DO BUSINESS IN C A MBODI A

S&A

This brochure has been prepared for clients and professional associates of Sciaroni and Associates. The information contained in this brochure has been checked for accuracy but there may be errors and omissions. Cambodia is still developing and laws can change rapidly and Sciaroni and Associates cannot be responsible for the accuracy of the information contained in this brochure. The information provided is not to be substituted for professional legal advice.

© SCIARONI & A SSOCIATES

TA BLE OF CON T EN T S SCIARONI AND ASSOCIATES Profile and History

3

DO BUSINESS IN CAMBODIA Business Environment

3

Enterprise Law and Company Creation

5

Mergers and Acquisitions

7

Licensing

7

Investment Incentives and Financing in Cambodia

7

Taxation

9

Property and Land

9

Employment

11

Banking, Finance and Insurance

11

Intellectual Property

13

The Legal System

13

The Judicial System

13

Alternative Dispute Resolution

15

Business Visa

15

BIOGRAPHIES

16

CONTACT INFORMATION

20

1

WITH ITS MAGNIFICENT TEMPLES AND FRIENDLY PEOPLE, CAMBODIA HAS LONG DRAWN THE ATTENTION OF INTERNATIONAL VISITORS.

2

SCIARONI & A SSOCIAT ES Profile and History With its magnificent temples and friendly, hospitable people, Cambodia has long engaged the attention of international visitors. Today, its prospects have never looked so good. As this dynamic Southeast Asian country of 14 million pursues steady economic growth, there are mounting opportunities for sustained and diverse investment. But doing business in Cambodia can involve more than just a routine process: investors keen to set up business in this developing country require the advice of a well-established and reputable firm. With its long history of involvement in Cambodia, Sciaroni & Associates provides the expertise and judgment to serve a variety of clients. A former legal counsel at the White House, Bretton G. Sciaroni (senior partner) arrived in Cambodia in 1993, when the country was moving from a planned economy to a free market system. The firm’s senior partner helped negotiate the first investment made in Cambodia after passage of the 1994 investment law, a $60 million brewery project. A long standing presence in Cambodia has enabled Sciaroni’s partners and associates to acquire considerable knowledge of the workings of government. Today, the firm uses its considerable expertise to offer a wide variety of commercial and investment services critical to doing business in Cambodia. From investment, property, commercial, company creation to taxation and financing, the firm specializes in personalized advice underpinned by experience, and these virtues are reflected in the strength of its client base. Besides the more conventional investors, the firm has proved popular with the diplomatic community as well as a host of non-governmental organizations. According to Chambers, Sciaroni & Associates offers “ ‘unbeatable client service personalised, proactive and spot-on advice every time.’ Bretton G. Sciaroni does not simply quote the law, but offers guidance on the business decisions we can make.” “Stress-free, diligent and prompt Matthew Rendall garnered plaudits for his long-standing experience in Cambodia. He boasts a reputation as “the country’s leading real estate expert.”

Business Environment

DO BUSINESS IN CAMBODIA

According to the Washington-based Heritage Foundation, Cambodia is ranked 68th out of 157 countries, for economic freedom, higher than it neighbors, Vietnam, Thailand and Malaysia. In 1999, it joined the Association of Southeast Asian Nations (ASEAN), a group of ten countries with a total population of 550 million. The ChinaAsian Free Trade Area which comes into effect in 2010 will create a trading block of 1.7 billion. Cambodia’s economic growth rate, according to the World Bank, has averaged 9% per annum over the past few years and reached a record high of 9.5% in 2007. This was largely driven by high export growth, healthy tourist receipts and a robust construction industry coupled with reliable banking institutions. There is still much work to be done, especially with regard to infrastructure. However, the conditions are in place for sustained growth. The relationship between government, donors and civil society has been significantly strengthened by regular dialogues between government and the private sector through formal working groups. Labor costs remain competitive and productivity is on the increase.

3

A LONG STANDING PRESENCE IN CAMBODIA HAS ENABLED SCIARONI’S PARTNERS AND ASSOCIATES TO ACQUIRE CONSIDERABLE KNOWLEDGE OF THE GOVERNMENT AND ITS PROCESSES.

4

Rules governing trade have become easier and more liberal. Since Cambodia joined the World Trade Organization (WTO) in 2005, it has committed itself to a wide range of reforms and adopted a wide range of new laws to facilitate trade. Investors in Cambodia can set up 100% foreign-owned investment projects and repatriate their funds. There is contractual freedom and investors are afforded protection against nationalization. As in every developing country, problems arise which can be slow to resolve but with the assistance of Sciaroni & Associates these challenges can be managed.

Enterprise Law and Company Creation One of the first steps that any investor will take is to decide upon the right structure for their investment. In general, these actions can be routine matters, but the passage of the Law on Commercial Enterprises (2005) brought changes in procedure and requirements. One can anticipate more reforms as this law becomes fully implemented. The government institutions relevant to company creation are the Ministry of Commerce (MOC) and if the investor wants an investment company they must register with the Council for the Development of Cambodia. Investors will benefit from Sciaroni & Associates’ extensive experience in setting up companies and, if necessary, identifying the right local partner. This process may involve negotiating joint venture agreements and bridging cultural gaps that sometimes exist between partners. A sound working relationship with officials at all levels is necessary in order to make sure that the legal entity suits the particular needs of the client. Sciaroni & Associates will make this process easier by providing a checklist of procedures. The following are enterprises which are recognized under Cambodian law and all have a duration of 99 years: s Public Limited Liability Company. (PLC) This structure allows for the selling of public stock and must issue a minimum of 1000 shares, each costing no less than 4000 Riel (KHR) or about one US dollar. PLCs can have between 2 to 30 shareholders, whose liability is limited to their capital contributions. PLCs can be 100% foreign owned (unless the purchase of land is involved, in which case the foreign equity cannot exceed 49%). The government requires this type of enterprise for operating a bank or insurance company. s Limited Liability Company. (LLC) This structure must issue a minimum of 1000 shares, each costing no less than 4000 KHR or about one US dollar. LLCs can have between 2 to 30 shareholders, whose liability depends on their capital contributions. LLCs can be 100% foreign owned, unless the purchase of land is involved, in which case the foreign equity cannot exceed 49%. s Single Member Private Limited Company. As the name implies, this arrangement has one shareholder. s Partnership. A contract between two or more legal entities or individuals to combine property, knowledge, and expertise. Partners are jointly and severally liable. s Sole Proprietorship. A type of business where one individual owns all the capital, and is not subject to any articles of association and bylaws. The sole proprietor is subject to tax on all profits and must register with the Ministry of Commerce. s Branch Office. Agents of the principal company permitted to sell and buy goods and services and to engage in manufacturing, processing and construction similar to a local company. The principal company will be liable for any obligations of the branch office. s Representative Office. This entity may be involved in marketing and may enter into contracts but is not allowed to trade in Cambodia. 5

ONE OF THE FIRST STEPS THAT ANY INVESTOR WILL TAKE IS TO DECIDE UPON THE RIGHT STRUCTURE FOR THEIR INVESTMENT.

6

s Subsidiary This entity must have at least 51% of its capital held by one or more foreign companies. It has a legal personality separate from its principal. Sciaroni & Associates can assist our clients to meet these requirements and file all necessary applications to the MOC in Cambodian as required by law. Once the necessary documentation has been completed, the setting up of the enterprise will take between two and four weeks.

Mergers and Acquistions Procedures concerning Mergers and Acquisitions (M&A) are relatively simple. Besides some requirements on registration and in certain cases, prior approval, companies are free to create a joint venture (JV), issue, transfer or subscribe shares, and establish new companies in Cambodia. Certain rules apply when state owned enterprises are involved, either as target for acquisition, or as a contracting party to a JV. (Law on Public Enterprise, 1996) Generally, there is no limitation based on nationality of the shareholder or proportion of shares of each shareholder unless the joint venture involves the ownership of land, whereby 51% of the shares must be held by Cambodians. We have a broad experience in the field of M&A, including creation of JV. JVs can be between Cambodian entities and foreign entities, only foreign entities and also with the Royal Government), share subscription agreements, share purchase agreements and all other legal requirements of these transactions.

Licensing Certain types of businesses require specialized licenses before operation can proceed. Among the areas for which licenses are required include: s Insurance licenses are obtained from the Ministry of Economy and Finance. s Mineral licenses are obtained from the Ministry of Industry, Mines, and Energy. s Oil and Gas licenses are obtained from the Cambodian National Petroleum Authority. s Tourism licenses are required to operate hotels and are obtained from the Ministry of Tourism. s Telecommunications licenses are obtained from the Ministry of Posts and Telecommunication. A company can register its business but it will not be eligible for investment incentives until the license is obtained.

Investment Incentives and Financing in Cambodia The Royal Government of Cambodia views private sector investment as integral to the development of the nation. Under the 1994 Law on Investment (amended in 2003) the Council for Development of Cambodia /Cambodian Investment Board (CDC/CIB), offers attractive incentives to potential investors. For those companies that qualify for the investment incentives, benefits can include a waiver of import duties for equipment and machinery, a waiver of export duties for finished products, and a tax holiday for a specified time. The Investment Law was supplemented with a Sub-Decree on the Establishment of Special Economic Zones (SEZ) (2005). The principal virtue of the SEZs is that all of the relevant governmental offices and authorities will be located in the zone, in order to expedite and make more transparent the processing of the various permits and licenses required by the investors.

7

SCIARONI & ASSOCIATES PROVIDES CLEAR GUIDANCE ON ALL TAXATION ISSUES FOR COMPANIES IN CAMBODIA.

8

The financing of investment projects can be accomplished in a number of ways. In addition to loans from foreign and local banks, there are a number of multilateral and bilateral institutions which are active in supporting private sector investment and infrastructure development in Cambodia. For example, the World Bank, the International Finance Corporation (IFC), and the Asian Development Bank (ADB) are all active, as well as a number of bilateral agencies such as Japanese International Cooperation Agency (JICA), Overseas Private Investment Corporation (OPIC) and a host of other development agencies with a focus on private sector development.

Taxation According to the Tax Law, companies must register with the tax authorities within 14 days of company creation and must also inform the tax department of any changes of address, or the transfer or cessation of the business within the same time period. s The standard corporate tax includes the larger sum of a minimum of 1% of the annual turnover (This tax is paid monthly) or an annual Tax on Profit at 20% for most business activities. Details must be declared on annual Tax on Profit returns to be completed after the end of the government’s fiscal year which is the standard calendar year covering 1 January to 31 De cember. If a company has a different fiscal year, they are entitled to obtain special approval to use their fiscal year for Cambodian tax purposes. s A Patent Tax of approximately $300 USD must be paid annually by all business enterprises. This must be paid within 14 days of the company’s registration. s A Value Added Tax (VAT) of 10% is applicable on all supplies of goods and services. All import and export businesses must register with the Tax Department before they begin trading but other types of business must register with the authorities within 30 days of commencing business activities. s A Salary Withholding Tax is calculated according to a schedule of earnings which ranges between 0% and 20%. The tax is 0% for those earning less than $125 per month and 20% if the earnings are more than $3,125 USD a month. This tax is applied monthly. Both the employer and the employee are jointly liable for the payment of this tax regardless of whether the salary is paid in Cambodia or overseas. s Customs Duties are variable depending on the goods to be imported but can range between 0% and 35%. Luxury items such as automobiles can be considerably higher. There are exceptions for goods for personal use and goods exempted by international treaties, and for international and local NGOs. Note that there is a duty exemption for equipment, construction and raw materials if the company gains investor status with the CDC. Sciaroni & Associates provides clear guidance on all taxation issues for companies in Cambodia.

Property and Land With the implementation of the Land Law in 2001, property rights in Cambodia are more certain and greatly improved. The conveyancing process is becoming more regularized with the development of a national registration system, but due diligence is still a crucial factor in any land transaction. A transfer tax of 4% applies on all land transfers. Land in Cambodia is categorized as either private and public, with some excep-

9

OUR PRINCIPAL KHMER AND FOREIGN ASSOCIATES ALL POSSESS YEARS OF PRACTICAL EXPERIENCE IN LABOR-RELATED MATTERS.

10

tions for monastery and indigenous lands. The Constitution only permits Cambodian nationals to own land. However, foreign investors may own up to 49% of a Cambodian land holding company in which at least 51% of the shares are held by Cambodians. In addition to participation in a Cambodian land holding company, foreign investors are freely able to lease land on a short term or long term basis. A short term lease is for a definite period of time and for a maximum of 15 years. Long term leases, defined as leases with a duration of 15 years or more, are the form typically used by investors given that it constitutes a right in rem which can be assigned for valuable consideration or transferred by succession. The most common practice is to register 70- year leases which are renewable on the same terms and conditions. State owned property can also be conceded to foreign investors for a maximum period of 99 years. The concessionaire is granted rights similar to a long term lessee except that the land must be used for specific agreed upon purposes. In addition, with the passage of laws providing ownership rights in apartment buildings in 2010, and the issuance of a sub-decree on foreign ownership, foreigners can now own apartments in Cambodia not exceeding 70 percent of any one apartment building. It is possible to mortgage land in Cambodia. Both foreign and national lenders routinely take mortgages over land or property as security for loans. These mortgages must be registered with the Land Cadastral Office. Whether purchasing, leasing, developing or mortgaging land in Cambodia, Sciaroni and Associates will help the investor avoid the serious pitfalls that can result from a lack of proper procedure or due diligence.

Employment The 1997 Labor Law outlines procedures which employers must institute when employing and registering employees. However, the law is flexible, transparent and permits the use of foreign employees with few restrictions. Workers, both foreign and local, are registered at the Ministry of Labor. There is a recommended monthly minimum wage of $45 US, though this is not currently set by law. This applies to garment workers and unskilled labor. Wages for skilled labor are higher. Our principal Khmer and foreign associates all possess years of practical experience in labor-related matters. Employment contracts are critical to the success of any business. A poorly drafted contract can lead to misunderstandings when potential economic, social and cultural differences exist between the parties. Sciaroni & Associates can assist in drafting labor contracts so that the meaning of the terms and conditions are clear to local parties and officials alike. We can also assist with the translation of contracts into Khmer, which is frequently a requirement of local authorities.

Banking, Finance and Insurance As the country’s central bank, the National Bank of Cambodia determines the monetary policy of the nation. It is responsible for the supervision and regulation of all banks and financial institutions, whether in securities or foreign exchange, or futures and commodities such as precious metals and stones. According to 1999 Law on Banking and Financial institutions the NBC is also charged with formulating and implementing exchange policies. It is the sole issuer of the Cambodian Riel and is empowered with setting interest rates. The commercial banking sector, which include micro-financing institutions, is required by law to acquire licenses from the NBC and must have a minimum capital of $13 million USD. A specialized bank needs a minimum capital of $2.5 million USD. Sciaroni & Associates represents many private banks in Cambodia. In this capacity, it can provide assistance and advice on project financing and routine corporate 11

SCIARONI AND ASSOCIATES IS ABLE TO ASSIST CLIENTS WITH ALL INTELLECTUAL PROPERTY REQUIREMENTS.

12

matters to banks, borrowers, insurance companies, leasing interests, NGOs, international financial institutions and property developers.

Intellectual Property With accession into the World Trade Organization, Cambodia is moving toward a full set of laws in the field of copyright, trademark, and patent registration. Such laws encourage the transfer of technology to Cambodia and are designed to facilitate industrial activity. Cambodia is also a member of the World Intellectual Property Organization (WIPO) and is a signatory to the Paris Convention. Trademarks must be registered to obtain the protection provided by the Law Concerning Marks, Trade Names and Acts of Unfair Competition (2002). The registration of trademarks is performed by the Intellectual Property Department of the Ministry of Commerce. The registration process takes 90 days. The 2003 Law on Patents, Utility Model Certificates and Industrial Designs came into effect to safeguard inventions (20 year patents), utility models (7 years) and industrial designs (5 years). The application for granting patents, utility model certificates, and the registration of industrial designs must be submitted to the Industrial Property Department of the Ministry of Industry, Mines and Energy (MIME). There has been no regulation issued on the cost of the application, however, the Ministry states that it will charge “ASEAN” rates. Sciaroni & Associates, with its strong relations with the Intellectual Property Department of the Ministry of Commerce as well as with other related ministries in this area, is able to assist clients with all intellectual property requirements. This assistance includes not only trademark registration but taking legal action against trademark infringement.

The Legal System Cambodia has a hybrid legal system with French, Soviet and Vietnamese influences. With these legal legacies, the government has inherited a Civil Law tradition. The Cambodian legal system has also incorporated some Common Law traditions from various international consultants who have drafted numerous laws. The laws are made by the National Assembly and the Royal Government implements these laws through Sub-Decrees, and Prakas (regulations). Currently, the laws and regulations are not always readily available. In addition there are sometimes gaps in laws. This is where Sciaroni & Associates can be of assistance to new investors in identifying and understanding the laws relevant to their business.

The Judicial System In the Cambodian courts a single judge may hear all types of matters (civil, commercial, criminal and administrative). However, in practice, the principles of the Civil Law tradition concerning the separation of the courts are applied. For example, a civil case which also contains elements of a crime would have the criminal elements removed from the civil case and a separate criminal case would be filed. Cambodian law allows for the filing of criminal and civil cases simultaneously.

SCIARONI AND ASSOCIATES CAN BE OF ASSISTANCE TO NEW INVESTORS IN IDENTIFYING AND UNDERSTANDING THE LAWS RELEVANT TO THEIR BUSINESS.

14

There are lower courts, or courts of the first instance, called municipal or provincial courts in every province as well as one in Phnom Penh. There is only one Appeal Court, which will hear cases based on law and fact and a Supreme Court which only hears cases on matters of law. There are no commercial courts. The courts only allow Khmer language so all documents must be submitted in Khmer. Cambodia’s judicial system is still developing. New codes on criminal and civil procedure have been recently adopted. There is a new training school for judges and there are programs to strengthen the capacity of lawyers and the courts.

Alternative Dispute Resolution Investors usually preferring an alternative to litigation are required in collective labor disputes to use the Labor Arbitration Council, made up of representatives from the government, employers and employees, which was established to hear collective labor disputes. Most arbitrators at the council are trained lawyers. The process is transparent and all decisions are published. The decisions are not binding but it continues to be a successful means of finding solutions to collective labor disputes in Cambodia. Foreign arbitration is valid and binding under the laws of Cambodia, which do not impose any restriction on the forum, venue or rules of arbitration. Cambodia is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958); it implemented the 2001 Law on the Ratification and the Implementation of the UN Recognition and Enforcement of Foreign Arbitral Awards; and the Law on Commercial Arbitration (2006). The Law on Commercial Arbitration provides for a National Arbitration Center (NAC) for settling commercial disputes, however, the NAC has not been instituted as yet.

Business Visa A visa is required for entry into Cambodia. For most nationalities this can be obtained upon arrival. Some nationalities do not benefit from this arrangement and must acquire a visa before entering the country. It is recommended that upon arrival the foreign investor request a business visa for $25 US (2010), which is valid for one month and is easily renewed in country.

15

PA R T NER S

Bretton G. Sciaroni

A

LAW AND INVESTMENT advisor in Phnom Penh since 1993, Bretton G. Sciaroni is the senior partner at Sciaroni & Associates. Sciaroni has also served the Royal Government of Cambodia. He was the legal advisor to the Royal Government in the negotiations to release Cambodia’s assets which had been frozen in the U.S. after the fall of the Lon Nol regime in 1975. On 31 August 1996, Sciaroni was named Legal Adviser to the Royal Government in a decree signed by King Norodom Shihanouk. He was reappointed to this position by Royal Decree in successive governments in 1999, 2004 and 2008. The position carries with it the rank of minister. In 1997, the Minister of Justice named Sciaroni as one of five members of the Cambodian Advisory Committee of the Mekong Region Law Center, the only foreign attorney so honored. Sciaroni also has served Phnom Penh’s burgeoning business community. Since 2002, he has served as Chairman of the International Business Club, an assocation that includes most of the multinational corporations in Cambodia. He also serves as Chairman of the American Cambodian Business Council since 1998. Along with the Minister of Economy and Finance, Sciaroni serves as the CoChairman of the Working Group on Law, Tax and Good Governance (a government/ private sector committee that meets to discuss and resolve problems in the business community.) In 2001, 2002, and 2006, Sciaroni was the head of the private sector delegation to the Consultative Group meetings, held by the Royal Government of Cambodia and the donor community. Prior to coming to Cambodia, Sciaroni was in private practice in Washington, D.C., where he remains a member of the bar. He also served in a number of posts with the U.S. government. He was a lawyer at the White House under President Ronald Reagan and also served in the International Trade Administration at the U.S. Department of Commerce. Sciaroni is a graduate of the U.C.L.A. School of Law and has received degrees from Georgetown University and Claremont McKenna College.

16

Matthew Nicholas Rendall

R

ESIDENT IN CAMBODIA since the beginning of 1994, Matthew Rendall is the managing partner at Sciaroni & Associates. In addition to being an investment advisor, he has acts as legal advisor to the Cambodian Federation of Employers and Business Associations (CAMFBA) and as a consultant on many legal development projects in Cambodia. Rendall was also a founding arbitrator on the Labor Arbitration Council, the country’s body established by law to arbitrate collective labor disputes. As well as teaching law at the Royal University of Law and Economics, Phnom Penh, Rendall has also acted as legal trainer to the Municipality of Phnom Penh, the Royal Academy for Judge Training, and the Ministry of Land Management. He has authored and co-authored a number of legal training texts on Cambodian law and is the author of the widely distributed Asian Development Bank’s text on the current Cambodian Land Law published with the Ministry of Land Management. He also worked with the ministry on the drafting of the new property laws on foreign ownership. Outside Cambodia, Rendall has served as a consultant to the Government of Indonesia on legal issues pertaining to terrorist financing and money laundering (2002). Prior to his arrival in Cambodia, he practiced in Australia in the areas of Commercial and Property Law at McMahons Solicitors and Attorneys, Sydney, Australia, as well as immigration law. He continues to maintain his membership of the Law Society of NSW and was the subject of an article in the NSW Law Society Journal on his legal development work in Cambodia.

17

19

CON TAC T

SCIARONI AND ASSOCIATES No.24, Street 462, Phnom Penh, Cambodia PO Box 1153, Phnom Penh, Cambodia WEBSITE : www.sa-cambodia.com Telephone: (855) (0)23 210 225 Fax: (855) (0)23 213 089 Email: [email protected] [email protected] [email protected]

20

S&A

SCIARONI & ASSOCIATES No. 24, Street 462, PO Box 1153 Sangkat Tonle Bassac, Khan Chamkarmon, Phnom Penh, Cambodia WEBSITE : www.sa-cambodia.com