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Article Cambodia: New Investment Law Enacted

On October 15, 2021, Cambodia promulgated new legislation on investment officially titled the Law on Investment in the Kingdom of Cambodia (Investment Law of 2021) (unofficial translations of early drafts available in English, Japanese, Korean, Mandarin, Thai, and Vietnamese). According to the country’s Constitution, which provides that urgent laws are to come into force immediately, the Investment Law of 2021 became effective on October 16, 2021, repealing its predecessor legislation under the same name that was enacted in 1994 and amended in 2003. (Investment Law of 2021, art. 42; Constitution art. 93, ¶ 2.)

Background to the Investment Law of 2021

Following the recommendation of the Cambodian Industrial Development Policy 2015–2025 that the government revisit the regulatory environment with a view to strengthening the country’s competitiveness, the Council for the Development of Cambodia (CDC) drafted the new investment law in February 2021. The Investment Law of 2021 contains 12 chapters and 42 articles. Its primary purpose is to improve the existing legal framework of investment incentives in order to attract more investments by both Cambodians and foreigners that will promote Cambodia’s socioeconomic development. (Investment Law of 2021, art. 1.) This initiative could also serve as one of the country’s post-COVID economic recovery measures.

Key Changes Under the Investment Law of 2021

Priority Areas

One of the new law’s main changes to the previous investment law regime  is its expansion of the number of priority areas that qualify for investment and tax incentives. Approved projects in these priority areas are known as qualified investment projects (QIPs). New notable priority sectors are technological innovation, research and development, digital industries, mechanical and machinery industries, electrical and electronics industries, green energy and climate change adaptation or mitigation technology, biodiversity conservation, health, and small and medium enterprises. (Investment Law of 2021, art. 24.) This addition will help shift Cambodia’s economy from labor-intensive industries, such as the garment and footwear manufacturing sector, to more modernized sectors, like technology and e-commerce.

Investment and Tax Incentives

The investment and tax incentive framework under the new investment law has three main categories: basic incentives, additional incentives, and special incentives. (Arts. 25, 27 & 28.) For the basic incentives, qualified investors may choose either (1) full income-tax exemptions for three to nine years, depending on the investment sectors and activities, or (2) a collection of other incentives, including special depreciation treatment and eligibility to deduct expenses with a higher rate. The distinct change under the new investment law is that the tax exemption period for the basic incentives starts from the date when the project earns its first profits. Furthermore, after the tax exemption period ends, investors will enjoy an additional six years of income-tax discounts through a gradual phase-in tax rate. (Art. 26.)

Application Procedures

The new investment law will also improve the procedures for investors to apply for the QIP status with its corresponding investment and tax incentives. It will reduce the application processing time from 31 working days to 20 working days and smooth the application process by adopting a single-window online service coordinated by the CDC (as opposed to the submission of hard-copy application dossiers at different government bodies required under the old law). (Arts. 4, 10, 12, 13.)

Investment Guarantees and Protections

At the same time, the law strengthens the country’s previous investment guarantees and protections to investors, such as prohibiting foreign exchange controls and discrimination against foreign investors; providing intellectual property protection; and guaranteeing protection against governmental price-fixing, nationalization, or unjust expropriation. (Arts. 15–23.)

The New Law’s Relationship to Other Laws and Regulations

The government may develop additional regulations to support the implementation and update of the new investment law, or it may replace the existing regulations, such as Sub-decree No. 111. Until then, however, the old implementing regulations remain in effect. (Art. 38.)

Experts are advising investors to consider what implications the new investment law may have on tax laws, as well as note any changes made for the upcoming year by the Law on Financial Management, which is annual legislation that may amend tax rules and “outline additional incentives for special projects that have a ‘high potential’ to contribute to the national economy.”

Prepared by Pichrotanak Bunthan, Legal Research Fellow, under the supervision of Sayuri Umeda, Senior Foreign Law Specialist

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