Withholding Tax on Interest Payment by Resident Bank or Saving Institution Taxpayers
This withholding tax is applied for local banking sector in Cambodia.
When you deposited (lent) to Bank in Cambodia, so it means that you are saver or investor while bank is borrower. You will get interest income while bank in Cambodia will pay interest expense to you. For Cambodia Tax Law, bank cannot give you all (gross) interest incomes that you earned, so you will get only net interest income (gross interest income – withholding tax on interest) because Bank will withhold tax on interest before interest payment to you.
There are two kinds of withholding tax on interest based on types of your deposit in Bank. If you deposited or lent bank as fixed term deposit account, Bank will withhold tax 6% on interest payment. But if you deposited or lent bank as Non-Fixed Term Saving, Bank will withhold tax 4% on interest payment.
I.Withholding Tax on Fixed Term Deposit Accounts (6%)
If you or company deposited or lent Bank as fixed term deposit account, for example, 1 month, 2 month, 3 month…etc., so you or company cannot withdraw your principal before maturity date otherwise penalty. For example, assume that you deposited $10,000 for 3 months to Bank XYZ in Cambodia; you cannot withhold your principle before 3 months. This case is fixed term deposit account and withholding tax on interest payment is 6%.
Example 1:
ABC Company deposited 20,000$ to XYZ Bank in Cambodia. Bank gives rate 0.7% per month and 6 month with fixed term deposit.
Required:
- Calculate withholding tax on interest that XYZ Bank will withhold tax from ABC Company before interest payment.
- Make accounting record for ABC Company.
- Make accounting record for XYZ Bank.
Solution:
1.Withholding tax (WHT) on interest payment
Interest = $20,000 x 0.7%=$140
WHT = $140*6%=$8.4
Withholding tax on interest is $8.4
2.Accounting record for ABC Company
Dr. Interest receivable………………131.6
Dr. WHT credit……………………………8.4
Cr. Interest income………………………..140
3.Accounting record for XYZ Bank
Dr. Interest expense………………..140
Cr. Interest payable…………………131.6
Cr. WHT payable……………………..8.4
II.Withholding Tax on Non Fixed Term Saving (4%)
If you or company deposited or lent Bank as Non Fixed Term Saving account, so you or company can withdraw your principal anytime and it is different from Fixed Term Deposit Accounts . Withholding tax on interest payment for Non Fixed Term Saving account is 4%.
Example 2:
During January 2018, ABC Company deposited $10,000, $5,000, $3,000 and $2,000 to XYZ Bank in Cambodia as Non Fixed Term Saving (saving account). Assume interest at end of January is $20.
Required:
- Calculate withholding tax on interest that XYZ Bank will withhold tax from ABC Company before interest payment.
- Amount that ABC Company will get from XYZ Bank.
- Total Amount that XYZ Bank will pay.
Solution:
1.Calculate withholding tax on interest that XYZ Bank will withhold tax from ABC Company before interest payment.
Interest = $20
WHT = $20 x 4% = $0.8
Withholding tax on interest payment is $0.8.
2.Amount that ABC Company will get from XYZ Bank.
Amount = $20-$0.8=$19.2
ABC Company will get cash of $19.2 from XYZ Bank.
3.Total amount XYZ Bank will pay.
Amount XYZ Bank will pay ABC Company of $19.2.
Amount XYZ Bank will pay Tax Admin of $0.8.
Total payment is $20.