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Overall investment climate

The CDC is targeting a wide range of pioneer and high-tech industries, in particular those that create jobs for Cambodians, export-orientated industries, tourism, agro-industries and processing, light electronic assembly, transport and infrastructure, and energy sectors for foreign investment. In addition, it encourages industries enhancing provincial and rural development, as well as environmental protection.
Under the 1994 Foreign Investment Law, all sectors of the economy are open to foreign investment. There are no performance requirements, and foreign investors are granted the same treatment as domestic firms in all sectors.
However, an August 1999 sub-decree places some restrictions on foreign investment in a limited number of activities. Publishing, printing, radio and television activities are limited to 49 percent foreign equity, and there must be an unspecified amount of local equity in gemstone exploitation, brick making, rice milling, wood and stone carving, manufacturing, and silk weaving. While other sectors are eligible for 100 percent foreign investment, investment incentives vary according to the nature of the investment project. Investment guarantees include:
·  Investors are treated in a non-discriminatory manner except for land ownership. Only Khmer legal entities and citizens of Khmer nationality have the right to own land. However, renewable leases of up to 70 years are available.
·  The government will not undertake a nationalization policy that adversely affects the private property of investors.
·  The government will not impose price controls on the products or services of an investor who has received prior approval from the government.
·  The government allows investors to purchase foreign currencies through the banking system and to remit abroad such currency as payments for imports, repayments on loans, payments of royalties and management fees, profit remittances, and repatriation of capital.
As for expropriation, the Cambodian constitution states that "the state's right to confiscate properties from any person shall be exercised only in the public interest as provided for under the law and shall require fair and just compensation in advance."
The Investment Law offers the following incentives:
·  Nine percent corporate income tax
·  Tax holidays of up to eight years
·  Full import duty exemptions for export-oriented projects
·  Free repatriation of profits
·  No withholding tax on dividends
·  Five year loss carried forward

Foreign investment law

The Foreign Investment Law came into effect in 1994. The full text is shown below.

Chapter 1: General provisions
Article 1: This law governs all investment projects made by investors who are Cambodian citizens and/or foreigners within the Kingdom of Cambodia.
Article 2: Investor can be either a natural person or a legal entity.

Chapter 2: Council for the Development of Cambodia
Article 3: The Council for the Development of Cambodia is the sole and one-stop service organization responsible for rehabilitation, development, and the oversight of investment activities. The Council for the Development of Cambodia is the Royal Government's "Etat- Major" responsible for the evaluation and the decision-making on all rehabilitation,
development, and investment project activities.
Article 4: The Council for the Development of Cambodia comprises the following two operational boards:
1. The Cambodian Rehabilitation and Development Board
2. The Cambodian Investment Board
Article 5: The organization and functioning of the Council for the Development of Cambodia shall be specified by Sub-Decree.

Chapter 3: Investment procedures
Article 6: Investors have to submit investment applications to the Council for the Development of Cambodia for review and decision.
Article 7: The Council for the Development of Cambodia shall provide a response as to its decision to all investors/applicants within a period of a maximum forty five (45) days following the date of submission of the complete investment application. Any government officials who without proper justification refuse to review and respond to investors' application past the above mentioned period of time shall be punished by law.

Chapter 4: Investment guarantees
Article 8: Investors shall be treated in a non-discriminatory manner as set by law, except for ownership of land as set forth in the Constitution of the Kingdom of Cambodia.
Article 9: The Royal Government shall not undertake nationalization policy which shall adversely affect the private properties of investors in the Kingdom of Cambodia.
Article 10: The Royal Government shall not impose price controls on the products or services of investors who have received prior approval from the Government.
Article 11: In accordance with the relevant laws and regulations issued and published to the public by the National Bank of Cambodia, the Royal Government shall permit investors with investments in Cambodia to purchase foreign currencies through the banking system and to remit abroad these currencies for the discharge of financial obligations incurred in connection with their investments. This covers the following payments:
(1) Payment for imports and repayment of principal and interest on international loans.
(2) Payment of royalties and management fees.
(3) Remittance of profits.
(4) Repatriation of invested capital in compliance with Chapter 8.

Chapter 5: Investment incentives
Article 12: The Royal Government shall make available incentives to encourage investments in such important fields as:
(1) Pioneer and/or high technology industries
(2) Job creation
(3) Export-oriented
(4) Tourism industry
(5) Agro-industry and processing industry
(6) Physical infrastructure and energy
(7) Provincial and rural development
(8) Environmental protection
(9) Investments in a Special Promotion Zone (SPZ) as shall be created by law
Article 13: Incentives and privileges shall include the exemption, in whole or in part, of customs duties and taxes.
Article 14: Incentives shall consist of the following:
1. A corporate tax rate of nine percent exempt tax rate on the exploration and exploitation of natural resources, timber, oil, mines, gold, and precious stones which shall be set in separate laws.
2. A corporate tax exemption of up to eight years, depending on the characteristics of the project and the priority of the government which shall be mentioned in a Sub-Decree. Corporate tax exemption shall take effect beginning from the year the project derives its first profit. A five-year loss carried forward shall be allowed. In the event profits are being reinvested in the country, such profits shall be exempted from all corporate tax.
3. Non-taxation on the distribution of dividends or profits or proceeds of investments, whether transferred abroad or distributed in the country.
4. 100 percent import duties exemption on construction materials, means of production, equipment, intermediate goods, raw materials, and spare parts used by:
(a) An export-oriented project with a minimum of 80 percent of the production set apart for export, and
(b) Located in a designated Special Promotion Zone (SPZ) listed in a development priority list issued by the Council
(c) Tourism industry
(d) Labour-intensive industry, processing industry, agro-industry
(e) Physical infrastructure and energy industry
These 100 percent exemptions of duties and taxes mentioned above shall be in effect according to the terms of the agreement or specification document of the investment projects which will produce goods for export in a minimum of 80 percent of overall productivities as stipulated in the above point (4a) and for the investment projects that will be located in a Special Promotion Zone (SPZ) as in 4b.
Besides the kinds of investment projects mentioned in the above points (4a) and (4b), the 100 percent exemption of duties and taxes shall only be authorized for the construction of enterprises, factories, and buildings and the first year of operation of business production.
5. 100 percent exemption of export tax, if any.
6. Permission to bring into the Kingdom of Cambodia foreign nationals who are:
- Management personnel and experts
- Technical personnel
- Skilled workers
Spouses and dependents of the above persons as authorized by the Council for Development of Cambodia and in compliance with the immigration and labour laws.
Article 15: The approval and incentives granted by the Council for Development of Cambodia shall not be transferred or assigned to any third parties.

Chapter 6: Land ownership and use
Article 16: In accordance with the Constitution and relevant laws and regulations pertaining to the ownership and use of land:
1. Ownership of land for the purpose of carrying on promoted investment activities shall be vested only in natural persons holding Cambodian citizenship or in legal entities in which more than 51 percent of the equity capital are directly owned by natural persons or legal entities holding Cambodian citizenship.
2. Use of land shall be permitted to investors, including long-term leases of up to a period of 70 years, renewable upon request. Upon such use may include the right of ownership of real and personal property situated on the land as may be permitted by law.

Chapter 7: Employment Practices
Article 17: Investors in the Kingdom of Cambodia shall be free to hire Cambodian nationals and foreign nationals of their choosing in compliance with the labour and immigration laws.
Article 18: The investors shall be allowed to hire foreign employees who are listed in
Article 14 (6) provided that:
1. The qualification and expertise are not available in the Kingdom of Cambodia among the Cambodian populace. In the event of such hiring, appropriate documentation including photocopies of the employee’s passport, certificate and/or degree, and a curriculum vitae shall be submitted to the Council.
2. Investors shall have the obligation to provide adequate and consistent training to Cambodian staff.
3. Promotion of Cambodian staff to senior positions will be made over time.
Article 19: Foreign employees shall be allowed to remit abroad their wages and salaries earned in the Kingdom, after payment of appropriate tax, in foreign currencies obtained through the banking system.

Chapter 8: Disputes and Dissolution
Article 20: Any dispute relating to a promoted investment established in the Kingdom by a Cambodian or a foreign national concerning its rights and obligations set forth in the Law shall be settled amicably as far as possible through consultation between the parties in dispute.
Should the parties fail to reach an amicable settlement within two months from the date of the first written request to enter such consultations, the dispute shall be brought by either party for:
·  Conciliation before the Council which shall provide its opinion, or
·  Refer the matter to the court of the Kingdom of Cambodia, or
·  Refer to any international rules to settle the dispute as mutually agreed by the parties Article 21: In the event a promoted company intends to end its activity in the Kingdom of Cambodia, it shall inform the Council through either a registered letter or a hand delivered letter stating the reasons for such a decision, which shall be signed by the investor or his attorney-in-fact.
Article 22: In the event of a proposal for a dissolution of a company without judicial procedures, the investor shall provide proof to the Council that the company has properly settled its potential creditors, complainants, and claims from the Ministry of Economy and Finance before the investor is allowed to officially dissolve his company or enterprise according to the applicable commercial law.
Article 23: Once the investor is allowed to officially dissolve his company, either within the judicial procedures or not, the investor can transfer the remaining proceeds of its assets overseas or use them in the Kingdom of Cambodia. However, in the event that the dissolving company had used machineries and equipment which were imported duty free for less than five years, the company shall have the obligations to pay the duties applicable to those machineries and equipment.

Chapter 9: Final Provisions
Article 24: Investments authorized under the previous "Law on Investment" of the State of Cambodia and its Sub-Decrees shall be subject to the same benefits and obligations as stated under this Law. This law is not retroactive.
Article 25: In the case where the promoted company violates or fails to comply with the conditions stipulated by the Council, the Council shall have the power to withdraw the privileges and incentives granted to him, in whole or in part.
Article 26: This Law shall be promulgated immediately.

Investment procedure

In 1997, the government passed the "Sub-decree on the Implementation of the Law on Investment of the Kingdom of Cambodia." This sub-decree offers many details of the investment procedure, incentives, taxation, and other important matters, which are summarized in the following sections.
Investors are required to submit the following documents to the Cambodian Investment Board:
·  Investment project application form CIB 01A
· Letter stating the intentions to invest along with a summary of investors, the project, objectives, and any requests made to the Council
·  The Memorandum of Association or Articles of Association
·  Financial and technical feasibility study of the project
· Details of the applicant's technical capacity, marketing capacity, human resources and managerial capacity, and financial capacity
·  More recent annual report of the company
·  US$100 application fee for investments less than or equal to US$1 million, and then US$500 upon investment approval; US$200 application fee for investments over US$1 million, and then US$1,000 upon investment approval 
The Cambodian Investment Board will review the application and make a decision within 45 days. See Annex 1 for the complete investment application form.
The feasibility study should address the following points:
·  Proposed market for the products
·  Perceived demand, pricing techniques, and competition for the products
· Proposed techniques for manufacturing and production, including the use of domestic or imported raw materials
·  Proposed import and export ratios
·  Proposed employment ratios for Cambodian and foreign nationals
·  Financial and technical analysis of the project, including the cost of production and proposed retail pricing
·  Proposed earnings in local and foreign currency and the ability to satisfy foreign exchange needs
·  An environmental impact study, including detailed plans for the treatment and disposal of all waste
·  Proposed human resources development plan

Investment incentives

(i) Incentives
Investors who wish to take advantage of investment incentives must submit an application to the Cambodian Investment Board (CIB), the division of the CDC charged with reviewing investment applications. Investors who do not wish to apply for investment incentives may establish their investment simply by registering corporate documents with the Ministry of Commerce.
Once the investor's application is complete and an application fee paid, the CDC is required by executive order to issue a decision on an investor's application within 45 days of submission. The CDC is billed as a one-stop shop, but some investors report that in practice licensing involves might involve visits to multiple government agencies. Once the CDC approves the project in principle, the investor must pay a second application fee, and deposit a performance guarantee of between 1.5 and two percent of the total investment capital at the National Bank of Cambodia (depending on the level of total investment), and register the corporate entity at the Ministry of Commerce.
Once these steps have been taken, the investor will receive a formal investment license from the CDC requiring the investment to proceed within six months. Once the project is 30 percent completed, the investor is eligible for a refund of the performance guarantee.
The government has scaled back its investment incentives, which the World Bank has called "critical impediments to revenue mobilization." The government is committed to review the law on investment before 2001, and further revision is likely The law on investment and subsequent decrees created the following incentives:
·  A corporate tax rate of nine percent, compared to the standard corporate profit tax rate of 20 percent for business enterprises not receiving CDC investment incentives. Natural resources companies, including timber and oil companies and companies mining gold and precious stones, are subject to a 30 percent corporate profit tax rate.
·  An exemption from the corporate profit tax of up to eight years, depending on the type and location of project.
·  A five-year loss carried forward.
·  Tax-free distribution of dividends, profits, and proceeds of investment.
·  Tax-free repatriation of profits.
· 100 percent exemption from import duties on construction materials, machinery and equipment, spare parts, raw materials and semi-finished products, and packaging materials for most projects for the construction period and first year of operation.
·  The period of exemption from customs duties for the above items can be extended for export-oriented projects with a minimum of 80 percent of production set aside for export and projects located in a special development zone, although these have not yet been specified.
·  Employment of expatriates where qualified Cambodians are unavailable.
The list of sectors to which investment incentives apply, without regard to the amount of investment capital, includes: crop production; livestock production; fisheries; manufacture of transportation equipment; highway and street construction; exploitation of minerals, ore, coal, oil, and natural gas; production of consumption goods; hotel construction (three stars or higher); medical and educational facilities meeting international standards; vocational training centres; physical infrastructure to support the tourism and cultural sectors; and production and exploitation activities to protect the environment.
Investment incentives are available for manufacturing projects in the following sectors when investment capital exceeds US$500,000: rubber and miscellaneous plastics; leather and other products; electrical and electronic equipment; and manufacturing and processing of food and related products.
A minimum investment of US$1,000,000 applies when seeking incentives in the following three sectors: apparel and other textiles; furniture and fixtures; chemicals and allied products; textile mills; paper and allied products; fabricated metal products; and production of machinery and industrial equipment.
The following sectors are not eligible for investment incentives, although investment is permitted: all types of trading activities; all forms of transportation services; duty-free shops; restaurants, karaoke, massage parlors, and night clubs outside of international standard hotels; shopping malls; press related activities and media networks; retail and wholesale operations; and professional services.
(ii) Special promotion zones
Industrial zones are being developed in Phnom Penh and the main deep-water port at Sihanoukville. Investment in these zones will qualify investors for additional incentives. Cambodia is divided into four zones for the purpose of promoting disadvantaged areas. The zones are as follows:
·  Zone 1: Phnom Penh, Kandal, Siem Reap, and Sihanoukville
· Zone 2: Kampong Cham, Kampong Chhnang, Kampong Speu, Kampot, Prey Veng, Svay Rieng, and Takeo
·  Zone 3: Battambang, Kampong Thom, and Pursat
· Zone 4: Banteay Mean Chey, Kratie, Koh Kong, Mondol Kiri, Preah Vihear, Ratana Kiri, and Stung Treng

Types of investment forms

Except in a few sectors as noted above, there are no restrictions placed on the level of foreign participation in Cambodian companies. As a result, many investors choose to establish 100 percent foreign-owned limited companies in Cambodia. The legal forms of investment permitted include:
·  Wholly owned domestic capital
·  Wholly owned foreign capital
·  Joint ventures
·  Built-Operate-Transfer (BOT)
·  Business Cooperation Contract (BCC)
The Ministry of Commerce allows several options for setting up a commercial entity. The types of commercial entities allowed are:
·  Joint stock company
·  Limited liability company
·  Sole proprietorship limited company
·  Commercial partnership
·  Representative office
·  Branch office of a foreign company
·  Subsidiary
See Annex 2 for the company registration form.
(i) Joint stock company
A joint stock company may be formed with at least seven shareholders, and have a minimum issued capital of 100 million riels at a par value per share of at least 10,000 riels.
Capital contributions in a joint stock company require:
-for cash contribution, the par value of shares must be at least 25 percent paid-in upon incorporation, with shares fully paid-up within three years;
-for non-cash contribution, payment of issued capital must be fully paid upon incorporation, and can only be sold after two years of ownership. The remaining capital must be paid within three years.
The Board of Directors of a joint stock company must be comprised of at least three directors who must be chosen from among the shareholders of the company.
(ii) Limited liability company
A limited liability company is a company of persons and of capital in which the shareholders are not liable beyond their contributions and are not considered merchants. Businesses employing large funds, such as financial institutions and insurance companies, may not incorporate as a limited liability company.
The maximum number of shareholders of a limited liability company is 30, and the minimum is two. Either shareholders or outsiders can be appointed as directors of a limited liability company.
The minimum issued and paid up capital is 20 million riels, at a par value per share of at least 20,000 riels. The shares must be paid up in full and distributed. Issued capital must be fully paid in cash or with non-cash items before the company is incorporated.
The transfer of shares in a limited liability company to third parties must have the prior written consent of a majority of the shareholders representing at least three-quarters of the capital of the company.
(iii) Sole proprietorship limited company
A sole proprietorship limited company is subject to the same requirements as a limited liability company with the exception that the sole shareholder must be a national person and may not be at another company. The management of the sole proprietorship can be performed by the shareholder or by an individual appointed by the shareholder.
(iv) Commercial partnership
A commercial partnership is an agreement of association that joins two or more partners with a view to carrying on commercial operations under the same trade name. Each of the partners is deemed a merchant and is held personally and jointly liable for the debts of the partnership. The partnership shares are not transferable or assignable without the consent of all partners.
(v) Representative office
A representative office may be established by an eligible foreign investor to facilitate the sourcing of local goods and services and to collect information for its parent company. The representative office also serves as a channel for promoting and marketing the home company’s products and services in the host country. In Cambodia, the representative office is not considered a separate legal entity from its parent company. It is regarded as a cost centre and accordingly should derive no income from its activities. Therefore, it is not subject to Cambodian tax laws.
The representative office agent is under the management of one or more directors who may be appointed and removed by the principal enterprise. It may lease a premise for its office, employ local staff, advertise its products, and organize trade fairs to introduce their commercial products.
The representative office agent can enter into a contract with a local enterprise in Cambodia if the principal enterprise is so authorized. However, it may not purchase, sell, or conduct any services as its usual business nor can it conduct any production or construction activities within Cambodia.
The representative office agent is subject to commercial registration requirements of the Ministry of Commerce. The words “Representative Office Agent” shall be placed before or after the name of the principal enterprise.
(vi) Branch office of a foreign company
A branch office is an office that is opened by a company of another foreign country for the purpose of conducting a particular commercial activity in Cambodia. Its management and control shall be under one or more directors who may be appointed and removed by the parent company.
The branch office can conduct the same activities as the representative office agent, but the difference is that the branch office may purchase, sell, or conduct regular professional services or other operations engaged in production or construction in Cambodia.
Liabilities with respect to losses and debts of a branch office are the joint liability of both the branch office and the parent company.
The branch office is subject to commercial registration requirements of the Ministry of Commerce. The word “Branch Office” shall be placed before or after the name of the parent company.
(vii) Subsidiary
A subsidiary is a limited company formed in Cambodia with at least 51 percent of its capital being held by a foreign company. Its formation, management, rights and other obligations shall be provided for in the memorandum and articles of association of the limited company.
Each subsidiary is subject to the commercial registration requirements of the Ministry of Commerce. The word “Subsidiary” shall be placed before or after the name of the parent company.
There are a few distinctions in the scope of commercial activities allowed for local and foreign-owned companies. A company is considered to have Cambodian nationality if its stated office is located in Cambodia, more than 51 percent of its stated capital is held by Cambodian citizens or Cambodian legal entities, and more than 51 percent of its financial interests in the profits and losses are held by Cambodian citizens or Cambodian legal entities.
Only local companies are permitted to register corporate names that imply Cambodian nationality. Furthermore, only local companies are entitled to own land, and local companies are allowed to engage in import or export activities without limitations. The Chairman of the Board of Directors of a local company must be a Cambodian national, but other directors can be foreigners.
Foreign-owned enterprises have two limitations in the scope of their activities. They are eligible to engage in import/export activities only as required by their investment/production activities, not import/export for the sole purpose of re-selling without transformation. They are not allowed to own, sell, or buy land, or engage in real estate business outside their stated scope of activities.

Taxation

(i) Income tax
Cambodia's personal income tax took effect in 1995 and was amended in 1997. It applies to services provided in Cambodia to a local or overseas employer regardless of whether or not the employer or employee actually resides in Cambodia. A resident is defined as an employer or person whose principle place of abode is in Cambodia or someone who is present for more than 182 days during a calendar year. Salaries earned from working outside of Cambodia are taxable if the person is a Cambodian resident.
Taxable income is usually comprised of wages and salary, overtime payments, loans and partial payments made by the employer that are netted off against any repayments due from the employee, and payments resulting from overseas expenses. Fringe benefits are taxed at the rate of 20 percent of the total value of fringe benefits given to the employee.
Items that are exempt from personal income tax are 1) travelling allowances received in the course of employment; 2) superannuation payments deducted from an employee's income; 3) free or subsidized allowances for uniforms or facilities used in the course of employment.
The personal income tax rates are as follows:

Income (in riels) Tax rate (percentage)
0-500,000 0
500,001-1.25 million 5
1,250,001-8.5 million 10
8,500,001-12.5 million 15
over 12.5 million 20
Source: KPMG Cambodia Limited

Employers are required to withhold and pay the Tax on Salary to the Tax Department by the 15th of each month.
Payments made to a non-tax resident are subject to a 15 percent withholding tax. Cambodia does not have a social security system, so there are no taxes in this category.
(ii) VAT and profit tax
There are no local taxes in Cambodia, but the value added tax (VAT) is 10 percent. Other taxes include a profit tax ranging from zero to 20 percent and a "minimum turnover tax" that is one percent. All investment enterprises approved by the CDC, including those firms granted a Tax on Profit holiday, are obligated to file to the Tax Department monthly and annual tax declarations.
(iii) Customs duties
Customs duties are classified into four categories, with rates ranging from 7 to 50 percent. Items with a 50 percent duty are luxury goods such as automobiles, wine, cigarettes, perfume, weapons, and cosmetics. Products with a 35 percent duty are finished products such as televisions, radios, paint, and household furnishings. Machinery and equipment are taxed at 15 percent. Raw materials such as cement, iron, and brick, along with basic daily items such as meat, fruit, vegetable oil, sugar, soap, shoes, and clothing carry a seven percent tariff. The types of investment that are eligible for customs duty exemptions include:
·  Investment in export-oriented projects with a minimum of 80 percent of production designated for export
·  Projects located in a Special Promotion Zone
·  Tourism projects
·  Projects in labour intensive industries, processing industries, and agro-industries
·  Physical infrastructure and energy projects The types of good that are exempt from customs duties include:
·  Construction materials for the project
·  Machinery used directly in the production process
·  Other equipment used directly in the project other than administrative equipment, transportation and distribution equipment
·  Spare parts for machinery and equipment used in the above-mentioned items
·  Raw materials and intermediate goods used directly in the production process
·  Packaging equipment Finished products are also entitled to 100 percent export tax exemptions.

Foreign exchange

According to the Law on Foreign Exchange (1997), as well as the regulations issued by the National Bank of Cambodia, foreign currencies can be freely purchased through the banking system. The Law on Foreign Exchange specifically states that there are no restrictions on foreign exchange operations, specifically including the purchase and sale of foreign exchange, and transfers and all other types of international settlements.
However, the Law on Foreign Exchange requires that only authorized intermediaries perform these transactions. These intermediaries are legally recognized banks in Cambodia, which are required to report to the National Bank of Cambodia transactions in excess of US$ 10,000. There is no requirement that the investor sending or receiving the funds make a report on the transaction. The burden rests solely on the bank as the authorized intermediary.
There are currently no restrictions on the repatriation of profit or capital derived from investments made in Cambodia, nor on most transfers of funds abroad. The Law on Investment guarantees that investors can freely remit foreign currencies abroad for the purposes of:
· Payment for imported goods and services and repayment of loans including interests and principals made by foreign banks or institutions
·  Royalties and management fees
·  Profits after discharge of obligations due and payment of all relevant taxes and royalties
·  Repatriation of invested capital on dissolution of an investment project

Labour issues

(i) Overview
In 1997, Cambodia replaced its communist-style labour code with a highly-detailed, progressive law which guarantees freedom of association and the right to strike, provides for the free registration of labour unions and collective bargaining, and sets a minimum age of employment.
The Ministry of Social Affairs, Labour and Youth Rehabilitation (MOSALVY) is responsible for issuing labour regulations, and MOSALVY's labour inspection department is responsible for enforcing the labour law. MOSALVY also chairs Cambodia's tripartite Labour Advisory Committee (LAC), which reviews labour laws, including the minimum wage. MOSALVY conducts frequent workplace inspections and mediates workplace disputes. However, the government's enforcement efforts have been hampered by a lack of resources, little knowledge of the law by factory managers, and a lack of qualified labour inspectors.
However, in July 2000 the Ministry of Commerce and MOSALVY issued a joint declaration to improve enforcement of the labour law. The declaration created an inter-ministerial committee that will review labour-related complaints from various sources, and recommend penalties based on the severity of the violation. Penalties can include suspension of export privileges. Although required under the Labour Law, there is still no labour court system.
Only a fraction of Cambodia's labour force is organized. Unionization of the work force is not significant outside the industrial sector, and within the sector it is highly concentrated in the garment industry. Only 16 out of 106 registered labour unions are in industries other than garments.
There were 76 strikes in Cambodia during 1999 and 35 in the first seven months of 2000. Most of these were related to the lack of enforcement of the labour laws.
Given the severe disruption to the education system in the Khmer Rouge years, Cambodia's work force is largely unskilled. According to United Nations statistics, the adult literacy rate of about 37 percent, but the youth literacy rate (15-24 year olds) is nearly 57 percent.
However, the desire to learn is keen and many adults and children enrol in supplementary educational programmes, including English and computer training. Workers with higher education or specialized skills are few and in high demand. Many investors bring in expatriate employees to fill skilled positions, and Cambodian immigration and investment regulations make this relatively easy.
(ii) Employment of local and foreign workers
Foreign companies have virtually unrestricted access to Cambodia’s labour force. However, for employment of foreigners, certain restrictions exist. For example, expatriate employment regulations require that the proportion of foreign experts to local workers shall be maintained at least at 1:10, i.e., employment of one foreign expert shall be accompanied by employment of at least 10 local workers. Investors are permitted to bring into Cambodia foreign nationals who are qualified managerial personnel, technical personnel, or skilled workers.
(iii) Wages
Wages are set by market forces, except for civil servants, for whom wages are set by the government. MOSALVY has the right to set minimum wages for each sector of the economy based on recommendations by the Labour Advisory Committee.
MOSALVY formally exercised this authority for the first time in July 2000, when it approved a US$45/month minimum wage for post-probation period workers in the garment and footwear sector. Workers who are in the probation period of one to three months receive a minimum monthly wage of US$40. Also, the garment and footwear sector is obligated to provide the following benefits to workers:
·  an incentive of at least US$5 per month for full attendance
·  food allowance of 1,000 riels or one free meal for each worker who volunteers for overtime as requested by the employer
·  a benefit of US$2-5 per month to acknowledge the seniority payment of workers
· workers are allowed an annual leave of 18 days per year in line with the Labour Law At present there is no minimum wage for any other industry.
(iv) Hours and overtime
The Labour Law provides for a standard legal workweek of 48 hours, not to exceed eight hours per day. The law stipulates time-and-a-half for overtime and double time if overtime occurs at night, on a Sunday, or on a holiday.
(v) Minimum age and social issues
Fifteen is set as the minimum allowable age for a salary position, and 18 is the minimum allowable age for anyone engaged in work that may be hazardous, unhealthy, or unsafe. There is no public social safety net for workers in Cambodia. MOSALVY has drafted legislation to create a national pension, an unemployment insurance system, and a workers' compensation scheme, but these have not been passed into law or implemented.

Dispute settlement

Cambodia's legal system is an amalgam of pre-1975 statutes modeled on French law, communist-era legislation dating from 1979-1991, statutes put in place by the United Nations Transitional Authority in Cambodia (UNTAC) during 1991-93, and legislation passed by the government since 1993.
The legal system is still developing and thus foreign investors should not expect it to function as well as they are used to in their home countries. Many judges and lawyers are still not adequately familiarized with business law, and procedures such as arbitration of international commercial disputes are still in the process of being institutionalized. The government intends to become a member of the International Centre for the Settlement of Investment Disputes (ICSD).
The legal system favors mediation over adversarial conflict and adjudication, and compromise solutions are often preferred even when the law favors one party in a dispute.
The courts are currently the only judicial forums in which to settle commercial disputes, but the system is fraught with difficulties. Judges are poorly paid and they often have limited access to published Cambodian law.
Cambodia has signed investment agreements with, among others, Malaysia, Thailand, France, Switzerland, South Korea, Germany, Singapore, the People's Republic of China, and the Netherlands. These agreements provide reciprocal national treatment to investors, excluding benefits deriving from membership in future customs unions or free trade areas and agreements relating to taxation.
The agreements preclude expropriations except those which are undertaken for a lawful or public purpose, non-discriminatory, accompanied by prompt, adequate and effective compensation at the fair market value of the property prior to expropriation; guarantee repatriation of investments; and provide for settlement of investment disputes via arbitration.

Capital market

Cambodia currently has no capital markets. There is no stock or bond market, and no means to purchase equity in a company except by agreement with the existing owners. Most companies are privately held, the exception being multinational firms.
Domestic financing has traditionally not been difficult to obtain for foreign firms, but the recent consolidation of the banking sector might change the availability of credit. Most loans are secured by real property mortgages or deposits of cash or other liquid assets, as provided for in the existing contract law and land law.
Export/import financing is available from multi-national banks through a variety of credit instruments. The U.S. Overseas Private Investment Corporation (OPIC), the International Finance Corporation (IFC), and the Multi-lateral Investment Guarantee Agency (MIGA) offer both investment guarantees and loans in Cambodia.

Protection of property rights

The 1992 Land Law provides a framework for real property security and a system for recording titles and ownership, but its effectiveness is limited because the majority of property owners have no documentation to prove their ownership.
As for intellectual property rights, protection is based on articles contained in the 1992 UNTAC Criminal Code. Cambodia acceded to the Paris Convention in 1998 and it is making progress on legislation such as drafting trademark, copyright, trade secrets, and patent laws. Cambodia ratified a bilateral agreement with the United States which establishes standards for intellectual property rights.
With no trademark law in force in Cambodia, owners of trademarks are unable to seek relief in court. Until the law is passed, complaints go to the Ministry of Commerce, which has responsibility for registering trademarks, but it does not have clear legal authority to conduct enforcement activities.
Responsibility for copyrights is split between the Ministry of Culture (phonograms, CDs, and other recordings) and the Ministry of Information (printed materials). The Ministry of Culture prepared a draft copyright law in 1998 which is under review.
As Cambodia has a very small industrial base, and infringement on patents and industrial designs is not yet commercially significant. The Ministry of Industry has prepared a draft of a comprehensive law on the protection of patents and industrial designs.

Important legislation

The National Assembly passed a law and associated decree regulating pharmaceuticals in June 1996, and giving administrative authority to the Ministry of Health. In May 2000, the National Assembly passed a law on the quality of goods and services, food safety, consumer protection, and product liability.
Food and product safety issues fall under the jurisdiction of the Cambodian standards authority, Camcontrol, which is under the Ministry of Commerce.
Camcontrol, the government's standards-setting arm, does not currently have a mechanism for industry participation in standards setting. There are currently no industry standardssetting organizations operating in Cambodia.
Cambodia's banks and financial institutions fall under the supervision of the National Bank of Cambodia (NBC), which is being advised by the International Monetary Fund. In November 1999, Cambodia passed a new law on banking and financial institutions. This law, and subsequent regulations issued by NBC, superceded earlier legislation and regulations. An insurance law, which would give the Ministry of Economy and Finance regulatory authority over the insurance industry, is being drafted.
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