Seven reasons for setting up a business in Cambodia.

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Seven reasons for setting up a business in Cambodia

Cambodia provides an array of benefits for foreign entrepreneurs who are interested in starting a business in the country. This article provides seven key reasons why foreign investors should consider doing business in Cambodia.

Reason 1: Fast-growing economy

Between the years 1998 and 2018, Cambodia was one of the fastest-growing economies in the world with an average growth rate of 8%. Cambodia reached the lower-middle-income status in 2015 and is aspiring to achieve the upper-middle-income status by 2020. The growth of the economy provides plenty of opportunities for foreign investors.

The International Monetary Fund (IMF) has forecasted that Cambodia will be the third-fastest growing economy in ASEAN in 2021 and the fastest growing economy in the Southeast Asian region by 2025, with a GDP growth of 6.9%.

The projected GDP rates are as follows:

GDP yearGrowth/contraction rate
20202.756% contraction
20216.752% growth
20227.334% growth
20237.357% growth
20247.366% growth
20256.900% growth

In September 2020, the Asian Development Act (ADB) has predicted a contraction of 4% in 2020 and then a recovery in 2021 with an expected growth rate of 5.9%.

Reason 2: Foreign investment

Cambodia allows 100% foreign-ownership for foreign investors setting up a company in Cambodia. Foreign investors can fully own limited liability companies in Cambodia, and there is no restriction on the directors or shareholder’s nationality and no restriction to trade.

However, foreigners cannot own land. To own land, the company must be registered in Cambodia, carry on business there and have at least 51% of the company’s shares be owned by a Cambodian citizen.  The foreigner’s share cannot exceed 49%.

Reason 3: Low corporate tax rates

(Acclime guide to corporate income tax in Cambodia)

Cambodia has one of the lowest corporate tax rates in Southeast Asia. The standard corporate income tax rate for medium and large taxpayers is 20%, and small taxpayers are subject to rates from 0% to 20%.

The following table is the qualification for each type of taxpayer.

Company classification
Type of taxpayerCriteria
 

Small (sole proprietorship or partnership)

Annual turnover of KHR 250 million to KHR 700 million
Total turnover for any three consecutive months in the calendar year from KHR 60 million
Total expected turnover for the next three consecutive months from KHR 60 million
Participating in bidding, price consultation or surveys for the supply of goods or services
 

Medium

Annual turnover of KHR 700 million to KHR 4,000 million
Registered as a legal person or representative office
National or sub-national state institutions, associations and non-government organisations
Foreign diplomatic and consular missions, international organisations and technical cooperation agencies of other governments
 

Large

Annual turnover of more than KHR 4,000 million
Subsidiary of multi-national company or branch of a foreign company
Qualified Investment Projects (QIP)

The following activities are not allowed to apply for QIPS:

·      Commercial activities, import and export and transportation services

·      Tourism services

·      Currency and financial services

·      Activities related to newspapers and media

·      Production of tobacco products

·      Real estate development

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Reason 4: Qualified investment projects

Foreign companies that are registered as qualified investment projects (QIPs) will benefit from tax exemptions or special tax depreciation.

For tax exemption, foreign investors are eligible for a tax holiday of three years, which starts on the date they receive the Final Registration Certificate. After the three-year tax holiday, the QIP is entitled to another three-year priority period.

The QIP is entitled to a 40% special tax depreciation of the production material in the first year of the purchase or the first year the materials are used.

There are three categories of QIPs in Cambodia, which are:

  • Domestic qualified investment projects
  • Export qualified investment projects
  • Supporting industry qualified investment projects

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
  • Activities related to newspapers and media
  • Real estate development

Reason 5: Free trade agreements

Cambodia has recently signed its first bilateral free trade agreement with China and is in negotiations with South Korea. Cambodia has also entered the Regional Comprehensive Economic Partnership (RCEP) with Australia, China, Japan, South Korea, New Zealand and nine other ASEAN member countries (Brunei, Indonesia, Laos, Myanmar, Philippines, Singapore, Thailand and Vietnam).

The purpose of the RCEP is to reduce tariffs on agricultural and manufactured goods and to establish new laws on intellectual property, temporary migrant workers and investment. The RCEP will open up new market opportunities for Cambodia and will allow Cambodia to enjoy nearly free market access to a combined market.

Once concluded, the FTA with South Korea will give Cambodia a better opportunity to launch its products and exports into Korea. The FTA with China will allow Cambodia to boost its exports to the Chinese market.

Reason 6: Dollarisation in Cambodia

There is a high level of dollarisation in Cambodia, and the US Dollar is widely accepted. Using dollars in Cambodia makes it easier for foreigners to conduct business transactions.

Since there is no restriction on foreign exchange, foreigners can earn money in USD and send it back to their home country. They can also withdraw USD from their banks and use it in Cambodia.

Reason 7: Special economic zones

Cambodia has 22 Special Economic Zones, which these zones provide businesses with fiscal incentives, such as 100% corporate tax exemption up to nine years, 100% VAT exemption, import/export duty exemption and free repatriation of profits. The zones also offer a one-stop service for imports and exports. The purpose of the Special Economic Zone is to enhance competitiveness and attract investment in Cambodia.

The Special Economic Zones in Cambodia include:

  1. Sihanoukville SEZ, Sihanoukville
  2. Sihanoukville Port SEZ, Sihanoukville
  3. Neang Kok Koh Kong SEZ, Koh Kong
  4. Suoy Chheng SEZ, Koh Kong
  5. N.C SEZ, Sihanoukville
  6. Stung Hav SEZ, Sihanoukville
  7. L.C SEZ, Svay Rieng
  8. Manhattan (Svay Rieng) SEZ, Svay Rieng
  9. Poipet O’Neang SEZ, Banteay Meanchey
  10. Doung Chhiv Phnom Den SEZ, Takeo
  11. Phnom Penh SEZ, Phnom Penh
  12. Kampot SEZ, Kampot
  13. Sihanoukville SEZ 1, Sihanoukville
  14. Tai Seng Bavet SEZ, Svay Rieng
  15. Oknha Mong SEZ, Koh Kong
  16. Goldframe Pak Shun SEZ, Kandal
  17. Thary Kampong Cham SEZ, Kampong Cham
  18. Sihanoukville SEZ 2, Sihanoukville
  19. D&M Bavet SEZ, Svay Rieng
  20. Kiri Sakor Koh Kong SEZ, Koh Kong
  21. Kampong Saom SEZ, Sihanoukville
  22. Pacific SEZ, Svay Rieng

Many companies are investing in the Phnom Penh SEZ, the countries include China, Belgium, Japan, Vietnam, Thailand, Hong Kong, Malaysia, Singapore, the United States and the Philippines.

Conclusion

If you believe that Cambodia is an attractive investment destination for you, feel free to contact Acclime for more information and guidance on the set up of your company.

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