In order to make clear the tax treatment of payments given to board members or business directors, specifically in determining whether such payments are subject to salary tax or withholding tax on services (WHT), the General Department of Taxation (GDT) published Instruction No. 19116 GDT on June 20, 2025. Whether or if the director's or board member's actions are deemed employment activities under Cambodian law will ultimately determine the tax ramifications.

Employment Activities: Tax on Salary
Board members and directors of the company will be liable for the following salary taxes if their actions are deemed to be employment activities:
All income, regardless of where it is earned, is subject to taxation in Cambodia for resident employees since they are subject to worldwide income taxation. The tax is levied at progressive rates between 0% and 20%. As a result, the full compensation is still taxable in Cambodia even if the employee is seconded to the country from a foreign parent business and the salary is paid outside of Cambodia.
Only salaries earned in Cambodia are subject to taxation for non-resident workers, and a flat rate of 20% is used.

A person is considered an employee if they fulfill at least two of the four requirements listed below:

• If the work is done as agreed, there is no chance of nonpayment.
• No freedom to choose where or when to complete the assignment.
• There is no need to spend money on equipment purchases.
• One employer is given exclusive use of the service.

The instruction also lists specific situations in which salary tax is not applicable, especially when directors or board members do not hold management positions, are not paid by the Cambodian company, or only occasionally attend board or shareholder meetings. In these situations, the parent firm may impose the service costs listed below.

Activities Not Related to Employment: Transfer Pricing and Withholding Tax

Service fees must be collected from the resident entity if the activities are not considered employment and the directors or board members provide services in Cambodia (for example, as non-resident board members). These costs are subject to:

• 14% WHT for non-residents whose income comes from Cambodia, or
• 15% WHT for service providers who live in Cambodia (such as advising fees or board meeting participation fees).

Payments paid by the Cambodian company (or via management fee from the international parent) will also be subject to transfer pricing restrictions in cases where services are rendered by a non-resident (for example, a foreign director nominated by a parent company abroad). Therefore, for the purposes of comparability analysis, some tests, including the benefit test, duplication test, and shareholder activities test, among others, may need to be conducted.

Scope of Instruction – Limitations and Other Tax Implications

It is crucial to remember that Instruction No. 19116 GDT only addresses how directors' or board members' services are classified for the purposes of applying either salary tax or service withholding tax. It does not, however, completely address further relevant tax issues, including:
1. Reverse-charge VAT

This type of VAT may be imposed when cross-border services are provided, especially if the service provider (such as board members or company directors) does not physically deliver the services in Cambodia.

2. Permanent Establishment (PE)

If the actual operations carried out go beyond the basic responsibilities of board members or company directors, the physical presence of one or more employees of a non-resident company in Cambodia may result in the establishment of a fixed place of business in Cambodia. Therefore, in line with the general guidelines under the Law on Taxation and any double tax treaties, it may be determined on an individual basis whether the actions of workers of a non-resident corporation qualify as PEs.