Five common challenges when starting a business in Cambodia.

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Five common challenges when starting a business in Cambodia

This is a list of the top five challenges of starting a business in Cambodia.

Whilst Cambodia is an attractive place for foreign investment, when starting or doing business in Cambodia, foreigners also face some challenges. We have gathered five challenges you could possibly encounter in Cambodia so that you will be alert and aware of the difficulties.

Let’s start.

Challenge 1: Securing visas to work in Cambodia legally

(Guide to Cambodia immigration)

Before a foreigner can enter Cambodia, they will need to obtain a visa. The visas can be applied on arrival, at an embassy or online, depending on the type of visa you are applying. There are five types of visas in Cambodia which are the tourist visa, ordinary visa, Khmer visa, official visa and courtesy visa.

The ability to obtain a visa on arrival has been suspended due to the Covid-19 pandemic. Prior to boarding a flight to Cambodia, all foreigners must have obtained a visa from the Cambodian Embassy in their country. There are also rules, which are changing frequently, on Covid testing before getting on a plane and quarantine on arrival in Cambodia. In this respect, you need to check with the Cambodian Embassy in your country as to the rules in place at the time of your intended travel.

If you are applying for a visa to work in Cambodia legally, you will need to secure the ordinary visa and apply for EB business visa extension. The visa can be extended endlessly for one month, three months, six months or one year. However, even though a foreigner has secured this visa, it does not guarantee that the foreigner will be able to work in Cambodia, a work permit and foreign employment card must also be secured.

All foreigners who are business owners or employees must secure a valid work permit. The work permit is issued by the Ministry of Labour and Vocational Training and is valid for one year. However, it is only valid until 31 December of the year it was issued. Work permits must be renewed within 1 January and 31 March. Late renewals are subject to penalties which start on 1 April.

Challenge 2: Corruption

According to the Corruption Perceptions Index 2019 by Transparency International, Cambodia ranked 162 out of 180 countries. Nearly all sectors in Cambodia have been affected by corruption which can range from small payments to speed up administrative processes to corruption in multimillion-dollar investments.

According to Pech Pisey, the Senior Director of Programmes of Transparency International Cambodia in an interview with the Khmer Times said that Cambodian people have little understanding about the nature of corruption and think it only has something to do with monetary deals. However, corruption can come in forms of bribery, favouritism, nepotism, political corruption and exploitation for personal gains or national wealth. Pisey stated that Cambodia’s law does not see nepotism as a form of corruption, allowing senior officials to bring their relatives to serve in ministries or departments.

Even though many foreign companies are operating in Cambodia, they do face problems from corruption, such as requests for under-the-table money by public services.

The government is trying to tackle this corruption. There are several laws and regulations that cover anti-corruption in Cambodia, which include:

  • The Anti-Corruption Law
  • The Criminal Code
  • The Common Statute of Civil Servants
  • The Law on Anti-Money Laundering and Combating the Financing of Terrorism

Cambodia is also making an effort to combat corruption through education, prevention and law enforcement with support from international and public cooperation.

The Anti-Corruption Unit has used its resources and budget to educate and spread the anti-corruption law to civil servants, private sectors, civil society and the general public to raise awareness about various issues on corruption.

Corruption prevention has been made in forms of asset and liability declaration, observation at bidding, public procurement and fee bargaining at ministries and institutions, signing Memorandums of Understanding on anti-corruption cooperation between the Anti-Corruption Unit and local and international companies and revising the standard of public service fees.

The Anti-Corruption Unit has the authority, as stated in the following articles of the Anti-corruption Law:

  • Article 25: Investigative power of Anti-corruption Unit
  • Article 26: Special privileges of the Anti-corruption Unit
  • Article 27: Privileges of the Anti-corruption Unit related to investigation
  • Article 28: Privileges of the Anti-corruption Unit related to freezing an individual’s assets
  • Article 29: Privileges of the Anti-corruption Unit in cooperation with public authorities

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Challenge 3: Low Growth Competitiveness Index ranking

According to the Growth Competitiveness Index (GCI) in 2019 by the World Economic Forum, Cambodia ranked 106 from 141 economies.

The GCI acts as a guidance on topics that matter for long-term growth and is used to measure the competitiveness in both microeconomic and macroeconomic levels. The index also reflects the strength and weaknesses of Cambodia’s economy.

The measurement framework for the GCI is categorized into 12 pillars:

  • Enabling environment
    • Pillar 1: Institutions
    • Pillar 2: Infrastructure
    • Pillar 3: ICT adoption
    • Pillar 4: Macroeconomic stability
  • Human capital
    • Pillar 5: Health
    • Pillar 6: Skills
  • Markets
    • Pillar 7: Product market
    • Pillar 8: Labour market
    • Pillar 9: Financial system
    • Pillar 10: Market size
  • Innovation ecosystem
    • Pillar 11: Business dynamism
    • Pillar 12: Innovation capability

Based on the 12 pillars, Cambodia’s strength is labour market which ranks 65th out of 141 and ICT adoption at rank 71, while the weakness is business dynamism ranking at 127.

The government is aware of the issues in the economy regarding competitiveness and is actively amending the policy to try to improve the competitiveness of the Cambodian economy.

Challenge 4: More difficult to do business

According to the Doing Business rankings, Cambodia ranked 144 out of 190 economies.

For the starting a business rank, Cambodia is at 187 from 190 countries. Cambodia made starting a business more expensive by increasing the costs related to business registration with the Ministry of Labour and Vocational Training.

However, a portal has recently been introduced to try to address the complications in setting up a business. CamDX is the new IT business registration platform (also known as Single Portal) which makes company registration easier if the business is required to register at ministries/institutions including the Ministry of Commerce (MoC), General Department of Taxation (GDT), and Ministry of Labour and Vocational Training (MLVT), and other ministries (include in the platform) by saving time and obtaining digital licenses or certificates and costs much less than the previous procedure.

Dealing with construction permits in Cambodia also has a low ranking of 178. As stated in the Doing Business Report, there are a total of 20 procedures and takes 652 days.

Challenge 5: Violation of tax provisions and additional tax

There are fairly serious penalty provisions contained in the Cambodian tax law. According to article 125 of the Law on Taxation, a taxpayer is considered negligent if the amount of tax paid is less than the amount of tax determined by tax provisions by no more than 10%, and if they fail to file a tax declaration or pay tax by the deadline.

Taxpayers are considered seriously negligent if the amount of tax paid is less than the determined tax amount by more than 10%.

An individual is considered as obstructing the implementation of the tax provisions when the individual:

  • Fails to maintain proper records of accounts and other documents or fails to issue invoices on transactions
  • Fails to allow the tax administration access to records of accounts and other documents
  • Fails to register with the tax administration
  • Fails to notify the tax administration of any changes in the registration
  • Makes fraudulent records, documents, reports or other information
  • Conceals or destroys accounting papers, records, documents, reports or other information
  • Attempts to obstruct the assessment or the collection of taxes
  • Fails to submit a nil tax declaration within 30 days of the date required by the law
  • Supports any of the above acts

A taxpayer who is negligent will be subjected to an additional tax of 10% of the amount of the underpaid tax and 1.5% interest per month on the amount of the underpaid tax.

A taxpayer who is seriously negligent is subjected to an additional tax of 25% of the amount of the underpaid tax and 1.5% interest per month on the amount of underpaid tax.

Taxpayers who fail to pay tax by the deadline, additional tax will be imposed at a rate of 10% of the amount and 1.5% interest per month on the amount of the late payment.

Additional tax of 25% and 1.5% interest per month will be imposed on the amount of late tax payment when the taxpayer fails to pay tax within 15 days after receiving a reminder letter for the tax collection.

Conclusion

Though there are challenges you may face when starting a business in Cambodia, Cambodia is still an attractive country because it is one of the fastest-growing economies in Southeast Asia and offers full foreign-ownership. More reasons to set up a company in Cambodia can be read here: Seven reasons for setting up a business in Cambodia.

Feel free to contact Acclime for more information on setting up a company in Cambodia.

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