Cambodia: The Encouraging Policy to Promote Small-Medium Enterprises (“SMEs”) in Cambodia

Small and Medium-sized Enterprises (“SMEs”) has constituted a vital part in the competitiveness of Cambodia’s economy. To embrace the industry and make it more vibrant, various initiatives have been taken by the government. Two of the incentives are the promulgation of Prakas No. 580 MoEF.BrK dated 27 June 2019 on Customs Incentives for SMEs and SubDecree No. 124 ANK.BK. dated 02 October 2018 on Tax Incentives for SMEs under Priority Sectors. 

For the policy purpose, the Ministry of Economic and Finance (“MoEF”) defines SMEs as enterprises with annual turnover ranging from USD 62,500 to USD 1 million or employing fewer than 100 staff. 

I. Prakas on Custom Incentive for SMEs 

Under this Prakas, the domestic-sales SMEs and enterprises located in SME Cluster Zones are exempted from Customs Duties for the import of production equipment and construction materials. While the Water Supply SMEs, Export-oriented SMEs and supporting SMEs (for the portion which directly serves export) are entitled to additional exemption on the import of raw materials. Apart from that, the importation of equipment to set up and serve the R&D purpose of innovative IT is as well exempted from Customs Duties. 

II. Sub Decree on Tax Incentives for SMEs under Priority Sectors 

The Priority Sectors featured are categorized into agricultural or agro-agricultural products; food manufacturing and processing; local consumable goods manufacturers; waste recycling and production of goods for the tourism sector; manufacturing of finished products, spare parts or assembling parts to supply other manufacturers; R&D associated with IT or the supply of IT-based services; and enterprises located in SME Cluster Zones as well as enterprises developing the Cluster Zone. 

The tax incentives offered to SMEs include the following: 

1. Profit Tax incentives Three years Income Tax exemption is granted to newly registered enterprises or existing enterprises commencing from the date of tax registration update. The exemption period will be extended to five years if the enterprise fulfills one the following criteria: a) incorporating domestic-sourced raw materials in 60% of production; b) expanding employment size by 20%; or c) having the enterprise located in the SME Cluster Zone, the Income Tax exemption period shall increase to five years. During the given exemption period, qualified SMEs are further entitled to a waiver of monthly 1% Prepayment of Income Tax and annual Minimum Tax. 

2. Incentives on Deductible Expense for Profit Tax Calculation 

In Profit Tax calculation, SMEs are allowed to deduct 200% of the expenses for the usage of IT based accounting software and training, or other employees training fee from profit tax calculation base; and, up to 150% of the investment on innovative machinery and equipment which result in the improvement of productivity. 

The relief of tax and customs duties would be an encouraging factor for SMEs which willto promote new entrance to the industry. This, would in turn foster this particular area of Cambodia’s economy and thus, heighten its competitiveness in the global market.

‍