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Withholding Tax on Non-Resident: Example for Consulting Service

Withholding Tax on Non-Resident: Example for Consulting Service

ABC Company hired a consultant from foreign country to assist with a new special project in Cambodia for four months starting from 1 August 2018. According to the consulting agreement, ABC  Company is required to pay a total consultant fee of $ 20,000 for the four-month period in advance.The consultant had never been to Cambodia before.

For accounting policy,ABC Company recorded this amount as prepaid expenses ( asset type) and amortised it monthly as consulting service expense in the monthly income statement.

Assumption for August 2018 :

– TheToS exchange rate is USD1=KHR4,100.

– The average exchange rate is USD1=KHR4,000.

Required:

  1. Calculate withholding tax liabilities for August 2018 if any.
  2. Make Accounting record and any adjustment for August 2018. 

Solution

1.Withholding Tax 

withholding tax based on recorded cash or accrual basis  for tax purpose, so withholding tax for non-resident supplier at 14% tax rate.

Withholding tax = 20,000 x 14% =$2,800 or $2,800 x 4,000 = 11,200,000 KHR 

2.Accounting Record 

When payment, accounting record as follows.

Dr. Prepayment for Consulting Service..20,000

Cr. Cash……………………………………………..17,200

Cr. Withholding tax payable…………………2,800

Adjustment at end of August.

Dr. Consulting Service expense…….5,000 ( 20,000/4)

Cr. Prepayment of Consulting Service….5,000


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