On 4 July 2017, the Ministry of Economy and Finance (MEF) issued No. 638 MEF.Prk on the Criteria of Improper Accounting Records and Procedures for Paying Minimum Tax (“Prakas 638”).

History of exemption of minimum tax

Issued in December 2016, the 2017 Law on Financial Management amended Article 24 of the Law on Taxation. The amended Article 24 states that the Minimum Tax will be imposed on enterprises which maintained improper accounting records. That criteria to determine what constitutes improper accounting records will be issued in subsequent Prakas.

Prakas 638 clarified terms improper accounting records as followed:

• Enterprises with accounting records which do not meet the requirements set out by the General Department of Taxation (“GDT”) and the MEF
• Enterprises which fail to issue invoices for business transactions as stated in Articles 77, 79 and 98 of the LOT;
• Enterprises which commit serious negligence as stated in Article 126 of the LOT;
• Enterprises which commit tax evasion as stated in Article 127 of the LOT;
• Enterprises which do not have an audit report from an independent auditor if their annual turnover is more than 2,000 million (approximately USD 500,000)

National Accounting Council of Cambodia has adopted Cambodian International Financial Reporting Standards for Small and Medium-sized Entities (CIFRS for SMEs) and Cambodian International Financial Reporting Standards (CIFRS). Public accountability entities shall adopt CIFRS and non-public accountability entities satisfy the audit criteria below are required to adopt CIFRS for SMEs or elect to use CIFRS, if necessary.

Enterprises that meet two of the three following criteria shall submit the annual financial statements to be audited by an independent auditor:

• Annual turnover above Khmer Riel 3,000,000,000 (approximately USD 750,000);
• Total assets above Khmer Riel 2,000,000,000 (approximately USD 500,000); or
• More than 100 employees.

QIPs registered with the Council for the Development of Cambodia in accordance with the Law on Investment are obliged to submit their annual Financial Statements to be audited by an independent auditor registered with registered with the Kampuchea Institute of Certified Public Accountants and Auditors.

Evaluation committee

Committee established by the General Department of Taxation will evaluate accounting records based on above criteria. Any criteria shall be made within two years and notify the result to the taxpayer. The taxpayer can request to Director General of the General Department of Taxation to revisit the decision of Evaluation Committee if he thinks the decision is incorrect.

Exemption of Minimum tax

Taxpayer who is evaluated to have proper accounting records shall be exempted from paying minimum tax.

Taxpayer who is evaluated to have improper accounting records is obliged to pay minimum tax.