On 5 February 2016, the General Department of Taxation (GDT) released Notification 2118 and 2119, which provides the deemed market rates for determining the caps on interest rate deductions under Circular 151 for loans that had been entered into using Khmer Riel (KHR) and United States Dollars (USD) in the 2015 financial year.
On 5 February 2016, the General Department of Taxation (GDT) released Notification 2118 and 2119, which provides the deemed market rates for determining the caps on interest rate deductions under Circular 151 for loans that had been entered into using Khmer Riel (KHR) and United States Dollars (USD) in the 2015 financial year.
The deemed market rates for 2015 are as follows:
- For borrowing in USD – 10.28%
- For borrowing in KHR – 19.51%
The GDT calculated these rates using the average interest rates of the nine largest Cambodian banks for the USD market rate and two large Cambodian banks for the KHR market rate.
Circular 151 set a limit on the interest deductions that a taxpayer can apply for each loan they contract. The interest rate deduction limit of borrowers will be based on this new benchmark:
- Taxpayers who borrowed money from non-related persons may deduct interest expenses up to 120% of the deemed market rate applicable at the time of the borrowing.
- Taxpayers who borrowed money from related persons may deduct interest expenses up to 100% of the deemed market rate applicable at the time of the borrowing.
These interest deduction limits are applied for each loan, and are in addition to the annual deduction limit under Article 12 of the Law on Taxation and Section 5.9 of the Prakas on Tax on Profit, which caps the annual interest deduction to the sum of 50% of the taxpayer’s non-interest income and 100% of its interest income for the applicable tax year.
Please click here to access our alert on Circular 151 for more information. As supplement to the above, Cambodian law prescribes that unless the parties otherwise agree, the interest rate for interest bearing obligations is 5%. Cambodia law further provides that for most transactions, the parties may agree an interest rate of up to 18%. Interest rates above the maximum are invalid as to the excess. There are further rules and provisions dealing with penalty interest, compounding of interest, interest on loans for consumption, and interest chargeable by financial institutions.
The DFDL tax team is always ready to answer any questions you may have on this and other tax issues.
DFDL Contact:
Clint O’Connell
Head of Tax – Cambodia
clint.oconnell@dfdl.com
*The information is provided for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
