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Updated investment law aims to increase capital inflows and diversify investments

Cambodia’s international business community has welcomed the newly approved Law on Investment which aims to increase capital inflow and encourage economic diversification of the local economy.

The new law replaces the previous investment law enacted in 1994 and was updated mainly under the guidance of the Council for the Development of Cambodia (CDC). The law lists the CDC as the Cambodian governments “Etat-Major” responsible for reviewing and deciding on development and investments.

The law consists of 12 chapters and 42 articles and was approved by the Council of the Ministers at a meeting chaired by Prime Minister Hun Sen on July 9.

It aims to provide incentives to prioritized sectors to foster development in science and technology, job creation, skills training, research, innovation and small and medium enterprises.

Major amendments include shortening the period of certificate issuing from 31 to 20 working days for business registrations made via the single portal, Single Window Service.

In addition, it aims to strengthen procedures on monitoring and checking from relevant ministries and institutions through joint one-time inspection as well as sets incentives to qualified investment projects, both tax and non-tax preference, to attract flow-in investment to sectors that Cambodia needs specifically in the context of economic diversification and increasing competitiveness.

The law also includes international obligations undertaken by Cambodia to show investors the commitment of the government to protecting investment and providing assurances in accordance with international law.

Managing Partner of the law firm Tilleke & Gibbins (Cambodia) Mr Jay Cohen told Cambodia Investment Review that overall, the amendments seem positive, especially if the industries that can seek investment incentives are expanded to reflect services such as digital businesses and industries that support green energy.

“The new law expands the industries that could qualify for investment incentives, which is a positive. Although the tax incentives are sweetened a bit, the real issue is whether there are any changes to the tax regulations,” Cohen said.

“While a profit tax exemption sounds good, as soon as an investor attempts to pay out those profits as dividends, they are hit with a 20% tax, which is the same as the corporate tax rate. Therefore, the profit tax exemption only provides a benefit if you keep the money in the company,” he added.

Managing Partner of the investment and advisory firm Mekong Strategic Partners Stephen Higgins said, they’re significant financial incentives, particularly for those businesses that place a high value on such incentives. So on a standalone basis, it is clearly a positive.  

“However a lot of investors will also place a really high value on things like quality of workforce, clarity of tax rules and their enforcement, and enforcement of contracts more generally, and those are areas where more work is needed,” Higgins added.

The CDC advised Cambodia Investment Review that it will issue an official comment during the launching ceremony for the new law soon. In 2020, the CDC approved 238 investment projects worth a total of $8.2 billion last year, down 12 per cent from 2019, according to official sources.

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