The Enforcement of Cambodia’s Business Laws

Cambodia has traditionally been an easy place to set up and conduct business in SEA region, as the government has often lacked the will or capabilities to enforce a range of standard regulations and taxes. With loose regulations, many local and foreign businesses have had the luxury of picking and choosing which rules and taxes they adhere to. However, 2016 has witnessed a palpable shift at various government ministries with many of them shifting towards stronger enforcement resulting in many businesses scrambling to comply with the applicable laws.

How business laws are enforced in Cambodia

One of the major areas that have been targeted by the government has been the Cambodian property related taxes. “Land or Property Tax” is the annual fee paid by owners of landed and hard title property and is now being enforced much more rigorously. Whilst seemingly straightforward, this has created a number of issues for businesses. Recently I have heard a number of frustrated business owners who are renting office spacetell of a situation where their legal documents (certificate of incorporation, relevant licenses, etc.) are not being released by the Ministry until the landlord produces a property tax receipt for the corresponding year. This is a delicate situation as the business owners need their legal paperwork to operate, but are not necessarily in a position to push their landlord to pay the property tax.Another property related tax that is being cracked down on is Rental Tax. This is a 10% tax applied to rental income derived from a property. Many landlords, in particular owners of apartment complexes, are now adding 10% to their rental fees to offset the payments they now need to make for the government. Villa owners are beginning to comply with the tax as the authorities ramp up their enforcement campaign.Value-added Tax (VAT) is a 10% tax on an extensive range of business transactions and imports, is now being followed by the government much more closely. Whilst some industries have been VAT compliant for a number of years, businesses such as restaurants and bars have largely managed to avoid paying VAT. Noticeably, a number of restaurants and bars in Phnom Penh started charging VAT on top of their menu prices and more and more businesses will have to follow suit over the next 12 months. Foreigners have not escaped the eye of government. On 25th May, the Director of Phnom Penh Department of Land Management, Urban Planning and Construction issued a notification letter instructing the Chiefs of all 12 Khans in Phnom Penh City to not process any titles in a foreign buyers’ name, unless the specific conditions for a co-owned building are met. Essentially, they are now enforcing a law that has always been in existence but previously allowed individual Sangkats to enforce it at their discretion. This has spelt the end of foreigners being able to own a soft title property in their own name. New laws have also been brought in specifically targeted at foreign workers and long-term foreign residents. In July 2016, the Department of Immigration announced that they would be introducing a new Visa for Retirees living in Cambodia. This new Visa to be known as a “Category ER” Visa, will be valid for up to a year and will not require a work permit. However, to obtain the Visa, you will be required to produce a proof of financial stability and documentation proving retiree status from applicants’ home countries. This is a large shift away from what has traditionally been a permissive environment for foreigners to obtain a long-term Visa. In addition to this new Visa is the growing enforcement of Work Permits around the country.

Officially, a Work Permit is required in order to obtain a “Category E” Business Visa, which allows foreigners to stay in Cambodia and seek employment for up to 12 months on a renewable basis. Although this is still loosely enforced when applying for a Business Visa, the Department of Immigration is now conducting an audit of businesses with foreign employees to ensure that Work Permits have been obtained.Whilst these changes may be frustrating for long-term expats and business owners, they are nothing out of the ordinary for a country that is growing fast and looking to become an economic player in the ASEAN region. There is the talk of more changes in the pipeline which essentially means the “good old days” of loose regulations and taxes are coming to an end.