Cambodia’s growth prospects are positive.
– The economy will grow by 6.9 percent this year, according to projections from the National Bank of Cambodia (NBC), spurred by the robust performance of the tourism, construction and garment sectors.
– According to IMF numbers, world growth in 2018 will reach 3.7 percent.
– The figure features in a recent report by the NBC titled Macroeconomic Prospects and Financial Sector in 2017 and Outlook for 2018. However, construction momentum appears to remain robust and tourism activity has picked up pace.
– Strong regional growth will support investment, exports and tourism. Other international bodies have issued similar forecasts, with the World Bank also placing Cambodia’s growth in 2018 at 6.9, the International Monetary Fund (IMF) projecting 6.8 and the Asian Development Bank saying it will be 7.1.
– Garment exports, meanwhile, will be supported by access to preferential treatment from the European Union (EU) and the US, as well as an increase in exports to Japan and Canada, which will help us reduce our reliance on just a few markets.
– The reports also says their projections are based on Cambodia’s macroeconomic stability and the fast development of the banking sector, as well as an increase in government’s revenue from tax collection and deep structural reforms in key institutions.
– To mitigate economic and financial risks, the focus for economic policies should be on increasing resilience, especially in the banking system, and on safeguarding fiscal buffers.
Main industries in Cambodia:
- Construction
- Casino gaming
- Cement
- Fishing
- Garments
- Gem mining
- Rice milling
- Rubber
- Textiles
- Tourism
- Wood products
The Cambodian economy’s renewed dynamism stimulates the construction sector; its gaming sector, growing industry, agricultural and natural resources complete the country’s activity. These come in addition to a strong tourism sector, notably attracted by the world famous UNESCO World Heritage sites of Cambodia.
Taxes in Cambodia
The main taxes levied by the General Department of Taxation of Cambodia are the Tax on Profits, the Personal Income Tax and the Value Added Tax.
Tax on Profits
The Tax on Profits, also known as the Corporate Tax, is defined at a standard rate of 20% for companies in Cambodia. However, companies involved certain industries are taxed with another rate:
- companies in the oil and gas industry, and certain mineral exploitation activities are taxed at 30%;
- companies involved in the insurance industry are taxed at 5% on their gross premium income (but not other sources of income).
Personal Income Tax
The Cambodian authorities have set a progressive rate for personal income tax. These rates are applicable to the earnings of all tax residents: individuals based in Cambodia or residing in Cambodia for at least 182 days in a calendar year. The highest personal income tax applicable is 20%.
Personal Income tax rates applicable are as follows:
- KHR 0 – 800,000: 0%
- KHR 800,001 – 1,250,000: 5%
- KHR 1,250,001 – 8,500,000: 10%
- KHR 8,500,001 – 12,500,000: 15%
- Above KHR 12,500,000: 20%
Earnings in other currencies need to be translated in Cambodian Riels to calculate the applicable taxes. Certain types of revenues, such as redundancy payments, reimbursements of expenses, some travel allowances, etc., can be exempted from personal income tax.
For non-residents, a flat rate of 20% is applicable on revenues.
Withholding Taxes
Several non-salary sources of income are subject to withholding taxes. Rentals, services, royalties, intangibles, interests are, among others, subject to this withholding taxes, with different rates according to types of earnings and residency of taxpayers. Check the General Department of Taxation website for more information on the rates applicable to these different sources of income.
Company Residency
Companies headquartered in Cambodia are considered resident, and are taxed accordingly with Cambodian Tax on Profits abroad. Non-resident companies are only taxed on their profits originating from Cambodia.
Value Added Tax
The Value Added Tax – VAT – is applicable on the sale of all goods and services in Cambodia and the duty paid value on all imported goods. It is applied at a standard rate of 10%. However, exports from Cambodia and services performed outside Cambodia benefit from a VAT rate of 0%.
Taxes on specific goods and services
A special tax rate is applied to the price of certain goods and services imported to, or produced in Cambodia. These specific rates for specific products and services are as follows:
- gazed soft drinks, alcoholic product, beer : 20%
- cigarettes: 15%
- entertainment services, air transport of passengers: 10%
- telephone services: 3%
Investing in Cambodia
Cambodia offers potentially rewarding opportunities for investment to foreign companies. The country has an open and liberal foreign investment regime with a relatively pro-investor legal and policy framework. Besides, the country is located at the center of Association of Southeast Asian Nations (ASEAN) which offers opportunities to small and mid-level investors for integration into regional and global value chains.
Some of the most lucrative incentives for foreign investors include 100 percent foreign ownership of companies, corporate tax holidays of up to eight years, a 20 percent corporate tax after such period, duty-free import of capital goods, and no restrictions on capital repatriation.
Companies investing in the country can take advantage of a one-stop service for the swift process of investment applications; full import and export duty exemptions for investment projects that are registered as quality investment projects (QIPs) with the Council of Development of Cambodia (CDC); employment allowances; and access to special economic zones with one-stop customs processing among other incentives. Further, small and medium enterprises, with low-level of startup capital can also enjoy foreign investment incentives.
The CDC requires a qualified investment project on manufacturing and production to have a minimum investment of US$200,000 to US$500,000, much lower than other neighboring countries. Some of the country’s leading investors are China, South Korea, Vietnam, Malaysia and Taiwan. Between 2011 and 2015, China accounted for about 70 percent of the total industrial investment in Cambodia. Lack of transparency in the legal system, shortage of energy supply and infrastructural problems, however, remain significant obstacles to foreign investment.
Outlook 2018
Cambodia’s economy will continue to expand at a healthy pace this year. Both Asian Development Bank and the World Bank, in their recent reports, forecast the country to grow between 6.9 to 7.1 percent, supported by a favorable global and regional outlook, export diversification, strong construction and tourism activities, and supportive fiscal policy.
Nonetheless, risks from election-related uncertainty remain that could potentially impact investors and business confidence. For instance, following the crackdown on the dissent and opposition to the rule of Prime Minister Hun Sen in the lead-up to July’s national elections, Cambodia may face trade sanctions from the west.
Investing in Cambodia
Cambodia has a strong economy that greatly benefits from its stable macroeconomic environment and improvements in productivity at the nation’s manufacturing centers.
The garment industry represents the largest share of Cambodia’s manufacturing sector, accounting for 80 percent of the country’s exports. In 2016, Cambodia’s garment exports were worth US$6.3 billion and reached US$4.9 billion in the first seven months of 2017. The sector employs over 600,000 workers in the country.
In 2018, however, the industry is expected to slow down following increased competition from lower-cost or more efficient Asian rivals such as Vietnam, and the impact of elections this year. On the construction side, the country received a total investment of 4.94 billion U.S. dollars in the first six months of 2017, up by 27 percent over the same period last year.