A non-resident that carries on business in Cambodia through a “permanent establishment” is taxed in Cambodia on the income of that establishment. The concept is defined in the Law on Taxation of May 16, 2023, which replaced the 1997 Law on Taxation, and in the Prakas on Tax on Income (Prakas No. 578 of September 19, 2024, effective January 1, 2025), which replaced Prakas No. 098 of 2020.
Definition
A permanent establishment is a fixed place of business in the Kingdom of Cambodia, the branch of a foreign company, or an agent resident in the Kingdom of Cambodia, through which a non-resident person carries on business. The term also includes any other association or connection through which a non-resident person engages in economic activities in Cambodia.
The 2023 Law on Taxation expanded the definition. A permanent establishment now also includes any person who has, or habitually exercises, the authority to sign contracts in the name of the non-resident, or who plays the main role in facilitating the conclusion of a contract. A local representative who negotiates contracts that are formally signed abroad can therefore create a permanent establishment.
Prakas No. 098 had also treated non-resident online businesses supplying goods or services in Cambodia as permanent establishments. That category was removed from the definition in the 2023 Law and in Prakas No. 578. Non-resident suppliers of digital goods and services are instead dealt with under the VAT rules.
Examples
The earlier Prakas No. 1059 on tax on profit set out the following list, which remains a useful guide. The current wording should be checked in Prakas No. 578.
A permanent establishment includes mainly:
- a place of management;
- a branch of a foreign enterprise, an agency;
- an office of a foreign enterprise;
- a warehouse;
- a factory;
- a workshop;
- a mine, an oil or gas well, a quarry or any other place of extraction of natural resources;
- a farm or plantation.
A permanent establishment also includes:
- a building site, a construction project or an assembly project, or supervisory activities connected with it, where the site, project or activities continue for more than six months;
- the furnishing of services, including consultancy services, by the employees or other personnel of a foreign enterprise where such activities continue within Cambodia for periods aggregating more than six months in any 12-month period.
A person is also considered a permanent establishment if that person:
- has and regularly exercises the authority to conclude contracts in Cambodia on behalf of a foreign enterprise;
- regularly maintains in Cambodia a stock of goods from which he regularly delivers or supplies goods on behalf of a foreign enterprise; or
- collects insurance premiums or insures risks situated in Cambodia, other than reinsurance, on behalf of a foreign enterprise.
In practice the tax administration decides in each case whether there is a permanent establishment, on the facts of that case, except where an international agreement applies.
Tax Consequences
A permanent establishment is treated as a resident legal person in respect of its Cambodian-source income only. It must register with the General Department of Taxation, file returns, and pay tax on income on its income from business activities in Cambodia less allowable expenses.
Cambodia can tax the Cambodian income of a non-resident in two ways: by withholding tax on interest, dividends, royalties, rent and most services (but not on the sale of goods), or by tax on the net income of a permanent establishment. In practice the General Department of Taxation may prefer to tax non-residents by withholding tax, since gross income is easier to calculate than net income and it is simpler to administer. See Taxes – FAQ.
Double Taxation Agreements
Where the non-resident is resident in a country that has a double taxation agreement in force with Cambodia, the definition of permanent establishment in Article 5 of that agreement applies and may be narrower than the domestic definition. The treaties generally define a permanent establishment as a fixed place of business through which the business of an enterprise is wholly or partly carried on, and set their own time thresholds for construction sites and services. Cambodia’s first agreement, with Singapore, has applied since January 1, 2018, and agreements with a number of other jurisdictions have followed, including Thailand, Indonesia and Korea. The treaty position should be checked in each case.
For the separate question of when a foreign business must register with the Ministry of Commerce, see Limited Company Incorporation.
