Cambodia is a country with a young population, a growing economy, and a strategic location in Southeast Asia. It offers many opportunities and challenges for entrepreneurs who want to do business in this emerging market. In this article, we will provide some basic information and tips on how to do business in Cambodia, including the common forms of business establishment, the legal framework for foreign trade, the access to land, the regulations of the services sector, the legal framework for foreign direct investment, and the taxation system.
Common Forms of Business Establishment
Business establishment in Cambodia will require registration of a new entity with the Ministry of Commerce (MoC) (https://mbccambodia.org/doing-business-in-cambodia). There are different types of business entities that can be registered in Cambodia, such as sole proprietorship, partnership, private limited company, public limited company, or foreign company. The most common forms of business establishment for foreign investors are private limited company and foreign company.
A private limited company is a business entity that is owned by one or more shareholders who have limited liability. The shareholders elect directors who manage the company. The company has its own legal personality and can sue and be sued in its own name. The minimum capital requirement for a private limited company is US$1,000.
A foreign company is a business entity that is incorporated outside Cambodia but has a presence in Cambodia through a branch office or a representative office. A branch office can conduct any activities that are permitted by its parent company. A representative office can only conduct market research, promotion, or liaison activities. The minimum capital requirement for a foreign company is US$1,000.
Legal Framework for Foreign Trade
Cambodia is a member of the Association of Southeast Asian Nations (ASEAN) and the World Trade Organization (WTO) (https://mfaic.gov.kh/doingbussiness). As such, it enjoys regional trade benefits and increased trade integration with other countries. Cambodia also has duty-free or preferential export access to most developed economies, such as the European Union (EU), the United States (US), Japan, Canada, Australia, etc.
Cambodia applies a tariff system based on the Harmonized System (HS) of classification. The average tariff rate is about 10%, but it varies depending on the product category and the country of origin. Some products are exempt from tariffs or subject to lower rates under preferential schemes. Cambodia also imposes other taxes and fees on imports and exports, such as value-added tax (VAT), excise tax, special tax on certain goods and services (ST), customs service fee (CSF), etc.
Cambodia has simplified its customs procedures and documentation requirements for foreign trade. It has implemented an online platform called ASYCUDA World that allows traders to submit their customs declarations electronically. It has also adopted the ASEAN Single Window that facilitates the exchange of information and documents among ASEAN member states.
Access to Land
Land ownership in Cambodia is governed by the Land Law of 2001 (https://mfaic.gov.kh/doingbussiness). According to this law, only Cambodian citizens or legal entities with at least 51% Cambodian shareholding can own land in Cambodia. Foreign investors cannot own land in Cambodia, but they can lease land for up to 50 years with an option to renew.
Foreign investors can also obtain land concessions from the government for specific purposes, such as agriculture, industry, tourism, etc. Land concessions are granted for up to 99 years with an option to renew. However, land concessions are subject to certain conditions and limitations, such as size, location, environmental impact, social impact, etc.
Regulations of the Services Sector
The services sector in Cambodia is regulated by various laws and regulations depending on the type of service activity (https://mfaic.gov.kh/doingbussiness). Some service activities require licenses or permits from relevant authorities, such as banking, insurance, telecommunications, transportation, tourism, education, healthcare, etc.
Some service activities are also subject to restrictions or limitations on foreign participation, such as broadcasting, legal services, accounting services, engineering services, etc.
Foreign investors who want to engage in service activities in Cambodia should consult with professional advisors or relevant authorities to understand the specific requirements and procedures for their intended service activity.
Legal Framework for Foreign Direct Investment
Foreign direct investment (FDI) in Cambodia is governed by the Law on Investment of 1994 and its amendments (https://mfaic.gov.kh/doingbussiness). This law provides a favorable investment environment for foreign investors by offering various incentives and guarantees, such as:
- Tax holidays or exemptions
- Import duty exemptions or reductions
- Export duty exemptions
- Free repatriation of profits and capital
- Protection against nationalization and expropriation
- Equal treatment with domestic investors
- Dispute resolution mechanisms
Foreign investors who want to benefit from these incentives and guarantees must obtain an investment license from the Council for the Development of Cambodia (CDC) (https://mfaic.gov.kh/doingbussiness), which is the main agency responsible for promoting and facilitating FDI in Cambodia. The CDC evaluates investment proposals based on their contribution to economic development, job creation, technology transfer, environmental protection, etc.
Taxation System
The taxation system in Cambodia is based on the Law on Taxation of 1997 and its amendments (https://mfaic.gov.kh/doingbussiness). This law imposes various taxes on individuals and businesses, such as:
- Corporate income tax: This is a tax levied on the net income of companies at a flat rate of 20%. However, some companies may enjoy lower rates or exemptions under special regimes, such as qualified investment projects (QIPs), small taxpayers, medium taxpayers, etc.
- Personal income tax: This is a tax levied on the income of individuals at progressive rates ranging from 0% to 20%. However, some income may be exempt from tax or subject to lower rates under certain conditions, such as minimum wage earners, residents vs non-residents, etc.
- Value-added tax: This is a tax levied on the value added at each stage of production and distribution of goods and services at a flat rate of 10%. However, some goods and services may be exempt from VAT or subject to zero rate under certain conditions, such as exports, public transportation, healthcare, education, etc.
- Excise tax: This is a tax levied on specific goods and services that are considered harmful or luxurious at varying rates depending on the product category. For example, alcohol products are taxed at 25%, tobacco products are taxed at 30%, petroleum products are taxed at 35%, etc.
- Special tax on certain goods and services: This is a tax levied on specific goods and services that are not subject to excise tax at varying rates depending on the product category. For example, airline tickets are taxed at 10%, hotel accommodation services are taxed at 10%, telecommunication services are taxed at 3%, etc.
- Property tax: This is a tax levied on immovable properties that have an assessed value of more than KHR100 million (about US$25,000) at a flat rate of 0.1% per year.
- Other taxes: There are also other taxes that may apply to individuals and businesses in Cambodia, such as:
- Withholding tax: This is a tax withheld at source from certain payments made to residents or non-residents, such as: interests, dividends, royalties, rentals, services, etc.
The withholding tax rates vary depending on the type of payment and the status of the recipient.
- Tax on salary: This is a tax withheld at source from salaries paid to employees by employers at progressive rates ranging from 0% to 20%. However, some salary components may be exempt from tax or subject to lower rates under certain conditions, such as: minimum wage earners, fringe benefits, allowances, etc.
- Patent tax: This is an annual flat tax paid by all businesses operating in Cambodia based on their turnover and category. The patent tax ranges from KHR400,000 (about US$100) to KHR5 million (about US$1,250) per year.
- Accommodation tax: This is a monthly flat tax paid by owners or operators of accommodation establishments based on their room capacity. The accommodation tax ranges from KHR2,500 (about US$0.6) to KHR12,500 (about US$3) per room per month.
- Public lighting tax: This is an annual flat tax paid by owners or occupiers of buildings located along public roads based on their frontage length. The public lighting tax ranges from KHR1,000 (about US$0.25) to KHR8,000 (about US$2) per meter per year.
We hope this article helps you understand how to do business in Cambodia.
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