New Tax for Real Estate Agents

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The new instruction by the General Department of Taxation is a positive response to the market, says Anthony Galliano. AFP

The General Department of Taxation (GDT) has issued Instruction 18410, which clarified withholding tax obligations for real state entities who sub-lease properties. 
The new instruction essentially refines the law to remove a double tax obligation.   
In the past, the real estate entity would normally withhold 10 percent of the rent from its lessor; and in a sub-lease situation, the tenant of the real estate entity would withhold 10 percent of the rent on the sub-lease to the real estate company.  
Instruction 18410 now provides for an exemption on the withholding tax on the sublease, if both the lessor and lessee are registered tax payers.  
“Instruction 18410 is another example of the GDT responding positively to the market, which identified this as a duplicate tax for real estate entities, a withholding tax obligation in this case on both the lessee and sub-lessee on the same exact space,” said Anthony Galliano, CEO of Cambodian Investment Management.  
“Under this instruction, the real estate company is still required to withhold the 10 percent tax on the rental payment to their lessor.  
“However, when the registered real estate company subleases to another registered taxpayer, the sub-lessee will no longer be required to withhold 10 percent tax on the sublease with the real estate company, provided a VAT invoice is issued,” added Mr. Galliano.
“As the market demand for property management companies is growing, and given the supply of offices coming to market, this clarification is supportive of the industry as it simplifies the tax situation between two registered taxpayers in a subleases to just VAT.”  
The new instruction has apparently been met with confusion in the industry thus far.
Kim Heang, president of the Cambodian Valuers and Estate Agents Association, urged the GDT to create a forum and invite real estate agency owners to clarify and explain what this new directive entails and what it can do for the sector.
“We don’t have any objection to the directive as the government wants to improve tax collection,” he said. “In my view, the general department of taxation should hold a public forum and invite all real estate agents so they know their tax obligation. I think it’s the best way as many don’t know much.”

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