Taxation of Collective Investment Schemes

While the Securities and Exchange Regulator of Cambodia (SERC) has successfully established a robust operational framework for the fund management industry—most notably through Prakas No. 035 on the Issuance of Fund Units of Collective Investment Scheme (CIS), the taxation regime for these vehicles remains critically underdeveloped. A significant disparity now exists between the regulatory treatment of Trusts and Collective Investment Schemes. The General Department of Taxation (GDT) has recently provided necessary clarity to the trust sector by issuing Prakas No. 192 on Rules and Procedures on Taxation of Trusts, which outlines clear tax liabilities for trust operations. However, no equivalent regulation has been issued for CIS. Consequently, fund management companies and investors are left without explicit guidance on whether funds will be treated as distinct taxable entities or as tax-neutral “pass-through” vehicles, creating a disconnect between the SERC’s promotion of the sector and the fiscal reality of operating it. 

The absence of a dedicated tax framework for CIS creates an imminent risk of double taxation, which renders the entire Cambodian fund market uncompetitive. Without “pass-through” status, profits could theoretically be taxed first at the fund level (Corporate Income Tax) and again at the investor level (Withholding Tax or Capital Gains Tax) upon distribution. This uncertainty paralyzes the industry; despite having licensed Fund Management Companies and a legal mechanism to launch funds, managers are hesitant to mobilize capital, and institutional investors are deterred by the inability to accurately forecast returns. As a result, capital that could be channeled into the Cambodian real sector through professionally managed funds remains sidelined or moves to jurisdictions with established tax neutrality for investment vehicles, effectively nullifying the progress made by the SERC’s regulatory advancements.