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Update on Taxation in Myanmar Following the Union Taxation Law (Oct 2022)

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1. INTRODUCTION

The major taxation laws in Myanmar include the Union Taxation Law of 2022, the Commercial Tax Law of 1990 as amended up to 2015, the Income Tax Law of 1974 as amended up to 2016, the Myanmar Stamp Act 1899 as amended up to 2016, and the Tax Administration Law of 2019. The Union Taxation Law 2022 applies to the 2022/2023 fiscal year. This newsletter will provide an overview of the taxation system of Myanmar.

2. TAXATION OF COMPANIES

  • Scope

Corporate income tax is charged on the net profit obtained by the Union Taxation Law within the financial tax year.

  • Tax Rates

Corporate tax rates vary depending on the type of taxpayer and the nature of the income. The current rates in Myanmar are as follows:

Category of Taxpayers Tax Rates
Companies incorporated under Myanmar Companies Law 2017 or the Special Company Act of 1950 22%
Companies incorporated under Myanmar Investment Law 2016 22%
State-owned enterprises 22%
Non-resident foreigners, excluding salary income 22%
  • Capital Gains Tax

Capital Gains Tax is calculated based on any profits realized from the sale, exchange, or transfer of any capital asset.

Types of Payment Rate Applicable to Resident Rate Applicable to Non-Resident
Interest payment for a loan No need to withhold 15 %
Royalties for the use of licenses, trademarks, patents, etc. 10 % 15 %
Payments by Union level organizations, Department of Union Ministers, Nay Pyi Taw Council, regional or state governments, state-owned enterprises, and municipal organizations for the purchase of goods, work performed, or the supply of services within the country under a tender, bid, quotation, contract, agreement, or other forms 2 % 2.5 %
Payments by enterprises carried out jointly with the State on a mutual-benefit basis; joint ventures, partnerships, companies, associations of individuals, organizations, or associations registered and organized under the existing law; cooperatives, foreign companies, and foreign enterprises for the purchase of goods, work performed, or supply of services within the country under contract, agreement, or other forms No need to withhold 2.5 %
  • Tax Losses

Taxpayers are entitled to carry losses forward for up to 3 years, except in the case of capital losses and shares of losses from associations of persons. Losses, however, cannot be carried back.

3. TAXATION OF INDIVIDUALS

In the case of foreigners, those who reside in Myanmar for at least 183 days during the income year are considered resident foreigners. Residents of Myanmar are liable for personal income tax and profit tax on income derived from Myanmar and a foreign jurisdiction. Non-residents are subject to income tax and profit tax on income derived from within the jurisdiction of Myanmar only under the Income Tax Law 2016.

  • Relief and Allowances

The following relief permitted shall be deducted from the total income of the individual:

Parent: 1,000,000 MMK per parent;

Spouse: 1,000,000 MMK; and

Children: 500,000 MMK per child.

  • Tax Rates

Income tax is levied at the following progressive rates on the salary received by residents and non-resident foreign nationals in Myanmar Kyats (“MMK”) and foreign currency, after deductions for relief and allowance:

Taxable Income (MMK)
From To Tax Rate (%)
1 2,000,000 0 %
2,000,001 10,000,000 5 %
10,000,001 30,000,000 10 %
30,000,001 50,000,000 15 %
50,000,001 70,000,000 20 %
Over 70,000,001 – 25 %

4. COMMERCIAL TAX

The Commercial Tax is levied as a turnover tax on goods and services. This tax applies to goods that are produced in or imported into Myanmar, as well as services that are rendered in Myanmar. For goods and services supplied in Myanmar, commercial tax is imposed at the time of supply and charged on the sales receipt. For the import of goods, commercial tax is collected by the Myanmar Customs Department at the point of importation and charged on the landed cost under the Commercial Tax Law.

The Commercial Tax is applicable as follows:

* 5% commercial tax is charged on exported crude oil.

* 8% commercial tax is charged on exported electricity,

* 11% commercial tax is charged on jade in uncut forms.

* 9% commercial tax is charged on ruby, sapphire, and other precious gemstones in uncut forms except for diamond and emerald.

* 5% commercial tax is charged on jade, ruby, sapphire, and other precious gemstones finished in cut forms and cut form fitted in jewelry except for diamond and emerald.

* 5% commercial tax is charged on the material made with gemstones.

* 3% commercial tax is charged on the sale proceeds of buildings built and sold in Myanmar.

* 5% commercial tax is charged on the sales price of goods produced and sold in Myanmar, or the landed costs of imported goods, except for goods provided in Sec 14 (a) of the Union Taxation Law of 2022.

* 5% commercial tax is charged on the revenue from domestic services, except for services provided in Sec 14 (d) and Sec (e-1) of the Union Taxation Law 2022.

Under the UTL 2022, goods and services that are exempt from commercial tax are classified into different categories, of which 45 categories are comprised of goods, including mainly agricultural and marine products, and of which 33 categories are comprised of services, including education, life insurance, microfinance, intra-government services, and others.

5. STAMP DUTY

The Stamp Duty applies to several transactions as shown in the examples below:

Transfer of shares: 0.1% of the value

Bonds: 0.5% of the value

Leases of immovable property: 0.5% – 2 % based on the term

Stamp duties must be paid before or at the date of execution of the document if executed locally, or within three months of the time the agreement was brought into Myanmar, if executed outside Myanmar.

6. CUSTOMS DUTY

Most imported goods are subject to customs duties upon importation and must be declared to the Myanmar Customs Department. Export duties are levied on exported goods that are commodities such as gems, electricity, crude oil, and timber, as outlined in the Commercial Tax section.

7. DOUBLE TAXATION AGREEMENTS

Myanmar has entered into Double Taxation Agreements (“DTA”) with the United Kingdom, Singapore, Malaysia, Vietnam, Thailand, India, Bangladesh, Indonesia, South Korea, and Laos. DATs with Indonesia and Bangladesh have also been agreed but have not yet been ratified. Under these DTAs, any tax paid in the country of residence will then not be subject to taxation in the country in which it arises.

The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations. For more details or any question related to Insolvency in Cambodia, please contact our professionals via [email protected].

TABLE OF CONTENTS

1. Introduction
2. Taxation of Companies
3. Taxation of Individuals
4. Stamp Duty
5. The Creditors’ Meeting
6. Customs Duty
7. Double Taxation Agreements

AUTHORS/CO

  • Ms. May Thazin AUNG
  • Mr. Darwin HEM

LAW BLOG


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BNG Legal believes expanding access to legal information is crucial to rule of law. To that end, several of our legal professionals write a blog discussing recent developments in the legal landscape.

Insolvency in Cambodia (Aug 2022)

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1. INTRODUCTION

Insolvency can be a useful tool for businesspersons and legal entities to address unstainable debt. Whilst Cambodia promulgated the Insolvency Law in 2007 as part of its general legal reforms to comply with World Trade Organization (WTO) standards, actual use of the law to date has been limited. However, the Law does provide the rules and framework for insolvency proceedings and governs both foreign and domestic business people and legal entities that own assets in the Kingdom of Cambodia. Certain financial entities are governed under industry specific legislation rather than the 2007 Law: namely the Law on Insurance, the Law on Banking and Financial Institutions and the Law on Issuance and Trading of Non-Government Securities. Due to the economic strain caused by the Covid-19 pandemic, use of the Insolvency Law in Cambodia may increase, and this newsletter will set out the procedure for insolvency proceedings under it.

2. INITIATION OF INSOLVENCY PROCEEDINGS

The term “insolvency” refers to the situation where the debtor has ceased meeting its obligations to pay and is declared “insolvent” by the court. A foreign or Cambodian person or business entity that owns assets in Cambodia could be subject to insolvency proceedings under the law, and failure to pay a debt of KHR 5,000,000 (est. US $1,250) is grounds for initiation.

A petition to the court to open insolvency proceedings may be made by either the debtor themselves, a creditor, the Director of Companies or the public prosecutor, and must contain a description of the circumstances of the petition and evidence of the grounds for its filing.

The debtor themselves are required under the law to petition for insolvency proceedings within thirty (30) days should they fail to meet their required obligations. Failing to discharge this duty through either intention or gross negligence may result in personal liability to the debtor’s creditors for damages, and those damages shall be included in the claim against the debtor.

The petition to open the insolvency proceedings by the debtor shall be heard within fifteen (15) days of filing, and within thirty (30) days should it be petitioned by another party. Should the court be satisfied upon hearing the grounds for the petition, it shall open insolvency proceedings, appoint an administrator, announce a date for the opening creditors’ meeting and set a deadline for the submission of the proof of claims. The court is able to dismiss the petition at this stage, should it believe sufficient grounds do not exist. The petitioner must reimburse the debtor for their reasonable legal costs where the decision is taken for a lack of grounds, and is also liable for damages if the court decides the petition was frivolous or malicious. In the event that the assets of the debtor would be insufficient to cover the court’s fees and costs, and the remuneration, fees, and expenses of the administrator, the petition to open insolvency proceedings will also be dismissed.

3. EFFECT OF INSOLVENCY PROCEEDINGS

Once the proceedings have been initiated by the court ruling, no other action can be brought against the debtor or the estate by any creditor. The opening of the proceedings creates the estate of the debtor, comprising all assets, rights and claims of the debtor. There are certain exemptions from the estate such as salaries up to KHR 200,000 per month and the primary residence of a natural person debtor, provided the market value does not exceed KHR 20 million.

The court-appointed administrator will have full control over the debtor’s assets including, but not limited to, the power to represent the debtor and manage the debtor’s business for the purposes of the insolvency proceedings, to receive all assets of the estate, to sell any unsecured assets, to prepare the list of claims, to organize the creditors’ meetings and to employ agents to assist in the performance of his duties. To enhance and safeguard the estate, the administrator may continue with contracts that have not yet been fully performed by the debtor or the counter party.

In addition, the administrator can petition the court to declare certain transactions to be void, such as those with the intent to defraud by placing assets beyond the reach of creditors. This includes those where no consideration was received, or those where the debtor’s obligation far exceeded the consideration.

4. CLAIMS AGAINST THE ESTATE

All proof of claims shall be submitted to the administrator in writing within fourteen (14) days of the opening of insolvency proceedings with the required information related to the claim including but not limited to the legal nature and cause of the claim, the time when the claim arose, the amount of the claim, and priority of the claimant class. If proofs of claim are not filed within the deadline established for proofs of claims, they will be considered inadmissible. The administrator shall assist the claimant(s) with the required formalities and ultimately produce a claims list detailing all claims in a standardized manner that shall be free for viewing by the public.

The estate shall then be used to satisfy all admissible claims against the debtor as well as administrative claims.

However, the following claims are not considered as admissible:

1) interest accruing on claims from the date of the opening of the insolvency proceedings;

2) costs incurred by creditors by reason of their participation in the insolvency proceedings;

3) fines, administrative penalties and other incidental legal consequences of a criminal or administrative offence which obliges the debtor to pay;

4) claims for which no consideration was owed by the debtor in return;

5) claims for the repayment of a loan made to the debtor by a person holding directly or indirectly not less than ten percent (10%) of the equity capital of the debtor, or recourse claims against the debtor for a loan guaranteed or secured, or caused to be guaranteed or secured, by such a person. If the debtor is a partnership, the claims in this paragraph shall apply only when all general partners of the debtor are companies;

6) claims for recourse which co-debtors or guarantors may have against the debtor if they satisfy a creditor’s claim;

7) claims for which the proofs of claim were filed after the deadline established for the filing of proofs of claims;

8) subordination of claims for which ineffective in insolvency proceedings has been agreed between the creditor and the debtor; and

9) interest on claims of the aforementioned kind.

5. THE CREDITORS’ MEETING

At the opening creditors’ meeting, the administrator shall indicate whether there is the possibility of maintaining the debtor’s business, in whole or in part, shall report on the general situation of the debtor’s business, the causes of the current situation, and the chance of a plan of compromise being implemented, and its effects on the creditors.

The following shall occur at the creditors’ meetings:

  • The creditors shall decide, based on the administrator’s report, whether to continue the insolvency proceedings;
  • The creditors shall vote on any plan of compromise proposed;
  • The claims list shall be verified; and
  • The creditors may also decide on other matters related to the insolvency proceedings.

Approval of the claims list shall be made at the creditors’ meeting. The validity, amount, secured status and priority of claims can be challenged, and a judgement on such must come from the court. The administrator will finalize the claims list once the court has passed judgement on the disputed claims.

The opening creditors’ meeting may be adjourned to allow a proposal for a plan of compromise at a subsequent creditors’ meeting, but not by longer than 60 days.

6. PLAN OF COMPROMISE

The court can decide to liquidate the estate of the debtor upon its own motion, however to possibly avoid liquidation, a debtor, or its creditors, may initiate a plan of compromise. A plan of compromise must be submitted to the court at least seven (7) days prior to the relevant creditors’ meeting. The plan of compromise can be any approach to settling the insolvency, including, but not limited to:

1. Cancellation of any claim in exchange for equity or shares in the debtor’s business;

2. A revision of the scheduling of the payment of any claim;

3. The continuation of the debtor’s business by the debtor or another person; and

4. The sale or disposition of any asset of the estate, or the distribution of any asset among those having an interest in the asset.

Approval of the plan of compromise shall come at the relevant creditors’ meeting. The creditors are grouped into one of three categories: secured claims, state taxes, and those with unsecured claims. To pass, the plan of compromise requires the approval of the following:

a) Each class of creditors, through the affirmative votes of creditors in each class holding not less than three-fourths of the claims of all creditors who are present at the meeting; or

b) At least one class of creditors, through the affirmative votes of creditors in the class, holding not less than three-fourths of the claims of all creditors who are present at the meeting.

Approval of the plan of compromise shall come at the relevant creditors’ meeting. The creditors are grouped into one of three categories: secured claims, state taxes, and those with unsecured claims. To pass, the plan of compromise requires the approval of the following:

  • Voting was carried out in accordance with the requirements of the law;
  • All creditors in any given class are treated equally, unless there is written consent to be treated less favorably;
  • Each creditor will receive satisfaction on terms no less favorable than that which they would receive under a distribution made in a liquidation;
  • No creditor will receive more than the full amount of its claim;
  • No payments related to income, dividends or equity will be made to any shareholder until the final payment of entitlements of the classes of creditors whose claims have been affected by the plan of compromise; and
  • No maintenance greater than the amount of maintenance ordered by a court will be paid to a debtor who is a natural person, or to a general partner of a debtor which is a partnership, until the final payment of the entitlements of the classes of creditors whose claims have been affected by the plan of compromise.

The liquidation proceedings shall be terminated once the court gives approval to the plan of compromise, and the period of implementation for the plan is two (2) years.

In the event the plan of compromise is not being implemented properly, a court proceeding may be brought by the creditor(s), debtor, public prosecutor or court administrator to liquidate the estate.

7. SATISFACTION OF CLAIMS

Should a plan of compromise not find approval, when it comes to the satisfaction of claims, the liquidated estate shall satisfy creditors in the following manner:

  • Employees, administrator’s remuneration and fees, administrative fees & court fees;
  • Employees, administrator’s remuneration and fees, administrative fees & court fees;
    Secured Creditors;
  • The claims list shall be verified; and
  • Secured Creditors;
  • State Taxes;
  • Unsecured Creditors.

As previously mentioned, there are industry specific rules under the banking, insurance and securities laws, and these contain a different ranking of creditors to that of the Insolvency Law for those entities subject to them.

As expressed in the Civil Code, Cambodian Law allows for the creation of security interests. The Law on Secured Transactions, promulgated on 24 May 2007, has further developed security interests, and parties are able to state under which law the security interest has been created under. Security can be over either the entire estate of the debtor, or over a specific asset. These created security interests allow a creditor to become a secured creditor, and therefore, once insolvency proceedings are established, they are ranked higher and more likely to receive the debt owed.

All assets of the estate shall be converted into cash by the liquidator, and the distribution of the proceeds shall be distributed within six (6) months of the commencement of the liquidation.

The liquidation terminates the insolvency proceedings. A final creditors meeting shall be held to adopt the final account of distributions, and the debtor shall recover the right to dispose freely of any remaining assets in the estate. If the debtor is a company, the company shall be deemed to be dissolved, unless all claims have been satisfied fully.

The debtor can apply to the court to be released from all admissible claims which were not satisfied, unless, amongst other possibilities, the debtor was convicted of a crime involving dishonesty or fraud in connection with the insolvency or the debtor had been released from unsatisfied claims in other insolvency proceedings in the last ten (10) years. Any creditor who was not fully satisfied may make an application to the court to resume insolvency proceedings within one (1) year of the termination of the insolvency proceedings, however the court will only intervene where amounts allocated for contested claims are released or assets have been discovered that were not taken into account in the original insolvency proceedings.

8. CONCLUSION

Cambodia’s Insolvency Law is in line with international standards promoted by the WTO. Insolvency proceedings can help a debtor to clear overwhelming debts and even allow a business to get a new start through restructuring all debts in a single instance via a plan of compromise. The creditor(s) will benefit by such a proceeding by having a pathway to debt recovery, however there may be limited recovery of the full debt obligations. While not a new law, the Insolvency Law has yet to be widely used as a way to clear overwhelming debts, yet there is a sufficient legal framework in place in Cambodia to handle such insolvency cases. Given the extreme economic turmoil brought about by the Covid-19 pandemic, more use of the law could unfortunately be on the horizon.

The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations. For more details or any question related to Insolvency in Cambodia, please contact our professionals via [email protected].

TABLE OF CONTENTS

1. Introduction
2. Initiation of Insolvency Proceedings
3. Effect of Insolvency Proceedings
4. Claims Against the Estate
5. The Creditors’ Meeting
6. Plan of Compromise
7. Satisfaction of Claims
8. Conclusion

AUTHORS/CO

  • Mr. Ruwan S. Hulugalle
  • Mr. Thomas Jeffery

LAW BLOG


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Website
 cambodianlaw.wordpress.com

BNG Legal believes expanding access to legal information is crucial to rule of law. To that end, several of our legal professionals write a blog discussing recent developments in the legal landscape.

Law on Competition (Aug 2022)

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1. INTRODUCTION

The Law on Competition was promulgated on 05 October 2021 and came into force on 06 October 2021. This law governs any activities that prevent, restrict or distort competition, and establishes and determines the authority of the Cambodia Competition Commission (“CCC”). The commission’s goal is to encourage fair and honest business relations, increase economic efficiency, encourage new businesses, and assist consumer access to high-quality, low-cost, diverse and versatile products and services.

In February 2002, prior to the promulgation of the Law on Competition, the National Assembly adopted the Law on Marks, Trade Names and Acts of Unfair Competition (“Trademark Law”). The Trademark Law protects trademarks but also prohibits acts of unfair competition, however the unfair competition provisions are short, broad and vague. The law states that any act of competition contrary to “honest practices” in business is prohibited. The Law then lists three types of behavior as specifically, but not exclusively, forbidden:

  • All acts which create confusion with the establishment, the goods, or services of a competitor;
  • False allegations which discredit a competitor or a competitor’s goods or services; and
  • Indications or allegations which are liable to mislead the public as to the nature, manufacturing process, characteristics, suitability, or quantity of goods.

As with much of Cambodian law, there appears to have been no official interpretation or precedential cases explaining these provisions.

With the Law on Competition now in place, this law applies to all Persons conducting business activities, or any actions supporting business activities, which significantly prevent, restrict or distort competition in a Market in the Kingdom of Cambodia regardless of whether the activities take place inside or outside the territory of the Kingdom of Cambodia.

1. UNLAWFUL ACTIVITIES WHICH RESTRAIN, RESTRICT OR DISTORT COMPETITION

Should a construction fall under the jurisdiction of the Minister of the MLMUPC, the owner, either an individual or a legal entity, can apply for a construction permit at the one window service of the MLMUPC and may apply for an extension of validity of the construction permit only once. The internal process of the issuance of the construction will take at least 45 days after the one window service has ISSUED the receipt of the application. If necessary, the MLMUPC may assign officer(s) to conduct an on-site investigation of the construction design.

1.1. Agreements which Restrain, Restrict or Distort Competition

* Horizontal Agreements; Persons are prohibited from making and implementing a Horizontal Agreement that directly or indirectly affects competition related to the following:

a) Agreement on fixing, controlling or maintaining the price of goods or services;

b) Agreement on preventing, restricting or limiting: – the quantity of goods or services which are made available for sale; – the type of goods or services which are made available for sale; – the development of new goods or services;

c) Agreement on allocating geographic areas between Competitors;

d) Agreement on allocating customers between Competitors; or

e) Favoring one bidder in bids for a contract in private procurement.

* Vertical Agreements; Persons are prohibited from making and implementing a Vertical Agreement which directly or indirectly requires a purchaser to resell purchased goods or services at a minimum price set by the seller or to accept any conditions of this nature set by the seller. Persons are prohibited from making and implementing a Vertical Agreement which has or could have the object or effect of significantly preventing, restricting or distorting competition in a Market by:

a) Requiring a purchaser to resell purchased goods or services only within a defined geographic area;

b) Requiring a purchaser to resell purchased goods or services only to specified customers or specified categories of customers;

c) Requiring a purchaser to purchase all or nearly all of its requirements for particular goods or services exclusively from the seller;

d) Preventing a seller from selling goods or services to another purchaser; or

e) Requiring a purchaser to purchase unrelated goods or services in addition to the goods and services that the purchaser wants to purchase.

1.2. Unlawful activities on the Abuse of Dominant Market Position

The activities listed below shall be prohibited if undertaken by a Person with a Dominant Market Position, where such activities have the objective or effect of significantly preventing, restricting or distorting competition in a Market as follows:

– Requiring or inducing a supplier or customer not to deal with a Competitor;

– Refusing to supply goods or services to a Competitor;

– Selling goods or services on the condition that the purchaser needs to purchase other goods or services separately, which are unrelated to the object of the contract;

– Selling goods or services below the cost of production; or

– Refusing to give a Competitor access to an Essential Facility.

A Person with a Dominant Market Position may lawfully perform the activities as determined in Article 9 of this law if the Cambodian Competition Commission (“CCC”) determines that the Person has fulfilled the following 2 (two) conditions:

1) The Person establishes a reasonable reason to legally perform those activities for the benefits of its business.

2) Those activities do not significantly prevent, restrict or distort competition in a Market.

1.3. Business Combinations

Any Business Combination which has or may have the effect of significantly preventing, restricting or distorting competition in a Market shall be prohibited. Business Combinations shall be subject to examination, inspection and evaluation of their effect on competition as stipulated in the above paragraph by the CCC. The Requirements and Procedures for Business Combinations shall be determined by Sub-Decree.

1.4. Exemptions on Horizontal Agreements, Vertical Agreements, the Abuse of Dominant Market Position and Business Combinations

Any prohibited Agreement, activities of abuse of a dominant position, or activities of business combinations of this law may be granted an exemption from such prohibition, if those Agreements or activities fulfil the four following requirements:

  • There are significant identifiable technological, economic or social benefits;
  • Such benefits would not exist without those Agreements or activities;
  • Those benefits significantly outweigh the effects caused by any determined preventing, restricting, and distorting of competition; and
  • They do not eliminate competition in any important aspects of goods or services.

1.5. Leniency Policy

Any Person participating or assisting in a Horizontal Agreements may be granted leniency from the pecuniary fine as determined by the CCC where the Person gives evidence or important information related to the unlawful Horizontal Agreement. Any granted leniency shall be applied even if there is a complaint filed against the CCC decision to grant it. The Requirements and Procedures on the determination of leniency shall be determined by CCC.

The CCC has the authority to receive complaints on the following grounds:

– Its own initiative; or

– Receipt of a complaint from any competent regulator; or

– Receipt of a complaint from any person other than the competent regulators.

2. COMPLAINT AND INVESTIGATION PROCEDURE

Under the Law on Competition, there are three procedures for an infringement case:

– Its own initiative; or

– Issuance of interim measures and decisions; and

– Filing an appeal against an interim measure or decision.

3. PENALTIES

Under the Law on Competition, the available penalties include a warning letter, suspension, revocation or the withdrawal of business registration certificates, business licenses, or business permits, monetary fines, pecuniary penalties and imprisonment. The penalties for a natural person or a legal person who violate the Law on Competition are detailed as follows:

3.1. Horizontal Agreement

  • Natural Persons: a term of imprisonment from one (1) month to two (2) years, and a fine from KHR5,000,000 to KHR100,000,000 (approximately US$1,250 to US$25,000)
  • Legal Persons: a fine from KHR100,000,000 to KHR2,000,000,000 (approximately US$25,000- to US$500,000)

3.2. Vertical Agreement / Abuse of Dominant Market Position/ Business Combinations

  • Natural Persons: a written warning and a fine of 3% to 10% of its total turnover up to three years of the years of the infringement issued by CCC. In the case of having received a written warning and a fine previously, where the Person continues committing the same violation, this may lead to a revocation or withdrawal of business registration certificates or permits, or business licenses.
  • Legal Persons: a written warning and a fine of 3% to 10% of its total turnover up to three years of the years of the infringement issued by CCC. In the case of having received a written warning and a fine previously, where the Person continues committing the same violation, this may lead to a revocation or withdrawal of business registration certificates or permits, or business licenses.

The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations. For more details or any question related to Law on Competition, please contact our professionals via [email protected].

TABLE OF CONTENTS

* Introduction
1. Unlawful Activities which Restrain, Restrict, or Distort Competition
2. Complaint and Investigation Procedure
3. Penalties

AUTHORS/CO

  • Mr. Darwin HEM
  • Ms. Keopichchenda LONG

LAW BLOG


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Website
 cambodianlaw.wordpress.com

BNG Legal believes expanding access to legal information is crucial to rule of law. To that end, several of our legal professionals write a blog discussing recent developments in the legal landscape.

The Formalities & Procedures of the MLMUPC to Issue a Construction Permit (Jul 2022)

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1. INTRODUCTION

In Cambodia, three institutions have the authority to issue construction permits:

  • The Minister of the Ministry of Land Management, Urban Planning and Construction;
  • The Governor of the Board of Governors of the Capital & Provinces; and
  • The Governor of the Board of Governors of the Municipalities, Districts or Khans.

This newsletter covers only the formalities and procedure for the issuance of construction permits at the Ministry of Land Management, Urban Planning and Construction (“MLMUPC”) based on the new Prakas No. 013 DNS/Br.K/Ni.K issued on 20 January 2022 (“PK 013”). PK 013 consists of 7 Chapters and 23 Articles, and its annexes consist of the official application forms. Furthermore, this Prakas aims to regulate the formalities and procedures of the issuance of construction permits for real property development under the jurisdiction of the MLMUPC, specified in Article 4 of Sub-Decree 224 HNK.BK which was promulgated on 30 December 2020.

The Minister of the MLMUPC is authorized to issue construction permits and demolition permits for constructions of the following nature:

  • All constructions with a floor size of over 3000 square meters;
  • Reconstruction, Additional Construction or Renovation which will be constructed on a total floor size over 3000 square meters;
  • All buildings with over 11 floors, including the ground floor;
  • All constructions with a basement with a depth of more than 5 meters;
  • Ground retaining walls with a height of over 5 meters
  • Flammable and hazardous materials such as a station or depot which sells or distributes petroleum, gas or other petroleum products such as fuel storage bags, tanks or flammable gases, and including other workplaces with flammable products;
  • Water storage tanks or containers with a height of over 15 meters or with the capacity to store over 50 cubic meters;
  • All Constructions for sports, tourism and culture e.g. Stadiums, Golf Courses, Racetracks, Amusement Parks, Swimming Pools, Museums, Theatres, Conference Hall and Cinemas;
  • Constructions that are located in an area of environmental protection, cultural protection, that are protected for historical significance, or other protected areas;
  • Buildings, Towers or Constructions in Passenger Terminals, Railway Stations, Ports, Airports and Hydropower Stations which do not fall under the part of the road structure or part of the water works;
  • Building Constructions, Towers or Gates at the International border;
  • Telephone antenna towers and radio or television station antennas;
  • Any construction which is not a building but has a height over 30 meters.

2. PROCEDURE

Should a construction fall under the jurisdiction of the Minister of the MLMUPC, the owner, either an individual or a legal entity, can apply for a construction permit at the one window service of the MLMUPC and may apply for an extension of validity of the construction permit only once. The internal process of the issuance of the construction will take at least 45 days after the one window service has ISSUED the receipt of the application. If necessary, the MLMUPC may assign officer(s) to conduct an on-site investigation of the construction design.

3. REQUIRED DOCUMENTS

The construction owner, as an individual, is required to file the application form with the following documents (certified by the competent authority) when requesting the issuance of a construction permit:

1) Construction Permit Application (1 Copy)

2) Construction Owner’s Identification documents (scanned copy) (2 Copies)

3) Land Plot Letter (2 Copies)

4) Cadastral Certificate of Land Information (2 Copies)

5) Architectural Plan (5 Copies)

6) Inspection and Confirmation Report on the Implementation Plan of the Architectural Plan (5 Copies)

7) Certificate of Compliance of the Implementation Plan of the Architectural Plan (5 Copies)

Furthermore, should the construction owner be a legal entity, they are required to attach further documents relating to the Construction Owner’s Identification documents, along with the 2 copies of the Memorandum and Articles of Association; other than for Non-Government Organizations or Associations.

Please be aware that after obtaining the construction permit, the construction owner shall apply for an opening construction permit. Once the construction has been completed, they shall apply for a closing construction permit/certificate of occupancy, to be legally entitled to use the construction or have the construction used.

The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations. For more details or any question related to The Formalities & Procedures of the MLMUPC to Issue a Construction Permit, please contact our professionals via [email protected].

TABLE OF CONTENTS

1. Introduction
2. Procedure
3. Required Documents

AUTHORS/CO

  • Mr. Darwin HEM
  • Mr. Menghok BUN

LAW BLOG


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Website
 cambodianlaw.wordpress.com

BNG Legal believes expanding access to legal information is crucial to rule of law. To that end, several of our legal professionals write a blog discussing recent developments in the legal landscape.

Update on Investment Law in Cambodia (Apr 2022)

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1. INTRODUCTION

Cambodia is located in Southeast Asia and it is bordered by Thailand, Laos, Vietnam, and the Gulf of Thailand, making it an ideal country for import and export operations. Cambodia’s economy is pivoting towards sectors such as import and export, and is attracting increased investment. Real GDP growth is projected to reach 4.5% in 2022. Furthermore, as the government reopens the country, important sectors such as tourism, hospitality, as well as wholesale and retail, are beginning to recover.

Amid the backdrop of the pandemic, numerous investment projects have nevertheless been permitted by the government to operate in Cambodia. According to the latest available data, there were 134 investment project proposals approved in the first nine months of 2021 by the Council for the Development of Cambodia (CDC), of which 33 were established inside special economic zones. The Ministry of Industry, Science, Technology, and Innovation (MISTI) also approved 124 new industrial projects in 2021, from January to September. It brought the total of investment factories operating in Cambodia to 1,843. Furthermore, there was a significant increase in the import of raw materials for the garment sector in the first eight months of 2021. It is clear to see through the establishment of these new projects that there is positive progress regarding investment in Cambodia, despite the challenging global conditions.

The recently promulgated Law on Investment will assist the new economic recovery plan. Cambodia has also ratified Cambodia-China Free Trade Agreement (taking effect on 1st January 2022), and the Regional Comprehensive Economic Partnership (RCEP); the world’s largest free trade agreement, covering nearly a third of the global population and about 30 per cent of the global gross domestic product – taking effect on 1st January 2022. In addition, the Cambodia-Republic of Korea Free Trade Agreement was signed in October 2021. These agreements should also play a role in attracting increased FDI in Cambodia alongside the new Investment Law.

2. WHY INVEST IN CAMBODIA

Cambodia is a member of the Association of Southeast Asian Nations (ASEAN). Whilst it currently has lower traffic on most goods traded within the bloc, and is in the process of integrating its legal system with those of the other members of ASEAN, investment in Cambodia is very favorable for three main reasons:

2.1. Preferential Market Access

As a WTO member state, having joined in October 2014, Cambodia benefits from preferential access to a number of developed markets around the world. Cambodia has also benefited from very low tariffs on most goods traded with its neighbors as a result of its ASEAN membership and the AFTA (ASEAN Free Trade Area) Agreement. Cambodia has also concluded over a dozen multilateral agreements and bilateral investment protection agreements.

2.2. Open Economy

Cambodia offers investors one of the most liberal incentive schemes in Southeast Asia, with low tax rates, tax incentives, a one-stop service for investment applications, and the ability to develop new businesses within Special Economic Zones.

2.3. Competitive Assets

Tourism has traditionally attracted the majority of foreign investment. Led by the world-class destination of Angkor Wat, Cambodia draws millions of international visitors a year. Whilst temple tourism has already drawn significant foreign investment; significant potential remains in eco-tourism and other areas. Furthermore, the Cambodian labor office offers a competitive advantage for many firms. It is not just investment in tourism that can benefit from this, as with low labor costs and rapidly increased education levels, the country can offer lucrative returns for investors in labor-intensive manufacturing.

3.THE ESTABLISHMENT OF THE COMPANY

Currently, the available forms of business entities that can be established and registered legally in Cambodia are governed by the Law on Commercial Rules and Commercial Register, promulgated on 26 June 1995, the Law on the Amendment of the Law on Commercial Rules and Commercial Register, adopted on 18 November 1999 and the Law on Commercial Enterprises, adopted on 26 April 2005. There are no bars to foreign ownership of any form of business entity in Cambodia, other than the bar to owning land. The available forms of business in Cambodia are expanded upon below:

3.1. Sole Proprietorship

A sole proprietorship is an enterprise established and operated by a single natural person who owns all of its capital and is responsible for all obligations and liabilities related to the business operations solely and exclusively.

3.2. Partnership

The partnership is the favored method of business organization for many professionals, such as doctors and accountants. The partnership can be either a general partnership or a limited partnership.

3.3. Limited Company

A Limited company in Cambodia has three different forms; a Private Limited Company, a Single Member Private Limited Company and a Public Limited Company, in order to carry out business in the Kingdom of Cambodia.

3.3.1.Private Limited Company

For most types of businesses, a “Private Limited Company” is the most suitable corporate form. Under the Law on Commercial Enterprises, a Private Limited Company is a form of a limited company that has 2 to 30 shareholders. A private company can have one or more directors and will be managed by a chairman of the board. A private limited company has restrictions on the transfer of shares. The company may not offer its shares or other securities to the public generally, but may offer them to shareholders, family members and the manager, with this restriction pertaining to the transfer of each class of shares.

3.3.2. Single Member Private Limited Company

A natural person can establish a Single Member Private Limited Company, and they may convert into a Private Limited Company after granting their approval to include one or more additional persons or legal entities as shareholders of the company.

3.3.3. Public Limited Company

A Public Limited Company (PLC) is a form of a limited company that the law authorizes to issue securities to the public. Unlike private limited companies, it must have more than 30 shareholders.

3.4. Foreign Business in Cambodia

According to the Law on Commercial Enterprises, a foreign business is a legal person, formed under the laws of a foreign country, which conducts business in Cambodia. It is subject to registration at the Ministry of Commerce. Existing foreign businesses can enter Cambodia without setting up the entities by creating either a representative office, a branch office or a subsidiary

3.4.1. Representative Office

An eligible foreign investor may establish a Representative Office (RO) to facilitate the operation of local goods and services on behalf of its parent company. The RO is responsible for promoting and marketing the parent company’s goods and services. Furthermore, in reality, the RO is not subject to tax under the Cambodian tax laws as it does not derive any income from its activities, but is responsible for withholding tax on salaries, patent tax and an annual business operation tax.

3.4.2. Branch Office

A foreign company can operate as a branch office and can undertake the same business activities as a Cambodian-owned Company, with the notable exception of land ownership. However, the foreign parent company will be liable for the losses and debts of a branch as its assets shall be the assets of the parent company. A branch shall be managed by one or more managers appointed and removed by the decision of its parent company.

3.4.3. Subsidiary

A subsidiary is a company that is incorporated by a foreign company with at least fifty- one (51) percent of its capital that is held by the foreign company. A subsidiary has a legal personality separate from its parent company from the date of its registration. In addition, it may be incorporated in the form of a partnership or limited company, and may regularly carry on business in the same manner as a local company.

4. THE 2021 LAW ON INVESTMENT

Promulgated on 15 October 2021, the new Law on Investment (New LoI) aims to establish an open, transparent, predictable and favorable legal framework to attract and promote quality, effective and efficient investment by Cambodian nationals or foreigners. This is to enable socio-economic development in the Kingdom of Cambodia, by increasing Cambodia’s competitiveness, increasing the productivity of local industries, establishing an investment incentives regime and providing protection to investors’ rights.

The 2021 LoI replaces the 1994 Law on Investment and the Amendment of the Law on Investment 2003. The LoI includes 12 chapters and 42 articles which apply to all investment projects registered with the CDC or the Municipal Provincial Investment Sub-committees. These registered investment projects comprise the following:

  • “Qualified Investment Projects” (QIPs): A QIP is an investment project that has received a registration certificate from the CDC or a Municipal Provincial Investment Sub Committee.
  • Expanded Qualified Investment Projects” (EQIPs): An EQIP is an expansion of a QIP in any form, including expansion of existing production, expansion through product line diversification within the same lines, expansion through the use of new technologies that enhance productivity or protect the environment, expansion of infrastructure to serve basic telecommunications services, or expansion in any other forms to be determined by the Sub Decree.
  • “Guaranteed Investment Projects”: A GIP is an investment project registered with the CDC or a Municipal Provincial Investment Sub Committee, and is clearly mentioned as an investment project that is not eligible for tax incentives.

4.1. The Sectors for Investment Incentives

There are 18 sectors that are entitled to be incentivized as QIPs, which are contained in Article 24 of the new legislation. They include high-tech industries involving innovation, research, agriculture, environment, green energy alongside other sectors such as education, health, tourism and special economic zones.

The investment projects in Article 24 which are not on the Negative List of ANNEX 1 (“Negative List”) of the “Sub-Decree No. 111” shall receive basic tax and/or customs duty incentives, in whole or in part, after their Registration Certificate certifying their QIP status has been issued.

The investment incentives that are provided under the new law, are classified into three types; basic incentives, additional incentives and special incentives.

4.2. Basic Incentives

Investors who register as a QIP have the right to choose between two (2) packages of basic incentives, which are:

Option 1: Tax Exemption Period

An income tax exemption for 3 to 9 years, depending on the sector and investment activities, commencing from the time of first earning income. The period of income tax exemption that each sector and investment activity will receive shall be determined by the law on financial management and/or the future LoI Sub-Decree. After the income tax exemption period has expired, the QIP’s income tax will increase gradually over 6 years, at a progressive rate proportional to the total tax due as follows: 25% for the first 2 years, 50% for the next 2 years and 75% for the final 2 years. Furthermore, this option includes:

  • A Prepayment Tax exemption during the income tax exemption period;
  • A Minimum Tax exemption, provided that an independent audit report has been carried out, and;
  • An Export Tax exemption, unless otherwise provided for in other laws and regulations.

Option 2: Special Depreciation

  • Deduction of capital expenditure through special depreciation, as stated in the tax regulations in force;
  • Eligibility of deducting up to 200 (two hundred) percent of specific expenses incurred for up to 9 (nine) years. Sectors and investment activities, specific expenses, as well as the deductible period, shall be determined in the Law on Financial Management and/or the Sub-Decree;
  • Prepayment Tax exemption for a specific period of time based on sectors and investment activities to be determined in the Law on Financial Management and/or the Sub-Decree;
  • Minimum Tax exemption, provided that an independent audit report has been carried out;
  • Export Tax exemption, unless otherwise provided in other laws and regulations.

Additionally, both an export QIP and a supporting QIP are eligible to receive customs duty exemptions and excise tax and VAT exemptions for the import of construction equipment and materials, production equipment and materials and production inputs. A domestic QIP is only eligible for customs duty exemptions and excise tax and VAT exemptions for the import of construction equipment and materials and production equipment and materials.

Additional Incentives

In addition to the basic incentives, investment activities registered as QIP receive additional incentives, as follows:

  • Value-added tax exemption for the purchase of locally made Production Inputs for the implementation of the QIP.
  • Deduction of 150% from the tax base for any of the following activities:
    • Research, development and innovation;
    • Human resource development through the provision of vocational training and skills to Cambodian workers/employees;
    • Construction of accommodation, food courts or canteens where reasonably priced foods are sold, nurseries and other facilities for workers/employees;
    • Upgrade of machinery to serve the production line; and
    • Provision of welfare for Cambodian workers/employees, such as comfortable means of transportation to commute from their homes to factories, accommodation, food courts or canteens where foods are sold at reasonable prices, nurseries and other facilities.
  • Entitlement to income tax exemption for the Expansion of QIP which will be determined in the Sub-Decree.

4.4. Special Incentives

Any specific sector and investment activities having high potential to contribute to Cambodia’s national economic development may receive specific special incentives. The eligible sectors and activities are to be set out in the Law on Financial Management.

  • Comparison between the Previous Law and the New Law on Investment
    Both laws indicate some important clarifications in the Articles which still remain and change as below:

    • Similarities:

    • Investment incentives: Any investment project that wishes to receive QIP status must not be on the Negative List (Sub-Decree 111).
    • Investment guarantees: Both laws contain similar protection focusing on a non-discriminatory approach to foreign investors, other than that relating to foreign ownership of land, which is barred as per the Constitution of the Kingdom of Cambodia. In addition, the State cannot undertake any nationalization action that would affect the assets of the investors, and cannot fix the price of products or services. Investors also have the right to purchase foreign currencies through the bank system and can hire foreign employees .
    • The approved incentives: The approved incentives granted by the CDC cannot be transferred or assigned to a third party by an investor, but they can be transferred through acquisition, sale and merger of the investment project.
    • Dispute settlement: The new law does not provide a significant change in the dispute settlement mechanisms. When a dispute occurs between investors, the process is settled through conciliation by the CDC or the Municipal-Provincial Investment Sub-Committee and in accordance with the written request of the parties. The CDC or the Municipal-Provincial Investment Sub-Committee will begin the process of conciliation within 30 days. If the dispute cannot be settled, the process will be referred to national or international arbitration, or the relevant courts of the Kingdom of Cambodia.

    Differences

    Differences Old LOI New LOI
    Investment incentives Provides incentives to encourage investment in only 9 important fields. Provides increased priorities and encouragement for 18 different fields, mostly focusing on research, development and innovation.
    Tax exemption Provides a tax exemption from 3 years to 9 years. Provides a tax exemption from 3 years to 9 years, and after the expiration of that term the new law provides an additional 6 years and other special incentives.
    Investment guarantees Provides less investment guarantees. The investors have the right to hire foreign employees but it does not provide the additional rights to obtain a temporary long-term stay permits for oneself, a spouse and children. Provides more investment guarantees. There is compensation for losses as a result of civil war, armed conflict and a state of national emergency, fair treatment for domestic and foreign investors, protection against expropriation, and intellectual property protection. Furthermore, the new law states that investors have the right to hire foreign employees and investors have additional rights to obtain a temporary long-term stay permits for oneself, a spouse and children who are minors during the period that the investment project is operating. They have the same right to request temporary long-term stay permits for foreign employees and their spouse and children who are minors during the valid period of the employment contract.
    Registration procedures The registration procedure for a QIP was made through the submission of a hard copy application to the CDC for review and a decision, with a maximum period of 31 working days. The new law introduces an online registration process for the submission of an application of a QIP. Investors shall submit application to the CDC or a Municipal-Provincial Investment Sub-Committee. The new law provides duties to MPIS to handle this with the CDC in order to lighten the load of pending work for the registration process. The timeline to issue a registration certificate is now 20 working days.
    Small and medium- sized enterprise (SMEs) The previous law did not mention or encourage small and medium enterprises to cooperate with big industries. The new law will provide more opportunities for SMEs, which can encourage them to process raw materials or semi-finished products to supply the large-sized industries that are operating in Cambodia, or will be coming to invest in Cambodia in the future. Therefore, the small and medium enterprises will have increased chances to develop their business, and will create more job opportunities and therefore potentially benefit the national economy of Cambodia. The minimum criteria of an SME will be stipulated in an additional Sub-Decree. There is no clear definition of an SME at this stage, but several factors will be considered including the industry, the size and the turnover. The priority sectors of SMEs are to be clarified in a further Sub-Decree, however the expectation is they will be similar to the other sectors listed in Article 24.
    Small and medium- sized enterprise (SMEs) The previous law did not mention or encourage small and medium enterprises to cooperate with big industries. The new law will provide more opportunities for SMEs, which can encourage them to process raw materials or semi-finished products to supply the large-sized industries that are operating in Cambodia, or will be coming to invest in Cambodia in the future. Therefore, the small and medium enterprises will have increased chances to develop their business, and will create more job opportunities and therefore potentially benefit the national economy of Cambodia. The minimum criteria of an SME will be stipulated in an additional Sub-Decree. There is no clear definition of an SME at this stage, but several factors will be considered including the industry, the size and the turnover. The priority sectors of SMEs are to be clarified in a further Sub-Decree, however the expectation is they will be similar to the other sectors listed in Article 24.
    Green Energy The old law does not provide tax incentives for activities related to green energy. Green energy producers are now eligible for these tax incentives, an area where there has been a lack of investment due to, among other factors, the high start-up costs. The expectation is that being incentivized in the new law will accelerate green energy investment in Cambodia.

5. UPCOMING DEVELOPMENTS

The Law on Concessions had some notable omissions, and was inconsistent with international standards and the actual conditions of the management and implementation of Public and Private Partnership (PPP). It was replaced by the Law on the Public and Private Partnership (PPP), adopted on 18 November 2021, to promote, encourage and attract more local or foreign investors in Cambodia and it will apply alongside with the new Investment Law. Moreover, the law makers will adopt new legal legislation and frameworks to conduct and clarify the new Law on Investment, specially to adopt a new Negative List in order to replace the current Sub-Decree. Regarding dispute settlements, in order to improve the current dispute settlement mechanisms and to attract increased investment, the government is planning to establish the Commercial Court, which will be competent to enforce the new LoI.

The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations. For more details or any question related to Legal Update on Entry Regulations for Derivative related Business in Cambodia, please contact our professionals via [email protected], [email protected]

TABLE OF CONTENTS

1. Introduction
2. Why Invest in Cambodia
3. The Establishment of the Company
4. The 2021 Law on Investment
5. Upcoming Developments

AUTHORS/CO

  • Mr. Darwin HEM
  • Ms. Chamnaul MEAS

LAW BLOG


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 fb.com/bnglegal

Website
 cambodianlaw.wordpress.com

BNG Legal believes expanding access to legal information is crucial to rule of law. To that end, several of our legal professionals write a blog discussing recent developments in the legal landscape.

Renewable Energy in the Cambodia Energy Plan (Mar 2022)

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1. INTRODUCTION

Cambodia has relatively expensive electricity in comparison to its ASEAN neighbours, in part due to the fact that currently a significant proportion of Cambodia’s electricity is imported. Whilst the level of imports has been steadily decreasing over the last decade, the increasing demand for electricity in Cambodia means that alternative sources must be found to keep up with that demand. Domestic green energy production is not only possible in Cambodia, but would also contribute long term to cheaper electricity prices for consumers, a more attractive environment for investment, an increase in stability of supply and provide national security benefits, notwithstanding the positive environmental impact. This article will explore the laws, regulations and opportunities for renewable producers.

2. THE CAMBODIA BASIC ENERGY PLAN

In 2019 the Ministry of Mines and Energy (‘MME’) produced the Cambodia Basic Energy Plan (‘BEP’) to ensure energy supply for Cambodia, with the principles of affordability, accessibility, security, safety and transparency. Whilst other countries in the region have set ambitious concrete renewable energy goals, the BEP was more focused on guaranteeing energy supply, perhaps understandably, having been drafted against the backdrop of the power shortages of 2019. Moving forward, the BEP recommended the following power generation mix for 2030: coal (35%), hydro power (55%) and other renewable energy (10%). This means that with the exception of hydropower, Cambodia’s renewable energy targets are fairly low in comparison to their ASEAN neighbours, however there is still room for renewable energy producers to grow alongside coal and hydropower plants.

3. THE LAW ON ELECTRICITY IN CAMBODIA

There is a lack of regulations specific to renewable energy in Cambodia. This mean that in general, with the notable exception of solar power, renewable energy producers are dealt with in the same way as those that produce non-renewable power. The 2001 Law on Electricity of Cambodia, and its 2015 amendment, provides the regulatory framework for electric power supply, services and licences, and established the Electricity Authority of Cambodia (‘EAC’).

All electric power service providers are required to have a licence, typically a Generation Licence, issued by the EAC. The Generation Licensee has the right to own, operate and manage the generation facilities. However, it is the responsibility of the EAC to approve tariff rates and charges, meaning that power producers do not have the autonomy to set their own rates. Licensees must submit to the EAC various annual reports and summaries, and follow the standards and procedures set out by the body, for example those regarding metering equipment. The Law on Electricity also gives the EAC the power to revoke licences for violations of the Law, along with monetary penalties for violations of the regulations. The EAC is also required to take into consideration the policies of the Royal Government of Cambodia, through the MME, when operating. Therefore, any policy push towards renewable energy will be reflected by the actions of the EAC.

4. SOLAR POWER

There is a lack of regulations specific to renewable energy in Cambodia. This mean that in general, with the notable exception of solar power, renewable energy producers are dealt with in the same way as those that produce non-renewable power. The 2001 Law on Electricity of Cambodia, and its 2015 amendment, provides the regulatory framework for electric power supply, services and licences, and established the Electricity Authority of Cambodia (‘EAC’).

Cambodia has huge potential for solar energy, with potential generation of up to 5 kWh/m2/day. Of all the renewable energy sources, solar has the largest regulatory framework. In 2018 the Electricity Authority of Cambodia introduced the regulations on General Conditions for connecting Solar PV Generation sources to the Electricity Supply System of National Grid or to the Electrical System of a Consumer connected to the Electricity Supply System of National Grid regulations. The regulations govern both solar power producers that supply energy to the national grid and solar power producers that supply energy directly to consumers.

In order for a solar power producer to supply energy and connect to the national grid, they must be listed on the Power Development Master Plan of Cambodia, or else it must face examination of its feasibility by the Ministry of Mines and Energy (‘MME’). Any solar power injected into the national grid must only be purchased by EDC, under a standardised power purchase agreement approved by the EAC. The regulations also set out the technical standards and conditions required from solar producers, including the limits to DC power injection and harmonic injection.

There are still large swathes of Cambodia without access to the national grid, including rural areas and tourist hotspots such as the islands off the coast of Sihanoukville. The 2018 regulations state that the requirements, standards and conditions are not applicable to off grid solar projects, meaning that solar producers have the opportunity to distribute in these areas without having to rigorously follow the standards they would have to were they connecting to the national grid, although they are responsible for its safe operation. This provides solar power producers with easier access to a large market of those in need of electricity.

As the BEP noted, large scale solar projects often need large areas of land, and with land being a sensitive issue in Cambodia this could act as a discouragement to solar power generation. It therefore recommended rooftop developments along with those on existing dam reservoirs to circumvent this issue.

The hope is that whilst lacking concrete incentives, the clarity the regulations provide will encourage solar producers to consider investment in Cambodia.

5. HYDROPOWER

Hydropower generation has seen a huge increase in the last decade and accounted for around 36% of power generation in 2020. Whilst hydropower is renewable, it does remain slightly controversial due to its environmental impact, with issues such as the flooding of large areas and the blocking of fish migration, as well as forced evictions. These concerns were undoubtedly a factor in the MME halting all hydropower on the main Mekong river until 2030, which has stalled the growth of hydropower to a degree. Other concerns with hydropower include the lack of water during the dry season, the recent record low water levels in general, and the impact other hydropower dams further up river could have, notably the potential dam in Luang Prabang, Laos. Regardless of the controversies, it will continue to increase as a share of power generation in Cambodia and developments on other tributaries continue.

In addition to the requirements in the Law on Electricity, hydropower projects must also be subject to an environmental impact assessment and receive a water use licence from the Ministry of Water Resources Management. Any investment above US$ 50 million must also seek approval from the Council for the Development of Cambodia (CDC).

6. OTHER RENEWABLE SOURCES

The other potential renewable sources often cited as possibilities in Cambodia are wind and biomass. The wind energy generating capabilities of Cambodia have been hotly debated, and the MME, in their Basic Energy Plan, expressed the view that the wind conditions of Cambodia are insufficient and as such, wind projects are difficult to install. However, there are wind farms in Sihanoukville, notably that which powers the Autonomous Port of Sihanoukville, and mountainous areas in the north have been earmarked as having the capability for wind power generation.

Traditional biomass is currently widely used in isolated areas for cooking, and the BEP stated that in 2015 it accounted for 87% of residential energy use. The large variety of agricultural residues left over as a by-product of the agricultural industry, such as rise husks, cassava, coconuts and animal waste, has contributed to its widespread use. The health problems associated with prolonged use of traditional biomass has led to a greater push for the use and supply of clean biomass cooking stoves, the desire for a supply chain for fabricated biomass (such as woodchip), and the promotion of LPG gas as an alternative. In addition, the creation of biomass plants for energy generation, with the large amount of agricultural residue available in Cambodia, is also a source of energy with rich potential.

7. OTHER FACTORS IN THE PROMOTION OF RENEWABLE ENERGY

The Garment Manufacturing Association in Cambodia (‘GMAC’) is also playing a role in increasing the use of renewables in Cambodia, with the garment industry being both an important pillar of the Cambodian economy and a large consumer of energy. GMAC launched the Switch Garment project in 2020, with the aim to promote the use of sustainable energy in the garment industry. Whilst this was done with one eye on the environmental factors at play, the economic benefits the use of renewable energy can bring, with lower energy costs for those in the industry, is a factor in this new project, and may be more influential in renewable adoption.

Certain companies such as H&M and Nike are also members of RE100; a global initiative with the aim of 100% renewable energy. To keep these companies continuing their operations in Cambodia, aligning with their requirements for renewable energy sources is necessary. Thus, using their influential economic position, they have been able to exert pressure and promote the increase in use of renewable energy, which will only continue.

The recent suspension of the extraction of oil from Block A off the coast of Sihanoukville, Cambodia’s first ever attempt at oil extraction, may also play a factor in the promotion of renewable energy sources. One of the intentions of the oil extraction was to provide another source of domestic energy, and the shortfall this creates may lead to the encouragement of other domestic sources, including renewables, although this is of course conjecture at this point.

8. THE LAW ON INVESTMENT

The new Law on Investment (LOI), promulgated in October 2021, provides additional tax incentives to green energy producers. Green Energy producers are able to register as Qualified Investment Projects (QIPSs) and are one of the sectors to be incentivised. The Law offers different options of basic incentives, but the likely the most common used includes an income tax exemption from three (3) to nine (9) years from the time of first earning income. Once the exemption expires, there is then a sliding scale of tax breaks on income tax, starting at twenty-five (25) percent of the tax due for the first two (2) years, fifty (50) percent for the next two (2) years, and seventy-five (75) percent for the final two (2) years. There are also exemptions for Prepayment Tax, Minimum Tax and Export Tax for the duration of the initial period. In addition, there are a host of other incentives. A deduction of one hundred and fifty (150) percent from the tax base is applicable to activities such as research and development, human resource development and the construction of facilities for employees such as accommodation, canteens and nurseries.

Whilst some of the practicalities of the new LOI are to be clarified in a Sub-Decree currently being drafted, the tax incentives to green energy producers are a huge leap forward and should provide an attractive environment for renewable energy producers in Cambodia.

9. ENVIRONMENTAL CODE OF CAMBODIA

The Environmental Code of Cambodia is currently in its 11th draft. Once promulgated, it will provide a host of additional incentives for green energy producers. However, when that will actually be is a source of contention and the momentum of the legislation seems to have stalled somewhat. It is though, something for renewable energy producers and consumers to look forward to and will provide increased economic viability of green energy projects when it is finally introduced.

10. CONCLUSION

The green energy sector in Cambodia is currently underserved and has huge potential for growth into the next decade and beyond. Whilst the regulations and incentives are currently lacking in some areas, the new LOI has helped remedy this and we would expect this to be expanded upon further moving forward, especially once the Environmental Code is promulgated. This continued development has been the case with many areas of Cambodian law, with it being a relatively new legal system, and should provide greater security and opportunities for renewable energy producers in the future.

The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations. For more details or any question related to Renewable Energy in the Cambodia Energy Plan, please contact our professionals via [email protected], [email protected]

TABLE OF CONTENTS

1. Introduction
2. The Cambodia Basic Energy Plan
3. The Law on Electricity of Cambodia
4. Solar Power
5. Hydropower
6. Other Renewable Sources
7. Other Factors
8. New Law on Investment
9. Environmental Code

AUTHORS/CO

  • Mr. Darwin HEM
  • Mr. Thomas JEFFERY

LAW BLOG


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Website
 cambodianlaw.wordpress.com

BNG Legal believes expanding access to legal information is crucial to rule of law. To that end, several of our legal professionals write a blog discussing recent developments in the legal landscape.

The Certificate of Occupancy (Feb 2022)

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1. INTRODUCTION

On November 02, 2019, the Law on Construction was promulgated in response to the rapid growth of the real estate sector in Cambodia. The law aims to establish principles and technical building regulations, rules and procedures for the management of the construction sector in the Kingdom of Cambodia. Whilst the law provides a detailed overview, sub-regulations will be released at a later date to clarify the further implementation of certain provisions of the law, and to provide guidance for concerned parties.

With the increasing rate of building construction in Cambodia, the government has been working hard to implement control over the construction sector, especially relating to building compliance. To fully comply with construction laws and regulations, each construction owner is required to obey three procedures: the ‘Prior to Construction’ procedure, the ‘During Construction’ procedure and the ‘Completion of Construction’ procedure.

The Ministry of Land, Management, Urban Planning and Construction (“MLMUPC”) and other relevant institutions have found numerous examples of non-compliance of the building regulations, with many built in a non-standard way which presents a high risk to both construction users and to the public. To avoid further risk, on December 30, 2020 the Royal Government of Cambodia issued Sub-Decree No. 226 on the conditions and procedure for granting, suspending and revoking a Certificate of Occupancy, to control non-compliance constructions, and to maintain standards of security, safety and aesthetics for sustainable living. Once the construction of the building has been completed, each construction owner shall apply for a Certificate of Occupancy (previously known as a “closing permit”).

2. CERTIFICATE OF OCCUPANCY

All construction types which require a construction permit, shall apply for a Certificate of Occupancy, as enforced in the Law on Construction. Furthermore, any construction built before the enforcement of the Law on Construction and constructions built before December 20, 1997, are also required to obtain Certificates of Occupancy, but it applies only to the constructions classified as follows:

  • Those built without a construction permit
  • Those built in breach of the conditions stated in the construction permit
  • Those built with a construction permit, but there is no certificate of compliance or closing permit.

The Certificate of Occupancy is a certificate issued by the competent authority to construction owners to stay, rent or undertake other legitimate activities on the construction located in the Kingdom of Cambodia. The certificate can be issued as long as the construction does not pose a risk to human life, property and has no adverse effect on public security or order.

3. APPLICATION PROCEDURE

There are three competent authorities who are in charge of issuing the Certificate of Occupancy, meaning each construction owner shall file their application to all three competent authorities specified within Sub-Decree 224 on Construction Permits (“SD 224”).

The three competent authorities are:

  • The Minister of the Ministry of Land Management, Urban Planning and Construction;
  • The Governor of the Board of Governors of the Capital & Provinces; and
  • The Governor of the Board of Governors of the Municipalities, Districts or Khans.

3.1 Enforcement Post the Law on Construction

Since the enforcement of the Law on Construction, before using the construction the construction owner shall apply for a Certificate of Occupancy or a provisional Certificate of Occupancy with the competent authority and pay the public service fee. The construction owner is required to file the application form with the following documents in three (3) copies (certified by the competent authority):

  • Cambodian Identity Card or Passport of the Construction Owner or Representative
  • Certificate of Incorporation and Memorandum and Articles of Association (if a Company)
  • Authorization Letter executed by the Company (if a Company)
  • Possession Right Letter issued by the competent authority
  • Land Plot Letter issued by the Department of Land Management, Urban Planning and Construction, and the Cadastral of the Capital or Province
  • Extracts from Actual Construction Plans
  • Construction Quality and Safety Inspection Report (if any)
  • Construction Contract (if any)
  • Relevant Documents of Construction Contractor (if any)
  • Land and Construction Material Experimental Report (if any)
  • Construction Permit (if any)
  • Opening Construction Permit (if any)

Note: The competent authority may require additional documents based on the construction type and conditions.

After the filing date, the review and approval process of the application and supporting documents may take:

  • Minister of the Ministry of Land Management, Urban Planning and Construction takes around 20 days; and
  • Governor of the Board of Governors of the Capital & Provinces takes around 15 days; and
  • Governor of the Board of Governors of the Municipalities, Districts &Khans takes around 10 days.

3.2. Prior Enforcement of the Law of Construction

The procedure and required documents are exactly the same as the application of the owners using the construction after the enforcement of the Law on Construction; other than the timeframe of the approval process. The timeframe of the approval process at the competent institutions takes slightly longer, which is specified as follows:

  • Minister of the Ministry of Land Management, Urban Planning and Construction takes around 30 days; and
  • Governor of the Board of Governors of the Capital or Provinces take around 15 days; and
  • Governor of the Board of Governors of the Municipalities, Districts or Khans takes around 15 days.

Art. 13; 18 and 24, PK 177
Notification No. 341, dated September 25, 2020

3.3. Changing the Use of Construction

In the event the construction owner has changed the construction’s function as stated within the Certificate of Occupancy, or makes any changes relating to the use of the construction, the owner is obliged to renew the Certificate of Occupancy and seek the approval of the competent authority.

  • Minister of the Ministry of Land Management, Urban Planning and Construction takes around 30 days; and
  • Governor of the Board of Governors of the Capital or Provinces take around 15 days; and
  • Governor of the Board of Governors of the Municipalities, Districts or Khans takes around 15 days.

Note: All construction owners who are using or undertaking any business activity on constructions built before the enforcement of the Law on Construction, should have applied for the certificates of occupancy before November 02, 2021. If the application has not been made by this date, they may be liable for a penalty, regulated by the Law on Construction.

Art. 13; 18 and 24, PK 177
Notification No. 341, dated September 25, 2020

4. RENEWAL OF THE CERTIFICATE OF OCCUPANCY

The construction owner is obligated to renew the Certificate of Occupancy as follows:

  • Constructions used other than for residential purposes have to renew at least every 5 years;
  • Constructions with residential purposes have to renew at least every 10 years.

Please be aware that after the enforcement of the Law on Construction, any construction which is used without a Certificate of Occupancy or is in non-compliance with Law on Construction, is subject to punishment and penalties under Cambodian laws and regulations.

The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations. For more details or any question related to Certificates of Occupancy, please contact our professionals via [email protected], [email protected]

TABLE OF CONTENTS

1. Introduction
2. Certificate of Occupancy
3. Application Procedure
4. Renewal of the Certificate of Occupancy

AUTHORS/CO

  • Mr. Darwin HEM
  • Mr. Menghok BUN

LAW BLOG


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 cambodianlaw.wordpress.com

BNG Legal believes expanding access to legal information is crucial to rule of law. To that end, several of our legal professionals write a blog discussing recent developments in the legal landscape.

Long Term Leases in Cambodia (Jan 2022)

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1. INTRODUCTION

There are numerous types of leases, such as operating leases, sale and leaseback arrangements and financial leases. There is also the long-term lease, which is possible to enter into in Cambodia and is considered as a real property right. Also known as perpetual leases, their governing provisions are contained in Book 3 of the Civil Code 2007 (CC) and are further defined in the updated Land Law 2001 (LL). Previous to the implementation of the Civil Code, leases were governed by the Land Law 1992, and any leases created before the promulgation of the Civil Code are still under the jurisdiction of the former legislation. This article will focus on the updated laws and the current creation of long-term leases.

2. TERM

A perpetual lease must be for a period of at least 15 years (Article 244, CC) but can only be for a maximum of 50 years. Any lease term that exceeds 50 years will be automatically shortened to 50 years (Article 247, CC). Clauses for renewal are possible, but again, the renewal period must not exceed 50 years.

3. FORMATION

Article 109 of the Land Law 2001 states that lease contracts shall be entered into according to the will of the parties, and in accordance with the provisions of existing laws.

A perpetual lease must be in writing (Article 245(1), CC). In general, oral leases are possible, however they are treated as leases without a fixed term and can be terminated with prior notice equal to the rental period, meaning they are clearly not considered under the provisions on long term leases.

In order for the rights of a perpetual lessee to be held up against third parties, it must be registered. This registration is done with the Cadastral Office, and this registration is only possible if the lease has been certified by either a notary public or the local Sangkat of the immovable property. This registration means that even if the immovable property is assigned, the lessee is able to exert their rights pertaining to the perpetual lease against the new owner of the property.

Therefore, in simplified terms, to create a perpetual lease, there must exist the will of both parties, it must not be in contravention of any other existing laws or regulations, it must be in writing, and it must be registered.

4. RIGHTS OF A LONG-TERM LESSEE

A perpetual lease is known as an usufructuary real right, and the perpetual lessee possesses rights over the immovable property for the duration of the lease. They have the right to possess, use and profit from the immovable, and can demand removal or prevention of a disturbance that infringes the perpetual lease, exerting these rights against third parties (Article 253, CC). In effect, they have many of the rights of ownership, without, for example, the ability to transfer the immovable property or use it as security.

A long-term lease constitutes a right in rem over the immovable property, and this right may be assigned or transferred (Article 108, LL). Article 252 of the Civil Code sets out the provisions of the right of assignment, and this transfer can occur in three different ways. Firstly, the lessee is able to assign the lease to a third party, with or without consideration. Secondly, the lessee is able to sub-lease the immovable property to a third party, and finally the perpetual lease is subject to transfer through succession. Whilst these are the statutory provisions guiding the transfer on long term leases, in practice, through the provisions in the lease itself, the parties can amend these rights. An example being that the lessor may require their consent for a transfer of the lease.

A curious provision in the Civil Code is the right to demand an increase or decrease in the rental amount (Article 249, CC). If either party deem the rental as no longer appropriate due to a change in circumstance, they can request to the court to amend the amount. The potential application of this provision by the lessor could be seen in Sihanoukville over the past few years, when rentals have increased hugely and a lessor may feel as though a rental amount negotiated a decade ago may no longer be appropriate. Similarly, a lessee may use this provision to help mitigate the effects of the coronavirus pandemic, whereby a rental amount negotiated pre-pandemic may be too much of a burden in post-COVID Cambodia.

5. TERMINATION

Whilst the perpetual lease will expire at the end of its term, subject to any clauses of renewal, there are other ways in which the lease can come to a premature end.
Failure to pay the stipulated rental for 3 years will give the perpetual lessor the grounds to terminate the agreement (Article 250, CC).

In addition, the provisions of the perpetual lease agreement may stipulate obligations of either party, which may lead to termination if there is a breach of these obligations.
Article 254 of the Civil Code deals with the event of termination. Upon termination, the lessee is not compelled to return the immovable property in its original form. However, the lessor is entitled to acquire ownership of any improvements and structures installed without having to pay compensation. The parties have the ability to stipulate changes to these statutory requirements, however this special agreement must be registered.

It should also be noted that if a matter regarding perpetual lease is not covered by the provisions dealing with perpetual leases in the Civil Code, then the provisions relating to general leases will be applied.

6. IMPLICATIONS FOR FOEIGN OWNERSHIP ON LAND

I) Perpetual leases have long been used as a form of protection by foreign investors in Cambodia. For foreign ownership of land, a Land Holding Company is often the preferred method, whereby the foreign party owns 49% of the company and a Cambodian party owns the other 51%. The Land Holding Company is then considered a Cambodian entity and has the right of land ownership. To protect the right of the foreign party to use and operate on their land, the Land Holding Company can then enter into perpetual lease with the foreign party to ensure that they will enjoy the rights over the land for up to 50 years.

II) A perpetual lease also allows foreign person(s) to access financing that they may otherwise not be able to obtain. A perpetual lease is a mortgageable asset, meaning that it can be used by a foreign individual to get financing from a banking institution.

7. CONCLUSION

Long-term leases are an important property right with their own provisions in Cambodian law. Whilst operating in much the same way as a general lease, they differ in several significant ways, such as the minimum term of 15 years, the requirement of registration, the ability to request an increase or decrease of the rental amount, its use in the protection of the rights of foreign land ownership and it’s ability to be used as a mortgageable asset.

The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations. For more details or any question related to Long Term Leases in Cambodia, please contact our professionals via [email protected], [email protected]

TABLE OF CONTENTS

1. Introduction
2. Term
3. Formation
4. Rights of a Long-Term Lessee
5. Termination
6. Implications for Foreign Ownership of Land
7. Conclusion

AUTHORS/CO

  • Mr. Darwin HEM
  • Mr. Thomas JEFFERY
  • Mr. Menghok BUN

LAW BLOG


Facebook
 fb.com/bnglegal

Website
 cambodianlaw.wordpress.com

BNG Legal believes expanding access to legal information is crucial to rule of law. To that end, several of our legal professionals write a blog discussing recent developments in the legal landscape.