On 15 October 2021, the New Law on Investment (“New Investment Law”) was promulgated, which aims to provide a comprehensive, transparent and predictable legal framework to attract both domestic and foreign investment. The New Investment Law replaces the existing 1994 Law on Investment and the 2003 Law on the Amendment to the Law on Investment (“Former Investment Law”) from its promulgation date (15 October 2021). The New Investment Law consists of 12 chapters and 42 articles and was drafted in accordance with the 2015-2025 Industrial Development Policy of the Royal Government of Cambodia (“RGC”) with inputs from both the private sector and other relevant stakeholders.
We set out below some key features of the New Investment Law.
Under the current procedure, registration of a qualified investment project (“QIP”) is made through submission of a hard copy application dossier to the Council for the Development of Cambodia (“CDC”) or the Provincial/Municipal Investment Sub-committee (“PMIS”).
The New Investment Law now introduces an online registration process for QIP applications. In addition, the current two-step process, whereby a Conditional Registration Certificate (“CRC”) has been issued prior to issuance of a Final Registration Certificate, will be replaced with a single registration certificate (“Registration Certificate”), which will contain machine-readable bar/QR code. The timeline for issuance of a Registration Certificate is shorten from the current 31 working days to 20 working days.
While the Former Investment Law requires the CDC to procure all licenses and permits listed in the CRC on behalf of an applicant, the New Investment Law does not appear to impose such obligation on the CDC. The New Investment Law clarifies that an investment project that receives a Registration Certificate can be implemented automatically, but the issuance of such certificate does not relieve an applicant from the obligation to apply for other operating licenses and permits, as required under applicable Cambodian law.
The New Investment Law seeks to accommodate the regional commitments that the RGC has made to make Cambodia a more attractive investment destination. In addition to investment incentives for the major investment projects, the New Investment Law also provides investment incentives and guarantee to the investment projects that: (1) contribute to skills training, research and development and innovation; (2) nurture the growth of small to medium sized enterprises (“SMEs”) by providing support to SMEs via skills training, staff incentives and investment in machinery or production equipment; (3) establish large industrial parks and commercial hubs; (4) promote more active participation by the private sector in the development of physical infrastructure; (5) promote the logistics and digital industry sectors; and (6) contribute to environmental management and protection and biodiversity conservation.
The New Investment Law provides more specific investment incentives to the investors. The investment incentives are classified into three (3) types, being: (1) basic incentives, (2) additional incentives; and (3) special incentives.
The investors have two (2) options to choose, one of which is a Tax on Income exemption and the other a special depreciation rate and the ability to deduct certain expenses using an inflated rate. For the first option, an investor is entitled to receive a Tax on Income exemption between three (3) to nine (9) years subject to the specific investment sector and activities. At the end of the Tax on Income exemption period, the investor will pay Tax on Income at graduated rates for the next six (6) years i.e. five (5) percent Tax on Income for the first two (2) years, ten (10) percent for years three (3) to four (4) and fifteen (15) percentage for years five (5) to six (6). As for the second option an investor is eligible for the deduction of certain expenditure, including capital depreciation and deduction of certain significant expenses at the rate of 200% for a duration of nine (9) years.
Further, both an export QIP and a supporting QIP are also eligible to receive customs duty exemptions and excise tax and VAT exemptions for the import of construction equipment and materials, production equipment and materials and production inputs. A domestic QIP is only eligible for customs duty exemptions and excise tax and VAT exemptions for the import of construction equipment and materials and production equipment and materials.
In addition to the basic incentives, investors are also eligible to receive additional incentives, including: (1) VAT exemptions for the purchase of locally produced production inputs; and (2) deduction of expenses at the rate of 150% related to, among other things, research, development, innovation and human resource development.
Special incentives will be granted to the investment projects that have high potential to contribute to national economic development. The specific type of projects and incentives will be set out in the law on financial management.
The New Investment Law provides more investment guarantees and protections compared to the Former Investment Law. Under the New Investment Law, the investors are entitled to receive certain investment guarantees and protections including, but not limited to: (1) compensation for the losses as a result of civil war, armed conflict and a state of national emergency; (2) fair treatment for domestic and foreign investors, with the restriction on land ownership by foreign investors remaining unchanged; (3) protection against nationalization or expropriation; (4) restriction against pricing regulation; (5) no restriction on foreign exchange control and profit repatriation; and (6) intellectual property protection.
The expansion of QIP project, which is covered in Sub-Decree 33 dated 30 March 2019 (“Sub-Decree 33”) but not under the Former Investment Law, is now captured by the New Investment Law.
The New Investment Law allows investors to register their investment projects such as a QIP, an expansion of a qualified investment project (“EQIP”) and a project that is eligible for only an investment guarantee (“IGP”) with the CDC/PMIS. An EQIP that is registered with the CDC/PMIS under this New Investment Law is entitled to receive investment incentives under the New Investment Law.
The New Investment Law grants rights to the CDC to cancel a QIP on certain grounds, including the failure by the investor to perform its obligations under relevant laws and regulations. Nevertheless, the New Investment Law does not to provide any explicit grace period for the investor to remedy their defaults. We expect the Sub-Decree on the implementation of the New Investment Law to provide clarity on procedure for the cancellation of an investment project.
Under the Former Investment Law, the CDC will only approve registration of an investment project as a QIP project if such investment activity is not captured under the Negative List of the Sub-Decree 111 dated 27 September 2005 (“Sub-Decree 111”). The New Investment Law continues to adopt this principle and a new ‘Negative List’ will be stated in a separate Sub-Decree. Please note that, pursuant to the New Investment Law, Sub-Decree 111 and a number of other Sub-Decrees continue to remain in force and effective until it is replaced by new regulations.
There is no change with respect to the dispute settlement mechanism under the former and new legislation. Any dispute between investors and investors shall be settled through conciliation by the CDC/PMIS based on a written request of the parties to the dispute. The CDC/PMIS is required to commence the conciliation process within thirty (30) days of receipt of the written request from the parties. If not resolved, such dispute shall be referred to either the national or international arbitration or to the competent courts in Cambodia.
Rights, privileges and other benefits acquired by the QIP cannot be transferred to any third party, except via the purchase, sale or merger of investment projects (or the investment companies that undertaken them) which is subject to prior approval from the CDC/PMIS, among other relevant authorities.
The New Investment Law states that investment projects that receive investment incentives and guarantees from the CDC/PMIS under the Former Investment Law shall be considered as QIPs or an IGP under the New Investment Law and related Sub-Decrees. The New Investment Law clarifies further that existing QIPs that receive tax on income exemption prior to the adoption of this law shall continue to receive profit tax exemption for the remaining period. However, the New Investment Law does not appear to clarify whether or not the existing QIPs are eligible for investment incentives and guarantees under this new regime. Further, the New Investment Law does not provide specific compliance obligations for a QIP, such as the requirement to submit an annual compliance certificate and approval requirements for changes of particulars of the projects. We expect the above issues will be addressed in the Sub-Decree to be issued by the RGC.
The existing QIPs that expand their investment projects and apply for registration of its EQIP with the CDC/PMIS under this New Investment Law shall enjoy the investment incentives and guarantee under this new regime of the New Investment Law.
Whether you are a domestic or foreign investor looking to invest in Cambodia and enjoy the incentives and protections under the New Investment Law, it is recommended that you first consider whether your contemplated business activities will fall under the restricted businesses under the Negative List under Sub-Decree 111 or the new priority sectors under the New Investment Law.
Our team at DFDL is available to speak with you and address any queries that you may have on how to structure your projects pursuant to the New Investment Law.
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.