Tax incentives offered for expansion of Qualified Investment Projects
Tax incentives offered for expansion of Qualified Investment Projects
In accordance with a recently released legal update from the Ministry of Economy and Finance (MEF), new procedures have been defined to provide income tax incentives to companies involved in expanding their Qualified Investment Projects (QIPs) in the Kingdom.
The move, in accordance with the Investment Law of the Kingdom of Cambodia, aims to support growth in commercial activities having a positive influence on the nation, and encourage the continued expansion of such industries.
According to Prakas No. 313 MEF. PrK. PD, dated May 10, 2024, QIPs undertaking expansions in their operations will now be granted an extended period of income tax exemption.
The type of business expansions able to gain income tax exemption includes the expansion of existing production, expansion through diversification of production targets within the same product line, and expansions through the installation of new technologies that enhance productivity or better protect the environment.
Other types of expansion may be considered outside of these guidelines, the prakas notes, however in that case specific permission must be obtained from the regulator.
In addition, the QIP expansion income tax exemptions shall be granted only in accordance with the investment activity of the original project, and only for a certain period of time, as according to the type of investment activity group specified in the sub-decree on the implementation of the Investment Law of Cambodia.
According to the prakas, after obtaining permission to expand the QIP activities from the Council for the Development of Cambodia (CDC) or from the CDC’s subsidiary Provincial-Municipal Investment Sub-Committees (PMIS), the General Department of Taxation (GDT) will issue a certificate on income tax exemption period for the expansion of the QIP.
The income tax exemption will not be granted in the case that the enterprise did not use the capital in question to expand the QIP, or failed to invest the prescribed amount of capital allowed before the expiration of the tax exemption period for the expansion of the QIP.
Meanwhile, the exemption will not be granted in the case that the enterprise has not fulfilled its other tax obligations properly, in accordance with the national laws and regulations governing taxation.
The recent update is an extension to the implementation of the Investment Law of the Kingdom of Cambodia, initially promulgated in October 2021 to serve as a tool for improving national investment conditions.
More specifically, Prakas No. 313 adds conditions for tax exempt expansions of QIPs previously defined under Sub-Decree No. 139, released in June 2023.
The provisions of the sub-decree apply to investment projects that have been duly registered and acknowledged by the CDC or the relevant PMIS.
According to the Law on Investment of the Kingdom of Cambodia, only QIPs are entitled to such benefits.
To be admitted as a QIP, the investor has to register the investment project with the CDC or PMIS and receive a Final Registration Certificate (FRC).
There are three types of QIPs available, including ‘Domestically Oriented Qualified Investment Projects’, which refers to a QIP that does not aim at export; ‘Export Oriented Qualified Investment Projects’, which refers to a QIP that sells or transfers a proportion of its product to a purchaser or transferee outside Cambodia; and finally, ‘Supporting Industry Qualified Investment Project,’ which refers to a QIP that supplies 100 percent of its products to export instead of importing raw materials and accessories from other sources.
Generally, if an investment project is recognized as a QIP by the CDC it can either elect to receive an exemption on profit taxes or to use a special depreciation allowance.
Tax incentives include a tax holiday on profits for up to nine years in some cases. QIPs can also receive a range of other benefits, depending on various factors such as the type and size of the enterprise.
