Tax and TEFLers

[epidemiks]

I would guess that a 'freelancer', for want of a better word, submitting invoices to one of these responsibility-shirking school for work performed should register themselves as a sole trader with the relevant ministries and start paying their taxes.

Other thoughts:

Is the type of employment listed on a work permit tied to income tax? Not afaik.

Is foreign sourced income taxable by the tax department in Cambodia? Not afaik.

Could someone reasonably say that all income during a period have been foreign sourced? Why not. Just don't bank it here.

[jackrossi]

If you are an external private person offering a service or in this case a self employed person ( tefler or whatever) with no tax ID number the employer (if under the real regime of taxation) is required to withheld 15% of the payment as tax.
Cambodia has no income tax, only salary tax so the Tefler would be 100% fine and not liable of any tax.
Definitive answer.

The only problem is wether you will be required to register a company later as the self employed category in Cambodia is legally not clearly defined. In that case you will have to charge VAT 10% and pay a profit tax of 10% on your revenue minus your deductible expenses as long as you make less than 25.500$\year in profit.

[Edwardo]

What have you done lately?

Cleaned the toilet.

Got a promotion at work, did ya?

[PSD_Kiwi]

. Is foreign sourced income taxable by the tax department in Cambodia? Not afaik

Yes, yes it is... Is it enforced? Not afaik.

[logos]

In that case you will have to charge VAT 10% and pay a profit tax of 10% on your revenue minus your deductible expenses as long as you make less than 25.500$\year in profit.

What's a "profit tax on your revenue"?
You mean they tax you 10% on turnover, whether you make a profit our not?

[jackrossi]

Sorry writing from my phone and I didn't write too clearly.
I mean the tax of 10% is on revenue minus deductible assuming that you are profitable (since you are essentially an employee it's hard not to be otherwise you would quit) and that you are making more than 4.500$/year and less than 25.500$/year as most TEFLer would.

[jackrossi]

Thinking about it if you are a TEFL er and you make about 2000 USD a month including bonuses and benefits you could make more as a business offering your services to the school rather than as a self employed with 15% witholding tax. As a registered employee you would pay about the same tax as a business all counted without having any of the hassles (still there are some scenarios where you have advantages as a business instead than as an employee if you are smart about it. if you hire you girlfriend as a cleaner her salary is deductible also if you buy assets such as electronics, vehicles they are deductible depreciating assets. etc...).
P.s.
Before you tell me that there is no way that as a business you pay less remember that the school can fully deduct the +10% VAT it pays to you so you. Therefore I am not counting it as the school would not really pay more due to your VAT so they have no reason to cut 10% your salary because of it.

[logos]

You make some interesting points but I have two questions regarding the practicality of that structure
- wouldn't the setup fee be disproportionately high compared to the relatively low income generated by the company? I can imagine it could be worth doing if a career extends over several years but not for just a couple years.
- I like the GF / cleaner angle ( just for tax reasons of course.. ) but what is the feasibility of a foreigner setting up a local company without a Khmer partner? Is there such a thing as sole proprietorship?

[kiwikhmer]

As per most issues in Cambodia the devil is in the detail.

I believe Jackrossi's scenario is based on applying the progressive annual Tax on Profit (now called Tax on Income) rates which can be used by Small Taxpayers under the new Self-Assessed Tax Regime in Cambodia. Limited Liability Company's will never be a classified as a Small Taxpayer regardless of the level of income/profit received. Generally speaking only a sole proprietorship or partnership can be a Small Taxpayer. In addition schools, if they are actually registered for tax, provide what are called non-taxable supplies for VAT purposes - meaning they dont charge VAT on their school fees and conversely cannot claim VAT input. Schools can expense VAT but if they pay out say $10 in VAT and save $2 in tax how can you argue the school pays less unless they pass that cost to the invoicing entity? Under the Prakas on Tax on Salary there is a employee/independent contractor test whereby the tax authorities can, and have, reclassify a individual as a employee or contractor based on the substantial criteria that apply i.e. control test, who sets working hours, risk of receiving compensation etc.

Also - and with all due respect to the teaching profession in Cambodia - the tax authorities will not allow what they consider as exorbitant expenses to be deductible so I guess the "vehicles" and "electronics" reference may need to be scaled down a bit to possibly a secondhand motorbike plus laptop. I guess the upside is being a tax registered business in Cambodia you will have the joy of debating these issues firsthand with the friendly tax auditors at the GDT.

[jackrossi]

I rarely work with schools but by my understanding of the law, schools services are non taxable supplies (no VAT) only when they are government owned or part of an NGO.
If you have the specific parkas I would like to give a look at it. I would not mind be corrected on this.

Non-taxable supplies
Non-taxable supplies are as follows:
Public postal service;
Hospital, clinic, medical, and dental services and the sale of medical and dental goods incidental to the performance of such services;
The service of transport of passengers by wholly state owned public transportation system;
Insurance services;
Primary financial services;
The imports of articles for personal use that are exempted from customs duties;
Non-profit activities in the public interest;
The imports or the purchases of goods for use in the exercise of their official function of foreign diplomatic and consular missions, international organizations and agencies of technical cooperation of other governments.

Regarding the purchase of vehicles and electronics I have clients with very small businesses which had to register as due to their clients only dealing with real regime companies (2 people operation, khmer owned, fridge repairs for supermarkets) their company has a low social capital and make less than 1500$/month on average yet they had no problems buying a 18.000$ pick up car through a loan for their business and declaring it in their tax statement as a depreciating asset.

.

the tax authorities will not allow what they consider as exorbitant expenses to be deductible

As a minor correction the law doesn't mention "exorbitant expenses" but “extravagant expenses” which would be for example buying a boat as an electrical repairs company. However buying an equally expensive boom lift would make sense if you have to work on high cables.

[kiwikhmer]

Prakas 559 dated May 2017

The below goods and services supplies are non-taxable supplies:

1. Public postal service;
2. Hospital, clinic, medical, and dental services and the sale of medical and dental goods incidental to the performance of such services;
3. The service of transportation of passengers by a wholly state owned public transportation system;
4. Insurance services;
5. Primary financial services;
6. The importation of articles for personal use that are exempt from customs duties;
7. Non-profit activities in the public interest;
8. Education service;
9. Electricity power and clean water;
10. Unprocessed agricultural products; and
11. Service of collecting or removing solid-liquid wastes.

[jackrossi]

Thanks, in the previous parkas still online on the government website they don't mention education as non subject to VAT.

http://www.tax.gov.kh/en/bvat.php

[GMJS-440]

Cambodia has no mechanism through which they collect tax from individuals, so for a TEFLer the school is the one responsible for withholding and payment of Tax on Salary. The Tax authority would go after the school in that case, TeFLer should be fine.

[pedros]

My workplace were been doing their annual tax forms, don't ask me what it was all about, but lots of forms and 2 trips to the tax dept.

I pay tax, but discounted rate due to my involvement in producing offspring.