Legal and Fiscal Aspects of Doing Business in

“Legal and Fiscal Aspects of Doing Business in Cambodia” Federation of Malaysian Manufacturers (FMM) Trade & Investment Mission Sok Siphana Managing Partner Phnom Penh, 21 July 2016 ASEAN INSIDERS by origin and passion

Contents Overview of Cambodian Court System Setting up a Foreign Business in Cambodia Labour, Land Law, and Tax Latest Legal Updates Doing Business in ASEAN About ZICOlaw

General Overview Cambodia • Constitutional monarchy • 1993 Constitution • Free market economy • Provincial/municipal courts, Appeal courts, Supreme Court • Separate Military Court for military offenses

Key Indicators Population & Labor Force • Population: • 15 Million • Literacy: • 92. 7% (15 -24 years old) • Young and dynamic labor force: • Median age 24 years old • Population growth rate: • 1. 54%

Key Indicators GDP Growth (2004 -2015) 16% 14, 5% 14% 13, 3% 12% 10% 11, 0% 10, 8% 10, 2% 10, 0% 9, 6% 9, 3% 8, 7% 8, 1% 8% 7, 1% 6, 7% 5, 9% 6% 7, 3% 7, 4% 7, 5% 7, 0% 7, 1% 7, 0% 5, 0% 4, 3% 4% 9, 0% 3, 8% 3, 1% 2, 6% 1, 6% 2% 0% 2004 2005 2006 2007 2008 Agriculture 0, 1% 2009 Industry 2010 Service 2011 2012 GDP Growth 2013 2014 e 2015 p

Key Indicators Stable Exchange Rate (USD-Riel) GDP Per Capita (2004 -2015) 4130 1400 1225 1200 1000 830 800 600 402 468 534 623 909 990 1043 1130 4080 4076 738 731 4034 4030 4050 2014 e 2015 p 4025 400 200 3980 0 04 05 06 07 08 09 10 11 12 13 14 e 15 p 2011 2012 2013

Future Industrial Development Prospects Cambodia 2015 and Beyond: More Industry and technology Source: Atlas of Economic Complexity

Committed Investments (by Country) Year 2011 2012 2013 2014 Jan-Jun 2015 Total $5. 7 Billion $2. 9 Billion $4. 9 Billion $3. 3 Billion Rank Country 1 Cambodia 2 % Country % 41. 24 Cambodia 42. 08 Cambodia 66. 80 Cambodia 64. 00 Cambodia China 30. 55 China 20. 69 15. 68 24. 44 3 Vietnam 11. 99 Korea 9. 89 Vietnam 6. 10 Malaysia 2. 18 Vietnam 0. 86 4 U. K 4. 30 Japan 9. 15 Thailand 4. 37 Japan 1. 72 Japan 0. 77 5 Malaysia 4. 20 Malaysia 6. 04 Korea 1. 76 Korea 1. 66 UK 0. 54 6 Korea 2. 91 Thailand 4. 53 Japan 1. 59 Vietnam 1. 26 Malaysia 0. 53 7 U. S. A 2. 47 Vietnam 2. 89 Malaysia 1. 04 1. 13 Thailand 0. 52 8 Japan 1. 15 Singapore 2. 59 Singapore 1. 03 Singapore 0. 89 Canada 0. 27 9 Australia 0. 43 U. K 0. 51 UK 0. 43 Thailand 0. 88 0. 13 10 Singapore 0. 28 U. S. A 0. 42 France 0. 27 Australia 0. 51 Singapore 0. 06 11 Others 0. 48 Others 1. 21 Others 0. 94 1. 36 0. 04 China UK Others China Korea Others 88. 63 7. 65

Committed Investments (by Sector) Investments by sector (2011 - June 2015) 3 000, 0 Million USD 2 500, 0 2 000, 0 Tourism 10% 1 500, 0 1 000, 0 Industries 34% 500, 0 Agriculture Industries Infrastructure Tourism Total Agriculture 15% 2011 794, 5 1 340, 8 2 782, 3 845, 6 2012 556, 6 1 489, 7 227, 8 691, 5 2013 1 128, 8 1 106, 7 2 620, 8 106, 0 2014 264, 7 2 835, 6 353, 5 479, 6 Jan-Jun 2015 352, 7 359, 9 2 529, 4 73, 9 5, 763. 2 2, 965. 6 4, 962. 3 3, 933. 4 3, 315. 8 Infrastructure 41% Investment Capital (2011 - June 2015) Total of USD 20. 94 billion

Trade Performance 1. Cambodia’s trade volume in 2014 was valued at $18. 1 billion. • Export volume increased to $7. 7 billion • Import volume was up to $10. 4 billion • Increasing import value was due to growth in the construction, • agriculture, and manufacturing sectors Special Trade Preferences: EU’s Everything But Arms 2. Import of raw materials to support industrial sector. 3. Export of finished goods directly to the market. 4. Improve efficiency and reduce logistics costs.

MFN/GSP Market Access Australia Austria Belarus Belgium Bulgaria Canada China Czech Republic Denmark Finland France Germany Hungary Ireland Italy N-Korea Luxemburg Japan Netherlands New Zealand Norway Poland Portugal ROK Russian Federation Slovakia Spain Sweden Switzerland UK USA EBA (everything but arms initiative for LDCs) … and ASEAN Economic Community (AEC) and the Regional Comprehensive Economic Partnership (RCEP)

Contents Overview of Cambodian Court System Setting up a Foreign Business in Cambodia Labour, Land Law, and Tax Latest Legal Updates Doing Business in ASEAN About ZICOlaw

Legal System Supreme Court: - Located in Phnom Penh - Its jurisdiction covers all of Cambodia - Adjudicates questions of law Appellate Court: - Located in Phnom Penh - Its jurisdiction covers all of Cambodia - Reviews questions of law and fact First Instance Court (Municipal, Provincial, and Military): - Municipal and Provincial has 2 departments: Civil and Criminal. - Its jurisdiction covers the area in which the Court is located. - Military Court (Phnom Penh) settles cases related to military offenses and offenses related to the property of armed forces.

Contents Overview of Cambodian Court System Setting up a Foreign Business in Cambodia Labour, Land Law, and Tax Latest Legal Updates Doing Business in ASEAN About ZICOlaw

Setting Up a Foreign Business • “A foreign business is a legal person formed under the laws of a foreign country having a place of business in, and doing business in the Kingdom of Cambodia. ” • Three types of foreign businesses: – Commercial Representative Office/Commercial Relations Office – Branch – Subsidiary

Company Incorporation • • Relatively Easy Register with the Ministry of Commerce (MOC) Recommended structure: Limited Liability Company 100% foreign ownership permitted No tax on dividends to resident shareholders Competitive tax rates Taxes filed monthly as well as annually • For tax registration, the Chairperson or his appointed director must be physically present at the General Department of Taxation for photo taking and fingerprint scanning • Enterprise registration and staff record updates on hiring and termination at the Ministry of Labour are required

Contents Overview of Cambodian Court System Setting up a Foreign Business in Cambodia Labour, Land Law, and Tax Latest Legal Updates Doing Business in ASEAN About ZICOlaw

Land Law • Allows for private ownership of land • Allows leasing (short term-definite period of time and under fifteen years / long term-over fifteen years-right in rem) • Maximum lease duration 50 years plus 50 year extension • Concessions – State owned property can be conceded (typically) for a period of 70 years • Foreign ownership of land – Prohibited by the Constitution – Holding companies 51% Khmer/ 49% foreigner can own land – Foreigners can own apartments above the ground floor (only applicable in buildings registered under the co-ownership process (strata title)

Labour Law • Foreign employees allowed up to a quota of 10% (can be registered with the Ministry of Labor). Applications for additional quota can be made. • No minimum wage (apart from garment factory workers) • Labor unions active (but largely only affect the garment and hotel industry) • Work permits required foreigners and work books for Cambodian staff

Tax • Competitive corporate tax rate of 20% (in most cases) • Value Added Tax (VAT) of 10% • Maximum salary tax rate of 20% (maximum rate kicks in once salaries reach around US$3, 125/month) • No tax on dividends to resident shareholders • Custom duties typically range between 0% and 35% o Duty exemptions on equipment, construction and raw materials for companies with CDC investor status (NB: tax enforcement more robust since beginning of 2015)

Contents Overview of Cambodian Court System Setting up a Foreign Business in Cambodia Labour, Land Law, and Tax Latest Legal Updates Doing Business in ASEAN About ZICOlaw

Cambodia - Highlights of Latest Legal Updates Intellectual Property • Cambodia joined the Madrid Protocol Trademark System mid-2015 • Convenient and cost-effective, especially when expanding market Accounting and Auditing Law • A new Accounting and Auditing Law passed early 2016 • More standardized and transparent Trade Union Law • A new Trade Union Law passed in the beginning of 2016 • Facilitated collective bargaining

Contents Overview of Cambodian Court System Setting up a Foreign Business in Cambodia Labour, Land Law, and Tax Latest Legal Updates Doing Business in ASEAN About ZICOlaw

Why Cambodia?

Investment Incentives

Employment and Immigration

Dealing With Government & Authorities

Significant Recent Legal Development & Cases

Contents Overview of Cambodia Setting up a Foreign Business in Cambodian Court System Labour Law Latest Legal Updates Doing Business in ASEAN About ZICOlaw

Contact Details Dr. Sok Siphana ZICO Law Cambodia (Sok. Siphana&associates) sok. siphana@zicolaw. com +855 23 999 878

Important Disclaimer • The information provided in these slides are merely general information • regarding Doing Business in Cambodia, relating specifically to regulatory, and legal aspects. The information provided herein may not be consistent with any specific or particular instances of any client or company, and it is not prepared to answer any specific query and purpose. The information provided in these slides are private and confidential and have been prepared only for the use, consideration and perusal of attendees at FMM Trade & Investment Mission in Siem Reap and Phnom Penh on the 18 th to 23 rd July 2016. These slides are not to be relied by any other party nor should it be distributed to any other person without our prior written consent.