Key Takeaways:
- Instruction 014 MEF.N, Prakas 576, and Prakas 573 issued in September and October 2024 clarify the implementation, incentives and exemptions for Tax on Immovable Property, Unused Land Tax and Capital Gains Tax.
- With respect to Tax on Immovable Property (TIM) the key updates relate to an amnesty for registration and underdeclared tax of TIM and exemptions that relate to agricultural use of the immovable property.
- With respect to Unused Land Tax (TUL) the key updates relate to the five hectare exemption and the implementation date of 1 January 2025.
- With respect to Capital Gains Tax (CGT) the key update relates to the extension of the implementation date of CGT on immovable property for physical persons until 31 December 2025.
The Detail:
Notification 014 MEF.N on the continuance and extension of tax incentives for the real estate sector was issued by the Ministry of Economy and Finance on the 9th of October 2024 (Notification 014).
Notification 014 implements aspects of the speech of Prime Minister Hun Manet that took place during the 7th Mandate of the National Assembly on August 22, 2024, and the remarks of the Prime Minister dated September 26, 2024, on Letter No. 10571 MEF., dated September 24, 2024, of the Ministry of Economy and Finance to reduce the tax burden on housing developers and property owners.
In addition to Notification 014 the Ministry of Economy and Finance issued Prakas 576 on Immovable Property Tax and Prakas 573 on Unused Land Tax on the 19th of September 2024.
Tax on Immovable Property (TIM)
Prakas 576 on Immovable Property Tax dated 19 September 2024 and Notification 014 provide the latest updates regarding the implementation of TIM and applicable incentives and exemptions. Prakas 576 comes into effect from 1 January 2025.
TIM is imposed at the rate of 0.1% on the value of immovable property that exceeds KHR 100 million (approx. USD 25,000). The definition of immovable property includes land, houses, buildings, co-owned buildings and other construction.
The tax base on which TIM is calculated is based on the immovable property’s value as determined by the Immovable Property Assessment Committee subject to the KHR100 million threshold set out above.
The owner of the immovable property, occupant or final beneficiary must register with the General Department of Taxation, declare and pay TIM by the due date of 30 September each year.
Exemptions for TIM include any of the following:
- Immovable property that has a value less than or equal KHR 100 million,
- Immovable property that is catergorised as agricultural land,
- Immovable property that is held by the Royal Government of Cambodia and ministries/institutions which is leased to private enterprise for business (with respect to the land),
- Immovable property that is owned/used by any organization/person established exclusively for religious, charitable causes where there is no private interest.
- Immovable property that is owned/used by a foreign diplomatic or consular mission, international organization and agencies of technical cooperation of other governments,
- Infrastructure such as roads, bridges, fresh water/electricity, airports, ports, railway stations – inclusive of buildings/offices that are directly involved with infrastructure activities.
- Immovable property located in a Special Economic Zone that directly serves agricultural, industrial, and/or service activities
- House, building or construction that is less than eighty (80%) percent constructed and not in use.
Notification 014 provides an exemption from TIM, including administrative penalties (additional tax and interest) for immovable property or any part of immovable property which relates to agriculture where the immovable property has agricultural cultivation activities being carried out, and has any construction that directly and permanently serves the agricultural activities. The exemption of TIM relates to immovable property located in the capital and the provincial centers without the need for the immovable property to have a relevant permit or certificate from the authorities allowing agricultural use. To qualify for the TIM exemption the immovable property needs to be classified as agricultural land on the title deed.
However, for immovable property that is considered agricultural land, as per above, and that is located in the capital and provincial cities, if some part of the immovable property is used to build houses, buildings, or other structures that do not directly and permanently serve agricultural activities, the part of the immovable property that does not directly and permanently serve agricultural activities will not be exempted from TIM.
For immovable property that is considered as residential land, as set out above, and is located in the capital and provincial cities, where the land is used for agricultural cultivation, that land shall be exempted from TIM, but requires a permit or certificate of agricultural land use from the local authority.
For immovable property that has been registered for TIM but the owner of the immovable property has incorrectly determined the TIM calculation the underdeclared TIM is exempted from re-assessment, including the underpaid administrative penalties (additional tax and interest) from the year of filing until 2024. From 2025 onwards, the TIM implementation shall follow the laws and regulations in force.
For immovable property (with or without title) that has not yet been registered and where TIM has not been declared and paid in the past, owners have an amnesty with respect to penalties and interest if they register and pay the TIM from the year of occupancy/beneficial – this amnesty is in place until the end of June 2025.
For immovable property that has been registered and where TIM has been declared in the past but not for all years there will be an amnesty from administrative penalties (additional tax and interest) provided that the taxpayer pays the overdue TIM before the end of June 2025.
Tax on Unused Land (TUL)
Prakas 573 on Tax on Unused Land dated 19 September 2024 and Notification 014 provide the latest updates regarding the implementation of TUL and applicable incentives and exemptions. Prakas 573 comes into effect from 1 January 2025.
TUL is imposed on unused land that is located outside the zones that are subject to TIM.
Prakas 573 defines Unused Land as:
- Constructed or unconstructed land that is not utilized.
Prakas 573 also defines Agricultural Land as land that is using for agricultural production such as farmland, industrial land, industrials, forestry, animal production, salt farmland.
The owner of the unused land, occupant or final beneficiary must register with the General Department of Taxation, declare and pay TUL by the due date of 30 September each year for plots of unused land that exceed five (5) hectares in size.
The tax base for TUL shall be based on the land value as assessed by the Land Evaluation Commission. An owner, occupant or final beneficiary shall be allowed to deduct five (5) hectares from the TUL tax base for each plot of land.
The owner of unused land is required to notify the GDT using the prescribed tax forms in respect to a change of owner of unused land, change of size, of building/construction, of the unused land.
Unused Land plots that exceed more than five (5) hectares shall be exempt from TUL in accordance with any of the following conditions:
- Agricultural Land that is currently cultivated with the approval of the committee or sub-committee of land valuation for TUL.
- Unused Land that is currently used for the economic activities of a physical person or legal person that has been registered with the GDT.
- Unused Land, with or without construction, under a lease agreement.
- Unused Land that is in the possession of the Royal Government or government institutions
- Unused Land that is the possession of the community
- Unused Land under economic concession which is leased from the state, or government institutions.
- State-owned unused land which is leased to any physical person or legal person for economic activity as per an contract/agreement between the two parties.
- Unused Land in a Special Economic Zone that directly serves agricultural, industrial, and/or service activities
- Unused Land that has been registered as an asset of an enterprise in the field of education and vocational training serving the educational and vocational training purpose of the enterprise. In case that this land has been sold or does not serve the above purpose, tax obligations shall be fulfilled as per the prevailing laws in force.
For Unused Land that is below five (5) hectares for one plot of land, the owner/beneficiary does not have obligation to declare and pay TUL.
Under Notification 014 TUL has been suspended until the end of 2024, meaning that the owner or occupant or final beneficiary has no obligation to declare TUL until the end of 2024.
Tax on Capital Gains
Instruction 014 provides that the postponement of the implementation of capital gains taxes on real estate for physical persons will continue until the end of 2025. The implementation of the five (5) types of capital gains taxes, including leases, investment assets, goodwill, intellectual property, and foreign currencies, shall still begin from 1 January 2025 onward.
Under Prakas 346 on Capital Gains when determining the amount of gain that would be subject to 20% capital gains tax on the sale or transfer of immovable property, first the sale/transfer value of the immovable property needs to be determined.
The revenue received from the sale/transfer of immovable property is based on the price indicated in the sale and purchase agreement of the immovable property and other supporting documents. If the GDT determines that the price indicated in the sale and purchase agreement is lower than the market price, the GDT can re-assess the sale/transfer price of the property in accordance with:
- The market value; or
- The value attributed to the immovable property based on its location and characteristics as detailed in the Annex attached to the Prakas on the Transfer of Ownership or Occupancy Right over Immovable Property; or
- A value determined by the committee for the evaluation of capital gains tax on immovable property.
Once the sale/transfer value of the immovable property is determined then a taxpayer can choose to deduct expenditure from the sale/transfer value based on two methods:
(1) Determination Based Expense Deduction
Under this method, a taxpayer can deduct 80% from the revenue received from the sale or transfer of the immovable property without needing to provide supporting documentation for the expense.
(2) Actual Expense Based Deduction
Under this method, a taxpayer may deduct expenses actually incurred in acquiring, holding, and transferring the immovable property which qualify as deductible expenses, i.e., expenses that have occurred, that relate to the property and can be evidenced with invoices or other supporting documents.
Exemptions
Capital gains tax is exempted on the sale/transfer of:
- Immovable property that is sold by a physical person prior to 31 December 2025.
- Immovable property owned by a public institution
- Immovable property owned by a diplomatic mission, foreign consul, international organization or technical cooperation agency of other governments;
- The residence which is the principal place of residence for a taxpayer for at least five (5) years prior to the sale/transfer. If the taxpayer has more than one residence or a taxpayer and their spouse have different residences, only one residence shall be permitted as a principal residence,
- The transfer of immovable properties among relatives as stated in the transfer tax regulations, excluding the transfer of ownership or right to occupy immovable properties between biological brothers/sisters, parents-in-law and children-in-law and grandparents-in-law and grandchildren-in-law,
- Immovable properties sold or transferred for the public interest in accordance with the Law on Expropriation.
Tax services required to be undertaken by a licensed tax agent in Cambodia are provided by Mekong Tax Services Co., Ltd, a member of DFDL and licensed as a Cambodian tax agent under license number – TA201701018.
