Cambodia: Tax obligation of sale of enterprise’s share

The General Department of Taxation (GDT) of Cambodia has recently issued a notification letter to remind of tax obligations of sale of enterprise’s share which had been stipulated under Article 71 of the Law on Financial Management for year 1995. In this regard, a buyer and seller shall be jointly responsible for settling tax and penalty if a business or enterprise, or immovable property has been sold. The obligations of both the buyer and seller are as follows:

1. If there was a purchase-sale of an enterprise including the purchase and sale of all or part of the enterprise’s shares, the seller has to clear all the tax liabilities rst before selling the enterprise. The tax clearance shall be made through the payment of all tax liabilities incurred after the tax audit.
2. The purchaser shall be responsible for all tax liabilities of the enterprise incurred regardless of the period controlled by a seller or purchaser.

From this notification, it seems that a tax audit of the enterprise would be required to be conducted by the GDT and any reassessed tax liabilities be settled rst, before the enterprise can be sold. With regard to this, the tax ocials have clarified that the motive of the notification is just to clarify tax obligations for both sellers and buyers. If the buyers wish to clear all the tax liabilities before buying, the buyer can request the seller to request the GDT to conduct the tax audit, and, thereafter, clear all the tax liabilities in order to close the pre-acquisition tax year. Otherwise, the buyer is obliged to take over any historical outstanding tax liabilities (if any) after taking over the enterprise.

As is common commercial practice in a share acquisition of an enterprise, the purchaser is generally taking over the target company/enterprise together with all related liabilities, including contingent liabilities such as taxation. The purchaser will, therefore, normally require extensive indemnities and warranties which among those included historical outstanding tax liabilities of the enterprise from the seller. 

In addition, due to the notification indicates that there should be no compulsory requirement for the sellers to request for a tax audit being conducted by the GDT rst before they can dispose their share to another shareholder. Any such decision would be based on agreement between the buyer and the sellers on how they would deal with any outstanding tax liabilities pre-acquisition in their Purchase and Sale Agreement (PSA). 

Nevertheless, it is always recommended that a proper tax due diligence should be considered by the purchaser to identify any potential outstanding historical tax liabilities of the target company, as well as seek advice for any potential tax-efficient financing and investment holding structure in the enterprise, as part of the acquisition consideration.

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