Legal Framework Supporting FDI

Overall, I learned that Cambodia harbors a hospitable environment for foreign investors, as most sectors of its economy are open to foreign ownership through FDI. Despite this liberal investment regime and amicable investment laws, the widely shared perception of corruption in Cambodia’s judicial enforcement renders the nation a less attractive destination for many foreign investors. As a result of such lack of confidence in the Cambodian courts, foreign investors have preferred to resolve commercial disputes through arbitration or negotiations facilitated by other Cambodian governmental bodies or third-party organizations. Briefly discussed below are Cambodia’s legal framework most relevant to FDI:
Current Law on Investment
Enacted in 1994 and amended in 2003, the Law on Investment established a licensing scheme for FDI in Cambodia and incentives to foreign investments with the qualified investment project (“QIP”) status, such as tax reliefs or import duty exemptions. The Law also grants all investors the right to freely purchase and remit foreign currencies abroad to discharge their investment-related financial obligations. Importantly, the Law guarantees foreign investments that they will be generally treated in the same manner as domestic investments, with an exception that foreign-owned companies are not allowed to own land in Cambodia (i.e., Article 8: “[a] foreign investor shall not be treated in any discriminatory way by reason only of the investor being a foreign investor, except in respect of ownership of land as set forth in the Land Law”).

New (Draft) Law on Investment
In July, 2021, Cambodia’s Council of the Ministers approved the new investment law draft that will replace the Current Law on Investment once in effect in the near future. This new draft will provide additional incentives to prioritized sectors in Cambodia’s Development Policy. For instance, the Royal Government of Cambodia (“RGC”) will provide QIPs with increased incentives with respect to tax and non-tax preferences. Further, perhaps to address foreign investors’ apprehensiveness about the lack of transparency in Cambodia’s FDI regime, the draft law expresses international obligations of the RGC in protecting investment and providing assurances in accordance with international law and standards.

With the purpose of attracting FDI and offering an alternative to domestic litigation, the Law on Commercial Arbitration came into force in 2006 with the guidelines of the United Nations Commission on International Trade Law Model Law. In 2013, Cambodia established the National Commercial Arbitration Centre (“NCAC”), which has since administered 27 proceedings worth approximately 80 million USD.

In March, 2021, to comport with international best practices, the NCAC adopted a new set of procedural rules that introduced three major changes. First, largely due to the limitations engendered by the COVID-19 pandemic, the new rules expressly authorize the tribunal to decide between conducting a hearing in-person or remotely. The tribunal must make this decision after a consultation with parties and an evaluation of relevant facts and circumstances. Second, the arbitration procedure may be expedited if any criterion among the following is satisfied: (1) the amount in controversy requirement; (2) parties’ consent; or (3) existence of exigent circumstances. Lastly, the new rules introduce an emergency arbitrator who may issue interim orders and awards before the constitution of the tribunal. This last change adds to the previous rules that only allowed parties to seek interim measures either from the tribunal or the Cambodian courts.

Given the Cambodian economic sectors’ availability to foreign ownership and foreign investors’ perceptions of court corruption, it is likely that the demand for arbitration to resolve commercial disputes will steadily increase.