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5 reasons to do business in Cambodia
Cambodia has witnessed both strong and sustainable economic growth over the past two decades; averaging 7.2% from 2000 to 2020. It is now one of the fastest-growing economies in the world.
The recent surge in FDI (foreign-direct investment) show that investors are realising and capitalising on the opportunities Cambodia offers. With an increase of 11% by 2021, the FDI figures underline the interest and potential that the country has to offer in terms of business. The government is aware of the importance of FDI so they offer attractive measures to favour the establishment of foreign businesses.
In this article, we will take a look at 5 reasons why businesses should consider Cambodia as a viable location for their business in South East Asia.
Ease of corporate foreign ownership
To properly protect and guarantee the legal rights of foreign companies, the government places very few restrictions on foreign owned entities.
Cambodia offers 2 valuable advantages for those who wish to establish an entity there:
- Establishing a 100% foreign owned-company is possible.
- Foreign-owned companies can also engage in the almost all of the same business activities a Cambodian-owned entity can.
However, Foreign investment is also prohibited in the following areas:
- Land ownership (although the purchase of land through a land-holding company can be used, however, foreign ownership cannot exceed 49%).
- Processing or production of psychotropic substances and narcotic substances.
- Production of the following: poisonous chemicals, agricultural pesticides or insecticides and any goods using chemical substances prohibited by the World Health Organization.
- Processing or producing electric power by using waste imported from another country.
- Forestry exploitation business as prohibited by the Forestry Law.
Qualified Investment Projects (QIP)
Foreign companies can also apply to be registered as a Qualified Investment Project (QIP). Companies who successfully register as a QIP will b able to take advantage of the following incentives:
- A tax exemption – QIP registered companies are eligible for a tax holiday of three years. This tax holiday will start on the date they receive the Final Registration Certificate. Once the inital three-year tax holiday has ended, the QIP will then be entitled to another three-year priority period.
- A 40% special tax depreciation – This tax depreciation can be applied to any production material obtained during the first year of the purchase or the first year the materials are used.
Cambodia currently offers three categories of QIPs:
- Domestic qualified investment projects – for projects whose business activities do not include the export of goods.
- Export qualified investment projects – for projects whose business activites include exporting all or some of their products outside of Cambodia.
- Supporting industry qualified investment projects – for projects who supply 100% of its products to export companies
Companies whose activities are invloved in the following projects are not eligible to apply for QIPs:
- Commercial activities, import and export, wholesale and retails
- Transportation services by waterway, air or roadway (except the railway sector)
- Tourism services
- Currency and financial services
- Restaurants, bars, nightclubs, bars or massage parlours
- Casino and gambling businesses
- Projects relating to newspapers and the media
- Real estate development
Financial advantages
Low taxes
Cambodia benefits from having some of the most competitive tax regimes in Southeast Asia. The vast majority of legal entities are subject to a 20% corporate income tax (CIT).
Cambodia’s advantageous tax regime has and continues to attract investors and business owners who seek new opportunities in unexplored territories. As tax rates are sometimes in the top criteria when deciding where to set up a company, Cambodia is definitely a competetive market.
Possibility to remit profit
The “Law on the Foreign Exchange” of 1997 stipulates that “there shall be no restriction on foreign exchange operations” through authorised banks. This law makes the transfer of profits from Cambodia to a foreign bank account convenient and legal. This law benefits companies that wish to easily redeploy the earned profits in their other jurisdictions.
Ability to use USD ($)
Cambodia has its own currency, the Riel, however the US Dollar is also widely accepted. The widespread acceptance of USD makes it easier for foreigners to conduct business transactions.
This alllows foreign companies to be able to earn money in USD and send it back to their home country without having to worry about exchange rates.
Strategic location & free trade agreements
Cambodia is located in the centre of the east-west corridor of the Greater Mekong Sub-region (GMS). This favours market access as Cambodia is embracing free-market values and is becoming an increasingly active member of international markets. This strategic location is also reflected by the regional infrastructure projects (rail, road, air links) the country is developing.
Free trade agreements
Cambodia has recently entered into a bilateral free trade agreement with China and is currently in negotiations with South Korea. This agreements would give Cambodian companies access to 2 important economies and markets.
Furthermore, Cambodia has also entered the Regional Comprehensive Economic Partnership (RCEP) with Australia, China, Japan, South Korea, New Zealand and the ASEAN member countries (Brunei, Indonesia, Laos, Myanmar, Philippines, Singapore, Thailand and Vietnam).
The RCEP reduces tariffs on agricultural and manufactured goods and establishes new laws on intellectual property, temporary migrant workers and investment. This is a huge opportunity for Cambodian companies as a lot of new market opportunities will be created combined with a near free market access to a combined market involving the countries mentioned above.
Cambodia is also a member of the Association of Southeast Asian Nations (ASEAN) and the economic cooperation programme of the Greater Mekong Subregion (GMS).
ASEAN membership brings significant advantages to any entrepreneur, such as a large and constantly expanding free trade area with agreements and partnerships with Australia, New Zealand, Japan and ongoing negotiations with the European Union.
The Greater Mekong Subregion (GMS). The GMS grants direct access to emerging economies that have managed to attract USD 20 billion of investment since its creation.
Special Economic Zones
Cambodia has opened 22 Special Economic Zones. These Special Economic Zones are important because they provide businesses with special incentives including:
- 100% corporate tax exemption up to nine years
- 100% VAT exemption
- import/export duty exemption and free repatriation of profits.
- A one-stop service for imports and exports.
These Special Economic Zones can be found in the following locations.
- Sihanoukville SEZ, Sihanoukville
- Sihanoukville Port SEZ, Sihanoukville
- Neang Kok Koh Kong SEZ, Koh Kong
- Suoy Chheng SEZ, Koh Kong
- N.C SEZ, Sihanoukville
- Stung Hav SEZ, Sihanoukville
- L.C SEZ, Svay Rieng
- Manhattan (Svay Rieng) SEZ, Svay Rieng
- Poipet O’Neang SEZ, Banteay Meanchey
- Doung Chhiv Phnom Den SEZ, Takeo
- Phnom Penh SEZ, Phnom Penh
- Kampot SEZ, Kampot
- Sihanoukville SEZ 1, Sihanoukville
- Tai Seng Bavet SEZ, Svay Rieng
- Oknha Mong SEZ, Koh Kong
- Goldframe Pak Shun SEZ, Kandal
- Thary Kampong Cham SEZ, Kampong Cham
- Sihanoukville SEZ 2, Sihanoukville
- D&M Bavet SEZ, Svay Rieng
- Kiri Sakor Koh Kong SEZ, Koh Kong
- Kampong Saom SEZ, Sihanoukville
- Pacific SEZ, Svay Rieng
In conclusion
Cambodia is now viewed as a business-friendly country, offering also an appreciable quality of life that foreigners seek and a prime location for businesses to establish their entities.
Cambodia has been working hard to establish a solid infrsatructure and great incentives. Foreign companies and investors should always consider Cambodia when thinking about doing business in the region.
With a well thought-out business plan and appropriate legal support, an entrepreneurial adventure in Cambodia could be an exciting and beneficial proposition.
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