6 types of corporations expanding into Cambodia
When foreign companies and foreigners expand into Cambodia, there are mainly six types: representative offices, branches, local corporations, partnerships, business cooperation contracts, and sole proprietors. In many cases, the form of a local corporation is selected, and under the Cambodian Investment Law, only the local corporation is covered by the Qualified Investment Project.
Representative Office in Cambodia
The representative office is based on the premise that the head office is located in the home country, and is a form for the purpose of business communication and information gathering with the parent company in the home country. The scope of business is limited, and general business activities that generate profits such as selling products and constructing buildings are not allowed. Therefore, value-added tax (VAT) and corporate tax are not subject to taxation, but personal income tax (payment tax), withholding tax, and annual business tax are subject to taxation on employees, and monthly tax filing is required.
| location | Registered an address in Cambodia with the Ministry of Commerce and the Directorate General of Taxation. |
| Representative office name | Same as the title of the parent company. Enter ‘Representative Office’ before the title. |
| Business content | Limited to market research, promotional activities, and liaison services. It cannot be the subject of all contracts, except for employment contracts, lease contracts, and utility bill contracts. |
| Tax obligation | Taxable: Personal income tax (salary tax), withholding tax, annual business tax Not applicable: Value-added tax (VAT), corporate tax |
Branches
The branch does not have an independent legal personality, and the assets and debts of the branch belong directly to the parent company in the home country. Unless prohibited by law against foreign companies, we can carry out a wide range of business activities as part of foreign companies, such as regular sales, manufacturing, processing and service provision, similar to Cambodia’s domestic corporations. It has the same tax liability as a Cambodian domestic corporation and can be closed at the discretion of the company. In the case of a branch office, there is no need to prepare the articles of incorporation and pay in capital, and there is no obligation to hold a board of directors.
| location | Registered an address in Cambodia with the Ministry of Commerce and the Directorate General of Taxation. |
| Branch name | Same as the title of the parent company. Put “Branch” in front of the title. |
| Business content | The same rights and abilities as a domestic corporation are recognized. |
| Tax obligation | We have the same tax obligations as domestic corporations. |
Local subsidiary
In principle, a local subsidiary in Cambodia becomes a “limited company” and is permitted to be established by a foreigner or a foreign company wholly owned by a foreign company. It can be established by one or more people by notifying the Ministry of Commerce of the Articles of Incorporation, and the company will become a public entity and acquire legal personality on the day of company registration.
| title | It is possible to set a unique title. |
| capital stock | At least 1,000 shares must be issued with a face value of 4,000 Riel or more per share. The minimum capital is 4,000,000 Riel (about 1,000 US $). |
| responsible area | It is a limited liability, and the liability of shareholders is limited to the range of capital invested by each shareholder. |
| location | Registered an address in Cambodia with the Ministry of Commerce and the Directorate General of Taxation. |
| company director | In the case of a private limited company, it is necessary to appoint one or more directors, and in the case of a public limited company, it is necessary to appoint three or more directors. Directors must be natural persons, but there are no restrictions on nationality or place of residence. The law requires that the board of directors meet at least once every three months. |
| Taxable | Corporate tax, withholding tax, personal income tax (salary tax), value added tax (VAT) |
Partnership Company
Partnerships are a suitable form for professionals such as doctors, lawyers, and accountants. There are two types, a General Partnership with a concept similar to a partnership under Japanese company law, and a Limited Partnership with a concept similar to a partnership under Japanese company law, both of which have two or more persons. It is a contract to form a partnership for the purpose of earning profits. The contract can be oral or written and no legal documents are required. There are not many cases where it is used in practice.
Business Cooperation Contract
A business cooperation contract is a form of conducting a joint business with the Cambodian government or a public institution and receiving profit sharing instead of investing in the business. Instead of establishing a new corporation, we share profits from our business activities. Several cases of business cooperation contracts in Cambodia have been accepted.
Sole Proprietor
Cambodia is rare and even foreigners can register as a sole proprietor. You can register at the Ministry of Commerce without establishing a corporation. The procedure is simpler and the cost is lower than the establishment of a corporation, but it should be noted that the permitted businesses are limited to one business per company and there is a risk that the individual business operator will also be held liable.
| Advantages | Minimal required documents, quick and easy to set up. The sole proprietor can make all management decisions. |
| disadvantages | Since we have unlimited liability for business liabilities and responsibilities, we may lose the individual assets of the business if we cannot liquidate the business liabilities. |
3 types of local subsidiary
There are roughly six types of expansion, but in most cases the establishment of a local subsidiary is selected. There are several types of local subsidiary, and when a foreign corporation or a foreigner establishes a local subsidiary in Cambodia, it is common to select the following “2. Private limited liability company”. In addition, the minimum capital amount is 4 million riel (about 1,000 US dollars), but since the Ministry of Commerce recommends 5,000 US dollars or more, it is necessary to be careful about the discrepancy between the law and the actual operation.
- Public Limited Company
- Shareholders are liable to the extent of their investment
- No limit on the number of shareholders
- 3 or more directors
- Shares can be issued on the stock market
2. Private Limited Company
- Shareholders are liable to the extent of their investment
- There are restrictions on the transfer of issued shares
- 2 to 30 shareholders
- 1 or more directors
- No stock issuance on the stock market
3. Single Member Limited Company
- Only one shareholder
- Others are the same as private limited companies.
There are three types of investment ratios in limited companies: 100% Cambodian capital, 100% foreign capital, and a joint venture between Cambodia and foreign capital. According to the Companies Act, 51% or more of foreign capital is a “foreign corporation” and less than 50% is a “domestic corporation” is defined. There is a difference in the scope of business, as only domestic corporations can acquire land and buy and sell some real estate.
Flow of establishing a local subsidiary
For private limited liability company
- Once you have decided to expand into Cambodia, decide on the location, form, trade name, business content, etc.
- Reserve a trade name (company name) in the Ministry of Commerce.
- Apply for commercial registration with the Ministry of Commerce.
- Authenticate with the General Taxation Bureau and register various taxes.
- Apply for the required license.
- Submit a business establishment declaration and employee employment application to the Ministry of Labor.
An example of an industry that requires the acquisition of an individual license
| Industry | Supervising ministries | remarks |
| restaurant | Ministry of Tourism | With examination |
| Guest house | Ministry of Tourism | With examination |
| Hotel | Ministry of Tourism | With examination |
| Travel agency | Ministry of Tourism | Deposit required |
| Real estate service industry | Ministry of Economy and Finance | Police certificate |
| Insurance broker business | Ministry of Economy and Finance | Police certificate |
| Customs clearance | General Bureau of Customs and Consumption Tax | Need a customs clearance expert |
| Transportation industry | Ministry of Public Works and Transport | Vehicle registration is also required |
| Clinic, hospital | Ministry of Public Health | Representative is Cambodian nationality required |
| A law office | Lawyers Association | Representative is Cambodian nationality required |
| Overseas dispatch business | Ministry of Labor and Vocational Training | Representative is Cambodian nationality required |
| Educational institution | Ministry of Education, Youth and Sports | With examination |
Main tax system of local subsidiary
The Cambodian tax system requires monthly and annual tax returns. Local subsidiary are subject to corporate tax (business income tax and minimum tax), withholding tax, personal income tax (salary tax), and value-added tax (VAT). Cambodia has begun to conclude a bilateral double taxation prevention agreement (tax treaty). Not yet signed with Japan.
□For the following 4 items, you are obliged to calculate the monthly tax by the 20th of each month, submit the tax return, and pay the tax.
- Corporate tax (payment of 1% of sales: minimum tax)
- Withholding tax (payment of a fixed tax rate with payment of services, etc.)
- Personal income tax (payroll tax) (income tax on salary)
- Value-added tax (VAT): Standard tax rate 10%
□Annual corporate tax return must be submitted by March 31 of the following year. We will pay business income tax (annual corporate tax) and renew the patent certificate by March 31 every year.
Cambodian corporate tax pays 1% of monthly sales. It is called the minimum tax and is treated as a prepaid corporate tax. After paying the minimum tax, we will calculate the annual corporate tax after deducting expenses. The surface tax rate is 20%. At that time, if the total amount paid by the minimum tax is exceeded, the difference will be paid. If it is less than that, it will not be refunded and will be carried over to the next year.
Employment of employees
There are labor law provisions for hiring employees. There are regulations that are familiar in Japan, such as working hours of 8 hours a day, 48 hours a week or less, and work exceeding 6 days a week is not permitted.
In addition, a work permit and an employment card are required for foreigners to work. These are one card in Cambodia and must be issued by the company and will be fined if neglected.