Cambodia has proved to be an excellent investment environment over the past few decades.
From 1994 to 2019, Cambodia was one of the fastest-growing economies in the world in terms of Gross Domestic Product (GDP), only experiencing its first contraction since the 2000s due to the Covid-19 pandemic in 2020. However, the Asian Development Bank still estimates a growth of 5.9% for 2021, proving that Cambodia still offers great business opportunities.Eurocham Cambodia
Here are some of the reasons, as highlighted by the European Chamber of Commerce in Cambodia in their Business Opportunities Guide 2021-22, why Cambodia makes such an interesting opportunity for foreign investors.
#1 Business-friendly government
The Royal Government of Cambodia has recognized the role of Foreign Direct Investment (FDI) as a key for the economic growth of the country. In order to increase such, the government has been implementing a number of measures to attract more foreign investors and increase the ease of doing business in the Kingdom, including tax incentives schemes (QIP) and Special Economic Zones (SEZ) to quote a few.
#2 Non-discrimination of foreign-owned companies
Foreign-owned companies are allowed to engage in almost all of the same business activities as Cambodian-owned companies, with very few exceptions (like owning land or other niche areas). It is also easy for foreign companies to get familiar with doing business in the Kingdom, as regular consultations for new legislation and the Government-Private Sector Forum (G-PSF), in which EuroCham is actively participating, are available for private sector industries interested.
#3 Strategic geographical location
Cambodia might be thought of as a small country, however, it is also part of a large and dynamic region, the Greater Mekong Sub-Region (GMS), with a GDP of 243.8 million dollars (of which Cambodia contributes to 16.5 million). Cambodia is very well-integrated with its neighboring countries, thanks to infrastructures and flight connections to major hubs in East Asia. These favorable conditions make Cambodia an ideal “+1 market” for companies already active in the region.
#4 Investment Incentives schemes and low taxes
Foreign investors can also benefit from investment incentives by applying to the Qualified Investment Project (QIP). QIP status is available for investors across a broad range of industries, and it allows them to benefit from tax holidays for profits for up to nine years (with the charged tax rate on income being 0), special depreciation allowances, as well as customs duty exemptions on the import of production equipment, construction material, and other inputs. Moreover, QIPs located inside Special Economic Zones (SEZs) are also exempt from paying VAT on imports (which usually is 10%). Export-oriented QIPs can also receive a VAT exemption on production inputs. However, Cambodia already has one of the most competitive tax regimes in Southeast Asia, with the maximum rate for the corporate tax only being 20%.
#5Special economic zones
The Royal Government introduced Special Economic Zones (SEZs) in 2005, with the objective of creating a more competitive investment landscape. There are more than 50 SEZs, mostly near border areas and around the manufacturing hubs on the outskirts of Phnom Penh. Administrative teams within each SEZ ensure that businesses can deal smoothly with imports and exports, official registrations, and troubleshooting. As of 2019, 23 SEZs are operational, employing approximately 131,000 Cambodian employees – more than 20% of formal employment in the country.
#6 Easy to repatriate profits
Thanks to the Law on Foreign Exchange of 1997 there are no restrictions on foreign exchange operations through authorised banks, making it easy to remit profits made in Cambodia to bank accounts back home
#7 Strong recent reform record
The steady pace of reforms and the efforts that the government is undertaking in improving the ease of doing business in the country is certainly expected to provide a favorable environment for business activities, which will help stimulate further growth.
#8 Preferential market access
Cambodia joined the World Trade Organization (WTO) in 2004, becoming an increasingly integrated member of international markets.
The US expanded its trade preferences under its Generalised System of Preferences (GSP) in 2016 to 5,000 products which include travel goods such as luggage, backpacks, and handbags. This GSP is still valid until the present time.
Despite the partial EU withdrawal from “Everything but Arms“, Cambodia can still enjoy 80% of the exports with duty-free and quota-free access to the EU.
Recently, the UK has included Cambodia in its GSP program which provides the country with quota-free access and nil rates of import duty on all goods other than arms and ammunitions, starting on 1 January 2021.
On top of that, Cambodia benefits from the Common Effective Preferential Tariff (CEPT) and the Regional Comprehensive Economic Partnership (RCEP), as it is a member of ASEAN.
Cambodia also signed its own bilateral free trade agreement with the People’s Republic of China in October 2020 and concluded negotiations for the Cambodia-Korea Free Trade Agreement (CKFTA) in February 2021.
#9 Human resources
Cambodia’s youthful population and dynamic economy provide a very favorable environment for future growth. It is expected that the size of the working-age population will grow significantly, by around 25%, from 2015 to 2055. The country’s employment rate is also high, at 83%.
#10 Quality of life
The quality of life for investors moving to Cambodia is also very attractive. The living costs are low and the country offers incredible natural spots and cultural locations. The main investment areas, like Phnom Penh, Siem Reap, and Sihanoukville, are foreign-friendly, with a range of accommodation options, bars, restaurants, and entertainment facilities, as well as good connectivity to other major Asian cities. For those with families, there are numerous international schools and universities with internationally recognised curricula. English is commonly spoken in urban areas, and Cambodians are widely considered to be welcoming people.
Therefore, investors making the move to Cambodia will encounter a dynamic economy, with great opportunities for growth, as well as a beautiful country to live in.
If you would like to know more about investing in Cambodia, please contact ICBA at [email protected]