What kind of information should foreign investors in Cambodia pay attention to? What are the laws and regulations in Cambodia applicable to foreign direct investment? What documents and materials need to be prepared?

With the continuous advancement of globalization, Cambodia has become a destination that attracts more and more international investors and enterprises. In this land full of business opportunities, it is particularly important to understand the local foreign investment and M&A policies. This article will provide you with a detailed guide to foreign investment and M&A in Cambodia, covering key regulations, investment steps and practical suggestions to help you smoothly carry out business activities in Cambodia.

1. Foreign direct investment (greenfield investment)

01. What are the main laws and regulations in Cambodia that apply to foreign direct investment? Are there any special provisions for certain foreign investors (such as state-owned enterprises)?

In Cambodia, foreign direct investment is mainly governed by the following laws and regulations:

• Commercial Enterprises Law (19 June 2005, LCE);
• The Law on Commercial Regulations and Commercial Registration (26 June 1995, LCR), as amended by the Law on Commercial Regulations and Commercial Registration Amendment (18 November 1999);
• "Law on Investment" (October 15, 2021, LOI).

Cambodia has an open and liberal attitude towards foreign investment. Except for the prohibition of foreigners from owning land in Cambodia, there are basically no restrictions and no special laws or regulations for foreign investors. In general, all foreign investors investing in Cambodia, including foreign state-owned enterprises, must abide by Cambodian laws, which are the same as those applicable to local investors.

02. Does foreign direct investment require approval from the government and regulatory authorities? If so, please briefly explain (e.g. trigger conditions, competent authorities and time limit requirements).

A. Foreign direct investment requires approval from the government and regulatory authorities in certain circumstances

Foreign direct investment requires government approval when applying for certain investment incentives. According to Chapter 5 of the Investment Law, investors can enjoy certain investment protections, such as freedom from nationality discrimination and protection from nationalization of assets. However, to enjoy specific investment incentives (such as tax exemption), investors need to apply to the Cambodia Development Council (CDC) or the Provincial and Municipal Investment Committee (PMIS) to register the investment project as a "Qualified Investment Project" (QIP) based on the type of investment project and registered capital.

B. Scope of supervision and different types of qualified investment projects

PMIS is responsible for regulating investment projects below US$2 million, while CDC is responsible for regulating investment projects exceeding US$2 million across two or more provinces or special economic zones. QIP types include:

• Export Qualified Investment Projects;
• Qualified investment projects in pillar industries;
• Domestic market-oriented qualified investment projects;
• Expand qualified investment projects in industries.

The QIP becomes effective after the enterprise obtains the registration certificate. To obtain investment incentives, all QIPs must obtain a Certificate of Compliance (CoC) from the CDC every year, which indicates that the QIP has complied with all Cambodian tax laws and investment regulations.

C. Automatic Approval System and Special Licensing Requirements

Unless it involves illegal areas, political sensitivity or national interests, CDC or PMIS shall complete the approval within 31 working days after receiving the investment proposal. Investment projects in certain special circumstances need to be submitted to the Council of Ministers for approval, such as: capital investment of US$50 million or more, politically sensitive issues, exploration and development of minerals and natural resources, infrastructure projects that may have a negative impact on the environment, long-term development strategies, and based on the BOT, BOOT, BOO or BLT model.

Investment projects in some industries need to obtain special permission from relevant government departments before applying to become QIPs, such as travel agencies, cigarette manufacturing, alcohol production, film production, publishing, printing, radio and television, pawnbroking and pharmaceutical imports.

03. Overview of foreign investment restrictions in specific industries

Cambodia’s restrictions on foreign investment are mainly reflected in the following aspects:

A. Completely prohibited investment areas

Cambodia prohibits all foreign and local investors from engaging in the following investment activities:

• Production or processing of psychotropic and narcotic drugs;
• Use of chemicals banned by international regulations or the World Health Organization to produce toxic chemicals, agricultural pesticides/insecticides, and other products that affect public health and the environment;
• Processing and producing electricity from waste imported from foreign countries;
• Forestry development and management activities prohibited by the Forest Law.

B. Foreign investment restricted areas

• Real estate: Foreigners are prohibited from owning land in Cambodia, but are allowed to obtain land use rights in the form of a concession, perpetual lease or limited short-term lease, as well as owning a condominium or strata unit above the first floor of a shared-ownership building.
• Commercial and financial services: Enterprises must be registered with the Ministry of Commerce and the General Department of Taxation, and banking projects are regulated by the National Bank.
• Other industries: Investors may need to obtain licenses from other relevant departments, such as factory licenses, mining licenses, agricultural licenses and concessions, environmental protection licenses, construction licenses, and real estate developer licenses.

In summary, foreign investment is restricted in some areas of Cambodia. Investors should fully understand the relevant laws and regulations before making investments to ensure compliance with Cambodia's investment policies and requirements.

04. Are there any regulations on government shareholding in specific industry sectors?

According to Cambodian law, there are no regulations regarding government shareholding in foreign direct investment.

05. Are there any localization requirements for foreign direct investment (such as the proportion of local employees, minimum local procurement ratio, etc.)?

Cambodian law does not set a minimum limit on the proportion of local employees in a company. However, there is a maximum limit for hiring foreign employees, that is, the number of foreign employees in a company shall not exceed 10% of the total number of employees. If a company plans to hire more than 10% of the total number of foreign employees, it must apply for an annual quota permit from the Ministry of Labor and Vocational Training (MLVT).

According to Regulation No. 277/20 on Special Conditions for Employment of Foreigners (PRAKAS 277/20) promulgated in August 2020, if a company is unable to employ a sufficient number of Cambodian nationals due to skills or qualifications, it may apply to increase the number of foreign employees and provide relevant reasons. Before hiring foreign employees, investors must give priority to recruiting and training existing local employees. Both local citizens and foreigners must comply with the relevant provisions of the Cambodian Labor Law. In addition, foreign employees must hold a valid business visa and work permit issued by the MLVT when working in Cambodia.

06. Are there any foreign exchange control restrictions on the remittance of funds, profits and dividends?

In general, Cambodia's foreign exchange controls are relatively loose, and do not impose too many restrictions on the remittance of funds, profits and dividends. However, when conducting such transactions, foreign investors must also comply with the Foreign Exchange Law, the Anti-Money Laundering and Counter-Terrorism Financing Law and related regulations to ensure that the funds are from legal sources and remit funds through legal channels.

Here are some things to keep in mind when remitting funds, profits and dividends:

1. Conduct transactions through authorized banks: When remitting funds out of Cambodia, make sure to choose an authorized bank that holds a license from the National Bank of Cambodia.
2. Reporting of large transactions: If you are remitting or clearing an amount greater than or equal to USD 100,000, please be aware that your bank will report this transaction to the National Bank of Cambodia.
3. Comply with anti-money laundering regulations: When conducting large transactions, it is necessary to follow the relevant provisions of the Anti-Money Laundering and Combating the Financing of Terrorism Law to ensure that the funds are from a legal source.
4. Declaration of Cash Bringing Across Borders: If you are bringing in or out of Cambodia cash worth USD 10,000 or more, please declare it to the customs authorities at the border crossing upon arrival or departure from Cambodia.

Following the above regulations, foreign investors will have a smoother process of remittance of funds out of Cambodia. When remitting funds out of Cambodia, it is recommended to consult a professional lawyer or financial advisor to ensure compliance with local laws and regulations.

07. What are the common types of legal entities established by foreign direct investment?

Foreign investors can choose to set up a company directly in Cambodia. Common company forms include:

• Limited Liability Company (LLC)
• Partnership
• Single Owner Limited Company
• Limited Liability Company (LLC)

Limited Liability Company

The most common form of company in Cambodia. This type of company consists of one or more shareholders whose liability is limited to the amount they have invested in the company. The company must have at least one director who can be a Cambodian or foreigner. Cambodian law does not impose a minimum registered capital requirement.

There are two types of limited liability companies: private limited companies and public limited companies. Public limited companies can issue securities to the public and require at least three directors (as per section 118 of the LCE).

A private limited company is usually the preferred legal entity for foreign investors. The minimum registered capital requirement for this type of company is 4 million Riel (Cambodia's official currency, approximately equal to $1 at the exchange rate between Riel and US Dollar). The number of shareholders must be between 2 and 30, and at least one director is required (as per Articles 86 and 118 of the LCE). A private limited company cannot issue shares or other securities to the public, but can offer them to existing shareholders, family members and management to raise capital (as per Article 86(C) of the LCE). It is recommended for foreign investors to consider setting up a private limited company, where shareholders' liability is limited to their investment amount.

Internal governance structure:

The internal governance structure of a limited liability company includes the general meeting of shareholders and the board of directors. The general meeting of shareholders is the company's highest authority and is responsible for formulating company policies, making decisions and supervising the work of the board of directors. The board of directors is responsible for the company's daily operations and management.

Partnership

A partnership is a company formed by two or more partners who contribute capital to the company. A partnership can be either a limited partnership or an unlimited partnership. In a limited partnership, the liability of the limited partners is limited to the amount of their investment in the company, while unlimited partners have unlimited liability for the company's debts. A partnership needs to have at least one Cambodian citizen as a partner.

Internal governance structure:

The internal governance structure of a partnership includes the General Assembly of Partners and the Management Committee. The General Assembly of Partners is the highest authority of the enterprise and is responsible for formulating corporate policies, making decisions and supervising the work of the Management Committee. The Management Committee is responsible for the daily operation and management of the company.

Single Owner Limited Company

A single-owner limited company is a company that is solely owned by one natural or legal person. The owner of the company has limited liability for the company's debts. This type of company is usually suitable for small businesses and startups.

Internal governance structure:

A single-owner limited company has a simpler internal governance structure. The owner of the company is responsible for making company policies and decisions, and is also responsible for the day-to-day operations and management of the company.

In summary, foreign investors can choose to register a foreign business in Cambodia or directly set up a company. Common company forms include representative offices, branches, subsidiaries, limited liability companies, partnerships, and single-owner limited companies. When choosing a company form, factors such as business needs, investment scale, and risk-bearing capacity need to be considered. When setting up a company, it is recommended to consult a professional lawyer or consultant to ensure that the company complies with Cambodian laws and regulations and choose the company form that best suits your business needs.