Transparency of the Regulatory System
There is no pattern of systematic discrimination by the government against foreign investors in Cambodia. Numerous issues of related to the general lack of transparency in the regulatory regime arise, however, from the lack of legislation and limited capacity of key institutions. Investors often complain that the decisions of Cambodian regulatory agencies are inconsistent, arbitrary, or corrupt. For example, in May 2016, the government set caps on retail fuel prices, with little consultation with petroleum companies. Cambodia has indicated a desire to discourage monopolistic trading arrangements in most sectors, but it has yet to pass the Law on Competition which was part of its WTO accession obligations. The Ministry of Commerce expects Cambodia to enact competition legislation in 2017. Under the most recent draft, a National Committee on Competition would be established after passing the law.
Cambodian ministries and regulatory agencies are not legally obligated to publish the text of proposed regulations before their enactment. Draft regulations are only selectively available for public consultation with relevant non-governmental organizations (NGOs) or parties before their enactment.
Approved passed laws are available on websites of some line Ministries but are not always up to date. The Council of Jurists, the government body reviewing law and regulation, publishes a list of updated laws and regulations on its website at http://www.coj.gov.kh.
Under Prakas (sub-decree) 643 of the Ministry of Economy and Finance, enterprises must submit their annual financial statements to be audited by an independent auditor registered with the Kampuchea Institute of Certified Public Accountants and Auditors (KICPAA), provided those enterprises meet two of the following three criteria: (1) annual turnover above KHR 3 billion (approximately USD $750,000); (2) total assets above KHR 2 billion (approximately USD 500,000); and (3) more than 100 employees. QIPs registered with the CDC are also obligated to submit their annual financial statement to be audited by an independent auditor registered with the KICPAA.
The National Accounting Council (NAC) of Cambodia adopted International Financial Reporting Standards for small and medium-sized entities (IFRS for SME) and International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board (IASB) in 2010 and 2012, respectively. These standards are referred to as the Cambodian International Financial Reporting Standards for small and medium-sized entities (CIFRS for SMEs) and Cambodian International Financial Reporting Standards (CIFRS). Public accountability entities are required to adopt CIFRS. Non-public accountability entities that meet the above audit requirements are required to adopt CIFRS for SMEs or opt to use CIFRS, if necessary. Pursuant to the request of the central bank, the National Bank of Cambodia, and the Ministry of Economy and Finance, the NAC approved a delay in the implementation of CIFRS to 2019 for financial institutions and general insurance companies.
International Regulatory Considerations
As a member of the ASEAN since 1999, Cambodia is required to comply with certain rules and regulations with regard to free trade agreements with the 10 ASEAN member states. These include tariff-free importation of information and communication technology (ICT) equipment, harmonizing custom coding, harmonizing the medical device market, as well as compliance with tax regulations on multi-activity businesses, etc.
As a member of the WTO, Cambodia has been drafting new laws and amending existing laws and regulations to comply with WTO rules. Relevant laws and regulations are notified to the WTO legal committee after their adoption. A list of Cambodian legal updates in compliance with the WTO is described in the above section regarding Investment Policy Reviews.
Legal System and Judicial Independence
The Cambodian legal system is primarily based on French civil law. Under the 1993 Constitution, the King is the head of state and the elected Prime Minister is the head of Government. Legislative power is vested in a bicameral parliament, while the judiciary makes up the third branch of government. Contractual enforcement is governed by Decree Number 38 D Referring to Contract and Other Liabilities. More information on this decree can be found at http://www.cambodiainvestment.gov.kh/decree-38-referring-to-contract-and-other-liabilities_881028-2.html.
Although the Cambodian Constitution calls for an independent judiciary, most investors are generally reluctant to use the Cambodian judicial system to resolve commercial disputes because the courts are perceived as unreliable and susceptible to external political influence or bribery. Both local and foreign businesses report frequent problems with inconsistent judicial rulings, corruption, and difficulty enforcing judgments. For these reasons, most commercial disputes are currently resolved through negotiations facilitated by the Ministry of Commerce, the Council for the Development of Cambodia, the Cambodian Chamber of Commerce, or other institutions.
Cambodia adopted a Commercial Arbitration Law in 2006. In 2010, the government provided for the establishment of the National Commercial Arbitration Center (NCAC), the country’s first alternative dispute resolution mechanism, to enable companies to resolve commercial disputes more quickly and inexpensively than through the court system. The NCAC was officially launched in March 2013, but has limited capacity. Three laws related to the judicial system were enacted in July 2014: the Law on Court Structures, the Law on the Duties and Discipline of Judges and Prosecutors, and the Law on the Organization and Functioning of the Supreme Council of Magistracy. Under the Law on Court Structure, the Commercial Court, established as one of the four specialized Courts of First Instance, will have jurisdiction over all commercial matters, including insolvency cases. The Commercial Chambers will hear all appeals arising out of the Commercial Court.
Laws and Regulations on Foreign Direct Investment
Cambodia’s 1994 Law on Investment created an investment licensing scheme to regulate the approval process for foreign direct investment and provide incentives to potential investors. In March 2003, the government simplified the licensing scheme and increased transparency and predictability by enacting the Law on the Amendment to the Law on Investment (Amended Law on Investment). The licensing scheme for investments of less than USD $2 million was clarified in February 2005 in a sub-decree on the Establishment of the Subcommittee on Investment in the Provinces-Municipalities of the Kingdom of Cambodia. Sub-decree No. 111 on the Implementation of the Law on the Amendment to the Law on Investment, issued in September 2005, lays out detailed procedures for registering a Qualified Investment Project (QIP), which is entitled to certain taxation incentives, with the Council for the Development of Cambodia and provincial/municipal investment subcommittees.
Information about investment and investment incentives in Cambodia may be found on the Council for the Development of Cambodia’s website.
Competition and Anti-Trust Laws
The government is in the process of drafting a competition law, but the timeline for enacting the law is unclear. The Ministry of Commerce has consulted an expert from the Australian Competition and Consumer Commission (ACCC). The draft law is now reportedly being considered in a technical working group at the Council of Ministers.
Expropriation and Compensation
Land rights are a contentious issue in Cambodia, complicated by the fact that most property holders do not have legal documentation of their ownership as a result of official policies and social upheaval during Khmer Rouge era in the 1970s. Numerous cases have been reported of influential individuals or groups acquiring land titles or concessions through political and/or financial connections, and then using force to displace communities to make way for commercial enterprises.
In late 2009, the National Assembly approved the Law on Expropriation, which sets broad guidelines on land-taking procedures for public interest purposes. It defines public interest activities to include construction, rehabilitation, preservation, or expansion of infrastructure projects, and development of buildings for national defense and civil security. These provisions include construction of border crossing posts, facilities for research and exploitation of natural resources, and oil pipeline and gas networks. Property can also be expropriated for natural disasters and emergencies, as determined by the government. Legal procedures regarding compensation and appeals are expected to be established in a forthcoming sub-decree, which is under internal discussion within the technical team of the Ministry of Economy and Finance. The Embassy is not aware of any cases in which Cambodia has expropriated a U.S. investment.
ICSID Convention and New York Convention
Cambodia has been a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention – also known as the Washington Convention) since 2005. Cambodia is also a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) since 1960. In 2001, Cambodia passed the Law on Agreement and Implementation of the United National Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Investor-State Dispute Settlement
International arbitration is available for Cambodian commercial disputes. In March 2014, the Supreme Court of Cambodia upheld the decision of the Cambodian Court of Appeal, which had ruled in favor of the recognition and enforcement of an arbitral award issued by the Korean Commercial Arbitration Board (KCAB) of Seoul, South Korea. Cambodia became a member of the World Bank’s International Center for Settlement of Investment Disputes in January 2005. In 2009, the International Center approved a U.S. investor’s request for arbitration in a case against the Cambodian government, and in 2013 the tribunal rendered an award in favor of Cambodia.
International Commercial Arbitration and Foreign Courts
Commercial disputes can also be resolved through the National Commercial Arbitration Center (NCAC), Cambodia’s first alternative dispute resolution mechanism, which was officially launched in March 2013.
Cambodia’s 2007 Law on Insolvency was intended to provide collective, orderly, and fair satisfaction of creditor claims from debtor properties and, where appropriate, the rehabilitation of the debtor’s business. The Law on Insolvency applies to the assets of all business people and legal entities in Cambodia. The World Bank’s 2017 Doing Business Report ranks Cambodia 72 out of 190 in terms of the “ease of resolving insolvency.”