Small and Medium Enterprises (SMEs) information toolkit

Rational

In 2018, the total number of registered Small and Medium Enterprises (SMEs) was 155,745. More than 90 percent of registered firms in Cambodia are SMEs. However, despite being vital to the socio-economy, 95 percent are not registered yet. By 2025, 80% and 95% of small and medium enterprises are expected to register with the government, while 50% and 70% of small and medium enterprises should have accurate accounting records and balance sheets. The figure below illustrates a share of officially registered businesses with proper balance sheets in 2010 and future projections.

Table 1: Registered SMEs and SMEs with balance sheets

Source: Cambodia Industrial Development Policy 2015–2025 

About the information toolkit

This information toolkit is developed to aid entrepreneurs in Cambodia access open data – data collected for public use and serve public interest. Within this information toolkit, there are:

1. General information where readers can find useful information about startups and SMEs in general, such as legal definition, the importance for socio-economy, tax incentives and other regulations, prioritized sectors, challenges, and government responses;
2. Related contents on Open Development Cambodia’s website such as relevant daily news update, public announcements, legal documents related to startups and SMEs, industry and sector-specific information, an interactive map that aid the informed decision of startups and SMEs, and other profile pages covering related various information;
3. Registration process that provides comprehensive information, particularly targeting the new registration method; and
4. Other actors and resources available for further research to gather resourceful information from both local and international sources.

General information

• Open data: Open data is based on the simple premise that data collected for public use and serving the public interest should be made publicly available without restrictions. Open data is very important to allow enterprises, especially startups and SMEs, to have well-informed business decisions with low possible risk. Learn more: How open data develops business opportunities in Cambodia. 
• Startup: A startup refers to an emerging company or enterprise founded by a single or a group of entrepreneurs and is in the first stage of its operation. A startup offers a service or product that is believed to be in high demand. A startup is generally in the first stage before upgrading into a micro or small enterprise. Learn more at Investopedia.

Micro, Small and Medium Enterprises (MSMEs)

Table 2: Sectoral based MSMEs classification in Cambodia

FTE = Full-time equivalent

Source: Asian Development Bank’s Asia SME Monitor 2021 Database

Importance of startups and SMEs
Many developing economies have long considered startups and SMEs the essential drivers for economic growth. In Cambodia, too, SMEs are a crucial part contributing to both economic and social development. An apparent government effort to promote SMEs in the Kingdom is adopting and implementing the SME Development Framework by the SME Sub-Committee of the Private Sector Steering Committee, approved by the Council of Ministers in 2005, and launched in 2006. More efforts are as follows:

• Sub-decree No. 50 on custom incentives for SMEs
• Sub-decree No. 17 on tax incentives for voluntarily registered SMEs
• Sub-decree No. 124 on tax incentives for SMEs in prioritized sectors
• Prakas No. 159 on the implementation guidelines of sub-decree on tax incentives for SMEs in prioritized sectors
• Prakas No. 009 on the classification of taxpayers according to the self-declaration regime 
• Prakas No. 025  on the adjustment of taxpayers classification according to the self-declaration regime
• Prakas No. 496 on tax registration
• Prakas No. 319 on tax measures to reduce the impact of challenges on the textile industry

Table 3: Socioeconomic contribution of SMEs (2018 data)

Source: Annual report of Ministry of Industry and Handicraft 2018

Tax incentives and prioritized sectors

Under Sub-decree No. 124 adopted by the Office of the Council of Ministers in 2018 supported by Prakas No. 159 on the implementation of the said sub-decree stated the six prioritized sectors to be entitled to receiving special tax incentives as follows:  

1. Agricultural and agro-industrial products
2. Food production and processing
3. Manufacturing of local consumer goods, waste recycling, and production of goods for tourism
4. Manufacturing of final products, parts, or components to supply other manufacturing industries
5. Information Technology (IT), Research and Development (R&D), including the provision of innovative IT management services
6. Enterprises located in the SME Cluster and enterprises that develop the area

SMEs operating in any of the aforementioned prioritized sectors will receive: 

• Up to three years of profit tax exemption from registering for newly registered enterprises or from the date of tax update for already registered enterprises or
• Up to five years profit tax exemption from the date of registering for a newly registered enterprise or from the date of tax update for already registered enterprises under any of the given conditions: 
  • Use up to 60% of local raw materials or
  • An increase of at least 20% of employee or
  • Be located in SME Cluster. 
• Exempt from installing profitable and minimum taxes during the profit tax break period.
• Incentives for deductible expenses are as follows:
  • 200% expense deduction on the use of accounting records through the information technology system
  • 200% expense deduction on training, accounting, or technical skills training for employees
  • 150% expense deduction on the cost of investing in innovative machines, or technological equipment to serve and increase production productivity.

Challenges and government responses

• Access to finance: One of the most challenging problems that SMEs face is access to finance and long-term investment. To tackle this problem, the government of Cambodia responded by creating a state-owned financial institution called SME Bank to allocate funds to SMEs for their development and growth. In early 2022, through the Ministry of Economy and Finance, the government allocated more funds to SME Bank for another 50 million USD to continue the so-called SME Co-financing Scheme (SMECFS) Phase 2 after the successful implementation in Phase 1. SMECFS is a program led by SME Bank with other private Participating Financial Institutions (PFIs). This move is an effort to continue supporting SMEs to boost this sector after the Covid-19 pandemic.

• Technical knowledge and skill: The lack of human resources, skilled labor force, technicians, and engineers discourage the Kingdom from absorbing potential SMEs that utilize modern technology for industrial development. In response to this challenge, the government has established institutions to support entrepreneurs and build human resources namely the Khmer Enterprise and Techo Startup Center to equip Cambodians with entrepreneurship – a skill needed to operate an enterprise, and Skill Development Fund – a program to focuses on building human resources needed for the development of this sector.

• Regional competition: Another challenge that affects Cambodian SMEs is regional competition. Some other ASEAN countries have more competitive advantages in terms of labor cost, electricity price, human resources readiness, and the needed skill sets. In response, the government of Cambodia, through the Ministry of Industry, Science, Technology and Innovation (MISTI), integrated an open-data website for Cambodian entrepreneurs and enterprises to access wider information on SMEs at the regional level. This integration and joint information sharing of SMEs-related data are crucial for ASEAN’s SMEs to mitigate the gap caused by unfair competition due to the lack of information and information sharing platforms. Entrepreneurs can seek the necessary information from inside the ASEAN with ASEAN Access.

Related contents 

Open Development Cambodia (ODC) is an ‘open data’ website, an independent online hub, and a ‘one-stop shop’ that provides the public with up-to-date and accurate information about Cambodia and its socio-economic development. Following an ‘open data’ approach, all materials and information found in ODC are freely usable and downloadable to reuse and republish as the users wish. ODC is a neutral and unbiased organization; therefore, ODC does not promote any particular perspective or agenda other than to provide objective information about Cambodia and its development. Learn more: How ODC helps business.

Home page of Open Development Cambodia

All information and data that exist on this information toolkit are informative and objective for startups and SMEs to navigate the necessary steps to open and register a legal business with well-informed decisions and risk mitigation.

1. News update 

Under this section, ODC provides an up-to-date news summary from different local news sources such as Khmer Times, Phnom Penh Post, and other reputable local and international sources. For news related to startups, visit this link. For news related to SMEs, visit this link.

2. Public announcements and legal documents

Other than summarizing news articles, ODC also publishes legal documents such as but not limited to announcements, Prakas, circulars, and Sub-decrees on various socioeconomic issues, including SMEs. To access the documents, visit this link.

3. Topics

Under industry topics, there are more topics such as manufacturing, agriculture, real estate, and tourism. There, users can find related information on those sectors. To read the topics, visit this link.

4. Interactive maps

ODC digitizes data into an interactive map that displays the presented data and information in a more engaging and interactive way so that users will find it more effective and time efficient to navigate and download the needed information. Relevant interactive maps that ODC has digitized and published are such as but are not limited to, access to water, health facilities, public transport, etc. To navigate and download the interactive maps, visit this link.

Interactive map of local business and One Window Services Offices (OWSO) across the country

5. Profiles

ODC provides various datasets on different issues that may correlate with starting a startup and opening SMEs. Those profile pages highlight important information and the location of economic land concessions, special economic zones, sub-national infrastructure project implementation, access to public service information, and social accountability.

Registration process

Registering a new business is crucial because it allows the business owner to:

• Personalize the business’s identity, 
• Avoid fines and business closure, 
• Receive legal protection, 
• Attract corporate customers and partners. After all, they most likely cooperate with registered businesses more than with unregistered ones since it is safe and legal, 
• Ease access to a bank loan and investment, 
• Get benefits for the employees from National Social Security Fund (NSSF),
• Fulfill obligations as a legal citizen under Cambodian laws and regulations, 
• Contribute to national development through taxation.

To register a new enterprise in Cambodia; first, it is important to review different types of structures and decide which one is the most suitable. There are five types of business or enterprise structures and three types of limited liability companies. Second, an entrepreneur will have to look for a name and reserve it before the registration or register right away. 

Table 4: Type of business registration

Source: KhmerSME

In Cambodia, there are two ways to register a new business. One is through relevant ministries or government institutions on their respective platforms. Another is via a newly launched government-owned “Single Portal” created by the Ministry of Economy and Finance using Cambodia Data Exchange (CamDX) system. 

Old method 

Registering a new business via an old method is systematically complicated, and the documentation process is duplicable, time-consuming, and costly. To understand the registration process for new businesses using the old way, please refer to the steps below: 

• Step 1: Register at the Ministry of Commerce to obtain a certificate to begin a new business. Registering new business at the Ministry of Commerce, visit this link.
• Step 2: Register for tax certificates at the General Department of Taxation. Registering for a tax certificate at the General Department of Taxation, visit this link. 
• Step 3: Register for an official letter of business opening at the Ministry of Labor and Vocational Training. Visit this link to register your business at the Ministry of Labor and Vocational Training as a new user, or log in via this link if you already have an account.  
• Step 4: Register for a specialized license/certificate at the relevant line ministries by visiting their respective website, given the nature of the business. 

The “Single Portal”

In 2021, led by the Ministry of Economy and Finance, the Royal Government of Cambodia introduced a newly created system called “Single Portal.” All four steps can now be done, paid, and certified at once with the new information technology platform. The single portal is a government online portal designed and operated to ease business registration in Cambodia through an online platform. 

Screenshot of the Registration Services single portal webpage

The new business registration platform is divided into 2 phases. The first phase consists of several government ministries and institutions: the Ministry of Commerce, the General Department of Taxation, the Ministry of Interior, the Council for the Development of Cambodia, and the Ministry of Economy and Finance. In the second phase, the Single Portal will incorporate more registering agencies aiming to register specialized licenses, certificates, permits, or Prakas to companies after already registered with the institutions mentioned above. The new government institutions to be incorporated in the second phase are the Ministry of Tourism, the Ministry of Industry, Science, Technology and Innovation, the Ministry of Post and Telecommunications, and the Real Estate Business and Pawnshop Regulator of the Non-Bank Financial Services Authority. 

• To register your new business through “Single Portal,” visit this link.
• To learn more about registering a new business using “Single Portal,” visit this link to watch the introduction video.

Table 5: License type and ministry or institution in charge 

While most enterprises and businesses are required to register at the three government institutions namely, the Ministry of Commerce, the General Department of Taxation, and the Ministry of Labor and Vocational Training, some other businesses may need to go through other ministries or government institutions in addition to the above-mentioned three to get their businesses legally registered and licensed. To understand what type of business or enterprise to register at which ministry, see the table below:

Table 6: Sectoral based SMEs and ministry in charge 

Source: Technical report 2007 by SME secretariat.

Other actors and resources

Government

International Non-government Organizations (INGOs)

Associations

Private institutions

NGOs and social enterprises