12 July 2017
Establishing a Presence in Cambodia
The FDI laws and regulations in Cambodia are generally non discriminatory with foreign companies only restricted in two areas:
1. Owning land – The Amendment to the Law on Investment (2003) permits foreigners to hold long-term leases of up to 50 years and renewable short- and long-term leases.
2. Employment of foreigners – foreign citizens can be employed as managers, technicians and skilled workers in Cambodia, if the qualification and expertise are not locally available.
Hong Kong companies are allowed to invest freely in Cambodia, and only a small number of activities are prohibited to both foreign-owned and domestic-owned companies.
To establish a presence, a Hong Kong company can set up a foreign-owned company or open a branch or representative office. The Council for the Development (CDC) of Cambodia is the highest decision-making level of the government for private and public investment. The CDC, chaired by the Prime Minister, is composed of senior ministers of government ministries and agencies, including the Ministry of Commerce (MOC) and Ministry of Economy and Finance (MOEF). The main laws and regulations governing investment in Cambodia can be found on the CDC website. The MOC is responsible for regulating and promoting commerce and trade of Cambodia. All companies must register with the MOC through the Business Registration Department, at least 15 days before commencement of any activities.
Setting up a Foreign-Owned Company
The World Bank’s 2017 Doing Business report ranks Cambodia as the lowest performer for starting a business in the East Asia Pacific region, indicating that it takes 99 days to start a business in Cambodia compared to the regional average of 24 days.
A Hong Kong company can establish an entity with 100% control (that is, as a WFOE) in Cambodia. This can take the form of a corporation (stock or non-stock), a limited or unlimited partnership, or a sole proprietor. Regardless of form, the same steps must be followed (see the chart below) with a minimum registered capital of KHR 4 million (US$1,000). Upon registration, all companies must comply with the Cambodian International Financial Reporting Standards (CIFRS) or Cambodian International Financial Reporting Standards for Small and Medium-sized Entities (CIFRS for SMEs). Worth noting is that implementation of CIFRS will be delayed to 2019 in the case of banking and financial institutions and general insurance companies.
Basic steps to establish a Hong Kong company in Cambodia
Hong Kong companies can open a branch or representative office (RO) in Cambodia. It must bear the same name as the Hong Kong company and be registered with the MOC, providing the place of registration of the parent company and details of its structure.
A branch is allowed to carry out trading activities as a company, such as sale and purchase of goods or services, but an RO is prohibited from undertaking profit making activities, including buying or selling of goods. An RO is considered a more tentative step to entering the Cambodian market, used primarily for initial promotional purposes.
Cambodia has provided a number of incentives to encourage FDI in a wide range of sectors including footwear, garments, furniture, electrical products and human capital investment. Both foreign- and domestic-owned companies can benefit from incentives as the following:
- Tax holiday periods of up to nine years
- Duty-free import of production equipment and constructions materials
- VAT exemption
- Special depreciation allowance on the value of new or used tangible goods that are used in production or processing
- Exemption of export tax
Eligibility for these incentives is overseen by the CDC and there are two ways in which a Hong Kong company can adopt to enjoy these benefits:
1. Apply for a Qualified Investment Project (QIP) – investors may apply for QIP status by registering their projects with the CDC. The criteria for evaluating QIP eligibility include the amount of registered investment capital and business activities. The investment requirement is dependent on a company’s activity, with US$100,000 to US$500,000 required for the production of certain goods and US$1 million to US$8 million required for training and educational institutes.
2. Locate the company in a Special Economic Zone (SEZ) – SEZs were first introduced in 2005 and they are specially designated areas within Cambodia.
- Regulatory Environment
- Establishing a Presence
- Intellectual Property Protection
- Staff Recruitment
- Tax Considerations
- Import/Export Procedures
- Further information