Collective Investment Scheme – Cambodia

• 7 June 2020
• Local News
• 5512 Views

A Collective Investment Scheme (“CIS”), as defined by the law of Cambodia, is an investment structure where various individuals come together by pooling their money to invest in a particular asset in the form of fund collections, returns or profits earned by the investors as per their investment proportion agreement or as per the shareholding ratio between the investors.  In 2018, Cambodia adopted the Prakas on “License and Management of Business on Collective Investment Scheme” whereby the  Securities and Exchange Commission of Cambodia (SECC) is empowered to regulate, operate, and manage Collective Investment Schemes in the country.  The regulation broadly defines the forms of entities necessary to incorporate for establishing or for carrying out CIS activities in Cambodia.

CIS refers to an investment scheme where a relevant license has been granted by SECC and/or has characteristics as follows:

1. Collection of money or valuable things through the issuance of a fund unit or electronic system including crowdfunding or other forms approved by the SECC to create a public fund, private fund, or real estate investment trust;
2. All collected money and valuable things used and managed by the fund management company of CIS to increase its financial benefit or benefits receiving from the right or benefits on a property for its members, even if they don’t manage the daily operations of CIS;
3. The Trustee Company maintains the property of CIS, on behalf of CIS;
4. CIS can be an open fund or closed fund; and
5. CIS can be in the form of contracts or a company.

Formation of CIS Company

The term ‘licensed company’ applies to a fund management company, trustee, distribution company or fund Administrator for conducting business related to a collective investment scheme. A fund manager or crowd funding representative engaged in a collective investment scheme must obtain approvals from the SECC. Any company that intends to distribute, sell or purchase or repurchase or conduct settlement of fund units collected to invest in an asset must register itself with SECC as a distribution company. As of today, Cambodia does not allow a “trust” to carry out any CSI activities, in comparison to other countries as the law specifies that only entities a registered as a securities trading company or registered fund management company regulated by the SECC can conduct this activity.

Taxation of CIS

To carry any investment activities relating to crowdfunding or pooling in investment, it is mandatory for every registered CIS to disclose its shareholders. Furthermore, a CIS shall not undertake any activity other than managing collective investment schemes or act for any other collective investment schemes unless it is authorised to do so by the SECC.

As of today, there are no specific regulations relating to the taxation of collective investment schemes and therefore, any entities carrying on this type of business relating to collective investment is a tax correspondingly as any other entities subject to a minimum tax, profit tax and other applicable taxes.

The only exemption that CIS entities may be granted is under the sub-decree on “Tax Incentive for Securities Sector”, where an investor listed on the SECC is granted a fifty per cent (50%) deduction of withholding tax on dividend and/or interest for three years, including, exemptions from prepayment tax, withholding tax, VAT, special tax, accommodation tax and public lighting tax for three years after submitting all the relevant documents before the end of the fiscal year as prescribed to General Department of Taxation.

Any transfer of units between any registered entities is subject to withholding tax and VAT, as Cambodia does not provide any exemption or incentives for CIS entities specifically from any prepayment tax, withholding tax, VAT, or special tax. So, any payments by a resident CIS entity to a resident is subject to 15% withholding tax for any income derived from its services or 10% for income derived from immovable property and 10% VAT. While any registered resident taxpayer making any payments to a non-resident taxpayer is subject to 14% withholding tax on the amount paid on interest or any other income derived from any other sources including any income connected with the use of the property.

Any resident Investor participating in a CIS (whether directly or indirectly as a beneficial owner of such income) receiving any income or dividend distributed as a resident in Cambodia is not subject to any withholding tax. However, if such distribution is to a non-resident investor it is subject to a 14% withholding tax on dividends.

As of today, an individual resident in Cambodia may not be subject to any capital gains tax in Cambodia for any income derived from the transfer of units in any fund. However, going forward this is expected to change.

ASEAN Collective Investment Scheme Framework

In 2014, Malaysia, Singapore and Thailand entered the ASEAN Framework for Cross-Border Offering of Collective Investment Schemes (CIS) allowing fund managers operating in a member jurisdiction (i.e. Singapore, Malaysia, Thailand)  to offer CIS, such as unit trust funds registered in their respective jurisdiction, to retail investors in each other member jurisdictions. To date, there is no indication that Cambodia is seeking to join this framework.

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Copyright 2020

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Author:

Sujeet S. Karkala,

Legal Advisor

Sujeet is a qualified Indian Lawyer registered with the Bar Council of India. He completed his Masters in Law (LLM) from Duke University School of Law, Durham, North Carolina and obtained a Bachelors Degree in Law from Government Law College, Mumbai, India. Sujeet’s expertise includes corporate law, corporate structuring, international taxation and mergers & acquisitions. He is also experienced in tax restructuring, banking transactions and joint ventures and has specialized in advising international clients in entering and operating in emerging markets. He is fluent in English and Hindi.

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