In December 2019, Cambodia’s prime minister, Hun Sen, addressed the attendees of the 14th Cambodian Import-Export Goods Exhibition, an event intended to showcase the country’s positive business and investment climate. He made it crystal clear that Cambodia is open for business, saying, ‘To ensure a sound macro-economy and political and social stability, the government is open to all investors to do business and invest in the Kingdom.’
Cambodia is home to an estimated 100,000 expatriates who come for a variety of reasons, including the low cost of living, business opportunities, the laid-back lifestyle, and the influence of Buddhist culture. Infinity set up its Phnom Penh office in 2014, so we understand exactly what makes Cambodia attractive for business. Let’s take a look at some of its advantages here.
Why Cambodia is Attractive for Business
Strong Economic Growth in Recent Decades
Cambodia was one of the fastest-growing economies in the world between 1998 and 2018, with an average growth rate of 8%. The main drivers of growth have been the garment and tourism industries.
The World Bank states, ‘Over the past two decades, Cambodia has undergone a significant transition, reaching lower-middle-income status in 2015 and aspiring to attain upper-middle-income status by 2030.’
The economy was still flying until the end of last year, with a growth of 7.1% in 2019, according to the National Bank of Cambodia (NBC), but has inevitably been hit hard by the Covid-19 pandemic, with the tourist industry particularly severely affected.
That said, the Asian Development Bank (ADB) has stated that Cambodia has fared better than many other countries in Asia and is expecting a resurgence of the economy in 2021, with predicted GDP growth of 5.9%.
A Resilient Economy
Cambodia is a frontier market, and as such, it is less dependent on the world’s biggest economies – China, the US and Europe – than some other more developed economies. Historically, this has given it some degree of protection through global upsets. The kingdom has escaped recession for over 20 years and proved resilient through the financial crisis of the 1990s in Asia, the tech bubble of the early 2000s and even in the aftermath of the financial crisis in 2008.
The Cambodian government is known for its pro-business stance, and in March 2019, it announced an ambitious programme of economic reforms, including many measures designed to attract new business, investment and capital flows to the country. These include tax incentives, lower costs associated with shipping, a reduction in the number of national holidays, new investment measures and special economic zone laws. Prime Minister Hun Sen predicted savings for producers and exporters of US$400 million per year. In addition, unlike some Asian countries, Cambodia allows 100% foreign-owned companies.
A Youthful Population
Also notable is Cambodia’s youthful population: of almost 16 million Cambodians, around half are under 25. According to the Institute of Export & International Trade’s Doing Business in Cambodia guide, ‘the young generation coming through are tech-savvy and avid users of social media platforms like Facebook and YouTube. This is having a significant impact on Cambodian culture as a whole and opens up new opportunities and routes to market.’
A Strategic Location
Cambodia is strategically located in the heart of Southeast Asia and shares borders with Thailand, Laos, and Vietnam, with the Gulf of Thailand to its southwest. The access it enjoys to key world markets makes it a popular low-cost manufacturing base for several industries with significant demand for its products in other Asian countries.
A Competitive Labour Force
The Cambodian minimum wage is lower than in neighbouring countries Thailand and Vietnam, making it more competitive for service and manufacturing industries looking to recruit from the plentiful young workforce.
- Preferential Market Access
Cambodia is a member of the ASEAN Free Trade Area (AFTA), one of the largest and most important free trade areas in the world, and benefits from the Common Effective Preferential Tariff (CEPT) agreement. This means that it can trade with other member countries on preferential terms and, in some cases, tariff-free.
It is also a member of the World Trade Organization and trades with the EU under the ASEAN-EU dialogue.
- A Rapidly Growing Consumer Class
Rising incomes mean more disposable income, and the country’s young, tech-savvy and worldly population provides a growing market offering fantastic potential for businesses.
- Improving Infrastructure
Cambodia’s infrastructure has historically been weak, but the government is investing heavily to develop the nationwide network of transit routes, power and telecommunications with the help of foreign aid. There has been a focus on improving Cambodia’s links with neighbouring countries to advance trade and boost foreign investment.
Setting up a business in Cambodia is not without its challenges, but the great strength of the Kingdom of Wonder is its potential. It is definitely worth serious consideration for businesses looking to set up a base in Asia.
Infinity provides corporate business solutions to businesses across Asia, including in Cambodia. If you’re looking for a partner to meet your insurance, group pension or currency exchange requirements, we’d love to hear from you.
Advantage of Living in Phnom Penh
The capital city of all countries always entails a mix of various interesting things like business centres, technologies, community centres, and modern lifestyle. This principle stands for Cambodia, one of the Southeast Asian nations, with Phnom Penh being its own capital city. Living in Phom Penh has both advantages and disadvantages. Some of the advantages include the myriad of interesting places in this capital city, such as the royal palace and the national museum.
Furthermore, Phnom Penh has enough educational systems such as private schools, public schools, secondary education, and universities to serve the needs of all citizens. The communication system and internet connectivity in Phnom Penh are advanced and allow for accessible communication with your mobile phone in and outside the country via e-mail and social media. People who have widespread knowledge, skills, and experience are bound to find a job with a high salary easily.
The majority of the Cambodian people who live in Phnom Penh come from a foreign country, for example, the USA, Japan, Australia, and Canada. Beyond the many interesting places, like the national museum or the royal palace, sometimes it is the simplest things that make this capital city such a gem. Phnom Penh’s riverside is truly a sight to behold. Especially at night when all the beautiful lights reflect against the calm waters, there is no better place to catch some fresh air.
The capital city Phnom Penh has clean water and enough electricity for use throughout the whole city. The high prevalence of shopping centers, super markets, and book shops where everything from food, wonderful clothes, and modern things for everyday living can be found satisfy basic needs of residents.
Some disadvantages of living in Phnom Penh include the high competition in this city due to the vast population. There are many factors like noises, traffic jams with innumerable vehicles, and pollution making the city very crowded and resulting in almost no fresh air in outdoor areas.
In conclusion, some of the greatest advantages this capital city presents include:
- A modern lifestyle that comes easily with a high salary.
- Enough educational systems like public schools, private schools, and universities.
- A myriad of shopping centers and super markets with wonderful clothes, book shops, modern things, and everything you could need to satisfy basic needs.
- There are abundant resources to supply the capital city with enough electricity, food, and internet, among many more advantages.
- Many interesting places to explore, for example, the Silver Pagoda.
Living in Phnom Penh means you will enjoy the benefits that many countries of the Southeast Asian nations don’t have the privilege to possess.
What is the business sphere generally like in Cambodia?
Cambodia is an open market economy that has displayed excellent growth in recent decades. Even in the more challenging time presented by Covid, where almost every country worldwide has suffered severe economic consequences, Cambodia is continuously growing. The most dominant industry in Cambodia is the textile industry. The garment factories serve as an important factor in Cambodia’s economic growth. Furthermore, the tourism industry is also a significant economic factor, alongside the agricultural industry.
The business culture in Cambodia is fairly particular. There are a few business etiquettes to be acquainted with, like respect for seniors and punctuality, and bargaining is usually expected in the Cambodian business sphere. Business hours in Cambodia are generally from eight am to five am on weekdays, with a half-day on Saturdays. Cambodia has 21 public holidays, with Khmer New Year in April and Pchum Ben being the most significant.
Which Important recent developments affect those in the business sphere?
The new investment law, adopted in October of 2021, replaces the previous law that prevailed for over 20 years. This law intends to attract more new investors by promoting transparency in the priority sectors. This law dictates that the QIP registration is approved within 20 working days, which used to be ten days longer. The new Cambodian law includes international investment principles to guarantee an investor’s interest.
What primary taxes would potentially apply to a business in Cambodia?
All companies under the Cambodian tax regime are taxable. Taxpayers are categorised into three groups based on their anticipated annual revenue level.
Patent tax – All companies must pay an annual patent tax, which is determined by their annual revenue.
Stamp Tax – Branches, representative offices, and newly-established companies are exempt from stamp tax. A merged or dissolved company is subjected to a KHR1 million fixed amount on registration of legal documents. The tax rate for vehicle value and immovable property stands at 4%, and the tax rate for shares is 0.1%
Tax on Profit – Taxpayers subject to tax on international profits or income are required to pay tax on profits. Nonresidents are only subjected to tax on profits sourced in Cambodia.
Withholding Tax – Resident taxpayers who carry on business and make payments in cash or other methods to another resident taxpayer or nonresident taxpayer must withhold tax of a specified amount. The tax must be paid before the 25th of the following month.
VAT – All taxpayers are required to charge VAT on all supplied goods or services. The VAT declaration is issued monthly and has to be submitted to the relevant tax administration by the 20th of the following month. Supplies that are taxable include:
- Supply of goods or services by a taxpaying resident of Cambodia.
- The appropriation of goods for a taxpaying person’s personal use.
- Supplies or gifts below cost provided by a taxpaying person.
- Goods imported into the customs territory of Cambodia.
Goods and services including hospitals, public postal services, insurance services, electricity, clean water, and the importation of goods for use in the practice of their official function of foreign diplomatic and consular mission, agencies of technical operations of other governments, and international organisations, among other, are exempt from tax.
A leading provider of expat financial services and wealth management services across Asia.