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Under Cambodian Labour Law ("Labour Law"), there are two types of employment contracts, being the undetermined duration contract ("UDC") and fixed duration contract ("FDC"). On 17 May 2019, the Ministry of Labour and Vocational Training issued Guideline No. 050/19 LV/N.MLVT concerning the determination of the two types of employment contracts ("Guideline").
According to the Guideline, an FDC is (i) a written employment contract (ii) made for a specific duration not exceeding 2 years and (iii) specifies commencement date and ending date. An FDC can be renewed for one or more times, so long as such renewed period does not exceed 2 years. Therefore, the longest period of an FDC, including both the first FDC’s period and renewed period(s), is 4 years.
The Guideline has also clarified that at least one month break in between FDCs is required to maintain the FDC status of the contracts; otherwise, the subsequent FDC shall be considered as a renewal of the former FDC which, together, shall form a UDC. However, such break condition does not apply if the subsequent FDC is made as an employment contract (i) to substitute the work of a temporarily absent employee; (ii) for a seasonal work; and (iii) for an occasional increase of work or unusual activities of the company as stated in Article 67.3 of the Labour Law. The Guideline also re-emphasizes Article 67 of the Labour Law on the exception to the "specified date" requirement. An FDC is allowed to have an "unspecified date" if such contract is made for the same three reasons mentioned above. However, the Guideline has clarified that the "unspecified date" exception is only extended to "unspecified expiry date".
The Ministry of Economy and Finance issued Prakas No. 372 on 5 April 2019 ("Prakas") concerning the revised implementation of withholding tax ("WHT") on dividend distributions. The Prakas replacing Prakas No. 518 dated 5 May 2017 aims to provide clarity and guidance on the application of the WHT regulations on dividend distributions from resident taxpayers in Cambodia to their non-resident shareholders.
With reference to the Law on Taxation ("LoT"), a dividend that is distributed from a resident taxpayer to a non-resident taxpayer will be subject to a 14% WHT on the amount paid. According to Article 6 of the Prakas, if the conversion of retained earnings to share capital is correctly processed, it will not be considered as a distribution of dividends, and therefore not subject to WHT. The conversion is treated as correctly processed when a taxpayer (i) has a resolution of the Board of Directors approving the conversion, and (ii) has any evidence to show that the change in share capital has been approved by competent authorities including the Ministry of Commerce.
The Prakas also provides clarity on sale of shares and distribution of equity or capital, specifying that in the event that there is a transfer of any part or all of the equity shares or capital, any retained earnings attached to the share transfer shall be deemed as having been distributed as dividend regardless of whether or not it has previously been converted into capital. Moreover, any reduction of the capital shall be deemed as a distribution of dividend to the maximum extent of the amount of the retained earnings.
Please note that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only
intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice.
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