Chapter 5 : Investment Incentives and Procedures
The Council for the Development of Cambodia (“CDC”)/Cambodian Investment Board (“CIB”) is the main authority for the government on all strategic and regulatory aspects of qualified investment projects (QIPs) and the development of Special Economic Zones (“SEZs”) in Cambodia.
Investment incentives are available for QIPs. Notably, investors who are given final registration certificates (“FRCs”) will be entitled to various incentives. To be entitled to these, QIPs must undergo an investment registration process with the CDC or the Provincial/Municipal Investment Sub-Committee (“PMIS”) depending on the type of investment project. The CDC/ CIB reviews investment applications and grants concessions to investors and investment projects that meet the requirements stipulated in the Investment Law. The application for investment registration can be made either before or after incorporation or registration with the MOC.
In addition, the government has improved investment services. For instance, in 2005, the government established the Cambodian Special Economic Zones Board (“CSEZB”) under the auspices of the CDC to promote the SEZ scheme. Administrated by the CSEZB, the Special Economic Zones Administration (“SEZA”) has established authorized SEZs and provides a one-stop service to investors from the registration of investment projects to the obtaining of routine export-import approvals (detailed in the section on SEZs, Chapter 10).
This chapter will primarily help investors understand investment incentives available and the procedures to obtain such incentives.
1. Investment Incentives
Generally, QIPs may choose either a profit tax exemption (“tax holiday”) or special depreciation. In addition, QIPs also enjoy customs duty exemptions on the import of production equipment, construction materials, and production inputs. Import duty on production inputs is, however, only granted to inputs used in the production of exported goods.
2. Proﬁt Tax Exemption
QIPs that choose a tax holiday will enjoy a profit tax exemption during the “trigger period,” the three-year period following the trigger period, and the “priority period.” QIPs are not required to make a monthly pre-payment of profit tax with the General Department of Taxation (“GDT”) during the tax exemption period and are not subject to annual minimum tax.
The “trigger period” is the period starting from the date the QIP is registered and ends the last day of the tax year immediately preceding the earlier of: i) the tax year in which profit is first made; or ii) the third year after the tax year in which income is first made.
The three-year period commences from the tax year immediately following the trigger period. The “priority period” commences from the tax year immediately after the third year of the three-year period. The duration of the priority period will be determined with recourse to the Financial Management Law.
3. Special Depreciation
QIPs that don’t avail of the profit tax exemption are entitled to a special depreciation allowance of 40 percent of the value of new or used tangible properties used in production or processing. The special depreciation allowance is deductible during the first year of purchase of the tangible property or the first year using such property.
4. Customs Duty Exemption
Export-oriented and supporting-industry QIPs enjoy customs duty exemptions for imports of production equipment, construction materials, and production inputs. Domestically-oriented QIPs generally receive customs duty exemptions for the import of production equipment and construction materials only. Import duty exemptions on production inputs are granted to domestically-oriented QIPs only when they supply their products to export-oriented industries or when they export their goods. Only the inputs used to produce those goods are exempted from import duty.
Additionally, export duty exemptions are provided to all QIPs except for certain exports as specifically listed in Cambodian law as being subject to export duties.
The exemptions described above apply only to profit tax and customs duties. Tax exemptions are not available for withholding tax, additional profit tax on dividend distributions, salary tax, value-added tax (VAT), specific tax on goods and services, or any other taxes imposed under relevant laws.
Companies with QIPs may, however, qualify for refunds of VAT inputs paid in relation to their investment projects during the setting up of their business, for a period of up to two years, if their QIP-related business has no taxable output. To qualify for such VAT refund, the investor must register with the tax authority.
6. Supporting Industry QIPs and Subcontractors
Supporting Industry QIPs and Subcontractors can avail of VAT incentives if they are involved in;
- The production of packaging;
- The production of thread, cloth, button, zippers, coat hangers, clothes nippers and components to be attached to clothes ,shoes, bag or hat; and
- Laundry, dyeing, printing on cloth or clothes, sewing or knitting.
Supporting Industry QIPs that directly supply the above mentioned goods and services to export-oriented companies in the garments industry, textile industry, shoe manufacturing industry or bag, hand bag & hat manufacturing industry are entitled to VAT-free importations and zero-rated sales to exporters. Domestic purchases of goods and services are subject to 10% VAT. These QIPs, however, must ensure that all the goods and services provided by them are exported.
Subcontractors directly supply more than 80% of these goods and services to export-oriented industries in the garment, textile, footwear or millinery industries are subject to zero percent VAT on their supplies. However, 10 percent VAT still applies on goods importation and domestic purchases. Supporting Industry QIPs and subcontractors have to apply in writing to the GDT in order to obtain the incentive.
7. Investment Guarantees
In addition to the above incentives, both foreign and Cambodian QIPs enjoy the following investment guarantees:
- equal treatment of all investors regardless of nationality (except for land ownership and some investment activities);
- no nationalization adversely aﬀecting investors’ properties;
- no price controls on investors’ products or services; and
- remittance of foreign currencies abroad.
8. Special Economic Zones
For investors investing in SEZs, similar tax incentives and guarantees exist. Notable among them is a temporary tax exemption for income taxes and a permanent exemption for Minimum Tax and customs duties. Additionally, the investor in SEZ is exempt from VAT on imports, but only in relation to goods it exports.
9. Investment Projects Eligible for Investment Incentives
Only certain investment projects are eligible for tax incentives. Annex 1 of the relevant Sub-Decree (provided in Annex A of this guide) contains a list of investment activities and projects ineligible for incentives (the “Negative List”). Investment sectors not listed, or investment with a capital amount exceeding the thresholds set by the Negative List, may be eligible for incentives.
10. Restricted Investment Sectors
Some sectors are restricted or prohibited for reasons of national security, social safety, or necessity of the national economy. Investment in certain highly “sensitive” sectors is prohibited for all investors, such as:
- the production or processing of psychotropic and narcotic substances;
- the production of poisonous chemicals;
- the production and processing of electricity power using any waste imported from a foreign country; and
Certain other sectors like cigarette manufacturing, alcohol production, movie production, gems, publishing, printing, radio and television, land ownership, pawn broking and pharmaceutical imports and exports require some equity participation or investment by a Cambodian national or require special approvals from government entities.
11. Restrictions and Requirements
Investors should be aware of the following:
11.1 Use of Land
Ownership of land by investors for the purpose of carrying on a QIP is only permitted for individuals and entities with Cambodian nationality. However, land concessions and long-term leases are permitted for all investors.
During the concession or lease period, investors may, subject to the terms of each specific concession or lease agreement, mortgage or sub-lease any movable or immovable properties on the land. The transfer or mortgage of concession land, not being used for the purposes under which the concession was granted, is prohibited.
11.2 Use of Foreign Employees
Investors are only allowed to employ expatriates with qualifications, skills, and expertise not available among the Cambodian workforce. To employ expatriates, the investors must obtain approval on foreign employee quotas from the Ministry of Labour and Vocational Training by 30 November of each year, in order to employ such persons the following year. The investors must submit work permit applications for on their behalf (detailed in the section on Foreign Employees, Chapter 16). For companies with approved QIPs, the CDC will provide assistance in obtaining visas, stay and work permits for these expatriates. The CDC also assists investors in obtaining visas, rights to stay, and travel permits for their spouses.
12. QIP Registration Procedures
Anyone seeking investment incentives and/or guarantees must submit an investment proposal to the CDC or PMIS and pay a one-time application fee. This application fee covers tax registration, administration fees for securing the approvals, authorizations, licenses, and registrations from all relevant ministries and government departments. An investor must submit separate investment proposals for each proposed activity.
The CDC and PMIS are responsible for registering investment proposals and providing one-stop services to investors. The CDC, currently chaired by the prime minister, regulates investment projects with investment capital exceeding USD 2 million, investment projects located in two or more provinces or municipalities and investment projects located in SEZs. Other investment projects must register with the relevant PMIS, as chaired by the relevant provincial or municipality governor.
The CDC or PMIS will grant a conditional registration certificate (“CRC”) to the applicant within three working days of lodging an investment proposal unless:
- the investment proposal does not contain all the required information;
- the investment proposal falls under the Negative List; or
- the proposed investment is merely an extension or expansion of a previous or current QIP.
The CRC is tasked with specifying the necessary approvals, authorizations, clearances, licenses, permits, and registrations required to qualify as a QIP.
The CDC or PMIS will issue a final registration certificate (“FRC”) to the applicant within 28 working days of CRC issuance whether or not all the approvals, authorizations, clearances, licenses, permits, and registrations have been obtained.
The CDC or PMIS is required to obtain these approvals and authorizations on behalf of the applicant. A QIP commences from the issuing date of the FRC. Applicants are generally not required to pay any deposit to guarantee their investment, other than specific cases (such as concessions).
13. Process and Timeframe from Submitting an Investment Proposal
The following table outlines the process and timeframe for obtaining the FRC:
|Condition / Requirements||Timeframe|
|Investment proposal submission to the CDC or PMIS||Payment of application fee (KHR 15 million)||N/A|
|Obtaining a CRC from the CDC or PMIS||The proposal contains all the required information, and is not made in respect of an activity included on the Negative List, or which previously has been, or is currently, carried on by the investor or any other person, and which has received investment incentives.||Within 3 working days of submitting the investment proposal.|
|Ministries/Authorities||Meet the conditions/requirements of the approvals, authorizations, clearances, licenses, permits, or registration.||Within 28 working days of obtaining the CRC.|
|CDC or PMIS||Obtaining all the approvals, authorizations, clearances, licenses, permits, or registrations from the relevant ministries/authorities.||28 working days after obtaining the CRC.|
14. Revocation or Cancellation of an FRC
An FRC will be revoked from the date it was issued by the CDC or PMIS if an investor:
- obtained the FRC or compliance certificate through fraud or misrepresentation; or
- fails to commence an investment activity within 6 months of receipt of all required approvals, except in the case of concession contracts where a diﬀerent period is specifically provided.
The CDC or PMIS will immediately notify the investor in writing of the revocation. An investor whose FRC is revoked by the CDC or PMIS may appeal in writing to the co-chairmen of the CDC within 20 working days from the date the revocation notice is received. A QIP whose FRC is revoked or cancelled cannot claim any incentives as set out in the FRC.
15. Investment Projects Approved Prior to the Amendment of the Law on Investment
Investment projects approved under the Law on Investment promulgated on 5 August 1994 will be recognized as QIPs after the investor obtains a certificate of recognition from the CDC. The certificate of recognition will be issued within 3 working days of receipt of the investor’s written request.
Investors recognized as QIPs will continue to enjoy incentives approved by the CDC prior to the Law on Amendment of the Law on Investment, promulgated on 24 March 2003. Investors granted 9 percent profit tax incentives, however, continued to enjoy these incentives only until 2010.
All investors, including those approved under the Law on Investment and those approved under the Law on Amendment of the Law on Investment, can claim their entitlement to the investment incentives only after they have obtained a certificate of compliance from the CDC.
16. Certiﬁcate of Compliance
Only QIPs issued with an annual certificate of compliance (“COC”) are entitled to investment incentives. A COC will be issued to a QIP by the CDC within 90 working days of the end of each financial year. If the CDC fails to issue a COC within this period, a COC is deemed to have been issued.
The CDC may revoke a QIP’s COC if the CDC considers the QIP not to have lodged all required documentation. The QIP will then lose all incentive entitlements from the date of COC revocation.
17. Reporting Obligations
QIPs must submit to the tax authority monthly and annual tax declarations, together with the COC, for the tax year, and pay all applicable taxes. QIPs also must submit certified copies of customs clearance documents and valuation documents (issued by a government-appointed agent) to the CDC and tax authority, within 30 working days of importation.
In addition, QIPs must submit annual audited financial statements by independent auditors, registered in the list of certified public accountants, and auditors of the Institute of Khmer Certified Public Accountants and Auditors.
QIPs must also submit: a quarterly report on the eﬀective import of materials and equipment for production; a quarterly report on the eﬀective export of the QIP’s finished products; an annual inventory list of immovable property; and an investment information sheet in the required format, notably the Investment Information for Survey form.
18. Mergers and Acquisitions Involving Investors
In the event of the merger or acquisition of a company holding a QIP, or transfer of shares in a company holding a QIP, which results in the transferee holding 20 percent or more of the shares, written approval of the CDC or PMIS is required so that the new entity, buyer, or existing QIP holder continues to be entitled to the investment incentives and guarantees.
A written request for such approval must be submitted to the CDC or PMIS within 10 working days prior to the merger, acquisition, or share transfer. The CDC or PMIS will provide its decision in writing within 10 working days of receiving such a request.
Chapter 6 : Company Law and Commercial Registration
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