QIP Tax Implications in Cambodia (May, 2024)

An individual seeking to execute a Qualified Investment Project (“QIP”) is required to present a written application for Investment Project Registration to either the Council for Development of Cambodia (“CDC”) or the Provincial-Municipal Investment Sub-committee (“PMIS”). This is necessary to secure the associated incentives, guarantees, and protections in accordance with prevailing laws and regulations.

In cases where an individual intends to invest and engage in multiple Investment Activities, separate Investment Project Applications must be submitted for each activity. An exception is made for activities that provide support to the primary Investment Project or for an Expansion Qualified Investment Project.

Investment incentives are granted to the sectors and activities listed below, unless they are specifically included in the negative list, upon acquiring a registration certificate confirming their Qualified Investment Project status:

• High-tech industries involving innovation or research and development.
• Innovative or highly competitive new industries or manufacturing with high added value.
• Industries supplying regional and global production chains.
• Industries supporting agriculture, tourism, manufacturing, regional and global production chains, and supply chains.
• Electrical and electronic industries.
• Spare parts, assembly, and installation industries.
• Mechanical and machinery industries.
• Agriculture, agro-industry, agro-processing industry, and food processing industries serving the domestic market or export.
• Small and medium-sized enterprises in priority sectors and small and medium-sized enterprise cluster development, industrial rks, and science, technology, and innovation parks.
• Tourism and tourism-related activities.
• Special Economic Zones.
• Digital industries.
• Digital industries.
• Education, vocational training, and productivity promotion.
• Health.
• Physical infrastructure.
• Logistics.
• Environmental management and protection, biodiversity conservation, and the circular economy.
• Green energy, technology contributing to climate change adaptation and mitigation.
• Other sectors and investment activities not listed by the LOI but deemed by the Royal Government of Cambodia to have the tential for socio-economic development.
• e Negative List comprises investment activities or categories ineligible for investment incentives, as outlined in Annex 1 of Sub-cree No.139, pertaining to the implementation of the Law on Investment of the Kingdom of Cambodia.
• The Agricultural Sector includes 4 main investment activities or investment activity categories;
• The Service Sector includes 43 main investment activities or investment activity categories;
• The Industrial Sector includes 49 main investment activities or investment activity categories; and
• The Infrastructure Sector includes 11 main investment activities or investment activity categories;

• Group 1 includes 37 investment activity categories that are considered as high-tech and priority sectors of the Royal Government;
• Group 2 includes 65 investment activity categories that are considered mid-tech; and
• Group 3 includes 32 investment activity categories that are considered low-tech.

In order to qualify for fundamental tax incentives, the QIP must fulfill the criteria related to investment capital, land size, and/or other specified conditions outlined in Sub-Decree No. 139, governing the implementation of the Law on Investment. This qualification should be met within the earlier timeframe; either during the period indicated in the QIP investment plan submitted at the time of application or the year in which the QIP generates its initial revenue.

Upon registration as a Qualified Investment Project, the Investment Activity is entitled to choose one of the fundamental incentive options from the following:

• Option 1 will receive the following incentives:
  • Income tax exemption from the time of first earning its income for activities:
    • 9 years for Group 1;
    • 6 years for Group 2;
    • 3 years for Group 3.
  • Payment of income tax at a progressive rate for 6 years after the expiration of the income tax exemption period:
    • First 2 years: 25%;
    • Next 2 years: 50%;
    • Last 2 years: 75%
  • Prepayment tax exemption for activities:
    • 9 years for Group 1;
    • 6 years for Group 2;
    • 3 years for Group 3.
  • Minimum tax exemption provided that an independent audit report has been obtained.
  • Export tax exemption, unless otherwise provided in other laws and regulations.

• Option 2 will receive the following incentives:
  • Deduction of capital expenditure through special depreciation.
  • Eligible for deducting up to 200% of specific expenses incurred for activities:
    • 9 years for Group 1;
    • 6 years for Group 2;
    • 3 years for Group 3.
  • Specific expenses include:
    • Skill training;
    • Use of accounting system online
    • Study, research, and development, and hire foreign experts to train on new technology, IR 4.0.
  • Prepayment tax exemption for activities:
    • 9 years for Group 1;
    • 6 years for Group 2;
    • 3 years for Group 3.
  • Minimum tax exemption provided that an independent audit report has been obtained.
  • Export tax exemption, unless otherwise provided in other laws and regulations.

In addition to the incentives provided by the above options, QIPs are also entitled to the following:

• A QIP that has the right to import construction material, construction equipment, and production equipment to serve its production line will have customs duty, special tax, and value-added tax exemption.
• VAT exemption for the purchase of locally made production inputs for implementation of the QIP. VAT at 0% rate.
• Deduction of 150% from the tax base for any of the following activities:
  • Research, development, and innovation;
  • Provision of vocational training
  • Construction of accommodation, canteens, nurseries, and other facilities;
  • Upgrade of machinery;
  • Provision of welfare for Cambodia workers/employees; and
  • Investment or infrastructure of waste treatment such as solid, hazardous waste, liquid waste, and smoke.

IV. BUSINESS REGISTRATION

Prior to initiating the registration process for a business in Cambodia, it is imperative to assess whether the business qualifies as a Qualified Investment Project. If eligible, the business stands to receive incentives outlined in the LOI and its associated Sub-Decree. Once eligibility as a QIP is confirmed, the investor can proceed to submit the investment project application for QIP registration to either the Council for Development of Cambodia or the Provincial-Municipal Investment Sub-committee to obtain a registration certificate, thereby gaining access to QIP incentives.

Here are the specific steps based on the capital amount:

• For investment projects with capital exceeding US$ 5 million, the application should be directed to the Cambodia Investment Board (CIB) of the CDC.
• For investment projects with capital of less than US$ 5 million, the application should be directed to the PMIS.
• If the investment project application aligns with all of the QIP criteria and requirements, the investor will receive a registration certificate confirming QIP status from the CDC or PMIS within 20 working days post-submission. Subsequently, the QIP is required to register the business with the Ministry of Commerce (MoC), the General Department of Taxation (GDT), and the Ministry of Labor and Vocational Training (MoLVT). Additionally, obtaining licenses for the specific sector from the relevant authorities may be necessary.

In cases where the investment project is ineligible for QIP status, the investor must undergo the business registration process through the Ministry of Commerce (MoC), General Department of Taxation (GDT), and Ministry of Labor and Vocational Training (MoLVT). Similarly, acquiring sector-specific licenses from the relevant authorities may be a requirement for the new business.