Robert Porter of VDB Loi in Phnom Penh looks at Cambodia's first ever double tax agreement
On 20 May 2016 Singapore and Cambodia signed Cambodia’s first ever Double Taxation agreement (DTA). Cambodia has been one of the very few countries in the world which had no DTAs (even North Korea has 13!).
So what are the main details of the Singapore-Cambodia treaty?
Under Article 2 of the DTA, the Cambodian taxes to which the treaty applies include: Tax on Profit, Withholding Tax, Additional Tax on Dividend Distribution, Capital Gains Tax and Tax on Salary. In Singapore it applies to Income Tax.
Under Article 3 (2) “For the purposes of Articles 10, 11 and 12, a trustee liable to tax in a Contracting State in respect of dividends, interest or royalties shall be deemed to be the beneficial owner of that interest or those dividends or royalties.” This is quite unusual, in that reduced rates of withholding tax are normally available only to a beneficial owner eligible for treaty relief (i.e. resident in the other Contracting State), to avoid “Treaty shopping”.
Definition of resident
Article 4 of the DTA defines a “resident of a contracting state” as any legal person who is subject to tax in that state “by reason of his domicile, residence, place of incorporation, place of management, principal place of business or any other criterion of a similar nature”.
Under Article 5 of the DTA the term “Permanent Establishment” is defined as a “fixed place of business through which the business of an enterprise is wholly or partly carried on”. This may include a place of management, a branch, an office, a factory, a workshop, a warehouse, a mine, an oil or gas well, a quarry or any other place of extraction of natural resources, and a farm or plantation.
A Permanent Establishment (PE) is also defined as “a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last more than six months.
The furnishing of services through employees or other personnel, will create a PE, but only if activities continue within the other Contracting State for a period or periods aggregating more than 183 days within any 12 month period.
Exploration or exploitation of natural resources Activities carried out in the other Contracting State for a period or periods aggregating more than 90 days in any 12 month period” will also create a PE.
Income from immoveable property
Under Article 6 the right to tax income from immoveable property is given to the State in which the property is located. Immoveable property is defined to include land, livestock, and equipment used in agriculture and forestry, and rights over natural resources.
Under Article 7 profits derived by an enterprise of one of the States are only taxable in that State, unless the enterprise carries on business through a Permanent Establishment (PE) in the other State. In this case profits attributable to the PE may be taxed in the other State.
Consistent with the UN Model, Article 8 of the Singapore-Cambodia DTA states that the profits derived from the operation of aircraft in international traffic will be taxable only in the State where the operator is based. However, profits derived from the operation of ships in international traffic by an enterprise of one state may be taxed in the other state, but the tax will be reduced by 50%.
Article 9 allows the authorities in each state to adjust for transactions between related parties that have been recorded at values other than market value.
Dividends, interest and royalties
Under Articles 10, 11, and 12, dividends, interest, and royalties arising in a Contracting State, and paid to a resident of the other State may be taxed in the other State, but also in the State in which they arise, at a rate not to exceed 10%.
Royalties include payments for the use of copyrighted literary, artistic, or scientific works, patents, trademarks, plans, formulas, and scientific, commercial, or industrial information or equipment.
Technical service fees
Payments for technical services (“for the rendering of any managerial, technical, or consultancy services”) to a resident of a Contracting State may be taxed in that State, but also, under Article 13, may be taxed in the State from which payment is being made, at a rate not to exceed 10% of the gross amount.
Under Article 14 capital gains are taxable only in the State of residence, except for gains from immoveable property located in the other State, gains from the sale of moveable property held by a PE.
Personal services and directors fees
Under Articles 15, 16, and 17 a self-employed resident of a Contracting State, such as a doctor, lawyer, architect etc. is taxable in the other State on income derived in the other State if the individual is present in that other State for more than 183 days in any 12 month period.
Income from employment is taxable only in the State of residence, unless such employment is exercised in the other State for a period, or periods exceeding 183 days in any 12 month period.
Directors' fees paid to a resident of a Contracting State in his or her capacity as a Director of a company which is a resident of the other Contracting State may be taxed in that other State.
Artistes and sportspersons
Under Article 18 performers, entertainers, or sportsmen resident in one of the Contracting States may be taxed in the other State if their activities were exercised in that other State.
Pensions, social security payments and government service
Pensions paid by a resident of one Contracting State in respect of past employment are taxable under Article 19 only in that State unless, under Article 20, such payments may be taxed in the other State if paid to a resident national of the other State.