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Why should I set up a business in Cambodia?
Cambodia has begun to position itself as an attractive destination for companies looking to enter the South East Asian market. Cambodia provides a whole host of benefits for foreign entrepreneurs who are interested in starting a business in the country.
In this article, we will explore some of the key reasons why foreign investors should set up a business Cambodia. Please take a look at our market entry services here.
Rapidly growing and developing economy and FDI
Over recent times, the Cambodian economy has been undergoing something of a revolution. Between 1998 and 2018, the economy had an average growth rate of 8%. This unprecedented economic growth will provide plenty of opportunities for foreign investors.
These opportunities have resulted in a surge of FDI (foreign direct investment) which has shown that investors are realizing 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.
An example of an incentive on offer from the government is 100% foreign ownership for foreign investors setting up a company in Cambodia. There is also no restriction on the director’s or shareholders’ nationality and no restriction to trade.
However, it is important to note that foreigners are not permitted own land. In order to own land, the company must be registered in Cambodia, carry on business there, and have at least 51% of the company’s shares owned by a Cambodian citizen.
Low corporate tax rates and other financial perks
Cambodia boasts one of the lowest corporate tax rates in Southeast Asia. The standard corporate income tax rates for medium and large entities is 20%. Smaller entities are subject to rates from 0% to 20%.
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 allows 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.
Additionally, banks in Cambodia offers one of the highest interest rate for USD bank accounts.
Qualified investment projects (QIPs)
Foreign companies can also apply to be registered as a Qualified Investment Project (QIP). Companies who successfully register as a QIP will be 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 initial 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 activities 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 involved 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
For more information about QIPs, please check out our post here.
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 agreement 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 nearly 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 in investment since its creation.
If you wish to set up a business in Cambodia it is important to understand the Special Economic Zones (SEZ)
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
If you need more information about starting a business in Cambodia, you can talk directly with one of our experts.
To learn more about starting a business in Cambodia, why not take a look at our market entry services?
Please note that this article is for information purposes only and does not constitute legal advice.
Up to 1 hour consultation on general legal and business matters in Cambodia.
If some research is necessary to reply to your questions, our expert will check and revert to you with any complementary elements by email.
This consultation is only for new cases.
Legal consultations are handled by expert lawyers in the relevant field of practice in fluent in English.
Up to 1 hour
Web conferencing details provided upon confirmation
$150 USD
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