Q&A: New Sub-Decree on Investment Law 2021
On June 26, 2023, the Royal Government of Cambodia adopted Sub-Decree 139 to implement the country's Law on Investment, which was passed on October 15, 2021. This decree establishes a comprehensive legal framework for implementing the investment law.
B2B Cambodia attended an Afternoon Talk hosted by EuroCham Cambodia on July 13, 2023 at the Raffles Hotel Le Royal in Phnom Penh. The event began with opening remarks from Mr. Cyril Girot, Vice-Chairman of EuroCham Cambodia, and His Excellency Sok Chenda Sophea, Secretary General of the Council for Development of Cambodia (CDC).
In this article, we provide the key takeaways from H.E. Sok Chenda Sophea during the seminar with regard to the new sub-decree.
This includes an analysis of the new sub-decree and law on investment, Cambodia's vision to diversify its economy, and an overview of the new sub-decree features, such as investment project registration, aftercare services, investment expansion, and opportunities for Cambodia's agriculture sector amidst global climate change.
What Does This New Sub-Decree Mean For The Future of Cambodia's Economy And The Private Sector's Role In Its Growth?
During his welcoming remarks, His Excellency Sok Chenda Sophea emphasised that the new sub-decree is more than just a set of rules; it represents Cambodia's commitment to becoming a desirable location for businesses.
It is about building an economy that can weather the storm, to prepare for the worst and hope for the best, to handle today's challenges and to remain flexible for any uncertainties, creating a robust economic model that goes beyond drafting effective legislation.
This new sub-decree offers a range of advantages to investors, making the Kingdom a more beneficial choice. It is a warm invitation the private sector, an invitation to them to be an active part of Cambodia's growth story.
Q: How do you think this new framework will help the government to achieve all the goals and objective policies?
Cambodia is no longer in the rehabilitation status as during the 90s, the journey has started since the launching of the Industrial Development Policy (2015-2025). The policy has informed all stakeholders; government agencies, private sectors, development partners, where Cambodia wants to go, and what Cambodia should do.
We set up two goals, in 2030 we wish to see Cambodia reaching the level of a high middle income country, more ambitiously by 2050, we wish to become a high income country. This is a statement, this is the goal, then how do we make it happen? The first idea that came to us is we have to diversify our economy.
For the executive summary of the Cambodia Industrial Development Plan (2015-2025) is a plus of diversification, as the current Cambodia’s economy rely dominantly on four main pillars which at least two are sensitive to externalities, which include; agriculture, tourism, construction and real estate, and an export of garments, textile, footwear. Out of those four dynamic sectors, at least two are sensitive, sensitive to externalities, I mean, we don't do anything, if something happens, we are dead. I still remember the Severe Acute Respiratory Syndrome (SARS).
We didn't have SARS in Cambodia. But tourists came to Cambodia during those days in 2003 via Bangkok or Singapore, because of the SARS. Bangkok airport was empty. As a matter of fact, Angkor Temple was empty. This is the fragility, the sensitivity to something that happened somewhere else that impacts us very seriously.
Meanwhile in Agriculture, Cambodia has changed from a country that relied on assistance from World Food Programmes, international organizations and other friendly countries, now Cambodia is an exporting country, not only rice but other crops, but agriculture is still dependent on mother nature.
I don't want to imagine but it would be a nightmare. If we have two consecutive years of severe drought. I don't know what we can do. So based on those observations. We all agree that it is urgent for us to find other activities to promote development.
Before the geopolitical tension back in 2015, Myanmar was emerging. In the 60s Myanmar was the number one rice exporter and then Vietnam, and Thailand took over.
They are number one and number two exporters, but with peace and stability, Myanmar will come as a strong player, then it will be a strong option. So this is just an example of the necessity to go to other sectors less vulnerable, less and less sensitive. However, for the new regulations in place including 2021 Law on Investment and the new Sub-Decree 139, the goal and objectives can be summarized into two.
- First, we have anticipated but not to that extent that the supply chain will move, some companies will move, and will have to move from China. Companies mainly went to China for cheap labor, but the labor force is not anymore cheap.
- Secondly, in some countries, the working force and the general population in general is aging. Those trends told us it's an opportunity for Cambodia. So this is the Genesis, the goal, but you asked me why the goal? We have to think about activities that we move from and if we do our homework, they may come to Cambodia.
So the law investment and implementing sub-decree aimed at sending a strong signal to those who are moving. Hello guys, have a look here!
Q: Will the new investment application process under the new sub-decree result in faster approval for investors compared to the old process?
Before under the Sub-Decree 111, it consisted of two steps and would wait for 28 days for approval, but under the new Sub-Decree 139 that has just been adopted in 2023, it consists of only one step and the period is the same 28 days.
Q: Is aftercare service a compulsory requirement under the new sub-decree, and how does it work in practice? Is there any mechanism in place to enforce this requirement by the Council for the Development of Cambodia (CDC)?
We at the CDC believe that the most effective way to promote investment in Cambodia is not through advertising on CNN or other media, but rather by providing excellent aftercare services to existing investors. Previously, I worked at the Ministry of Tourism and believed that the best promoters of tourism for Cambodia were not the Ministry of Tourism, but rather happy tourists who returned home and shared their positive experiences.
The same applies to investors. We have self-imposed the responsibility to provide aftercare services, which we believe are essential to attracting more investment in Cambodia. This is why we included it in the sub-decree and law governing investment. However, having a sound investment law and implementing sub-decree is not enough to attract more investment. A supportive business environment is also necessary, not only in Cambodia but everywhere.
Q: Whether the company will be eligible for the project expansion incentive under the new sub-decree, given that the primary company QIP was set up under the previous law (Law on Investment 2003)?
The QIP (Qualified Investment Project) is governed by the Investment Law, not the sub-decree. If it was established under the previous law, the Investment Law of 2003, it would have been governed by Sub-Decree 111. Regarding incentives for expansion, if your company's expansion occurs after October 15, 2021, you may be eligible for incentives because the previous implementing sub-decree did not address expansion.
Q: So before you can request the CDC to remove your QIP status, you need to clear your tax obligation, you need to apply for a tax audit, get a certificate of tax clearance from the tax office, and if you are a company registered with the custom office will need to apply to clear the custom. Whether there is any change to the status quo for the removal of QIP status?
In order to close, you must follow the procedures that were mentioned, including fulfilling your obligations with all relevant agencies from which you obtained IDs such as the Ministry of Commerce (MOC), Ministry of Labor, or the CDC. You must also comply with all administrative requirements. We take compliance seriously and will not formally recognize your closure unless all obligations are met. “We are strict on this. Why should we formally recognize that you have closed if you didn't comply with our obligations?”
Q: What happens if an export-oriented QIP in Cambodia is unable to export its products and wants to sell them locally instead? Would they still be exempt from VAT, and what are the tax implications?
The rules said you are exempted from tax from your exportation, that was for an entry you have been accepted to exemption VAT, etc. But unfortunately, you have a problem for whatever reason, you cannot export anymore. The law is very clear, when you sell locally, you're going to be subjected to the reimbursement of incentive.
Q: Why does the CDC offer maximum incentives for investment in agriculture?
Firstly, Cambodia has untapped potential in agriculture and the incentive aims to attract investors to the sector. We can do much more. Something is wrong somewhere. So with this incentive, we hope to send a strong signal to players in that sector that, hey, is it interesting to go to Cambodia?.
Secondly, investing in agriculture is a risky business with uncertain outcomes, so the CDC wants to recognize the hardships of these investors by offering maximum incentives. Additionally, the CDC hopes to create job opportunities and add value to the economy through investment in agriculture. So to recognize the hardship of those investors, we have decided to provide the maximum because it's a risky business. We all know, ask bankers, they don't want to lend to agriculture, because it is too risky.
Finally, with climate change affecting food security, Cambodia sees this as a golden opportunity to seize. We want to attract more activities, we still have plenty of unused land. When you know that with climate change, food security will be an issue, but it's already it's an issue for others. It's a golden opportunity for Cambodia. I was telling my colleague here that it is not any more weak. And I said hey, you see the opportunities? Do you want to seize those opportunities or not? If you want, you have to give something you cannot just get.
Below is the core content of the new sub-decree (Sub-Decree 139) released on June 26, 2023. Now it's only available in Khmer, which can be accessed through the Council for Development of Cambodia.
- Chapter 1: General Provision
- Chapter 2: Registration Procedure and Investment Projects Implementation
- Chapter 3: Incentive for Investment Projects
- Chapter 4: Aftercare Service
- Chapter 5: Purchase, Sale, or Merger of Investment Projects
- Chapter 6: The Removal of Investment Project
- Chapter 7: Final Commandment