Cambodia and U.S. Expat Taxes

The kingdom of Cambodia is famous for Angkor Wat, a temple complex that is the largest religious monument in the world. Angkor Wat attracts visitors from all over the world. Aside from tourism, Cambodia has a fast-growing textiles, agriculture, and construction. The country has had one of the best economic records in Asia, with economic growth averaging 6 percent over the past 10 years.

If you are planning to become a U.S. expat in Cambodia, or have been one for a while, it’s important to know the tax laws of the country and the potential impact on your U.S. tax return. Expat taxes can get complicated. Fortunately, we have outlined the key points below.

Photo by: ecperez

Taxation in Cambodia

Let’s start by understanding who is required to pay taxes in Cambodia. Residents are subject to taxes on worldwide income. Foreigners who have lived in the country for 183 days or more in a 12-month period are considered residents for tax purposes. Non-residents are taxed only on Cambodia-source income.

The applicable income tax rates are:

• Employment Income: Progressive up to 20%;
• Taxation on Interests: Same as employment income;
• Taxation on Dividends: Same as employment income;
• Taxation on Capital Gains: Same as employment income.

Cambodia and the U.S. do not have a social security tax agreement in-place. Therefore, certain U.S. expats will be required to pay into both social security programs.

How Living in Cambodia Impacts US Taxes

As a U.S. citizen or permanent resident (Greencard), you are required to file U.S. taxes even if you live in Cambodia. Plus, if you have assets in foreign financial accounts (e.g., foreign banks), there are informational reports you may be required to file. For example, U.S. Expats Living in Cambodia with $10,000 or more in foreign banks must file the FBAR (now known as FinCen 114).

Fortunately, the U.S. government provides various forms of tax relief that can lower or eliminate U.S. tax obligations

• The Foreign Earned Income Exclusion – It allows you to exclude a certain amount of income earned outside the U.S.
• The Foreign Housing Exclusion/Deduction – This one relates to additional income that can be excluded for household-related expenses tied to living abroad.
• The Foreign Tax Credit – It allows you to offset foreign taxes paid against U.S. tax obligations.

In most cases, the foreign earned income exclusion is preferable to the foreign tax credit if you live in a country with a lower tax rate than the U.S. (assuming your income is not above the applicable threshold). However, it’s a good idea to speak with an expat tax specialist to discuss the best application of these tax reliefs.

FATCA and Cambodia

The U.S. government is increasingly interested in knowing about the foreign assets held by its citizens and residents. As a result, it has been busy inking deals with other countries whereby foreign financial institutions (FFIs) will be required to:

• Identify accounts of U.S. persons;
• Report certain information to the IRS regarding those accounts;
• Withhold a 30% tax on certain payments to non-participating FFIs and account holders unwilling to provide the required information.

As of the publication of this article, roughly 80 countries have either signed intergovernmental agreements with the United States or are in discussions. It is important to know that Cambodia is in active discussions with the U.S. to establish a FATCA agreement.

If you have any questions regarding your U.S. expat taxes, contact us today. We are here to help.