The General Department of Taxation (“GDT”) issued Instruction No. 19116 GDT dated 20 June 2025, providing detailed guidance on the tax treatment of members of the board of directors and company directors working in Cambodia.
The Instruction clarifies how the compensation of directors – whether paid domestically or offshore – is classified, either as salary subject to Tax on Salary (“ToS”) or as services subject to Withholding Tax (“WHT”). The guidance reflects Cambodia’s application of substance-over-form principles, particularly in the context of cross-border personnel arrangements.

Background
The previous tax framework was largely silent on the tax obligations of board members who did not receive payment from a Cambodian entity for their directorial duties. In practice, this led to inconsistent treatment, including cases where tax auditors imputed a salary to directors and imposed ToS and penalties where no payment had been recorded. Instruction No. 19116 GDT, issued under the Prakas on Tax on Salary and Fringe Benefits Tax (Prakas No. 575 MEF.P.GDT dated 19 September 2024) and Articles 25 and 26 of the Law on Taxation, addresses these ambiguities.

1. Tax on Salary (Director as Employee)
Board members or directors who engage in employment activities in Cambodia that meet the “employer-employee” relationship criteria under Article 4 of Prakas No. 575 are subject to ToS in Cambodia. This applies regardless of where the salary is paid and regardless of whether the individual holds a work permit. Critically, this includes individuals seconded from an overseas parent company or head office to serve as board members or directors of the Cambodian company.

An individual is considered an employee, and subject to ToS, if their employment status satisfies at least two of the following criteria:
– The individual bears no risk of non-payment for their work, provided they attend the designated workplace and perform the tasks specified in an employment contract (oral or written);
– The individual is not able to determine the time and place for performing their work; and
– The individual is not required to invest capital to purchase the tools or equipment used in performing their duties.

For resident directors, both Cambodian-sourced and foreign-sourced salary is subject to ToS. For non-resident directors, only Cambodian-sourced salary is subject to ToS.

2. Withholding Tax (Director as Service Provider)
Board members or directors who do not meet the employment relationship criteria, and who perform services for the Cambodian company as non-employees, are treated as providing services to the company. Payments for such services are not subject to ToS, but instead to WHT in accordance with Articles 25 and 26 of the Law on Taxation. This applies to resident and non-resident individuals performing independent work for a company in Cambodia, with or without a work permit.

3. Exemption from Tax on Salary
Board members or directors are exempt from ToS where all of the following conditions are met:
– They are registered only in the company’s articles of incorporation and patent tax certificate, without an active management role in Cambodia;
– They only attend occasional board or shareholder meetings; and
– They do not receive a salary from the company in Cambodia.

Implementation Considerations
Enterprises should review the tax classification of their board members, company directors, legal representatives, and secondee appointments to ensure the correct application of ToS or WHT. Misclassification may expose the company to non-compliance penalties. Particular attention should be paid to directors seconded from an overseas parent company, as ToS may apply even where the salary is paid entirely outside Cambodia and the director does not hold a Cambodian work permit. For resident directors receiving foreign-sourced salary on which tax has been paid in their home country, a foreign tax credit may be available to offset Cambodian ToS, subject to the limit of the tax paid overseas.

For Assistance
Enterprises with board members or directors seconded from overseas, or with cross-border personnel arrangements, should consult with their legal and tax advisors to review their current arrangements against Instruction No. 19116 GDT and ensure correct classification and compliance.