Chapter 4 : Key Investment Phases and Considerations
Investment in Cambodia is, in most cases, a straightforward, direct, and open process. It can be as simple as forming a company through registration of the corporate documents at the Ministry of Commerce (“MOC”), which normally can now be done via an online platform. In most cases, however, additional operating licenses will be required. For investment projects eligible for investment incentives – which include profit tax exemptions or special depreciation and import duty exemptions – registration with the Council for the Development of Cambodia (“CDC”) and the Cambodian Special Economic Zones Board (“CSEZB”) or the Provincial/Municipal Investment Sub-Committee (“PMIS”) is also required.
As in many other countries in the region, investment in Cambodia can be divided into five phases:
1. Evaluation of Business Potential and Scope of Investment
During this phase, the potential investor will investigate the business climate, meet and assess potential partners, evaluate the micro-and macro-economic conditions, calculate costs, assess the legal and employment environment, determine the presence of necessary infrastructure, and analyze other relevant considerations to determine whether a direct investment in Cambodia is desirable.
In many cases, the goals of the investor can be realized through an indirect investment vehicle such as the establishment of an agency or by creating licensing or distribution relationships with existing businesses operating in Cambodia. Chapter 14 (“Trade, Commerce, and Customs Procedures”) addresses the various forms of indirect investment available.
As part of this evaluation process, investors will weigh the relative advantages and disadvantages of investing in Cambodia, which include the following:
- the market is very open to foreign investment, with 100 percent foreign-owned investment permitted in almost every sector;
- a business-friendly government;
- a foreigner-friendly population;
- a burgeoning local middle class and growing ex-pat community;
- widespread use and acceptance of US dollars;
- favorable investment incentives and tax regime;
- abundant natural resources (land, water, minerals, and, potentially, oil and gas);
- world-class tourist sites including Angkor Wat, as well as islands and beaches;
- a low-cost, young and energetic workforce; and
- easy access to larger economies nearby including Thailand, Vietnam, and China.
- a legal framework that is still developing and lacks some key commercial laws;
- unpredictable legal implementation and enforcement;
- high cost of business inputs;
- lack of investment financing;
- a small (but growing) domestic market;
- relatively low purchasing power of the population; and
- poor education and inexperience in the workforce.
2. Registration for Investment Incentives
Once the fundamental decision is made to invest directly in Cambodia, the investor should determine whether the project is eligible for investment incentives, and whether obtaining such an investment license is beneficial for the business. Most investors will want to enjoy the benefits of tax incentives and investment guarantees available under an investment license. The investment licensing regime is governed primarily by the Law on Investment – promulgated in August 1994, and substantially amended in 2003 by the Law on Amendment to the Law on Investment to make licensing procedures simpler, more transparent, predictable, automatic, and non-discretionary. A number of sub-decrees have been subsequently issued which further refine the Investment Law. An investment license (registration as a qualified investment project (QIP) is obtained from the CDC and CSEZB or the PMIS. Only eligible projects have the right to receive such a license. This does not include investment projects that fall under the Negative List, defined by sub-decree, or investment projects with capital levels below the thresholds set in the Negative List. Chapter 5 (“Investment Incentives and Procedures: Overview”) addresses the incentives and guarantees available, registration process and eligibility requirements for a QIP.
3. Incorporation or Commercial Registration
Commercial registration must be made with the MOC to incorporate a business entity in Cambodia. The entity will have a legal personality only after registration with the MOC, which may be done before or after registration with the CDC/CSEZB or the PMIS. The forms of permitted business entities and the process of commercial registration with the MOC are addressed in detail in Chapter 6 (“Company Law and Commercial Registration”). In January 2016, the MOC launched an online platform for the registration of business entities. It is anticipated that this will reduce the time required to establish businesses.
4. Routine “Downstream” Licenses
There are a number of “downstream” approvals, permits, and licenses that must be obtained in addition to commercial registration with the MOC, and, in the case of QIPs, registration with the CDC/CSEZB or the PMIS. Additionally, certain businesses – for instance banking, construction and real estate, financial leasing, insurance, medical, mining, oil and gas, telecommunications, and investment activities (amongst others) – require special licenses from other government institutions or agencies before registering with the MOC. These routine downstream licenses include; tax registration, labour registration, and local authority approvals.
5. Operating Licenses or “Upstream” Licenses
In addition to the above-mentioned registrations and licenses, there are general and sector-specific operating licenses and approvals that must be obtained depending on the business activities of an enterprise. Some examples of “upstream” licenses include factory licenses from the Ministry of Industry and Handicrafts (“MIH”); mining licenses from the Ministry of Mines and Energy (“MME”); agricultural licenses and concessions from the Ministry of Agriculture, Forestries & Fisheries (“MAFF”); environmental approval from the Ministry of Environment (“MOE”); major construction permits from the Ministry of Land Management, Urban Planning and Construction (“MLMUPC”) and licenses from the Ministry of Tourism (“MOT”) for tourism-sector investment.
Note that, in practice, the sequence of licensing varies greatly depending on the investment project. In many cases, certain operating licenses are obtained before or during the investment licensing and incorporation phase. In some cases, they are obtained after investment licensing and incorporation.
Chapter 5 : Investment Incentives and Procedures
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