Expanding to Cambodia

For forward-thinking entrepreneurs, Cambodia presents a compelling proposition – a gateway to a market eager to embrace new ideas and innovation.

But beyond the captivating temples of Angkor Wat and the serene beauty of the Mekong Delta, Cambodia offers a strategic location, a young and tech-savvy population, and a government actively courting foreign investment. 

This blog taps into the advantages of establishing your presence in this captivating market. So, join us as we share the whole process of expanding your business into the Southeast Asian gem - Cambodia.

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How to Set Up a Business in Cambodia

Success in Cambodia requires careful planning and an understanding of the business environment. Let’s navigate the factors to consider to establish your presence in this vibrant market.

Factors to Consider for Starting a Business in Cambodia:

1. Market Entry: Cambodia offers various business structures, each with its own advantages and limitations. Carefully evaluate your business goals and resources to determine the most suitable structure.
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2. Understanding the Legal Landscape: Cambodia's legal system is undergoing modernization, but navigating regulations can be complex. Partnering with a local legal professional can ensure compliance with labour laws, tax regulations, and other legal requirements.
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3. Business Culture and Etiquette: Building successful relationships in Cambodia hinges on understanding local business culture. Patience, respect, and an appreciation for hierarchical structures are key to fostering trust and collaboration with Cambodian partners and employees.
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4. Infrastructure and Logistics: While Cambodia's infrastructure is developing rapidly, some areas may have limitations. Carefully assess your logistics needs and consider potential challenges in transportation, communication, and access to utilities.

How to Set Up a Company in Cambodia

Building your presence in Cambodia requires navigating the company registration process. Here's a breakdown of the key steps involved:

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Business Structure:

• Choose the right entity: Cambodia offers various business structures, each with specific advantages and limitations. Common choices include:some text
  • Sole Proprietorship: Simplest option, but owner bears full liability.
  • Partnership: Two or more individuals share ownership and profits.
  • Limited Liability Company (LLC): Popular choice offering personal asset protection for shareholders. Here are two common LLC types:some text
    • Private Limited Company (PLC): Minimum of one director and 2-30 shareholders (can be a single member). Popular for most businesses.‍
    • Public Limited Company (Listed Company): Minimum of three directors, with shares offered to the public. More complex regulations apply.

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Registration Process

This process typically involves three stages:

• Pre-registration:
  • Decide on your business structure and appoint company officers (directors and shareholders).
  • Secure a registered office address in Cambodia.
  • Draft your company's Articles of Incorporation (AoI), outlining key details like business activities and capital structure.
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• Registration:
  • Online Registration: Cambodia's Ministry of Commerce (MoC) offers online registration services through the Cambodia Data Exchange (CamDX) system.
    • Reserve a company name (available in Khmer and English).
    • Select your business activities based on Standard Industrial Classification (SIC) codes.
    • Submit the AoI, registered office lease agreement, and shareholder/director information.
    • The minimum capital requirement is KHR 4 million (approximately USD $1,000).
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  • Approval and Issuance: Once approved, the MoC issues a Certificate of Registration online.
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• Post-registration:
  • Obtain company seals from a licensed seal maker and register them with the MoC.
  • Register for taxes with the General Department of Taxation (GDT).
  • Open a corporate bank account and deposit the initial capital.
  • Register with the National Social Security Fund (NSSF) for employee social security contributions.

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Local Regulations

• General Business Laws: Cambodia's legal system is based on civil law principles. The Law on Commercial Enterprises (LCE) governs company formation and operations.
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• Compliance: Businesses must comply with regulations related to accounting, labour laws, tax regulations, environmental regulations, and industry-specific licensing requirements.
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• Industry-Specific Regulations: Certain industries may have additional licensing or registration requirements. Partnering with a legal professional like Innovare can ensure compliance with all applicable regulations.
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Taxation

• Corporate Tax Rate: Cambodia has a flat corporate tax rate of 20% on net profits.
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• Tax Incentives: Cambodia offers a wide variety of tax incentives to investors to increase the country’s competitiveness and foster social and economic progress. But a significant amount of post-registration compliance is required to maintain a legitimate tax exemption.
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• Tax Obligations: Businesses are required to register for taxes, file tax returns, and make timely tax payments.

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Banking and Finance

Opening a Corporate Bank Account: After company registration, it's necessary to open a corporate bank account to deposit the initial capital and conduct business transactions.

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How do I Go About Manpower and Human Resources?

Building a successful team in Cambodia requires understanding the work visa and permit process, employment contracts, social security obligations, and other HR considerations. Here's a breakdown of key aspects:

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Types of Visa/Work Permit

Foreigners working in Cambodia require an E-class visa, with various subcategories based on employment status:

• EB Visa (Business): Most commonly used, allowing work, business setup, or extended stays. Requires a Work Permit in addition to EB for long-term employment.
• EG Visa (General): For those seeking work, with durations of 1 or 3, months. One time and not renewable in the country. 
• ES Visa (Student): For enrolled students, renewable upon proof of financial support and university affiliation.
• EP Visa (Proposal): Issued to those seeking employment / business opportunities with 1 and 3-month options. One time but can be converted to EB if qualified.  
• ER Visa (Retirement): For retirees aged 55+, with proof of financial independence.
• ET Visa (Technical): For professionals in specific industries.

Note that there is restriction under the quota system in the number of foreigners a company can employ. Under the quota system, the number of foreigners employed in a company is subject to a maximum of 10 percent of the company's total workforce.

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Visa Application Process

The visa application process typically involves submitting documents to Cambodian embassies or consulates, including:

• Valid passport
• Passport photos
• Business invitation letter (if applicable)
• Completed visa application form
• Letter of invitation from the employing company (for EB visas)
• Additional documentation may be requested (e.g., company registration certificate, tax documents).

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Social Security Management

Cambodia has a social security system NSSF. The contribution rates are:

Occupational Risk Scheme:  0.8% of the employee's monthly wage, borne by Employer

Healthcare Insurance: 2.6% of the employee's monthly wage, borne by Employer

Pension Fund:  2% from Employer and Employee respectively for the first five years. Percentage will increase thereafter based on tenure

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Contract Details

Employment contracts in Cambodia should be written in both English and Khmer, outlining key terms and conditions:

• Contract Type: Fixed-term (up to 2 years) or indefinite.
• Probationary Period: Maximum 3 months.
• Termination Notice Period: Varies based on contract duration and employee service.
• Severance Pay: Minimum 5% of total wages for fixed-term contracts, graduated scale for indefinite contracts.
• Salary and Benefits: Expressed in Cambodian Riel (KHR).
• Working Hours: Standard workday is 8 hours, with a maximum 48-hour workweek.
• Overtime: Overtime pay starts at 1.5x regular wage, with higher rates for nights, Sundays, and holidays.

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Other Employer Costs and Insurance

Employers may be responsible for additional costs, such as:

• Private Health Insurance: While not mandatory, employers may offer health insurance to employees.‍
• Work Visa and Permit Fees: Employers typically cover visa and work permit costs for foreign employees.

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Should I Set Up My Own Entity or Outsource to a Local Expert?

Expanding into Cambodia presents exciting opportunities, but navigating the business environment requires careful consideration. A key decision you'll face is whether to establish your own legal entity or outsource setup and ongoing compliance tasks to a local expert. 

Here's a breakdown of both approaches to help you decide:

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Setting Up Your Own Entity

• Pros:
  • Full control over the business structure and operations.
  • Potentially lower costs in the long run (if you have the expertise).
  • Deeper understanding of Cambodian business regulations.
• Cons:
  • Time-consuming establishment process.
  • Requires in-depth knowledge of Cambodian business laws and regulations.
  • May necessitate hiring local staff for legal and administrative tasks.
  • Potential for delays and non-compliance risks.

Outsourcing to a Local Expert

• Pros:
  • Faster and more efficient setup process.
  • Ensures compliance with Cambodian regulations.
  • Experts can navigate cultural nuances and bureaucratic hurdles.
  • Frees up your resources to focus on core business activities.
• Cons:
  • Additional costs associated with professional fees.
  • Less control over specific aspects of the setup process.
  • Reliance on the expertise and communication of the outsourcing partner.

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Choosing the Right Approach

The best approach depends on your specific circumstances. Here are some factors to consider:

• Business Size and Complexity: Larger or complex businesses may benefit from the control offered by setting up their own entity.
• Resources and Expertise: If you lack in-house expertise in Cambodian business law and regulations, outsourcing may be a wiser choice.
• Risk Tolerance: Companies with a lower risk tolerance may prefer the compliance assurance of a local expert.

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Innovare: Your Trusted Expansion Partner in Cambodia

Innovare can be your trusted advisor throughout your Cambodian expansion journey. Our team of experts has extensive experience navigating the Cambodian business landscape.

Here's how we can help:

• Immigration services
• Payroll administration
• Tax & social security management
• Other employer costs and insurance 
• Statutory benefits 

Contact Innovare today to discuss your Cambodian expansion plans and explore how our expertise can help you navigate the exciting opportunities this market presents!