On the 14th of February 2023, the General Department of Taxation (GDT) issued Notification 5367 (Notification 5367), which provides the 2022 market interest rates for Employee Loans in accordance with Article 15 of Prakas 543 on Tax on Salary and Instruction No. 7015 GDT dated 13 March 2020.
The market interest rates for 2022, based on the average of eleven (11) commercial Cambodian banks, are as follows:
- USD – 8.35% per annum
- Khmer Riel – 8.78% per annum
Commentary
The GDT makes it clear in Notification 5367 that the 2022 market interest rates are only to be used to determine the tax base for the application of fringe benefit tax on loans that are provided by an Employer to an Employee.
When an Employer in Cambodia provides a loan to Employee with an interest rate that is lower than the market rate the difference between the two will be considered a fringe benefit that has been provided to the Employee requiring the Employer to withhold and deduct Tax on Fringe Benefit at the flat rate of 20% on the difference.
Instruction No. 7015 issued by the GDT in early 2020 provides two options for an Employer to determine the market interest rate for loans that they have provided by to an Employee.
- The minimum interest rate charged by the Employer on loans to third parties or to debtors.
- The market interest rate issued by the GDT from the previous tax year i.e., year N-1 with N being the current tax year.
To the extent that the market interest rate, as determined above, is higher than the actual interest rate used for an employee loan the 20% Tax on Fringe Benefit will apply on the difference.
It should be noted that the annual market interest rates issued by the GDT should not be used as a safe harbour for transfer pricing purposes or as a cap to determine interest expense deductibility for Tax on Income purposes.
For further information regarding this matter, please contact Clint O’Connell, Partner,
Head of Cambodia Tax Practice Group, [email protected]
