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Many local and international NGOs in Cambodia currently employ staff under contracts and policies based on the laws and practices of their home countries. This can result in non-compliance with the Cambodian Labor Law, which differs from foreign laws in many respects.

Non-compliance most often becomes an issue when a departing employee claims the benefits and protections provided by the Law. The organization can find itself owing quite significant sums, or be prevented from terminating a problematic employee.

Reviewing the organization’s compliance with the Labor Law is the best way to foresee and minimize these risks. This guide answers frequently asked questions regarding the Labor Law and how an NGO can comply.

Read the full report here.

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The Cambodia Daily (print only) reports that a law on water traffic has been drafted and is circulating within the government for discussion. The law would require boats to display registration plates, which is currently optional. The article quotes a government official as saying they intend to present it to the Council of Ministers by the end of the year.

The government has cancelled plans to create a state-controlled hub for internet traffic, according to the Post. The idea was to direct all international internet traffic through Telecom Cambodia, which would be charge other operators a transmission fee. According to the Ministry of Post and Telecommunications, the proposal is dead for now, though new licensing requirements might be developed in the future. For more background, see our previous post.

Just a quick update on the implementation of the new Law on Foreign Adoptions – news reports say the government is aiming to reopen foreign adoptions by March 2011:

Cambodia plans to reopen the door to foreign adoptions by the end of March 2011, officials said Monday, meaning the Kingdom has one year to meet strict international guidelines put in place to prevent child trafficking.

The announcement comes after the National Assembly passed a law aimed at governing international adoptions last December. Observers say the law is crucial to ending the allegedly widespread practice of “baby-buying”, but some have raised questions about the government’s ability to enforce it.”

As explained in our previous post, adoption applications that were pending at the time of the new law have been allowed to go through under the old law. But since December 2009, no further applications are being accepted until the new law is implemented.

Aside from setting up a private limited company, foreign investors have two other options for entering the Cambodian market – a Branch Office or a Representative Office. Both are registered through the Ministry of Commerce, through similar procedures, and cost about the same in official fees.

So what’s the difference?

Branches are allowed to conduct a much broader range of activity than representative offices. Branches can buy and sell goods, sign contracts, build things, render services, and generally everything that a regular Khmer business can do.

A representative office, on the other hand, cannot regularly buy and sell goods or offer services. As its name says, a representative office represents its foreign parent in Cambodia. So for example, the office can contact customers and enter into contracts on behalf of its foreign parent, but can’t sell the goods itself. A representative office is a more tentative step into the Cambodian market, often used by investors to test the waters or for promotional purposes when the business distributes its goods by other means.

Here is how the Law on Commercial Enterprises (2005) treats the matter:

Article 274: Authorized activities [Representative Office]

A commercial representative office or commercial relations office may perform the following acts in the Kingdom of Cambodia:
(a) Contact customers for the purpose of introducing customers to its principal.
(b) Research commercial information and provide the information to its principal.
(c) Conduct market research.
(d) Market goods at trade fairs, and exhibit samples and goods in its office or at trade fairs.
(e) Purchase and keep a quantity of goods for the purpose of trade fairs.
(f) Rent an office and employ local staff.
(g) Enter into contracts with local customers on behalf of its principal.

However, a commercial representative office or commercial relations office may not regularly buy or sell goods, perform services, or engage in manufacturing, processing or construction.

Article 278: Authorized activities [Branch Office]

A branch may perform the same acts as a commercial representative office.

In addition, a branch may regularly buy and sell goods and services and engage in
manufacturing, processing and construction same as the local company except any acts that prohibited for natural or legal person who is foreigner.

For more on establishing a business in Cambodia, see our publication.

It seems an important provision was dropped from the Law on Foreign Ownership, but might become law anyway. Earlier drafts had restricted the total share of foreign ownership in a building to less than 50%, but this rule was dropped in the version approved by the National Assembly last week.

According to the Post, government officials are considering reintroducing the restriction through a sub-decree. A 50% rule would add an extra layer of complexity to transfer of ownership and may also cause price distortions.

The debate continues…

More at Khmerization.

The Post reports on the latest government statistics, showing a 49% increase in company registrations this quarter compared to a year ago:

A total 663 businesses registered this quarter, compared with 445 in the same period of 2009. Of those, 373 were local companies, an increase of 44 percent over 2009’s first quarter, but a smaller jump than the 56 percent increase in foreign companies.

Two factors are behind the numbers: 1) entrepreneurs and foreign investors setting up new businesses, and 2) existing but previously unregistered businesses finally registering. Without more data, it’s impossible to tell the relative effect of each. Both are good signs though, as it shows a rebound in the economy, as well as progress towards the rule of law. For more on registering a business, see our publication.

Non-Governmental Organizations play a vital role in the economic and social development of Cambodia. As legal entities employing staff and engaging in commercial transactions, NGOs operate in the same legal environment as individuals and for-profit businesses.

While many NGOs rely on legal counsel based at their headquarters, or make do with none at all, local legal counsel can provide a valuable service in navigating the local legal landscape. This publication lists some of the principle areas where NGOs benefit from professional legal advice.

Read the full text

Update to my previous post, the Law on Foreign Ownership was passed by the National Assembly (85 out of 96 votes), and now goes to the Senate for debate before submission to the King for signature.

As scheduled, the National Assembly opened debate today on a new law allowing foreigners to own units in co-owned buildings. Though the draft isn’t publicly available, news agencies report [Post, and VOA Khmer] that foreigners would only be able to own units above the ground floor, and that a majority of units must be owned by Cambodian citizens. Further, foreigners couldn’t own units in buildings within 30 km of a land border, unless it’s in a Special Economic Zone. That doesn’t seem to be a terribly problematic restriction, given that most foreign demand is outside that zone in Phnom Penh, Siem Reap and Sihanoukville.

Presently, foreigners cannot hold title to land in Cambodia. Short of obtaining Cambodian citizenship, there are still ways for a foreigner, or foreign-owned company, to control land – such as a through a joint-venture or long-term lease. Still, these solutions don’t offer the security and value of full title to the unit itself.

There are quite a few mixed residential/office towers planned or under construction around Phnom Penh. Many were planned during the heady real estate boom of a few years ago, but were put on hold or delayed because of the bust. The hope is that allowing foreigners to own condominiums will give a needed boost to the real estate market. Stay tuned for further developments, I’ll try to post the text of the law once available.

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The work of a handful of attorneys at BNG Legal, this blog's mission is to keep the world up-to-date on legal issues in the Kingdom of Cambodia.

Questions and feedback can be emailed directly to us at info@bnglegal.com.

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