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STARTING – My Business in Cambodia

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RBA Services – Cambodia

RBA has a depth of experience in advising and assisting entrepreneurs to set up and develop successful business operations in Cambodia.

Based on RBA’s wide business network and partnership in Cambodia, our team can advise you on:

  • The appropriate choice of legal entity for your business operations in Cambodia;
  • The correct procedures to be followed for the incorporation and administration of Cambodian companies;
  • Bookkeeping and accounting in compliance with Cambodian norms and requirements;
  • Selection of a partner bank that matches with your needs and expectations in order to open a corporate bank account in Cambodia;
  • The right procedure to be followed to obtain Cambodian Employment Visa.

Should you require any further information or have any queries, please do not hesitate to contact us

Starting my business in Cambodia

As it could be expected in a developing jurisdiction, the laws and regulations in Cambodia are less comprehensive than that in developed countries with strong and stable legal frameworks. However, there are continuous efforts to improve the legal system and establish a coherent set of laws and regulations.
 
The Cambodian Government actively encourages foreign direct investment and imposes very few legal restrictions on foreign investors. It offers numerous incentives and tax allowances to potential investors. Most sectors in Cambodia are open to 100% foreign direct investments, with the main exception being the foreign ownership of land for foreign investors (as highlighted further below).
 
The current legal system in Cambodia has become more or less a hybrid system, which tends to be a mix between Cambodian traditions, the French based legal system (which is an influence arising from French colonization), and the common law based jurisdictions, since foreign aid organizations and multilateral institutions often assist the government in drafting new laws.
 
With a fast and sustainable economic growth of 7% in 2015 (World Bank), combined with business friendly government policies, Cambodia offers an attractive land of opportunities for private investors as well as institutional investors wishing to conduct business in one of the most dynamic countries in the heart of Southeast Asia, a rapidly expanding region in the world economy. Furthermore, Cambodia became a member of the Association of Southeast Asian Nations (ASEAN) and was granted accession to the World Trade Organization in 2004, opening up the country’s economy to the global market place.

Forms of Business Ownership in Cambodia

The Law on Commercial Enterprises, promulgated on 19 June 2005, governs commercial law in Cambodia and defines different types of corporate structures through which business can be conducted, including (1) sole proprietorships, (2) partnerships, (3) private limited liability companies or public limited enterprises, and (4) foreign businesses. Investors must register the business at the Ministry of Commerce in the month of formation and no more than 15 days before the commencement of its operations.

From 4 January 2016, the Ministry of Commerce (‘’MoC’’) launched an online commercial registration platform to facilitate business registration for new companies. Moreover, all companies that were incorporated before 4 January 2016 are required to re-register on the MoC’s website.  

Sole proprietorship

A sole proprietorship, as its name implies, is a type of business entity that is owned and operated by a single natural person who owns all of its capital.  There is no legal distinction between the owner (i.e the sole proprietor) and the business. As a consequence, the owner bears sole and exclusive responsibility over the obligations and liabilities that may occur during the operation of the business.

Partnership

Two or more persons own a business. It is the most commonly used business organization for professionals such as lawyers, doctors and accountants who wish to do business together. There are two types of partnerships: general partnership and limited partnership.

In a general partnership, the general partners control the day-to-day operations and are personally liable for the partnership’s debts and obligations. However, a limited partnership has at least one general partner who is the sole person authorized to administer and bind the partnership and is required to have at least one limited partner who contributes to the capital and is liable only to the extent of their capital contribution.

Company

The company is the most common business entity. While, constituting a company is more complicated and expensive than forming a sole proprietorship or a partnership, it has the considerable advantage of limited liability for its members.

The Law on Commercial Enterprises requires a limited liability company to have, by default, its capital divided into 1,000 shares, with a value per share at least equal to KHR 4,000. Therefore, the Ministry of Commerce requires a deposit of KHM 4 million into a company bank account in order to meet the capital requirements for commercial incorporation. The company is required to have a registered office address in Cambodia.

There are two types of companies: private limited and the public limited companies.

  • Private Limited Companies: A Private Limited Company may have 2 to 30 shareholders and is prohibited from offering its shares or other securities to the public.
  • Public Limited Companies: A Public Limited Company is legally authorized to issues securities to the public. It may have more than 30 shareholders. In Cambodia, only Private Limited Companies can operate banking business, insurance business or be a financial institution.

Foreign Business

A foreign parent company has various options to conduct its business in Cambodia. It can either set-up a Representative Office, incorporate a Branch Office, or register a Subsidiary.

  • Representative Office

An RO is not a separate legal entity from its principal and has no legal personality. Nonetheless, it remains subject to commercial registration with the Ministry of Commerce (“MoC”).

Its scope of activities is limited. The permissible acts of a representative office in Cambodia include:

  • introducing customers to the principal company;
  • conducting market research;
  • marketing products at trade fairs;
  • renting an office and employing staff; and
  • entering into contracts with local customers on behalf of its principal.

Most importantly, an RO must not, whether directly or on behalf of its parent company, carry on commercial operations, be engaged in profit making activities, nor engage in trading activities in and out of Cambodia. Its activities should be limited to facilitating the sourcing of local goods and services and to collect information for its parent company. It may also serve as a channel for promoting and marketing the parent company’s products and services in Cambodia.

A RO should not derive any income from its activities. However, the RO is subject to tax requirements regarding the withholding tax paid on salaries to employees as well as an annual business operation tax (patent tax).

  • Branch

A branch is an office opened by a foreign company for the purposes of conducting a particular commercial activity in Cambodia. It is not a separate legal entity from its principal and has no distinct legal personality. In common with an RO, a branch is subject to commercial registration with the MoC.

A branch can conduct all of the activities of a RO. In addition, a branch can undertake business and commercial operations in Cambodia in any sector that is open to foreign investment. Indeed, a branch may purchase and sell goods, conduct regular professional services, engage in manufacturing, processing and construction in the same manner as a local business, except for any activities that are prohibited to foreigners (such as the restriction on for foreign ownership of land). Hence, the scope of activities of a branch is broader than that of a RO, because a branch can engage in any commercial and profit making activities that are allowed to any local companies (except activities that are restricted for foreign investors).

  • Subsidiary

A subsidiary can be incorporated as a limited liability company or a partnership and is a separate legal entity from its principal. A subsidiary is a company incorporated in Cambodia which has at least 51% of its capital held by a foreign company.

A subsidiary can undertake any activity that is open to foreign investment. Each subsidiary is required to incorporate and register with the MoC. 

Company Establishment Process

1. Commercial Company
 
A commercial company is a normal company established at the MoC and is not entitled to any specific investment incentives or Qualified Investment Project (‘’QIP’’) status.
 
The application for the registration of such a company shall be submitted to the Commercial Registration Department of the MoC with supporting documents. The completion of the registration takes approximately 7 to 15 days in Phnom Penh and 15 to 21 days in the provinces. If approved, the MoC provides the applicant with a Letter of Approval as well as a Certificate of Incorporation and other relevant documents.
 
Within 15 days from the date of the completion registration at the MoC, the company is required to register at the relevant office of the Tax Department. The company is then provided with a Patent Tax Certificate, VAT Certificate and Official letter from the relevant tax office confirming the tax registration, which includes the Tax Identification Number (TIN).  As a matter of practice, the VAT registration is undertaken at the same time as the Tax Registration above. This tax registration process takes approximately 15 to 21 days.
 
In addition to the above registration and before the commencement of the business operations, the company must notify the local authority (the Sangkat/Commune Office), to obtain the Letter of Confirmation of its business address and submit this letter to the Phnom Penh Municipal Hall (or Provincial Hall) in which the office is located, for approval to use the address as the registered office and erect a signboard of the company. This process takes approximately 4 to 6 weeks.
 
Labor Law requires any business operating and employing staff in Cambodia to register with the General Department of Labor of the Ministry of Labor and Vocational Training (“MLVT) within:
 
30 days of the commencement of its business operations, if the business employs less than 8 people and does not use machinery; or 15 days before the commencement of its business operations, if the business employs more than 8 people.
 
2. Investment Company
 
An investment company is required to establish and register at both the MoC and the CDC.  It is the same as a commercial company but it has QIP status and is therefore entitled to some or all of the investment incentives and guarantees (see below).
 
The CDC is appointed by the Royal Government of Cambodia (“RGC”) to act on its behalf to encourage foreign investors to Cambodia through the operation of a “One-Stop Shop” department called the “Cambodian Investment Board” (“CIB”). The CIB examines investment proposals and issues approvals for QIPs.
 
A company wishing to obtain a QIP needs to submit an investment proposal to the CIB of the CDC in the form and according to the procedures provided in the relevant law and regulations. Within 3 working days of the CDC’s receipt of the investment proposal, the CDC shall issue to the company either:
 
a Conditional Registration Certificate, which is the in-principal approval from the CDC of the submitted investment proposal; or a Letter of Non-Compliance if the investment proposal is not accepted.
 
The Conditional Registration Certificate confirms the investment incentives that the QIP is entitled to and also specifies the approvals, authorizations, clearances, licenses, permits or registrations required for the QIP’s operation, as well as the obligations of those government entities to issue such approvals, clearances, licenses, permits or registrations to the QIP. This includes the commercial registration process of the QIP company with the MoC and the Tax Department.
 
Within 28 working days of the issuance of the Conditional Registration Certificate, the CDC shall issue the Final Registration Certificate confirming its granting of the QIP status to the applicant. The estimated time to obtain the QIP status is approximately 31 working days. The date of issue of the Final Registration Certificate is the date of commencement of the QIP.
 
Alternatively, investors can also choose to start their business with a commercial company and apply for a QIP at a later stage.

Labor Law in Cambodia

Cambodia’s Labor Law provides relatively high protection for workers. It contains provisions relating to working hours, salary entitlements, rest breaks and leave entitlements, amongst others.

Labor Contracts

In Cambodia there are two types of employment contracts: (i) fixed duration contracts; and (ii) unlimited duration contracts.  Each of those is characterized by the following features:

Fixed Duration Contracts:

  • This type of contract must contain a precise end date and cannot be for a period longer than 2 years.
  • If the original period is less than 2 years, the contract may be renewed one or more time, provided the total time period does not exceed 2 years.
  • If the contract exceeds 2 years, it will automatically be considered a contract of unlimited duration.
  • If the employment contract is terminated earlier by the employer, then the employee is entitled to damages in the amount of the remuneration that the employee would have received had the contract run for its full term.
  • At the end of a fixed duration contract, the employee is entitled to a severance payment equal to 5% of the total wages paid during the contract plus the value of any unused annual leave.

Unlimited Duration Contract:

  • This is a contract with either no fixed end date or where the total duration exceeds 2 years.
  • This type of contract may be terminated by either party by giving 7 days to 3 months’ notice (depending on the seniority of the employee).
  • Upon termination the employee is entitled to a severance payment ranging from 7 days to 6 months’ salary (depending on the seniority of the employee) and any unused annual leave.
  • The contract may contain a probation period of 1 to 3 months, depending on the type of employment.

Foreign Employees

Under Cambodian law the maximum number of foreign employees is 10% of the company’s workforce in Cambodia. A company may apply to the Ministry of Labor to increase this limit.

In order to be lawfully employed in Cambodia, foreigners must:

  • obtain a labor book and work permit issued by the Ministry of Labor;
  • have entered Cambodia legally;
  • have obtained a business visa either prior to arriving in Cambodia or at the airport;
  • be of good character;
  • have the relevant qualifications for the job; and
  • have no contagious diseases.

A work permit is valid for 1 year and may be extended for further one-year periods, provided that any such extension does not exceed the term of the foreigner’s business visa.

 

 

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