Tax Audits in Cambodia

The tax system in Cambodia is based on the self-assessment regime under which taxpayers are required to calculate their own taxes and submit their tax returns voluntarily by themselves before the tax submission deadline. However, tax returns submitted may be subject to a future tax audit by the General Department of Taxation (GDT). A tax audit refers to the verification of the accounting records and necessary documents related to a taxpayer’s business to confirm whether the tax declaration submitted has been calculated in accordance with the tax law.

Types of tax audits

There are two types of tax audits in Cambodia – desk audits and on-site audits.

Desk Audits

A desk audit refers to the audit of a taxpayer’s documents by the GDT at its office by verifying inconsistencies of information between the monthly tax returns and the annual tax return eg interest is recorded as an expense in the P&L but no withholding tax (WHT) is declared on the interest. This type of audit should be conducted within 12 months after the date of filing of the tax return.
On-site audits

An on-site audit is an audit of a taxpayer’s business at his business location to examine the actual business situation, accounting records, financial statements, and necessary documents related to the taxpayer’s business after the GDT has found a high risk of errors in the tax declaration. An on-site audit is more focused on transactions which are more complicated than the desk audit. On-site audits are only conducted once in every 3 years except that ad-hoc audits may be conducted if the GDT has found irregularities. A taxpayer may also request the GDT to conduct a tax audit on his enterprise if he wishes the GDT to review whether his tax obligations have been complied with.

On-site audits are divided into two following types:

2.1 Limited Audits

A limited audit is a short-term and immediate audit of certain types of monthly taxes eg VAT, Prepayment of Profit Tax (PPT), Withholding Tax (WHT), Tax on Salary (TOS) and other taxes but excluding annual income tax. This audit may be conducted only for the taxable period in the current tax year (N) and the tax year prior to the current tax year (N-1).

2.2 Comprehensive Audits

A comprehensive audit is an audit of all kinds of taxes and an assessment of the taxpayer’s accounting records, financial statements and other business-related documents to ensure that the enterprise has prepared financial statements and fulfilled its tax obligations in accordance with the applicable tax law. A comprehensive audit is focused mainly on income tax but may cover all type of taxes if no any other tax had been reassessed previously eg a limited audit had been conducted in 2023 and the taxpayer had been reassessed on VAT, Profit Tax on Income (PTOI) and TOS. In such case, the comprehensive audit in 2023 will focus on Tax on Income (TOI) and other taxes rather than VAT, PTOI and TOS. Comprehensive audits can only take place within 3 years (N-3) of the tax filing. In cases where there is clear evidence of tax evasion, this tax audit can cover up to 5 years (N-5).

Desk audits and limited audits shall be conducted by the provincial tax branch and the large taxpayer department of the GDT whilst the comprehensive audit shall be conducted by the enterprise audit department of the GDT.

The GDT typically selects companies for a tax audit through a combination of risk-based approaches, random selection and specific triggers that might indicate non-compliance eg a company has not declared its sales and had not paid Output VAT whereas its customer had declared the purchases from this company and claimed Input VAT. A huge change of profit margin from year to year can be another trigger. Companies with more cash transactions rather than bank transactions may also be selected.

On-site audit process

Before the tax audit
- After performing the risk analysis, the GDT tax auditor will prepare a letter to notify the taxpayer of a pending tax audit.
- The GDT tax auditor will then submit the letter of notification to the taxpayer along with a letter requesting for necessary documents for the taxpayer to prepare in advance.
- Tax audits may begin 10 business days after the date of the notice of tax audit. If the taxpayer is unable to prepare the documents in time, the taxpayer may request a postponement of the tax audit based on an appropriate reason to a date not exceeding 30 days from the date of notification. For an extension of less than 10 days, taxpayers may verbally make a request through a discussion with the GDT tax auditor in charge. In addition, if taxpayers feel that they are unable to handle the tax audit by themselves, they can appoint a tax agent firm which has a valid tax license with the GDT, to deal with the GDT tax auditor on their behalf. The taxpayer has to merely submit an authorization letter to the GDT tax auditor to inform him of this arrangement.
During the tax audit
- The GDT tax auditor will conduct a tax audit at the address registered with the GDT.
- If a tax agent is appointed, he will review all the required documents before submitting them to the GDT tax auditor and attend any meeting with the GDT on behalf of the taxpayer.
  Besides reviewing documents and accounting records, the GDT tax auditor has the right to interview the head of the enterprise, the head of the enterprise’s business divisions eg head of finance, or any employee who needs to provide information or data related to the tax audit to the GDT eg stock controller for information on stock movements.
- Subsequently, the tax auditor will summarize the results of the tax audit and explain to the taxpayer the correctness or inaccuracies in the taxpayer’s tax declarations before completing the tax audit process. During this draft reassessment discussion, the tax auditor should explain the following issues to the taxpayer:
  1. Detection of irregularities or violations of tax laws and regulations.
  2. Basis and tax regulations related to the tax reassessment.
  3. Taxes to be reassessed.
- The taxpayer has the right to accept or reject all or any part of the draft results of the tax audit by presenting additional documents or evidence in support of its objection.
- The GDT tax auditor will then make a record of the objections and decisions with the taxpayer or his appointed tax agent at the time of closing the tax audit with the taxpayer.
After conducting the tax audit
After completing the tax audit, the tax auditor and taxpayer will do the following:
- The tax auditor must issue a letter notifying the taxpayer of the reassessment of taxes within a period of 1 to 3 months in case there are results from the tax audit.
  1. If there is no additional tax to be paid, the taxpayer will receive a zero-tax reassessment notification letter from the GDT.
  2. If there is additional tax to be paid, the taxpayer will receive a notification letter about the tax reassessment which will include additional tax and interest. Interest is charged at the rate of 1.5% per month and is calculated from the month following the tax payment deadline. For example, the deadline for the January monthly tax declaration is on 25 February. In such case, the interest will be calculated from March onwards.
- The taxpayer may accept or reject the tax reassessment after receiving the notification letter on the tax reassessment.
  1. In case of acceptance of the tax reassessment, the taxpayer is required to pay the reassessed tax, additional tax and interest within 30 days of the tax reassessment. If the taxpayer is unable to pay the reassessed tax at one time, the taxpayer can request the GDT for monthly installment payments. The period of this instalment plan should not exceed 3 years and the instalments are interest free in the first year. Interest will be applied at the market interest rate for the 2nd year and at 2% per month for the 3rd year.
  2. In case of rejection of the reassessment, the taxpayer has 30 days to appeal to the GDT by submitting additional documents or evidence of his objection to the previously assigned GDT tax auditors.
- After receiving the appeal letter from the taxpayer, the tax auditor will check the contents of the letter and supporting documents. In case they find that the taxpayer’s appeal letter and attachments are sufficient and correct for resolving complaints, the taxpayer will not be invited to clarify further. However, in the event that the taxpayer’s appeal letter and attachments are found to be insufficient or incorrect, the taxpayer will be invited to clarify. The GDT tax auditor shall issue a second decision within 60 days after the date of receipt of the appeal letter.
- In the event that the taxpayer still does not agree with the second decision of the GDT, the taxpayer can still submit a second appeal letter to the GDT within 30 working days after receiving the new decision. Auditors from the Department of Law, Tax Policy and International Tax Cooperation will be assigned to work with the taxpayer on the second appeal.
- If the taxpayer still disagrees with the GDT’s third decision, the taxpayer can submit the objection letter to the Tax Arbitration Committee under the Ministry of Economy and Finance within 30 days. The Tax Arbitration Committee shall issue a new decision within 60 days after receiving the appeal letter.
- If the taxpayer disagrees with the Tax Arbitration Committee’s decision, the taxpayer may go to court, but currently, going to court is rare.
- Before appealing to the court, the taxpayer is required to deposit money or property which is equal to the tax reassessment amount, to the National Treasury.