Withholding tax on service for resident physical person
Any resident taxpayer carrying on business and who makes any payment in cash or in kind to a resident physical person, so taxpayers need to withhold tax before payment if resident physical persons provide services to taxpayers. This tax is withheld on service, but not goods or product.
Example 1
Mr. A is Khmer, his current job is cleaner for ABC Company’s office, but he is not employee of ABC and he charged $200 from ABC for his job. $30 among $200 is cleaning service while $170 is material.
Required:
1. Calculate withholding tax if invoice issued by Mr.A mentioned as cleaning service of $30 and clearing material of $170.
2. Calculate withholding tax if invoice issued by Mr.A mentioned as cleaning service of $200.
Solution:
1. Invoice is separated cleaning service and cleaning material
Mr. A is Khmer, so he is resident. Mr. A is person (not company), so he is called physical person.
ABC Company is real regime company.
Resident physical person makes services to company, so company will withhold tax on service.
$30 is charged on cleaning service and $170 is charged on material (goods), so materials are not subject to withholding tax.
Finally, withholding tax = $30 x 15% = $4.5
Note:
Payer ( ABC Company) withheld tax from payee ( Mr. A).
2.Invoice is not separated cleaning service and cleaning material
If Mr. A issued invoice but he did not separate how much cleaning service and how much cleaning material, so he may face risk of withholding tax for full amount. Withholding tax may be $30 ($200 x 15%).
In practice, some cases payees do not allow payers withheld tax from them, so it means that payers will pay withholding tax on behalf payees. Withholding tax paid on behalf payees is non-deductible expense for tax on profit.
Example 2
According example 1, we assume the following cases:
Case 1: Mr. A does not allow ABC Company withholds tax from him.
Case 2: Mr. A agreed to receive amount after withholding tax.
Required:
For each case, solve the following problems:
1. Find withholding tax
2. Amount Mr.A will receive from ABC.
3. Amount ABC will pay for each case.
Solution:
1. Both cases withholding tax is $4.5($30 x 15%)
2. Case 1: Mr. A will receive full amount $200 from ABC Company.
Case 2: Mr.A will receive amount $195.5 ( $200-$4.5)
3. Case 1: ABC will pay amount $204.5 ($200 + $4.5), $200 paid to Mr.A while $4.5 paid to tax department.
Case 2: ABC will pay amount $200, $195.5( $200-$4.5) paid to Mr.A while $4.5 paid to tax department.
How about payee as real regime company?
Withholding tax is subject to physical person, but not company. But in practice, if payees as company do not issue proper tax invoice, so payers need to withhold tax from them.
Example 3
XYZ provides consulting service and charged $2,200 from ABC Company. XYZ issued invoice of $2,200 without separating amount before VAT ( $2,000) and VAT ($200).
Required:
Calculate withholding tax if any.
Solution:
In this case, XYZ issued improper tax invoice, so ABC will withhold tax from XYZ.
Withholding tax = $2,200 x 15%=$330.