When : 3 & 4 May, 2017

Where :  Goodwood Park Hotel, Singapore

DFDL will be one of the sponsors of the 12th Asia Tax Forum, the premier event in the region for taxpayers, officials and practitioners, which will be held at the Goodwood Park Hotel in Singapore on May 3rd and 4th 2017.  DFDL’s Jack Sheehan, Head of Regional Tax, and Bernard Cobarrubias, Regional Tax Director, will  present on “South-East Asia: International tax developments”. 

To register click here. 

The post Asia Tax Forum 2017 | Singapore | 3-4 May 2017 appeared first on DFDL.

This is the chapter 17 out of 18 chapters of our Cambodia Investment Guide. Learn the best way to invest in Cambodia. Download the full publication here.

Chapter 17 : Intellectual Property

With accession to the World Trade Organization (“WTO”), Cambodia has now integrated with a fully developed matrix of intellectual property rights regulations. Bringing Cambodia’s legislative framework up to WTO standards will take a number of years, numerous new laws and regulations, and, most importantly, the development of an enforcement regime with sufficient resources to oversee the proper implementation of the WTO’s exacting standards.

In this region, investors will find that protection and enforcement of their intellectual property rights is an area of their business that merits close attention, particularly with the rapid growth in awareness of both the public and private sectors for the need to protect brand images for the future development of both local and foreign-owned businesses.

Watching Brief – Key Developments expected in 2016;

• Law on Protection of Undisclosed Information;
• Sub-Decree Implementing Special Border Measures in the Trademark Law; and
• Sub-Decree Implementing the Copyright Law.

Keep in touch with DFDL to stay abreast of these and other changes in this sector.

1. Trademarks

In February 2002, the Law Concerning Marks, Trade Names, and Acts of Unfair Competition (Trademark Law) entered into force, although registration of trademarks was possible prior to then. This section sets out the legal regime under this law as well as under related ministerial regulations and practices currently in effect.

The Trademark Law is quite comprehensive in its scope. It covers the protection of trademarks and service marks, when an objection to registration may be made, and the priority given to the application when there has been a previous registration in another country (amongst other things). The protection given to trademark owners is also defined, as well as their right to assign, transfer and license their trademarks. Civil remedies, as well as administrative remedies, are made available under the Trademark Law. Key provisions of the Cambodian trademark system under the Trademark Law are discussed below.

1.1 Registration Procedure and Rights Conferred by Registration

Applications to register a mark are filed with the Department of Intellectual Property of the Ministry of Commerce (MOC). The application to the MOC must be accompanied by samples of the mark to be registered as well as proof of ownership of the mark. The registration process is complete when a certificate of registration is issued to the applicant and is published in the Official Gazette of the MOC. The registration is valid for 10 years. An affidavit of use is required during the fifth year of registration in order to keep the registration valid for the entire 10-year period. A registration can be opposed within 90 days of publication in the Official Gazette. An applicant outside of Cambodia must be represented by an agent residing and practicing in Cambodia.

1.2 Cancellation and Removal

A registered mark that is not used for a continuous period of five years is subject to cancellation unless the applicant or owner submits an affidavit of use/non-use.

1.3 Licensing of Marks

A mark can be licensed to a user through the use of a license contract. Such contract must be filed with the MOC for the license to be enforceable as to third parties.

1.4 Infringement and Remedies

Infringement includes the use of a registered mark in Cambodia by an unauthorized person and the unauthorized use of a sign identical to, or confusingly similar to, the registered mark or a well-known mark not registered in Cambodia.

1.5 Border Measures

The owner of any registered mark may apply to the customs or competent authorities or the court, to suspend clearance of goods suspected of being counterfeit by proving ownership. The Trademark Law authorizes interested persons to consult the register of marks and obtain extracts from it. All registrations, renewals, refusals or removals of the mark are registered in the Official Gazette published by the MOC.

On 4 October 1996, Cambodia entered into an agreement with the United States known as the Agreement on Trade Relations and Intellectual Property Rights Protection. This agreement was ratified in early 1997 by Cambodia’s National Assembly. In this agreement, Cambodia agreed, amongst other things, to become a member of the Berne Convention for the Protection of Literary and Artistic Works, to protect all works encompassed by that convention and to ensure adequate enforcement measures to protect intellectual property.

2. Patents, Utility Model Certificates, and Industrial Designs

The Law on Patents, Utility Model Certificates and Industrial Designs (Patent Law) was promulgated in January 2003. This important law has, as its primary objectives; the encouragement of innovation; scientific and technological research and development; the stimulation and promotion of increased internal and external commerce and investment; the promotion of the transfer of technology to Cambodia in order to facilitate industrial activity and the development of the economy; and the protection of industrial property rights and to combat the infringement thereof from illegal business practices.

2.1 Patents

A “patent” is the title granted to protect an invention, while an “invention” is an idea of an inventor that provides a novel, industrially-applicable solution to a special problem in the field of technology. A patentable invention is one that;

• is new;
• involves an inventive step; and
• is industrially applicable.

Non-patentable inventions include;

• discoveries, scientific theories, and mathematical methods;
• schemes, rules, or methods for doing business, performing, purely mental acts, or playing games;
• methods (but not products) for treatment of the human or animal body;
• certain pharmaceutical products; and
• plants and animals.

The inventor is entitled to the right to the patent. However, the Patent Law recognizes the right of the employer, not the inventor, where an invention is made pursuant to the execution of an employment contract.

In order to have a new invention protected, the inventor must file an application for a patent with the Ministry of Industry and Handicrafts (“MIH”). The Ministry will issue a patent to the applicant following its examination of the application and the required documentation and information. The patent is valid for 20 years, subject to the payment of an annual fee, and can be assigned or licensed.

2.2 Utility Model Certificates

A utility model certificate is granted to protect a utility model, being an invention that is new and industrially applicable and may be or may relate to a product or process.

The key difference between a patentable invention and one for which the inventor may apply for a utility model certificate is that a patentable invention must include an inventive step. In addition, a utility model certificate expires at the end of its seventh year of registration and cannot be renewed. The Patent Law authorizes a one-time conversion of an application for a patent to the application for a utility model certificate, and vice versa.

The Patent Law provides for international applications to obtain a national patent or utility model certificate. This has the effect that an application under the Patent Cooperation Treaty, designating Cambodia as the application country, will be treated as an application under the Patent Law. Therefore, the Cambodian registration office must comply with the regulations of that treaty and the provisions of the treaty shall apply in the event of conflict with applicable Cambodian law.

2.3 Industrial Designs

An industrial design is any composition of lines or colors, any three-dimensioned form or any material that gives a special appearance to a product of industry or handicraft and which can serve as a pattern for a product of industry or handicraft.

A protectable industrial design must be new. This means that it must not have been disclosed to the public within the 12-month period immediately prior to the date of applying for protection of the industrial design. Nevertheless, the disclosure will not be taken into consideration if it was by a person or in consequence of acts committed by the applicant or his predecessor in title or of an abuse committed by a third party with regard to the applicant or his predecessor in title. The Patent Law refuses registration of any industrial design that is contrary to public order.

The application for registering an industrial design must be filed with the MIH. Documentation specifying the design must accompany the application.

The registration of a design is valid for five years and can be renewed twice. The use of the registered design by a person other than the registered owner requires the owner’s consent. Any breach of the registered design or protest against it, will be within the jurisdiction of the competent court.

2.4 Implementation and Registration

The Patent Law provides for the MIH to establish a registration department to handle the granting and administration of patents, utility model certificates and registration of industrial designs. On 29 June 2006, the Ministry of Industry Mines and Energy (MIME – the former name of the MIH) passed regulations setting out the procedures for the granting of patents and utility model certificates and the procedures regarding the registration of industrial designs. These regulations describe in detail the procedures for applying and the required documentation accompanying the application. This is a significant advancement, as previously the MIME was not able to accept applications for the registration of these classes of intellectual property rights. The MIH (as the MIME is now called) is still in the process of issuing additional regulations to put the law into effect.

3. Copyright and Related Rights

The Law on Copyright and Related Rights (Copyright Law) was promulgated on 5 March 2003, and aims to help secure the rights of authors with respect to works and to protect the works of authors, performers, phonogram producers and broadcasting organizations to ensure a just and legitimate exploitation of such cultural products.

3.1 Works Protected by Copyright Law

In order to gain protection under the Copyright Law, the work in question must fall into one of the following categories;

• works of authors who are Cambodian nationals or habitual residents;
• works first published in Cambodia;
• audio-visual works, the producer of which is headquartered in, or is a habitual resident of Cambodia;
• works of architecture erected in Cambodia, and other artistic works incorporated in a building or other structure located in Cambodia; and
• works to which Cambodia is obliged to grant protection under international treaties.

3.2 Copyright

The author of a work shall enjoy an exclusive incorporeal property right in that work, which shall be enforceable against all persons. This right includes moral rights and economic rights. The moral right of the author is perpetual, cannot be forfeited, cannot be seized to meet an obligation, and may not be subject to prescription. However, an author of a copyright work may waive its moral rights and they may be transmitted upon death to the heirs of the author. In the case of no heir, this right will be subjected to the administration and governance of the Ministry of Culture and Fine Arts (“MCFA”).

Essentially, the moral rights of the author are;

• the exclusive right to decide the manner and timing of the disclosure of the work; and
• the right to oppose all forms of distortion or modification of the content of the work, which would be prejudicial to the author’s honor or reputation.

The protection of economic rights in a work commences from the date of creation and ends 50 years following the author’s death. Economic rights cover the following acts in relation to a work;

• translation or adaptation;
• rental, sale, and distribution to the public of the original or a copy;
• importation into Cambodia of reproductions; and
• public performance, public display, broadcasting or other communication to the public.

Equally important to note are the limitations on the owner’s rights, which allow use of the work in the following instances (among others);

• importation for personal use;
• use for the purpose of education that is not for financial gain; and
• analysis, short quotations, and citations.

Contracts, such as license agreements, in relation to exploitation of economic rights must be in writing to be valid.

Although works are automatically protected, the owners of copyrights may deposit their works at the MCFA. Upon payment of a registration fee, the MCFA will issue a certificate of registration for the registered work. Please note that registration of a work protected by copyright is voluntary and is not required for enforcement of the right against infringement by a third party.

3.3 Related Rights

In addition to the rights of authors, the Copyright Law also protects the rights of performers, phonogram producers, video producers and broadcasting organizations, covering the recording, reproduction, sale, rental and communication to the public of performances, phonograms, videos and broadcasts. In particular, the Copyright Law provides that use of a phonogram recording for broadcasting or public performance entitles the performer and the producer to a single payment from the user.

The duration of protection for the performer shall be 50 years starting from the end of the calendar year in which the performance was recorded in the phonogram or in the absence of such recording, from the end of the year in which the performance took place.

4. Collective Management of Rights

The authors of works and related rights-holders can establish a collective management organization (CMO) to manage their economic rights. The establishment of a CMO of broadcasting rights must be authorized by the Ministry of Information.

5. Disputes and Penal Provisions

5.1 Civil Disputes

Persons suffering a violation of their copyright or related rights have the right to file a petition to the court to prohibit or stop the violation. The defendant may be ordered to pay compensation of damages, to redress moral injury, or to return the disputed equipment or material, as well as to return any benefits deriving from the violation.

5.2 Criminal Disputes

5.2.1 Copyright

All reproduction, performance, or diffusion of a work in violation of the author’s copyright is an offense punishable by two to three years’ imprisonment and a fine of KHR 1 million to KHR 10 million (approximately USD 250 to USD 2,500).

5.2.2 Related Rights

All reproductions or broadcasts of a performance, phonogram recording or video recording made without authorization (where required) is punishable by two to three years’ imprisonment and a fine of KHR 1 million to KHR 10 million (approximately USD 250 to USD 2,500).

6. Application of International Treaties

The provisions of any treaties in respect of copyright and related rights to which Cambodia is a party shall apply to matters dealt with by the Copyright Law. In case of conflict with provisions of the Copyright Law, the provisions of such international treaties will prevail.

7. New Plant Varieties

A new plant variety is governed by the Law on Seed Management and Plant Breeders’ Rights (Plant Variety Law), promulgated on 13 May 2008. A new plant variety may be protected upon registration with the Department of Industrial Property of the MIH, in compliance with the following requirements;

• the variety is new, distinct, uniform, and stable;
• the applicant will file with the MIH an application for registration of the new seed, which will be technically evaluated by the Ministry of Agriculture, Forestry, and Fisheries (“MAFF”); and
• the applicant will be a Cambodian resident (Khmer or foreigner) or a citizen of a member state of the International Union for the Protection of New Varieties of Plants (“UPOV”) or in any state that has the principle of reciprocity with Cambodia on such registration.

A new plant variety, upon registration, may be protected for 20 years, extended to 25 years for liana and trees. The authorization of the holder of the plant variety right shall be required for;

• production or multiplication;
• conditioning for the purpose of propagation;
• offering for sale;
• selling or other marketing;
• exporting;
• importing; and
• stocking for the purposes mentioned in the aforementioned items.

The plant variety right may be assigned or licensed subject to conditions and limitations.

Plant variety rights shall not extend to acts which are; i) done privately and for non-commercial purposes; ii) done for experimental purposes; or iii) done for the purpose of developing new varieties. However, if a variety is regularly used to produce propagating material of another variety, the authorization of the holder of the plant variety right shall be required. Note that the management and commercialization of plant varieties shall be under the authority of the MAFF.

8. Geographical Indications

Since early 2009, the protection of Geographical Indications (“GIs”) was governed by the Prakas on the Procedures for Registration (of Geographical Indications) However, it was only in January 2014 that the law on the Geographical Indication of Goods (GI Law) was adopted which provides the framework for registration of a GI as well as the scope of protection.

8.1  What Is a Geographical Indication?

A geographical indication refers to a name, symbol or any other sign or image which represents a geographical origin and can identify goods as originating from that area as having a particular quality, reputation or other characteristic which is essentially attributable to coming from that area.

8.2 The Purpose of GI Protection

The purpose of GI protection is to protect the intellectual property rights of procedures, operators and consumers of GI products from goods that do not conform to applicable standards. GI protection also serves to preserve and strengthen knowledge, traditional know-how and national identity in order to create jobs in rural areas, to develop communities, to reduce poverty and to attract tourists.

8.3 Scope of GI Protection

GIs may be protected and registered in relation to;

• agricultural goods;
• foodstuffs;
• handicrafts; and
• other goods that are produced or transformed in Cambodia in compliance with the provisions of the GI Law.

The GI Law lists four main types of GI that are not allowed to be protected and registered in Cambodia which are;

• an indication that does not comply with the GI Law, the value of morality, good tradition and religion or the public order;
• an indication that confuses the public as to the quality, specification or geographical origin of the goods or the manufacturing process;
• an indication that has become a generic term; and
• an indication that is used as the name of a plant variety or animal breed.

8.4 GI Registration

An application must be filed with the Department of Intellectual Property at the MOC. The applicant needs to submit a book of specifications, specifying the geographical area of the goods in question, production conditions and the qualification process for the particular goods for which GI protection is sought. According to the GI Law, both domestic and foreign GIs can be registered.

In reviewing the substance of the application, the Department of Intellectual Property may invite the applicant or any related person to provide additional explanations or evidence.

When a GI is registered at the Department of Intellectual Property, producers and/or operators whose practices comply with the book of specifications will be provided the absolute rights to use the GI.

Even before the introduction of the GI law, the processes for registration of a GI were in place and notable products already registered as GIs in Cambodia include Kampot Pepper and Palm Sugar from Kampong Speu Province.

8.5 Validity, and Revocation or Cancellation Process for GIs

Once registered, a GI is protected indefinitely from the registration date (subject to any request for cancellation). Any interested person can make a request of revocation or cancellation a GI to the MOC. A registered GI can be cancelled by the Department of Intellectual Property for many reasons listed in the GI Law, such as;

• the registered GI’s rightful owner makes a cancellation request;
• the goods bearing the registered GI loses its special qualification (i.e. becomes generic);
• the GI’s owner does not comply with the condition stated in the application;
• the GI’s rightful owner does not comply with the law or any regulation governing GI; and
• the applicant fails to provide additional documents or information to the Department of Intellectual Property in response to the opposition procedure stated in the article 17 of the GI Law.

It is important to note that all provisions relating to Border Measures stipulated in the Law concerning Marks, Trade Names and Acts of Unfair Competition are applied to GI as well. Therefore, GI rights holders may prevent importation or exportation of infringing goods.

9. Layout Design of Integrated Circuits

The Prakas on Registration of a Layout Design of Integrated Circuits was issued on 16 March 2011.

9.1 What Is Layout Design?

Layout design means a three-dimensional disposition of the elements, at least one of which is an active element and some or all of the interconnection of an integrated circuit or such a three-dimensional disposition are prepared for an integrated circuit intended for manufacture.

9.2 What Is an Integrated Circuit?

An integrated circuit means a product, in its final form or an intermediate form, in which the elements, at least one of which is an active element, and some or all of the interconnections, are integrally formed in, or on, a piece of material that is intended to perform an electronic function.

9.3 What Layout Design of an Integrated Circuit Shall Be Registered in Accordance with the Prakas?

A layout design of an integrated circuit can only be registered if it is original. A layout design of an integrated circuit may be the subject of an application for registration only if the layout design of the integrated circuit has never been commercially exploited or has been commercially exploited anywhere in the world for a period not exceeding two years.

Furthermore, the following acts will be unlawful if performed without the authorization of the rights-holder, namely;

• reproducing, whether by incorporation in an integrated circuit or otherwise, the protected layout design in its entirety or any part thereof, save for the act of reproducing any part that does not comply with the requirement of originality under the Prakas; and
• importing, selling or otherwise distributing for commercial purposes, the protected integrated circuit layout design or an Article incorporating such an integrated circuit by any other persons other than the rights-holder.

9.4 Where And How Does The Applicant Register The Layout Design Of An Integrated Circuit?

An application for the registration of a layout design of an integrated circuit shall be made in writing and will be filed with the Department of Industrial Property of the MIH. The Department of Industrial Property will receive and examine the application form for registration and ensure the effective registration administration.

9.5 Rights of a Layout Design of an Integrated Circuit

The right to a layout design of an integrated circuit is the right of the creator of that layout design of an integrated circuit. Such a right will be assignable or transferable by succession. Where several persons have jointly created a layout design, then such right shall belong to them jointly.

9.6 Validity and Cancellation of a Layout Design of an Integrated Circuit

The protection of a layout design of an integrated circuit will be for a period of 10 years, commencing from the date on which the protection starts. Any interested person may apply for the cancellation of registration of a layout design of an integrated circuit on the ground that:

• the layout design of the integrated circuit is not protected under the Prakas;
• the rights-holder is not entitled to protection; or,
• where a layout design of an integrated circuit has been commercially exploited anywhere in the world prior to the filing of the application for registration and the application thereof was not filed properly within the time limit as prescribed in the Prakas.

An application for cancellation of the registration of a layout design of an integrated circuit will be made in writing and be submitted to the registrar for review and approval. Where the grounds for cancellation are established with respect to only a part of the layout design of an integrated circuit, only the corresponding part of the registration will be cancelled.

Chapter 18 : Dispute Resolution

You can download the complete guide for free here.

The post Investment Guide Cambodia : Intellectual Property appeared first on DFDL.

DFDL is pleased to announce our winning of the 2017 Cambodia Tax Firm of the Year award from the International Tax Review (ITR), an industry-leading tax publication. The 6th ITR Asia Tax Awards were held on 4 May 2017 at the Goodwood Park Hotel in Singapore. The award ceremony, followed by a two day Asia Tax Forum, attracted well over 400 tax delegates from the Big Four Accounting Firms, leading Law-Firms, and in-house counsels from across the region.

Awards presented during the evening included the National Tax Firm of the Year for 18 different jurisdictions, recognizing firms that exhibited outstanding achievements in advising clients on local direct and indirect taxation matters, and on cross-border matters for the period 1 January 2016 to 31 December 2016.

DFDL was announced as the winner of the Cambodian Tax Firm of the Year, while also nominated as a finalist in four separate categories including; Cambodia Tax Disputes and Litigation Firm of the Year; Myanmar Tax Firm of the Year and International Tax Law Firm of the Year in Asia.

In acknowledgment of this remarkable accolade, Jack Sheehan, Partner and Head of the DFDL Regional Tax Practice expressed “We are very proud of our Cambodia tax team and heartily congratulate them on this award in recognition of their hard work and success throughout the year. We will continue striving to be the leading tax firm in ASEAN.”

“It was encouraging to receive such an award in recognition for what was really a breakout year for the tax practice in Cambodia. Our goal is to keep building upon our success in 2016 and continue this into 2017 where we have many new goals and aspirations to aim for.” observed Clint O’Connell, Senior Tax Director and Head of the Cambodia Tax Practice Group.

DFDL is exceptionally proud to receive this award and we will continue to build upon our reputation as the leading integrated tax and legal firm in the region.

To find out for more information about the awards, please visit the ITR Asia website.

Representing DFDL, Maricar Altonaga, Regional Business Development Manager and Bernard Cobarrubias, Regional Tax Director accept the Cambodia Tax Firm of the Year Award.

Contacts

DFDL Marketing Communications Team

communications@dfdl.com

The post DFDL wins ITR’s Cambodia Tax Firm of the Year Award appeared first on DFDL.

The Ministry of Industry and Trade of Vietnam (“MOIT”) has just released a draft circular guiding the project development and agreement template of purchase and sale of power for the solar power projects (“Draft Circular”).  The Draft Circular follows Decision 11 on mechanisms for encouraging the development of solar power in Vietnam (“Decision 11”) which was issued by the Prime Minister last month.

The most important aspect of the Draft Circular is the proposed template power purchase agreement for solar energy projects (“Draft Solar PPA”) which is being introduced by the Vietnamese government to bolster domestic renewable power generation and successfully compete regionally for investment in the renewables sector.  Once finalized, solar power investors will have to use the Draft Solar PPA in order to sell their electricity generated in Vietnam, with only minor changes expected to be permitted during contract negotiations. 

The Draft Solar PPA specifies a feed-in-tariff rate (“FIT”) of VND 2,086/kWh (excluding value added tax; equivalent to 9.35 US cents/kWh) as previously specified in Decision 11 for (i) grid connected solar power projects; and (ii) any residual power generated as compared with consumer power by rooftop solar projects (power price to be adjusted by exchange rate fluctuations to the US dollar at the time of payment).   

Much like the template PPA for Grid-Connected Wind Power Projects adopted by the MOIT in 2012 (“Template Wind PPA”), the Draft Solar PPA provides that Vietnam Electricity (“EVN”) will purchase electricity from solar power producers at the specified FIT rate for a term of 20 years. 

Notably, there are situations listed under the Draft Solar PPA (as with the Template Wind PPA) where EVN is not obliged to purchase power generated under the agreement, such as:

• when the solar power producer does not comply with Vietnamese regulations in its operations;
• when EVN is in the process of installing equipment, making repairs to or inspecting the solar power plant’s grid connection;
• when EVN’s transmission or distribution grid is experiencing problems; or
• where EVNs grid requires support to recover after an incident in accordance with the provisions of the operation of the national power system.

The transfer of risk by EVN to solar power producers, particularly in the event of transmission or distribution disruptions beyond the control of the solar producer will likely be viewed as a considerable risk requiring some sort of compensation mechanism in return.

As with the Template Wind PPA, the Draft Solar PPA provides that compensation is owed by any party who breaches its obligations under the PPA, with the compensation value to include the value of the direct, actual loss that the aggrieved party has incurred and the direct benefits to which the aggrieved party would be entitled if there was no such breach. 

In the event of termination by the solar power producer due to breaches by the purchaser, the Draft Solar PPA attempts to limit the damages to be paid by the power purchaser to the value of actual power output of the seller for the year leading up to the termination. 

With respect to the resolution of disputes, the Draft Solar PPA provides that either party to the contract may submit a dispute to the General Directorate of Energy for settlement through mediation.  Where mediation is unsuccessful, either party can submit the dispute for resolution by the Electricity Regulatory Authority of Vietnam (“ERAV”) or chose to pursue litigation in the Vietnamese courts.  Where mediation before ERAV is pursued, any party who disagrees with ERAV’s decision can bring the dispute before the Vietnamese courts.  The option of international arbitration is not provided as a dispute resolution mechanism, which is likely to be viewed as problematic for some potential investors. 

Protection against changes in law is not provided for in the Draft Solar PPA.  However, given that change in law protections are already in place for investors under Vietnam’s investment regime, these protections would reasonably apply to foreign invested solar projects, even if such provisions are not explicitly spelled out in the Draft Solar PPA.

It remains to be seen what revisions, if any, will be made to the Draft Solar PPA by the MOIT.  The growth of the wind power sector in Vietnam has demonstrated that, although there are bankability issues with the Template Wind PPA, as with the Draft Solar PPA which is nearly identical in form, financing has still been secured by incorporating potential risks into the financing costs of renewable energy projects.

DFDL Contact : 

Martin Desautels

Regional Managing Partner

martin.desautels@dfdl.com

and

Phonganh Hoang

Country Partner, Vietnam

Phonganh.Hoang@dfdl.com

The post Vietnam Legal Update : Draft Solar Power Purchase Agreement proposed by the Ministry of Industry and Trade appeared first on DFDL.

CORPORATE GOVERNANCE 

Filing Annual Declaration of Commercial Enterprise via Online System

Prakas № 107 dated 5 April 2017

The purpose of Prakas No.107, issued by the Ministry of Commerce (“MOC”), is to regulate the submission of an Annual Declaration of Commercial Enterprise (“ADCE”) by companies, branch offices and representative offices through the MOC’s online system.

Submitting an ADCE is compulsory under the Law on Commercial Enterprises so that all registered business entities keep the MOC updated of any changes in the preceding year to its particulars recorded in the MOC’s database, such as changes in shareholding, board of directors, registered address, etc. Before the launch of the online registration system in early 2016, an ADCE had to be submitted annually in physical form to the MOC.

Prakas No. 107 states that the submission deadline for the 2016 ADCE will be determined by the MOC and communicated directly to each entity in the 11th month following the date of its online re-registration with the MOC.  The ADCE must then be submitted via the MOC’s online system within three months from the end of the 12th month.

Entities failing to comply with the ADCE filing deadline will be subject to a fine of KHR 1 million (approximately USD 250).

REAL ESTATE AND CONSTRUCTION

The Establishment of Social and Environmental Funds

Sub-Decree No.238 dated 21 November 2016

The objective of this sub decree is the “Establishment of Social and Environmental Funds”, which will fall under the management and authority of the Committee Governing the Establishment of Social Environment Funds, of the Ministry of Environment.

The sub decree covers all activities concerning the management, usage and organization of the social and environmental funds in order to safeguard environmental protection and preservation, and to enhance environmental conservation and biodiversity in Cambodia.

The social and environmental funds will be collected using the following means:

• Gains received from private and public project owners, as reflected in the environmental management plan of an environmental impact assessment report and of an environmental protection agreement;
• Profits gained through environmental preservation, ecology services and biodiversity conservation;
• Donations or funds raised from charitable organizations, developer partners, and national or international private institutions;
• Other services from the environmental sector; and
• Other sources.                               

The social and environmental funds must be deposited in an account of the National Bank of Cambodia or other commercial banks permitted by the Ministry of the Economy and Finance.

The procedures for collecting social and environmental funds will be defined in an inter-ministerial prakas from the Ministry of the Environment and the Ministry of the Economy and Finance.

DFDL contact:
Alex Larkin
Senior Consultant
alex.larkin@dfdl.com

For further inquiries, please contact cambodia@dfdl.com.

*The information provided is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situation

The post Cambodian Law Update For April 2017 appeared first on DFDL.

When : 8 May 2017

Where : Hanoi 

Leading into the Vietnam Renewable Energy Summit, DFDL is sponsoring and co-hosting a meeting of regional wind energy industry stakeholders in partnership with the recently established Asia Wind Energy Association. To register info@dfdl.com  

The post Asia Wind Energy Association members’ meeting | Hanoi | 8 May 2017 appeared first on DFDL.

The hydropower ambitions of the Lao PDR are well known. The aspiring “battery of Asia”, the Lao PDR has proven successful at attracting and maintaining hydropower investment in recent years. In January 2017, the Ministry of Energy and Mines reported that by the close of the calendar year some 50 power plants around the country would be generating electricity with an installed capacity of almost 6,860MW, with nearly two-thirds of this power being exported to neighboring countries.[1] At present, hydropower generators account for 98.80% of the total annual electricity production in the Lao PDR, comprising 3,295 MW.[2]

With all the attention paid to hydropower, solar power production has received comparatively little “buzz” and even fewer investment dollars. Further, hydropower alone is not likely to deliver universal electrification or energy security.  Partly due to transmission limitations, the country currently imports energy to meet its domestic needs, which continue to grow. In addition, the domestic demand for energy is most acute during the dry season, when hydropower generation is at its lowest.

While hydropower development continues apace (there are currently 75 such projects at some stage of the development process) the Government is now turning its focus to diversifying the power generation grid. After first gaining momentum in 2013 with the Draft Decree on Solar Energy Development, solar power projects are again in the spotlight. At present, around 13,000 households, mostly in remote areas have been supplied with home solar systems. However, limited progress has been made in the grid-connected solar sector, with only one existing rooftop solar system installation to date: a 236kW plant at Wattay International Airport.

The Government has set a goal of increasing   renewable (excluding hydropower) energy production to meet 30% of total domestic consumption by 2025. The first significant project, undertaken by the publicly traded EDL-GEN, will start small, producing 10 MW of solar power for the Vientiane Market. The project will then scale up incrementally to a total of 100 MW by 2020.

While ambitious, the necessary resources are available. The Lao PDR has an average of 1,800 – 2,000 hours of sunlight per year (representing 200-300 sunlight days per year) with more sunlight days in the south of the country. Solar irradiance levels in the Lao PDR are between 3.6 – 5.5 kWh/m2 per day. With this technical capacity, solar power has the potential to play a major role in providing off-grid electric power for remote rural areas.

There are clear reasons why solar has lagged so significantly behind the local hydropower sector as well as solar power development in neighboring Thailand, namely (i) tariffs, which currently do not favor solar over hydropower; (ii) lack of non-tariff incentives; and (iii) lack of solar-specific regulation.

Tariffs

As per the Electricity Law, offtake tariffs in the Lao PDR are subject to the approval of the Prime Minister. To date, the Government has been unwilling to provide more beneficial tariffs to solar (or other producers) than is provided to hydropower producers. While this decision has protected the hydropower market, it has reduced the economic viability of solar production. However, as solar capital and operating costs continue to drop solar power is becoming more viable. From a sustainable grid perspective, it complements existing hydropower production as solar production peaks during the dry season. Solar investors can also draw on the expertise and technology base of neighboring Thailand.

Incentives

Solar power investment incentives have played a key role in the development of solar power industries in ASEAN, with the most notable examples being the Philippines and Thailand. Incentives are necessary to mitigate risk in a new industry and to ensure that solar power is economically viable until such time as volume and technology can bring the cost per MW in line with competing energy sources. To date, the Government has been reluctant to provide such incentives in the Lao PDR. However, with increasing interest in solar throughout the region and a proposed emphasis on environmentally friendly investment as a cornerstone of the draft Investment Promotion Law scheduled for April 2017, it is increasingly likely that the Government will focus its energy on promoting solar investment.

Regulatory Framework

As per Article 2 of the Electricity Law, solar power is subject to the same regulatory framework as electrical power generated by other means. As such, it is “owned” by the national community and may only be developed upon approval of the Government. For projects of less than 15 MW (but more than 100 KW), approval must be obtained at the provincial level. Projects up to 100MW are approved at the central level, while larger projects require approval by the National Assembly. However, solar projects may be developed without a concession agreement with the Government, provided they comply with the relevant laws and regulations. However, without enabling regulation, it remains unclear just how a non-concessionary solar project might be developed. Further regulatory guidelines would go a long way in facilitating solar investment, particularly in clarifying the requirements for foreign investment and project development.

Next steps

While solar generation may not be ready to compete directly with hydropower in the Lao PDR, solar development is well positioned to serve special economic zones (“SEZs”) and other off-grid commercial and residential power consumers. The numerous advantages of targeting SEZs and other off-grid consumers speak directly to the challenges raised above.

If a solar project is not selling to the national grid, tariffs are not subject to government approval and the project does not have to compete with large-scale hydropower generated or imported electricity. As per the Electricity Law, all electricity production sources shall transmit electricity through the national electricity transmission grid, unless such distribution is (a) in the immediate  vicinity of an electricity generating plant, (b) where there is a small scale production of electricity or (c) where the national electricity transmission grid is not yet available. Therefore, such projects may also leverage the regulatory framework for SEZs to mitigate risks associated with the dearth of solar specific regulation. With a new SEZ law scheduled for consideration by the National Assembly in the first half of 2017, there is a real opportunity for joint development of SEZs and solar power production.

On this basis, the future of solar power in the Lao PDR may be a two part process. Initial investments serving SEZs and off-grid consumers may pave the way for larger investment, encouraging regulatory change and reducing production costs.

The post Laos PDR : Challenges and opportunities for solar power development appeared first on DFDL.

When : 9-10 May 2017

Where : Hanoi 

DFDL Managing Partner Martin Desautels and Partner Huynh Dai Thang will moderate a panel on Day 2 of the Summit, discussing the domestic clean energy mix with a range of key industry stakeholders. To register click here.

The post Vietnam Renewable Energy Summit | Hanoi | 9-10 May 2017 appeared first on DFDL.

DFDL is acting as local counsel for Singapore-based Sunseap Energy in relation to the development of a 10MW solar farm project in Bavet, Cambodia, the first of its kind in the developing nation. The DFDL team have assisted Sunseap with the establishment of the project company and advised on the lending and security package, in-part relying on a 20-year power purchase agreement signed with Electricite Du Cambodge. Funded by the Asian Development Bank and the Strategic Climate Fund, the project is expected to reach financial close within the next month. 

For further info, contact info@dfdl.com

The post DFDL assists Sunseap Energy on Cambodia’s first utility-scale solar project appeared first on DFDL.

This is the chapter 18 out of 18 chapters of our Cambodia Investment Guide. Learn the best way to invest in Cambodia. Download the full publication here.

Chapter 18 : Dispute Resolution

Like much of the Mekong region, Cambodia’s system of dispute resolution has traditionally been based on conciliation and mediation rather than on adversarial conflict. Duties are often emphasized more than rights. Compromise solutions representing a balance between social duties and relationships, on one hand and legal rights on the other, are the norm, even where “right” and “wrong” are clear. This traditional approach to dispute resolution continues to have a significant influence on judicial dispute resolution in the courts of Cambodia, particularly in civil and domestic matters.

1. Structure of the Court System

At present, the judiciary consists of a number of courts of first instance located in each province and municipality, one Court of Appeal, and one Supreme Court. The Court of Appeal reviews both questions of law and fact, while the Supreme Court only hears questions of law, with some exceptions. A Constitutional Council which is not part of the judiciary has been established to decide the constitutionality of laws and regulations.

The Phnom Penh Municipal Court of First Instance is the court most frequently used by commercial litigants. This court is generally regarded as being overburdened and at times suffers from a lack of clerks, prosecutors, and magistrates with substantial knowledge and experience in adjudicating commercial matters. Other courts are similarly overburdened and understaffed.

The lower courts preside over all types of legal matters, including civil, criminal, insolvency and commercial disputes. A dissatisfied litigant may appeal a municipal court’s decision to the Court of Appeal, which will review both questions of law and fact. A final appeal may be taken to the Supreme Court, but generally only on questions of law. The Supreme Court will review questions of both law and fact only in exceptional and rare circumstances. Such a rare circumstance may occur when the Supreme Court sends a case back to the Court of Appeal for further action and the ensuing decision of the Court of Appeal is subsequently re-appealed to the Supreme Court.

A significant development that has provided much greater certainty as to civil proceedings in the courts of Cambodia was the adoption of the Code of Civil Procedures on 6 July 2006. Amongst other things, the Code of Civil Procedures contains provisions for the recovery of certain legal costs incurred during litigation and provides greater certainty on the rules of evidence including specific provisions relating to oral and documentary evidence, expert evidence and the discovery of evidence prior to trial.

Significantly, the Code of Civil Procedures also provides for legal recognition of sales in execution, enabling successful litigants to proceed against the assets of another party in settlement of the disputed claim.

Furthermore, rules relating to appeals are more specifically addressed. The Code of Civil Procedures provides for appeals from judgments of the court of first instance (uttor appeal), appeals from decisions of an appellate court (satuk appeal) and appeals from court rulings (chomtoah appeal). Court rulings are distinguished from judgments in that they are made by courts without reference to oral argument. The Code of Civil Procedures remains a relatively new body of legislation and the courts have yet to fully implement and interpret all of its provisions. Nonetheless, it represents a significant step forward in the development of Cambodia’s civil litigation procedures.

2. The Constitutional Council and Supreme Council of Magistracy

The Constitutional Council was established in April 1998 under the Law on the Organization and Functioning of the Constitutional Council. The main responsibilities of the Constitutional Council are to ensure respect for the constitution, interpret the constitution, determine whether laws and regulations comply with the constitution, review judicial rulings dealing with constitutional issues and rule on election-related issues.

The Supreme Council of Magistracy was established in December 1994 under the Law on the Organization and Execution of the Supreme Council of Magistracy. This body is established to guarantee the independence of the judiciary, to discipline judges and to ensure the proper functioning of the court system.

3. Mediation and Commercial Arbitration in Cambodia

Historically, the courts were the only judicial or quasi-judicial means available in Cambodia for the resolution of commercial disputes. Certain ministries will act as a mediator on a case-by-case basis, but such mediation lacks judicial authority and therefore execution, authority, and becomes binding only if accepted contractually by the disputing parties. Even when a ministry has the legal authority to mediate a dispute – such as the Ministry of Labour and Vocational Training (“MLVT”) in individual employment disputes or the Ministry of Land Management, Urban Planning, and Construction (“MLMUPC”) through different cadastral commissions in relation to unregistered land disputes – a party dissatisfied with the result may bring the matter to court.

The government is making gradual progress on establishing other judicial and quasi-judicial forums, specifically for the resolution of commercial disputes. A law currently in draft form would create a commercial court having jurisdiction over commercial disputes.

Significant recent progress has resulted in the successful launch of the National Commercial Arbitration Center of Cambodia (“NCAC”). The Commercial Arbitration Law, adopted on 6 March 2006 mandated the establishment of the NCAC. The purpose of the Commercial Arbitration Law is to facilitate impartial and prompt resolution of economic disputes in accordance with the wishes of the parties.

Related to the Commercial Arbitration Law, a Sub-Decree on the organization and functioning of the NCAC was adopted on 12 August 2009, establishing a process for the selection of the first arbitrators, under the oversight of a special committee of the Ministry of Commerce (“MOC”) with the technical and financial support of the International Finance Corporation, a member of the World Bank Group. In accordance with Article 54 of the above-mentioned sub-decree, the NCAC has become a self-governing institution and complements the country’s already-successful Arbitration Council, which hears collective labour disputes (see Chapter 14 – Labour and Employment, for a discussion on employment dispute resolution).

The first group of arbitrators of the NCAC was initially selected in January 2013 and completed their initial training in 2014. The NCAC adopted its arbitration rules and internal working rules in July 2014 and its Code of Conduct of Arbitrators in April 2015.  The NCAC arbitration rules are generally aligned with the arbitration rules of many well-known, reputable arbitration institutions. Under the NCAC arbitration rules, the parties to a commercial dispute are free to select their arbitrators, decide on the applicable law, determine the number of arbitrators, the language of the arbitration proceedings and decide whether the arbitration proceedings are to be conducted with or without a hearing.

The awards of the NCAC are final and binding, and may only be reopened for reasons of correction, amplification, interpretation or addition. The proceedings are confidential and closed to the public unless the parties agree otherwise. The arbitral tribunal may publish redacted versions of its awards unless a party objects.

With respect to fees, the NCAC Arbitration Rules set forth a registration fee, an arbitrator appointment fee which applies if the parties request the NCAC to appoint arbitrators rather than appointing the arbitrators themselves, an administration fee and a tribunal fee. The registration fee and arbitrator appointment fee are fixed amounts regardless of the amount in dispute, whereas the administration fee and tribunal fee are based on a sliding fee scale, depending on the amount in dispute.

In addition to institutional arbitration through the NCAC, the Commercial Arbitration Law formally recognizes ad hoc arbitration as a form of dispute resolution. It closely mirrors the UNCITRAL model law and makes specific provision for the enforcement of ad hoc arbitration awards by the courts.

As a non-judicial body independent of any governmental entity, the NCAC does not have enforcement authority. As such, in order to enforce an arbitral award, the non-prevailing party must cooperate in such enforcement or failing such cooperation, the prevailing party may seek a court order to recognize and enforce the award. See section 18.5 below for a discussion on enforcement of arbitral awards.

4. Foreign Arbitration

Cambodia is a signatory to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Under the New York Convention, generally, arbitral awards properly issued by reputable arbitral tribunals in jurisdictions which are also parties to the New York Convention can be enforced in Cambodia. Prior to 2014 however, there had not been a successful attempt to enforce a foreign arbitral award in Cambodia. In 2014, the Supreme Court of Cambodia confirmed a decision of the Cambodian Court of Appeal which ruled in favor of recognition and enforcement of an arbitral award administered by the Korean Commercial Arbitration Board (“KCAB”) of Seoul, South Korea.

5. Enforcement of Arbitral Awards

In the absence of enforcement of an arbitral award through voluntary cooperation of the non-prevailing party, a court order recognizing and enforcing an award is necessary. Article 353 of the Code of Civil Procedures provides the mechanism by which such a court order may be sought. For arbitral awards issued domestically by the NCAC or through ad-hoc arbitration, a party may file a motion with the court having territorial jurisdiction over the debtor, and if no court is determined to have such jurisdiction, then with the court of first instance having jurisdiction over the territory in which the property that is the object of the claim or that can be attached, is located. The Court of Appeal has sole jurisdiction over motions seeking recognition and enforcement of foreign arbitral awards.

A party seeking a court order to recognize and enforce an arbitral awards must submit a motion seeking the same along with an authenticated original arbitral award or certified copy thereof and the original arbitration agreement or a certified copy thereof.

Article 353, clauses (3) and (4) of the Code of Civil Procedures, which mirrors the relevant provision of the New York Convention, sets out the grounds upon which a court may deny a motion to recognize and enforce an arbitral award. Those grounds are;

• A party to the arbitration was under some incapacity;
• The party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings;
• The award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration;
• The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or not in accordance with the law where the arbitral proceedings took place;
• The award is not final;
• The subject matter of the dispute cannot be settled by arbitration; or
• Recognition or enforcement of the award would be contrary to public policy.

6. Investor-State Arbitration under the ASEAN Comprehensive Investment Agreement

Globally, under investment law, arbitration is often considered the primary option for foreign investors wishing to pursue claims against a host state. Provisions on investor-state dispute settlement mechanisms are incorporated within most international investment treaties and bilateral investment agreements.

The ASEAN member states have adopted the ASEAN Comprehensive Investment Agreement (ACIA) as part of the region’s ASEAN Economic Community (“AEC”), having a goal to transform ASEAN into a single market, highly competitive economic region and achieve regional economic integration by 2015. The ACIA offers a range of protections for entitled investments which are ensured by a number of obligations imposed on member states. These include the obligation to provide fair and equitable treatment, national and most-favored nation treatment as well as full protection and security and the obligation to offer protection from expropriation.

In order to benefit from the protections set out in the ACIA, an investment must be a “Covered Investment” as defined in Article 4 (a) of the ACIA. Specifically, a Covered Investment is an investment made by an investor of one member state in the territory of another member state which have been admitted to its laws, regulations, and national policies, and where applicable, specifically approved in writing by the competent authority of the member state.

To qualify as a “Covered Investment”, the investment must fall under the definition provided in Article 4 (c) of the ACIA which states; “every kind of asset, owned or controlled by an investor”, including but not limited to; movable and immovable property, shares, stocks, intellectual property rights and claims of money, etc.

ACIA benefits apply to investors from member states (including both natural and juridical persons) and extends its protection to investors from outside ASEAN who set up a juridical entity in any of the member states, provided, however, that such entity must carry out substantial business activities in the ASEAN member state. A juridical entity which is established in a member state but does not carry out substantial business activities in that member state, can be denied the protections of the ACIA in the event that such juridical entity invests in another member state (Article 19 of the ACIA). Benefits of the ACIA can also be denied if the investor is a juridical person of a member state but is controlled by an investor of a non-member state. According to Article 19 (3) of the ACIA, “a juridical person is “controlled” by an investor if the investor has the power to name a majority of its directors or otherwise to legally direct its actions.” These measures exist to deter the use of mere shell companies and to deter “treaty shopping” which consists of the use of a treaty contrary to its object or purpose.

The ACIA requires parties to an investment dispute to try to resolve the dispute by consultation and negotiation, prior to initiating a claim whether under local courts or arbitration. If the dispute has not been resolved within 180 days of the receipt by the member state of a request for consultations, the investor may submit their claim under host state courts or under arbitration

Under the ACIA, an investor may submit a dispute against a member state to the International Center for Settlement of Investment Disputes Convention (“ICSID Convention”), or in accordance with the United Nations Commission on International Trade Law (“UNCITRAL”) Arbitration Rules, or with the Regional Center for Arbitration at Kuala Lumpur, or to any other arbitration institutions agreed to by the parties.

Chapter 19 : Anti-Money Laundering

You can download the complete guide for free here.

The post Investment Guide Cambodia : Dispute Resolution appeared first on DFDL.

When : 18 May 2017

Where : Yangon

Keep up with Myanmar’s ever changing tax landscape and minimize your tax risks by joining this informative half-day tax seminar.

During the seminar, the DFDL Tax Team will discuss recent changes in Myanmar tax laws and regulations, including the 2017 Union Tax Law, the new Withholding Tax Notification, updated Stamp Duty rates, among other major changes.

DFDL will look into the major changes as well as the seemingly minor tweaks in the laws and regulations that may have a significant impact to your business.

We will also provide a thorough discussion on your tax compliance obligations in Myanmar. We will cover tax deductible expenses, output and input Commercial Tax, timing of tax filings, tax audits and tax penalties, and other compliance related issues.

Agenda : 

• 9:00 to 9:30 – Registration
• 9:30 to 10:15 – Recent developments in Myanmar taxation
• 10:15 to 10:30 – Tea Break
• 10:30 to 11:30 – Myanmar tax compliance discussion
• 11:30 to 12:00 – Open forum and Q&A 

Speakers :

Bernard Cobarrubias	Diberjohn Balinas
Regional Tax Director,       DFDL	Tax Manager, DFDL

Registration : 

Date: Thursday 18 May 2017 

Time: 9:00 am – 12:00 pm

Fees: 18 USD / 25,000 MMK  (walk-in payment)

Venue: 
Novotel Yangon Max
459 Pyay Road,
Kamayut Township,
Yangon, Myanmar

Registration:
To register, please send your full name, position, company, industry, and email address to events.myanmar@dfdl.com

* Cancellations of registration not received by 15 May 2017 will be charged a no-show fee of US$18.

The post 2017 Myanmar Tax Updates | Yangon | 18 May 2017 appeared first on DFDL.

This is the chapter 14 out of 18 chapters of our Cambodia Investment Guide. Learn the best way to invest in Cambodia. Download the full publication here.

Chapter 14 : Trade, Commerce, and Customs Procedures

1. Cambodia’s Trading Relationships

Since 1993, Cambodia has benefited from a considerable increase in international trade and is now party to a number of trade agreements. Perhaps the most significant of these are Cambodia’s membership of the World Trade Organization (“WTO”) and the Association of Southeast Asian Nations (“ASEAN”) Free Trade Area (“AFTA”), which Cambodia entered into in 2004 and 1999, respectively. Both of these schemes have already led to important tariff reductions, and should facilitate further trade liberalization both regionally and internationally.

In addition to the AFTA, Cambodia is also eligible for Preferential Tariff Reductions that are granted under Free Trade Agreements (“FTAs”) that ASEAN has concluded with Korea, Japan, India, China, Australia and New Zealand, although different ASEAN states will implement the FTA at different times, particularly CLMV states (Cambodia, Laos, Myanmar and Vietnam).

The ASEAN-Australia-New Zealand Free Trade Agreement (“AANZFTA”) was concluded on 27 February 2009, and the government has adopted the Law on Adoption of the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area, aimed at progressively liberalizing and facilitating trade in goods among the parties through progressive elimination of tariff and non-tariff barriers, as well as liberating trade in services among the parties, covering many sectors. With reference to this agreement, the schedules for reduction and elimination of Cambodian import duties for the period 2009-2025 have been promulgated.

For trade in goods, the AANZFTA provides reduced rates compared to MFN, but not as favorable as AFTA. Imports from Australia and New Zealand under AANZFTA will be largely duty free by 2025. Note that Cambodian exports to Australia and New Zealand may be largely duty free and quota free. A key benefit of the AANZFTA, as with other FTAs, is that content will be counted in for origination on a regional basis for manufactured goods.

The ASEAN-China Free Trade Agreement (“ACFTA”) is the FTA that covers the largest population in the world. It is a comprehensive cluster of agreements on goods, services, investment, intellectual property and dispute settlement. The initial framework was created in 2004. The ACFTA was ratified by Cambodia for Trade in Goods on 6 Feb 2008.

Cambodia has reached the 2015 deadline set under the ACFTA to bring nearly all of its customs duties on goods from China within the zero to five percent range. These tariff rates will be subsequently reduced to 0% not later than 1 January 2020.

The ASEAN-Korea Free Trade Agreement (“AKFTA”) was concluded on 1 May 2006 as an agreement mostly on goods but was later extended with agreements on services (1 May 2009) and Investment (2 June 2009). Cambodia ratified the AKFTA on 6 February 2008.

For Cambodia, all tariffs for products listed in Normal Track will be eliminated by 1 January 2018.

The ASEAN India Free Trade Area (“AIFTA”) was concluded 13 August 2009. It entered into force from 1 January 2010 after ratification by India and one ASEAN states. Under the AIFTA, trade in goods was already finalized

As far as the Trade in Goods is concerned, AIFTA provides as follows for Cambodia depending on the track which has been chosen for the goods. Normal Track 1 goods were reduced from 1 January 2010 and will be eliminated from 31 Dec 2018. The reductions for goods placed under Normal Track 2 and the Sensitive Track with some exceptions also started from 1 January 2010 but elimination will only be carried out by 31 December 2021. The Highly Sensitive List has three different reductions.

Customs duties on goods on the Highly Sensitive List will be eliminated by 31 December 2024.

The ASEAN-Japan Comprehensive Economic Partnership Agreement (“AJCEP”) entered into force on 1 December 2008. It finally became effective for Cambodia from 1 December 2009. The AJCEP provides for Trade in Goods and Trade in Services and a panel of sub-committee has been created to further the discussions on the service sector. However, the AJCEP also provides for rules on Sanitary and Phytosanitary measures, mostly to promote investment and other issues.

The Rules of Origin apply for 40 percent of the “regional value content” or change in tariff classification, whichever the importer chooses. Specific rules on calculation and documentation are provided. There is a remarkable special rule for IT products: assembly in one of the states of the region suffices for origin, no need to refer to tariff classification change or regional value content, but there are some exceptions.

As a developing country, Cambodia also benefits from preferential access to the markets of developed countries. For example, Cambodia enjoys Most-Favored Nation (“MFN”) status from the United States, the European Union (“EU”), and other developed countries and since 2001 has benefited from the EU’s “Everything But Arms” initiative (“EBA”) – part of the EU’s Generalized System of Preferences (GSP). Cambodia is also entitled to privileges under the respective programs of the US and Japan.

However, for products to enjoy the EBA rates, they must meet the Rule of Origin (“ROO”) requirement that at least 40 percent of the contents must have originated in Cambodia. Nevertheless, special waivers allow for certain Cambodian textile products to have cumulative origin with ASEAN countries or the EU. Similarly, for exports from Cambodia to the US, to benefit from the GSP there is a ROO requirement of 35 percent, although qualifying member countries of ASEAN – namely Cambodia, Thailand, Indonesia, and the Philippines – are treated as one country, which again provides for cumulative origin.

Cambodia’s largest export commodities include garments, rubber and timber with most goods being sent to the US and EU. Major imports include petroleum products, construction materials, vehicles and motorcycles while major trading partners include Thailand, Hong Kong, Singapore and China.

2. Cambodia and the World Trade Organization

Cambodia’s international trade and investment framework has made a big leap with WTO accession, which will have a significant impact on all sectors and all fields of business. Whilst the General Agreement on Tariffs and Trade (“GATT”) and the General Agreement on Trade in Services (“GATS”) are likely to have the biggest effect on Cambodia’s international trade, the Agreements on Trade Related Aspects of Intellectual Property (“TRIPS”), the Customs Valuation Agreement (“CVA”), and agriculture, anti-dumping and import licensing procedures will also have a bearing on the country’s international trading relationships. In order to ensure full compliance with WTO standards, the country has committed itself to institutional reform.

3. The General Agreement on Tariffs and Trade

As a result of the GATT, Cambodia is obliged to address both tariff and non-tariff barriers to trade. For example, Article 11 necessitates the general elimination of quantitative restrictions (bar certain exceptions permitted for reasons of necessity). To those ends, Cambodia promised upon accession, not to introduce, re-introduce or apply other non-tariff measures such as licensing, quotas, prohibitions, bans and other restrictions having equivalent effect that cannot be justified under the provisions of the WTO agreements.

One benefit of WTO membership is the MFN mechanism alluded to above. This principle provides that if a contracting state grants any advantage, favor, privilege or immunity to another in respect of a certain product, it is obliged to accord the same benefit immediately and unconditionally to all other contracting parties regarding like products. Therefore, Cambodian exports to other WTO members are guaranteed these favorable rates and Cambodia must reciprocally apply the accepted MFN rates to goods imported from other contracting parties. Successive rounds of negotiation have resulted in a gradual lowering of MFN tariffs.

The WTO agreement provides for bound tariff rates, which set the maximum legal rate that may be applied to imports. In general, Cambodia’s “applied rates” (i.e. the rates that are actually levied) are similar to the bound rates bar a few exceptions. Importantly, upon accession, Cambodia pledged to bind 100 percent of tariff lines. The principle of “national treatment” in Article 3 adds a further layer of protection to Cambodian exports because it obliges member states to treat imports no less favorably than products of national origin.

4. The General Agreement on Trade in Services

This agreement forms another component of the “single WTO package” and as such is binding on Cambodia and all other member states. Once again, the MFN principle applies to all services (except one-off, temporary exemptions) and so treatment “no less favorable” than that extended to one country’s service providers must similarly be offered to all other WTO members. This applies on the basis of four “types” or “modes” of supply (rather than specific service sectors);

• cross-border supply (services supplied from one country to another);
• consumption abroad (where a consumer from one member state makes use of a service in another state);
• commercial presence (where a foreign business wishes to set up a subsidiary or branch operation to provide a service in the other country); and
• movement of natural persons (where individuals travel from their home country to supply services abroad).

Cambodia does have some MFN exemptions, with intended unlimited duration, although these are limited to audio-visual services, land transport, internal waterways and maritime transport. Members are also allowed to invoke specific limitations on market access and national treatment in their Schedule of Specific Commitments.

Cambodia provides market access or national treatment for the cross-border supply, consumption abroad and commercial presence of almost all services. There are some limitations applicable to the following sectors but most do not comprise arduous barriers;

• telecommunications;
• insurance;
• banking and financial services;
• health-related and social services;
• tourism and travel services; and
• pipeline transport services.

5. Agreement on Trade Related Aspects of Intellectual Property

During the accession negotiations, Cambodia requested a 2009 deadline for the implementation of the Agreement on Trade Related Aspects of Intellectual Property (TRIPS), but ultimately agreed to apply it no later than 1 January 2007. As required by the WTO, Cambodia has passed intellectual property laws that conform with TRIPS including;

• the Patent Law;
• the Trademarks Law; and
• the Law on Copyright and Related Rights.

To complete the legal framework on intellectual property, it is also anticipated that other laws and regulations will be adopted such as;

• the Law on Layout Designs of Integrated Circuits;
• the Law on Plant Variety Protection;
• the Law on Geographical Indications including Appellation of Origin; and
• the Law on Protection of Undisclosed Information.

6. Customs Valuation Agreement (“CVA”)

Other important aspect of Cambodia’s WTO accession are the implications it will have for the way in which customs duties are assessed and collected (see the section on Customs Valuation below for more details). Cambodia committed to implementing the WTO CVA by 1 January 2009 and is currently in the process of extensively reforming its customs regime. To that end, 2007 saw the passing of a new Law on Customs which has now entered into force.

7. The Association of Southeast Asian Nations

The Association of Southeast Asian Nations (“ASEAN”) was formed by its original five members in 1967 to promote economic, social and cultural development in the Southeast Asian region through inter-state integration and cooperation. ASEAN’s membership has now grown to 10 countries with Cambodia being the most recent to join in 1999.

8. The ASEAN Free Trade Area and Common Effective Preferential Tariff Scheme

The ASEAN Free Trade Area (“AFTA”) was established in 1992 with the aim of promoting the region’s competitive advantage as a single production unit. Eliminating tariff and non-tariff barriers to trade between the member countries will encourage greater economic efficiency, productivity and competitiveness. Importantly, investors in Cambodia can benefit from tariff rates established under AFTA’s Common Effective Preferential Tariff Scheme (“CEPT”) that are often considerably lower than those under the WTO. Thus, although each ASEAN member is free to impose tariffs on goods entering from outside ASEAN, based on its national schedules, for goods originating within ASEAN, member states must apply a tariff rate of no higher than five percent. The CEPT scheme covers a broad array of products, detailed in each member’s CEPT inclusion list.

As a new member, Cambodia has been granted additional time to implement the reductions but was obliged to bring rates within the accepted zero to five percent band by 2010 and to eliminate them by 2015 according to Annex 2 of the Protocol for the Accession of Cambodia to the ASEAN Agreements, 1999; and Article 1 of the Protocol to Amend the CEPT Scheme for AFTA for the Elimination of Import Duties, 2003.

• It is possible for ASEAN members to exclude certain products from the CEPT in two cases;
  temporary exclusions – products for which tariffs will ultimately be lowered to zero to five percent but which are being protected temporarily by a delay in tariff reductions; and
• general exceptions – products that an ASEAN member deems necessary for the protection of national security, public morals, the protection of humans, animals, or plant life and health and protection of Articles of artistic, historic, or archaeological value.

It should also be noted that currently CEPT does not apply to unprocessed agricultural products, although these will be gradually phased into the scheme in the future. 

As under the EU’s EBA and the US’s Generalized System of Preferences, CEPT rates are subject to the satisfaction of a ROO local content requirement and it must be shown that 40 percent of a product’s contents originate from any ASEAN member country. This requirement refers to both single-country and cumulative ASEAN content.

9. Cambodia’s Domestic Customs Regime

Cambodia’s new Law on Customs came into force in July 2007. The legislation provides for the assessment and collection of duties, taxes and fees on imported and exported goods as well as the control and regulation of the movement, storage and transit of such goods. Moreover, the Law on Customs is an important development in the implementation of Cambodia’s international trade policy and promotion and application of international standards.

The Law on Customs provides that certain goods are wholly exempt from import duties and taxes. These include;

• goods temporarily imported into Cambodia (i.e. for transit or trans-shipment);
• goods used for or by, foreign diplomatic or consular missions, international organizations, and agencies of technical cooperation of other governments for use in the exercise of their official functions;
• goods for personal use by official personnel of such missions and organizations;
• goods originating in Cambodia or returning from abroad for which duties and taxes have previously been paid (providing that they have not been enhanced in value);
• goods exempted under the provision of any other law of Cambodia; and
• items donated for charity, goods for research and scientific purposes and samples and goods of no commercial value for exhibition.

Certain other goods and materials may be partially exempt or relieved from import duties where this is specifically provided for by any other law of Cambodia. In addition, a partial exemption may be granted with respect to;

• seeds and breeding animals for agriculture;
• goods expected to undergo repair, processing, or testing;
• goods re-imported in the same state;
• goods imported by the government for public purposes; and
• goods for temporary admission.

Importantly, this list is non-exhaustive, and partial exemption or relief may also be granted to other goods determined by Prakas (regulation) of the Ministry of Economy and Finance (“MEF”).

For goods that cannot be wholly or partially exempted from import duty, this is levied at a rate of 7 percent, 15 percent or 35 percent, as listed in the 2012 Customs Tariff book.

10. Customs Clearance Procedure

Imported goods must be declared to a customs office or other location as determined by the director of the General Department of Customs and Excise (“GDCE”). The persons engaged or involved in the commercial or institutional import or export of goods must ensure that accurate documentation is kept, including the receipt of payment of customs duty and taxes (in accordance with what has been declared to customs), accounting books, records and other information pertaining to import or export, including that contained in electronic format.

Those who report goods to the customs office have an obligation to answer truthfully any question asked by a customs officer with respect to the goods and where a customs office so requests, make the goods available for inspection by customs in the manner prescribed by the director of customs.

In addition, there are certain goods, listed in Sub-Decree 209 (relating to putting into use prohibited and restricted goods, dated 31 December 2007), for which importation or exportation requires a license or permission, or an equivalent jurisdiction letter from the Ministry or competent specialized unit.

11. Customs Valuation

Article 21 of the Law on Customs sets out the procedure by which the value of imported goods is determined for the purpose of customs duty calculation. A number of methods are detailed, to be applied in the order provided by the WTO CVA.

Therefore, ideally the customs value of imported goods shall be the transaction value (“TV”), this being the price actually paid or payable for goods when sold for export to Cambodia. If, however, the transaction value of the imported goods cannot be determined, then the customs value shall be firstly the transaction value of identical goods and if this method is also unfeasible, then secondly the transaction value of similar goods.

If none of the three methods contemplated above is possible, then the customs value of the imported goods will be based on a deductive method (i.e. on sale price in the importing country). If this too is unfeasible, then the computed method is used (i.e. based on the cost of materials, fabrication, and profit in the country of production). As permitted by the WTO CVA, the order of application of these two methods may be reversed at the request of the importer.

Finally, where all else fails, customs value is to be determined by using reasonable means consistent with the principles and provisions referred to elsewhere in Article 21 of the Law on Customs and on the basis of data available in the customs territory, subject to certain limitations. Article 21 also makes clear that all matters related to the determination of customs value are to be ultimately regulated by a Prakas of the MEF.

12. Customs Bonded Warehouses

A customs bonded warehouse (“CBW”) is a building, place or an area that is used to store, process, display or provide for the sale of goods for which import duties are deferred or for other related purposes subject to customs control. To qualify, a CBW must meet certain requirements established by the GDCE of the MEF.

13. Tax Incentive for Operator and Goods’ Owner

Goods can be stored in a CBW for a maximum of two years from the date of registration of the customs declaration. As an exception, the time limit may be extended by up to 12 months by the GDCE at the request of the CBW operator provided that the goods are in good condition.

There are three categories of CBW;

• public warehouses, which are licensed by the MEF, may be operated by an agency of the government or by any person and which are open to any person who has the right to store the goods in the warehouses;
• private warehouses, which are licensed by the director of the GDCE and are to be used solely by specified persons to store goods for their own specific uses, including operators of duty-free shops; and
• special warehouses, which are licensed by the director of the GDCE, are a type of warehouse for goods that may present a hazard or could affect the quality of other goods or could require special storage facilities.

Each CBW license will determine conditions for owners and operators, including the location, construction and layout of premises and procedures for control and handling of goods. In certain circumstances, the MEF may authorize the establishment of customs manufacturing bonded warehouses (“CMBWs”), which are a type of factory used to process and produce goods in the CBW. Goods so processed and/or produced in the CMBW can be exported and/or released for the domestic market.

The application of taxes, duties, and restrictions with respect to imported goods stored in a CBW shall be suspended until the goods have been released from the CBW for domestic use or export. Similarly, taxes and duties applicable to raw materials, components, machines, equipment and things for production with respect to a CMBW operator will also be suspended if the end products are for export, except those goods that are subject to export taxes.

14. License Fee and Guarantee Deposit

At the end of the calendar year, a CBW operator must pay an annual license fee at the rate of one percent of the monthly average taxes and duties of the goods stored in the CBW. If the license is issued after 1 July, the first annual license fee will be 50 percent of one percent of the average monthly taxes and duties of the goods in store.

CBW operators are also required to pay a guaranteed deposit equal to five percent of the annual taxes and duties applicable to the goods stored in the CBW. For the first year of operation, the amount of guaranteed deposit will be determined by the director of the GDCE. The customs administration has the right to adjust the amount of guaranteed deposit if necessary, which may be paid in cash or other instruments.

15. Penalties

The Law on Customs sets forth a regime of penalties to be applied to any person who commits a customs offence. These are as follows;

• any person who commits minor violations (including inaccuracies and omissions when completing declarations) that have no impact on duties or taxes is subject to administrative fines of KHR 100,000 (approximately USD 25) to KHR 500,000 (approximately USD 125);
• any person who commits violations of provisions that involve the evasion of duty or taxes where the goods are not prohibited or restricted, is subject to administrative fines of between one and three times the duty and tax evaded, and to a judicial penalty of confiscation of the goods or imprisonment for one month to one year;
• any person who obstructs or impedes a customs officer is subject to administrative fines of KHR 1 million (approximately USD 250) to KHR 5 million (approximately USD 1,250) or a judicial penalty of imprisonment for one to six months or both; and
• where a violation involves goods that are prohibited or restricted under the provisions of Article 8 of the LOC, the offender will be subject to an administrative fine of up to three times the value of the goods or conveyance and other things used to conceal smuggled goods or imprisonment for one to five years, or both.

Chapter 15 : Immigration and Naturalization

You can download the complete guide for free here.

The post Investment Guide Cambodia : Trade, Commerce, and Customs Procedures appeared first on DFDL.

This is the chapter 8 out of 19 chapters of our Cambodia Investment Guide. Learn the best way to invest in Cambodia. Download the full publication here.

Chapter 8 : Banking and Finance

The regulatory framework applicable to the banking and finance sector is set forth in the Law on Banking and Financial Institutions promulgated on November 18, 1999 (the Banking Law); the Insurance Law promulgated on August 4, 2014; and various regulations issued by the National Bank of Cambodia (NBC) and the Ministry of Economy and Finance (MEF) since 2000/01. Other important laws and regulations affecting banks and financial institutions include the Law on Negotiable Instruments and Payment Transactions, promulgated on October 25, 2005; the Law on Secured Transactions, promulgated on May 22, 2007; the Law on Anti-Money Laundering and Terrorist Financing, promulgated on June 24, 2007; the Law on the Issuance and Trading of Non-Government Securities promulgated on October 19, 2007; the Law on Financial Leasing promulgated on June 20, 2009; and the Civil Code of 2007 (enforced in 2011). These are discussed further below.

1. The National Bank of Cambodia (NBC)

The NBC is the central bank and is charged with supervising and regulating financial institutions in Cambodia. It has the power to license banks, regulate money transfers, provide credit, conduct foreign exchange transactions, and deal in precious minerals and commodities. The NBC’s authority to supervise and regulate banks includes authority over micro-finance institutions (MFIs), specialized banks and commercial banks (known collectively as “covered entities”). The NBC’s powers extend to insolvency actions involving to covered entities.

The NBC may require all covered entities to submit reports on a monthly, semi-annual, or annual basis regarding their activities and compliance with regulatory requirements. It may appoint an examiner to investigate bank operations, appoint a control committee to run and manage the bank, establish credit ceilings and foreign exchange requirements, set banking business hours, and establish interest-rate guidelines.

If a bank or financial institution is held to have violated or be operating in violation of the Banking Law, the NBC has wide ranging powers – from imposing fines to revocation of the covered entity’s license, seeking a term of imprisonment through a court order and it has the authority to appoint a provisional administrator in order to preserve, remedy, or resolve such a bank’s financial position. The provisional administrator may be appointed by the court as a liquidator with the authority to liquidate the bank’s assets where necessary.

An important development in the banking sector came in late 2006 with the introduction of an indefinite license being provided by the NBC to all forms of banking and financial institutions operating in Cambodia. Moreover, in late 2007, some licensed MFIs that satisfied certain additional regulatory requirements were licensed by the NBC to collect deposits from the public: these institutions are called micro-finance deposit institutions (MDIs).

2. Types of Banks

The Banking Law divides banks into commercial banks, specialized banks, and specialized financial institutions (including securities companies). MFIs and MDIs are not explicitly recognized in the Banking Law but are subject to the Banking Law and supervised by the NBC because MFIs and MDIs engage in banking activities. Only licensed banks, MFIs, and MDIs may engage in the activities set out in the Banking Law.

Banking activities conducted by commercial banks shall be carried out by a public limited company. In terms of licensing, the Banking Law requires the NBC to consider, among other things, the characteristics of any “influential shareholder,” as defined by law, and to consider the extent that an applicant bank’s ownership would be spread among shareholders. The NBC looks to the above qualities for the purpose of determining whether the proposed shareholders of the Cambodian bank would be able to inject capital where the proposed bank fails to meet its prudential requirements.

All commercial banks that existed before the Banking Law came into effect had to apply for a new license from the NBC after its promulgation. Commercial Banks must have a minimum registered capital of at least KHR 300 billion riel (USD 75 million).

Commercial Banks may carry out all types of banking operations, such as credit operations for valuable consideration, leasing, guarantees and commitment under signature, collection of non-earmarked deposits from the public, provision of means of payment to customers, processing of payments in national or foreign currency, foreign exchange operations, money market intermediation, transactions in derivatives, and spot or forward dealing in precious metals, raw materials, and commodities.

Specialized Banks are licensed by the NBC to engage in a limited subset of the activities which commercial banks are authorized to do. Specialized bank locally incorporated must maintain minimum registered capital of at least KHR 60 billion riel (USD 15 million).

MFIs are, generally, authorized to engage in credit services and saving, but an MDI license is required to collect deposits from the public. MFIs that have portfolios below a certain value and that have a limited number of borrowers are required to register with the NBC, but do not require an MFI license. Any MFI that has a portfolio above a certain value or a number of borrowers above the legally specified amount must be licensed as an MFI. MFI licensure requires the entity to be organized as a limited company or a cooperative. MFI must maintain minimum registered capital of at least KHR 6 billion riel (USD 1.5 million).

The NBC plays a very active role in regulating the banking sector. Several regulations dealing with matters such as corporate governance, insolvency ratios, and liquidity ratios of a bank or financial institution have been issued by the NBC. Amongst other financial activities, it is possible that banking activities are the most regulated business activities in Cambodia.

In practice, most commercial banks will perform overseas wire transfers, offer foreign exchange services, and will issue letters of credit secured by cash deposits. Lending is increasing, supported by recent developments regarding the enforcement of secured interests, as discussed below. Loans are typically for short terms with relatively high interest rates compared to those found in developed countries, and security or collateral is often a necessity.

The Banking Law sets out a step-by-step procedure for provisional administration and subsequent liquidation of banks when they fail to carry out their duties and obligations under the law. In particular, there are procedures for appointing a provisional administrator after attempts at recapitalizing the bank via capital injections from “influential shareholders” do not succeed. The NBC may appoint a provisional administrator who then has exclusive powers to manage, direct, and represent the bank. The provisional administrator may declare the suspension of payments and refer the case to the court, which will appoint a liquidator.

3. Insurance

Under the Insurance Law, only insurance companies, agents, and brokers that are licensed to operate in Cambodia may insure risk, sell insurance products, and conduct an insurance business in the country. Insurance contracts must be prepared in Khmer language and are subject to principles of good faith and mutual benefit to all the parties. Insurance companies, whether state-owned, private, or joint-venture are only allowed to operate in Cambodia in the form of public limited companies.

Life insurance companies and general insurance companies are each separately licensed and required to have registered capital of at least approximately USD 7 million (actual value expressed in SDR (Special Drawing Rights), the exchange rate is for the date on which the license is granted). For companies involved in both life and general insurance, the required registered capital is approximately USD 14 million. The insurance company is required to make a 10 percent fixed guarantee deposit with the NBC. This deposit is maintained until the company ceases its business operations in Cambodia.

Purchase of insurance from a licensed insurance company is required for the following: motor vehicle third-party liability insurance for all types of commercial transport vehicles (including passenger transport); and all buildings, repairs, and installation sites under the responsibility of entrepreneurs, contractors, or sub-contractors, except those of the state. In August 2008, a regulation on the life-insurance business was adopted by the MEF.

4. Financing and Secured Transactions

Domestic lending has expanded in recent years. In 2015, the amounts lent by banks registered in Cambodia increased in value by approximately 33% over the previous year. Cambodia’s legal framework allows relatively unrestricted local and foreign lending and the growth outlook for Cambodia remains positive.

Security over movables may be governed by either the Civil Code or the Law on Secured Transactions. While it is possible to take a pledge or assignment by way of transfer under the Civil Code, such forms of security are rarely used due to the burdensome nature of the requirements. The Law on Secured Transactions, on the other hand, provides creditors with a robust and efficient framework within which they may take security over locally based movables.

Subject to some restrictions, movable property that may be given as security under the Law on Secured Transactions includes both tangible and intangible assets such as; rights, claims, shares, accounts, and secured sales contracts, and they may secure one or more obligations.

The Law on Secured Transactions established the Secured Transactions Filing Office, under the auspices of the Ministry of Commerce (MOC). Security interests may be registered (or de-registered) quickly and at a low cost. Records of past security filings may be found since the start of operations of the Secured Transactions Filing Office in early 2008.

The Law on Secured Transactions cannot be used to take security over immovable property, and the Civil Code remains the primary governing legislation in respect thereof. Under the Civil Code, lenders may take a hypothec (similar to a mortgage) over the land. Other forms of security are also possible (e.g. a pledge of land) but these are relatively uncommon in Cambodia.

Generally, the hypothecee will take possession of the hard title to the hypothecated property and register its security interest at the relevant land office. It is critical for lenders to conduct proper due diligence on the hypothecator’s title to the land.

5. Currency and Foreign Exchange

Cambodia is primarily a cash-based economy; however credit cards are becoming more commonly accepted commercially. The national currency of Cambodia is the Khmer Riel (KHR), which has remained stable since 1998 at around 4,000-4,200 Riel to the US dollar.

Parties are free to denominate their transactions in foreign currencies. The US dollar is in common circulation and is freely traded throughout the country (though less so outside of the capital of Phnom Penh).

The 2003 Investment Law guarantees that investors may freely remit foreign currencies abroad for the purposes of the following:

• payment for imports and repayment of principal and interest on international loans;
• payment of royalties and management fees;
• remittance of profits; and
• repatriation of invested capital upon dissolution of an investment project.

Under the Foreign Exchange Law of 1997, foreign currencies may be freely purchased through the banking system. The law specifically states that there shall be no restrictions on foreign exchange operations, including the purchase and sale of foreign exchange, transfers, and all types of international settlements. However, the law does require these transactions to be performed solely by authorized intermediaries. These intermediaries are the lawfully established banks in Cambodia, required to report transactions in excess of USD 10,000 to the NBC. There is no requirement that the investor sending or receiving the funds make a report on the transaction. The burden rests solely with the bank as the authorized intermediary.

It is important to note that while foreign exchange transfers are not currently restricted, the law does allow the NBC to implement exchange controls in a foreign-exchange crisis. The events that would constitute such a “crisis” are not specified.

6. Negotiable Instruments

Negotiable Instruments are written orders or promises to pay a determined sum of money, transferable by delivery, and where required, also with endorsement. They include checks, bills of exchange, and promissory notes. The Law on Negotiable Instruments, promulgated on October 24, 2005, governs the use of negotiable instruments. The following points are treated in detail: endorsement, acceptant, aval, maturity, payment, recourse for non-acceptance or non-payment, intervention for honor, parts of a set, copies, alternations, limitation of actions of recourse and time calculations.

Payment transactions are transfers of funds, either credit or debit, between or from bank accounts, initiated by means of a payment order, which may be written, electronic, or under some conditions, in oral form.

Payment systems consist of institutions and mechanisms facilitating payments in money and the transfer of monetary value by means of payment transactions. In addition to the sanctions imposed by the Law on Negotiable Instruments and Payment Transactions, such as a fine from KHR 5 million to KHR 50 million, and imprisonment from two to five years, the NBC is granted broad powers to adopt and enforce penalties on persons who fail to pay debts in connection to negotiable instruments and payment orders. The penalties may include: a warning or a reprimand; a prohibition or limitation on issuing any negotiable instruments or authorizing debit transfers for up to 12 months; a penalty payment of 5 percent to 100 percent of the face value of any dishonored instrument, payment order, instrument or authority issued, in violation of a prohibition or restriction.

7. Impact of the Civil Code on the Banking Business

The Civil Code is a relatively recent piece of legislation that applies to obligations generally. It is general legislation and therefore, as a general principle, any provisions of any law applicable to banks and other financial institutions that conflict with any provision of the Civil Code are likely to take precedence over the conflicting term in the Civil Code. The main provisions of the Civil Code affecting or that may affect banking business relate to;

• formation of contracts;
• assignment/novation of contractual positions;
• grounds on which a contract may be rescinded (reflecting, in part, consumer protection concerns);
• taking of guarantees and the formalities required;
• security interests (described above);
• rates of interest chargeable on “loans for consumption”; and
• requirements on sellers to explain the details and risks of transactions.

Chapter 9 : The Securities Markets

You can download the complete guide for free here.

The post Investment Guide Cambodia : Banking and Finance appeared first on DFDL.

Prakas No. 518 “The Implementation of Withholding Tax on Dividend Distributions” (“Prakas 518”) was issued by the Ministry of Economy and Finance in Cambodia (“MEF”) on the 5th of this month and provides much needed clarity and guidance on the application of the withholding tax (“WHT”) regulations to dividend distributions from a resident taxpayer in Cambodia to their non-resident shareholders.

Prakas 518 makes reference to the amended definition of “dividend” in Article 26(1) and 33 of the Law on Taxation (“LOT”) as follows:

The term “dividend” means any distribution of money or property that a legal person distributes to a shareholder with respect to the shareholder’s equity interest in such legal person, with the exception of capital or corporation/equity distributions in the period of liquidation of the company. Whether or not a distribution is a dividend shall be determined under the preceding condition without regard to whether or not the legal person has net income in the current year or from the previous year.

As described in Articles 26 and 33 of the LOT, a dividend that is distributed from a resident taxpayer to a non-resident taxpayer will be subject to a 14% WHT on the amount paid.

Conversion of Retained Earnings to Equity

The salient point of Prakas 518 is the affirmation by the MEF (contained in Article 6 of Prakas 518) that a conversion (in whole or in part) of retained earnings into capital or equity will not be considered as a dividend distribution and therefore not subject to WHT.

Article 6 goes on to state that a conversion of retained earnings to capital or equity should be properly documented and approved by the regulatory bodies in Cambodia. This would typically involve documenting a shareholder resolution from the Board of Directors attesting to the conversion and obtaining of approval from the Ministry of Commerce to amend the Articles of Incorporation reflecting the increase in capital. The General Department of Taxation must also be notified of the conversion within 15 days from the date of the Ministry of Commerce’s approval.

Article 7 of Prakas 518 notably provides that if a company; transfer shares or distribute equity or capital back to its non-resident shareholders (either via a capital reduction or liquidation), when this capital originates from a conversion of retained earnings to capital, the 14% WHT will apply at this time.

Analysis

The importance and timeliness of this Prakas cannot be overstated given the persistent uncertainty and concerns previously felt by certain sectors of the taxpaying community surrounding both the definition of ‘dividend’ under the LOT, and the timing of WHT.

As noted above, this uncertainty was not helped by the recent amendment to the definition of ‘dividend’ in the LOT (under the 2017 Law on Financial Management) which removed the reference to a stock dividend as one excluded for tax purposes. Stock dividends are permitted in general under Article 159 of the Law on Commercial Enterprises (“LCE”) which states: “A company may pay a dividend by issuing shares of the company…..”

Nonetheless, in the wake of Prakas 159, due care must be taken on how a company deals with a conversion of retained earnings to capital. While stock dividends can indeed be issued from other sources, they are usually issued from retained earnings. Consequently, a conversion of retained earnings to capital and the issuing of a stock dividend are substantively very similar. However, for the purpose of reducing WHT exposure at the time of conversion, careful use of terminology needs to be adhered to. The issuing of stock dividends, while very similar in substance to a conversion of retained earnings to capital, could be treated differently by the tax authorities depending on what source of funding is used to issue them.

The rationale as to why WHT should not apply to a conversion of retained earnings to capital is that, in practical terms, the conversion does not constitute a taxable distribution from a company to its non-resident shareholders. In theory, therefore, there has been no transfer of economic value. While the non-resident shareholder’s equity will increase due to the conversion, the underlying cash consideration and economic value remains within the business to be used for company expansion or other purposes. 

The current LOT definition of a dividend expressly contemplates a “distribution of money or property” based on a shareholder’s equitable interest in the underlying company. Company shares represent a claim on the company’s assets and earnings by the shareholder. As noted above, a conversion of retained earnings to capital does not represent a distribution of money or property from the company. Instead it allows money and property to remain in the company, and simply increases the shareholders’ claim on the company’s assets and earnings by increasing their equity.

Under Article 7 of Prakas 518, in the event of a conversion of retained earnings to capital which increases the shares held by non-resident shareholders, the 14% WHT is merely suspended until the affected shares are transferred or paid back to the non-resident shareholder via a capital reduction or company liquidation. The company that issued the shares is responsible, as a withholding tax agent under the LOT, to pay the WHT to the tax authorities on the 20th of the month after such an event.

Worth noting further is that, under the revised definition of ‘dividend’ in the LOT, the tax authorities can now deem a distribution to shareholders as a dividend, even if they have no current or historical retained earnings.

If you need any assistance with a conversion of retained earnings to capital or dealing with your tax obligations please contact us.

The DFDL Banking and Finance and Tax teams are always on hand to assist you in answering any questions that you may have on this and other regulatory matters of concern.

DFDL Contact : 

Clint O’Connell

Cambodia Head of Tax

clint.oconnell@dfdl.com

&

Daniel Wein

Head of Banking and Finance

daniel.wein@dfdl.com

Tax services required to be undertaken by a licensed tax agent in Cambodia are provided by Mekong Tax Services Co., Ltd, a member of DFDL and licensed as a Cambodian tax agent under license number – TA201701018

The post Cambodia Tax Update : Important Update regarding WHT and Dividends appeared first on DFDL.

When : 19th May 2017

Where : Vientiane, Laos

DFDL Tax Partners Jack Sheehan and Senesakoune Sihanouvong discussed the latest tax rules applicable to foreign contractors in the Lao PDR, and how pro-active tax planning can help minimize any unwanted surprises.

In an informal setting over coffee and croissants, where DFDL discussed in detail the crucial new rules that foreign contractors must now take into consideration.

Key topics:
• How the Amended Tax Law applies in practical term to Foreign Contractors and Consultants
• The latest tax registration requirements for Foreign Contractors and Consultants
• Special VAT rules which applies to non-resident Foreign Contractors
• Withholding tax rules that apply when hiring Foreign Contractors
• Rules that applies to INGOs and Concession Holders
• Exemptions and reliefs that may be obtained under tax treaties and how to apply for these in the Lao PDR; and
• Other taxes which applies to staff and the hiring of labor and consultants.

Speakers: 

If you have any questions or require further information, please do not hesitate to contact us.

DFDL Contact: 
Mr. Steve Major
Finance and Admin Manager
steven.major@dfdl.com
+856 20 59532304

The post Tax Planning for Foreign Contractors and Consultant in the Lao PDR – The Things You Need to Know | 19 May 2017 | Vientiane appeared first on DFDL.

This is the chapter 9 out of 19 chapters of our Cambodia Investment Guide. Learn the best way to invest in Cambodia. Download the full publication here.

Chapter 9 : The Securities Markets

The Cambodian Stock Exchange (CSX), a joint venture between the government of Cambodia and Korea Exchange, was established in mid-2011 to offer increased access to the equity capital markets in Cambodia. For this purpose, the Securities and Exchange Commission of Cambodia (SECC) was established to assist the government on the strategic and regulatory aspects of the securities market in Cambodia and to license all relevant securities-related operators, including the securities market operator, securities depository, clearance and settlement of facility operators, underwriters, dealers, brokers, investment advisors, securities representatives, investment advisory representatives, securities-specialized accounting firms, cash settlement agents, securities registrars, securities transfer agents and paying agents.

This chapter will primarily help companies and investors understand the general regulatory framework of securities, initial public offerings and corporate governance of the listing company.

1. Overview of Securities Regulatory Framework

The securities market is primarily governed by the Law on the Issuance and Trading of Non-Government Securities, dated October 19, 2007 (Securities Law) and its implementing Sub-Decree No. 54, dated April 8, 2009 (Securities Sub-Decree); implementing regulations issued by the SECC; and the Law on Government Securities, dated January 10, 2007 (Government Securities Law).

Securities include government securities and non-government securities. Non-government securities issued by public limited companies or other legal entities include equity securities, bonds or debentures, interests in a managed investment scheme, derivative instruments, and government securities including Treasury bills, Treasury bonds, and other instruments creating or acknowledging indebtedness and issued by or on behalf of the government.

2. Securities Market Operator, Clearance and Settlement Facility Operator, and Securities Depository Operator

Securities market operators, clearance and settlement facilities operators, and securities depository operators may be separately licensed by the SECC. The National Bank of Cambodia (NBC) may operate a clearance and settlement facility or securities depository without being licensed by the SECC. A securities market operator may not be authorized unless clearance and settlement facilities are adequately established. A securities market, deposit, and clearance and settlement operator license was issued on February 28, 2011 to only one company – the CSX, which is 55 percent owned by the Cambodian government and 45 percent owned by Korea Exchange.

3. Securities Firms

Securities firms, including underwriters, dealers, and brokers, may trade securities in the securities market under their own account or on behalf of their clients. Securities firms must be licensed by the SECC. Certain securities dealers will be exempt from licensing requirements where the dealers engage in certain exempt securities transactions.

A securities underwriter may:

• provide important advice on issues of securities such as pricing and distribution timelines or issue an amount and number of securities to be issued in the offering and so on;
• acquire from an issuer all or part of the securities, with a view to distributing or reselling;
• acquire the unsold portion of the securities in a public offering, with a view to ensuring the success of the issuance; or
• make arrangements for a public offering on behalf of an issuer or participate directly or indirectly in a public offering.

Additionally, a securities underwriter may also operate a securities dealing, securities brokerage and investment advisory business.

4. Securities Dealers, Securities Brokers, and Investment Advisory Firms

A securities dealer may trade securities on its own account and at its own risk. Additionally, a securities dealer may also operate a securities brokerage and investment advisory business.

A securities broker may buy or sell securities on behalf of and by the order of its clients for a commission. A securities broker may also operate an investment advisory business.

An investment advisory firm is a professional firm licensed by the SECC to provide investment advisory services to public investors regarding decisions on securities investment. Fifteen securities and investment advisory firms were licensed by the SECC for an initial term of two years from 19 October 2010. Currently there are six securities underwriters, one securities dealer and three securities brokers licensed by the SECC.

5. Equity Securities Issuance or Initial Public Offering

Securities may be issued under the form of private placement or initial public offering (IPO). Private placements may be made only if: i) the total number of people to whom the offer is made is no more than 30; and ii) the offering is not publicly advertised by any means including for the purposes of asking for information or any advice on the securities investment.
Private placements will not be authorized by the SECC, but the SECC must be notified of the placement when the private placement is completed, and the result of the placement must be reported to the SECC. To date, no comprehensive guidelines or regulations have been adopted to regulate private placements.

Securities cannot be publicly issued and traded unless they are authorized by the SECC upon all requirements being satisfied. An IPO may not be conducted unless, amongst other things, the requirements in the following sections are satisfied.

In late 2015, the SECC redefined the stock exchange markets by introducing a new market called the Growth Board. The original stock exchange market being called the Main Board. Although these two stock exchange markets are not expressly defined, based on the listing requirements for each board, these two markets are operated based on the size of the companies proposing to list. Pursuant to Prakas 006/15 on Implementation of Listing Rules dated 10 September 2015, at the application date, to be listed in the Main Board, an eligible applicant must have total shareholders’ equity of KHR 30,000,000,000 (approximately equivalent to USD 7,500,000) and KHR 2,000,000,000 (approximately equivalent to USD 500,000) to be listed in the Growth Board. Any listed company may apply to move from the Growth Board to the Main Board, subject to submission of an application to the SECC and fulfillment of requirements under the Main Board. Pursuant to this Prakas, it is understood that the purpose of the Growth Board is a listing market instituted for small and medium sized enterprises and newly incorporated companies that have potential for high growth.

5.1 Corporate Compliance

An issuer must comply with the following corporate requirements:

• the issuer must be a public limited company or permitted entity;
• share ownership of the shareholders holding the largest number of voting shares must not be changed for the last one (1) year until being officially listed; and
• the issuer must prepare and maintain corporate records including articles of incorporation, minutes of meetings, the resolutions of directors and the committees “of directors”; copies of all meeting notices; a securities register; shareholders’ agreement; minutes of meetings thereof and shareholders’ resolutions and share certificates.

Furthermore, depending on which Board an issuer is listed on, an issuer must comply with the following:

For the Main Board:

• shareholder’s equity must not be less than KHR 30 billion at the date of filing the application for initial listing on the CSX;
• the number of shareholders holding less than 1% voting shares, holding 10 shares or more, must be at least 200 as of the date of completing the procedures for initial listing, unless determined otherwise by the SECC as proposed by the CSX; and
• the number of shares held by shareholders holding less than 1% voting shares must be at least 7% of the total voting shares, unless determined otherwise by SECC as proposed by CSX;

For the Growth Board;

• shareholder’s equity must be not less than KHR 2 billion at the date of filing the application for initial listing at CSX;
• number of shareholders holding less than 1% voting shares, who hold 10 shares or more, must be at least 100 as of the date of completing the procedures for initial listing, unless determined otherwise by SECC as proposed by CSX; and
• number of shares held by shareholders holding less than 1% voting shares must be at least 10% of the total voting shares, unless determined otherwise by SECC as proposed by CSX.

5.2 Regulatory Compliance

An issuer must comply with the following regulatory requirements;

• the issuer’s establishment must be in good standing with regard to company registration, tax registration, labor registration, the National Social Securities Fund (NSSF), including the filing of all changes or amendments and other required documents;
• the issuer must have regulatory approvals or licenses required for some specific activities such as environment impact assessment reports, construction permits, factory licenses, tourism licenses, and/or specific operating licenses; and
• the issuer must report to the relevant authorities such as the Council for the Development of Cambodia (CDC), the Ministry of Commerce (MOC), the General Department of Taxation (GDT), and/or other governmental authorities.

5.3 Accounting and Tax Compliance

An issuer must prepare financial and accounting records in compliance with accounting standards as determined by the Ministry of Economy and Finance (MEF), and the records must be properly kept for 10 years. The issuer is also required to file monthly and annual tax returns to the GDT.

5.4 Corporate Governance

An issuer cannot be listed on the securities market unless, among other things, corporate governance requirements are strictly observed and implemented under Article 38 of the Securities Law.

The issuer must set up a mechanism to: (i) protect the shareholders’ and other stakeholders’ rights; (ii) organize the management structure of the company, as well as determine the authority and obligations of the board of directors; and (iii) set up a management monitoring system to facilitate disclosure and transparency.

The board of directors must be composed of independent directors, at least one-fifth of whom are board members. An audit committee and a risk management committee must be established by the board. Both the audit committee and risk management committee must be composed of at least three members, with each committee chaired by an independent director. A code of conduct and ethics for directors and senior officers must; be adopted by the board and publicly disclosed. The issuer is required to set up a management monitoring system through market mechanisms and disclosures in an efficient and timely way, providing required information that may influence the decision-making of shareholders and other stakeholders.

5.5 Prospectus

The issuer must prepare a prospectus with the assistance of the underwriter, accounting and auditing firm, law firm, and other reliable professional advisers.

The content of the prospectus must address the following;

• general information;
• risk factors;
• use of proceeds;
• investment projects;
• description of business;
• description of plant, machinery, and equipment;
• operational plan and financial position;
• asset valuation and/or re-valuation;
• directors and officers;
• involvement of directors and officers in certain legal proceedings;
• certain relationships and related parties’ transactions;
• directors’ and officers’ compensation;
• options granted to directors, officers, and employees;
• transactions with directors and shareholders;
• net assets per share and earnings per share;
• ownership of the issuer’s equity securities;
• determination of the offering price;
• description of equity securities being offered;
• financial information and financial statements; and
• consolidated financial information and financial statements.

The prospectus must be registered with and approved by the SECC.

6. Initial Public Offering Process

Before starting the process for an IPO, the issuer must engage an underwriter that advises the issuer to comply with the requirements above, to prepare the prospectus, and to determine the amount of shares or other securities to be issued and the price.

Next, the issuer must file an application to the CSX to determine whether it may be able to be listed on the CSX. After the CSX confirms the listing eligibility of the issuer, the issuer files the final prospectus to the SECC for its IPO.

After the SECC issues approval-in-principle for the IPO, the issuer prepares and submits the terms and conditions, including the securities pricing to be approved by the CSX and then by the SECC. After the prospectus is registered and approved by the SECC, the newly issued securities (20 percent reserved for Cambodian individuals and 80 percent for the public) are offered to and subscribed by the public through securities underwriters, dealers and/ or brokers. The underwriter itself is required to subscribe the outstanding newly issued securities after the end of the subscription date, if any. At the end of the IPO, the issuer is required to register with the CSX so that its securities may be traded.

7. Other Securities Supporting Actors

The securities and the subscribers will be registered with the securities registrar of the issuer. ACLEDA Bank PLC and Tricor Securities Services PLC were licensed by the SECC on 28 February 2011 as securities registrars for the issuer.

After registration with the CSX, the securities may be freely traded on the market. To facilitate the trading process, three cash settlement agents – ACLEDA Bank PLC, Canadia Bank PLC, and Bank for Investment and Development of Cambodia PLC (BIDC) – were licensed by the SECC on 28 February 2011 to assist securities firms in settling payments for the securities.

During securities trading, any of the transfer agents and paying agents – ACLEDA Bank PLC, or Tricor Securities Services PLC, licensed by the SECC on 28 February 2011 – are required to be engaged by the issuer to assist in registering the securities and paying dividends and interest, if any, at the end of each financial year.

Please note that all issuers need to be audited by independent auditors accredited by the SECC. Currently, there are six audit firms – PricewaterhouseCoopers (Cambodia) Ltd., KPMG Cambodia Ltd., BDO Cambodia Limited, Ernst & Young (Cambodia) Ltd., Angkor Certified Accountant Network McMillan Woods (Cambodia) Co., Ltd., and Grant Thornton (Cambodia) Ltd. –accredited by the SECC to assist issuers.

8. Developments at the CSX

The CSX has been in operation since mid-2011. However, the first IPO (of shares in the Phnom Penh Water Supply Authority (PPWSA)) did not take place until April 2012. Currently, there are four companies listed on the Cambodia Stock Exchange (CSX), these are;

• Water Supply Authority (PPWSA), listed on 18 April 2012
• Grand Twins International (Cambodia) PLC (GTI), as the first private company, listed on 16 June 2014
• Penh Port Autonomous (PPAP) as the first joint-venture public enterprise, listed on 9 December 2015
• Phnom Penh SEZ Plc. (PPSEZ), the first private Cambodian company, listed on 30 May 2016

IPOs for two other government authorities (the Phnom Penh Electricity Authority and the Sihanoukville Port Authority) were to accompany the PPWSA IPO, but those IPOs have not occurred as of the date of publication. This is not a reflection of issuer confidence, but a reflection of the fact that Cambodian companies have not traditionally been focused on maintaining accounts with the required form and detail.

This fact, combined with the strict requirements for listing and the rigorous approach taken by the SECC to its supervisory duties means a certain period of time will be required for companies to meet the relevant requirements. These are very early days and market participants are confident that further IPOs will be launched in coming years.

Chapter 10 : Real Estate, Zoning, and Construction

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This is the chapter 19 out of 19 chapters of our Cambodia Investment Guide. Learn the best way to invest in Cambodia. Download the full publication here.

Chapter 19 : Anti-Money Laundering

There are three major anti-money laundering (“AML”) legal instruments (one law and two Prakas) that are generally applicable to money laundering prevention and enforcement in Cambodia. Due to transparency issues in the process of law enforcement and the court system, no estimate can be made regarding the frequency of enforcement actions regarding money laundering. However, evidence of an increased focus on AML policies are indicated by the 2012 creation of the National Coordination Committee on Anti-Money Laundering and Combating the Financing of Terrorism. The key role of the committee is to ensure effective implementation of AML laws, including compliance with the international Financial Action Task Force on Money Laundering (“FATF”) recommendations, the Asia/Pacific Group on money laundering recommendations and all United Nations anti-money laundering initiatives. The Royal Cambodian Government has stated its continued commitment to preventing money laundering and AML laws continues to develop.

A. Law on Anti-Money Laundering and Combating Terrorism Financing (30 April 2007) (the “AMLCTF”).

The AMLCTF provides the legal framework for money laundering and terrorism financing prevention. The AMLCTF (as amended, the amendment is discussed further below) defines, for the purposes of law, the act of money laundering and creates obligations for “reporting entities” and their employees in Cambodia. “Reporting entities” broadly includes banks, financial services institutions, money exchange and remittance services, dealers of precious metals and stones, real estate companies, casinos and professional services including lawyers and accountants (reporting entities may be referred to as a “company” or “companies”). Reporting entities who engage in the following business activities are subject to the AMLCTF;

1. Buying and selling real estate;
2. Managing client money, securities, or other assets;
3. Managing bank accounts;
4. Organizing contributions of company capital;
5. Forming legal entities for the purpose of buying or selling other entities; or
6. Acting in trust or as a company preparing for or carrying out transactions for a client, specifically, (i) acting as a formation agent of legal persons, (ii) acting as or arranging for another person to as a director, partner, or similar position for a legal entity, iii) providing a registered address for another legal entity, (iv) acting or arranging another to act as a trustee, and (vi) acting as or arranging another to act as a nominee shareholder for another person.

Some of the most important obligations created by the AMLCTF are;

1. The board of directors of a company must establish internal controls to prevent money laundering which includes appointing one or more management-level compliance officers;
2. Each compliance officer is responsible for establishing policies and procedures, including creating a manual for employees, to prevent money laundering and terrorism financing and ensure that the staff act consistent with the policies;
3. A company shall provide training to its staff on anti-money laundering and terrorism financing policies, procedures, suspicious activities, and relevant law;
4. A company must adequately identify its customers, identify the nature of its business relationship, identify the beneficiary of such business, and conduct on-going due diligence related to the same;
5. A company shall maintain records of its customers’ identification and transactions for five years;
6. A company has the responsibility to report to the CAFIU (defined below) suspicious transactions, any transaction conducted by persons identified by the United Nations Security Council, any transaction of $10,000 or more in cash, or a series of small transactions whose aggregate cash transfer is more than $10,000, among other situations requiring reports; and
7. A company who cannot identify who the customer is, or the beneficial owner of the relevant account or transaction is, or otherwise suspects money laundering or terrorism financing shall not conduct such business with the customer.

The Cambodian Financial Intelligence Unit (“CAFIU”) is the regulator of anti-money laundering activities and terrorism financing prevention in Cambodia. CAFIU is responsible for analysing information submitted to it and sending relevant information to law enforcement authorities. The National Coordination Committee on Anti-Money Laundering and Combating Financing Terrorism is a sub-group of CAFIU.

The amendment to the AMLCTF amends the definition of the criminal offence of money laundering, its associated penalties, offences for knowingly violating other obligations created by the AMLCTF and the penalties associated with such violations. Updated violations include knowingly failing to report large cash transactions and suspicious transactions and “tipping off,” which is the disclosure of a reporting entities’ obligation to report a transaction to an unauthorized person. Penalties include confiscation of property, imprisonment and fines.

B. The Prakas on Anti-Money Laundering and Combating the Financing of Terrorism (30 May 2008) and the Prakas on Anti-Money Laundering and Combating the Financing of Terrorism Relating to All Reporting Entities Not Regulated by the National Bank of Cambodia (21 December 2010).

Together, the two above-mentioned Prakas cover “reporting entities” that are regulated by the National Bank of Cambodia (“NBC”) (the 2008 Prakas) and those that are not regulated by the NBC (the 2010 Prakas). The two Prakas are substantially similar and clarify the policies and procedures that are required by the AMLCTF. Notably, the Prakas;

1. Impose specific requirements for conducting business with “politically exposed persons”;
2. Require reporting entities to have information management systems in place;
3. Require reporting entities to have a policy manual which contains the reporting entities’ procedures to comply with the law;
4. Specify the acceptable types of identification and the procedures for identifying individual and corporate customers. For corporate customers, this includes conducting a corporate search and other due diligence regarding the identification of the beneficiaries when conducting business with a corporate entity;
5. Require the company to ensure its corporate customers are not in the process of being dissolved or wound up; and
6. Prohibit doing business with shell entities that engage in no commercial business of their own regardless of whether the shell entity has the legal capacity to enter into such a transaction.

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This is the chapter 11 out of 19 chapters of our Cambodia Investment Guide. Learn the best way to invest in Cambodia. Download the full publication here.

Chapter 11 : Telecommunications

This chapter reviews the telecommunications sector in Cambodia, examining the country’s performance and prospects in this sector while analyzing the current regulatory environment and likely future direction.

The new Law on Telecommunications promulgated on 17 December 2015, is very much a framework law and subject to many new sub-regulations yet to be formulated. Implementation of an industry specific regulatory framework is still a relatively new concept in Cambodia. However, as investor interest in this fast-developing sector continues to grow, the regulatory framework itself has started to progress somewhat. Based on the promulgation of the new Law as above, a number of telecommunications regulations are expected to take effect in the near future with the aim of streamlining the sector and encouraging its further growth.

The development trend in Cambodia’s telecommunications sector remains positive as the industry gains deeper domestic market penetration. One of the key factors facilitating this growth has been a combination of heavy foreign and local investment encouraged by a lack of restrictions or limitations on foreign ownership in this sector.

Governmental efforts to liberalize the market by allowing private investment and promoting competition have also contributed to the success of the telecommunications sector, especially with regard to mobile services. With lower-than-average mobile phone tariffs compared to other Southeast Asian countries, mobile services in Cambodia have surpassed the growth of fixed-line systems which remain relatively underdeveloped.

Increasing internet access and greater market penetration of this in Cambodia are also prime factors. Nonetheless, compared to neighboring countries, subscription rates are still very low providing plenty of scope for future investment and development.

On the whole, the outlook for Cambodia’s telecommunications sector looks promising and the sector is primely positioned to enjoy robust growth in the years to come.

1. The Current Regulatory Environment

The Telecommunication Regulator of Cambodia (“TRC”) was established in 2012. Previously the duties of reviewing laws and regulations and managing the telecommunications market were undertaken by the Ministry of Posts and Telecommunications (“MPTC”).

The TRC is an independent and accountable regulator striving towards a global, competitive, stable and more self-regulating telecommunications industry in order to generate economic growth and address the social needs for the development of Cambodia.

Generally, the TRC is responsible for policymaking. The TRC is vested with regulatory and supervisory authority including the responsibility of issuing and administering licenses and the administration of Cambodia’s radio frequency spectrum.

By way of background, the MPTC simultaneously played the roles of policymaker, regulator and operator of Cambodia’s fixed-line telephone network. Despite the MPTC establishing Telecom Cambodia (“TC”) in January 2006 as a state-owned enterprise, to separate its operational wing, TC remains under the technical administration of the MPTC and the financial administration of the Ministry of Economy and Finance (“MEF”). The absence of a comprehensive telecommunications regulatory framework combined with current industry practice in Cambodia has resulted in the TRC having great discretion over the granting of licenses, determination of terms and conditions attached to these licenses and general policymaking surrounding the telecommunications sector.

The TRC has the following functions and duties;

• implementation of telecommunications sector policy developed by the MPTC;
• ensuring telecommunications sector structures are in line with the telecommunications sector policy;
• supporting the telecommunications market environment in order to ensure fair and effective competition in the telecommunications sector;
• protecting the public interest in receiving services provided by licensees;
• enforcing regulations for the telecommunications sector; and
• determine which telecommunications networks and services are required to have a standard license or a particular license.

2. Telecommunications Law

This law has been promulgated and intended to ensure the use of infrastructure/facilities, networks and the provision of effective, safe and reliable services for the benefit of Cambodian society. The law also seeks to encourage private companies in developing the sector, protect users and promote increased national budget revenues. This law addresses issues such as management competence, use of infrastructure and networks, standards of service, equipment, universal access, a national telecommunications numbering plan, electronic addresses, rules on service pricing, legal and fair competition and the rights of operators and users.

The TRC will have autonomy in administrative and regulatory matters and will be independent of operators and persons related to the telecommunications sector. Only those persons and entities approved by permission letter, certificate or license from the TRC may engage in telecommunications operator services. The MPTC is responsible for networks and infrastructure supporting the sector.

Within one year after entry into force of the new Law on Telecommunications, operators and persons involved in the sector are required to satisfy new conditions set by the TRC to ensure compliance with this law and other relevant regulations in order to apply for authorizations, certificates or licenses.

Despite the developments in the regulatory framework in Cambodia, these are still outpaced by the rapid growth and development of infrastructure in the sector. Consequently, there is usually a disparity between regulations and some of the legal and technical practices in place.

At present, primary regulatory aspects of the telecommunications sector are governed by practices and procedures of the TRC/MPTC which also issue regulations and circulars under old legislation inherited from the United Nations Transitional Authority in Cambodia (“UNTAC”). Some of the recent important regulations issued by the TRC/MPTC include;

• instruction of the TRC regarding management on cost of mobile phone and fixed phone services and the cost of inter-connection between telecommunications operators;
• Inter-Ministerial Circular (MEF and MPTC) regarding measures to prevent unfair competition in the telecommunications sector (i.e. it contains reference to taxation of income and turnover in the case of commercial promotions and discounts by enterprises);
• Prakas on Inter-connection (“MPTC”) regarding inter-connection between telecommunications operators;
• Government regulations on prohibiting operators from blocking each other’s inter-connection traffic;
• notifications of the MPTC regarding the use of radio frequency and communication radio equipment; and
• MPTC Letter regarding Domain Registration Fee & Annual Fee for Government Institution.

Generally speaking, to construct, own, and/or operate a telecommunications network or provide any telecommunications services, a license must be obtained from the TRC/MPTC. Telecommunications licenses follow a fairly standard format with three principal classes;

• mobile (2G and 3G);
• ISP/Internet; and
• Voice over Internet Protocol (“VOIP”).

Currently, a license is required from the TRC/MPTC for the provision of the following services;

• mobile telecommunications services;
• fixed-line telecommunications services;
• VOIP services;
• Internet service provider (“ISP”);
• telecommunications-type approval form;
• national numbering plan;
• access code;
• public switched telephone network (“PSTN”); and
• Internet cafés.

The TRC/MPTC currently enjoys vast discretionary powers over the granting of licenses and setting the terms and conditions thereof which vary on a case-by-case basis. These terms are usually confidential between the TRC/MPTC and each licensee constituting a private agreement between the two parties.

There are however, some customary licensing terms and steps required when applying for such licenses. Customary steps for applying for a license may include;

• a letter to the TRC/MPTC requesting permission to apply for the license(s), a reasonable description of the service(s) to be offered, and if applicable, a discussion of the frequencies and spectrum required; and
• submission of information required by the TRC/MPTC (including, inter alia, feasibility studies, technical and business plans and other information as specified by the TRC/MPTC).

Customary terms may include;

• license terms of between 10 to 30 years onward (with some renewability);
• license fees based on a combination of a percentage of gross revenue (the percentage usually increases over the period of the license) plus a percentage of dividend sharing; and
• there may be inter-connection fees, an annual frequency charge fee, micro-wave license fees, etc., applicable on a case-by-case basis.

3. License Fees

Telecommunications operators are normally required to share both their revenues and dividends with the MPTC. The percentage of revenue and dividends to be shared increases incrementally and reaches around 10 percent over a 10-year period. Older licensees sometimes have to pay a higher revenue share. Licensees that have some fixed-network capability or carry international traffic may also be required to share up to 50 percent of their gross revenue with the MPTC or TRC. The exact percentages of revenue and dividends to be shared by operators with the TRC/MPTC vary on a case-by-case basis and are determined by the terms and conditions negotiated between the TRC/MPTC and the operator.

4. Roll-Out Obligations

Licenses do not normally contain any roll-out requirements other than to launch public services within one year of awarding the license.

5. Price Regulation

The telecommunications sector in Cambodia is price regulated, and operators are not free to fix prices based on market dynamics. The TRC/MPTC issues detailed tariff schedules for the inter-connection of telecommunications equipment and the provision of telecommunications services.

6. Radio Frequency Spectrum

Normally, the TRC/MPTC controls the radio spectrum and is responsible for awarding frequencies to telecommunications operators. In practice, other governmental departments also share this role, including the ministries of defense, interior, and information.

Radio frequencies are not always allocated in a transparent fashion and there have been instances of operators claiming that the same spectrum has been allocated at least twice. Operators are granted frequency allocations either as a part of their license(s) or through a side letter from the TRC/MPTC.

Similarly, there appear to be a number of mobile licensees having been granted frequency allocations but not having put them to use. The MPTC is now taking steps to re-register all allocations of frequencies and ensure that all frequency allocations are paid.

As per TRC/MPTC records, all of the GSM 2G spectrum has been allocated, and so has the 3G spectrum in the 2,100 MHz band. Spectrum in the 800 MHz band is still available for potential CDMA 2000 or GSM 850 use and also in the 1,900 MHz band.

7. Law on Concessions

In late 2007, to promote and facilitate the implementation of privately financed infrastructure projects in Cambodia the government promulgated a Concessions Law which amongst other matters, specifically authorizes the use of a concession contract (e.g., build, operate, and transfer [BOT]; build, transfer, and operate [BTO]; build, own, and operate [BOO] build, lease, and transfer [BLT]; modernize, own, and operate [MOO], etc.) in relation to infrastructure facilities (i.e. physical facilities and systems) for the telecommunications sector, including “telecommunications and information technology infrastructure”.

8. World Trade Organization Commitments

Cambodia became a member of the World Trade Organization (“WTO”) in 2004. Since then it has been developing laws at a significant pace to deal with matters covered by the WTO regime including laws related to telecommunications.

Cambodia has made certain commitments with respect to telecommunications services as part of its WTO accession treaty and has undertaken to follow these obligations in the WTO’s standard Reference Paper. The Telecommunications Law attempts to follow these standards.

Chapter 12 : Natural Resources and the Environment

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DFDL received strong exposure at two key renewable energy events in Hanoi last week. Partners Martin Desautels and Huynh Dai Thanh co-moderated a discussion panel at the Vietnam Renewable Energy Summit on 10 May, addressing the domestic clean energy mix. Panelists included representatives from The Blue Circle and Dragon Capital.

Leading into the Summit on 8 May, DFDL also co-hosted a cocktail reception for Asia Wind Energy Association members. Attendance was strong for the recently-formed association, which included presentations from GIZ and Siemens Gamesa.

For further info, contact info@dfdl.com

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This is the chapter 12 out of 19 chapters of our Cambodia Investment Guide. Learn the best way to invest in Cambodia. Download the full publication here.

Chapter 12: Natural Resources and the Environment

The regulatory framework for the use and protection of Cambodia’s vast natural resources has grown considerably in recent years. This framework is expected to continue to expand in the future as this sector receives financial support from external aid. This section outlines the regulatory regime currently in place. Keep in mind that because of the technical and complex nature of regulations in this area, implementation and enforcement can be inconsistent.

1. Oil and Gas

At present, Cambodia does not have a comprehensive petroleum law. Under current legislation the government body in charge of petroleum is the Ministry of Mines and Energy (“MME”) (formerly known as Ministry of Industry, Mines, and Energy (“MIME”) prior to 24 December 2013 and also incorporating the Cambodian National Petroleum Authority (“CPNA”)). Although new legislation governing the petroleum sector is currently being drafted, the industry is still governed by the Petroleum Regulations (1991).

Amongst other things, a General Department of Petroleum (“GDP”) was established under the MME to carry out central administration of the MME and deal with the day-to-day administration of the petroleum resources and petroleum products sector. This covers all activities related to oil and gas industries for both upstream and downstream activities in Cambodia. The Ministry sets coordination procedures at the working level among the General Department of Petroleum and other ministries of the Royal Government of Cambodia. The introduction of inter-agency working groups will allow cooperative application of resources to support processes for each activity required such as approval, compliance and inspection. Finally, the General Department of Petroleum is making progress through building its capacity to store, manage and utilise sovereign geological information on Cambodia’s petroleum resources.

The Petroleum Regulations still constitute the core legislation regulating petroleum activities concerning crude oil, natural gas and other liquid, gaseous, solid or semisolid hydrocarbons in their natural state. The Petroleum Regulations were subject to subsequent amendments in 1995 and 1999 revising the bidding procedures and the process of selecting contractors. In addition to the Petroleum Regulations, the draft model Production-Sharing Contract (“PSC”) is also currently in use in Cambodia and was adopted by the General Department of Petroleum to provide comprehensive guidelines for the petroleum sector.

The State’s mineral rights to natural gas are now vested in the GDP. As part of this integration of the CNPA with the supervision of the MME, all agreements and contracts entered into by the CNPA continue to be valid.

The present investment regime for the exploration of oil and gas and infrastructure projects in Cambodia is based on regulations and PSC’s. Each project is considered by the GDP on a case-by-case basis and upon negotiable terms. In assessing any bids, the GDP will examine in particular (i) the financial standing; (ii) the technical competence and professional experience; and (iii) the experience in marketing petroleum products of the bidder as well as (iv) the proposed minimum work and expenditures during the exploration period; (iv) the proposed allocation of petroleum; and (v) any proposed educational and training facilities to be created.
Presently, under Sub Decree 576 on the Organization and Functioning of the MME, this section is governed by the GDP under the auspices of the MME.

The GDP is authorized to determine petroleum zones for exploration, oversee bidding for petroleum-related activities, negotiate and execute petroleum contracts and to audit the financial situation of petroleum operating contracts, including the right to inspect equipment and review the results of exploration. The GDP is also mandated to prepare commercial regulations on price and promote competition.

In late 1997, the GDP granted conditional licenses to five companies to drill in four blocks in the Overlapping Claims Area, a contested zone in the Gulf of Thailand subject to competing claims by Cambodia and Thailand. The right to drill was conditional on an agreement between the two countries.
A memorandum of understanding was signed in 2001 between the two countries regarding the Overlapping Claims Area. This memorandum recognizes the existence of the overlapping area and states the intention of the two countries to conclude an agreement for the joint development of hydrocarbon resources located within this area. This memorandum should pave the way for further development of this area. Discussions and negotiations are still underway relating to revenue sharing and sectors to be covered by the joint developments.

In the non-contested area, the Cambodian government has demarcated six offshore blocks for licensing. Contracts have been awarded to five of these six offshore blocks thus far (blocks A-E). The contract for Block F is under negotiation with CNOOC Limited. Block A, which was awarded to Chevron and its partners in March 2002 is reported to contain an estimated 700 million barrels of oil and 3-5 trillion cubic feet of natural gas. For other blocks, estimates are not available yet and it may take another few years until data on those blocks is released.

While the attention of foreign oil firms over the past decade has been on offshore blocks, new data on the Tonle Sap Basin as well as improved security in the countryside mean that new exploration opportunities exist in this untested frontier. The Tonle Sap region has long been thought to be a promising prospect for hydrocarbons and is receiving greater foreign interest.

While the investment regime for oil and gas is governed by the Petroleum Regulation, importation and supply of fuel and LPGs (as final products) are not governed by this regulation.

Chapter 13 : Natural Resources and the Environment

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