On 26 January 2023, Macau published Chief Executive Notice No. 1/2023 in the Official Gazette, which provides for the ratification of the pending income tax treaty with Cambodia. The treaty, signed 23 April 2021, is the first of its kind between the two jurisdictions.
Taxes Covered
The treaty covers Cambodian tax on income, including withholding tax, minimum tax, additional income tax on dividend distributions, and capital gains tax, as well as tax on salary. It covers Macau complementary tax, professional tax, and urban property tax.
Service PE
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting Party through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.
Withholding Tax Rates
- Dividends - 10%
- Interest - 10%
- Royalties - 10%
- Fees for technical services (technical, managerial, or consultancy) - 10%
Capital Gains
The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:
- Gains from the alienation of immovable property situated in the other Party;
- Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
- Gains from the alienation of shares or comparable interests if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50% of their value directly or indirectly from immovable property situated in the other Party.
Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.
Double Taxation Relief
Cambodia applies the credit method for the elimination of double taxation, while Macau generally applies the exemption method. However, Macau will provide a credit in respect of income taxed in accordance with Articles 10 (Dividends), 11 (Interest), 12 (Royalties), and 13 (Fees for Technical Services).
Entitlement to Benefits
Article 29 (Entitlement to Benefits) provides that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.
Entry into Force and Effect
The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.