New law aims to attract investors

Cambodia’s new Law on Investment (LOI), which became effective on 16 October 2021 (replacing the previous investment law dating from 1994 and amended in 2003), aims to provide a comprehensive, transparent and predictable legal framework to attract both domestic and foreign investment. The LOI provides for expanded guarantees and protections, a new registration procedure and several types of tax incentives. The government will issue a sub-decree to facilitate implementation of the LOI.

This article looks at some of the key features of the new legislative framework.

Investment guarantees and protections

Investors are eligible for investment guarantees and protection under the LOI, including:

Fair and equitable treatment of domestic and foreign investors (except for the restrictions on land ownership by foreign investors, which remain unchanged);
Protection against nationalization or expropriation;
No government fixing of the prices of products or services created by the investment project;
Compensation for loss of income as a result of civil war, armed conflict and/or a state of national emergency;
No restrictions on foreign exchange control or the repatriation of profits; and
Intellectual property protection.

Registration procedure

To qualify for benefits, an investment project must be a qualified investment project (QIP) or an expanded QIP. To obtain QIP status, the investor is required to register the investment with the Council for the Development of Cambodia (CDC), the body responsible for overseeing and managing development, cooperation, private and special economic zones. Investors can also register a project that is eligible for an investment guarantee with the CDC or the Provincial/Municipal Investment Sub-committee.

The LOI introduced an online registration process for QIP applications and replaced the previous conditional registration certificate (which was issued before the investor received a final registration certificate) with a single registration certificate that contains a machine-readable bar/QR code, Online registration will take 20 business days. The law clarifies that an investment project that has received a registration certificate can be implemented automatically but the certificate does not relieve the applicant from any obligations to obtain other licenses and/or permits required under Cambodian law.

The CDC will monitor all investment projects to ensure compliance with the law. The person carrying out the project will be required to submit a report to the CDC on the project—the reporting format and deadlines will be set by the CDC.

Qualifying sectors

The following sectors and activities are entitled to investment incentives:

High-tech industries involving innovation or research and development;
Innovative or highly competitive new industries or manufacturing with high added value;
Industries supplying regional and global production chains;
Industries supporting agriculture, tourism, manufacturing, regional and global production chains and supply chains;
Electrical and electronic industries;
Spare parts, assembly and installation industries;
Mechanical and machinery industries;
Agriculture, agro-industry, agro-processing industries and food processing industries serving the domestic market or for export;
Small and medium-sized enterprises in priority sectors and small and medium-sized enterprise cluster development, industrial parks, and science, technology and innovation parks;
Tourism and tourism-related activities;
Special economic zones;
Digital industries;
Education, vocational training and productivity promotion;
Health;
Physical infrastructure;
Logistics;
Environmental management and protection, and biodiversity conservation and the circular economy;
Green energy and technology contributing to climate change adaptation and mitigation;
Other sectors and investment activities not listed by the LOI but deemed by the government to have potential for socio-economic development.

Investment incentives

There are three categories of incentives under the LOI: basic incentives, additional incentives and special incentives, the main features of which are as follows:

Basic incentives (Option 1: Tax exemption period)

Income tax exemption for three to nine years for specific investment sectors and activities;
After expiration of the tax exemption period, a QIP may pay income tax at a progressive rate in proportion to the total tax due, as follows:
- 25% for the first and second years
- 50% for the third and fourth years
- 75% for the fifth and sixth years;

Exemption from the requirement to prepay income tax during the tax exemption period;
Exemption from minimum tax if an independent audit report is available; and
Exemption from export tax, unless otherwise provided in other laws and regulations.

Basic incentives (Option 2: Special depreciation—if the QIP does not choose the tax exemption)

Depreciation of tangible assets at 40% for the first year;
Deduction of up to 200% of certain expenses for nine years (the law on financial management or sub-decree will set out eligible industry and investment activities, types of expenses and the deduction periods);
Exemption from the requirement to prepay income tax for a certain period depending on the industry sector and investment activity, as determined by the law on financial management or sub-decree;
Exemption from minimum tax if an independent audit report is available; and
Exemption from export tax, unless otherwise provided in other laws and regulations.

In addition to the incentives under option 1 or option 2, a QIP is entitled to exemptions from customs duty, excise tax and VAT on the import of construction equipment and materials, production equipment, and materials and production inputs for export.

Additional incentives (i.e., in addition to the basic incentives)

VAT exemption for the purchase of locally made production inputs;
Enhanced deduction of expenses at a rate of 150% for the following:
- Research, development and innovation;
- Human resource development through the provision of vocational training and skills for Cambodian employees/workers;
- Construction of accommodation, canteens, restaurants, nurseries for Cambodian employees/workers;
- Upgrading of machinery;
Can apply for a temporary long-term visa for expat staff and their family to stay in Cambodia, as well as work permits for expat staff; and
Post-investment services (with formalities and procedures to be set out in a sub-decree).

Special incentives

Special incentives are available for projects that have high potential to contribute to national economic development. The types of projects and incentives will be listed in the law on financial management.

Approvals and dispute resolution

The CDC has the power to withdraw all incentives and benefits granted to an investor under the LOI if the investor fails to comply with the legal requirements. Disputes involving an investor that is receiving benefits under the LOI should be resolved either between the parties, or if that fails, generally via arbitration.

Lim Seng Siew
sslim@bdo.my

Pos Sros
sros@bdo.com.kh