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One of the most misunderstood fallacies amongst ex-pats living in Cambodia is the assumption that all Non-Government Organisation (NGO) employees are automatically granted a tax reprieve. Although there are some situations where NGO employees are exempt from Tax on Salary, this requires certain criteria to be met and an application to be processed and approved before NGO employees cease being liable for the tax.

Income Tax

One source of the misunderstanding stems from the fact that NGOs are usually exempt from income tax under Article 9 of the Law on Taxation, which deems organizations “organized and operated exclusively for religious, charitable, scientific, literary or educational purposes” exempt from income tax, provided that no part of the income is used for private benefits. If an NGO is granted income tax exemption under this heading, this exemption does not automatically flow on to employees. This was specifically confirmed in 1997 by Notice No 2672.

Diplomatic and Foreign Government Employees

Another basis for confusion arises from Article 43 of the Law on Taxation, which provides that “diplomatic and foreign officials” are exempt from paying tax on salary. The law goes on to detail that this is limited to those here representing their governments in official capacities or employees in Cambodia on behalf of official international organizations recognized under the Vienna Convention, such as the United Nations or the Red Cross.

The exemption

In 2001, the government considered the case for a salary exemption for NGO workers and issued Notice No 64 on Tax on Salary of NGO employees. The notice clarified the existing law and said that a salary tax exemption would be considered in relation to the following NGOs:

–          Those who implement projects on behalf of a foreign government (subject to agreement between both governments);

–          NGOs recognized by the United Nations;

–          NGOs that are self-sufficient, comply with Cambodian law and implement development and humanitarian projects in Cambodia;

–          NGOs that were granted a tax exemption in 1979;

–          NGOs with a small scope/budget of less than USD$50,000 a year; and

–          Employees who already pay salary tax in their own country.

Once these criteria are met, then the NGO in question must conclude a Memorandum of Understanding with the pertinent Ministry.

Such employees will not automatically receive an exemption, but must apply to the Ministry of Foreign Affairs and International Cooperation (MFAIC) or the Ministry of Economics and Finance (MEF), who will decide whether or not to grant the exemption.

Getting an exemption can be a complex and drawn out procedure. It is wise to assume nothing until the final stage, when a decision has been made by the MEF.

For more information, refer to our publication Labor Law Guide for NGOs

Update: The January 28th Post has some more on the draft law.

The long-awaited Draft Law on Associations and Non-Governmental Organizations was recently released, and public consultation is ongoing. The law has already attracted some controversy, and there will undoubtedly be more lively discussion. For those who haven’t seen a draft, below is a quick summary of the main provisions. A warning though – this is a DRAFT, there probably will be future drafts, including the final enacted law, that render this information obsolete. In addition a number of Prakas would follow which give more detail to the law. Proceed with caution.

Broadly speaking, the draft’s rules can be separated into two parts:

1] associations, domestic NGOs, and their alliances, and

2] foreign NGOs.

Associations, Domestic NGOs, and their Alliances

Associations and domestic NGOs would need to be registered with the Ministry of Interior. An association needs at least 21 Cambodian nationals, who select at least seven leaders. There’s no mention of whether foreigners may join the association, or form associations themselves. Domestic NGOs must have at least three Cambodian “initiators”, who choose a president who takes care of the registration. Alliances of at least two associations or two NGOs can also be formed, and also need to be registered with the MOI.

The draft lays out the documentation required, and gives the MOI 45 days from receipt to issue a decision. There will also be a registration fee, to be determined at a later date. They will also need to enact a charter to govern the organization, the content of which is outlined in the draft. All existing Domestic NGOs, associations, and alliances will need to re-register within 180 days of the law coming into force.

Foreign NGOs

As is currently required, Foreign NGOs must sign a memorandum with the Ministry of Foreign Affairs and International Cooperation. Before doing so, they’ll need to enter into an agreement with the relevant line ministry or governmental institution. The draft lists the necessary documentation for signing the MOU, and gives the MFAIC 45 days to issue its decision. The MOU is valid for one to three years, renewable indefinitely upon request. The draft also required the collaboration between the Foreign NGO and the relevant ministry in preparing project plans, implementing, monitoring, aggregating and evaluating the results of activities. A new rule would cap administrative expenses at 25% of the total budget.

The draft also spells out the resources, properties, rights, interests and obligations of the organizations. For instance, they must annually report to the government on the year’s activities, plan for the coming year, and budget.

There should be some more developments in the months to come, following the public consultations and debate in the National Assembly. Stay tuned.

A recent article in the Cambodia Daily discussed the possibility of law regulating the use of financial trusts by NGOs.  Trusts are a legal entity that can hold assets to be managed by trustees.

Many foundations or NGOs, like the Bill & Melinda Gates Foundation, actually hold their money in trusts.

There’s currently no specific legislation on the matter, and to our knowledge, no trusts presently exist under Cambodian law. Currently the best solution when considering funding projects through a trust, may be to create the trust off-shore, given the lack of a legal framework.

The Daily article is fairly sparse on the specifics of the draft, but quotes Finance Minister Keat Chhon as stating there will be further consultations later this month, before submission to the Council of Ministers.

UPDATE: Front page story in the Post today, draft has been released ahead of public consultations in January. 17/12/10

A recent Cambodia Daily article (off-line only) reports on the long-anticipated NGO Law, currently being drafted by the Ministries of Interior and Foreign Affairs. The article is based on a presentation given in mid-August of this year, so things might have changed since then. According to the presentation, NGOs would need to report to the government on their activities, list their staff members and responsibilities, and disclose their funding sources. Without seeing the draft itself, it’s hard to say what’s new here – as NGOs presently have certain reporting and disclosure obligations.

The draft reportedly will also prohibit any financial or personnel assistance to parties, which is likely to be the most contentious issue.

The government has kept a fairly tight-lid on the draft, but has promised to release it to NGOs for comment ahead of a public workshop, to be held as early as next month. Therefore if you are considering commencing the process to set up an NGO in Cambodia, it may be wise to delay the process as there may be more certainty about the legal framework by early next year.

Non-Governmental Organizations are major employers in Cambodia, particularly of foreign staff. This guide aims to help NGOs and their employees better understand and comply with the employment laws of Cambodia.

It integrates the major sources of law – laws, executive regulations, and Arbitration Council decisions – into a single easy-to-use booklet.

Our aim has been to compile and translate the often technical and difficult to understand rules into plain English. Where appropriate, we also go beyond the text of the law to offer practical advice on issues commonly faced by NGOs.

Over the next few weeks, we’ll be serializing the most important portions of this report. While the publication is aimed at NGOs, many of the rules are the same for private sector employers.

The Post has an interesting story about a new law firm, reportedly the first public interest firm in Cambodia:

On the surface, Samreth Law Group is a private firm and does much of its work for private clients. But instead of pursuing the profit motive, funding from the private practice is reinvested in public interest legal advocacy. […] [T]he firm uses a sliding pay-scale fee structure that takes into account its clients’ ability to pay meaning that they often work pro bono.

The biggest issue, as the article points out, is the potential for conflict between their paying private clients, and their pro-bono public interest clients:

“Because working on high-profile land dispute cases can put them up against powerful interest, the firm must ensure that it treads carefully in order to preserve he flow of private work it depends on. ‘So, the strategy of case selection is important’, [senior lawyer] Ly Ping said. ‘We try to take medium-level cases, ones that are not too big.’ ”

Best of luck to them.

It’s a bad idea to operate an NGO, or even engage in activities normally performed by an NGO, without properly registering the legal entity. Fines, harassment, legal liability, and ultimately closure of the project are all possibilities for those who ignore the law. Needless to say, registering with the authorities must be at the top of the to-do-list for anyone looking to start an NGO in Cambodia.

A draft Law on NGOs and Associations has been in the works for some time now, and is rumored to be enacted by the end of this year. In the meantime, the status and procedures for registration of NGOs are governed by a handful of different laws and regulations.

The registration process differs for International NGOs and Local NGOs. An International NGO is essentially the local branch of a foreign organization – owned and directed by headquarters back in the home country. A Local NGO, on the other hand, is run predominantly by Cambodian citizens. While foreigners can be involved in the management and functioning of a Local NGO, the key figures – including the chairman, administrative officer and treasurer – must be Cambodian citizens.

International NGOs are registered through the Ministry of Foreign Affairs and International Cooperation (MFAIC), in conjunction with the ministries relevant to the NGO’s sector (Health, Environment, Social Affairs, etc.).

The MFAIC will require the following documents:

  • Cover letter addressed to the MFAIC;
  • Documents of registration for the NGO’s parent organization in the foreign country.
  • Project plan and budget approved by the NGO’s board;
  • A proxy letter from the Chairman of the Board appointing a local representative and giving them authority to sign a Memorandum of Understanding with the Cambodian government.
  • A list of the foreign and local staff, stating their nationality, passport number, title, address in Cambodia, and their employment contracts;
  • Office address in Cambodia, attached with a lease agreement for the office;
  • A promise to provide a bank statement to MFAIC after signing of the Memorandum of Understanding.
  • Passport and photos of the representative of the NGO
  • Supporting letter from the relevant Ministry.

A Local NGO is registered through the Ministry of Interior (MOI), and unlike an International NGO, does not require additional approval from another Ministry. The MOI will require:

  • Application form;
  • NGO’s Memorandum and Article of Association (MAA), issued by MoI;
  • Plan of NGO’s structure, signed by director, issued by MoI;
  • Map of the NGO’s address, certified by the local Sangkat;
  • Photos of office’s facade.
  • Copies of the office’s lease agreement;
  • Biographies of Cambodian director, administrator and financial officer with photos and copied ID cards;
  • Approval letter issued by the local municipality.

Once all the documents are submitted, and unless the application presents unusual difficulties, it typically takes a few months to fully register. So long as they fully understand the correct procedures and official fees from the outset, there’s no reason an NGO couldn’t complete these steps themselves. However, experienced and trustworthy legal advisors can earn their fees by knowing exactly what steps to take, and which are unnecessary red-tape.

I’ve posted before on how important it is for NGOs to comply with the Labor Law. The Post has a couple of stories this week (here and here) providing a perfect example of just how crucial it really is.

A local human rights NGO (having plenty of lawyers on staff), has been sued by three former employees, claiming over $20,000 in compensation under the Labor Law. I’m not involved in the case, and know nothing more than what the article states – it could be a frivolous claim for all I know. But even still, the story illustrates how former employees can come back to sue the organization for substantial damages.

Even the most generous and well-intentioned NGOs can find itself in serious difficulty if it’s not fully aware of some very specific and non-obvious provisions. Just for example, if you find out an employee has been stealing from the organization, you have only seven days to terminate him. Wait until the eighth day, and you’ll be stuck employing a known thief.

We’re currently drafting a guide to the labor law specifically for NGOs, which will explain the major provisions and provide practical advice on compliance. Stay tuned to this space for its release date. In the meantime, you can read more about compliance in our prior publication – Labor Law Compliance Review for NGOs.

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.

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


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.

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