The income tax treaty between Cambodia and South Korea was signed on 25 November 2019. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Cambodian tax on profit including withholding tax, additional profit tax on dividend distribution and capital gains tax, and tax on salary. It covers Korean income tax, corporation tax, the special tax for rural development, and local income tax.

Natural Resources PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise carries on activities (including the operation of substantial equipment) in the other Contracting State for the exploration or exploitation of natural resources for more than six months.

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 State may be taxed by the other State:

• Gains from the alienation of immovable property situated in the other State;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
• Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation. In respect of dividends received by a Korean resident company that owns at least 25% of the voting shares or capital stock of the Cambodian resident paying company, Korea will also provide a credit for the Cambodian tax payable on the profits out of which the dividends are paid.

Provisions are also included for a tax sparing credit by Korea in respect of Cambodian tax that would have been payable but has been exempted or reduced in accordance with the laws of Cambodia and connected regulations or any other special incentive measures designed to promote economic development in Cambodia. This will apply for a period of ten years starting from the entry into force of the treaty, although this may be extended by mutual agreement.

Entitlement to Benefits

Article 27 (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 30 days after the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.