MARKET ENTRY
GUIDE TO
CAMBODIA
7 March 2014
TABLE OF CONTENTS
MARKET ENTRY GUIDE ................................................................................................................................... 4
1.
INTRODUCTION ...................................................................................................................................... 5
2.
KEY OPPORTUNITIES ........................................................................................................................... 5
THE REGIONS SIMPLEST COMPANY SET UP .................................................................................... 5
TAXATION AND CUSTOMS DUTY INVESTMENT INCENTIVES .................................................... 5
NO FOREIGN EXCHANGE RESTRICTIONS ......................................................................................... 6
LEAST DEVELOPED COUNTRY (LDC) STATUS ................................................................................. 6
CHEAP WORKFORCE / BETTER LABOR PROTECTION.................................................................. 6
ENFORCEMENT OF JUDGMENTS AND PREDICTABLE LAW ........................................................ 6
3.
COMPANY SET UP .................................................................................................................................. 7
3.1.
FOREIGN INVESTMENT RESTRICTIONS ................................................................................ 7
3.2.
CORPORATE FORMS ..................................................................................................................... 7
3.3.
BUSINESS FORMS ........................................................................................................................... 8
3.4.
REGISTRATION TIMEFRAME..................................................................................................... 8
3.5.
LICENSING........................................................................................................................................ 8
3.6.
OFFICIAL GOVERNMENT FEES ................................................................................................. 9
3.7.
RISK .................................................................................................................................................... 9
3.8.
DISPUTE RESOLUTION ............................................................................................................... 10
4.
INVESTMENT INCENTIVES ............................................................................................................... 10
4.1.
WHO QUALIFIES ........................................................................................................................... 10
4.2.
WHAT INCENTIVES ARE AVAILABLE? ................................................................................. 11
5.
FOREIGN EXCHANGE AND CAPITALIZATION ........................................................................... 12
5.1.
FOREX RULES ................................................................................................................................ 12
5.2.
MINIMUM CAPITAL ..................................................................................................................... 12
5.3.
LOCAL BANK ACCOUNT ............................................................................................................ 13
6.
JOINT VENTURES ................................................................................................................................. 13
7.
FINANCING THE PROJECT ................................................................................................................ 13
7.1.
BANKING ......................................................................................................................................... 13
7.2.
PROJECT FINANCE ...................................................................................................................... 14
7.3.
SHAREHOLDER LOANS .............................................................................................................. 14
7.4.
SECURITY ....................................................................................................................................... 14
8.
TAXATION .............................................................................................................................................. 15
9.
ACCESS TO LAND RIGHTS................................................................................................................. 15
10.
PERSONNEL........................................................................................................................................ 16
10.1.
FOREIGN EMPLOYEES, QUOTAS, WORK PERMITS ...................................................... 16
10.2.
LOCAL LABOR: CONTRACTING AND TERMINATION .................................................. 17
PAGE 2
10.3.
ORGANIZED LABOR ................................................................................................................ 17
10.4.
LABOR ARBITRATION COUNCIL ........................................................................................ 18
11.
INTELLECTUAL PROPERTY ......................................................................................................... 19
11.1.
PATENT ........................................................................................................................................ 19
11.2.
TRADEMARK ............................................................................................................................. 19
11.3.
COPYRIGHT ............................................................................................................................... 19
12.
PROFIT REPATRIATION TOOLS .................................................................................................. 20
13.
PROJECT EXIT................................................................................................................................... 20
13.1.
LIQUIDATION ............................................................................................................................ 20
13.2.
TRANSFER OF BUSINESS........................................................................................................ 20
13.3.
TRANSFER OF QIP BUSINESS/ASSETS................................................................................ 21
13.4.
MERGER ...................................................................................................................................... 21
PAGE 3
MARKET ENTRY
GUIDE
PAGE 4
The purpose of this guide is to assist first-time investors in Cambodia. It highlights opportunities and identifies
pitfalls for the new investor. Cambodia is a welcoming environment for foreign capital, but proper structuring
and a thorough understanding of local law and regulation is necessary to achieve the meaningful growth and
substantial return on investment that the Cambodian market can provide.
1.
INTRODUCTION
Cambodia is booming. This Southeast Asian country of 14 million is rapidly transforming into an economic
hotspot and is competing with its regional rivals to be one of the leading destinations for foreign investment in
Southeast Asia. While its larger neighbors get more headlines, the Kingdom of Wonder is quietly leading in
growth of foreign direct investment (FDI) amongst all member states in the Association of Southeast Asian
Nations (ASEAN), jumping 73% from US$900 million in 2011 to US$1.56 billion in 2012.1
Despite the common focus on new markets in Myanmar or more established markets in Vietnam and Thailand, it
is Cambodia that looks to present a viable alternative for long-term stable growth opportunities for foreign
investors.
The leading sector in Cambodia for foreign investment remains light manufacturing, particularly garments and
shoes, although construction and tourism have also made gains. The government has worked diligently to make
it easier for foreign investors to gain access to real property and capital and has proven a willing and reliable
partner for foreign investors.
While the Cambodian economy remains dependent on low-skilled, low-wage labor, the first seeds of more
complex industries are already germinating. In addition, Cambodia’s tremendous agricultural potential remains
largely untapped and low levels of economic development in much of the country point towards sustained
growth in the domestic market for the foreseeable future.
With the recent 2013 election behind it, the government is now looking to further develop reforms and tax
incentives for incoming FDI.
2.
KEY OPPORTUNITIES
THE REGION’S SIMPLEST COMPANY SET UP
In Cambodia, a foreign investor can set up a wholly foreign-owned company in a matter of weeks, with a total
cost of only a few thousand dollars. With a minimum initial capital requirement of only US$1,000 and a
streamlined registration process, Cambodia is a regional leader in ease of company establishment (see Section
3).2
TAXATION AND CUSTOMS DUTY INVESTMENT INCENTIVES
The opportunity to register as a Qualified Investment Project (QIP) provides investors in some sectors with
attractive tax incentives, customs exemptions and an expedited one-stop-shop registration process (see Section
4).
1
United Nations World Investment Report 2013, United Nations Conference on Trade and Development.
The World Bank Group ranks Cambodia a dismal 184 th of 189 for ease of starting a business. For foreign investors acting
independently, the process can be confusing and challenging. However, if a local advisor is used, foreign investors can
register a Cambodian company with minimal hassle and cost. Therefore, while Cambodia’s formal process may be complex,
in practice, registration is straightforward.
2
PAGE 5
NO FOREIGN EXCHANGE RESTRICTIONS
There are no restrictions on foreign capital in Cambodia. The local economy is based on the US dollar and there
are only minimal banking regulations for foreign investors. As a matter of practice, significant investments are
nearly always made in US dollars (see Section 5).
LEAST DEVELOPED COUNTRY (LDC) STATUS
The United Nations has granted Cambodia LDC status, providing favorable trade conditions with the United
States, European Community and other significant international markets. As a result, Cambodian companies can
export to many of the world’s biggest markets without paying import taxes or relying on trade negotiations
between the Cambodian and target market governments.
CHEAP WORKFORCE/BETTER LABOR PROTECTION
Cambodia offers some of the cheapest labor in the region, with only Myanmar and Bangladesh offering
nominally lower wages. Outside of the garment sector, Cambodia has no minimum wage. Unlike Myanmar and
Bangladesh, Cambodia has a well-developed labor law with a functional and well-supported labor dispute
resolution mechanism. As a result, Cambodia offers inexpensive labor with comparatively low reputational risk
(see Section 10).
ENFORCEMENT OF JUDGMENTS AND PREDICTABLE LAW
Cambodia is a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral
Awards. In addition, the Civil Code of Cambodia allows for the unfettered selection of foreign arbitration in case
of disputes between contracting parties (see Section 3.8).
IMPENDING ASEAN INTEGRATION
ASEAN has set a deadline of 2015 for the commencement of the ASEAN Economic Community (AEC). This
will expand markets, improve logistics and stands to significantly benefit Cambodia.
The Cebu Declaration accelerated the integration of the AEC to ensure a “single market and production base”
in the ASEAN region. For foreign investors, this presents an excellent opportunity to take advantage of
Cambodia as a low-cost jurisdiction, strategically located within a large free-market zone.
The AEC contains five core elements: (i) free flow of goods; (ii) free flow of services; (iii) free flow of
investment; (iv) free flow of capital; and (v) free flow of skilled labor. Additional priority areas include
facilitating movement of business persons and skilled labor, stronger ASEAN institutional mechanisms and
the promotion of the food, agriculture and forestry sectors.3 With the recent crackdown on customs evasion
and the resulting rise in import/export costs, open ASEAN borders have taken on increased relevance in
Cambodia.
From the perspective of the foreign investor, the AEC means larger markets, improved access to production
inputs and improved financial and physical infrastructure. With some of the least expensive labor and land in
ASEAN, Cambodian is poised to be one of the greatest beneficiaries of the AEC. Industries in the best
position to gain from the AEC include garments and light manufacturing, agriculture and financial services.
 With the free flow of goods, services and labor, manufacturers already located in ASEAN will be able
to move production to Cambodia to take advantage of the low-cost labor. Raw and semi-processed
material could be imported to Cambodia for low-cost processing, and then returned for finishing, all
without customs restrictions.
 For foreign investors not currently operating in ASEAN, Cambodia will become an even better
destination for investment. The low cost of labor, real estate and living costs ensure that businesses
operating out of Cambodia can keep costs low, while drawing on expertise and resources from
throughout ASEAN.
3
Roadmap for an ASEAN Community 2009-2015, Jakarta: ASEAN Secretariat, April 2009.
PAGE 6
3.
COMPANY SET UP
Highlights:
 Few foreign investment restrictions
 100% foreign company ownership allowed
 Minimum initial capital of US$1,000
3.1.
FOREIGN INVESTMENT RESTRICTIONS
Cambodia has few restrictions on foreign investment. Foreign investors are protected under Article 8 of the Law
on Investment, which states, “A foreign investor shall not be treated in any discriminatory way by reason of the
investor being a foreign investor, except in respect of land as set forth in the Land Law.”4
There are very few limitations on foreign investment however.
The most relevant restrictions are:
3.2.

Land ownership: The Constitution of Cambodia
prevents foreigners from owning land.5 However,
there are options for foreigners to exercise effective
control over land, as detailed in Section 9. These
methods of land holding are well understood and are
frequently used.

Protection of public interest: There are restrictions
on foreign investment relating to the protection of
the public interest, although they are unlikely to
matter to the average investor.6 The industries which
are not open to 100% foreign investment are listed in
the sidebar.

Foreign transfer of funds: Under the Law on
Foreign Exchange in Cambodia, any transfer of
funds equal to or in excess of US$10,000 is subject
to prior declaration to the National Bank of
Cambodia.7 In practice, the local banks only require
a declaration form to be completed without formal
application and approval from the National Bank of
Cambodia.
Restrictions
ownership
on
100%
foreign
The following are the only investment
sectors that are closed to 100% foreign
investment:
 Production/processing
of
psychotropic substances and narcotic
substances
 Production of poisonous chemicals,
agricultural
pesticides/insecticides
and other goods using chemical
substances
prohibited
by
international regulations or the World
Health Organization that affect
public health and the environment
 Processing and production of electric
power by using waste imported from
a foreign country
 Forestry exploitation businesses
prohibited by the Forestry Law
CORPORATE FORMS
Foreign investors have a number of options when it comes to establishing a presence in Cambodia. For those
wishing to invest from an offshore position, it may be possible to identify a suitable pre-existing vehicle within
the country. Open foreign exchange rules and the lack of limitations on foreign investors make this a manageable
option.
4
Law on Investment, amended by Royal Decree No. NS/RKM/0303/009 (2003).
Article 44 of the Constitution of the Kingdom of Cambodia.
6
Sub-Decree on the Implementation of the Amendment to the Law on Investment of the Kingdom of Cambodia No. 111
ANK/BK (2005).
7
Foreign Exchange Law, CS/RKM/0897/03 (1997).
5
PAGE 7
Any foreigner that is “doing business” in Cambodia must be registered with the Ministry of Commerce (MOC).
The definition of “doing business” is so broad that it is likely to capture almost any business activity.8 Should a
foreign investor be found to be “doing business” in Cambodia without having registered, they will be subject to
penalties.
Under the Law on Commercial Enterprises (LCE), foreign investors have three options when registering a
business:
REPRESENTATIVE Representative offices are prohibited from conducting most business activities and
consequently are rarely the best choice for foreign investors. They are often used as a
OFFICE
means of simply researching the market, building relationships and marketing. No
trading is permitted.
BRANCH OFFICE
Branch offices are allowed to conduct the same business as a subsidiary office. However,
branch offices are considered an extension of the parent company and as such, all
liability passes directly to the parent.
SUBSIDIARY
OFFICE
Subsidiaries have a separate legal personality with no pass-through liability to the parent
company and therefore liability can be ring fenced in Cambodia.
3.3.
BUSINESS FORMS
The vast majority of businesses will elect to form a private
limited company. Other options include:



Public limited companies (which are similar to
private limited companies, but with more
shareholders and less restrictive share sale options)
Publicly listed companies (see sidebar)
Partnerships
In practice, few public limited companies exist, while no
partnership has ever been registered under the LCE, and there is
only one publicly listed company on the Cambodian Stock
Exchange (CSX).
3.4.
REGISTRATION TIMEFRAME
Publicly listed companies
The CSX opened in 2011 and since that
time only one company has been listed.
While disappointing, the government has
made clear that it remains committed to
the success of the exchange, and has
provided facilitating legislation and tax
incentives.
The law on capital markets is well
developed with implementing regulations
and a system to accommodate listed
companies.
Several companies are
currently contemplating IPOs on the
CSX and it may be a significant
opportunity for the right investor in the
near future.
In practice, a company can be registered with the MOC within
14 days. Once registered with the MOC, registration is then
required with the General Department of Taxation (GDT) and
the Ministry of Labor and Vocational Training (MOLVT), which will take up to a further 60 days. If a specific
industry license is required, this timeframe may be longer.
Once the company is registered with the MOC, it can commence
trading after 14 days, except for importing and exporting, which
can only be undertaken after tax registration.
Banking and finance licenses
All banking, financial services and
financial leasing licenses are issued by
the National Bank of Cambodia (NBC).
3.5.
LICENSING
By law banking and related licenses are
easily obtainable through a defined
Cambodian licensing requirements are not onerous and may be
administrative process. In practice, the
easily addressed. Although most industries are subject to license
NBC maintains a high standard and only
qualified, experienced and well-funded
8
Doing Business is defined in the Law on Commercial Enterprises as applicants
renting office
thanlicenses.
a month,
arespace
likelyfortomore
receive
employing a person for more than a month, or “performing any other act thatHowever,
laws of thefor
Kingdom
of
Cambodia
authorized
qualified applicants, the
for foreign and legal persons.” (LCE Art 272).
licensing process is straightforward and
PAGE 8
transparent.
requirements, the process of obtaining the license is relatively straightforward.
If an investor applies to the Council for the Development of Cambodia (CDC) for Qualified Investment Project
(QIP) status, they receive the benefit of one-stop shop registration. The CDC will obtain all necessary licenses
and permits for the company, other than certain operating licenses granted by the relevant line ministry.9
There are a few industries with more challenging licensing requirements, although this is not a bar to foreign
investment. These industries are listed below.




3.6.
Telecommunications
Mining
Airlines
Power Production
OFFICIAL GOVERNMENT FEES
Companies can be formed under either the MOC or the CDC. Fees for CDC registration are substantially higher,
but CDC registration also allows the registrant to receive QIP investment incentives. In addition, before
commencing operations, companies must also register with the GDT and the MOLVT. Government fees are
generally predictable and manageable. However, the use of local counsel to liaise with government officials is
strongly recommended to ensure that all administrative requirements are met.
3.7.
RISK
For the savvy investor, Cambodia is a relatively low-risk jurisdiction. The government remains committed to
promoting foreign investment and has taken positive steps to provide a secure environment for investors. The
risk of expropriation is functionally nonexistent and the tax and legal frameworks are predictable.10The
government has recently been re-elected and is committed to attracting foreign investment and addressing any
matters of corruption.
9
Sub-Decree No. 111 ANK/BK (2005).
Law on Investment, Articles 8 and 9.
10
PAGE 9
3.8.
DISPUTE RESOLUTION
Cambodia’s commercial legal framework is based on the German
and Japanese civil law traditions. As a result, it is predictable,
reliable and straightforward. While the judicial system remains
undeveloped, foreign arbitration is a viable alternative.
In addition, Cambodia is a party to the New York Convention on
the Recognition and Enforcement of Arbitral Awards and allows
for enforcement of judgments. In practice, recognition and
enforcement of arbitral awards is a new concept, but may be a
viable option for foreign investors. At the time of printing,
petitions for the enforcement of foreign arbitral awards are
currently before the courts in Cambodia, but no final decisions
have been reached.
It is very common in Cambodia for the contracting parties to
select foreign arbitration with foreign arbitration rules, even if
contracting with the government. This is a popular option with
foreign investors, and remains highly recommended.
The Cambodian Arbitration Council
Cambodia is currently in the process of
developing
and
implementing
the
Cambodian Arbitration Council (CAC).
Once operational, this should provide a
reliable and efficient mechanism for
obtaining and enforcing arbitral judgments
in Cambodia. The CAC is supported
financially and technically by the Asian
Development Bank, the International
Finance Corporation and the Singapore
International Arbitration Centre.
Cambodia also boasts a well-developed
labor dispute resolution mechanism (the
Labor Arbitration Council) which is well
used and respected by both owners and
workers.11
INVESTMENT INCENTIVES12
4.
Highlights:
 One-stop shop for foreign investors
 Significant tax and customs duty incentives
 Special economic zones with one-stop customs processing and other incentives
To encourage foreign investment, Cambodia allows for specific projects to be registered as QIPs with the CDC.
The CDC provides a one-stop shop for foreign investors incorporating their business in Cambodia and provides
assistance with the registration process, licensing and other administrative requirements. QIP registration also
entitles investors to numerous tax and customs incentives.
4.1.
WHO QUALIFIES
Not all companies are eligible for QIP incentives. In essence the project, or investment, should be of a significant
size and value as to create jobs and generate income. The “negative list”, located in the Sub-Decree on the
Implementation of the Investment Law, identifies all industries and investment levels that are not eligible for
QIP status.
Some industries are never eligible for QIP status. These are:
1. All kinds of commercial activities, import, export, wholesale, or retail, including duty-free shops
2. Except for investments in the railway sector, any transportation services, be they by waterway, by road,
or by air
3. Restaurants, karaoke parlors, bars, nightclubs, massage parlors, or fitness centers that are located outside
of international standard hotels
4. Tourism service providers, tourism agents, and tourism advertisers
11
The Labor Law (1997).
The Phnom Penh Post has reported that a new foreign investment law is in the initial drafting phase. It remains unclear
what the contents of this new law will be or when it will be implemented. However, it will be designed to make the country
more attractive to foreign investors. “Investment Law Change-up”, Hor Kimsay, Phnom Penh Post, 28 November 2013.
12
PAGE 10
5. Casino and gambling businesses and services of any kind
6. Currency and financial businesses and services, including banks, financial institutions, insurance
companies, and all kinds of financial intermediation
7. Activities related to newspapers and media, including radio, television, press, magazines, movies, video
production or reproduction, theatres, studios, and related activities
8. Professional services
9. Living Modified Organisms that cause danger to biodiversity, human health and the environment
10. Production and processing of wood products using wood from natural forests with a legal domestic raw
material supply source
11. Production of tobacco products
Other industries are only eligible for QIP status if they reach a minimum investment threshold. Some thresholds
are based on the investment amount; anywhere from US$200,000 to more than US$2 million, depending on the
sector. Other thresholds are calculated based on the scope of the project. It is recommended that potential
investors consider the full list available in Annex I to Sub-Decree No. 111 of 2005 and consult with a local
advisor regarding their specific investment.
4.2.
WHAT INCENTIVES ARE AVAILABLE?
Tax on Profit exemption
The Tax on Profit (TOP) exemption is a variable tax holiday calculated as follows:
trigger period + holiday period + priority period



The trigger period is the first year of profit, or three years from the first revenue.
The holiday period is three years.
The priority period is one to three years, according to the type and size of the investment.
The TOP exemption applies to the Tax on Profit and certain other income taxes only. In addition, intricacies of
the tax law may negate the benefit of the tax exemption for some investors. It is recommended that foreign
investors reach out to a qualified tax advisor in order to ensure maximum benefit from their incentives.
Alternative special depreciation
As an alternative to the tax holiday, an entity may elect to receive a special depreciation rate of 40% on all QIP
assets. The special depreciation and TOP incentives are mutually exclusive and must be selected at the time of
registration.
Import duty exemption


Domestic production: Some production inputs may be exempted from import duties.
Export production: Most production inputs destined for export are exempt from import duties, but it is
necessary to confirm the specific inputs with a local advisor before starting the importation process.
Export duty exemption
Although some QIPs are entitled to a 100% exemption of the export tax, the law and practice in this area are not
clear. It is recommended that foreign investors contact a local tax advisor before assuming that the export duty
exemption will apply to their business.
PAGE 11
Is a QIP the right choice for my investment?
 Is your industry on the negative list?
‐ Certain industries are excluded entirely, others require a minimum investment. Some
sectors, like mining and telecommunications offer only limited tax incentives
 How soon do you expect profits?
‐ The tax holiday is often only in place for 3-5 years. If you don’t expect profit till year 6,
a QIP may not provide much of a tax incentive.
 Does your industry rely on imports?
‐ QIPs provide an exemption from import duties, so if your business is import reliant,
QIP status may be essential.
 Are your products for export only?
‐ Export only QIPs qualify for a specific export incentive, while domestically targeted
companies may derive less benefit from a QIP.
 How important is a short-term exit from the project
‐ It can be a challenge to transfer QIP imported assets. If you intend to divest before the
useful life of your investment is reached, you may be subject to an onerous customs
claw back.
Special economic zones
Many QIP investors, particularly in the garment sector, prefer to operate within special economic zones (SEZ)
because of the ease of services and infrastructure. Furthermore, a special zero-rate for VAT applies to exportoriented QIPs operating within SEZs. In addition, reliable logistics and utilities services are provided onsite.
SEZs are developed by a zone developer, who is responsible for providing reliable infrastructure services and
leasing the land for development within the zone. There are also requirements for employee housing, security,
and in some cases, residential zones with schools, medical services and public parks.
Other investors may want to consider developing an SEZ themselves. SEZ developers receive significant
incentives and in practice, may find land available for lease at a competitive price.
5.
FOREIGN EXCHANGE AND CAPITALIZATION
Highlights:
 There are no foreign exchange restrictions with a dollar-based local economy
 Local bank account required
5.1.
FOREX RULES
Remittances can easily be transferred abroad in US dollars. There is no restriction on foreign exchange
conducted through authorized banks, other than standard reporting requirements under anti-money laundering
provisions.13 QIPs (see Section 4 above for more detail) may freely remit foreign currency abroad to discharge
investment-related financial obligations (e.g. repayment of principal and interest on foreign loans, payment of
royalties and management fees and remittance of profits).14
5.2.
13
14
MINIMUM CAPITAL
Law on Foreign Exchange, Article 5.
Law on Investment Amended, Article 11.
PAGE 12
In order to register a company with the MOC, there is an initial minimum capital requirement of KHR4 million
(about US$1,000). For registration as a QIP, many sectors have capital requirements of from US$300,000 to
several million dollars.
5.3.
LOCAL BANK ACCOUNT
All entities seeking to register in Cambodia must maintain a local bank account, denominated in KHR.15 In
practice, this is a formality that can be easily accomplished.
6.
JOINT VENTURES
Highlights:
 Few restrictions on joint ventures
 Limited minority shareholder protection required, with discretion to structure the joint
venture
There are very few restrictions on the establishment of a joint venture, and the parties are generally free to
contract between themselves as to their shareholding percentage in the joint venture. The LCE places no
additional restrictions on joint ventures, making this an attractive investment environment for many foreign
investors.
A joint venture with a local partner may be required for projects that will own land. When any joint venture is
owned 50% or more by a foreign entity, the joint venture entity is considered to be a foreign entity, and is
prohibited from owning land. Therefore, it may be preferable to grant the local joint venture partner a 51%
shareholding. Alternatively, the joint venture can retain its majority shareholding and lease the land for the
project from its local partner (see Section 9).
There is significant discretion for the investor in how to structure the joint venture in order to provide adequate
protection to the foreign shareholder. A well-drafted joint venture agreement and articles of incorporation, as
well as secured shareholder loans and other structuring tools, can ensure that either the majority or the minority
shareholder has full functional control over the entity and its assets.
7.
FINANCING THE PROJECT
Highlights:
 Sophisticated commercial banking system available
 No deposit guarantees
 High local interest rates
 Easy access to foreign capital
 Developed, modern law on securities
7.1.
BANKING
At the time of printing, Cambodia has 34 commercial banks, seven specialized banks and 30 microfinance
institutions, lending roughly six billion dollars to the private sector.
No deposit insurance or guarantees are available. Cambodia does not yet offer government guarantees on bank
deposits, nor are there any independent deposit insurance providers.
15
Law on Commercial Enterprises, Article 93.
PAGE 13
A Prakas in 2009 on the liberalization of interest rates freed up banks to set interest rates according to market
demand. Prohibitively high interest rates have significantly hampered the domestic banking industry and rates
fluctuate significantly between banks. Today, interest rates have fallen to the 10-15% range. Coupled with
Cambodia’s open foreign exchange rules, these high rates discourage most foreign investors from seeking capital
in Cambodia.
7.2.
PROJECT FINANCE
The majority of foreign investment projects in Cambodia are funded with foreign capital. As noted above, there
are few capital restrictions on investment in Cambodia and investors can generally finance projects with the
currency of their choice. For joint venture companies, the local partner will often contribute land, licenses or
intangible assets to supplement the direct capital investment.
7.3.
SHAREHOLDER LOANS
Financing projects in Cambodia by way of shareholder loans is a common means of financing. Many foreign
investors choose to use shareholder loans for their beneficial tax implications. Like most jurisdictions, tax is only
paid on the interest being charged. Following a recent GDT Circular (#1707) it is now possible for related parties
to provide loans at 0% interest, without attracting any tax liability.16 Shareholder loans have now become very
advantageous from a tax perspective.
Later, the process of conversion of the shareholder loan from debt to equity is relatively straightforward and can
be completed without too much delay.
7.4.
SECURITY
The lack of foreign exchange restrictions provides ready access to foreign capital. Third-party loans are an
option, and Cambodia’s laws on secured debt are well developed. Cambodia has developed a comprehensive
system of varying forms of security to protect financiers and investors as set out below.
In addition to the variety of forms of security available to an investor, Cambodia established the Secured
Transaction Filing Office in 2007, which allows for someone with a secured interest over assets (tangible and
intangible) to register their interest and obtain a priority right. The registration process is straightforward and can
be done online in a few minutes.
ASSET TYPE
Equity
Land and Real
Property
SECURITY OPTIONS
METHOD OF PERFECTION
Pledge over Right or Claim
Notification of the obligor.
The proceeds due from a pledged right or
claim can be collected directly upon
default of the underlying obligation,
without recourse to the courts.
File a Notice of Security Interest at the
Secured Transactions Filing Office
(STFO).
Assignment of Receivables, Contractual
Position
Created by agreement between the parties,
provided that the assignment is not
otherwise prohibited by the nature or
terms of the initial agreement.
Agreement, together with notification of
or consent from the relevant third party.
Hypothec (Mortgage over land)
Enforceable through court order and the
Perfected by registration with the cadastral
office. Registration at the Sangkat and/or
File a Notice of Security Interest at the
STFO
16
Prior to GDT Circular 1707, the GDT could deem interest on shareholder loans and then tax the interest on those loans
according to the deemed interest rate. This practice is no longer permitted.
PAGE 14
ASSET TYPE
SECURITY OPTIONS
METHOD OF PERFECTION
creditor is only entitled to the profits of
the sale of the property. The creditor may
never assume ownership of the security
property.
village level is also recommended. Order
of priority is based on date of perfection
only.
Movables
Transfer as Security
Established by agreement accompanied by
a transfer of ownership, either in fact or by
law. Enforceable without a court order.
Perfection is accomplished by filing a
Notice of Security Interest at the STFO.
Comprehensive
Assets
Guarantee
A contractual guarantee is permitted under
Cambodian law. A great deal of flexibility
is given to the parties in deciding the
terms.
Contractual agreement, in writing and
signed by the parties.
8.
TAXATION AND IMPORTS/EXPORTS
8.1.
For more information on taxation and customs in Cambodia, please refer to the VBD Loi
Tax Guide.
9.
ACCESS TO LAND RIGHTS
Highlights:
 No foreign ownership of land
 Long-term leases for 50 years, extendable for 50 years
 Co-owned buildings grant foreigners all non-sub strata rights
 Land holding companies provide effective land ownership for foreigners
Under Cambodian law, foreigners do not have the right to own land. This restriction applies to any legal person,
which is held 50% or more by foreign interests. In practice, it is possible for foreigners to obtain reliable, longterm control over land, using the following methods which are commonly used in Cambodia:
a. LONG-TERM LEASE
Foreigners are able to lease land. Long-term leases run from 15 to 50 years
and may be extended for an additional 50-year term.
Unlike short-term leases, long-term leases generate a “right in rem”, allowing
the lessor to use the lease as a security or as mortgage collateral. Long-term
leases may also be transferred. A long-term lease may be registered at the
cadastral office, providing priority in the secured property.
b. SHORT-TERM LEASE
There are no restrictions on foreigners entering into short-term leases. A
short-term lease is a lease up to 14 years. Short-term leases do not generate
the right to use the property as security or mortgage and offer limited
protections to the lessor.
c. CO-OWNED BUILDINGS17
In 2010, a law and a Sub-Decree were passed in order to allow foreigners to
own up to 70% of co-owned buildings, with the exception of the ground and
first floors. Foreigners can therefore own the majority of a co-owned
17
Law on Providing Foreigners with Ownership Rights in Private Units of Co-Owned Buildings (2010).
PAGE 15
building, although the land itself must be owned by a Cambodian national.
The co-ownership concept is not dissimilar to the concept of strata title in
other jurisdictions.
d. ECONOMIC LAND
CONCESSIONS
The government may grant a concession for an economic purpose over State
Private Land (an economic land concession) to any natural person or legal
entity for development purposes.18 In practice, this means that governmentowned land may be available for large agricultural, tourism or retail projects.
Under the law of concession, the concession period should not exceed 30
years, although the government may approve a longer term if deemed
necessary because of the nature of the project. The area of the concession
should not be larger than 10,000 hectares.
e. STRUCTURED OWNERSHIP
A corporate entity is considered to be of Cambodian nationality if it is owned
51% by Cambodian nationals. Therefore, it is possible for foreign investors to
set up a land holding company with a local partner that is capable of owning
land.
The minority foreign investor then loans the local partner the funds necessary
to purchase the land, and uses the land as security against the loan. Some
careful joint venture structuring can further strengthen the position of the
minority investor, up to the point where they have almost complete control
over the Cambodian land holding company. It should be noted however that
Cambodian law bans the use of nominees, so it is necessary to be careful
when establishing these structures.
Land disputes are not uncommon. The source of these disputes is the fact that in Cambodia land can be held by
either soft title or hard title. Hard title is gained by holding free-hold title to a defined parcel of real property and
by registering that title with the relevant cadastral office.
Soft title is specific to Cambodian law and is designed to provide the largely rural population with some level of
security regarding the land on which they live in work. Soft title is only registered at the government offices and
cannot be alienated to an unrelated third party.
The intersection of hard and soft land titles can present problems for foreign investors. However, careful due
diligence performed by a local advisor should be sufficient to protect foreign investors from land disputes and
related issues.
10.
PERSONNEL
Highlights:
 Well-developed labor law
 Active labor unions
 Reliable, enforceable labor arbitration mechanism
FOREIGN EMPLOYEES, QUOTAS, WORK PERMITS
Foreign employees are welcome in Cambodia. All foreign employees must hold a valid business visa and a work
permit, both of which are easily obtained. Work permits are issued after following a procedural formality with
the MOLVT.
18
Sub-Decree #146 on Economic Land Concessions (2005).
PAGE 16
By law, foreign employees should not constitute more than 10% of the total staff of the any corporate entity. In
practice, it is possible to have this restriction waived, upon application to the MOLVT.
The salaries of non-resident employees are taxed at a flat rate of 20%. However, investors should be aware that
under Cambodian law, fringe benefits, including apartments, vehicles, meals and similar are also subject to
Fringe Benefit Tax.
10.1.
LOCAL LABOR: CONTRACTING AND TERMINATION
Contract Types19
Broadly speaking, there are two forms of employment contracts in Cambodia, a fixed term contract and an
undetermined term contract. Note that a short-term or casual contract will be classified as one of these two types,
depending on the wording of the contract and/or the nature of the relationship.


Fixed Term: up to two years, with precise starting and ending dates. Can be terminated with limited
liability.
Undetermined Term: All other contracts are deemed to be undetermined term contracts.
Any contract not specifically identified above is likely to be interpreted as an undetermined term contract.
Likewise, any contract that is not in writing will be deemed to be a contract of undetermined term. It is not
uncommon for project-based labor employment to be undertaken as an undetermined term contract. Undermined
term contracts are subject to detailed termination and severance provisions, discussed below:
FIXED TERM
UNDETERMINED TERM
Benefit
Short-term contract with limited severance Severance is defined by law and is nominal for
and no damages.
short employment periods.
Detriment
Employee is entitled to salary for the full Termination without cause requires the payment
duration of the contract and if the of severance and may potentially result in
contractual relationship extends more than damages.
two years, the employee is deemed an
undetermined contract employee.
Termination and Severance20
The premature termination of a fixed term contract entitles the employee to damages in an amount at least equal
to the remuneration they would have received for the duration of the balance of the contract term.
Unless the termination is the result of serious misconduct or an act of God, the termination of an undetermined
term contract by the employer results in the following benefits to the employee:



Seven days of wages and fringe benefits if the worker’s length of continuous service at the enterprise is
between six and 12 months.
If the worker has more than 12 months of service, an indemnity for dismissal will be equal to 15 days of
wages and fringe benefits for each year of service.
The maximum indemnity cannot exceed six months of wages and fringe benefits.
In addition, the termination of any labor contract without valid reasons, by either party to the contract, may
entitle the other party to damages.
10.2.
19
20
ORGANIZED LABOR21
The Labor Law (1997).
The Labor Law, Section III A-B.
PAGE 17
Organized labor can be a challenge for foreign investors. Unions are legally protected in Cambodia and there is
no restriction on the number of unions that can operate within a single factory. As a result, there are hundreds of
unions in Cambodia and labor relations are a significant concern for many employers. At the same time, the
prevalence of union representation does provide a framework for negotiating with the local workforce.
The protection of labor rights is important to Cambodia and the MOLVT provides considerable support for the
labor force in Cambodia and looks to provide protection to the workers where it considers that the workers’
rights are not being protected.
10.3.
LABOR ARBITRATION COUNCIL
While labor relations can be a challenge, Cambodia’s Labor Arbitration Council has proven itself a capable
arbiter of labor disputes.
If the Labor Arbitration Council’s decisions are not contested within eight days, they become binding on the
parties, providing investors with a degree of flexibility in dispute resolution.22 In practice, the Labor Arbitration
Council is commonly used to manage labor disputes at both the individual and union level.
21
The Labor Law, Chapter XI; Prakas No 221 on the Registration of Professional Organizations (2000-07-18).
22
The Labor Law, Articles 312 and 315.
PAGE 18
11.
INTELLECTUAL PROPERTY
Highlights:
 Laws are in place to protect patent, trademark and copyright laws
 Registration processes are available, but enforcement remains uncertain
 Cambodia is a member of the TRIPS (Trade-Related Aspects of Intellectual Property)
framework, but holds a waiver on enforcement until 2021
Intellectual property is recognized in Cambodia and it is possible to register intellectual property in the country.
In practice, it is possible to enforce intellectual property rights in Cambodia through the court system. However,
it should be noted that there is no independent intellectual property enforcement agency in Cambodia. Therefore,
the only way to protect intellectual property rights in Cambodia is for the rights holder to bring an action to
defend their own intellectual property rights.
Cambodia is a member of the WTO but has yet to come into full compliance with international intellectual
property standards.
11.1.
PATENTS
The Law on Patents, Utility Model Certificates and Industrial Designs provides for the patenting of any
invention deemed to be new, involve an inventive step, and be industrially applicable.23 Patents are enforceable
in the courts, and criminal penalties may apply.
Patent licenses are obtained through an application to the Ministry of Industry, Mines and Energy. As a signatory
to the Paris convention, Cambodia also provides for the application for a patent based on existing patents held in
other jurisdictions.
11.2.
TRADEMARKS
The Cambodian Trademark Law (2002) provides for the registration of trademarks with the MOC, and once
registered, these trademarks can be enforced through the Cambodian courts.24 Trademark registration is
commonly used in Cambodia.
11.3.
COPYRIGHTS
The 2003 Copyright Law provides for the copyrighting of most forms of intellectual property.25 Although the
law provides protection to copyrightable material, it is possible to register specific copyrights through deposit
with the Ministry of Culture and Fine Arts. However, it is not compulsory to register a copyright in order to
receive copyright protection.
In practice, Cambodia remains a jurisdiction subject to extensive copyright violation and this can be a challenge
for software companies and creative content producers.
23
Law on Patents, Utility Model Certificates and Industrial Designs NS/RKM 0103/005 (2006).
Law on Marks, Trade Names and Acts of Unfair Competition NS/RKM/0202/006 (2002).
25
Law on the Copyright and Related Rights (2003).
24
PAGE 19
12.
PROFIT REPATRIATION TOOLS
For foreign investors, Cambodia is an attractive jurisdiction from the perspective of profit remittance. However,
without pre-planning, profit remittances are subject to 20% TOP and a subsequent 14% WHT, creating a 31.2%
tax burden.
However, with careful structuring and the use of the methods below, it is possible to reduce this tax liability
significantly.
EFFECTIVE
TAX RATE
STRATEGY
COMMENTS
Capital Contribution/
Capital Reduction
0%
A capital reduction can be undertaken at any time, subject to
ordinary liquidity requirements. The reduction must be registered
with the MOC, at a nominal cost and administrative burden.
Shareholder Loan
Principal 0%
Interest 14%
Shareholder loans are a common profit remittance tool. The
principal repayment can be a vehicle for transferring retained
earnings, while interest payments are deductible. Recent reforms
permit shareholder loans to be issued at minimal or zero interest.
Management, Royalty
and Licensing Fees
14%
Standard management, royalty and licensing fees are deductible,
but are subject to the standard WHT.
Lease Agreements
14%
Lease payments are deductible but are subject to the standard
WHT.
In addition to these standard profit repatriation methods, it is possible to identify more complex and often more
advantageous methods of repatriating profits.
13.
PROJECT EXIT
Highlights:
 Project exit remains a challenge in Cambodia with a required tax clearance as the most
significant challenge
 Alternative liquidation strategies, including mergers and acquisitions are available
 Tag along and drag along rights are commonly recognized

Exiting Cambodia can prove challenging for investors, who may be confronted with tax and regulatory issues. If
an investment is intended to be time-limited, it is advisable to develop an exit strategy at the time of
incorporation.
The following are some standard methods of exiting in Cambodia.
13.1.
LIQUIDATION
Companies entering into liquidation must first receive a tax clearance from the GDT. A tax clearance is a
confirmation that the business has been subject to a comprehensive audit and all tax liabilities have been settled
in full. In practice, this is a difficult and expensive process that can take years, as it is the final opportunity for
the GDT to claim any unpaid tax obligations. If possible, the liquidation process should be avoided for this
reason.
13.2.
TRANSFER OF BUSINESS
PAGE 20
Ordinarily, a transaction such as the sale of a business should attract a VAT liability of 10%. However, by law, a
“transfer of business” is exempted from the VAT liability if it meets specific requirements.26 Specifically, the
transferee business must be liquidated, the GDT must be notified within a set time period, and other reporting
and registration deadlines must be met. Before attempting a transfer of business, it is recommended that a local
advisor be consulted to ensure that the transfer will not attract a retroactive VAT liability.
13.3.
TRANSFER OF QIP BUSINESS/ASSETS
If a company has QIP status, they must be aware that any assets brought in without import duties under the
QIP’s master list will be subject to customs claw back if they are transferred to a non-QIP entity. In practice, this
means that the full initial customs duty will be due upon the sale of the assets, a prohibitive penalty for
transferring assets. This claw back can be reduced if properly managed.
13.4.
MERGER
Cambodia corporate law has provided for the possibility of a merger since 2005, but not until recently have
mergers been recognized and accepted by the regulators. Recent developments in both law and practice have
allowed for mergers to take place and several mergers have recently been completed. .
The main benefits of a merger include:



There will not be a requirement to liquidate the constituent company
The survival of tax losses
The option of paying the constituent company shareholders in cash instead of shares
This would constitute a clean and effective exit strategy for willing participants, if properly effected. It should be
noted that new regulations on the taxation of mergers is forthcoming.
26
Sub-Decree on VAT No. 114 ANKr.BK (1999) Article 55.
PAGE 21