Investing in Cambodia

An Expert's View about Business Support Services in Cambodia

Posted on: 13 Jul 2010

Cambodia has emerged in recent years as a high growth economy, attracting investors from around the globe. Foreign direct investment has increased significantly since the end of civil war in 1993.

Investing in Cambodia February 2010 CONTENTS A Land of Opportunity ambodia has emerged in recent years as a ? A Land of Opportunity Chigh growth economy, attracting investors ? Reasons to Invest from around the globe. Foreign direct investment has increased signicantly since the end of civil ? Establishing a Company war in 1993. And while foreign investment slowed ? Investment Incentives along with the global economy, economists project a strong rebound in 2010. For the adventurous ? Taxation investor, Cambodia oers long-term growth ? Special Economic Zones opportunities across a variety of sectors. ? Repatriating Profits e government has proved itself welcoming to foreign capital and dedicated to building a stable investment environment. And while the country is not without its problems, much of the risk can be mitigated through proper preparation and legal counsel. Reasons to Invest Preferential Market Access Cambodia Open Economyis located at the heart of Southeast Asia, a region experiencing enormous economic growth Cambodia oers one of the region?s most open over the past several decades. As a member of the economies to foreign investment. Low tax rates, Association of Southeast Asian Nations (ASEAN), investment incentives, and a one-stop-service for Cambodia benets from very low taris on most qualied investments all reect the government?s goods traded with its neighbors. By 2018, the commitment to attracting foreign capital. ASEAN Free Trade Area aims to completely Competitive Assets eliminate all taris. Tourism has traditionally attracted the most In addition, 2010 marks the rst year of the China- foreign investment. Lead by the world-class ASEAN Free Trade Area, a trading block of 1.7 destination of Angkor Wat, Cambodia draws billion people and astounding economic growth. over a million international visitors a year. While Finally, as a WTO member and least-developed temple tourism has already drawn signicant country, Cambodia benets from preferential foreign investment, signicant potential remains. access in a number of markets. In addition, the Cambodian labor force oers a competitive advantage for many rms. With low Inbound Foreign Direct Investment labor costs and rapidly increasing education levels, No 64, St 111 Inbound FDI the country can oer lucrative returns for investors PO Box 172 1,000 in labor-intensive manufacturing. Phnom Penh 800 Cambodia 600 Establishing a Company +855 23 217 510 400 +855 23 212 740 All companies that conduct commercial activities 200 in Cambodia must be registered with the proper +855 23 212 840 - authorities. What sort of entity you setup and the 2005 2006 2007 2008 associated registration requirements depends on Source: UN Conference on Trade & Development, 2009 www the eld of business. BNG Legal 2010 Investing in Cambodia Page 1 US$ millions Most investors choose to establish a private limited Origin of CDC-Registered Projects, 1994-2008 INVESTMENT INCENTIVES Chart Title company, as it provides limited liability for its Other shareholders. Operating as a sole proprietorship or US UK South ? Choice of profit-tax holiday or Korea partnership is also possible, and though cheaper to Cambodia special depreciation allowance Taiwan establish, the owners can be held personally liable for any debts. ? 100% import duty exemption for construction materials, Foreign companies can also work through a China production equipment and input subsidiary, branch or representative oce, though materials they need to be careful not to exceed the limited allowable activities. Foreign-owned companies ? 100% export tax exemption can undertake the same business activities as ? Transferability of incentives Other Cambodian-owned companies, with the notable Source: CDC 2009 ASEAN through merger or acquisition exception of land ownership. However, there are QIPs can select between a prot-tax holiday or a a number of ways to structure an investment such depreciation allowance. e tax holiday cuts the that a foreign-owned company can eectively prot tax from 20% to 0% for a specic number control and manage land. of years. e depreciation allowance can give While it might be possible to engage in business a generous tax break for investors that need to informally in Cambodia, it is far from prudent. import large amounts of machinery or other Failing to properly incorporate your business can capital goods. lead to expensive problems down the line. In addition, all QIPs are exempted from import duties on construction materials, production equipment, and input materials. With certain Investment Incentives exceptions, any goods manufactured by the QIP are also exempted from export taxes. With the e Ministry of Commerce and the Council recently established ASEAN and ASEAN-China of the Development of Cambodia are the Free Trade Areas, it is possible that traded goods institutions responsible for overseeing foreign could be totally free of export and import duties. direct investment and business development in Cambodia. FDI projects which are eligible for Only projects over a certain size can apply for QIP business incentives are called Qualied Investment incentives. Specic activities are also excluded Projects (QIPs) and must be registered with the - such as restaurants, casinos, and professional CDC. services. CDC APPROVAL PROCESS Investment Proposal CDC issues a Conditional Registration Certificate ? Company Registration at Ministry of Commerce ? CDC obtains licenses from relevant ministries on Applicant?s behalf 28 working days ? Review and approval of construction plan, etc. by Local Authorities/ Ministry of Land Management, Urban Planning and Construction ? Initial environmental impact assessment by Ministry of Environment ? Tax Department Registration at Ministry of Economy and Finance CDC issues a Final Registration Certificate BNG Legal 2010 Investing in Cambodia Page 2 GENERAL PRINCIPLES MULTILATERAL BILATERAL CONVENTIONS AGREEMENTS Non-discrimination against New York Convention on Foreign China foreigners, except in land-ownership Arbitral Awards European Union Legal protections of private property Washington Convention on France Investment Disputes Free movement of labor Germany Multilateral Investment Guarantee 3 working days No price controls A South Koreagency Stable and dollarized macroeconomic A Malaysiagreement on Trade-Related environment Investment Measures (WTO) Netherlands ASEAN Investment Policy Philippines Singapore Switzerland ailand U.S.A. Investors wishing to take advantage of investment and Medium Tax Payers Bureau (LMTB) of the incentives must apply to the Cambodian Tax Department for a tax identication number Investment Board, the division of the CDC in (TIN),. charge of reviewing applications. e process, Patent Tax outlined in the ow-chart, is relatively swi and When registering for the TIN, the company must straightforward. Licenses from other Ministries w also pay a Patent Tax for the rst year. is tax is an ill be applied for by the CDC on the investor?s annual business registration tax. It is payable due behalf. on each business activity and each location of the Other incentives are also available, depending on company. the industry and scale of investment. For instance, Stamp Tax garment and agricultural investments can benet from VAT exemptions on certain exports. A newly established company, branch or representative oce is also required to register with For those seeking to make a sizable investment the Tax Department?s local tax branch oce and in the country, the CDC incentives can be an pay the stamp duty within 15 days of registration attractive oer. at the Ministry of Commerce. Tax on Prot Taxation e Tax on Prot is the debt of a resident taxpayer on income from Cambodian sources and from Cambodia has a more lenient tax regime compared foreign sources. For a non-resident taxpayer, to most neighboring countries. Corporate tax rates this tax is assessed on income from Cambodian are low, and ling requirements are simple and sources only. streamlined. In addition, Qualied Investment Projects can benet from attractive tax breaks, as determined by the CDC. BUSINESS ACTIVITY TAX ON PROFITS Tax Registration MAIN BUSINESS TAXES General Business 20% All companies are taxable under the Self Assessment System (Real Regime Tax System), Natural Resource Exploitation 30% ? Patent Tax regardless of the type of business activity or the level Insurance 5% ? Stamp Tax of annual revenue. Real regime system taxpayers must annually submit a tax declaration, a balance Tax-exempt QIP 0% ? Value-Added Tax sheet, results account and tables of complementary QIP during transition period 20% ? Tax on Profits information to the tax administration. ? Minimum Tax Once a business is registered with the Ministry of Commerce, it must then register at the Large BNG Legal 2010 Investing in Cambodia Page 3 Minimum Tax InbounGdDPFEocGorernoiogwmnt hiDc i& rTe rIecnntf ldIanstvioenstment Inbound FDI e Minimum Tax is a separate and distinct tax from the tax on prot. It is imposed at the rate of 20 1% of the annual turnover inclusive of all taxes with the exception of VAT. It is payable at the time 10 of the annual liquidation of the tax on prot. e minimum tax may be reduced by the annua 0l tax 2001 2003 2005 2007 2009 on prot that is actually paid. -10 Compared to many other countries, Cambodia ABOUT US -20 is a relatively low-tax regime. Furthermore, the simplicity of the tax code makes compliance GDP Inflation BNG Legal is a leading Cambodian re Source: IMF 2009latively straightforward. Failure to properly law rm providing comprehensive register and pay, while unfortunately common, legal services to foreign and local can entail grave consequences for any reputable clients. business. Registered with the Bar Association of the Kingdom of Cambodia, our legal professionals combine Special Economic Zones international standards with local expertise. Special Economic Zones have recently been We dierentiate ourselves by introduced to Cambodia. All industrial activities coupling a deep understanding of are brought together into one special development the local business environment with under the auspices of the SEZ. Each zone contains international professionalism and a production and service area and may also include integrity. a residential area to accommodate workers. We facilitate business, investment Repatriating Profits SEZs oer a one-stop service for imports and and trade between Cambodia exports, with government ocials stationed and the rest of the world through e U.S. dollar is widely used in business and on-site to provide administrative services. innovative and cost-eective legal daily life in Cambodia. e national currency, Applications to establish factories within the SEZs services. the Cambodian Riel, hovers at about 4,000 Riel are dealt with on-site as well as all administrative to the dollar, as the government is committed to clearances, permits, and authorisations. Businesses Superior knowledge of local maintaining exchange rate stability. within the SEZs also benet from a number of protocol, local procedure, and local scal advantages, including income tax, customs, people is necessary for any business Investors can freely convert accounts in Riel to and VAT breaks. to succeed in Cambodia. dollars. ough the Foreign Exchange Law allows the National Bank of Cambodia to implement Since the adoption of the sub-decree establishing Conducting daily business in exchange controls in the event of a crisis, this power economic zones, the government has approved 21 Cambodia, BNG Legal is up to has never been exercised. Several regional banks SEZs, located along the border with ailand and date with the newest procedures have opened in recent years, making it even easier Vietnam, Sihanoukville and Phnom Penh. Of the and requirements, helping clients for investors to move funds in and out of the country. 21, six have commenced operations. eciently and successfully complete any project. CDC-REGISTERED INVESTMENT, BY SECTOR, 1998-2008 Sector US$ millions Number of Projects Garments 449.4 401 Tourism 434.4 88 Petroleum 203 5 No 64, St 111 Agriculture 177.1 74 PO Box 172 Wood Processing 98.3 15 Phnom Penh Telecommunications 92.5 15 Cambodia Food Processing 91.5 12 +855 23 217 510 Construction 63.6 14 +855 23 212 740 Footwear 27.8 21 +855 23 212 840 Total 2,432.4 88 Source: CDC 2009 BNG Legal 2010 Investing in Cambodia Page 4 Growth %
Posted: 13 July 2010

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