MOCK EXAM PAPER

CAMBODIAN TAXATION
QUESTIONS

FOR JUNE 2017

Time allowed
Reading and planning: 15 minutes
Writing: 3 hours

ALL FIVE questions are compulsory and MUST be attempted.

Tax rates and rebates are printed on page 1.

Do NOT open this paper until instructed by the supervisor.

During reading and planning time, only the question paper may be
annotated. You must NOT write in your answer booklet until instructed by
the supervisor.

This question paper must not be removed from the examination hall.

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SUPPLEMENTARY INSTRUCTIONS
1. Calculations and answers need only be made to the nearest USD or Riel.
2. All apportionments should be made to the nearest month.
3. All workings should be shown, except Multiple-choice questions.
4. All computations should indicate by the use of ‘0’ any item of income or expense that is
tax exempt, not taxable or does not require adjustment, as appropriate, so that marks can be
given accordingly.

TAX RATES AND REBATES

The following tax rates and rebates are to be used in answering the questions.

Value Added Tax (VAT)

Standard rate: 10%
Export: 0%
Exempt supplies: Nil (Input taxed supplies)

Tax on Profit (ToP)

Standard rate: 20%
Tax holiday: 0%

Withholding Tax (WHT)

Interest income from fixed term deposit with a local bank: 6%
Interest income from non-fixed term saving deposit with a local bank: 4%

Tax on Salary (ToS)

Rebate for dependent children and non-working spouse: Riel 150,000 per person per month.

ToS rates for residents

Monthly taxable salary (Riel) Cumulative tax at Rate

for amounts from: top of band

0 – 1,000,000 0 0%
1,000,001 – 1,500,000 25,000 5%
1,500,001 – 8,500,000 725,000 10%
8,500,001 – 12,500,000 1,325,000 15%
12,500,001 and up 20%

ToS rate for non-residents

Flat rate: 20%

Tax on Fringe Benefits (ToFB)

Flat rate: 20%

Public Lighting Tax

Rate: 3%

Accommodation Tax
Rate: 2%

Specific Tax on Certain Merchandise and Services

Rate: 3%, 10% or 30% or 35% depending on the product or service

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 ALL FIVE questions are compulsory and MUST be attempted
Question 1 – Multiple choice (each question is worth 2 points)

i. Sokha Li has been working at ABE Co., Ltd. (ABE), a Cambodian company registered
with the Ministry of Commerce and General Department of Taxation, as a General
Manager. For the month of February 2017, ABE made the following payments for Sokha:

- Basic salary of USD 2,500 credited into his bank account at the end of February 2017.
- An advance salary of March 2017 salary of USD 500. The amount was credited into his bank
account on 28 February 2017.
- Health insurance premium of USD 450 per annum per employee. The insurance is applicable
to all employees and is paid annually to the insurer every February.
- His house rental of USD 300 per month paid by the company directly to the landlord on the
first day of each month. The company pays house rental only for him.
- Reimbursement of Training on management course: USD350
- Reimbursement of school fees for his two daughters: USD700.
- Reimbursement of his real travelling expenses to Hong Kong (including air ticket,
accommodation, food) for a meeting with suppliers. He used his cre dit card to pay
these expenses, which amounted to USD1,500.
- Sokha has two daughters who are 7 and 11 years old, respectively. His wife is also
working in Cambodia, but she has not claimed the tax rebates for their two
dependents.
- Sokha also looks after his elderly mother in Cambodia. His mother depends solely on
him.

Assuming the exchange rate is Riel 4,000 per USD 1, calculate Sokha’s ToS liability for February
2017 in Riel.

A. 950,000 Riel
B. 1,250,000 Riel
C. 1,205,000 Riel
D. 2,365,000 Riel

ii. Based on the information in question (i), calculate the Tax on Fringe Benefit liabilities of Sokha
for February 2017 in Riel (assuming the exchange rate is Riel 4,000 per USD1).

A. 1,200,000 Riel
B. 640,000 Riel
C. 1,440,000 Riel
D. 800,000 Riel

iii. What are the types of supplies for which a taxpayer cannot claim input tax credits
for purchase or importation?
1- entertainment, amusement and recreation expenses unless the taxable person carries
on a business as a provider of entertainment, amusement or recreation,
2- purchases or imports of automobiles, unless the taxable person carries on the
business of dealing in, or hiring such automobiles, or
3- Purchases or imports of certain petroleum products, unless the taxable person carries
on a business as a supplier of such petroleum products.
4- Mobile phone service expense.

A. 1 and 3
B. 2 and 3
C. 2 and 4
D. All of the above

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iv. EFG Co., Ltd is an export oriented Qualified Investment Project (QIP), duly registered with the
Cambodian local authorities as a footwear manufacturer since 2011. EFG’s tax holiday period
ended in 2015, so it is subject to 20% Tax on Profit from 1 January 2016 onward.

Below is EFG’s detailed sales and purchase transactions for May 2016:

1- Footwear sales (exports): USD250,000

2- Factory rental expense: USD2,530 including VAT
3- Technical fee paid to a non-resident expatriate: USD1,000
4- Interest expenses paid to local related-party bank: USD2,400

Calculate EFG’s monthly tax liabilities for May 2016 (using an exchange rate of
USD1:KHR4,063)

A. Riel 1,503,310
B. Riel 11,660,810
C. Riel 13,123,490
D. Riel 2,965,990

v. ABC Co., Ltd recorded the following income and expenses in July 2016 accounting book:

Income:

 Income from Sales of USD500,000, excluding VAT.

 A deposit of USD2,200 including VAT from a wholesale customer for a purchase order.
The customer will pay the remaining amount when ABC delivers the goods in the second
week of August 2016.
 Interest income from a fixed deposit bank account of USD900.

Expenses

 ABC imported from the head office of USD600,000, excluding VAT.

 ABC paid office rental of USD2,000 to its individual lessor.
 Gasoline expenses for the month of USD2,200, including VAT.
 A car (4-seat sedan) for business use of USD22,000, including VAT, bought from a real-
regime company.
 Hotel room charges of USD550 including of VAT, for a guest from the head office.
 Meals from a local company for an annual staff party of USD3,300, including VAT.

Assuming all invoices are valid for tax purpose, how much input VAT was ABC allowed to claim in
July 2016?

A. USD 60,181.18
B. USD 62,540.90
C. USD 60,000.00
D. USD 62,250.00

vi. Based on the above information, calculate ABC’s VAT payable/credit for July 2016.

A. VAT credit of USD9,981.18

B. VAT credit of USD9,710.00
C. VAT credit of USD12,050.00

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 D. VAT credit of USD9,800.00

vii. GPH is a five-star hotel located in Siem Reap province in the Kingdom of Cambodia. It is 100%-
owned by an international hotel based in Singapore. GPH registered with the Ministry of
Commerce (MoC), the General Department of Taxation (GDT) and other relevant Ministries in
March 2008. GPH was also granted a Qualified Investment Project (QIP) status by the Council
for Development of Cambodia in the same year and given investment incentives, including a tax
exemption period (with a one-year priority period).

GPH generated its first revenue in 2010. Below is the company’s profit and loss position.

Taxable profit Tax loss

Year
(USD) (USD)
2008 - 2,000,000
2009 - 2,000,000
2010 - 5,000,000
2011 800,000 -
2012 - 1,100,000
2013 1,000,000 -
2014 8,000,000 -

GPH has total tax loss carried forward at the year end of 2014 of:

A. USD 300,000
B. USD 200,000
C. Nil
D. USD 100,000

viii. For the year ended 31 December 2015, GPH had total revenue of USD1,500,000, excluding
VAT, from all revenue streams and a net profit after income tax of USD600,000, after taking into
account the following:

a. Accounting depreciation of USD500,000.

b. The provision for doubtful debts was USD 67,000 as at 31 December 2014 and was
reduced by USD 12,000 during the year ended 31 December 2015.
c. A foreign exchange gain comprising:
 realised exchange gain from payment of taxes of USD2,000
 unrealised exchange gain of USD680 due to foreign currency translation at the
closing date

d. The total ‘income tax expense’ account debited to the Income Statement was USD125,000.
This comprises:
 a provision for ToP liability estimated by GPH’s accountant for the year ended 31
December 2015, and
 reassessed underpaid withholding taxes plus penalty and interest of USD5,000 paid to
the tax authorities in December 2015 as per the Notice of Tax Reassessment on the
limited tax audit of 2014.

Assuming that GPH’s tax depreciation is USD700,000 and no Prepayment of ToP was paid
during 2015, the GPH’s taxable profit/tax loss for 2015 is:
A. USD512,320
B. USD312,320

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 C. USD307,320
D. USD507,320

ix. In October 2015, XYZ Co., Ltd (XYZ), a beer manufacturer, was granted QIP status by the
Council for the Development of Cambodia. In the same month, it purchased a beer brewing
machine for USD5,500,000. XYZ’s board of directors has elected to use special depreciation as
one of its investment incentives. This machine was placed in service a month later. Which of the
following tax depreciation amounts for the year ended 31 December 2015 are correct?

A. Regular depreciation = USD 1,100,000 and special depreciation =USD 1,760,000

B. Regular depreciation = USD 0 and special depreciation =USD 2,200,000
C. Regular depreciation = USD 1,100,000and special depreciation =USD 0
D. Regular depreciation = USD 660,000 and special depreciation =USD 2,200,000

x. Mr. Vutha is an employee of Lee (Cambodia) Co., Ltd. Due to unfavorable market conditions
and financial difficulty, the company decided to lay off Mr. Vutha in February 2017.

Below is the summary of payment for termination of Mr. Vutha’s contract:

Payment details USD
Last month salary 5,000
Housing benefits 2,000
Unused annual leave 1,500
Payment of notice period (7days of salary) 1,650
Indemnity for dismissal (in accordance with labour law) 2,330
(Exchange rate USD1 = Riel 4,000)

Calculate the total taxes on Mr. Vutha’s final payment in February 2017.

A. Tax liabilities of Riel 8,809,000

B. Tax liabilities of Riel 5,625,000
C. Tax liabilities of Riel 6,945,000
D. Tax liabilities of Riel 5,745,000

xi. SALC has produced and sold beer to customers in the Cambodian market. In March 2016, SALC
produced 10,000 cartons, and 7,000 cartons of beer have been sold directly to its customers in the
same month with a market price of USD11 per carton (including all taxes).

Based on the above, the Specific Tax (at 30%) to be paid by SALC in March 2016 is:

A. USD 16,154
B. USD 23,077
C. USD 14,538
D. USD 20,769

xii. Based on Article 9 of the Law on Taxation, which of the following incomes are exempt from tax:

1. The income of Royal Government and institutions of the Royal Government.

2. The income of any profit organisation that is organised and operated partly for religious,
charitable, scientific, literary or educational purposes.
3. The profit from the sale of agricultural produce by a resident taxpayer who is a real
regime taxpayer.

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 4. Dividends received from a resident enterprise, provided that relevant taxes (i.e. Tax on
Profit, Additional Tax on Dividend Distribution, or applicable Withholding Tax) have
been paid.

A. 1 and 2
B. 1 and 3
C. 1 and 4
D. All of the above

xiii. According to the Prakas No. 1820 dated 25 December 2015, under the self-declaration regime
(real regime), taxpayers were reclassified into three categories (i.e. small, medium and large
taxpayers) based on their turnover (total value of supplies of goods and services), legal form and
other criteria.

The turnover for a small taxpayer who is a sole proprietorship or general partnership is:

1. Annual turnover of Riel 250 million to Riel 700 million

2. Total turnover for any three consecutive calendar months exceeding Riel 60 million
3. Total expected turnover for the next three consecutive months exceeding Riel 60
million

Which of the above statement (s) is/are correct?

A. 1 and 2
B. 2 and 3
C. 1 and 3
D. All of above

xiv. According to the instruction no. 1127 dated 26 January 2016 in relation to invoice issuance for
real regime taxpayers, which of the following statements are true?

1. The tax invoice must have the following criteria:

 Name of Enterprises, address, and VAT TIN of sellers or suppliers

 Invoice number in order with issue date (optional).
 Name and address of buyer with VAT TIN if the buyer is a real regime taxpayer
 Description, quantity, and sale value or service
 The subtotal without VAT value and with VAT value separately
 Quality of ink to issue the invoice and invoice paper must be long-lasting.

2. Each invoice must be written or issued in Khmer or in dual languages of Khmer and
English, and English must be written below Khmer.

3. The taxpayer must issue a Tax Invoice of each supply goods or services to a consumer
who is a VAT registered person or issue a Commercial Invoice to a consumer who is not
a VAT registered person.

4. The taxpayer must use invoices in order for one whole year, and keep them as
documentation for ten years for taxation purposes

A. 1, 2 and 3
B. 1, 2 and 4
C. 2, 3 and 4
D. All of the above

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xv. The STAR is duly registered with the Daun Penh Tax Branch as a small taxpayer with an annual
turnover of Riel 500 million (approximately USD 125,000 by using the exchange rate of USD1 =
Riel 4,000). In September 2016, the STAR incurred the following expenses:

 Salary expense to an employee of USD 500

 Consultancy fee paid to an individual consultant of USD 300
 Office rental of USD 350, excluding VAT
 Interest expense paid to a local bank of USD 400
 Payment for rental of a copy machine for company use of USD 165, including VAT

Calculate the STAR’s Withholding Tax (WHT) liability for September 2016:

A. USD 50
B. USD 35
C. USD 80
D. USD 95

(Total 30 Points)

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 Question 2 – Multiple choice (each question is worth 2 points)

i. Based on the VAT regulations, which of the following statements is true:

1. The taxable value of any supply shall be the price of the goods or services that the seller
charges to customers. The taxable value excludes any charges for transportation and other
items payable to the seller with respect to the supply.
2. A value added tax invoice must be issued within 15 days after the goods are delivered, the
services are rendered or the payment is made.
3. Taxable supplies include the transportation of passengers by a wholly state-owned public
transportation system.
4. The taxable value of imported goods shall be the customs value, including insurance and
freight plus any customs duties, except specific tax on certain merchandise and services.

A. 1 and 4
B. 3 only
C. 1, 2 and 3
D. None of the above

ii. ABD Co., Ltd is a company that was duly registered with Cambodian authorities in January 2014
with a financial year end of 31 December. In August 2015, ABD’s board of directors decided to
change the company’s financial year end to 30 September to be consistent with the group’s
financial year end. ABD asked the relevant authorities, including the GDT, to approve a change
to the financial year end to 30 September. The GDT approved the change on 28 September 2015
and the new financial year was effective from 1 October 2015.

Based on the 2014 Tax on Profit return, ABD’s assets are as follows:

Tax written down

Asset class
value (USD)
Class 2 – Computer and software 350,000
Class 3 – Office equipment and automobiles 24,000
Class 4 – Other tangible assets 200,000
Total 574,000

There were no additions or disposals of fixed assets during 2015.

What is the tax depreciation charge for the tax year ended 30 September 2015 (assuming
there are 365 days in 2015)?

A. USD221,000
B. USD165,296
C. USD 229,800
D. USD171,878

iii. Based on section 9.5 of the Prakas on Tax on Profit, a tax loss can be carried forward and offset
against future taxable profit, if it meets certain conditions. Which of the following conditions
apply under the Prakas:

1. The loss must be recorded in the tax return, but the accounting books and records are not
required as evidence.
2. A taxpayer subject to tax assessment (ordinary tax reassessment) by the tax
administration is not allowed to bring forward tax losses from the previous year for
deduction.

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 3. The loss must be recorded in the tax return and the return must be submitted to the tax
administration by the deadline specified in the tax regulations.
4. The taxpayer can determine the tax years for deduction of the tax loss.
5. If for any reason the taxpayer has not brought forward a tax loss for deduction again the
taxable profit of a tax year as allowed under the tax provisions, this tax loss can’t be
brought forward for deduction against the taxable profit of any other subsequent years.

A. 1 and 5
B. 2, 4 and 5
C. 1, 3 and 4
D. 3 and 5

iv. Red Dragon Co., Ltd. is a four-star hotel registered with the relevant authorities in Cambodia. In
addition to revenue generated from room charges, the Red Dragon also provides massage
services to customers.

The following monthly taxes are imposed on certain revenue of taxpayers:

1. VAT at 10%
2. PToP at 1%
3. Accommodation tax at 2%
4. Specific tax at 10%

Which of the above taxes are imposed on the income Red Dragon generates from room
services?

A. 1, 2 and 4
B. 1, 2, and 3
C. 1 and 2
D. 2 and 3

v. In May 2016, Red Dragon issued the following invoices to customers. The invoices were
inclusive of all applicable taxes (exchange rate: USD1:KHR4,063).

Invoice amount inclusive of all taxes (USD)

Revenue from room charges USD150,000
Revenue from the sale of alcoholic beverages USD50,500
Revenue from massage services USD18,000

Calculate the applicable tax liabilities (except VAT and PToP) of Red Dragon for May 2016.

A. Riel 25,838,811
B. Riel 21,774,145
C. Riel 22,181,380
D. Riel 22,340,649

vi. According to articles 116 and 117 of the Law on Taxation, the tax administration can re-assess
the tax of a tax periods within the applicable period. Which of the following statements are
correct:

1. Tax can be reassessed within three years of the date the tax declaration was submitted.
2. Tax can be reassessed within five years of the date the tax declaration was submitted.

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 3. Tax can be reassessed within five years of the date the tax declaration was required to be
submitted if there is evidence of an obstruction of the implementation of tax provisions.
4. Tax can be reassessed within fifteen (15) years of the date the tax declaration was
required to be submitted if there is evidence of obstruction of the implementation of tax
provisions.
5. Tax can be reassessed at any time with the written consent of taxpayer.

A. 1 and 4
B. 1, 3 and 5
C. 2, 4 and 5
D. 1 and 5

vii. According to Article 131 of the Law on Taxation regarding additional tax imposed on underpaid
tax, which of the following statements are correct?

1. A person who is negligent shall be liable to additional tax at 10% of the tax shortfall plus
interest at 2% per month on the tax shortfall for each month or part of a month that the
tax is outstanding.
2. A person who is seriously negligent shall be liable to additional tax at 25% of the tax
shortfall plus interest at 2% per annum on the tax shortfall for each month or part of a
month that the tax is outstanding.
3. A person who is seriously negligent shall be liable to additional tax at 25% of the tax
shortfall plus interest at 2% per month on the tax shortfall for each month or part of a
month that the tax is outstanding.
4. In the case of a unilateral tax assessment, the additional tax shall be 40% of the tax
shortfall plus interest at 2% per annum on the tax shortfall for each month or part of a
month that the tax is outstanding.

A. 1, 2 and 4
B. 1, 3 and 4
C. 1, and 3
D. None of the above

viii. Which of the following statements are correct?

1- Computers, electronic information systems, software and data handling equipment shall
be depreciated using straight line method at the rate of 50% per year of the depreciation
basis in the class.
2- All other tangible property shall be depreciated using declining balance method at the
rate of 25% per year of the depreciation basis in the class.
3- Automobiles, trucks, and office furniture and equipment shall be depreciated using
declining balance method at the rate of 20% per year of the depreciation basis in the
class.
4- Buildings, structures and their basic components shall be depreciated at the rate of 10%
of the acquisition cost per year using the straight line method.

A. 1, 2 and 4
B. 1, 3 and 4
C. 1 and 4
D. None of the above

ix. In March 2016, Cigar Co., Ltd (Cigar), a cigarette distribution company, issued an invoice to its
main wholesaler of USD600,000, including all taxes, for the sale of cigarettes. Cigar’s junior
accountant isn’t sure how much Public Lighting Tax (PLT) must be paid to the tax authorities.

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 Calculate the PLT payable.

A. USD15,887
B. USD17,476
C. USD16,364
D. USD18,000

x. Which of the followings are the types of payments which are not exempt from Witholding
Tax?
1- Payments made to non-resident in respect of royalties or the rental of movable or
immovable property
2- Salary payments, which are covered by the Prakas on Tax on Salary
3- Interest payments made by the Cambodian registered entity to a non -resident
shareholder.
4- Interest payments made to a domestic bank, savings institution or financial institution;

A. 1 and 2
B. 1 and 3
C. 3 only
D. 4 only

xi. ESP Electronic Co. Ltd registered with the General Department of Taxation as a large taxpayer.
During November 2015 ESP incurred the following expenses:

- Paid for interest expense to a bank in Cambodia: $8,500

- Paid for office rental: $4,500 exclusive of VAT
- Paid for legal services to a lawyer (not VAT registered): $900
- Purchased computer from a VAT registered dealer: $2,500 exclusive of VAT.

How much WHT should ESP withheld and paid as tax for the month of November 2015?

A. $1,775
B. $1,190
C. $450
D. $135

xii. In 2015, ABC Co., Ltd (ABC) had adjusted taxable profit of USD15,000 before taking charitable
contribution into account. From the accounting information, ABC has donated USD3,500 to
Cambodian Red Cross for the year 2015.

By Cambodian tax regulation, what is the deductible charitable contribution for the year
2015?

A. USD3,500
B. USD7,500
C. USD925
D. USD 0

xiii. ABC Company Limited has registered with the relevant authorities in Cambodia. For the year
ended 31 December 2016, the company recorded the following transactions in its financial
statements:

1- Accrued expenses to related party, for its payment of management fee, which will be paid on
September 2017.

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 2- Client entertainment expenses.
3- Loss on disposal of a piece of land to related party.
4- Accrued salary to staffs, which will be paid on 10 March 2017.

Which of the above expenses are non-deductible expenses?

A. 1&2
B. 1, 2 & 3
C. 1,2 & 4
D. All of the above

xiv. ABC Co., Ltd, registered with Khan Chamkarmon Tax Branch as a Medium Taxpayer, recorded
the following income and expenses in September 2016 accounting book:

Income:

Income from Sales to tax registered dealers of USD100,000, excluding VAT.

Total sales to retailers of USD330,000 inclusive of VAT.
A deposit of USD2,200 including VAT from a wholesale customer for a purchase order.
The customer will pay the remaining amount of USD2,200 including VAT when ABC
delivers the goods in the second week of October 2016.
Expenses

 ABC imported from the head office of USD200,000, excluding VAT.

 ABC paid office rental of USD2,000 to its individual lessor.
 Purchased 1 car (Corolla 2014) from VAT registered company for Managing Director
costing USD30,000 exclusive of VAT;
 Gasoline expenses for the month of USD2,200, including VAT.
 Five computers for business use of USD5,500, including VAT, bought from a VAT
registered company.

Based on the above information, ABC’s VAT output for September 2016 in USD is:

A. USD 43,440
B. USD 40,400
C. USD 40,200
D. USD 40,000

xv. Based on the above information, ABC’s VAT to be paid to the tax authority for September 2016
in USD is:

A. USD 22,720
B. USD 19,700
C. USD 22,520
D. USD 19,500

(Total 30 points)

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Question 3:
World Clock Co., Ltd. (WCC) is a company which sells luxurious watches and clocks imported
from Switzerland. It has been registered with tax administration as a VAT-registered taxpayer since
late 2014. In June 2016, the company recorded the transactions as followings:
Revenues: USD
Sold watches to tax registered dealers 500,000
Total sales to retailers inclusive of VAT 110,000
Revenue from repairing watches and clocks inclusive of VAT 5,500
Expenses: USD
Imported watches and clocks from Switzerland 200,000
Salary expense for the month of June 2016 80,000
Purchased 1 car and 1 truck for marketing (1) 52,000
Hired experts from Switzerland and a local company (2) 15,000
Shop improvement (3) 5,000
Purchased diesel fuel and gasoline inclusive of VAT 9,900
Advertising on TV 3,000
The retailer asked WCC to repay the overcharged (4) 4,400
Notes:
a. All amounts are exclusive of VAT, unless otherwise stated.
b. All payments made to VAT-registered taxpayers are supported properly by VAT invoices.
Additional Information:
c. VAT carried forward from May 2016 amount $9,500
d. (1) The car and truck were purchased from VAT-registered Company. Corolla 2014 for
advertising staffs to province costs $30,000 exclusive of VAT; and a truck for advertising and
promotion event costs $22,000 exclusive of VAT
e. (2) The two months services for experts from Switzerland charged $10,000, the rest charged by
a Singaporean-owned company incorporated in Cambodia.
f. (3) The owner of WCC asked his old friend who owned a construction company to make a
shop improvement. Both parties agreed to offset the cost of watches $5,000 with service fee
of $10,000 and the difference was settled by cash.
g. (4) The accountant of WCC issued an invoice to a retailer with the amount of $4,400 inclusive
of VAT more than the original cost. In addition, the accountant also declared and is willing to
pay to the tax department for May 2016. On the 24th of June, the retailer found out that she
had paid more than that charge in the invoice. She then went claimed back the bills from
WCC.
Required: Calculate VAT payable by (WCC) forJune 2016.

(12 points)

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Question 4

ADA Clothing Ltd. is a Japanese garment manufacturer with factories in Bangladesh, Vietnam and
China. Due to an increase in worldwide demand, ADA is considering opening another factory in
another country, one of them being Cambodia. Mr Tanaka, ADA’s group financial director, is
interested in Cambodia’s lower labour costs, favourable tariffs for garment exports to its international
markets, and especially government investment incentives for the garment industry.

Required:

i. Mr Tanaka understands that ADA would be eligible for certain investment incentives if the
factory is granted Qualified Investment Project (QIP) status, but he isn’t sure what the
incentives would be.

Explain four different investment incentives that the factory would be eligible for if granted
QIP status in Cambodia. (2 points)

ii. ADA would potentially finance the factory project with share capital and a shareholder loan.
Mr Tanaka is unsure whether there are any restrictions, from Cambodian tax perspective, on
the shareholder loan and share capital ratio (debt to equity ratio), interest rates, and interest
deductibility, or whether there are any other requirements that need to be met for the
shareholder loan.

Briefly answer Mr Tanaka’s above questions about the shareholder loan. (4 points)

iii. Mr Tanaka is also wondering whether there are any tax implications for dividend distribution
to ADA in Japan.

Assuming the factory is granted QIP status, briefly explain dividend distribution order
(priority) under Cambodian tax regulations, and the applicable taxes on dividend distributions
to ADA in Japan.
(4 points)

(Total 10 points)

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Question 5

The financial controller of Loca Co., Ltd. (Loca or the Company) is aware that the tax audit
environment is becoming more stringent and understands that her tax returns weren’t prepared
properly according to Cambodian tax regulations. So she engaged you, a tax consultant, to assist her
with identifying and rectifying the non-compliance as necessary to avoid penalties during a tax audit.

Below is the income statement for the year ended 31 December 2015:

USD
Revenue
Income from marketing and licencing services 1,150,000
Interest income 11,000
Other income 70,000
Subtotal 1,231,000

Operating costs
Staff salary (including accrued last salary of USD80,000
(700,000)
to be paid in mid-March 2016)
Donation/Charitable Contribution (5,000)
Depreciation (200,000)
Stationery (6,000)
Security (3,500)
Accounting loss on disposal of fixed assets (12,000)
Loan interest expenses (170,000)
Subtotal (1,196,500)

Accounting profit before tax 34,500

Profit tax expenses (paid) (10,000)

Accounting profit after tax 24,500

Notes:

1. Loca has contributed USD3,500 to Cambodian Red Cross and USD1,500 is for the donation to
the poor directly.
2. Loca disposed of a 5% shareholding in a company in 2015. The disposal resulted in a capital gain
of USD20,000 (of which the sale proceed was USD400,000). Loca’s junior accountant oversaw
these transactions and didn’t record them in the 2015 financial statements.
In addition, after disposal, Loca continued receiving an after tax dividend payment from the
above company proportionate to its shareholding percentage. In 2015, Loca received dividend of
USD30,000, which was recorded in the account ‘other income’.
3. Depreciation expenses represent the all fixed assets depreciation during the year.
4. Loca obtained a loan maturing in 2017 of USD1.2 million with 13.5% interest per annum in 2010
from a local non-related party bank to finance a cash deficit for business operations. On 1 May
2015, it obtained an additional loan from an overseas bank of USD200,000 with 6% interest of
per year. The new loan was borrowed for a shareholder’s personal use to invest in an overseas
stock exchange. Loca has been paying the interest since 2015.

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 The annual interest expenses on all loans were all paid by end of December 2015 and recorded in
the ‘loan interest expenses’ account.
5. The Company spent USD5,000 on rooms and meals to accommodate a group of customers
visiting Cambodia. Similar to point 2 above, Loca’s accountant didn’t record this transaction in
its 2015 financial statements.
6. Stationery expenses of USD500 were incurred by a receptionist, but she lost relevant supporting
documents (i.e. receipts).
7. Loca’s parent company sold two cars to Loca for transporting its sales and marketing team in
2015. The total transferred cost was USD30,000 including import tax and transportation costs,
except VAT. The head office also conducted a training for Loca’s marketing team costing
USD2,300. So, Loca owed its parent company a total of USD32,300, which it plans to pay in
August 2016.
8. Below is the fixed asset register for tax purposes as at 1 January 2015:

Assets Class 1 Class 2 Class 3 Class 4

USD USD USD USD
Historical Cost 1,630,000 230,000 82,200 49,000
Accumulated tax depreciation 55,000 35,000 13,500 6,500
Accumulated proceed from fixed assets disposal - - - -

During the year, the Company purchased a sofa set for USD6,000, three laptops for expatriate
staff for USD3,000, and built two additional meeting rooms at USD20,000 each. Two cars
costing USD35,000 were disposed of to an employee’s friend for USD20,000.

9. Below is the tax loss schedule extracted from the lodged 2014 ToP return.

2010 2011 2012 2013 2014

Tax losses carried forward (USD) 10,000 12,000 15,000 5,000 8,500

Since it’s incorporated until the end of 2014, Loca’s only business activity was the sale of
products imported from parent company. Due to strong market competition and the fact that
company made loss for five consecutive years, Loca’s management team decided to completely
stop selling products. Starting from 1 January 2015, the company changed its business activity to
only provide marketing and licencing services to third party outlets that import products directly
from Loca’s parent company to sell in Cambodia. Loca has registered this change with the tax
authority.

Other information:

a) The market loan interest rate for 2015 issued by the GDT is 12.5% p.a.
b) The previous years’ interest expenses have been fully utilised.
c) Loca pays PToP to the GDT on its marketing and licencing incomes only.
d) All expenses and income are exclusive of VAT unless indicated otherwise.

Required: Calculate the Loca’s ToP liability for the year ended 2015 based on the information
provided above. Minimum tax calculation is not required. (18 points)

(Total 18 points)

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