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Cambodia: Market Profile

Picture: Cambodia factsheet
Picture: Cambodia factsheet

1. Overview

Cambodia attained lower middle-income status as of 2015, having sustained an average growth rate of 7.6% in 1994-2015, mainly driven by garment exports and tourism. The economy slowed down slightly to 6.8% in 2017, according to preliminary estimates by authorities but is expected to remain strong over the next two years (6.9% in 2018 and 6.7% in 2019), as recovering tourism activity coupled with fiscal expansion compensate for some easing in garment exports and construction growth. Going forward, maintaining macroeconomic stability and enhancing economic diversification, export competitiveness and quality of public service delivery will be key to sustaining higher growth.

Source: World Bank

2. Major Economic/Political Events and Upcoming Elections

June 2017
Cambodian parliament amends a law to bar anyone convicted of an offence from running for office. On November 16 2017, the Supreme Court dissolved the Cambodia National Rescue Party.

February 2018
The Cambodian People’s Party (CPP) wins all 58 seats in the Senate election.

July 2018
Cambodia to hold National Assembly election on July 29 2018.

Sources: BBC country profile – Timeline, Human Rights Watch

3. Major Economic Indicators

Graph: Cambodia real GDP and inflation
Graph: Cambodia real GDP and inflation
Graph: Cambodia GDP by sector (2016)
Graph: Cambodia GDP by sector (2016)
Graph: Cambodia unemployment rate
Graph: Cambodia unemployment rate
Graph: Cambodia current account balance
Graph: Cambodia current account balance

Note: e = estimate, f = forecast
Sources: IMF, World Bank

4. External Trade

4.1 Merchandise Trade

Graph: Cambodia merchandise trade
Graph: Cambodia merchandise trade
Graph: Cambodia major export commodities (2016)
Graph: Cambodia major export commodities (2016)
Graph: Cambodia major export markets (2016)
Graph: Cambodia major export markets (2016)
Graph: Cambodia major import commodities (2016)
Graph: Cambodia major import commodities (2016)
Graph: Cambodia major import markets (2016)
Graph: Cambodia major import markets (2016)

Note: e = estimate
Sources: WTO, World Bank WITS database

4.2 Trade in Services

Graph: Cambodia trade in services
Graph: Cambodia trade in services

5. Trade Policies

  • In 2001, Cambodia joined the World Customs Organization and in, October 2004, it became a member of the World Trade Organization.

  • Cambodia is well integrated into the regional and world trading framework. The country joined the ASEAN in 1999 and served as ASEAN chair in 2012. ASEAN members have agreed to lower intra-regional trade tariffs through the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area. New members such as Cambodia have already gone a long way to removing such tariffs, with almost 80% of their products being tariff-free, which helps to drive trade with Cambodia and the rest of the region.

  • Since 2015, many tariffs between ASEAN member states have been removed. The rewards of lower tariffs within the area have been seen, with regional trade booming in recent years, especially as Singapore is a major exporting partner. That said, the import tariff rates are high in Cambodia: the country's average import tariff rate of 9.8% is one of the highest in the East and South East Asia region.

  • The highest ad valorem rate of 35% applies to finished agricultural products (processed meat, processed fruit and vegetables, and dairy products), finished industrial products, and petroleum products.

  • Cambodia imposes VAT, a special tax on certain imports, as well as taxes on gasoline and diesel imports.

  • In additon to customs duties, Cambodia prohibits or restricts the importation of certain goods for a number of reasons including national security, public order, cultural, environmental, and healthy and safety. Over 1,500 tariff lines are subject to import prohibition or licensing.

Source: WTO – Trade Policy Review

6. Trade Agreements

6.1 Trade Updates

On February 26, 2017, the Foreign Affairs Council of the European Union warned that "specific targeted measures" could be taken against Cambodia over the alleged deterioration in the political and democratic environments in Cambodia. Cambodia's Everything But Arms (EBA) agreement with the EU contains human rights clauses. Cases of reported human rights abuses, such as the imprisonment of politcal activists, may trigger a suspension of the preferential trade agreement.

In 2017, Cambodia slightly increased the tariff protection for agriculture to 16.1%, which remains higher than the 12.3% overall applied most favoured nation (MFN) average.

6.2 Multinational Trade Agreements

Active

  1. In 2001, Cambodia joined the World Customs Organization and, on October 13, 2004, it became a member of the World Trade Organization.

  2. ASEAN – members are Brunei Darussalam, Cambodia, Indonesia, Laos, Myanmar, Philippines, Singapore, Malaysia, and Vietnam. Cambodia joined the ASEAN in 1999 and served as ASEAN chair in 2012. ASEAN members have agreed to lower intra-regional trade tariffs through the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area. New members such as Cambodia have already gone a long way to removing such tariffs, with almost 80% of their products being tariff-free, which helps to drive trade with Cambodia and the rest of the region.

  3. Bilateral Trade and Investment Framework Agreement – US/Cambodia. Signed in 2006 and allows favourable export items to the US, which is Cambodia's largest exporting partner.

  4. Generalised Scheme of Tariff Preference System – EU/Cambodia. Cambodia has been a major beneficiary of the EU's Generalised System of Preferences, which grants virtually all products – except arms and ammunition from less developed countries – duty-free and quota-free access into the EU market. EU trade accounts for approximtaely 42% overall of Cambodia's footwear and garments exports.

  5. ASEAN-Hong Kong, China Free Trade Agreement. Signed in November 2017 three years after the negotiations commenced in 2014. According to the Economic Ministers from ASEAN Member States, the ASEAN-Hong Kong Free Trade Agreement is the sixth such agreement between the ASEAN and external partners (China, Korea, Japan, India, and Australia-New Zealand).

Sources: WTO Regional Trade Agreements database, ASEAN, Phnom Penh Post

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Cambodia FDI stock
Graph: Cambodia FDI stock
Graph: Cambodia FDI flow
Graph: Cambodia FDI flow

7.2 Foreign Direct Investment Policy

  1. Cambodia's 1994 Law On Investment established an open and liberal foreign investment regime. All sectors of the economy are open to foreign investment and 100% foreign ownership is permitted in most sectors. In some few sectors, foreign investment is subject to conditions, local equity participation, or prior authorisation from authorities.

  2. There are few restrictions to foreign ownership of companies; a corporate tax holiday of up to eight years; a 20% corporate tax rate after the incentive period ends; duty-free imports of capital goods; and no restrictions on capital repatriation.

  3. The most popular sectors for foreign investment include garment manufacturing, agriculture, the services industry and tourism, which is one of Cambodia's key growth areas. The country's biggest investors tend to come from within the Asia region, with China, Malaysia, Vietnam and Thailand being major sources of foreign investment, along with the US.

  4. Cigarette manufacturing, movie production, rice milling, gemstone mining and processing, publishing and printing, radio and television, wood and stone-carving production and silk-weaving are some of the sectors/activities that are subject to conditions such as local equity participation, or prior authorisation from authorities.

Sources: WTO – Trade Policy Review, The International Trade Administration (ITA), U.S. Department of Commerce

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Qualified Investment Projects (QIPs)The Council for the Development of Cambodia (CDC) is the main authority on all strategic and regulatory aspects of qualified investment projects (QIPs) and the development of Special Economic Zones (SEZs) in Cambodia.

QIP may choose between a profit tax exemption or to use special depreciation.

– A profit tax exemption holiday period is composed of "Trigger period" plus 3 years plus a "Priority Period" to a maximum of 9 years. A QIP shall be subject to a profit tax rate after its tax exemption period as determined in the Law on Taxation.

– Production equipment, construction materials and production input to be used in the production of exports goods for a QIP benefits from exemption from import duties. Other incentives include:

   * 40% special depreciation allowance on the value of the new or used tangible properties used in the production or processing

   * Duty free import of production equipment, construction materials, etc

   * A QIP located in a designated SPZ or EPZ is entitled to the same incentives and privileges as other QIPs

   * The rights, privileges and entitlements of a QIP can be transferred or assigned to a person who has acquired or merged a QIP subject to the approval of the CDC

   * A QIP shall be entitled to 100% exemption of export tax, except for activities as stipulated in laws in effect
The Cambodia Special Economic Zones Board has approved 25 SEZs, of which nine are in operation. These SEZs are located near the borders of Thailand and Vietnam, as well as in Phnom Penh, Kampot and Sihanoukville, facilitating regional trade. Others are still at different stages of development and some remain undeveloped.

With the exeption of Sihanoukville Port SEZ, which is a public-private joint venture, Cambodia’s SEZs are almost entirely privately owned and managed.
The main sectors of investment in SEZs include garments, shoes, bicycles, food processing, car and motorcycle assembly and electrical equipment industries.

The government’s purpose in establishing SEZs was to promote diversification of the industrial base beyond electronics, to establish economic linkages between urban and rural areas and to promote industrial investment outside Phnom Penh.

The exemption period for the Tax on Profit shall be provided for a maximum period of 9 years, in compliance with article 14.1 of the Law on the Amendment to the Law on Investment.

– The import of equipment and construction materials to be used for infrastructure construction in the zone shall be allowed and exempted of import duties and other taxes.

– The Zone Developer shall receive custom duty exemption on the import of machineries, equipment for the construction of the road connecting the town to the zone, and other public services infrastructures for the public interests as well as for the interests of the zone.

– The Zone Developer may request, under the form of a temporary admission (AT), the import of means of transport and machineries used for the construction of the infrastructures in accordance with the laws and regulations in force.

– The Zone Developer may obtain a land concession from the State for establishing the SEZ in areas along the border or isolated region in accordance with the Land Law, and may lease this land to the Zone Investors.
Zone investors and developersZone developers, investors or foreign employees have the right to transfer all the income derived from the investment and salaries received in the zone to banks located in other countries after payment of tax.

The Zone Developer and the Zone Investor are entitled to obtain the investment guarantees as stated in Article 8, Article 9 and Article 10 of the Law on Investment in the Kingdom of Cambodia and other relevant regulations.

Non-discriminatory treatment as foreigners, non-nationalization and no-fixing price.

The same incentives on customs duty and tax as other QIP shall be entitled.

The Zone Investor entitled to the incentive on Value Added Tax (VAT) at the rate of 0% shall record the amount of tax exemption for its every import. The said record shall be disregarded if the Production Outputs are re-exported.

In case the production putputs are imported into the domestic market, the Zone Investor shall refund the amount of Value Added Tax as recorded in comparison with the quantity of export.

Source: Council for the Development of Cambodia

8. Taxation – 2017

  • Value Added Tax: 10%
  • Corporate Income Tax: 20%

Source: PwC Taxes at a Glance 2017

8.1 Important Updates to Taxation Information

  • With effect from 2015, listed companies are entitled to a 50% reduction on the annual coprorate income tax payable for three years. This starts from the beginning of the current tax year if the securities are issued within the first half of the tax year or the following tax year if the securities are issued within the second half of the tax year. 

  • Cambodian tax officials met with their counterparts in Hong Kong in June 2017 as part of the first round of discussions for drafting a double taxation agreement (DTA) aimed at preventing dual taxation and fiscal evasion. 

8.2 Business Taxes

Type of TaxTax Rate and Base
Resident companies: Corporate Income TaxWorldwide tax-base; 20%
Capital Gains TaxTaxed as part of business income. Cambodia does not have a mechanism for imposing tax on capital gains derived by individuals in Cambodia.
Value Added TaxTaxable supplies attract VAT at either the standard rate of 10% or the zero rate. Zero rating applies to exports of goods and services and certain charges in relation to the international transport of people and goods.
Capital gains on sale of shares in resident companies/capital gains on sale of immovable propertyTaxable, part of business income
Personal IncomeWorldwide tax base; progressive tax rates ranging from 0% to 20% for incomes below KHR800,000 and above KHR12,500,000, respectively.

Sources: General Department of Taxation, Minstry of Economy and Finance, PwC

9. Foreign Worker Requirements

9.1 Localisation Requirements

Under the Cambodian Labour Law, the percentage of foreign workers is capped at a maximum of 10% of all the staff working for an enterprise.

The Ministry of Labour may approve a request for an exemption to the above-mentioned 10% limit, particularly if the business is in need of specific skills currently unavailable in Cambodia.

The application for a 'foreign quota approval' from the Ministry of Labour must be submitted between September 1 and November 30 every year if the aforementioned limit is exceeded.

Failure to comply with the foreign employee quota and work permit requirements could (among other things) result in the imposition of fines of up to USD180 and retroactive penalties, in the amount of USD100 for each year that a foreigner has worked in Cambodia without a valid work permit.

9.2 Obtaining Foreign Worker Permits for Skilled Workers

The Labour Law stipulates that no foreigner is allowed to work in Cambodia without a valid work permit and an employment card issued by the Ministry of Labour. Under current practice, foreign nationals working or doing business in Cambodia and holding either an E visa (also known as a 'business visa' or 'ordinary visa') or a K visa (also known as a 'permanent visa') are required to have a work permit and employment card.

There are two types of work permits in Cambodia: temporary work permit, which lasts for the duration of the individual's visa; and permanent work permit, which is mostly reserved for major investors. A work permit usually cost USD100.

Furthermore, foreign nationals wishing to work in Cambodia must also meet the additional conditions such as not suffering from communicable diseases.

9.3 Visa/Travel Restrictions

Nationals of most countries can be issued with a visa on arrival – except citizens of Indonesia, Thailand and Vietnam who do not require a visa before travelling to Cambodia for a stay of up to 30 days.

All foreign nationals are legally required to have a work permit if intending to work in Cambodia.

9.4 Religion/Culture

Buddhism is the most dominant form of religion practiced by over 96% of the population. It is also the religion recognised by the state. However, the Constitution of Cambodia guarantees that freedom of religious belief and worship shall be guaranteed by the State on the condition that such freedom does not affect other religious beliefs or violate public order and security. Other religions include Islam (1.9%) Christianity (0.4%) and others (0.8%).

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody'sNRNR
Standard & Poor'sNRNR
FitchNRNR

NR = Not rated

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
128/189131/190135/190
Ease of Paying Taxes Index
95/189124/190136/190
Logistics Performance Index
73/160N/AN/A
Corruption Perception Index
156/176161/180N/A
IMD World CompetitivenessN/AN/AN/A

Sources: World Bank, IMD, Transparency International

10.3 BMI Risk Indices


World ranking
201620172018
Economic Risk Index
133/202
Short-Term Economic Risk Score45.845.646.5
Long-Term Economic Risk Score44.946.746.7
Political Risk Index
119/201
Short-Term Political Risk Score62.162.162.1
Long-Term Political Risk Score59.358.358.3
Operational Risk Index  129/201
Operational Risk Score44.440.842.6

Source: BMI Research

10.4 BMI Political and Economic Risk Indices

BMI Risk Summary - Q2 2018

POLITICAL RISK

Cambodia's short-term political risk score is weighed down by poor scores in the 'policy-making' and 'social stability' subcategories. The 'policy continuity' subcategory scores highly, reflecting the relatively consistent policymaking seen under the CPP government.

ECONOMIC RISK

Cambodia's economic risk scores are low as a reflection of the country's reliance on external financing and the lack of capital markets. The economic growth subsection supports both indices as we expect to see 5-6% real GDP growth due to rapid investment in the tourism, garment, and agricultural sectors over the coming years. Finally, the currency peg with the US dollar affords some stability in monetary policy but acts as a restriction in terms of policymakers' ability to respond to economic shocks.

OPERATIONAL RISK

Cambodia has emerged as one of the fastest-growing markets in the South East Asia region after decades of internal conflict. Investors stand to benefit from the large labour pool, low wages and openness to foreign direct investment, which help to make the country an attractive investment destination. However, there are considerable risks presented by a lack of adequate education, the underdeveloped transport network.

Graph: Cambodia short term political risk index
Graph: Cambodia short term political risk index
Graph: Cambodia long term political risk index
Graph: Cambodia long term political risk index
Graph: Cambodia short term economic risk index
Graph: Cambodia short term economic risk index
Graph: Cambodia long term economic risk index
Graph: Cambodia long term economic risk index

Note: Higher score = Lower risk
Sources: BMI Economic, Political Risk Indices, BMI Country Risk summaries

10.5 BMI Operational Risk Index


Operational RiskLabour Market RiskLogistics RiskTrade and Investment RiskCrime and Security Risk
Cambodia Score42.646.737.946.040.0
East and Southeast Asia Average55.356.554.455.754.7
East and Southeast Asia Position (out of 18)14.015.014.014.013.0
Asia Average48.950.647.147.750.0
Asia Position (out of 35)22.019.023.019.024.0
Global Average49.849.849.350.049.9
Global Position (out of 201)129.0121.0140.0121.0129.0

Note: 100 = Lowest risk, 0 = Highest risk
Source: BMI Operational Risk Index

Graph: Cambodia vs global and regional averages
Graph: Cambodia vs global and regional averages
Country
Operational Risk
Labour Market RiskLogistics RiskTrade and Investment RiskCrime and Security Risk
Singapore82.977.8
74.7
89.9
89.3
Hong Kong81.271.2
75.9
88.589
Taiwan74.866.477.974.3
80.7
South Korea70.363.578.167.572
Malaysia68.361.675.473.562.5
Macau62.264.250.566.967.3
Brunei
60.262.85357.267.7
Thailand59.156.768.265.246.2
China56.653.965.852.254.3
Vietnam53.752.654.555.552.1
Indonesia52.751.557.653.947.8
Mongolia51.557.841.952.453.7
Philippines44.151.344.647.333.4
Cambodia42.646.737.94640
Laos39.244.2363838.3
North Korea32.749.629.620.331.2
Timor-Leste32.240.52826.633.8
Myanmar32.145.529.528.225.4
Regional Averages55.356.554.455.754.7
Emerging Markets Averages46.84845.847.546.1
Global Markets Averages49.849.849.350
49.9

Note: Higher score = Lower risk
Source: BMI Operational Risk Index

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Cambodia

Graph: Cambodia major export commodities to Hong Kong (2017)
Graph: Cambodia major export commodities to Hong Kong (2017)
Graph: Cambodia major import commodities from Hong Kong (2017)
Graph: Cambodia major import commodities from Hong Kong (2017)
Graph: Cambodia merchandise exports to Hong Kong
Graph: Cambodia merchandise exports to Hong Kong
Graph: Cambodia merchandise imports from Hong Kong
Graph: Cambodia merchandise imports from Hong Kong

2016
Growth rate (%)
Number of Cambodian residents visiting Hong Kong19,94311.1
Number of Cambodian residents in Hong KongN/AN/A

Sources: Hong Kong Tourism Board, Hong Kong Immigration Department


2017
Growth rate (%)
Number of South and East Asia residents visiting Hong KongN/AN/A
Number of South and East Asia residents in Hong Kong2,784,870N/A

11.2 Commercial Presence in Hong Kong


2016
Growth rate (%)
Number of Cambodian companies in Hong KongN/AN/A
- Regional headquarters
- Regional offices
- Local offices

11.3 Treaties and Agreements between Hong Kong and Cambodia

China (mainland) and Cambodia signed an Agreement for the Avoidance of Double Taxation (DTA) on 13 October 2016 and Investment Promotion and Protection Agreements which came into effect on February 12, 2000.

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

Cambodian Consulate General in Hong Kong

Address: Unit 1218, 12th floor, Star House, No. 3 Salisbury Road, Tsim Sha Tsui, Kowloon
Email: camcg.hk@mfa.gov.kh
Hours of Business: Monday to Friday, 9:00 a.m. - 5:00 p.m.
Head of Mission: Mr Sin Siya, Consul General
Tel: (852) 2546 0718
Fax: (852) 2803 0570

Source: www.embayssypages.com

11.5 Visa Requirements for Hong Kong Residents

People travelling on a Hong Kong passport need a visa to visit Cambodia.

Source: Visa on Demand

Content provided by Picture: BMI Research
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