Home to the unparalleled temple complex of Angkor Wat, lush tropical forests, and vibrant public festivals, the Kingdom of Cambodia has plenty to offer foreign businesses and visitors. With a GDP of around $22 billion and a population of 16.2 million, the country enjoys a modest but stable economy. While textiles and tourism lead the way in terms of Cambodia's earnings, the country has also set up a tax system to entice a variety of industries to make Cambodia their home. Cambodians are highly motivated and hard-working, and their youthful population ensures that employers can assemble the perfect team.
Cambodia has a relatively simple tax system compared to some of its neighboring countries, though this doesn't necessarily make the system easy to navigate. Companies may want to look into an experienced payroll solution to help decipher the many incentives and payroll regulations in Cambodia. It's generally easy to move money around in and out of Cambodia, but there are also consequences if finances are not managed correctly.
Companies must begin by registering with the Ministry of Commerce, which can be done online. After registration, the business can receive their license and certificate of incorporation. Companies then have 15 days to register with the General Department of Taxation. Here, companies will get a tax patent as well as their VAT certificate. The final step involves visiting the Ministry of Labor and Vocational Training and the National Social Security Fund (if you will have more than eight local employees).
While the full process can take three months or more to complete, mid-sized companies have been known to be up and running in less than a month. Finding a partner who knows the language and customs may speed the registration process along as well. Although in-country bank accounts do not appear to be mandatory, it is relatively fast and simple to open a bank account in Cambodia.
Employment Law & Employee Rights
Cambodians typically work from Monday to Saturday for a maximum of 48 hours per week. Overtime is limited to two hours per day and paid at an increased rate. The exact rate is usually determined either through the individual employee-employer contract or by collective agreement. Employee contracts must be in writing and need to state the full details of employer responsibilities and employee expectations. Probation periods cannot last longer than three months for regular employees, two months for specialized employees, and one month for unskilled workers. Collective bargaining is practiced in Cambodia, though it may have stronger influences in certain industries than others.
Compensation & Severance
The monthly minimum wage for workers in the textiles and footwear industry was raised in 2018 to $170 a month, an 11% increase from the previous year. There are no mandatory bonuses in Cambodia, though it may be customary to grant additional compensation around the new year, which is the biggest celebration of the year in Cambodia. Should a worker need to be terminated, Cambodia provides both severance and redundancy pay. In the case of a fixed contract, workers must receive at least 5% of the total wages agreed. All other workers receive pay based on the length of their employment. An employee who worked 6-12 months will receive at least seven days of wages. After a year, an employee will receive 15 days’ wages for every year worked.
Tax Requirements & Withholding
The corporate tax rate in Cambodia is 20%, with personal income taxed on a progressive scale up to 20%. Taxes are typically withheld at the source, with employers required to make Tax on Salary declarations no later than 15 days after the end of the preceding month. To register as a taxpayer for a full year, it costs an individual a total of $650. Companies are also subject to VAT, which is equal to the VAT the company charges its customers less the VAT that's paid to the suppliers. A variety of other taxes must be paid by the 20th of the month, which vary depending on a company’s location and industry.
Time Off & Unpaid Leave
Workers are entitled to 1.25 paid days off for every month worked or 15 days per year. Additionally, there are more than 20 official public holidays, though employers may not be required to treat every public holiday as a paid day off. Employees are entitled to sick leave without the threat of losing their job, though an employer is not required to pay for the sick leave. The Ministry of Labor does recommend that employers do pay a worker at 100% of their wages for the first month and a reduced rate after that. New mothers are entitled to 90 consecutive days off, paid by the employer at a rate of 50% their normal wages if they have worked for the company for at least a year.
A Better Partner
Cambodian companies are subject to a variety of audits throughout the year, making it essential to have their financials in order. A comprehensive audit will look at practically every line item the company has, scrutinizing and analyzing each number. This open-market economy may be exactly what a company needs to increase their profit margins, but decision-makers have to be careful about how they handle new global payroll requirements. An international payroll solution can be the key to keeping your expenses controlled and your taxes in check.