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What Happened in Cambodia While You Weren’t Looking

What Happened in Cambodia While You Weren’t Looking

January 30, 2019

Financing and tax

2018 saw several changes to the tax regulations. The application of transfer pricing rules in Cambodia is now a reality. Starting from 2018, companies have to comply with the regulations issued in October 2017, which adopt the arm’s length principle in accordance with the OECD’s guidelines. The regulations left many questions unanswered, but further instructions and clarifications have been provided by the General Department of Taxation (“GDT”) throughout the year.

All businesses that have transactions with related parties must, at the time they file their 2018 annual tax return, have a transfer pricing report with an analysis and support for all their related party transactions and in compliance with the transfer pricing regulations readily available.

Interest-free loans to or from related parties have been a mechanism for investors to inject funds into Cambodia without locking them in as share capital. This was permitted and even encouraged by the GDT since its regulation in 2014. However, given that this is inconsistent with the new transfer pricing regulations, the GDT issued Instruction 11946 in August to clarify its position: all loan transactions between related parties must bear interest, the rate of which must be determined in accordance with the arm’s length principle. Such loans do not need to be registered with the GDT. In consequence, those with existing loans from (or to) related parties have had to amend the corresponding agreements with effect from the beginning of their tax year and impose an interest rate on the outstanding loan at a market rate.

Real estate

The Ministry of Land Management, Urban Planning and Construction (“MLMUPC”) issued a Prakas on land development on 1 May 2018 with the objective of ensuring the sustainability of land management and urbanization, especially for the development of land plots. In addition to obtaining a property developer license from the Ministry of Economy and Finance, property developers are now required to also obtain a land developer license from the provincial or local government authorities, or from the MLMUPC, depending on the size of the project, before the commencement of any business activities, such as the subdivision of land plots or project development. The license approval will be based on the regulation of the land or the master plan provided by the land developer. This license will be a prerequisite for obtaining a construction license.


An important amendment to the Labor Law was issued in July 2018. Given the generality of the law, additional regulations have been passed and are expected to continue in 2019. One major change is the elimination of the “indemnity for dismissal” (which was an amount paid upon employment termination) and the introduction of the “seniority payment” (which is to be paid every year). The seniority payment applies to unlimited duration contracts and must be equal to 15 days of wages and other fringe benefits. It must be paid to employees twice a year (50% in June and 50% in December), and retroactively for employees who have been employed before January 2019, although employees who have resigned from employment are not entitled to receive unpaid retroactive payments.

Until 2018, there had not been a minimum legal wage in Cambodia, other than for the textile and garment manufacturing industries. The Law on Minimum Wage was passed in July 2018 in order to guarantee the general application of a minimum wage for employees covered by the Labor Law. The amount is determined by a special council on an annual basis but it has not been published for 2019 yet.

Intellectual Property

The agreement on the validation of European patents entered into between Cambodia and the European Patent Organization came into effect on 1 March 2018. This agreement gives European patent holders the possibility to request validation of their patent in Cambodia, granting the same effect as if it was a local one. Cambodia is the first country in Southeast Asia to sign such an agreement with the European Patent Organization.


The Electricity Authority of Cambodia issued important regulations on the connection of solar generation sources to the national grid. These are some of the first regulations that apply specifically to renewable energy, and they are aimed at developing the renewables industry in accordance with the government’s policies on the matter. The regulations clarify the position for self-generation without a license. It also clarifies the requirements for connecting and synchronizing a solar power system with the national grid, whether it is for the input or output of energy. Even though the last is restricted to big and bulk consumers, these regulations provide a predictable positive impact on the forthcoming solar generation developments in the country.


Finally, 2018 brought three new double taxation agreements (“DTAs”) to Cambodia. These were entered into with China, Brunei, and Vietnam, and went into effect on 1 January 2019. This raises to six the number of DTAs entered into by the country. The other existing DTAs are with Thailand, Singapore, and Indonesia, although the latter is not yet in force.

If you have any questions about this alert, please contact me.

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