Investment policy and regulations

Cambodia’s economy has experienced an impressive performance, reflected in its rapid economic growth and significant poverty reduction. Part of this is the result of the relative openness of Cambodia towards foreign investors. Domestic investment has also been growing, although at a lower rate than other countries in the region and other countries at the same level of development.¹ Cambodia has committed to its national strategy to become an upper-middle-income country by 2030 and to achieve high-income status by 2050.²

To achieve this and other commitments, Cambodia has continued to keep its economy open by offering potential investment opportunities to foreign investors.³ It also aims for growing international trade, exchanging goods and services with regional and other global markets. The implementation of free-market principles and macroeconomic stability also provides an appealing investment environment for Cambodia.⁴

The landscape view of Phnom Penh city. Photo by Open Development Cambodia, taken on 05 January 2021. Licensed under CC BY-SA 4.0.

The country has performed well in attracting foreign investors given the small size of its economy, although foreign direct investment (FDI) is still heavily focused on only a few sectors, for example garment manufacturing. Like that of other countries in the region, Cambodia’s FDI inflows grew substantially after it joined the World Trade Organization (WTO) in 2004.⁵

Law on investment of the Kingdom of Cambodia

According to the Council for the Development of Cambodia (CDC), the creation of laws and regulations that govern FDI in Cambodia is intended to encourage investments. As stipulated in the Law on Investment, FDIs in Cambodia are open and investments are allowed in many areas except for land ownership. The investors are also entitled to various incentives.⁶ The first Investment Law of the Kingdom of Cambodia was enacted in 1994. It consisted of 9 chapters and 26 articles and the key focus was to facilitate investment.⁷ This law set out general provisions such as procedures for investing and receiving rights and guarantees for investors. It also showed the sector that the government encouraged investment.⁸

In 2003, a new law amended some articles in the existing 1994 Investment Law, making it clearer and more comprehensive. This Law on Amendments to the Investment Law of the Kingdom of Cambodia⁹ clarified the scope, procedures, and qualifications of investment that can be made in Cambodia. The law also aimed to encourage more investment and create a fairer balance for the investment regime in Cambodia.¹⁰ There are additional incentives for investors and dispute settlement mechanisms, for example, an automatic tax holiday, 100% exemption from import duties, a guarantee against nationalization, renewable land leases of up to 99 years on concession land for agricultural purposes, and more. ¹¹

In 2005, Sub-Decree No. 111 on the Law on the Amendment of the Investment Law of the Kingdom of Cambodia was promulgated. This aimed to  supplement and implement the Investment Law to further promote investment in the country by both domestic and foreign investors.¹² This sub-decree further clarified the Qualified Investment Projects (QIP) status that all investors must apply for to receive investment incentives.¹³ According to the amended Law on Investment (2003),  the CDC acts as the one-stop service organization responsible for evaluating and making decisions on investments and rehabilitation, development and oversight of investment activities. Investors must submit their investment proposals to the CDC or the Provincial-Municipal Investment Sub-committee to obtain a Qualified Investment Project (QIP) status, which depends on level of capital and location of the investment.¹⁴¹⁵

On 15 October 2021, the Law on Investment was promulgated to replace the law in 1994 and amendment in 2003 and for Cambodia to establish an open, transparent, predictable and favorable legal framework to promote and attract quality, effective, and efficient investments by domestic and international investors.¹⁶ The law has 12 chapters and 42 articles, aiming to improve socio-economic development in Cambodia by increasing Cambodia’s competitiveness, modernizing and increasing local industries’ productivity, establishing an investment incentive regime, and providing investors’ rights and legitimate interests protection.¹⁷ It intends to make Cambodia more attractive by providing more incentives, guarantees, and protections for domestic and foreign investors in accordance with international law and standard. There are also 5 notable key features of the new investment law.¹⁸

1. Allowance of registration for two new types of investment projects
2. Investment guarantees and protections
3. Incentives for investment sectors and activities
4. Investment incentives for QIP
5. Approval for private investments and settlement of disputes

Investment incentives

More detail on investment incentives

Government's effort to increase investment

As stipulated since the first phase of its Rectangular Strategy, the Royal Government has considered the private sector as the engine of economic growth. The Government continues to focus on attracting private sector investors through the expansion of international markets, provision of tax exemptions, development of infrastructure, and strengthening of the legal framework to facilitate private investments in priority sectors with fair competition, transparency, and accountability.¹⁹ 

The Cambodian Government has been improving its investment facilitation services. In 2005, the Government established the Cambodian Special Economic Zone Board (CSEZB) under the CDC’s supervision with an aim to promote the special economic zone (SEZ) scheme in Cambodia. The Special Economic Zone Administration was also established to authorize SEZs and is expected to provide a one-stop service to zone investors from the registration of investment projects to routine export-import approvals.²⁰

Cambodia introduced Special Economic Zones (SEZs) for the first time in December 2005. SEZs refer to legal, logistic and tax arrangements to attract export-oriented manufacturing investment that would not otherwise happen. SEZs increases the security of investment, reduce cost and regulations and trade restrictions.²¹ These preferences offer incentives to investors with Government support on import-export trade facilitation and administration.²² According to Council for the development of Cambodia, there are 24 operating SEZs which covers 561 investment projects and more than 160.000 employments.²³

However, Cambodia still has some challenges to address despite the rapid economic growth and attractive investment climate. As stated by the World Bank, much of the population remains “near poor” and economically vulnerable as the country’s economic growth still depends heavily on a few sectors, for example, the export of garments and footwear.²⁴ This condition makes Cambodia vulnerable and exposed to the decline of competitiveness and the erosion of preferential market access. Overseas development assistance (ODA) has been decreasing steadily as a share of GDP, so private capital is increasing in importance for the economy.²⁵

The Industrial Development Policy 2015–2025 (IDP) sets out clearly these challenges and rolls out the need to diversify the economy and avoid over-reliance on garments.²⁶ The plans to diversify the economy are also set out in the Rectangular Strategy Phase IV,  through, for example, efforts to reduce the cost and time in setting up a business as well as promoting a strong trade and investment climate.²⁷ The Government has continued its effort to maintain and promote a conducive investment environment by setting out prudent macroeconomic policies to maintain a manageable inflation rate, stabilize the exchange rate and other related policies such as comprehensive tax reforms.²⁸

Council for the Development of Cambodia

Screenshot of the Council for the Development of Cambodia website, dated on 9 May 2022. Licensed not specified.

CDC acts as the sole and One-Stop Service organization of the Royal Government of Cambodia responsible for the oversight and management of development cooperation, private investment, and SEZ.²⁹ In order to achieve the mission, CDC offers information to investors, reviews investment applications and grants incentives, monitor investment projects after implementation, offers after-care service to investors, and offers a platform for private sector.³⁰ CDC is chaired by the Prime Minister and one or several vice-chairpersons and members if necessary, and has three main organizational structures, which shall be determined by Royal Decree.³¹

• General Secretariat of CDC
• Cambodian Cooperation Development Board (CCDB)
• Cambodian Investment Board (CIB)

Related to Investment policy and regulation

• Economy and commerce
• Government
• Investment
• Economic policy and administration
• Special economic zones