Invest Asia Group in Cambodia
Last Update: 4th October 2020
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Angkor Water in Siem Reap, Cambodia
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The Kingdom of Cambodia has emerged from the dark shadows of the Khmer Rouge and is now (as at 2020), one of Asia's fastest growing economies. Whilst its history has consisted of colonization, independence, war and genocide, it is now a market economy offering welcoming foreign investment.
Cambodia is a developing/emerging economy, which is integrated within the ASEAN and WTO systems. As an export oriented economy with a heavy reliance on garment production, the country suffered economically during the global financial crisis. Since 2009, substantial investment in manufacturing and service industries from foreign investors (namely China) has ensured Cambodia remains on its development path with excellent economic growth.
Cambodia is a developing/emerging economy, which is integrated within the ASEAN and WTO systems. As an export oriented economy with a heavy reliance on garment production, the country suffered economically during the global financial crisis. Since 2009, substantial investment in manufacturing and service industries from foreign investors (namely China) has ensured Cambodia remains on its development path with excellent economic growth.
Cambodia: Overview
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Cambodia is a small country located in South East Asia bordering Vietnam, Thailand and Laos, with a coastline on the Gulf of Thailand. Its landscape is a combination of low-lying mountains, central plain and the upper area of the Mekong Delta. The Mekong River flows through the eastern regions of Cambodia and the famous Angkorian Kingdom remnants are still visible in Siem Reap.
The capital city of Phnom Penh offers the most skilled workforce with Siem Reap, a world famous tourism destination. In terms of industries, the garment industry is still the largest contributor to GDP, whilst agriculture, tourism, gambling and construction industries have expanded. With low wages, access to labor, favorable tax treatment for investment and a strategic location in Asia, Cambodia continues to attract worldwide investors. |
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Cambodia Cities & Municipalities
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Despite only having a population of 16.7 million people, Cambodia has a number of cities and municipalities, ranging in size from the largest capital city of Phnom Penh (with approximately 2 million inhabitants) to the small towns of only a few thousand. We've outlined some of the major cities and municipalities within Cambodia as follows:
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Cambodia Special Economic Zones
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Cambodia has established a number of Special Economic Zones to attract foreign direct investment with rules and regulations that differ from the rest of the country.
The Special Economic Zone policies within Cambodia include incentives relating to income tax, customs and VAT benefits with government officials stationed within the zones to provide an efficient one stop export and import service. Some of the free trade zones in Cambodia are as follows:
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Business Operations in Cambodia
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Operating a business in Cambodia presents an array of opportunities as well as challenges. Aside from obvious business related risks, understanding and working within a foreign system presents numerous challenges to investors.
However, with a relevant strategy, professional advice and a local team on-the-ground, these risks can be mitigated. Whilst details are quite complex, we’ve summarized information accordingly so readers can gain an understanding of the different options and processes involved in operating a business within Cambodia. |
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Forming a Company in Cambodia
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Establishing a company in Cambodia as an international investor is not a simple process and depending upon your specific business objectives, there are some restrictions that apply (depending upon the industry). However, Cambodia does encourage foreign direct investment and has a number of appealing incentives available. Within Cambodia, corporate laws allow the following entity types to be established:
From these different types of entities, the best option (from our experience) for foreign investors establishing a company in Cambodia is a Wholly Foreign Owned Limited Liability Company. |
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Company Formation Procedure
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For the purposes of this article, we've outlined the company formation procedure for a Wholly Foreign Owned Enterprise (WFOE) Limited Liability company. There are other company structures available to establish, depending upon investor preferences. Details of Company Formation processes outlined below:
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Aside from the above standard procedures to form a LLC WFOE, there might also be additional requirements, depending upon industry type.
Invest Asia Group strongly advises investors to engage either an experienced local consulting company or an international law firm to navigate these processes.
Invest Asia Group strongly advises investors to engage either an experienced local consulting company or an international law firm to navigate these processes.
International Investors
Whilst there are certain restrictions, international investors/companies can operate businesses in Cambodia. Currently, it's one of the most welcoming countries in the entire region towards foreign investment. Moreover with continual, ongoing reforms, the number of restricted industries that foreign investors are able to operate in is continually being reduced on an annual basis.
Corporate Taxes
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There are a number of different corporate taxes within Cambodia as outlined below:
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Where to establish
This depends upon your business type and goals for doing business in Cambodia. The vast majority of businesses are established in Phnom Penh, Sihanoukville or Siem Reap. These cities offer the most skilled labor force but with low wages and a mobile workforce, the various different special economic zones are suitable. Most investors look at Sihanoukville due to its location at the port but the inland zones offer incentives as well. Please advise your business type and specific goals for Cambodia when contacting our team.
Tax-Friendly Policies
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Yes – a number of tax-friendly investment policies exist to encourage investment within specific sectors and industries in Cambodia. Some of the current corporate tax friendly policies including credits and incentives include the following:
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Financial Markets in Cambodia
Cambodia's financial markets are young and largely undeveloped compared to international markets and within Asia. There is one stock exchange within the country. Further details pertaining to the Cambodian Stock Exchange, Products, Foreign Exchange, Commodities and Cryptocurrency within Cambodia are also detailed and outlined below.
Cambodia Securities Exchange (CSX)
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The Cambodia Securities Exchange is Cambodia's only stock exchange, which is located in the capital city of Phnom Penh and was first established in 2011. Compared with its peers in Asia, the exchange is very small and as at October 2020, there are only 7 x companies listed on the exchange.
The CSX Index is the only composite index on the exchange, whilst bonds are also listed and available to trade. Ultimately, similar to Myanmar, the Cambodia Securities Exchange is small with few options on the exchange. |
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CSX Companies & Products
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The Cambodia Securities Exchange provides the following products/services for investors:
As for stocks - there are only 7 x different companies listed on the exchange, with details (in order of most recent listing) as follows:
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Other ways to get exposure to Cambodian Stocks
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Aside from the aforementioned ways to gain exposure to Cambodian companies, investors also have options to invest in Index Funds (with some Cambodian exposure) as well as stocks in international markets. Whilst there aren't any specific dedicated Cambodian ETFs, investors can get exposure via some gaming ETFs , Asia Pacific Equities and Non US-small caps, among others.
Nagacorp (NGCRY) is a Hong Kong listed gaming and leisure company with headquarters located in Phnom Penh, Cambodia. Most brokers will offer access to ETFs with some Cambodian exposure and individual stocks listed in overseas markets. Despite being a frontier market with higher perceived risks, Cambodia's demographics and FDI policies will continue to attractive investment as well as strong economic growth. |
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Foreign Exchange
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The Cambodian Riel is the national currency of Cambodia, which was first issued in 1953 but is also used in conjunction with the United States Dollar. Originally, as a free floating currency, the riel experienced periods of hyperinflation, which is why the USD became the defacto currency. Currently, the Cambodian Riel is pegged to the USD to ensure currency stability and as at October 2020, the peg is 4,000 KHR to the dollar.
As a country heavily reliant on foreign investment, the Cambodian government has no limits on shareholding nor has implemented capital controls or money transfers abroad. Therefore, remittance or repatriation of profits is easily arranged, especially when compared with a number of other countries throughout Asia. For larger transactions, the USD is predominantly used to settle payment. |
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Commodities
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Cambodia's economy is heavily dependent upon agriculture, in addition to a number of other export focused industries such as garments and soft manufacturing exports. In terms of natural resources, Cambodia has a number of resources including water (hydroelectric power), forests (timber), mineral resources (gemstones, iron ore, gold, bauxite, manganese, phosphates, coal, limestone and clay) and oil & natural gas.
In terms of exports, some of the top Cambodian exports include:
The economic growth over the past few years has lead to an infrastructure boom in Cambodia, especially within Sihanoukville, Phnom Penh and Siem Reap as international companies have established within the country and tourism has increased. |
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Some of the top commodities Cambodia imports include:
Within Cambodia, the Cambodian Derivatives Exchange (CDX) offers trading of precious metals (physical & electronic), foreign currencies and derivative products. |
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Cryptocurrency in Cambodia
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Whilst there are no specific laws pertaining to cryptocurrency within Cambodia, both the National Bank of Cambodia (NBC) and the Securities Exchange Commission (SECC) have issued directives that cryptocurrencies should be regulated in the future. Therefore, whilst dealing in cryptocurrency without obtaining a license has been noted as being 'illegal' in Cambodia, in reality the regulatory environment is lax.
In Cambodia, cryptocurrency is becoming more widely used with companies accepting payment in bitcoin and usage increasing among the populace. It's not at the same level of East Asian countries such as South Korea or Japan but with concern pertaining to the stability of the Cambodian Riel combined with widespread usage of USD in the country, take up is increasing. Project Bakong The National Bank of Cambodia has adopted a national payment gateway/digital currency, called 'Project Bakong' through integrating the banks in Cambodia. Whilst this hasn't yet been released, the team at Invest Asia Group will stay up to date with the progress and release details as it becomes available. |
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Property in Cambodia
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The Cambodian Property market has experienced strong growth over the past decade in conjunction with the pick-up in the local economy. In previous years, condominiums have been predominantly purchased by foreign investors but this began to change as wages among local citizens increased, resulting in a housing market considered by many to be a 'bubble'. Nonetheless, with the Chinese investment exodus due to stringent capital controls combined with the coronavirus pandemic, the Cambodian property market is at a crossroads.
The Cambodian Land Laws allows Cambodian citizens to own both land and house, providing exclusive right of use to enjoy (and dispose) of the property in accordance with the law. Due to the differences in development across regions, the property market within Cambodia differs between cities and provinces. Therefore, the best way to analyse the property market is on a city level as opposed to country-wide analysis. |
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International Investors & Chinese Property
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Cambodia has some of the most foreign-investment friendly property laws throughout Asia. Foreign Investors can purchase property within Cambodia, however, there are certain restrictions that apply. For example, owning properties on the 1st floor or higher (to a maximum of 70% of any one apartment building) is available. Restrictions include not being permitted to own any properties on the 'ground floor' of a building and owning land outright is also prohibited.
However, there are legal mechanisms to essentially bypass these regulations and from our experience, Invest Asia Group recommends the following options for investors (looking to purchase land):
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Property Taxes
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The property market in Cambodia is one of the causes of wealth disparity within the country and has experienced strong price increases over recent years. Taxes and associated fees when purchasing a property within Cambodia are low, making it one of many reasons to be attracted to purchasing within the country.
When purchasing a property within Cambodia there are a few fees associated in doing so as outlined below.
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Best Locations to Purchase Property
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Generally, the most profitable investments have been in Phnom Penh, Siem Reap and Sihanoukville. Invest Asia Group recommends investors consider these cities first when looking at Cambodia. Unless considering purchasing beach side resort or islands for other purposes, these cities have offered the best capital growth and yields over the past decade.
Whilst the COVID-19 pandemic has impacted property markets of many countries, Cambodia included, the strategic location, close ties with China and frontier market status will continue to offer profitable opportunities for investors in the years ahead. |
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Venture Capital/Private Equity in Cambodia
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Venture Capital and Private Equity has only been evident in Cambodia over recent years as the economy has boomed through attractive foreign investment. Whilst Cambodia is still an undeveloped, frontier market, investors have flocked to the country in search of successful startups.
Some of the most successful startups in Cambodia include the following companies:
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