Vijian Paramasivam
Cambodia is ushering in a new era for foreign investors with the unveiling of its reformed investment policies under the 2021 Investment Law. The newly introduced law highlights “smart incentives” and mandatory “after-care services,” aiming to draw more foreign capital and fortify the nation’s socio-economic fabric.
The comprehensive sub-decree laid out under the law encompasses a wide array of incentives intended to attract foreign investors. These include VAT exemptions, tax rebates, incentives to train workers, basic and special incentives, additional incentives, tax exemptions, and provisions for special depreciation. These policies, according to the Cambodian government, are strategically aimed at constructing an economy resilient to future uncertainties, thereby drawing investors to contribute to the Cambodian growth story.
Secretary General of the Council for the Development of Cambodia (CDC), Sok Chenda Sophea, emphasized the openness and collaborative spirit of these initiatives, stating, “We are extending a warm invitation to investors without imposing any regulations. We are paving the way to build a prosperous, inclusive and resilient Cambodia and we want to work hand-in-hand with investors.”
Engage in innovation or research and development
The newly proposed law strategically highlights 19 key sectors. These sectors primarily focus on high-tech industries that engage in innovation or research and development, such as automobile, electronics, agriculture, agro-industry, agro-processing industry, special economic zones, digital industries, education, health, physical infrastructure, logistics, and green energy.
During the “Sub-decree of 2021 Investment Law” forum, organised by EuroCham Cambodia, Sophea aimed to assure investors of Cambodia’s commitment to an attractive investment climate, while Sar Senera, director of CDC’s Legal Affairs and Investment Law, provided insights into the sub-decree’s scope.
A major facet of the law is the introduction of a “negative list” in Article 24 (Sub-Decree No. 111), featuring 213 investment activities spread across agricultural, service, industrial, and infrastructure sectors. These activities will not qualify for incentives based on certain criteria. Investments not appearing on this negative list, however, and certified as Qualified Investment Projects (QIPs) through a Registration Certificate, are eligible for basic tax and customs duty incentives, either in whole or in part.
The law also introduces a scaling structure of tax incentives that hinge on the category of QIPs. Category 1, containing 37 investment activities, is eligible for the maximum nine-year tax incentive. Meanwhile, Category 2, with 65 activities, can avail of six years of tax incentives, and Category 3, with 32 activities, can attract three years of incentives.
Comprehensive strategy to attract foreign investment
The law also mandates after-care services under Article 23. These services include studying and assessing the status and progress of the project, consulting on dispute resolution mechanisms, raising awareness about policy updates, and consulting on strategic locations and human resources development.
The legislation places a pronounced focus on agriculture, agro-industry, and food processing industries. Edo Lin, a Phnom Penh-based agriculture consultant, commented, “The VAT exemption for locally sourced commodities for agriculture will be a good boost for the Cambodian agriculture sector and farmers. There are a lot of provisions for climate change mitigation, and this is very important for our future generation.”
Regarding the protection of foreign investors, Article 15 lays out a clear policy, guaranteeing equal treatment in the event their investment suffers losses due to armed conflict, civil disturbance, or state of emergency. Vansok Khem, a partner at legal and tax firm DFDL, described the new Investment Law as a progressive step that offers multiple incentives to investors. “The law introduces very friendly and luxurious tax incentives under Article 14 and additional incentives for investors registered under QIP,” Khem added.
Cambodia’s revamped 2021 Investment Law showcases a comprehensive strategy to attract foreign investment and contribute to the nation’s socio-economic resilience. By offering extensive tax benefits, sector-specific incentives, and mandatory after-care services, Cambodia is repositioning itself as a prime destination for global investors.
