Tax credit on withholding tax paid during the year

Lesson Summary-Tax credit on withholding tax paid during the year for Cambodia Tax

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Some companies (lessors) may rent movable and immovable properties to other companies (lessees). Under Law on Cambodia Tax, lessees have obligation to withhold tax from property rental before payment to lessors otherwise lessees will pay withholding tax on behalf of lessors.

Assume lessees can withhold tax on rental from lessors, so lessees will pay this tax to tax authority and this tax will become tax credit for lessors.

Tax credit on withholding tax will be offset against minimum tax or profit (income) tax liability.

1.If Minimum Tax is higher than Profit ( Income ) Tax Liability

Minimum tax Liability = Minimum Tax – Tax credit on withholding tax paid during the year

2. If Minimum Tax is lower than Profit ( Income ) Tax Liability

Profit ( Income) Tax Payable = Profit ( Income ) Tax Liability – Tax credit on withholding tax paid during the year

Note:

1.If Minimum tax Liability < 0, so it is  Tax credit carried forward

2.If Profit ( Income) Tax Payable < 0, so it is Tax credit carried forward

Example 1

ABC Company ( lessor) rent part of whole building to XYZ Company (lessee). Office Rental per month is $1,100 ( included VAT) and XYZ Company can withhold tax on rental from ABC.

Assume that profit (income) tax liability and minimum tax for ABC are $10,000 and $9,000 respectively.

Required 

1. Calculate withholding tax on office rental for XYZ Company.

2.Calculate withholding tax credit on office rental for ABC Company.

3. Calculate Profit ( Income) Tax Payable or Minimum tax Liability for ABC Company.

Answer 

1. Calculate withholding tax on office rental for XYZ Company

Withholding tax base (before VAT)=$1,100/1.1=$1,000

Withholding tax = $1,000 x 10%=$100

2.Calculate withholding tax credit on office rental for ABC Company

Based on answer part 1, so withholding tax credit is $100.

3. Calculate Profit ( Income) Tax Payable or Minimum tax Liability for ABC Company

Because Profit (income) tax liability is higher than minimum tax ( $10,000 > $9,000), so we will take amount $10,000.

Profit ( Income) Tax Payable = Profit ( Income ) Tax Liability – Tax credit on withholding tax paid during the year=$10,000-$100=$9,900

so Profit ( Income) Tax Payable =$9,900