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Tax depreciation and accounting depreciation

Cambodia Tax and Accounting Depreciation

Cambodia Tax depreciation may be different from accounting depreciation. Accounting depreciation expenses are based on accounting policy of each company while tax depreciation expenses are no option. For example, Company ABC and Company XYZ  accounting depreciation​​ ​​​using straight line method for building are 10% and 20% respectively. Both companies have option for accounting policies ( 10%, 20%) but tax law for building deprecation is no option, so based on tax law, depreciation for building is 5% per year using straight line method, and all companies must apply this rate 5%.

Tax depreciation methods for tangible fixed assets / non-current assets have two types: straight line and declining balance (reducing balance). According to tax, fixed assets are full depreciation in year purchased, but no depreciation in year disposal. For example, Company Phnom Penh HR purchased computers on 1 March 2017, so company used computers 10 months as of 31 December 2017, but tax depreciation allowed you depreciate computers 12 month (full year depreciation). If all computers are sold on 20 February 2020, so it is no tax depreciation for 2020 because it is disposal year.

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Tangible fixed asset are classified four classes/types for Cambodia Tax. Class 1 is used straight line and other classes (Class 2, Class 3, and Class 4) are used declining balance (reducing balance). All classes are as follows.

Class 1

It is building such as admin building or warehouse, and class 1 is 5% depreciation rate using straight line, so useful life is 20 years.

Depreciation expense for building = cost of building x 5% = cost of building / 20.

For example, ABX Company constructed admin building cost $100,000 and completed on 15 April 2017.

Depreciation expense for building 2017 = $100,000 x 5% = $100,000/20=$5,000.

Class 2

Computer, computer software is 50% depreciation rate using declining balance. Please note that 50% DOES NOT mean that they are useful life 2 years because it is declining balance method.

Depreciation expense at Year t= NBV ( t-1) x 50%. Where NBV=net book value.

For example, Computers of $4,000 are purchased on 12 March and 30 September 2016.

Tax Depreciation expense year 2016 (Y1) = NBV(Y0) x 50% = $4,000 x 50%=$2,000. NBV (Y1)=$4,000-$2,000=$2,000.

Tax depreciation expense year 2017 (Y2) = NBV (Y1) x 50%=$2,000 x 50% = $1,000.NBV (2)=$2,000-$1,000=$1,000.

We can find tax depreciation year 2018, 2019, 2020 etc.

Class 3

Office equipment, office furniture, car is 25% depreciation rate using declining balance. Office equipment is scanner, copy machine, printer, air conditioner etc.

Class 4

Other tangible assets are 20% depreciation rate using declining balance. Other tangible assets are sewing machine, generator, plant etc.

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