Profitable companies that seek to raise capital for expansion should consider listing shares on the Cambodian Securities Exchange (CSX). Listing on the CSX allows shares of the company to be sold to the public, allowing the issuing company to raise funds and the public to participate in the growth of the company as shareholders. The CSX offers equity listing options for profitable large companies with shareholder equity above USD $7.5 million as well as for SMEs (small and medium enterprises) with shareholder equity above USD $500,000. The CSX remains in its infancy, however as capital becomes more scarce in a high-interest rate environment, more companies may be willing to offer equity to the public in order to fulfill company requirements for capital. This newsletter articulates the requirements that a company will need to fulfill in order to list shares on the CSX.

2. Benefits of Listing

3. Requirements to List

Listing requires processing and approvals from two main parties: the Securities and Exchange Regulator of Cambodia (SERC) and the CSX.

– Corporate Governance Requirements

Major corporate governance requirements include a qualified board of directors consisting of 5-15 directors, with at least 20% of the board being independent. In addition, an audit committee must be established. A risk management committee must be established if assets exceed USD $50 million, whilst a Nomination Committee is suggested but not mandated.

For a more detailed description of corporate governance requirements, please see our BNG Legal newsletter “Corporate Governance in the Limited Liability Company” here.

– The Disclosure Document

The disclosure document is a comprehensive document prepared by the IPO team for submission to the SERC. The disclosure document presents a comprehensive picture of the company, often hundreds of pages long, allowing potential investors to assess the investment potential and risks of any potential investment. Per the Prakas on Public Offering of Equity Securities (2015), a detailed description of the following information is required in the disclosure document:

6. Official Listing

Following the subscription period, the listing will officially be public within five (05) working days after the issuer submits the following to the CSX and signs a Securities Listing Agreement with the SERC:

7. Lock Up Period

Even though the shares are listed, certain shares of significant shareholders cannot be sold for a limited amount of time after the listing, known as the “lock up period.” For a period of 1 (one) year from the official listing date, the controlling interest shareholder shall not sell or transfer their shares for the first 6 (six) months and is able to sell or transfer its shares up to 50% for the last 6 (six) months. The shareholder(s) holding voting shares of at least 15% and any “strategic shareholder” shall not sell or transfer their shares for a period of at least 6 (six) months from the listing date.

8. Summary Timeline

9. Conclusion

In the current higher-interest rate environment, investment funding is becoming more difficult to access. Listing on the CSX is a good way for profitable companies – both large and SME – to raise local funds, receive tax benefits, attract international funding, and enhance their public profile. A skilled IPO team including an underwriter, lawyer and accountant can help to navigate the complex path toward a public listing. Once listed, a company will require continuous compliance incorporating accountability and transparency into the corporate culture. As the economy of Cambodia matures and more companies list on the CSX, we can expect interest to grow and listings to accelerate.

Intellectual Property (IP) is a vital asset for businesses around the world as well as in Cambodia as it plays a crucial role in fostering economic growth, and innovation, and attracting foreign investment. Strong IP protection is essential for encouraging local and international businesses to invest in research and development, knowing that their creations and innovation will be safeguarded. This protection provides an incentive for inventors, creators, and entrepreneurs to invest time, resources, and effort into developing new products, technologies, and creative works.

IP Protection in Cambodia is governed by a comprehensive legal framework aimed at safeguarding the rights of creators and innovators. Such legal framework includes but is not limited to the Law Concerning Marks, Trade Names and Acts of Unfair Competition of 2002, the Law on Patents, Utility Model Certificates, and Industrial Designs of 2003, and the Law on Copyright and Related Rights of 2003. These laws provide robust protection for trademarks, copyrights, patents, utility models, and industrial designs, fostering an environment conducive to innovation and creativity. Furthermore, the country has made significant strides in aligning its intellectual property laws with international standards, such as joining the World Intellectual Property Organization (“WIPO”) and acceding to various international treaties. At present Cambodia is a signatory to the Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS Agreement”), and the Madrid Protocol Concerning International Registration of Marks.

Despite ongoing legal development, Cambodia has already established relatively efficient procedures for registering and enforcing important IP rights.

II. TRADEMARKS

Trademarks are essential for businesses to protect their brand identity and prevent others from using identical, or confusingly similar marks to identify their goods and services. Indeed, registering and enforcing one’s trademarks is crucial to differentiating one’s products from those of competitors. While unregistered trade names receive a degree of protection, proper registration is vital for any successful business.

Trademarks and related rights are principally protected under the Law on Marks, Trade Names, and Acts of Unfair Competition (the “Trademark Law”), adopted on January 08, 2002. The Law sets out the requirements for registering a trademark and also provides for a range of protection for trademark owners. Under the Trademark Law, a mark cannot be registered with the Department of Intellectual Property Rights of the Ministry of Commerce of Cambodia (the “DIP”) if it aligns with one of the following:

IV. INDUSTRIAL DESIGNS

V. COPYRIGHT

VI. GEOGRAPHICAL INDICATIONS

VII. INTEGRATED CIRCUITS

Integrated circuits (popularly known as microchips) are the core components of the information technology industry. They are essential parts of any digital equipment and have been incorporated into a great variety of other industrial articles, ranging from machine tools to all kinds of household and consumer devices. To fulfill the obligations under the WTO, MISTI’s predecessor, the Ministry of Industry and Handicraft has issued a Prakas on the Registration of Layout-Design of Integrated Circuit to govern and protect integrated circuits in Cambodia. Under the Prakas, an Integrated Circuit is defined as a product, in its final form or an intermediate form, in which the elements, at least one of which is an active element, and some or all the interconnections are integrally formed in or on a piece of material, and which is intended to perform an electronic function. Whereas Layout Design refers to a three-dimensional disposition of the elements, at least one of which is an active element, and of some or all of the interconnections of an integrated circuit, or such a three-dimensional disposition prepared for an integrated circuit intended for manufacture.

The layout design of an integrated circuit can be registered with MISTI along with other IPs including patents, utility models, and industrial design. To be eligible for registration, the design must not have been commercially exploited before or have been subject to commercial exploitation anywhere in the world for a period of not exceeding two years. In addition, it must be an original creation, reflecting the intellectual effort of its creator and not commonly found among other designers and manufacturers of integrated circuits at the time of its creation.

Once registered, the protection for integrated circuit layout designs is granted for ten years. However, to maintain the validity of the registration, annual payment is required.

VIII. TRADE SECRETS AND UNDISCLOSED INFORMATION

Trade secrets and undisclosed information are typically defined as any valuable commercial information that is not publicly known or readily ascertainable and is subject to reasonable efforts to maintain its confidentiality.

In Cambodia, whilst there is currently no specific law related to trade secrets and undisclosed information, a draft law is currently under consideration. Nevertheless, provisions of several existing laws impose duties of confidentiality and penalties for the divulgence of commercial secrets.

Non-disclosure agreements are often used to maintain the confidentiality of information that needs to be shared with, for example, an employee or a contractor. Such agreements function as legally binding contracts that can be enforced under the Civil Code (2011).

The Law on Commercial Enterprises adopted on April 26, 2005, prohibits the unauthorized publication of a firm’s financial statements. It also requires the Ministry of Commerce to maintain the confidentiality of most company documents in its records. The Law on Audit (2000) imposes a duty of confidentiality on government auditors.

The Law Concerning Marks, Trade Names and Acts of Unfair Competition (2002) indicates the implied meaning of contrary acts to honest practices in commercial matters for stealing a trade secret, considered as an act of unfair competition. In particular, the Article 23 of the Law constitutes an act of unfair competition:

IX. RIGHT OF PUBLICITY

The Right of Publicity allows an individual to control the use of his identity for commercial purposes, thereby prohibiting actions like featuring a photograph of someone on product packaging, without their permission. There is no specific law in Cambodia addressing the right of publicity and there are no current drafts under consideration.

X. SUMMARY OF IP PROTECTION IN CAMBODIA

Reference:

¹ Prakas No. 293 on the Procedure for Registration and Protection of Certification Marks issued by the Ministry of Commerce on August 30, 2016.

² Prakas No. 125 on the procedure for TM E-filing both local and foreign marks issued by the Ministry of Commerce on May 4, 2017

1. INTRODUCTION

The Law on Trusts was promulgated in 2019 (“Trust Law”) to manage trusts which are established in Cambodia. The trust law determines not only the rules and procedure for the establishment, registration, management and control of financial trusts, but also of all types of trusts established in Cambodia. Previously, financial trusts were managed by Sub Decree No. 476 ANKr.BK (“Sub Decree No. 476”) dated 26 August 2013. The Trust Law does not invalidate those trust registrations under this Sub-Decree, but brings those registrations under the Trust Law (Art. 55 of the Trust Law).

2. TYPES OF TRUSTS

1. INTRODUCTION

On 29 December 2000, the Royal Government of Cambodia issued Sub-Decree No. 103 to define the formality and the procedure for Civil Registration affairs in the Kingdom of Cambodia. The Sub-Decree has, until recently, been the primary legislation for civil status registration and the main source for registrars to use for civil registration in the Kingdom.
Responding to the population growth and the need for population management, the Law on Civil Registration, Vital Statistics and Identification (“LCRVSI”) was promulgated on 01 July 2023. This law sets out the rules and procedures relating to civil registration, residence registration, vital statistics, personal identification registration and population registry management, and this law applies to all persons living in territories of the Kingdom of Cambodia in addition to Cambodians living abroad. Whilst this law provides the framework, it is anticipated that many other regulations related to formality and procedure will be issued by the competent ministries and institution for effective implementation.

4. CONCLUSION

1) Law on Civil Registration, Vital Statistics and Identification was promulgated on 01 July 2023 and provides very comprehensive conditions and universal registration for civil registration and identification in Cambodia that comply with the United Nation Recommendations on Civil Registration and Vital Statistics. The law will be implemented one year after the promulgation, other than Art. 179, 180 and 180 which shall be implemented in accordance with the future Sub-Decrees.

2) There are several points of law and formality which are not yet clear, as the law refers to not-yet-issued Sub-Decrees and Prakas of the Ministry of Interior. Therefore, to effectively implement this law, the issuances of Sub-Decrees and Prakas or Inter-Ministerial Prakas clarifying the requirements, public service fee, form, formality and procedure are required.

3) The law does, however, undoubtedly improve the civil registration and identification process and should result in greater clarity, quality of service, lower payments, and ease of access.

1. INTRODUCTION

The Trust law (“TL”) of the Kingdom of Cambodia, promulgated on 02 January 2019, provided for four types of trusts: a commercial trust, a public trust, a social trust and an individual trust. Additionally, the financial trust was introduced by Sub-Decree No. 476 dated 26 August 2013.

An Environmental Trust (“ET”) was introduced by the Code of Environment and Natural Resources (“CENR”) or “the Code” promulgated on 29 June 2023. The purpose of an ET is to encourage environmental protection, sustainability, and conservation. According to Article 865 of the Code, the CENR will come into force one (01) year on from the promulgation of the Code. Therefore, the implementation of ETs shall commence from the beginning of July 2024.

4. CONCLUSION

An Environmental Trust is a new type of trust created by the Code of Environment and Natural Resource which was promulgated on 29 June 2023, and this code shall be implemented one (01) year from the promulgation.

An Environmental Trust is valid only if it is registered at the Ministry of Economy and, as executed by the Trust Regulator, in the same manner as other types of trusts under the Trust Law, 2019.

Environmental Trusts are very important for those who wish to manage and allocate funds for protecting the environment and natural resources through a trust mechanism once the Code of Environment and Natural Resource is implemented.

I– Introduction

In 2021 two regulations launched regarding VAT on E-Commerce as below:

III– Registration for Simplified VAT

The non-resident taxpayers provide digital goods / service / e-commerce activities into Cambodia shall register a Simplified VAT within 30 days if the annual turnover met from 250 million riels (US$ 62,000.00) or three (3) month consecutive period completed in the current calendar year meets from 60 million reals (US$ 15,000.00).

The Simplified VAT application is only used for the VAT obligation purpose. The non-resident taxpayer can apply the required form and documents by Khmer or English language for registering the simplified VAT through an e-registration via website http://www.tax.gov.kh or use the services of registered tax service agents. The required documents included:

• VAT application form;
• Oversea tax registration certificate of non-resident taxpayer;
• The valid ID card / passport of the owner or representative person;
• Two passport size photos of the owner or representative person;
• Bank account confirmation issued / printed by the bank of the non-resident taxpayer;
• 400,000.00 Riels (US$ 100.00) for the Simplified VAT registration;
• 100,000.00 Riels (US$ 50.00) for updating the information of the taxpayer, such as amendment of address, owner / representative personally, or name of the enterprise.

The Simplified VAT registered non-resident taxpayer should be received the documents as listed below from the tax administration after 7 to 10 working days since submitted all required forms and documents:

• Simplified VAT Certificate;
• Tax Registration Card;
• Notification of the tax obligation.

IV– Tax Obligation

V. Exempt from Tax Obligation

VI. Application of Withholding Tax on Simplified VAT Registered Nonresident Taxpayer Supplies

A simplified VAT registered nonresident taxpayer can only supply e-commerce goods or services to consumers in Cambodia. Withholding tax (WHT) is a type of tax that is withheld by a resident taxpayer from a payment made to a nonresident taxpayer. WHT is applied to certain types of income, such as income from services, royalties, and interest. The WHT rate for nonresident taxpayers in Cambodia is 14%. The simplified VAT registered nonresident taxpayer is not subject to WHT on their e-commerce supplies to consumers in Cambodia, as these supplies are subject to VAT. The simplified VAT registered on-resident taxpayer is only used for collecting VAT purposes.

VII. Issuing the Invoice

The simplified VAT registration taxpayer shall issue the supply / sale invoice containing to their consumers and resident taxpayer as below:

VIII. De-registerer from the Simplified VAT Registration

A simplified VAT registered nonresident taxpayer who wishes to cease e-commerce supplying into Cambodia must settle all outstanding VAT obligations to the tax administration before submitting a request letter to the General Department of Taxation. The request letter for de-registration of the simplified VAT registration must be submitted within 15 days after the cessation of e-commerce activities of goods or services into the Kingdom of Cambodia.

1. INTRODUCTION

On 16 May 2023 the Royal Kram promulgated the New Law on Taxation No. NS/RKM/0523/004. The New Law on Taxation is not a complete overhaul of the previous law, however it is designed with the purpose of improving, facilitating, filling gaps and improving the consistency of the previous law by compiling a set of laws related to tax, international tax and tax practices.

The old Law on Taxation, promulgated by Royal Kram No. NS/RK/0297/03, dated 24 February 1997, had 6 Chapters and 155 Articles only, whilst the New Law on Taxation includes 20 Chapters and 255 Articles.

We note some of the key features of the New Law on Taxation below:

2. NEW CHAPTERS

Whilst some of the new chapters were previously contained in the Law on Taxation, the chapters have been separated to provide clarity and consistency for the ease of understanding for taxpayers of their obligations. The new chapters include provisions for the following:

According to Sub-Decree 286 dated September 20, 2023 set out the Public Lighting Tax at a rate of five (5) percent for alcohol and tobacco products in Cambodia. The rule and procedure of collection shall be determined by Prakas by Ministry of Economic and Finance.

3. UPDATED DEFINITIONS

• Permanent Establishment (“PE”): A person has and regularly exercises the rights to sign on behalf of non-residents or performs the main duties in facilitating the process toward the signing of any contracts  may considered as a PE in Cambodia.
• Related Party: Any enterprises which directly or indirectly controls or is controlled by, is considered as having common control with the taxpayer.The term “Control” means ownership equal to or more than 20% of the value or voting right of the equity interests in the enterprise.
• Cambodia Sourced Income: Gains from movable or immovable properties sold, including intangible assets located in Cambodia; or
  Gains from the transfer of any interest in movable or immovable properties including intangible assets situated in Cambodia.
• Taxable Person: A non-resident person who supplies digital goods or services to the Cambodia shall be considered as taxable person (E-commerce).
• Taxable Supply: The supplies of digital goods or services in the Cambodia as stated in Art. 58 of New Law on Taxation (E-commerce).
• Public Lighting Tax: Based on the New Law on Taxation, the Public Lighting Tax shall be paid at the first (1st) time of supply only. However, the GDT will issue additional instructions to further clarify this.
• Stamp Duty: According to Art. 157(8), the term ‘property companies’ refers to all companies that occupy properties directly or indirectly with a direct or indirect property value of more than 50% of the total asset value of the company. However, Art. 158(1) states that the stamp duty relative to transfer the ownership or the right to occupy properties as constructions /land, placement of shares as properties, transfer shares, or similar interests of property companies is 4% of the total property value share/transfer.

4. DELIVERY OF INFORMATION TO THE TAXPAYER

A written letter/notification letter/electronic notification (includes faxes, emails, etc.) that the tax administration provides to the taxpayer shall impose an obligation on the taxpayer to the tax administration only when that letter/notification is made in written form and is delivered to the taxpayer.

The letter/notification shall be considered properly delivered if sent to the last address registered (includes email, address, faxes, etc.) with the tax administration.

5. SHARE TRANSFER, BUSINESS TRANSFER AND MERGER OF ENTERPRISES

Should there occur a business transfer or a transfer of shares, the new owner shall be responsible for all tax debts of the businesses/enterprises.

Should there occur a merger of two or more enterprises, the enterprise that continues or arises from the merger of two or more enterprises shall be responsible for all tax debts.

6. INCREASED PENALTIES

The New Law on Taxation increased the penalties and imprisonment term per table below:

Four (4) new crimes have been introduced in the New Law on Taxation:

7. GENERAL ANTI-AVOIDANCE RULE (“GAAR”)

The GAAR provides the GDT with the power to act against schemes that are designed for tax avoidance.

The additional powers of the tax administration, compared with the old LoT, provide the tax administration with the power to reject and/or redetermine the real substance of any transactions if they have found that the taxpayer has organized or carried out any transactions that show false or unrealistic intent in order to reduce or eliminate the tax payable which is contrary to the spirit of the tax provisions.

The Prakas on Unfair Contract Clauses (UCC), promulgated on March 01, 2022, serves as a cornerstone in the Cambodian legal framework, emphasizing the importance of “Standard Form Contracts.” This legislation aims to fortify consumer rights, ensuring transparency, fairness, and protection against undue profit exploitation in contractual relationships with business operators for goods and/or services within the Kingdom of Cambodia.¹.

Details of the Prakas on Unfair Contract Clauses (UCC) are outlined below:.

I- Scope

The Prakas is meticulously crafted to encompass all Standard Form Contracts designed for the provision of goods and/or services to consumers in Cambodia, in alignment with the definitions and provisions set forth in the Law on Consumer Protection.

IV- Identification of Unfair Contract Clauses

Clauses that absolve or limit the business operator’s liabilities concerning service/goods guarantees, as specified in the Civil Code, are deemed unfair.
Clauses that empower business operators to significantly alter the nature, quantity, cost, or quality of goods/services without prior consumer consent are flagged as unfair.
Clauses that permit business operators to modify essential contract clauses without prior notification or consumer consent are considered unjust. Clauses granting unilateral and arbitrary interpretation or termination rights to the business operator are also categorized as unfair (Art.9).

V- Unfair Practices and Repercussions

Employing unfair contract clauses prohibited by this Prakas is deemed an unfair practice under the Law on Consumer Protection.
Non-compliant business operators will face penalties, ensuring accountability and adherence to the provisions of the Law on Consumer Protection.
These penalties do not absolve the violator from broader criminal and civil liabilities as per other pertinent legal frameworks.

VI- Mechanism for Dispute Resolution

In case of disputes, consumers or any aggrieved party can lodge a complaint independently or via a sectoral consumer association. Complaints can be addressed to the National Commission for Consumer Protection or other competent authorities. Disputes will be adjudicated as per the resolution mechanism delineated in the UCC Prakas (Art 14, PUCC).

1. INTRODUCTION

Generally, franchising is known as a business model for companies who wish to expand their market share rapidly, and less expensively, through a licensing relationship. In this regard, the owners (“the Franchisor”) of a company wishing to expand their business grant a license to a third party (“the Franchisee”), to conduct business under its trademark and business operating methods, within a specific territory, according to the agreed terms of a contract (“the Franchise Agreement”). In other words, franchising is also known as an investment model, where the franchisee uses the franchisor’s successful business operating methods and trademark, to operate a similar, or identical, business, by paying a fee, and/or royalties to the franchisor. In international practice, there are two different types of franchise: a business format franchise, or a traditional or product distribution franchise. The former is more common, as the franchisor provides to the franchisee, not just its trade name, goods and services, but an entire system for operating the business. The latter type is less common because it basically only involves the products manufactured, or supplied, by the franchisor to the franchisee ¹.

3. REQUIREMENTS FOR RECORDAL/ REGISTRATION

As provided in Article 52 of the Trademark Law, any license contract shall be recorded with the Ministry of Commerce, though its contents will remain confidential. This contract shall have no effect against third parties until such recording is executed.

Article 27-3 of Sub-Decree on the Implementation of the Law Concerning Marks, Trade Names and Acts of Unfair Competition of the Kingdom of Cambodia (the “Sub-Decree on Trademarks”) stipulates that a licensing contract submitted for recordal under Article 52 of the Trademark Law must be accompanied by a copy of trademark registration certificate, a notarized Power of Attorney and an original copy of the Licensing Contract or its certified copy. The parties shall file the request for recordal of the franchise agreement/trademark license agreement either before or within six (06) months from the date of signature of the franchise agreement ².

Article 6 of the Sub-Decree on Recordal of License or Franchise Agreement also stipulates that the contract is an object of recordal request, and therefore must clarify the important meanings of the agreement, as below:

1. Identity of provider and recipient as:
   • Name, Nationality and permanent address if provider and recipient is individual; or
   • Name, Nationality and Headquarters’ registered address if the provider and recipient is a Legal Entity
2. Detail on the Trademark such as Trademark, registered number or Trademark registration number, Category of goods or services and types of goods or services which are the objects for recordal request.
3. Typically the type of License or Franchise which is given by the contract: Exclusive, Non-Exclusive, Single or Third-Party contract.
4. Duration of permission is specific set in the contract or is set by the conditions and regulation which are written on other related contracts.
5. Duration of permission is specific set in the contract or is set by the conditions and regulation which are written on other related contracts.
6. Signature of both parties and verification by notary or competent authority.

Based on practice, the registrar requires additional documentation such as the notarized extract of the summary franchise agreement and the translation of the extract of the summary franchise agreement into Khmer language and certified by the trademark agent. Kindly note that there are two professional translators that are recognized by the Department of Intellectual Property of the Ministry of Commerce, being the aforesaid trademark agent and Pyramid Translation Services. Therefore, the parties can choose which one they prefer to translate the agreement.

In summary, current required documents for recording trademark license agreement/franchise agreement in Cambodia are as follows ³:

• Notarized Copy of the License/Franchise Agreement;
• Copy of Trademark Registration Certificate(s);
• Notarized Power of Attorney to BNG from both franchisee and franchisor (drafted by BNG);
• Request Form for Recordal of License Agreement (provided by BNG);
• Original Signed and Notarized Extract Summary of Master Franchise Agreement (Summarized by trademark agent/professional translator which is recognized by the Ministry of Commerce); ⁴
• Certified copy of translation of Extract Summary of Master Franchise Agreement (Translated into Khmer language and certify by the trademark agent); and
• Extract of Company Registration from Ministry of Commerce and Patent Certificate (if the franchisee is Cambodian).

Please also be advised that the licensed trademark shall be registered in Cambodia prior to the recordation of the license agreement.

4. CONCLUSION

Despite there being no specific provision governing franchising in Cambodia, this kind of business model is considered very popular, and its use is expanding rapidly. While most Cambodians enjoy the benefits of branded goods and services, setting up a franchise is strongly recommended. To do so, the franchise agreement must comply with the rules of the license agreement, stipulated in the Trademark Law. Any franchise agreement concluded and exercised within the Kingdom of Cambodia must be in compliance with relevant laws and regulations, namely the Civil Code, the Trademark Law, the Law on Taxation and the Labour Law. It is recommended that both the franchisor and the franchisee consult with a qualified lawyer, before concluding any franchise agreement.

1 https://www.franchise.org/faqs/basics/what-is-a-franchise

2 Notification 07 dated 06 August 2015 on Recognition of Exclusive Rights on the Use of Trademark and Prokas No.0117 dated 25 June 2021 on Procedure to Certification and Recordal of

3 Prakas No.036 dated 13 January 2020 on Recordal of License and Franchise Contracts;

4 Notification No.0748 dated 12 March 2015 on Recordal of Trademark License Agreement or Franchise Agreement;

1. INTRODUCTION

The National Social Security Fund (“NSSF”) has long been established to provide security for employees in Cambodia. Whilst initially focusing on health insurance, in recent years it has expanded into also providing pension provisions. Sub-Decree No. 32 on the Social Security Scheme on Pension for Persons Defined by the Provisions of the Labour Law, promulgated on 04 March 2019 initiated this shift, and its provisions have been clarified in further Sub-Decrees and Prakas. This newsletter will explore the requirements of employers, the benefits of employees and the implementation of the law.

2. REGISTRATION OF THE NSSF

All employers with one (01) or more worker is required to register with the NSSF. The process for registration with the NSSF was set out in Prakas No 168/22 on the Formalities and Procedures for Registration of Company, Employee and Contribution Payment for Persons Defined Under Provisions of the Labour Law, enacted on 05 July 2022.

An employer is required to register within 30 days of commencing activities. Any new employees must also be registered by the employer within three (03) days of beginning employment.

Non-registration with and failing to pay the contributions to the NSSF can lead to a fine of 30 times the base daily wage rate, which was increased to US$ 20.00 with the implementation of Inter-Ministerial Prakas No. 326 on Base Daily Wage dated 25 November 2022. Therefore, lack of registration and failing to pay the contributions can result in a fine of up to approximately US$ 600.00. The fines shall be calculated according to the number of workers whose contributions are deducted by employers and in violation of the provisions of this law.

3. CONTRIBUTIONS OF THE PENSION SCHEME

In general, contributions are made by the employer on a monthly basis. The contributions required for the first five (05) years of employment are set at 4% of an employee’s wage. The contribution shall be borne as follows:

• 2% from the employer; and
• 2% from the employee.

4. PENSION ENTITLEMENTS OF EMPLOYEES

Employees are entitled to either an old age pension, an old age allowance, or an invalidity pension. In addition, a survivor’s pension is available to the family members of those who were entitled to one of the pensions listed.

5. FOREIGN EMPLOYEES

The pension schemes shall apply to persons defined by the provisions of the Labour Law including persons who have 2 (two) or more jobs. Based on Article 3 of Sub-Decree No. 32, employee refers to all kinds of employees and all nationalities of the formal sector including persons defined by the provisions of the Labour Law. Therefore, the foreign employees are obliged to pay the contribution and are entitled to pension benefits.

6. CONCLUSION

The pension schemes shall apply to persons defined by the provisions of the Labour Law including persons who have 2 (two) or more jobs. Based on Article 3 of Sub-Decree No. 32, employee refers to all kinds of employees and all nationalities of the formal sector including persons defined by the provisions of the Labour Law. Therefore, the foreign employees are obliged to pay the contribution and are entitled to pension benefits.

1. The director or owner of an enterprise defined by Labour Law should register their enterprise and employees in accordance with the existing laws and regulations and pay the contribution into the pension fund in compliance with Sub-Decree No. 32 to avoid any possible fines and for the benefits of their employees.
2. Whilst all enterprises are required to pay contributions to a pension fund, providing these benefits to employees through NSSF rather than a private insurance company can reduce expenditure.