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What is the Capital Gains Tax in Cambodia?

The Capital Gains Tax (CGT) in Cambodia is a flat 20% rate from selling a capital asset. Contrary to what most people perceive. The Capital Gains Tax in Cambodia is not exactly new; businesses in the Kingdom have always paid capital gains. The material difference now is that it applies to individuals, especially those looking to sell immovable property a.k.a. real estate.

The CGT was introduced into law through Prakas 346 from the Ministry of Economy and Finance back in April 2020 and was originally intended to be implemented a few months later in July 2020.

Due to COVID-19, the law was delayed to January 2021 to reduce the pandemic’s impact on the real estate market. The implementation of the Capital Gains Tax in Cambodia was further delayed to January 2022 as the country saw its first major local community outbreak in Q1 2021.

Who has to pay Capital Gains Tax in Cambodia?

Capital Gains Tax in Cambodia applies to both resident taxpayers and non-resident taxpayers. Taxpayers are obligated to pay their Capital Gains Tax within 3 months of realising their gains.

Resident taxpayers are defined as physical persons who meet one or more of the Kingdom’s residential criteria.

Non-resident taxpayers are defined as either legal entities or physical persons who are not considered residents.

How is “Capital” defined in Capital Gains Tax?

Capital Gains Tax covers capital gained from selling: Immovable Properties, Leases, Investment/Financial Assets, Good (Licenses & Branding), Intellectual Property, and Foreign Currency.

That may sound all-encompassing, but much like other tax laws, there are exemptions to Capital Gains Tax, especially when it comes to immovable property a.k.a. Real estate:

• The principal residence of the taxpayer – in the event that the taxpayer (or their spouse) has more than one place of residence, only one of them can be exempted from the CGT
• Transfer of immovable properties between family members as stated in the regulations around Registration Tax
• Assets of the Cambodian government
• Immovable properties a.k.a. Real estate properties sold for public purposes based on Cambodia’s Expropriation Laws
• Assets of foreign embassies/consulates
• Assets of international organizations or cooperation agencies of foreign governments

How is Capital Gains Tax calculated in Cambodia?

Capital Gains Tax in Cambodia is a flat 20% rate on gains made after selling a capital asset. At face value, that is a significant portion of sales proceeds but there are 2 methods taxpayers can use that allow for a bit more consideration to their expenses:

Actual Expense Deduction Method

This method takes the sales proceeds and subtracts the expenses the seller made on that property to get the actual Capital Gains Tax to be paid. These deductibles can be the purchase cost, consulting fees, registration tax, commissions, and even advertising. These actual expenses are deducted from the sales proceeds and 20% of the difference will be the Capital Gains Tax to be paid.

This method is beneficial for property sellers who spent a lot on overhead/operational costs and who might be looking at more humble margins.

Example:

Mrs. Phan is looking to sell her home for $250,000 that she originally bought for $100,000 a couple of years ago. She was diligent to keep essential documents detailing her expenses in the acquisition/renovation of her property, which is the following:

Registration Tax: $4,000

Loan interest: $3,000

Loan administrative fee: $500

Renovation: $35,000

Now that we have the relevant values, let’s do a sample calculation:

Ms. Phan will have to pay $21,500 in Capital Gains Tax once she sells her property via the Actual Expenses Deduction Method.

There are more applicable deductibles so we strongly suggest you keep tabs on the expenses you made for your property if you are planning to sell in the future.

Determination Based Deduction Method

This method takes 80% of the sales proceeds and subtracts it from the entire sales value. The result will be the Capital Gains and 20% of it will be the Capital Gains Tax to be paid. This method is highly beneficial for property owners who bought low and are planning to sell high.

Example:

Mrs. Phan is aware there’s another way of calculating Capital Gains Tax. And being a discerning homeowner, she explored the other method of getting the capital gains tax for her $100,000 property she plans to sell for $250,000.

Mrs. Phan will have to pay $10,000 in Capital Gains Tax once she sells her property via the Determination Based Deduction Method.

It’s quite obvious which method Mrs. Phan will be using and that’s intended as taxpayers in Cambodia are free to choose which method of Capital Gains Tax calculation to use for their tax obligation. 

As mentioned above, the Capital Gains Tax is planned to finally be implemented in January 2022. This creates a third method of Capital Gains Tax: selling your property before January 2022 so you don’t have to pay this tax!

Kidding aside, we highly recommend that you keep any relevant expenses related to your property and do your due diligence in finding the method that gives you the best tax rate.

Gaining a basic understanding of property taxes in Cambodia is important for property owners, sellers, and buyers in the country. Knowledge of these important obligations will not only make transactions easier but also help everyone avoid unnecessary costs and penalties.

This guide is designed to give you a basic understanding of obligations so you don’t go in blind into Cambodia’s ever-expanding property market!

Overview of Property Taxes in Cambodia:

• Cambodia has a 0.1% Property Tax applied on Immovable Properties
• Property Taxes must be paid every year around September
• Properties below $25,000 (100 Million KHR) are exempt from Property Tax
• Agricultural land, industrial, and state-owned lands are exempt from Property Tax
• Local tax offices have a valuation matrix called the Tax Base for specific property types and sizes within their jurisdiction, this factors into the final Property Tax that has to be paid.

How much is Property Tax in Cambodia?

Property taxes in Cambodia are officially referred to as “Tax on Immovable Property” (TOIP) and levies an annual tax of 0.1% on properties that have a value of more than $25,000 (100 million KHR). The term “Immovable Property” includes plots of land, infrastructure on land, and buildings.

NOTE: Properties valued under $25,000 are exempt from paying the Property Tax

Property Tax is generally calculated by the following formula:

(80%*(tax base)-$25,000)*0.1% = Property Tax

Sample calculation:

Mr. Ivanov owns a reinforced concrete building with 3 floors with each floor having 15m x 25m of floor size. Mr. Ivanov consulted with the Property Valuation Commission and retrieved the following Tax Base relevant to the property:

Mr. Ivanov’s 3-storey building’s property tax can then be calculated like this:

Tax Base of Mr. Ivanov’s property: $1,225,000. Let’s take this Tax Base and apply the Property Tax formula.

(80%*($1,225,000)-$25,000)*0.1% = $955 will be the Property Tax Mr. Ivanov has to pay every year for his 3-storey building.

What is a Tax Base and how is it calculated?

A Tax Base is a price per square metre for a certain property type assessed by the Ministry of Economy and Finance. Here is a table of the Tax Base for properties located in Daun Penh, Chamkarmon, 7 Makara, and Toul Kork as of 2018:

Registration Tax (a.k.a. Transfer/Stamp Tax)

The Registration Tax (a.k.a. Transfer/Stamp Tax) is the tax paid for transferring property ownership or right occupancy of land that does not have a standing building on top. This is a 4% tax derived from the Tax Base of the property in question.

This property-related tax is crucial to know if you’re someone looking to buy or sell property in Cambodia. Sellers are generally the ones shouldering the transfer tax, though it can go either way – this is best discussed in clear terms with whoever you may be transacting with.

NOTE: Properties transferred to direct kin via inheritance are exempted from the Registration Tax. The relevant Prakas states “transfers between spouses, parents, and children, or grandparents and grandchildren, will no longer require this tax”

Calculation formula: (Tax Base*4%) = Registration Tax

Sample calculation: ($100,000*4%) = $4,000 Registration Tax

Property Tax on Rental Property

Locals and foreigners who own and rent out their properties need to pay Rental/Income Tax every year. A foreign investor who buys property here and rents it out needs to pay 14% of the gross rate annually while locals have to pay 10%.

Property Tax on Unused Land

The Unused Land Tax is a 2% tax levied on bare plots of land with no building constructed and abandoned landed properties in cities like Phnom Penh. The Unused Land Tax is determined by the Unused Land Appraisal Committee (ULAC).

How is Property Tax paid in Cambodia?

Property Taxes can be paid via local tax office branches or through ACLEDA Bank, Canadia Bank, Vattanac Bank, or Cambodia Public Bank. For already registered properties, taxpayers will only need the tax payment receipt of the previous year or their Property Tax Registration ID.

For unregistered properties, it’s imperative that owners contact the local tax office their property is in. The following documents will be required for registration:

• Tax Form PT01 – a form issued by the General Department of Taxation (GDT) that asks owners to outline the specifics of their property.
• Tax Form PT02 – another form issued by the GDT which serves as a tax application form.
• National ID Card, Birth Certificate, or Passport
• Residence Book or Family Book or Residency Letter

Other documents may be required depending on the status of those involved in the transaction. We highly encourage seeking legal assistance for more specific matters.

Capital Gains Tax in Cambodia

The Capital Gains Tax in Cambodia is a flat 20% rate. The Capital Gains Tax was promulgated through Prakas 346 in April 2020 and was initially to be enacted in July 2020. But the advent of COVID-19 delayed its implementation to January 2022 to keep Cambodia’s property market activity going throughout the pandemic.

Contrary to what most people perceive: The Capital Gains Tax in Cambodia is not exactly new; businesses in the Kingdom have always paid capital gains. The material difference now is that it applies to individuals, especially those looking to sell immovable property a.k.a. real estate. A more thorough discussion of Capital Gains Tax in Cambodia can be found here.

The Capital Gains Tax in Cambodia can be calculated in 2 different ways:

Actual Expense Deduction Method

This method takes the sales proceeds and subtracts the expenses the seller made on that property to get the actual Capital Gains Tax to be paid. These deductibles can be the purchase cost, consulting fees, registration tax, commissions, and even advertising. These actual expenses are deducted from the sales proceeds and 20% of the difference will be the Capital Gains Tax to be paid.

There are more applicable deductibles so we highly suggest you keep tabs on the expenses you made in your property if you are planning to sell in the future.

Determination Based Deduction Method

This method takes 80% of the sales proceeds and subtracts it from the whole sales value. The result will be the Capital Gains and 20% of it will be the Capital Gains Tax to be paid. This method is highly beneficial for property owners who bought low and are planning to sell high.

Capital Gains Tax in Cambodia is expected to be enforced by January 2022. Once the law is in effect, we highly encourage keeping tabs on your expenses on the property to properly assess which method applies best in your

Source: https://www.realestate.com.kh/guides/Property-Taxes-tips-for-buyers-and-renters-in-Cambodia/