Cambodia New capital gains, what impact?
QUESTIONS AND ANSWERS: The new capital gains tax and its impact on the real estate sector in Cambodia.
After the Department of General Taxation (GDT) announced that all capital gains, including profits from the sale of real estate, are subject to a 20% tax after 1 January 2022, doubts have been raised as to exactly how the new tax will be implemented.
One of Cambodia’s leading law firms, DFDL, and Cambodia’s real estate agent CBRE held a seminar on 30 September to clarify any questions from the public and in particular on the impact of the new capital gains tax on the real estate sector in Cambodia.
Speakers included Mr. Clint O’Connell, DFDL’s Deputy General Manager for Cambodia and Head of Tax Practice in Cambodia, Mr. Charles Amar, Head of DFDL’s Real Estate Practice Group for Cambodia, Ms. Sothida Ann, General Manager of CBRE Cambodia and Mr. James Hodge, Senior Director of CBRE Cambodia.
Table of Contents
What impact will the capital gains tax have on the property sector?
The impact is different depending on the parties involved in the real estate sector. If you are a company that is tax resident in Cambodia, you will not be affected by this new regulation on capital gains tax which is not applicable to such companies. Therefore, most property developers will not be directly affected by this new regulation. The company, which is a Cambodian tax resident, is subject to income tax.
On the other hand, companies that are not taxed and are resident in Cambodia and individuals will be subject to this regulation. Therefore, foreign property investors (who are not tax residents or Cambodian companies) will be aware of this new regulation as they will have to pay this capital gains tax when they decide to resell their property provided they realise a capital gain.
This could have an impact on the property market as it could slow down the sale process and avoid speculation by investors. However, the impact may be limited given the low rate of this tax for the property sector compared to other countries.
It should also be noted that individuals who sell the main residence they have owned for at least five years will not be subject to this new regulation.
Should we sell the property now, before the new capital gains tax is implemented?
It is true that this regulation will apply from 1 January 2021. It may therefore be worth selling your property to avoid this tax. However, this will really depend on each situation and in particular whether you are subject to this capital gain if you have realised a capital gain, if you need liquidity in view of the COVID-19 crisis in order to make other investments.
On the other hand, if you consider that you do not need liquidity and that the value of your property may increase further in the future, you may decide to keep your property for a longer period of time, even if you have to pay this capital gains tax. So it really depends on each individual calculation and the current financial situation.
Do I have to pay both stamp duty and capital gains?
Indeed, when selling a property in Cambodia, it will be necessary to pay capital gains tax (provided that the conditions applicable to this tax are met) and stamp duty.
However, the parties who will pay these taxes are different. Capital gains tax must be paid by the seller, while stamp duty is paid by the buyers.
In practice, the parties may agree that the seller will pay stamp duty, but in this case the price is increased to reflect this cost to the seller. It may be less attractive for sellers in the future to pay stamp duty as this will increase the sale price and therefore the capital gains tax they will have to pay.
Therefore, in the future, it is preferable for the seller to pay capital gains tax and the buyer to pay stamp duty in accordance with the applicable laws and regulations in Cambodia.
Can we include stamp duty as an expense when we sell a property?
Provided that the buyer paid stamp duty when he acquired the property, he can take this stamp duty into account as an expense when calculating the capital gains tax payable on the resale of the property.
There are two ways of calculating costs, the actual deduction based on costs and the deduction based on the determination of costs (i.e. 80% deductible costs). Can we decide on the methods ourselves?
Yes, the parties are free to choose the best method when the capital relates to real estate. The TDM cannot challenge the parties on the choice of method used to calculate the costs.
However, the TDM is entitled to challenge the value of the property or the value of the expenses (if you choose the actual expense-based deduction and do not have adequate supporting documentation). In practice, it can be assumed that the taxpayer will only choose the actual expense-based deduction if the expenses incurred by the taxpayer exceed 80% of the value of the property sold.
It should also be noted that if the taxpayer decides to choose the expense-based deduction, the capital gains tax will be 4% of the value of the property sold as for stamp duty.
Therefore, the rate is low for the real estate sector in Cambodia compared to other countries and in particular Western countries such as France.
Does the 80% detectable expense apply to other capital gains such as shares?
No, the 80% deductible method is not applicable to other capital gains. It only applies when the capital relates to real estate and in particular in case of sale or transfer of real estate. For other capital, only the actual expenditure method will apply.
Are registered companies subject to capital gains tax? Can the company use the 80% deduction method?
Capital gains tax does not apply to a company that is resident for tax purposes in Cambodia. They are subject to the general tax regime with income tax.
I am converting my property into condominiums. When I sell them, are they subject to capital gains tax?
The conversion or change of form of ownership is not an event that triggers this capital gains tax. However, if you sell the units you have converted, this sale may be subject to capital gains tax if the conditions for the application of this tax are met.
In other words, capital gains tax will apply when the transfer of ownership takes place and you have made a profit.
When do you have to pay capital gains tax, on the date of signing the contract or on the date of transfer of ownership?
Capital gains tax is triggered for a property when:
- there is a sale, transfer or creation of a right of occupancy;
- at the time the transfer of ownership or right of occupancy is registered with the Cambodian authorities;
- or at the time when it is decided to transfer the ownership of the real estate or the right of occupancy by a court decision
Taxpayers are required to submit a prescribed tax return and remit the capital gains to the GDT within three (3) months of the triggering of the capital gain as indicated above.
If I transfer my assets to my company, will the transfer be subject to capital gains tax?
Yes, the contribution of your real estate to your company is considered a transfer and is subject to capital gains tax provided that the conditions applicable to this tax are met and in particular that you make a profit and that the transfer takes place on or after 1 January 2021.
Source : www.construction-property.com
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