Cambodia Introduces 150% Tax Deduction for R&D, Skills, and Factory Upgrades

Phnom Penh, Cambodia – Cambodia has rolled out enhanced investment incentives, allowing qualified projects to deduct 150% of eligible expenses from their taxable income. This initiative aims to significantly spur research and development (R&D), workforce training, and the modernization of factories, according to government officials. Lim Visal, Deputy Secretary-General of the Cambodian Investment Board, highlighted the new measure during a forum on tax obligations for Cut, Make, Trim (CMT) and Free on Board (FOB) enterprises at the General Department of Taxation. He stated that the incentives, provided under the Law on Investment and related regulations, are designated for Qualified Investment Projects (QIPs) involved in priority sectors. Eligible costs encompass investments in research and innovation, human resource training, worker housing and childcare facilities, transportation, machinery upgrades, and waste treatment facilities. The scheme permits QIPs to deduct qualifying expenses at 150% of their actual value when calculating taxable income, thereby supporting firms investing in productivity, technology, and improved working conditions. To qualify for these incentives, enterprises must meet specific requirements, including registration with the Council for the Development of Cambodia (CDC) or provincial investment sub-committees, and maintaining accurate records to validate genuine economic activities. Visal also elaborated on the distinctions between CMT and FOB operational models. CMT factories typically provide manufacturing services using inputs supplied by buyers, whereas FOB producers manage the entire process from raw material procurement to manufacturing and shipment. Further details were provided on the criteria for QIP status and import incentives, under which customs duties, specific tax, and VAT on eligible imports may be borne by the state. Officials emphasized that these clarifications are intended to assist businesses in correctly applying investment and tax regulations while effectively leveraging incentives designed to bolster Cambodia’s industrial capacity. Source: Kampuchea Thmey English