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MOCK

A

XAM PAP

SWERS

ER

Mock E

Pa e

CAM

BODIA

N

TAX

ATION

am

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Mock Exam

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Working 1:

Income tax expense = USD 65,000 [USD 70,300 (total charged as per the income statement) USD 5,300 (tax assessment penalty)]

Working 2:

Donation = USD 1,000 [USD 2,500 (total donations made during the year) USD 1,500(charitable contribution -> please refer to Working 8)]

Working 3:

Accounting loss on disposal of canteen = USD 4,240 [USD 5,740 (net book value) USD1,500 (sale proceeds)]

Working 4:

Accrued bonus not paid until April 2012 = USD 14,000 [USD 35,000 (total accrued bonus)

USD 35,000 x 60% (accrued bonus paid in February2012)]; or

= [USD 35,000 x 40% (amount to be paid in April2012)]

Working 5:

Accrued interest expense = USD 120,000 [USD 2,000,000 (loan principal) x 0.5% (interestper month) x 12]

Working 6

Tax depreciation

Class

Historicalcost/Un-

depreciatedvalue

Addit ionCost of

disposalDepreciation

base

Depre-ciation

rate

Taxdepre-ciation

Class 1 1,375,600 0 32,350 1,343,250 5% 67,163

Class 2 96,300 1,600 0 97,900 50% 48,950

Class 3 84,960 26,500 0 111,460 25% 27,865

Class 4 102,380 0 0 102,380 20% 20,476

164,454

Working 7: Loss on disposal of a fixed asset (class 1)

Accumulated depreciation for tax purposes of the asset (as at 31 December 2010)

= USD 32,350 x 5% x 4 years (from 2007) = USD 6,470

Written down value for tax purposes = USD 32,350 (cost) USD 6,470 = USD 25,880

Loss on disposal = USD 1,500 USD 25,880 = USD 24,380

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Working 8: Further to Working 2, it was noted that there was a charitable contribution

of USD 1,500 made to the Bayon Foundation. ALH has been provided with an

acknowledgement certificate in respect of this donation. According to Prakas No. 656,

dated 19 September 2011, donations made during the financial years 2010 and 2011,

to support victims of the border dispute or the incident at Koh Pech, through the CTN

or Bayon Foundations can be deducted from taxable profit in the 2010 and 2011 ToP

returns. Hence, this contribution qualifies as a tax deduction.

Working 9

Interest deduction calculation

USD USD

Interest income (USD 15,200 x 2) 30,400

Adjusted profit before interest 449,996

Add: Interest expense 2,000

Less: Interest income (30,400)

421,596

@50% 210,798

Maximum interest allowable for deduction (a) 241,198

Total interest expense (b) 2,000

Since (b) is less than (a), no interest expense adjustment is required.

Working 10:

Additional Tax on Profit from Dividend Distribution (ATDD) paid on the interim

dividend:

ATDD = USD 21,000 (in terim dividend) x 20% (tax rate) = USD 4,200

Working 11:

Interest income = USD 15,200 x 2 (semi-annual) = USD 30,400

Withholding Tax on term deposit = USD 30,400 x 6% = USD 1,824

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1) (d)

The tax and investment incentives available to a QIP are summarised below:

An exemption from Minimum Tax, calculated at 1% of the annual turnover.

ToP holiday (i.e., ToP rate of 0%) for a maximum of up to six years. The taxexemption period consists of a trigger period, plus three years tax holiday, plusthe priority period (maximum of an additional three years). All QIPs are entitledto a minimum three-year ToP holiday after the trigger period.

Special depreciation rate accelerated depreciation: Under the Law onInvestment (LoI), a QIP is entitled to claim a 40% special tax depreciation ratefor the first year. The remaining costs (after deducting the special depreciation)will be depreciated in accordance with the tax regulations and claimed over thelife of the asset, starting from the year of purchase/acquisition. The specialdepreciation rate applies to used and new assets used in Manufacturing andProcessing. However, if a QIP elects to use the special depreciation rate, the

QIP is not entitled to the ToP holiday as mentioned above. It is permitted tochoose one of the two incentives.

Import duty exemption for construction equipment, construction materials etc.

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2) (a)

Withholding Tax

Nature: WHT is a mechanism for collecting tax on income of the payee, but the

responsibility for withholding and remitting the tax is placed on the payer.

Tax rate:

Payments to resident taxpayers

Based on Article 25 of the Law on Taxation (LoT), a resident taxpayer is requiredto withhold WHT on payments to resident taxpayers as follows:

Payment WHT rate

Rent 10%

Services (except payment to tax registered company) 15%

Interest (except payment to local bank or financial institutions) 15%

Royalties 15%

Payments to non-residents

Based on Article 26 of the LoT, a resident taxpayer who makes the followingpayments to non-residents is required to withhold 14% WHT:

o Interest

o Royalties, rent, and other income connected with the use of property

o Compensation for management or technical services

o Dividends

Due date: WHT is a monthly tax and is due for payment no later than the 15th dayof the succeeding month for real regime taxpayers.

Tax on Salary

Nature: ToS is a monthly tax imposed on salary received as compensation foremployment. ToS is tax paid on behalf of the employee, and the employer isrequired to withhold the tax from the employee.

Tax rate:

o Resident employees are subject to ToS on their worldwide income (i.e. home

and host salary) at progressive rates from 0% to 20%, as shown below :

Monthly SalaryRiel

Monthly SalaryUSD*

Rate of Tax

0 500,000 0 119 0%

500,001 1,250,000 120 297 5%

1,250,001 8,500,000 298 2,023 10%

8,500,001 12,500,000 2,024 2,976 15%

Over 12,500,000 Over 2,977 20%

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o Non-resident employees are subject to ToS on their Cambodian sourcedincome at a flat rate of 20%.

Due date: ToS is a monthly tax and is due for payment no later than the 15th dayof the succeeding month.

Tax on Fringe Benefit s (ToFB)

Nature: ToFB is a monthly tax imposed on fringe benefits, including any goods,services or other benefits, in cash or in kind, provided directly or indirectly by anemployer to a physical person for employment activities that the physical personhas performed for the benefit of the employer.

Tax rate: The employee is liable for tax on fringe benefits (either in cash or in kind)

at a flat rate of 20%.

Due date: ToFB is a monthly tax and is due for payment no later than the 15th dayof the succeeding month.

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2) (b)

Mr. Kuma Jaha

Income that is subject to Tax on Salary (ToS)

For the month of March 2012

USD Explanation

Basic salary

(USD30,000/12 month)2,500

Basic salary falls within the definition of

salary that is taxable salary (under

Art icle 42-8 of the Law on Taxation

LoT).

Khmer New Year bonus 675

Bonus falls within the definition of salary

that is taxable salary (under Article 42-8

of the LoT). The bonus was paid on 27

March; hence, it is subject to tax in March.

Overtime compensation 0

Overtime falls within the definition of

salary that is taxable salary (under

Art icle 42-8 of the LoT); however , the

overtime is not taxable in March 2012, as

it was paid in April 2012. VPC is required

to withhold the ToS at the time of the

salary payment (Section 1.1-1 of the ToS

Prakas).

Total taxable salary before

rebate adjustment3,175

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Mr. Kuma Jaha

Income that is subject to Tax on Fringe Benefits (ToFB)


USD Explanation

Medical reimbursement 250

Medical costs reimbursed by VPC to

staff may be considered to be fringe

benefits (under Section 3.1.1 of the

ToS Prakas). The taxable amount is

only the USD250 that was claimed.

Apartment rental 700

Apartment rental provided by VPC to

staff is considered to be a fringe

benefit (under Section 3.1.2-c of the

ToS Prakas)

Utilities expenses 215

Utilities expenses paid by VPC for

staff are considered to be fringe

benefits (under Section 3.1.2-d of the

ToS Prakas). Hence, USD215 paid in

March is taxable.

Sale of laptop at less than market

value (at a discount)

Market price = USD270/40% = 675

Discount = USD675x60% = 405, or

Discount = USD675USD270= 405

VAT absorbed by VPC = 405 x 10%

= 40.5, or

= 41

Total fringe benefits = 405 + 41

= 446

446

A discount on the sale of goods

(laptop computer) by VPC to an

employee is considered to be a fringe

benefit (Section 3.1.2-g of the ToS

Prakas).

School fees for Kuma's children

Benefit of school fees = 500x50%

= 250

250

Educational assistance for the

employees children is considered to

be a fringe benefit (Section 3.1.2-i of

the ToS Prakas).Total taxable fr inge benefi ts 1,861

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2) (c)

Mr. Kuma Jaha

ToS calculation


USD Riel

Taxable salaries before rebate adjustment 3,175

Exchange rate, Riel per USD 4,000

In Riel 12,700,000

Less: rebate for two children (75,000 each) (150,000)

Taxable amount in Riel 12,550,000

ToS liabil ity:

Range: Rate ToS (Riel)

From 0 to 500,000 0% 0From 500,001 to 1,250,000 5% 37,500

From 1,250,001 to 8,500,000 10% 725,000

From 8,500,001 to 12,500,000 15% 600,000

From 12,500,001 to 12,550,000 20% 10,000

ToS for March 2012 1,372,500

Mr. Kuma Jaha

ToFB calculation


USD Riel

Fringe benefit amount 1,861

Exchange rate, Riel per USD 4,000

In Riel 7,444,000

ToFB rate 20%

ToFB li abil it y: (7,444,000 x 20%) 1,488,800

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2) (d)

Under the Prakas on ToS, and for the purpose of ToS calculation for an individual,

residency and the source of income are defined as follows:

A resident: The tax law defines the term resident as a physical person who hashis/her residence or principal place of abode in Cambodia, or who is present inCambodia for more than 182 days in any 12-month period ending in the current taxyear. Where a person is a resident in Cambodia, his/her salaries received, fromwithin Cambodia and from outside Cambodia, are subject to ToS in Cambodia.

A non-resident: Any physical person who does not meet the above criteria will beconsidered to be a non-resident. For a person who is not a tax resident inCambodia, his/her salary received for employment services rendered in theCambodia is subject to ToS in Cambodia, unless it meets the exemptionconditions.

2) (e)

Mr. John Employment status

John has never been to Cambodia before. He signed a five-month contract with VPC

working as an independent service provider. John was present less than 182 days

during the last twelve month period ending in the current tax year. Under Article 42 of

the LoT, John is considered to be a non-resident assuming that he does not meet the

other two criteria (information regarding these additional criteria has not been given).

Under Article 26 of the LoT, when making management or technical service payments

(i.e. technology consultation) to a non-resident, VPC, being the resident taxpayer, is

required to withhold 14% WHT before making the payment and remit the WHT to the

tax authority before the stipulated deadline.

Mr. John - WHT calculation for March 2012 on service payment made to a non-

resident (John)

WHT = USD2,300 x 14% = USD322

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3) (a)

Credit note:

A credit note can be issued to the customer (recipient) when a VAT taxable person

has issued a tax invoice and then one of the circumstances listed below occursand the amount shown as tax charged on the original tax invoice exceeds the

adjusted value. The circumstances in which a credit note may be issued are:

o The supply is cancelled;

o The nature of the supply has been fundamentally varied or altered;

o The previously agreed consideration for the supply has been altered by

agreement with the recipient of the supply, whether due to an offer of a

discount or for any other reason; or,

o The goods, or part thereof, or any packaging have been returned to the

supplier or the services have not been completed.

The difference between a VAT invoice and a commercial invoice is as follows:

A tax invoice is issued to a person that is subject to tax (VAT registered taxpayer),

who can claim input VAT.

A commercial invoice is issued to a person that is not subject to tax (non-VAT

registered taxpayer), who cannot claim VAT.

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3) (b)

Honey Breweries Co., Ltd (HBL)

WHT calculation


No. Descriptions

Amounts

given in

question

Base

amountRate WHT

USD USD USD

1 Office and warehouse rental 15,000 13,636 10% 1,364

2Consulting fees from a consulting

firm based in Hong Kong7,890 7,890 14% 1,105

3Local transportation expenses from

individuals3,770 3,770 15% 566

4

Interest expenses paid to a local

individual 5,980 5,980 15% 897

5Interest expenses paid to an

overseas bank6,000 6,000 14% 840

Total WHT payabl e 4,772

3) (c)

Honey Breweries Co., Ltd (HBL)

VAT calculation


No. DescriptionsAmountsgiven in

question

Base

amountRate

Output

VAT

Output VAT USD USD USD

1Sales to distributors based in

Malaysia (export sales)37,750 37,750 0% -

2 Sales to local wholesalers 25,800 23,455 10% 2,346

3 Sales to various retail customers 19,980 19,980 10% 1,998

4 Issuance of credi t note to distr ibutor (1,500) (1,500) 10% (150)

5Issuance of additional invoices to

wholesalers1,150 1,150 10% 115

Total outp ut VAT 4,309

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No. Descriptions

Amounts

given in

question

Base

amountRate

Input

VAT

Input VAT USD USD USD

1 Office and warehouse rental 15,000 13,636 10% 1,364

2 Importation of cans from Vietnam 2,350 2,136 10% 214

3Purchase of gas for power

generation27,000 27,000 10% 2,700

4 Local audit fee, inclusive of VAT 4,000 3,636 10% 364

5 Fixed phone bills 800 800 10% 80

Total inpu t VAT 4,722

Since the output VAT of USD 4,309 is less than the input VAT of USD 4,722, HBL has

an excess input VAT of USD 413 (USD 4,309 USD 4,722) to be carried forward to

offset against the output VAT for the following months.

3) (d)

Conditions:

Under Article 73 of the LoT, if a taxable person (e.g. HBL) has excess input VAT

credits for three months or more, they may apply for a refund of the tax at the end

of the third month or in any month thereafter.

The taxable person (e.g. HBL) must have a taxable supply to declare (Article 41

of the VAT Sub-decree).

Timing:

To request a refund in any month, the request must be filed within 20 days from the

close of the month.

HBL has excess VAT credit in the month of March 2012; therefore, HBL can apply for a

refund of the excess VAT credit within 20 days after May 2012 (or within the first 20

days in June 2012) if HBL continues to have excess input VAT.

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4) (a)

Preliminary and formation expenses are expenses incurred in bringing the enterprise

into existence, including setting up its activities and development. The preliminary and

formation expenses include expenses related mainly to the formation and initial

development of the enterprise, expenses pertaining to the articles of association of the

company, expenses for bond floating and expenses incurred in the purchase of

immovable property.

Under Section 5.4.4 of the Prakas on ToP, for the purpose of ToP, there are two

possible methods to claim a tax deduction in respect of preliminary and formation

expenses:

1. They can be deducted in full from the results of the period in which the

expenses arose.

2. If the enterprise chooses to deduct through amortisation, these expenses can

be amortised up to a maximum period of two years.

Speed Technol ogy Co., Ltd (STC)

ToP calculation

For the year ended 31 December 2011

Method 1: Deduct the whole preliminary and formation (P&F) expenses in the year

ended 31 December 2011:

USD

ToP liability before taking into account the P&F expenses 1,750

ToP deduction, amount saved by realising the P&F expenses(USD 2,300 x 20%)

(460)

ToP liability after taking into account the P&F expenses 1,290

Metho d 2:Capitalise the whole P&F expenses and claim tax allowances for a period of

two years:

USD

ToP liability before taking account of the P&F expenses 1,750

ToP deduction, amount saved by realising the P&F expenses

[USD (2,300 x 50%) x 20%](230)

ToP liability after taking into account the P&F expenses 1,520

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4) (b)

Under Section 6.3 of the Prakas on ToP, for an asset to qualify for capitalisation, anasset is required to meet the following two criteria:

1. Purpose: an asset of any type that is bought or produced by the enterprise, notfor transformation or to sell, but for a durable use.

2. Duration: an asset must be durable for a period of more than one year from thedate the asset was placed in service for the first time.

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5) (a)

Based on Article 17 of the Law on Taxation (LoT) and Section 9.5 of the Tax on Profit

(ToP) Prakas, tax losses can be carried forward for a maximum of five years, subject to

the following conditions:

i. Proof of tax loss:

The tax loss must be recorded in the ToP return and the return submitted to

the tax authority within the time specified in the tax provisions.

The tax loss cannot be utilised for the years which are subject to unilateral

tax assessment.

The tax loss must be evidenced and recorded in proper accounting books.

ii. Identification of the enterprise:

The business activities of the company must not have changed. The ownership of the company must not have changed.

iii. Period of utilisation

The tax loss must be utilised against the first subsequent year of profit

If for any reason the tax loss has not been utilised in the above order, it

cannot be brought forward for deduction against future profits.

5) (b)

Negligence and serious negligence

Negligence: A taxpayer or withholding agent is considered negligent:

o if the amount of tax paid is less than the amount of tax, as determined by tax

provisions, by no more than ten percent.

o if they fail to file a tax declaration or to pay tax by the date required by law.

Serious Negligence: A taxpayer or withholding agent is considered seriously

negligent if the amount of tax paid is less than the amount of tax, as determined

by tax provisions, by more than ten percent.

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5) (c)

Accommodat ion Tax

Nature: Accommodation Tax was established for the benefit of the state budget

and is levied on customers who stay at hotels or guest-houses.

Tax rate: Accommodation tax is calculated at 2% of the accommodation fee

(including room service charges for hotels and resorts), inclusive of all taxes and

other services, except Accommodation Tax and VAT.

Due date: Accommodation tax is a monthly tax and is due for payment no later

than the 15th day of the succeeding month for real regime taxpayers, and by the

10th day of the succeeding month for estimated regime taxpayers.

5) (d)

Property tax

Nature: Property tax is a direct tax, which is imposed on the immovable properties

including land, and houses and other buildings which are built on the land.

Effective from 2011, all property owners must pay the property tax by the due date.

Tax rate: Property tax is levied at 0.1% per annum on immovable property with a

value of more than the threshold of Riel 100,000,000.

Due date: The owner of the immovable property is required to pay the tax by 30

September each year.

Taxpayer: The person who is responsible for the tax, referred to as the taxpayer, is

the individual or legal entity, that owns, occupies or is the last beneficiary of the

property, as a whole or in part.

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