The Law on Investment (LoI) promulgated on October 15, 2021 in Cambodia, aims to establish an open, transparent, and predictable legal framework to attract and promote quality, effective and efficient investments by Cambodian nationals or foreigners in the Kingdom of Cambodia. The LoI applies to “Qualified Investment Projects” (QIPs), “Expanded Qualified Investment Projects” (EQIPs) and “Guaranteed Investment Projects” (GIPs) registered with the Council for the Development of Cambodia (CDC) or Municipal Provincial Investment Sub- Committees (PMIS).
In this article, we provide the overview of the QIPs and their comprehensive incentives.
1. Overview
Qualified Investment Projects (QIPs) are specific types of investment projects that meet specific criteria set by the Cambodian government. This status provides various incentives and benefits to encourage investment in the country. CDC is the primary governmental body responsible for approving and overseeing QIPs. To qualify, projects must be registered with CDC or PMIS and receive a Registration Certificate (RC).
RC is a certificate that recognizes the investment project with a barcode, identification number, QR code, or other technology containing preliminary data related to the registered investment project for the benefit of other registrations and the implementation of the Investment Project.
2. Procedure
Under the LoI, QIPs are issued to projects, not to investors or investing enterprises. Investors or investment companies wishing to implement a QIP and obtain QIP status, and be entitled to some or all available investment incentives, must establish and register as a Limited Liability Company (i.e., Private Limited Company) and submit a written application to the CDC or PMIS, or submit the Investment Project Application via an online portal.
The investment application is reviewed and decided via a One-Stop-Service mechanism, conducted by representatives of the relevant ministries or institutions seconded to the CDC, based on assignments and appointments from the heads of the relevant ministries and institutions under the coordination of the CDC.
The CDC will issue the RC within 20 working days upon receipt of the application if the proposed investment project is not on the Negative List. The date of obtaining the RC is the commencement date of the QIP. However, the RC does not exempt the project from receiving permits or approvals from relevant ministries or institutions as required by law and regulations.
All investment projects are subject to monitoring and inspection through the One-Stop-Service mechanism coordinated by the CDC to ensure compliance with the laws and requirements for obtaining the RC. The investors or investment companies carrying out an investment project must provide a report on the project’s implementation according to a schedule set by the CDC. The detailed format of the report template will be determined by the CDC’s guidelines. Providing the report on the implementation of the investment project does not exempt it from on-site inspections if the CDC deems necessary or if there is any complaint from persons claiming to be affected by the implementation of the investment project.
3. Types of QIPs
There are three types of QIPs available:
- Export QIP: a QIP that sells or transfers any proportion of its products to purchasers or recipients outside the Kingdom of Cambodia.
- Supporting Industry QIP: a QIP in which any proportion of its products is supplied to export industries.
- Domestically Oriented QIP: QIP that does not export.
4. Incentives
Under the LoI (Chapter 6), 19 investment sectors (listed in Article 24 of the LoI) – if they are not on the Negative List (still to be defined in a Sub-Decree) – shall receive investment incentives after obtaining a RC certifying their QIP status. The incentivized sectors are:
- High-tech industries involving innovation or research and development;
- Innovative or highly competitive new industries or manufacturing with high added value;
- Industries supplying regional and global production chains;
- Industries supporting agriculture, tourism, manufacturing, regional and global production chains and supply chains;
- Electrical and electronic industries;
- Spare parts, assembly and installation industries;
- Mechanical and machinery industries;
- Agriculture, agro-industry, agro-processing industry and food processing industries serving the domestic market or export;
- Small and medium-sized enterprises in priority sectors and small and medium-sized enterprise cluster development, industrial parks, and science, technology and innovation parks;
- Tourism and tourism-related activities;
- Special economic zones;
- Digital industries;
- Education, vocational training and productivity promotion;
- Health;
- Physical infrastructure;
- Logistics;
- Environmental management and protection, and biodiversity conservation and the circular economy;
- Green energy, technology contributing to climate change adaptation and mitigation;
- Other sectors and investment activities not listed by the LoI deemed by the Royal Government of Cambodia to have potential for socio-economic development.
4.1. Basic Incentives
Investment activities registered as QIP are entitled to choose between 2 basic sets of incentives.
Option 1: Tax Exemption Period: An Income Tax exemption for 3 to 9 years, depending on the sector and investment activities, from the time of earning of first income. Sectors and investment activities, as well as the period of income tax exemption, shall be determined in the law on financial management and/or the LoI Sub-Decree.
After the income tax exemption period has expired, the QIP is entitled to paying income tax at a rate proportional to the total tax due as follows: 25 % for the first 2 years, 50 % for the next 2 years and 75% for the last 2 years.
Further, this option includes:
- Prepayment Tax exemption during income tax exemption period;
- Minimum Tax exemption provided that an independent audit report has been carried out; and
- Export Tax exemption, unless otherwise provided in other laws and regulations.
Option 2: Special Depreciation: The second option for basic incentives entails:
- Deduction of capital expenditure through special depreciation as stated in the tax regulations in force;
- Eligibility of deducting up to 200 % of specific expenses incurred for up to 9 years. Sectors and investment activities, specific expenses, as well as the deductible period, shall be determined in the Law on Financial Management and/or the LoI Sub-Decree;
- Prepayment Tax exemption for a specific period of time based on sectors and investment activities to be determined in the Law on Financial Management and/or the LoI Sub-Decree;
- Minimum Tax exemption provided that an independent audit report has been carried out; and
- Export Tax exemption, unless otherwise provided in other laws and regulations.
In addition to the incentives of option 1 or option 2:
- Export QIP and Supporting Industry QIP are entitled to customs duty, special tax and value-added tax exemption for the import of Construction Material, Construction Equipment, Production Equipment and Production Inputs;
- Domestically Oriented QIP is entitled to customs duty, special tax and value-added tax exemption for the import of Construction Material, Construction Equipment, and Production Equipment. The incentives for Production Inputs shall be determined in the Law on Financial Management and/or the LoI Sub-Decree.
4.2. Additional Incentives
In addition to the basic incentives, investment activities registered as QIP receive additional incentives, which are very much focused on advancing local production, R&D and improving the working conditions of local employees:
- Value-added tax exemption for the purchase of locally made Production Inputs for the implementation of the QIP.
- Deduction of 150 % from the tax base for any of the following activities:
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- Research, development and innovation;
- Human resource development through the provision of vocational training and skills to Cambodian workers/employees;
- Construction of accommodation, food courts or canteens where reasonably priced foods are sold, nurseries and other facilities for workers/employees;
- Upgrade of machinery to serve the production line; and
- Provision of welfare for Cambodian workers/employees, such as comfortable means of transportation to commute from their homes to factories, accommodation, food courts or canteens where foods are sold at reasonable prices, nurseries and other facilities.
- Entitlement to income tax exemption for the Expansion of QIP which will be determined in the LoI Sub-Decree.
4.3. Special Incentives
In addition to basic incentives and additional incentives, this law paves the way for the government to provide special incentives to specific sectors and investment activities that have high potential to contribute to national economic development, which are identified in Financial Law for Management.
Get in touch with our team here for more information on doing business in Cambodia or explore our Library of Laws section to stay informed on business and investment laws in Cambodia.
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