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As the ASEAN integration deadline of 2015 approaches, Cambodia’s attractiveness as an investment destination is increasing apace. As your company assesses investment opportunities around the globe, our newly-updated Guide to Doing Business in Cambodia provides a valuable overview of the legal and regulatory climate in the Kingdom. If you would like further information regarding any of the topics presented in the Guide, please don’t hesitate to contact our legal professionals at: BNG Legal Cambodia.
Opening a hotel or guesthouse in Cambodia involves a number of administrative steps. While it would be nice to simply find a suitable space and open one’s doors to paying guests, the reality is quite different.
Hotels and guesthouses (the difference is really one of size and nomenclature) are businesses like any other. That means that, while not strictly necessary, it is highly advisable that the owners establish a private limited company. Otherwise, they would be personally liable for the debts of the business. Like any company, you’ll also have to pay taxes – meaning obtaining a Patent Certificate and making periodic tax payments. Finally, you’ll need to obtain a hotel or guesthouse license from the Ministry of Tourism. This in turn requires a number preliminary approvals to check the sanitation and safety of the facilities. A fuller explanation of the procedures and applicable laws and regulations can be found in our recent report.
Failure to follow the proper procedure can lead to delays in opening and fines. Best to do it correctly from the start.
Properly setting up a company is only the beginning of its legal obligations. Once registered to operate, a business must follow periodically:
- Submit annual declarations to the relevant authorities
- Maintain proper accounting
- Pay taxes
- Renew licenses
- Authenticate corporate structural changes
Failure to do so can lead to fines, penalties, and trouble in selling or closing the business. For further information, please refer to our new report.
We blogged a few weeks ago about naming your company, and how the Ministry of Commerce will make sure that your proposed name is not already taken by another firm. It was all pretty straightforward, but left a glaring gap: trademarks! The list of registered trademarks and registered company names were totally separate.
Say you’re selling some kind of consumer good through a distributor in Cambodia. You’ve done the smart thing and properly registered all your trademarks. But the distributor gets sneaky, and registers YOUR trademark as his company name. As there was no cross-checking, the company name would probably accepted. Then it’s up to you to try and sue him for trademark infringement, not a fun proposition.
Well, the registrars of companies and trademarks (both within the Ministry of Commerce), are finally talking to each other. From now on, proposed company names will be checked against the list of trademarks. There are still some issues to iron out – like what happens when the company is in an entirely different field from the trademarked goods – but this is a really important step in Cambodian IP law.
You may find that it adds a couple of days to the company registration process but it may save you headache and expense in the longer term.
Picking a name for a new company in Cambodia is relatively straightforward, though there are a few pitfalls to keep in mind. First and foremost, choose a name that resonates with your customers. This is mostly a question of marketing, though you should also be sure that the name isn’t translated into Khmer to mean something silly or inappropriate.
From a legal perspective, the main concern is choosing a name acceptable to the Ministry of Commerce when you incorporate (see here for more on that). Though there’s no public list of acceptable names, you can submit proposals to see if they’d be approved, before going ahead with the incorporation. The Ministry checks three main things:
- That the name, or a similar name, isn’t already registered by someone else. This is a good thing, as once your company’s name is registered, the Ministry will prevent others from coming along and registering something too close to your own.
- That the name isn’t generic or too descriptive. Names like “Rice Processor Co. Ltd.” aren’t registerable because a competitive marketplace needs to allow others to use those terms too. Adding a personal name or some arbitrary words would probably work – like “Mike’s Rice Processor” or “Tiger Rice Processor”.
- That the name isn’t offensive, absurd, or otherwise inappropriate. The Ministry has some discretion here, but common sense is usually a good guide.
After registering the company, if you’ll be selling products with your name or logo on it, it’s a really good idea to also register them as trademarks. That’s a separate matter, see here for more on that.
Every organization with more than eight workers must have an approved human-resources manual (aka internal regulations). Foreign businesses and international NGOs often already have such documents, drafted by headquarters and used throughout the world. They’re a good starting point, but the manual for Cambodia must be adapted to the local laws and regulations. No surprise here – the laws of Cambodia aren’t same as in your home country.
From a legal perspective, such manuals constitute part of the employment agreement. It’s therefore imperative that the manual and the written contract signed by the employee be in accordance.
The manual needs to cover, amongst other topics:
– Process of hiring
– Wage and benefit calculation methods
– Any perquisites and benefits available to employees
– Schedule of working hours, including allotted breaks
– Holidays, sick leave, vacations
– Notice periods for termination
– Health and safety measures
The law requires employers to have their HR manuals approved by the Labor Inspector, and implemented within 90 days of opening to business. You’re also supposed to post them in a public area. As these manuals can run to dozens, if not hundreds, of pages, it’s impractical to turn it into a poster and “post” on a wall. I’d recommend you give each employee a copy when they join the organization (you can send it as PDF to save cost), and keep a few printed copies in a prominent place in the office.
Above all, the manual needs to be written with the laws of Cambodia in mind. We’re working on a practical guide to the labor law, which will collect all the various rules in one place and simplify the legalese into plain language. Stay tuned for its release.
Over the weekend, I met a small-business owner here in Phnom Penh who had some legal trouble setting-up her store. She fell into a common trap, which should serve as a lesson for anyone looking to set up their business.
New businesses need to register with the Ministry of Commerce, which requires a copy of the business’s lease agreement. If you’re sub-leasing the premises, then you’ll also need written authorization from the owner of the property, not just the person leasing it to you. If you can’t get the owner’s approval, you won’t be able to get your business registered.
The business-owner had rented a terrific location for her store, put down a deposit, invested in fixtures and signs, and was starting to grow her clientele. When she filed her lease agreement with the Ministry, they rejected it because it wasn’t between the true landlord and herself.
Unbeknownst to her, she had signed a sub-lease. The person from whom she sub-leased wasn’t willing to help her contact the true owner, who was in fact out of the country. Without the landlord’s agreement, she would never be able to get registered. Without registering, she was operating as a sole-proprietorship – which meant she was paying astronomical import duties and make it impossible get her payment system online. Seeing no other solution, she decided to cut her losses by moving to a new location.
Opening a store is hard enough to do once. But doing it again just because you didn’t know you were sub-leasing is heartbreaking.
The lesson is to know whether you’re renting from the landlord or sub-leasing from the tenant by asking for proof of ownership. If you’ve decided to sub-lease, make sure you get the landlord’s approval in writing at the time you sign the lease.
For more on establishing a business in Cambodia, see our report here.
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.
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.
Strong economic growth, low startup costs, and a wealth of untapped markets make Cambodia an attractive environment for starting up a business. Many foreigners arriving with no intention of becoming an entrepreneur, find themselves opening their first business in this exciting marketplace.
Whether you are an experienced entrepreneur coming here to start another venture, or are transitioning to self-employment for the first time, properly establish your company in full compliance with the law is crucial. While many businesses operate informally, many more have been shut down or encounter ongoing problems from the authorities. Spending the time and money to do everything properly is the only way to avoid potentially insurmountable hassles in the future.
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