AS reliable as death, taxes are a part of life that most of us are unable to escape.

Expatriates, however, often manage to fall between the cracks thus avoiding personal

income tax both in their home countries and the countries in which they are living.

The Royal Government's recent efforts to implement a comprehensive labor registration

system for expatriate workers as well as local employees will have the practical

result of exposing many expatriates who, until now, have not paid personal income

tax in Cambodia, to the wrath of the taxation department of the Ministry of Economy

and Finance.

The personal income tax in Cambodia is termed the "salary tax". Any payment

of salary from an employer to an employee for work performed in Cambodia gives rise

to salary tax liability. There is a difference in the treatment of "resident"

taxpayers and "non-residents" in that residents are liable for salary tax

on both Cambodian and foreign source salary whereas non-residents are liable for

Cambodian source salary alone. For the purpose of this tax an individual will be

deemed a Cambodian resident if they are domiciled in or have their principal home

in Cambodia, or if they are physically present in Cambodia on more than 182 days

during the relevant calendar year.

The salary tax is a debt of the individual taxpayer and must be collected monthly

by the employer through withholding the portion of the employee's salary that is

owed as tax. This must be done regardless of whether the salary is paid to the employee

in Cambodia or directly offshore. The salary tax to be withheld will be calculated

based on the declared salary of the employee as stated when labor registration was

done, and as amended with the Ministry of Social Affairs, Labor and Veterans' Affairs

from time to time.

If the employer is overseas, they must appoint a fiscal representative in Cambodia

who will be charged with withholding the employee's salary tax liability before the

salary is paid to the employee. Both employee and employer are jointly responsible

for the payment of the tax. If no withholding is made by the employer the employer

will be held liable to the tax department even if the tax is subsequently paid directly

by the employee.

The salary tax rates for resident taxpayers that will be put into place under the

new 1997 Finance Law are shown in the graph above.

What this means is that if you are lucky enough to be earning US$7,000 a month, and

residing for more than six months of the year in Cambodia, you will be liable to

a monthly salary tax payment of US$945, calculated as in the graph at below right.

If part of this income has been earned overseas and tax has already been paid on

it in another country, you will be eligible for a tax credit deductible against the

tax payable in Cambodia. Confirming documentation must be submitted proving that

foreign source income has been taxed abroad. The amount of the tax credit will be

the lesser of the tax amount actually paid overseas or that portion of your Cambodian

assessed salary tax that is attributable to the foreign source income. Tax credits

may be carried forward for up to five years if they exceed tax liability.

Certain income is considered exempt for tax purposes and will not be included

in the calculation of the employee's taxable income. Some categories of exemptions

include:

• Refunds for invoiced expenses incurred on behalf of employer

• Indemnities for layoffs

• Any additional remuneration with social characteristics

• The free or discounted supply of uniforms or professional equipment

• Flat allowances for tra-vel expenses.

Also excluded from the employee's salary for the purpose of calculating their

salary tax liability are any fringe benefits (such as housing, automobiles, meals,

airline tickets, and so on) that are received from the employer as part of the employment.

An employer must calculate the total fair market value (inclusive of tax) of all

fringe benefits received by employees. The sum of these benefits are taxed monthly

at a flat rate of 20 percent, which is payable by the employer.

Non-residents who have Cambodian source income and individual independent contractors

who are not registered as employees with the Ministry of Social Affairs, Labor and

Veterans' Affairs are liable to a withholding tax on their salary at a flat rate

of 15 percent.

All salary tax must be withheld monthly by employers and paid to the local tax administration

by the 15th of the following month.

The rates listed above and the new wider scope of "taxable residents" is

due to be implemented by the taxation department starting on June 30, 1997 and will

not be applied retroactively.

- Michael Popkin is an attorney associated with Dirksen Flipse Doran

& Le, an international law firm with offices in Cambodia, Vietnam and Laos.