One of the most misunderstood fallacies amongst ex-pats living in Cambodia is the assumption that all Non-Government Organisation (NGO) employees are automatically granted a tax reprieve. Although there are some situations where NGO employees are exempt from Tax on Salary, this requires certain criteria to be met and an application to be processed and approved before NGO employees cease being liable for the tax.
One source of the misunderstanding stems from the fact that NGOs are usually exempt from income tax under Article 9 of the Law on Taxation, which deems organizations “organized and operated exclusively for religious, charitable, scientific, literary or educational purposes” exempt from income tax, provided that no part of the income is used for private benefits. If an NGO is granted income tax exemption under this heading, this exemption does not automatically flow on to employees. This was specifically confirmed in 1997 by Notice No 2672.
Diplomatic and Foreign Government Employees
Another basis for confusion arises from Article 43 of the Law on Taxation, which provides that “diplomatic and foreign officials” are exempt from paying tax on salary. The law goes on to detail that this is limited to those here representing their governments in official capacities or employees in Cambodia on behalf of official international organizations recognized under the Vienna Convention, such as the United Nations or the Red Cross.
In 2001, the government considered the case for a salary exemption for NGO workers and issued Notice No 64 on Tax on Salary of NGO employees. The notice clarified the existing law and said that a salary tax exemption would be considered in relation to the following NGOs:
– Those who implement projects on behalf of a foreign government (subject to agreement between both governments);
– NGOs recognized by the United Nations;
– NGOs that are self-sufficient, comply with Cambodian law and implement development and humanitarian projects in Cambodia;
– NGOs that were granted a tax exemption in 1979;
– NGOs with a small scope/budget of less than USD$50,000 a year; and
– Employees who already pay salary tax in their own country.
Once these criteria are met, then the NGO in question must conclude a Memorandum of Understanding with the pertinent Ministry.
Such employees will not automatically receive an exemption, but must apply to the Ministry of Foreign Affairs and International Cooperation (MFAIC) or the Ministry of Economics and Finance (MEF), who will decide whether or not to grant the exemption.
Getting an exemption can be a complex and drawn out procedure. It is wise to assume nothing until the final stage, when a decision has been made by the MEF.
For more information, refer to our publication Labor Law Guide for NGOs