Cambodia

Cambodia

Cambodia: Market Profile

Picture: Cambodia factsheet
Picture: Cambodia factsheet

1. Overview

Cambodia attained lower middle-income status as of 2015, having sustained an average growth rate of 7.6% in 1994-2015, mainly driven by garment exports and tourism. The economy slowed down slightly to reach an estimated 6.8% annual growth figure in 2017, according to preliminary estimates by authorities but is expected to remain strong over the next two years (6.9% in 2018 and 6.7% in 2019), as recovering tourism activity coupled with fiscal expansion compensate for some easing in garment exports and construction growth. Going forward, maintaining macroeconomic stability and enhancing economic diversification, export competitiveness and quality of public service delivery will be key to sustaining higher growth.

Source: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

February 2018
The Cambodian People’s Party (CPP) won all 58 seats of the Senate.

July 2018
China loaned Cambodia USD351 million to build a new road in the capital Phnom Penh.

July 2018
General elections were held in Cambodia on Sunday, July 29 2018 to elect members of the sixth National Assembly. The ruling CPP won all 125 seats in the National Assembly.

The Cambodian government signed agreements with the World Bank to implement two projects worth USD200 million. The Higher Education Institutions Capacity Improvement Project (HEICP) aims to improve higher education for industrial development, while Second Road Asset Management Project (RAMP II) is to improve road connectivity from Phnom Penh to a deep-sea port in Preah Sihanouk province. The USD90 million HEICP is a six-year scheme that covers expanding classrooms and laboratories, and building dormitories for disadvantaged students from poor households and remote areas, as well as provision of research funds in priority subject areas. The USD110 million for RAMP II will mark an additional financing for the project with the aim of improving the conditions, safety and climate resilience of National Road 4. The financing will be used to revamp more than 200km and improve road shoulders, construct drains and bridges with new, climate resilient designs, upgrade existing weighing stations and reduce the risk of overloading. Installation of speed-limit zoning, guide-signs, solar powered lights and speed cameras will also be done. The projects will be funded through credits from the International Development Association. The interest-free credits have a final maturity of 38 years, including a grace period of six years, according to the World Bank.

Source: BBC country profile – Timeline, Fitch Solutions

3. Major Economic Indicators

Graph: Cambodia real GDP and inflation
Graph: Cambodia real GDP and inflation
Graph: Cambodia GDP by sector (2017)
Graph: Cambodia GDP by sector (2017)
Graph: Cambodia unemployment rate
Graph: Cambodia unemployment rate
Graph: Cambodia current account balance
Graph: Cambodia current account balance

e = estimate, f = forecast
Source: IMF, World Bank, Fitch Solutions

4. External Trade

4.1 Merchandise Trade

Graph: Cambodia merchandise trade
Graph: Cambodia merchandise trade
Graph: Cambodia major export commodities (2016)
Graph: Cambodia major export commodities (2016)
Graph: Cambodia major export markets (2016)
Graph: Cambodia major export markets (2016)
Graph: Cambodia major import commodities (2016)
Graph: Cambodia major import commodities (2016)
Graph: Cambodia major import markets (2016)
Graph: Cambodia major import markets (2016)

e = estimate
Source: WTO, Trade Map, Fitch Solutions
Date last reviewed: August 6, 2018

4.2 Trade in Services

Graph: Cambodia trade in services
Graph: Cambodia trade in services

e = estimate
Source: WTO
Date last reviewed: August 6, 2018

5. Trade Policies

  • In 2001, Cambodia joined the World Customs Organisation and in, October 2004, it became a member of the World Trade Organisation.

  • Cambodia joined the ASEAN in 1999 and served as ASEAN chair in 2012. ASEAN members have agreed to lower intra-regional trade tariffs through the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area. New members such as Cambodia have already gone a long way to removing such tariffs, with almost 80% of their products being tariff-free, which helps to drive trade with Cambodia and the rest of the region.

  • Since 2015, many tariffs between ASEAN member states have been removed. The rewards of lower tariffs within the area have been seen, with regional trade booming in recent years, especially as Singapore is a major exporting partner. That said, the import tariff rates are high in Cambodia: the country's average import tariff rate of 9.8% is one of the highest in the East and South East Asia region.
  • Cambodia imposes VAT, a special tax on certain imports, as well as taxes on gasoline and diesel imports. The highest ad valorem rate of 35% applies to finished agricultural products (processed meat, processed fruit and vegetables, and dairy products), finished industrial products, and petroleum products.

  • In addition to customs duties, Cambodia prohibits or restricts the importation of certain goods for a number of reasons including national security, public order, cultural, environmental, health and safety. Over 1,500 tariff lines are subject to import prohibition or licensing.

Source: WTO – Trade Policy Review, Fitch Solutions

6. Trade Agreements

6.1 Trade Updates

In 2017, Cambodia slightly increased the tariff protection for agriculture to 16.1%, which remains higher than the 12.3% overall applied most favoured nation (MFN) average.

6.2 Multinational Trade Agreements

Active

  1. In 2001, Cambodia joined the World Customs Organisation and, on October 13, 2004, it became a member of the World Trade Organisation.

  2. ASEAN – members are Brunei Darussalam, Cambodia, Indonesia, Laos, Myanmar, Philippines, Singapore, Malaysia, and Vietnam. Cambodia joined the ASEAN in 1999 and served as ASEAN chair in 2012. ASEAN members have agreed to lower intra-regional trade tariffs through the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area. Cambodia has gone a long way to removing some tariffs under this agreement, with almost 80% of their products now tariff-free, which helps to drive trade with Cambodia and the rest of the region.

  3. A bilateral Trade and Investment Framework Agreement between the US and Cambodia was signed in 2006 and allows favourable trade terms with the US, which is Cambodia's largest exporting partner.

  4. Generalised Scheme of Tariff Preference System – EU/Cambodia. Cambodia has been a major beneficiary of the EU's Generalised System of Preferences, which grants virtually all products – except arms and ammunition from less developed countries – duty-free and quota-free access into the EU market. EU trade accounts for approximately 42% overall of Cambodia's footwear and garments exports.

  5. ASEAN-Hong Kong, China Free Trade Agreement. Signed in November 2017 three years after the negotiations commenced in 2014. According to the Economic Ministers from ASEAN Member States, the ASEAN-Hong Kong Free Trade Agreement is the sixth such agreement between the ASEAN and external partners (China, Korea, Japan, India, and Australia-New Zealand).

Source: WTO Regional Trade Agreements database, ASEAN, Phnom Penh Post

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Cambodia FDI stock
Graph: Cambodia FDI stock
Graph: Cambodia FDI flow
Graph: Cambodia FDI flow

Source: UNCTAD
Date last reviewed: August 13, 2018

7.2 Foreign Direct Investment Policy

  1. Cambodia's 1994 Law On Investment established an open and liberal foreign investment regime. All sectors of the economy are open to foreign investment and 100% foreign ownership is permitted in most sectors. In some few sectors, foreign investment is subject to conditions, local equity participation, or prior authorisation from authorities.

  2. There are few restrictions to foreign ownership of companies; a corporate tax holiday of up to eight years; a 20% corporate tax rate after the incentive period ends; duty-free imports of capital goods; and no restrictions on capital repatriation.

  3. The most popular sectors for foreign investment include garment manufacturing, agriculture, the services industry and tourism, which is one of Cambodia's key growth areas. The country's biggest investors tend to come from within the Asia region, with China, Malaysia, Vietnam and Thailand being major sources of foreign investment, along with the US.

  4. Cigarette manufacturing, movie production, rice milling, gemstone mining and processing, publishing and printing, radio and television, wood and stone-carving production and silk-weaving are some of the sectors/activities that are subject to conditions such as local equity participation, or prior authorisation from authorities.

Sources: WTO – Trade Policy Review, the International Trade Administration (ITA), U.S. Department of Commerce

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Qualified Investment Projects (QIPs)The Council for the Development of Cambodia (CDC) is the main authority on all strategic and regulatory aspects of qualified investment projects (QIPs) and the development of Special Economic Zones (SEZs) in Cambodia.

QIP may choose between a profit tax exemption or to use special depreciation.

– A profit tax exemption holiday period is composed of "Trigger period" plus 3 years plus a "Priority Period" to a maximum of 9 years. A QIP shall be subject to a profit tax rate after its tax exemption period as determined in the Law on Taxation.

– Production equipment, construction materials and production input to be used in the production of exports goods for a QIP benefits from exemption from import duties. Other incentives include:

   *40% special depreciation allowance on the value of the new or used tangible properties used in the production or processing

   *Duty free import of production equipment, construction materials and similar items

   *A QIP located in a designated SPZ or EPZ is entitled to the same incentives and privileges as other QIPs

   *The rights, privileges and entitlements of a QIP can be transferred or assigned to a person who has acquired or merged a QIP subject to the approval of the CDC

   *A QIP shall be entitled to 100% exemption of export tax, except for activities as stipulated in laws in effect
The Cambodia Special Economic Zones Board has approved 25 SEZs, of which nine are in operation. These SEZs are located near the borders of Thailand and Vietnam, as well as in Phnom Penh, Kampot and Sihanoukville, facilitating regional trade. Others are still at different stages of development and some remain undeveloped.

With the exception of Sihanoukville Port SEZ, which is a public-private joint venture, Cambodia’s SEZs are almost entirely privately owned and managed.
The main sectors of investment in SEZs include garments, shoes, bicycles, food processing, car and motorcycle assembly and electrical equipment industries.

The government’s purpose in establishing SEZs was to promote diversification of the industrial base beyond electronics, to establish economic linkages between urban and rural areas and to promote industrial investment outside Phnom Penh.

The exemption period for the Tax on Profit shall be provided for a maximum period of nine years, in compliance with article 14.1 of the Law on the Amendment to the Law on Investment.

– The import of equipment and construction materials to be used for infrastructure construction in the zone shall be allowed and exempted of import duties and other taxes.

– The Zone Developer shall receive custom duty exemption on the import of machineries, equipment for the construction of the road connecting the town to the zone, and other public services infrastructures for the public interests as well as for the interests of the zone.

– The Zone Developer may request, under the form of a temporary admission (AT), the import of means of transport and machineries used for the construction of the infrastructures in accordance with the laws and regulations in force.

– The Zone Developer may obtain a land concession from the State for establishing the SEZ in areas along the border or isolated region in accordance with the Land Law, and may lease this land to the Zone Investors.
Zone investors and developersZone developers, investors or foreign employees have the right to transfer all the income derived from the investment and salaries received in the zone to banks located in other countries after payment of tax.

The Zone Developer and the Zone Investor are entitled to obtain the investment guarantees as stated in Article 8, Article 9 and Article 10 of the Law on Investment in the Kingdom of Cambodia and other relevant regulations.

Non-discriminatory treatment as foreigners, non-nationalization and no-fixing price.

The same incentives on customs duty and tax as other QIP shall be entitled.

The Zone Investor entitled to the incentive on Value Added Tax (VAT) at the rate of 0% shall record the amount of tax exemption for its every import. The said record shall be disregarded if the Production Outputs are re-exported.

In case the production inputs are imported into the domestic market, the Zone Investor shall refund the amount of Value Added Tax as recorded in comparison with the quantity of export.

Source: Council for the Development of Cambodia

8. Taxation – 2018

  • Value added tax: 10%
  • Corporate income tax: 20%

Source: PwC Worldwide Tax Summaries

8.1 Important Updates to Taxation Information

  • With effect from 2015, listed companies are entitled to a 50% reduction on the annual coprorate income tax payable for three years. This starts from the beginning of the current tax year if the securities are issued within the first half of the tax year or the following tax year if the securities are issued within the second half of the tax year. 

  • On October 10, 2017, the Ministry of Economy and Finance (MEF) issued Prakas No. 986 to provide ‘rules and procedures on income and expense allocation among related parties’ (known as the ‘Local Transfer Pricing Rules’), which is effective immediately. The Prakas represents one of the most important developments in the Cambodian tax regulations in the last 20 years. In addition to being in line with Cambodia’s tax reform plans, this regulation also demonstrates Cambodia’s commitment to aligning with global tax frameworks on transparency and combatting tax avoidance.
  • Cambodian tax officials met with their counterparts in Hong Kong in June 2017 as part of the first round of discussions for drafting a double taxation agreement (DTA) aimed at preventing dual taxation and fiscal evasion. As of July 24 2018, Cambodia had signed DTAs with the Republic of Singapore, the People’s Republic of China, Brunei Darussalam, the Kingdom of Thailand, and the Socialist Republic of Vietnam for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.The agreements between the Kingdom of Cambodia and the Republic of Singapore and between the Kingdom of Cambodia and the Kingdom of Thailand have been effective from January 1, 2018. However, the agreements with the People’s Republic of China, Brunei Darussalam, and the Socialist Republic of Vietnam are not yet effective. Cambodia is in the process of negotiating DTAs with other countries.

8.2 Business Taxes

Type of TaxTax Rate and Base
Resident companies: Corporate income taxWorldwide tax-base, 20%
Capital gains taxTaxed as part of business income. Cambodia does not have a mechanism for imposing tax on capital gains derived by individuals in Cambodia.
Value added taxTaxable supplies attract VAT at either the standard rate of 10% or the zero rate. Zero rating applies to exports of goods and services and certain charges in relation to the international transport of people and goods.
Capital gains on sale of shares in resident companies/capital gains on sale of immovable propertyTaxable, part of business income

Source: General Department of Taxation, Ministry of Economy and Finance

9. Foreign Worker Requirements

9.1 Localisation Requirements

Under the Cambodian Labour Law, the percentage of foreign workers is capped at a maximum of 10% of all the staff working for an enterprise. The Ministry of Labour may approve a request for an exemption to the above-mentioned 10% limit, particularly if the business is in need of specific skills currently unavailable in Cambodia.

The application for a 'foreign quota approval' from the Ministry of Labour must be submitted between September 1 and November 30 every year if the aforementioned limit is exceeded.

Failure to comply with the foreign employee quota and work permit requirements could (among other things) result in the imposition of fines of up to USD180 and retroactive penalties, in the amount of USD100 for each year that a foreigner has worked in Cambodia without a valid work permit.

9.2 Obtaining Foreign Worker Permits for Skilled Workers

The Labour Law stipulates that no foreigner is allowed to work in Cambodia without a valid work permit and an employment card issued by the Ministry of Labour. Under current practice, foreign nationals working or doing business in Cambodia and holding either an E visa (also known as a 'business visa' or 'ordinary visa') or a K visa (also known as a 'permanent visa') are required to have a work permit and employment card.

There are two types of work permits in Cambodia: temporary work permit, which lasts for the duration of the individual's visa; and permanent work permit, which is mostly reserved for major investors. A work permit usually cost USD100.

Furthermore, foreign nationals wishing to work in Cambodia must also meet the additional conditions such as not suffering from communicable diseases.

9.3 Visa/Travel Restrictions

Nationals of most countries can be issued with a visa on arrival - except citizens of Indonesia, Thailand and Vietnam who do not require a visa before travelling to Cambodia for a stay of up to 30 days. All foreign nationals are legally required to have a work permit if intending to work in Cambodia.

Source: Government websites, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody'sNot ratedNot rated
Standard & Poor'sNot ratedNot rated
Fitch RatingsNot ratedNot rated

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
128/189131/190135/190
Ease of Paying Taxes Index
95/189124/190136/190
Logistics Performance Index
73/160N/A98/160
Corruption Perception Index
156/176161/180N/A
IMD World CompetitivenessN/AN/AN/A

Source: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World ranking
201620172018
Economic Risk Index
123/202
Short-Term Economic Risk Score45.845.649
Long-Term Economic Risk Score44.946.747.8
Political Risk Index
120/202
Short-Term Political Risk Score62.162.162.1
Long-Term Political Risk Score59.358.358.3
Operational Risk Index  129/201

Source: Fitch Solutions
Date last reviewed: August 15, 2018

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK

Cambodia's economic risk scores are low as a reflection of the country's reliance on external financing and the lack of capital markets. The economic growth subsection supports both indices as we expect to see 5%-6% real GDP growth due to rapid investment in the tourism, garment, and agricultural sectors over the coming years. Finally, the currency peg with the US dollar affords some stability in monetary policy but acts as a restriction in terms of policymakers' ability to respond to economic shocks.

OPERATIONAL RISK

Cambodia has emerged as one of the fastest-growing markets in the South East Asia region after decades of internal conflict. Investors stand to benefit from the large labour pool, low wages and openness to foreign direct investment, which help to make the country an attractive investment destination. However, there are considerable risks presented by a lack of adequate education, the underdeveloped transport network.

Source: Fitch Solutions
Date last reviewed: August 6, 2018

10.5 Fitch Solutions Political & Economic Risk Indices

Graph: Cambodia short term political risk index
Graph: Cambodia short term political risk index
Graph: Cambodia long term political risk index
Graph: Cambodia long term political risk index
Graph: Cambodia short term economic risk index
Graph: Cambodia short term economic risk index
Graph: Cambodia long term economic risk index
Graph: Cambodia long term economic risk index

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: August 15, 2018

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Cambodia Score42.546.746.037.939.5
East and Southeast Asia Average55.356.555.754.454.4
East and Southeast Asia Position (out of 18)1415141413
Asia Average48.950.647.747.150.1
Asia Position (out of 35)2219192326
Global Average49.749.850.049.349.9
Global Position (out of 201)129121121140134

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Cambodia vs global and regional averages
Graph: Cambodia vs global and regional averages
Country
Operational Risk
Labour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Singapore83.077.8
89.9
74.7
89.7
Hong Kong81.371.2
88.5
75.9
89.5
Taiwan74.466.4
74.3
77.9
79.2
South Korea70.663.5
67.5
78.1
73.1
Malaysia67.861.6
73.5
75.4
60.5
Macau62.464.2
66.9
50.5
68.0
Brunei60.962.8
57.2
53.0
70.6
Thailand58.856.7
65.2
68.2
45.2
China56.653.9
52.2
65.8
54.4
Vietnam53.452.6
55.5
54.5
51.3
Indonesia52.851.5
53.9
57.6
48.4
Mongolia51.657.8
52.4
41.9
54.1
Philippines43.651.3
47.3
44.6
31.3
Cambodia42.546.7
46.0
37.9
39.5
Laos38.744.2
38.0
36.0
36.7
North Korea32.649.6
20.3
29.6
30.8
Myanmar32.045.5
28.2
29.5
24.9
Timor-Leste31.940.5
26.6
28.0
32.5
Regional Averages55.356.555.754.454.4
Emerging Markets Averages46.84847.545.8
46
Global Markets Averages49.749.850
49.3
49.9

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: August 15, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Cambodia

Graph: Major export commodities to Cambodia (2017)
Graph: Major export commodities to Cambodia (2017)
Graph: Major import commodities from Cambodia (2017)
Graph: Major import commodities from Cambodia (2017)
Graph: Merchandise exports to Cambodia
Graph: Merchandise exports to Cambodia
Graph: Merchandise imports from Cambodia
Graph: Merchandise imports from Cambodia

Official exchange rate HK$/US$, average
7.78 (2011)
7.76 (2012)
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Source: Hong Kong Census and Statistics Department, Fitch Solutions


2017
Growth rate (%)
Number of Cambodian residents visiting Hong Kong20,4912.7

Source: Hong Kong Tourism Board


2017
Growth rate (%)
Number of Asia Pacific residents visiting Hong Kong54,482,5383.5

Source: Hong Kong Tourism Board
Date last reviewed: August 15, 2018

11.2 Commercial Presence in Hong Kong


2016
Growth rate (%)
Number of Cambodian companies in Hong KongN/AN/A
- Regional headquarters
- Regional offices
- Local offices

11.3 Treaties and Agreements between Hong Kong and Cambodia

China (mainland) and Cambodia signed an Agreement for the Avoidance of Double Taxation (DTA) on 13 October 2016 and Investment Promotion and Protection Agreements which came into effect on February 12, 2000.

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

Hong Kong-ASEAN Economic Cooperation Foundation Limited

The main activities of HKAECF is to contribute to the fostering, promoting and facilitating of economic cooperation between Hong Kong and the 10 member countries of ASEAN (“1+10”), and between the ASEAN region and the PRC (“10+1”) with Hong Kong serving as a high value-adding and facilitating key international hub, bridge, connector, promotor and investor.

Address: G.P.O. Box 12779, Hong Kong
Email: secretariat@hk-asean.com

Source: Hong Kong-ASEAN Economic Cooperation Foundation Limited

Royal Consulate General of Cambodia in Hong Kong SAR and Macao SAR

Address: Unit 1218, 12/F, Star House, 3 Salisbury Road, Tsim Sha Tsui, Kowloon
Hours of Business: Monday - Friday 9 am - 1 pm, 2 pm - 5 pm
Tel: (852) 2546 0718
Fax: (852) 2803 0570

11.5 Visa Requirements for Hong Kong Residents

People travelling on a Hong Kong passport need a visa to visit Cambodia.

Source: Visa on Demand


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