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06th - October, 2023
by Som Ratana 村上 暢昭

Sub-Decree on the Implementation of the Cambodian Investment Law: An Overview

With the new Investment Law coming into effect on 15th October 2021, aimed at fostering and enhancing investment in Cambodia, the Sub-Decree on the Implementation of the Law on Investment was subsequently enacted on 26th June 2023.

1. Key Highlights of the Decree
The Sub-Decree primarily outlines the prerequisites and sequence for investment project registration and execution (Chapter II), elaborates on the specifics of investment incentives (Chapter III), enumerates the diverse services rendered by the CDC (Council for the Development of Cambodia) and MPISC (Municipal-Provincial Investment Sub-Committees) to investors (Chapter IV), and delineates the protocols for the transfer and amalgamation of investment projects (Chapter V) as well as the suspension of such projects (Chapter VI).

2. Investment Activities Qualifying for Incentives
Annex 1 of the Sub-Decree meticulously lists the investment activities that are excluded from receiving investment incentives. Notably, the majority of the specified investment activities qualify for preferential treatment, contingent upon the fulfillment of certain criteria, such as the investment amount surpassing the designated threshold for each activity.

3. Comprehensive Breakdown of Investment Incentives
The new Investment Law stipulates the following categories of investment incentives:
– Basic incentives (elaborated in the subsequent section)

– Additional incentives, which include VAT exemptions on the procurement of production materials, a 150% expense deduction for research and development, training or employee welfare, and an import tax waiver on construction materials and worker accommodation equipment, among others.

– Special incentives for sectors and investment activities with a high potential to contribute to national economic growth.
Additionally, the Sub-Decree introduces incentives for projects of new motor vehicles.

4. Details of Tax on Income Exemptions
The aforementioned basic incentives encompass either a tax on income exemption (Option 1) or a deduction for special depreciation and specific expenses (Option 2), coupled with exemptions from prepayment of tax on income, minimum tax, export tax, and import tax.

Option 1 is bifurcated into:
a. A tax on income waiver spanning 3 to 9 years (based on the investment activity type) commencing from the inception of business activity income generation.

b. A subsequent 6-year tax on income reduction post the termination of the exemption period in a. This entails a 75% reduction for the initial 2 years, 50% for the subsequent 2 years, and a 25% reduction for the concluding 2 years.