS, a physical person in employment situation satisfying 2 of the
following conditions:

A- Absence of risk of not having received compensation for his employment

activities when that physical person has come and worked in a determined place
according to a general employment agreement whether made orally or in writing.

B- The physical person cannot fix the time and place of work by himself.

C- The physical person needs not spend much money to buy tools for accomplishing
his work.

D- The physical person does not carry out his job to serve many persons at the
same time.

Section 1.3: - Rules on Residence and Sources

1- The application of TOS shall be fixed according to the employee, taxpayer, or physical
person's residence situation as mentioned in paragraph 1 of the new article 42 of the
LALOT. For the purpose of TOS, the employee, taxpayer, or physical person having
domicile or having a principal place of abode in or being present in the Kingdom of
Cambodia for more than 182 days, is regarded as a Cambodian resident. Residency
situation criteria are as follows, and the person who residency satisfies one of these
criteria is regarded as resident in the Kingdom of Cambodia:

A- The first criterion of residence is determined according to the person's place of

residence. A physical person has residence in the Kingdom of Cambodia, if that
person has ownership, or rent, or lease, house, building, rent room, boarding
school etc… that can be used and where that person always stays or occupies.

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B- The 2nd criterion of residence is determined according to the person principal

place of abode in the Kingdom of Cambodia, which is determined by the real
residence based on sundry factors such as the person's place of business, stay
duration, stay characters, place of residence of the individual family, bank
account of the individual, place where the individual does principal and social
activities.

C- The third criterion of residence is the person's presence in the Kingdom of

Cambodia for more than 182 days once or many times within any 12 months
terminating in the current calendar year. In fixing the number of days of stay in
the kingdom of Cambodia, the presence in any part of the day shall be reckoned
as one full day.

2- As provided in article 41 of the LOT, for a Cambodia resident, his salary received in
and out of the Kingdom of Cambodia shall be taxed as TOS.

3- As provided in new article 49 of LALOT, for an individual non-resident in the Kingdom

of Cambodia, his salary received from his employment activities in the Kingdom of
Cambodia shall be taxed as TOS, except for salary which is the payment for technical
services or other services and the salary payer does not have permanent
establishment or the base of precise operation in the Kingdom of Cambodia.

4- The employee is exempted from paying TOS as provided in paragraph 3 of this section
when he has satisfied the three following conditions:

A- The employee's presence in the Kingdom of Cambodia does not exceed 182
days in once or many times within any 12 months terminating in the current
calendar year.

B- The employee receives remuneration or salary, which is paid by or on behalf of

employer who is not a resident in the Kingdom of Cambodia.

C- The employee receives remuneration or salary, which is not the responsibility of

the permanent establishment or the precise operation base operated by the
employer in the Kingdom of Cambodia.

5- To determine whether employee is liable or not for TOS, the Tax Administration shall
seriously consider sundry causes, such as:

A- The person responsible for or in charge of any damages to the performed work

B- The person who has the right to order employees

C- The manager of work places, the person who determines the remuneration basis
and other relationship with the employer

D- The provider of equipments and tools to be used by employees

E- The person who determines the number and level of capability of employees to
be hired for employment

6- For the purpose of TOS, the qualification of resident shall be determined in accordance
with the meaning of new article 42 of LALOT without reckoning the immigrant's
situation.

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Section 1.4: - Tax Exempt Salary

1- To be exempted from TOS, the severance payment and additional payment having
social characteristics set out in paragraph 2 and 3 of article 44 of the LOT shall be
under the limits and conditions of Labor Law.

2- Freely supply or payment at a lower price for uniforms and equipments as require in
special profession set out in paragraph 4 of article 44 of LOT is exempted from TOS, if
the employee transfers back those equipments to the employer when he ceases work.
In particular, for uniforms, they shall have the characteristics required for work, and
supplied according to the same formalities and to all employees having the same role.

3- Contracting remuneration for expenditure on mission and travel to be provided for

replacing the regime of reimbursement for real expenses as set out in paragraph 5 of
article 44 of the LOT cannot exceed the State subvention for the same work.

Section 1.5: - Personnel of Diplomatic Mission and Foreign Governments

1. The salary and other fringe benefits received by officials and employees of diplomatic
mission or consul of any foreign government who holds diplomatic or official passport
of that country, in the form of carrying out official work in the Kingdom of Cambodia,
shall not be imposed as TOS.

Section 1.6: - Employees of International Organization

1. The salary and other additional interests given to representatives, officials and
employees hired to work officially by principal offices of international organizations and
agencies of technical cooperation of foreign governments for the official activities of
these organizations, shall not be taxed as TOS.

Section 1.7: - Employees of Technical Assistance (TA) Project.

1. Apart from physical person residents in the Kingdom of Cambodia working for
administration or as ordinary assistants in TA Project that shall be taxed as TOS, the
employees as stated in documents of TA Projects of international organizations or
Technical Cooperation Agencies of any foreign government as TA staffs, shall be
exempted from TOS after the projects have been approved by the Minister of Economy
and Finance.

2. If the International Organizations or Technical Cooperation Agencies conclude an

agreement to entrust the implementation of a project to any contractor, the contractor's
employees working as TA staffs as specified in the project mentioned in paragraph 1 of
this section, shall be exempted from TOS. The contractor shall specifically note down
the work of TA personnel, and separate it from the work outside the project, or his other
personnel.

CHAPTER 2

MONTHLY TAXABLE SALARY AND FIXING OF THE WITHHELD TAX

Section 2.1: - Monthly Taxable Salary

1- The basis to calculate the monthly taxable salary is the total of the amount paid, even
in cash or object, except for the amount paid as fringe benefits provided in chapter III of
the present Prakas.

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2- As set forth in paragraph 1 of article 46 of LOT, all money that the employer gives to
the employee, even in the form of advance, loan, or installment, shall be included in
monthly taxable salary in the month when that amount shall be paid to the employee.
The amount of money to be included in the monthly taxable salary is the amount of
advance, loan, or installment, the tax on which is not yet withheld.

3- The advance, loan, or installment paid back by employee shall be deducted from
monthly tax salary. For loan, the deduction is allowed only to the initial sum, the interest
is recorded as the employer's revenue.

4- For a family in which both father and mother have monthly taxable salaries, the
deduction of tax basis for children under his guardianship as mentioned at point "a" of
paragraph 2 of article 46 of LOT can be done only for the mother or father’s monthly
taxable salary.

5- As provided in paragraph 4 of article 52 of LOT, monthly salary of resident or non-

resident individual shall be taxed as TOS at any place where the salary is paid.

Section 2.2: - Dependent Minors

1- Dependent minors are the employee's children whose age does not exceed 14 years,
or who are students of less than 25 years of age studying in full time in educational
establishments officially recognized.

2- Dependent minors shall have appropriate birth certificates.

3- In case, a dependent minor who is over 14 to 25 years olds, and who is a student
studying in full time in an educational establishment officially recognized, the employer
shall show a school certificate clearly confirming that the minor is a student really
studying in full time.

4- The tax administration has the right to refuse a school certificate from any educational
establishment that used to falsify certificates.

5- Dependent minors shall be still regarded as dependent minors in the month when they
reach the age of 15 years, or in the month when students cease their studies or reach
the age of 26 years.

Section 2.3: - Fixing of Monthly Tax to be Withheld

1- In fixing the monthly tax to be withheld, the employer shall use the progressive rate
according to the classification set forth in article 47 of LOT or calculating method table
for TOS determined by the Tax Department, or withhold tax levied from non-resident
taxpayer as stated in new article 49 of LALOT.

CHAPTER 3

FRINGE BENEFITS

Section 3.1: - The Fixing of Fringe Benefits

1- As provided in paragraph 8 of new article 42 of LALOT, fringe benefits include goods,

services or benefits in cash or in objects, which the employer directly or indirectly gives
to a physical person for work activities performed for the interests of employer.

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2- As specified in article 48 of LOT, the benefits, which the employer directly or via third
person provides to a physical person, shall be imposed as tax on fringe benefits. These
interests especially are:

a- All kinds of vehicles

b- Food
c- Domicile or accommodation
d- Water, electricity, telephone
e- Housekeeper
f- Loan with interests lower than that in market; the interest rate in market shall be
determined by the Ministry of Economy and Finance
g- Sale discount of goods
h- Educational assistance to employee, which is not any part of the training program
directly relating to the employee's work performance
i- Educational assistance for employee's minors
j- Premium insuring life or health, except for provision of additional interests of the
same kind to all employees without dividing up according to role or function
k- Part of aids on irrational and unnecessary expenditure for the employer's
business
l- Sum paid to the social welfare fund exceeding the level allowed by law
m- Sum paid to the pension fund exceeding 10% of the employee's monthly salary
without additional interest
n- Expenses for reception, entertainment, vacation or the use of any means related
to these activities which are not any part of work performance

Section 3.2: - The Use of Automobile

1- The use of automobile for carrying employees shall not be taxed as tax on fringe
benefits, if:

- The automobile is parked in the business place after working hours and on
holidays
- The automobile is not specifically entrusted to any employee or employee's
family member after working time
- The automobile is not used by employee or a person supported by employee for
his own business

Section 3.3: - The Taxed Amount of Fringe Benefits

1- The amount of fringe benefits is the market price including all taxes on provided fringe
benefits. For property to be amortized, the market price of fringe benefits is the
amortized amount allowed as stated in point “c” of paragraph 1 of new article 13 of
LALOT. In case the tax administration does not approve the market price of fringe
benefits determined by the employer, the tax administration has the right to re-fix the
sum of tax to be paid as provided in article 119 of LOT.

2- Fringe benefits shall be taxed in the month when they are given to employee without
reckoning the date they becomes the charge of the employer.

3- As provided in article 48 of LOT, the taxed amount of fringe benefits is the total amount
of all fringe benefits including all kinds of tax and tax on fringe benefits itself. To
calculate the taxed amount of fringe benefits levied in any month, the employer shall
take the total amount of fringe benefits granted to all physical persons in that month
and divide it by 0.80.

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CHAPTER 4

TAX CREDITS FOR FOREIGN SOURCE PAID TAX

Section 4.1: - Principle

1- The individual resident may claim tax credits for tax on salary he has in any foreign
country in any year to offset TOS he has to pay in the Kingdom of Cambodia in that
year. Nevertheless, tax credits given for tax on salary paid in any foreign country are
the lowest among:

- Real tax paid in that foreign country

- Sum obtained from tax on salary from all sources at the same time, calculated
according to the progressive rate by class in article 47 of LOT, multiplied by the
quotient of the salary received in that foreign country and the total salary from all
sources.

Section 4.2: - Credits for Foreign Source Tax Paid by Residents

1. The allowed tax credits shall be annually fixed based on the total received salary
without including various fringe benefits to be taxed as tax on fringe benefits.

2. As provided in paragraph 2 of article 50 of LOT, the documents used as proofs to

justify the foreign source tax payment are as follows:

a) Attestation from employer or employment contract specifying in detail the

performed work, the date and the salary received from work in the foreign country

b) Copies of the documents provided by employer to the foreign tax administration

to pay tax

c) Receipt of tax payment issued by the foreign tax administration

3. The documents mentioned in paragraph 2 of this section made in any language other
than Khmer, English or French, shall be enclosed with certified translation.

CHAPTER 5

THE EMPLOYER'S OBLIGATIONS

Section 5.1: - Payment of Withholding Tax and Tax on Fringe Benefits

1- As provided in article 53 of the LOT, the employer shall pay withholding tax on
individual resident's salary according to article 47 of LOT, withholding tax on individual
non-resident's salary according to new article 49 of LALOT, and withholding tax on
fringe benefits according to article 48 of the LOT, to the tax administration at the latest
on the 15th of the month following the month when the salary is paid or the fringe
benefits are provided in accordance with the formalities determined by the Tax
Department. In case of non-withholding or inappropriate withholding of tax, which
cannot be solved at the employer level, the tax administration has the right to require
the individual receiving the salary to appropriately pay this tax.

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Section 5.2: - Obligations of Employer in Keeping, Maintaining and Providing Sundry

Documents and Records

1. As provided in paragraph 3, article 54 of LOT, the employer shall:

a) Keep in employment documents of each employee the following information:

- The employee's name and surname

- Sex
- Date and place of birth
- Nationality
- Residence or staying place
- Position
- Date of starting and ceasing work, if any
- Gross monthly salary without any fringe benefits
- Additional interests mentioned in the employment contract

b) Record in payment documents the following information on all payments to

employees:

- Total monthly salary without fringe benefits paid to employee

- Detailed information on accessory expenses that is not liable to tax on fringe
benefits such as overtime payment, reimbursement of expenses and
compensation or other premiums
- Payment to the social welfare fund according to the requirements of the Labor
Law
- The employee's monthly taxed salary to be liable to TOS according to article
47 of LOT
- Withholding tax according to article 47 of LOT

c) Record the fringe benefits paid to employee by specifying their types and values

d) In case the employer buys fringe benefits for employee, the employer shall keep
the invoice or the contract on the purchase of the fringe benefits, in the
accounting documents of the enterprise

e) Record in the journal of salary and fringe benefits payment, the following
information for each employee:

- Gross remuneration of employee to be liable to TOS

- Basis of tax fixing to apply the withholding of tax in accordance with article 47
of LOT
- The amount of withholding tax
- The value of provided fringe benefits

CHAPTER 6

FINAL PROVISIONS
Section 6.1:

1- Any provision contrary to this Prakas shall be deemed null.

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Section 6.2:

1- The present Prakas takes effect from January 01, 2004 onward.

The Senior Minister

Minister of Economy and finance
Signed and sealed: KEAT CHHONN

Places of receipt:
 Secretariat General of National Assembly
 Secretariat General of Senate
 Office of the Council of Ministers
 All Ministries and Secretariats of State
 All Provincial/Municipal Halls (for information)
 All Units under the authority of Ministry of Economy and Finance (for execution)
 All tax units (for application)
 Records- Chronicles
Nº 27 CL.SK.RB
Certified copies for
- H E Secretary of State
- H E Under Secretary of State
- H E General Director of Public Work
- H E General Director of Transportation
- H E General Inspector
- H E Director of Cabinet

Phnom Penh, February 13, 2004

According to the instruction of Secretary of State of
Ministry of Public Work and Transportation
General Director of Administration
Singed and Sealed
SLOT SAMBO

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