Cambodia: General Business Law Overview
TIV Sophonnora, Partner
R&T Sok & Heng Law Office
What do you know about Cambodia? Cambodia was once a war-torn country. Its reputation has been tainted by protracted civil war and a genocide regime that had destroyed the whole economy during the 1970s. Thirty years after, through economic reforms, Cambodia regained steady macroeconomic stability and noticeable economic growth. Cambodia championed economic growth amongst other ASEAN countries by recording its highest GDP annual growth rate of 13.25% in 2005 and achieved in 2009 the Millennium Development Goal (MDG) of halving its poverty. In 2015, Cambodia was reclassified from ‘lower-income’ to ‘lower-middle-income’ status and in 2016, the Asian Development Bank (ADB) endorsed Cambodia to become one of the new tiger economies of Asia. Over the past few decades, Cambodia’s GDP annual growth rate averaged at 7.5% and is projected by the International Monetary Fund (IMF) to stay at 6.8% for 2021 and 7.3% for 2022 due to COVID-19. According to ADB, Cambodia’s GDP is forecast at 5.9% for 2021, while the figure for 2022 has not yet been released.
Geographically, Cambodia sits at the heart of ASEAN and is considered to be the gateway into a market of more than 600 million consumers. Cambodia is the first ASEAN country to secure a bilateral free trade agreement with China signed on October 5, 2020. This is believed to signify both countries’ commitments for comprehensive strategic cooperation and partnership in the joint construction of the Silk Road Economic Belt and the 21st Century Maritime Silk Road of the Belt and Road Initiative. Demographically, Cambodia’s population is relatively young with the median age at 25.6 years, and Cambodia was reported by International Labour Organization (ILO) in November 2018 to have the highest labour force participation rate in the South-East Asia-Pacific region with 82.7% of the working population.
Cambodia is also considered to be one of the most investment-friendly countries, with a government with a pro-business attitude. Foreign investors can own most businesses outright with very few exceptions (including foreign ownership restriction on land). Cambodia does not impose trade restrictions, price controls or foreign exchange restrictions. Investors can repatriate funds to their home countries with no limitation. Furthermore, the Cambodian government offers various incentives (including tax holiday) to qualified investment projects.
Legal System and Legal Market. Originally, Cambodia had a civil law legal tradition, based largely on the French codified civil law system. With a rapid regional integration and globalization of economies, the legal system has evolved into a hybrid system as it has absorbed and been inspired by various foreign law concepts (including features from the common law system) through various foreign aids and assistances to Cambodia’s legal and judicial reform. Moreover, as Cambodia is a recipient of extensive foreign direct investments, investors are inclined to bring in their respective trade practices and influences where possible. The mixture of these elements into Cambodia’s legal system requires a combination of both local expertise and international experience for a proper understanding and practice of laws in Cambodia.
As a signatory to the 1958 New York Convention, foreign arbitral awards are recognized and enforceable in Cambodia. Moreover, with the establishment of the National Commercial Arbitration Centre (NCAC), Cambodia offers an alternative dispute resolution mechanism locally in addition to courts. Cambodia’s legal market is small if compared to its neighbouring countries. Nevertheless, with constant growth of FDI influx, demands for legal services and qualified legal professionals to assist and advise on large scale projects and complex transactions are growing over the years. We are optimistic that the size of the legal market will continue to grow with new opportunities and challenges as we are marching into the era of digital transformation and innovation.
As one of Cambodia’s most highly regarded full-service law firms, R&T Sok & Heng Law Office has young, dynamic and qualified teams of lawyers advising clients in a wide range of areas of practice across the corporate and commercial spectrum with particular knowledge and experience in various important industry sectors.
Together with our regional Rajah & Tann Asia network, we have built a network of more than 800 legal professionals who are exceptionally talented, skilful and highly motivated individuals to provide seamless legal services across the region with our current footprints in Cambodia, China, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam plus Brunei, Japan and South Asia desks. Having such diverse locally qualified lawyers with multiple languages proficiency, we are proud to call ourselves the region’s new ‘home team’ of ‘Lawyers Who Know Asia’.
Legal Development in Cambodia. In spite of the effect that the US-China trade war and the COVID-19 pandemic have had on Cambodia’s economy, the Royal Government of Cambodia has not slowed down in implementing its development plans. Over the past 24 months, Cambodia has adopted various important laws such as the Construction Law, the Law on E-Commerce, the Law on Consumer Protection, the Law on Commercial Gaming and the Trust Law, while the draft laws on competition and cybercrime are being worked on. We, at R&T Sok & Heng Law Office, have had the privilege to be engaged and consulted with during the drafting process of these new legislations. Furthermore, the Cambodian Government has stepped up its effort to expand its coverage of double taxation agreements (DTAs). The most recent development would be the introduction of capital gains tax, the implementation of which is currently delayed until January 2022.
FDIs into Cambodia will also be reshaped and reinforced by the new Law on Investment which will further address the government’s international obligations towards the investors by way of multilateral and bilateral agreements (such as national treatment, most-favoured national treatment, and investment guarantee), rights and obligations of investors, the strengthening of the one window services (i.e. elimination of approval processes, reduction of registration time, putting in place online platform), the determination of the industries subject to incentives, and real tax incentives and additional investment incentives.
An effort to involve the private sector in the development, management and maintenance of public infrastructures is also noticeable through the preparation of the Public Private Partnership Law creating a framework to provide transparency and fair competition in the project identification, selection, preparation and approval.
Legal and judicial reform has always been a focus of the government. A plan for a more expeditious and reliable court process in relation to civil cases is promised after tremendous success was achieved with a trial campaign for criminal cases recently. A change in the working culture and effort of related court officials can be felt and witnessed throughout the country thanks to a close monitoring by the Ministry of Justice.
The New Normal and Trends. Cambodia is fortunate to not suffer from a community-wide spread of COVID-19 and hopefully the situation will remain under control. With businesses trying to recover and adapt to the ‘new normal,’ technology has now become more important than ever. While businesses in certain sectors such as tourism and construction are severely hit, other sectors including infrastructure, banking and finance, and services, with adjustment and adaptation, continue to operate reasonably well. We have seen new project financings, cross-border M&A, and offshore/onshore listings proceeding at full speed amidst this unpredictable time, which is a promising sign. At R&T Sok & Heng Law Office together with our Rajah & Tann Asia network, we have managed to keep the impact under control and continued to service our clients with minimal interruptions. Our technology, which we put in place prior to COVID-19 as we have been preparing ourselves for the Industrial Revolution 4.0, has enabled us to navigate our clients to overcome the challenges during this crisis.