Cambodia's General Department of Taxation recently published Instruction GDT-30408 of 14 December 2022, which provides guidelines for the implementation of advance tax obligations on dividend distributions. The instruction considers the change from the Additional Tax on Dividend Distributions to the Advance Tax on Dividend Distributions in 2020.
Both the additional tax and the advance tax are for the taxation of distributions of pre-tax earnings by a Cambodian company. However, the new advance tax only applies on distributions of earnings that have not been taxed, while the old additional tax applies on distributions of earnings that were not taxed or taxed at a rate lower than the standard income tax rate. This distinction is particularly important for Qualified Investment Projects (QIPs) qualifying for the 0% income tax holiday. Before 2020, distributions by QIPs would be subject to the old additional tax. From 2020, distributions by QIPs are not subject to the new advance tax during the income tax holiday, including distributions of retained earnings accumulated during the income tax holiday prior to 2020. After the income tax holiday ends, however, QIPs entitled to apply reduced annual tax rates over a period of six years are subject to advance tax on distributions of pre-taxed earnings. The advance tax rate is based on the reduced annual tax rates, which are equal to 25% of the annual tax rate in the first and second years, 50% in the third and fourth years, and 75% in the fifth and sixth years.
For companies in general that distribute pre-taxed earnings, the applicable advance tax rate is the annual tax rate for the company, which is generally 20%, although a 30% rate applies for companies engaged in oil and natural gas production and the exploitation of natural resources. The tax is calculated on a grossed-up basis and must be declared and paid by the 20th of the month following the distribution. This is treated as an advance prepayment and may be credited against the annual income tax due. If the advance tax paid exceeds the annual tax due, it may be carried forward.