As per the Constitution of Cambodia, the Investment Law, and the Land Law, foreigners (including foreign-owned entity) are restricted to own land in Cambodia. The land ownership rights are reserved only for Cambodian individuals or entities. Thus, prior to the implementation of the 2019 Trust Law in Cambodia, as the structural options to use land that were considered included the following:
- Land holding company (“LHC”): an LHC could be incorporate for land holding provided that the Cambodian shareholder must own 51% or more shares of the company. With the LHC structure, the land would be registered under the ownership of the LHC.
- Land holding right through concession: foreign investors could also obtain the land use right through concession awarded by the concession agreement with the Royal Government. Rights of foreign investors on the concession land shall be documented through the land concession certificate issued under the name of the foreign investor with a term no longer than 50 years.
- Land holding right through perpetual lease hold (long-term lease): As provided under the Civil Code of Cambodia, foreign investors could receive its right to use land in Cambodia through entering into long-term lease agreement for a term of up to 50 years with 50 years renewal option. Once the long-term lease is registered with the competent authorities, the foreign investors will receive a long-term lease registration certificate in its name.
Nevertheless, some of these structures may not always be available for specific project. Other traditional structure that may have been used in practice are associated with a number of potential legal challenges and risks, and thus reduced overall bankability of the project.
To bridge the gap, the new Trust Law offers an alternative solution aimed, among things, to provide another option of obtaining rights to immovable property.
- Through a Cambodian nominee :
Purchasing land through a Cambodian nominee, also known as a nominee structure, has historically been the most common system used, due to its simplicity and quite low cost.
Under this structure, foreign investors would need to “nominate” a Cambodian national to be the legal owner of the land being purchased and sign a ‘trust agreement’ with them in which they agree to hold the land in their name. However, the risk lies on whether you are approaching a trusted nominee or not, so it’s advisable to use a professional nominee from a trusted service provider to keep everything purely professional.
It is recommended that in addition to the trust agreements, the property being purchased is mortgaged, using the foreigners’ name as the loan provider. Documents registering this mortgage are placed at relevant land offices making the sale of the land and its title, or its use as collateral for another loan, not possible unless the foreigner first instructs the relevant land offices to release the mortgage that has been placed on the property and its title.
- Marrying a Cambodian :
Similar to the nominee structure, when a foreigner is married to a Cambodian citizen, they are permitted to buy a land property under the name of their spouse on the title deed.
It should be noted that under the Cambodian Law, a foreigner married to a Cambodian, but is not a citizen of Cambodia, is not permitted to be registered on a land title. However, if a foreigner has been granted citizenship, both the spouse and the foreigner’s name are allowed to be registered on a land title.
- Acquiring a Cambodian citizenship :
Acquiring a Cambodian citizenship would earn a foreigner the right to own a land completely without having to partner with a majority Cambodian stakeholder, lease, or undergo a nominee structure.
Hence in practice, it is quite difficult to obtain citizenship and would only really be a possibility for investors putting greatest amounts of capital into the country.
6.1 Cambodia Residency by Investment
In July 2022, Cambodia launched a Residency by Investment program, known as My Second Home (CM2H). Investors must invest a minimum of $100,000 into real estate for a renewable visa with a 10-year validity period. After 5 years of residency, it is possible to apply for a Cambodian passport. There is no minimum stay requirement to maintain the visa.
6.2 Cambodia Citizenship by Investment
Cambodia also offers a direct Citizenship by Investment programme which requires investors to make a Government Donation of $245,000, plus fees, or invest a minimum of $305,000 into a Government approved project. Processing time takes between 3-4 months following submission
7. Through a Trust : (AI Consulting favorite)
WHAT IS TRUST LAW FOR? WHY IT IS ENACTED?
In simple terms, a trust is a legal arrangement by which allows one person to hold property for the benefit of another person. A trust imposes obligations upon a person (trustee) to deal with the property for the benefit of another person or class of persons (beneficiary(ies)) or for the advancement of certain purposes.
In order to catch up with the international market (especially within the ASEAN region) and to establish a well-regulated framework for trust transactions in Cambodia, the Royal Government of Cambodia introduced Law on Trust 2019. The implementation of Trust Law aims to regulate the currently available and future trust transactions including the arrangements to hold land for foreign investments.
In addition to a more comprehensive framework to govern the trust mechanism, the Law on Trust 2019 also governs the rights, duties and responsibilities of the trustor, trustee and beneficiary, thus granting more protection to the parties and provides more venues for the trustors to enforce the trust in case of a breach by the trustee as well as more appealing to the lenders due to the transparency of the trust arrangement.
HOW WILL THIS WORK? WHO CAN BE TRUSTEE?
For the creation of a trust, the most important aspect the trustor (investor) is the selection of a qualified trustee who is properly registered with the trust regulator and currently holds a valid trustee certification.
Under the Law of Trust 2019, trustee could either be a legal entity or an independent individual trustee. However, it is to be noted that, the total value of the trust asset that an independent individual trustee can manage, dispose, and keep custody shall not exceed 10,000,000,000 KHR (approximately US$2.5M) unless otherwise approved by the Trust Regulator.
Another important aspect for the trust transaction is the preparation of trust deed that shall meet the minimum requirements set out by the Trust Regulator and registering the trust with the Trust Regulator within 3 months from the trust creation date.
ARE THE “OLD STYLE” NOMINEE ARRANGEMENTS STILL APPLICABLE?
The Trust Law in practical terms replaces the nominee-type arrangements that could be seen in the market previously.
The shift of the legal landscape imposes the compulsory registration obligation upon the trustors and trustees. The Trust Law also recognizes only licensed trustee in holding land.
Having said that, the popular choice of the LHC structure does not fall within the purview of the Trust Law as there is no entrustment of property to the LHC. Hence such structure remains available, and continues to serve as an alternative option for the foreign investors depending their needs in the market. Therefore, to reconcile these two structures, the new Trust Law merely introduced a new option for the foreign investors to appoint a licensed trustee to manage the land.
Some salient factors in considering the appropriate structure for the investment:
- Protection: Governing framework for the trust mechanism offers more certainty and predictability to the parties involved in the investment. It reduces the risk that often encountered in a nominee-type arrangement and increases enforceability against the defaulting party. To maximize protection, the foreign investor may also deposit the title deeds in a safe deposit box at his bank.
- Control: While the foreign investor may “manage” its trustee via a well-crafted trust deed, such governance must be exercised within the limitation of the Trust Law.
- Cost: In trust structure, the costs incurred would be the annual fee towards the appointed trustee and other official and managerial fees ([ ~0.15% – 0.20%] of assets in trust structure)
- Tax: Tax implications between the previously used nominee-type arrangements and the trust structure are substantially distinct. A careful assessment of the tax implications between different structures is recommended to achieve the best tax optimization for the business.