Cambodia: Guidance regarding loans between related parties; interest rate and supporting documentation

Specifically addressing documents to support taxpayer claims about related-party loans

Specifically addressing documents to support taxpayer claims about related-party loans

The General Department of Taxation (GDT) issued guidance regarding loans between related parties and specifically addressing documents to support taxpayer claims about related-party loans.

The guidance—Instruction no. 10979 GDT (25 May 2022)—includes changes from the prior regulations and is summarized in the following table.


As per new Instruction no. 10979

As per prior regulations

Interest rate

  • Related parties can follow the interest rate under the loan agreement and will be exempt from the “arm’s length” principle.
  • The interest rate must not exceed the market interest (i.e., the annual average rate from at least five major banks, issued by the GDT) at the time of borrowing.
  • The interest on loan between related parties must be based on the “arm’s length” principle (Prakas 986, dated 10 October 2017; and Instruction 11946, dated 21 August 2018)

Supporting documents

Instruction no. 10979 provides further clarification on the previous documentary requirements provided under Instruction no. 4909:

  • Loan agreement that clearly states the length and repayment terms
  • Business plan or current and forecasted financial statements together with the documents on the purpose of borrowing and the explanation, and
  • Board of Director’s resolution (for enterprises that are not single-private limited companies)

The taxpayer must maintain the required supporting documents for loans between related parties, as follows (Instruction No. 4909, dated 18 March 2019):

  • Loan agreement with clear terms of borrowing
  • Business plan in relation to the loan
  • Documents to explain the basis of interest rate, and
  • Board of Director’s resolution (for the enterprises that are not single-private limited companies)

Cash Advance

  • Cash advance between related parties with a lifespan of less than one year from the date of receipt of the cash advance until the settlement date are not considered to be loan transaction and are exempt from “arm’s length principle.”
  • No previous guidelines were provided on cash advance between related parties, but in practice, cash advances were treated as loan transactions.

KPMG observation

The changes introduced under Instruction no. 10979 may reduce the taxpayer burden regarding documentation for determining the rate of interest on the related-party loans. However, if the taxpayer is not able to provide the required documentation under the new guidance, it appears that the tax authority could still reassess and determine what is the reasonable market interest rate. The GDT limits the interest rate on related-party loans to the annual market interest rate (as issued by the GDT). Therefore, it could be inferred that the GDT may disallow portion of the interest expense on related-party loans that exceeds the market interest rate.

The cash advance clause, however, could provide certain flexible in obtaining of financing when there is a shortfall of the working capital.

Read a June 2022 report [PDF 154 KB] prepared by the KPMG member firm in Cambodia


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