Navigating Qualified Investment Projects (QIP) in Cambodia: An Investment and Legal Guide for Investors

Cambodia has emerged as a strategic destination for foreign investment, offering a robust legal framework that fosters a favorable business environment. Central to this framework is the Qualified Investment Project (QIP) regime, established under the 2021 Law on Investment. Cambodia’s legal system offers strong protections for investments under the QIP regime. These include safeguards against discrimination based on nationality, protection from nationalization or expropriation of assets (with compensation in cases of public interest), the right to repatriate profits, and robust intellectual property rights protection. This article serves as a legal and investment guide for potential investors, outlining the key aspects of the QIP system and the benefits it provides under Cambodian law.

Understanding Qualified Investment Projects (QIP)

 A Qualified Investment Project is a specific type of investment that has been registered and certified by the Council for the Development of Cambodia (CDC) or a Municipal-Provincial Investment Sub-Committee (Article 3, Law on Investment). Once a project receives QIP status, it is entitled to a range of legal and financial incentives, making it an attractive option for both domestic and foreign investors.

The QIP system is designed to encourage investment in sectors that are deemed critical to Cambodia’s economic development. These sectors include high-tech industries, manufacturing, agriculture, tourism, and digital infrastructure, among others. By focusing on these key areas, the Cambodian government aims to promote sustainable growth and innovation.

Incentives for QIPs

According to article 26 of the Law on Investment, investors registered under the QIP scheme are entitled to choose between two primary incentive packages (1. Income Tax Exemption and 2. Special depreciation), each offering distinct legal and financial advantages:

Option 1: Income Tax Exemption

Under this option, investors can benefit from an income tax exemption for a period ranging from 3 to 9 years, depending on the sector and the specifics of the investment. This exemption period begins from the time the QIP first generates income. After the exemption period ends, the QIP will be subject to a phased reintegration into the tax system, with reduced tax rates over the next six years (25% in the first two years, 50% in the following two years, and 75% in the final two years).

In addition to the income tax exemption, QIPs under this option are also exempt from prepayment taxes, minimum taxes (subject to independent audit), and export taxes, unless otherwise stipulated by law.

In practice, investors choose Income Tax Exemption rather than Special Depreciation.

Option 2: Special Depreciation

This option allows investors to accelerate the depreciation of capital expenditures, providing significant tax relief for capital-intensive projects. Moreover, certain expenses related to the QIP can be deducted at a rate of up to 200%, offering further savings on taxable income. Similar to Option 1, this option also includes exemptions from prepayment taxes, minimum taxes, and export taxes.

Additional Incentives for QIPs

QIPs receive extra benefits, including VAT exemptions on local production inputs and a 150% tax deduction for activities like R&D, worker training, facility construction, machinery upgrades, and employee welfare (article 27, Investment Law).

The QIP Application Process

The process of registering a QIP is designed to be straightforward and transparent. Investors must submit a written application to the CDC or a Municipal-Provincial Investment Sub-Committee. The application can be made online through the CDC’s One Stop Service mechanism, which coordinates the review and approval process with relevant ministries and institutions.

Upon approval, the investor receives a Registration Certificate, which formally grants QIP status and the associated legal benefits. It is important to note that while QIP status provides significant incentives, investors must still comply with all other applicable laws and regulations, including obtaining any necessary permits.

Strategic Considerations for Investors

1. Conduct Thorough Due Diligence: Before committing to a QIP, ensure you fully understand the specific legal requirements and benefits that apply to your project. Familiarize yourself with the 2021 Law on Investment and the latest updates from the Council for the Development of Cambodia.
2. Consult Legal Experts: Navigating the complexities of the QIP regime can be challenging. Engage with legal professionals who are well-versed in Cambodian investment law to ensure full compliance with regulatory obligations and to optimize the benefits of your QIP.
3. Utilize the “Master List” for Cost Efficiency: When applying for a QIP, be mindful of the “Master List,” which includes goods and materials exempt from customs duties and taxes when imported for your project. Ensuring that all necessary items are included on this list and approved by the CDC can significantly reduce your initial costs, making your investment more financially viable.
4. Leverage Cambodia’s Favorable Market Access: According to CDC as of May 2023, Cambodia offers highly favorable market access, making it an attractive destination for investors. Take advantage of Cambodia’s membership in the ASEAN Economic Community (AEC) and the Regional Comprehensive Economic Partnership (RCEP). These agreements provide preferential trade terms with major economies like China, Japan, South Korea, Australia, and New Zealand, allowing exports to reach over 30% of the world’s population with reduced or eliminated tariffs. Additionally, Cambodia’s Generalised System of Preferences (GSP) status with 32 countries, including the European Union and the United Kingdom, further enhances export potential. These initiatives from government facilitate access to a market of over 2.9 billion people, providing investors with significant opportunities for growth and expansion.
5. Choose the Right Location for Your QIP: Selecting the optimal location for your QIP is crucial. IPS can assist in this process by helping you locate and secure the most favorable site in Cambodia. A well-chosen location should have robust infrastructure, including well-maintained roads and proximity to airports or ports, facilitating smooth logistics and transportation. Access to sufficient electricity and water supply is also essential to ensure uninterrupted operations. With IPS’s expertise, you can find a location, whether inside or outside a special economic zone, that meets these criteria, positioning your business for long-term success in Cambodia.

To secure the ideal site for your investment in Cambodia, get in touch with your local IPS agent. Our expertise in local markets will help you find a location that maximizes your business potential and ensures operational efficiency.