For international companies and foreign investors, efficient cross-border capital flow is as important as registering the business, taxation, and the ability to employ staff in a foreign jurisdiction. When businesses fund new subsidiaries, pay overseas suppliers, receive payments from customers, and repatriate profits, they need a supportive banking and regulatory system to conduct international business.
Cambodia has become a very attractive location within Southeast Asia to conduct cross-border payments and for foreign investment. Unlike the multitude of emerging markets with strict foreign exchange regulations, Cambodia maintains a system that is highly dollarized. Having the US dollar as the predominant currency used for business transactions in Cambodia makes it easier for foreign-owned businesses to conduct international business and also trade and transfer capital in and out of the country.
This guide provides an understanding of the international payments system in Cambodia and the rules and regulations on the inflow and outflow of capital, as well as the factors that foreign investors and small and medium enterprises need to consider when doing business in Cambodia.
Cambodia’s Foreign Exchange and Banking Environment
For investors engaging in the inflow or outflow of capital to and from Cambodia, an understanding of the foreign exchange system in Cambodia is of utmost importance.
The National Bank of Cambodia (NBC) is the main regulator of the commercial banking system, specialized banks, microfinance institutions, and payment service providers. While the NBC has supervisory control over the financial sector, almost all neighboring countries exercise more control over their foreign exchange systems than Cambodia.
An important feature of the Cambodian economy is the extent of dollarization. Although the Cambodian Riel (KHR) is the official currency, the US dollar is the dominant currency used. The majority of contracts (business, commercial, real estate, and banking) are transacted in USD. The dollarization of the KHR is further illustrated by the fact that many businesses maintain USD accounts and transact in USD.
For foreign investors, a dollarized economy eliminates currency risks, enhances the ease of conducting international trade, and minimizes the difficulties of doing business in an economy that imposes restrictive currency controls.
Furthermore, there is a relatively open capital account. The general movement of capital for international trade is subject to banking, AML, and tax regulations. There are no currency controls that limit foreign investment in Cambodia or the repatriation of capital.
We cannot forget that having an open economy doesn’t mean having an open door. Banks must follow KYC requisites and monitor transactions. Large or atypical transactions, especially with high-risk countries, may require additional procedures.
When compared with other ASEAN countries, where getting foreign exchange approvals can be more complicated, Cambodia’s banking sector is usually described as business-oriented and welcoming to foreign investments. It is one of the reasons why Cambodia attracts more manufacturers and trading companies, as well as real estate developers, and regional SMEs willing to establish themselves in South East Asia.
For companies that operate abroad, Cambodia’s dollar economy, banking system, and fairly free movement of capital are an end developer and carry on with cross-border business.
Bringing Southeast into Cambodia
Most foreign investors will transfer capital into Cambodia during the early stages of establishing and operating a business. These transfers may be used to facilitate the legal formation of the business, the establishment of a business premises, the payment of staff, the purchase of goods for trade inventories, and the acquisition of business and office equipment. Transfers may also be used for the expansion of the business.
In practice, transfers of capital may only commence after the business has been legally incorporated, and the newly formed business has established a corporate bank account with a licensed bank in Cambodia. Banks require businesses and investors to undertake normal Know Your Client (KYC) and other compliance requirements prior to the business being able to receive foreign transfers.
The documentation required will vary depending on the bank and the complexity of the ownership structure, but investors are commonly asked to provide:
- Certificate of Incorporation
- Company registration documents
- Articles of Association
- Shareholder and director information
- Passport copies for foreign shareholders
- Ultimate Beneficial Owner (UBO) declarations
- Business activity descriptions
- Source of funds documentation
The emphasis by banks on transparency of beneficial owners of businesses and the source of capital for investments is a response to the increasing focus of nearly all nations on combating the financing of illegal activities, especially terrorism, and the other threats posed by financial crimes to the global financial system.
There are several ways foreign-owned businesses can finance their operations in Cambodia. The most widely used method is a direct contribution of capital by shareholders to the business. The business may also receive loans from shareholders, or financing from parent companies, dependent on the financing policies of the corporate group.
As compliance procedures have gotten stricter in recent years, most shareholders become less enticing for international investment, but this is not true for Cambodia. Investors that use proper documentation in advance and maintain close contact with their banks are usually able to onboard new bank accounts without a hassle.
International Payments for Trade and Business Operations
After a business is set up, companies will need to make international payments to conduct daily business. International payments are very important for foreign owned businesses to buy inventory, pay suppliers, receive payments from customers, and manage business-owned in a different region.
In Cambodia, banks utilize SWIFT for international payments, so companies can pay or get paid anywhere in the world. International transactions are further simplified because the majority of banks offer businesses accounts in USD and eliminate the need to exchange other currencies.
Common international payment activities include:
- Paying overseas suppliers
- Receiving export proceeds
- Purchasing equipment and machinery
- Paying international service providers
- Settling consulting and management fees
- Paying software subscriptions and cloud-service providers
- Funding regional business operations
For companies involved in import-export activities, trade finance services are particularly important. Cambodian banks commonly provide:
- Letters of Credit (LCs)
- Bank Guarantees
- Documentary Collections
- Import Financing
- Export Financing
- Trade-related working capital facilities
These tools make cross-border commerce easier by lowering commercial risk for buyers and sellers.
Machinery imports via manufacturing firms may utilize a letter of credit to provide assurance of payment upon fulfillment of specified conditions for a European supplier. Trade finance tools can also provide exporters with working capital to fund operations while awaiting payment from foreign buyers.
The relatively open banking environment of Cambodia still requires an expectation of compliance review for specific transactions.
- Source of funds
- Transaction purpose
- Beneficiary information
- Supporting contracts or invoices
- Compliance with sanctions regulations
Most banks will conduct a post-facto analysis to determine the necessity for additional documentation. Compliance reviews for transactions are generally minimal for firms that maintain organized financial and transactional records.
Digital banking has improved significantly. Enterprises can utilize advanced online banking systems of major banks such as ABA Bank and ACLEDA Bank to conduct banking business and update relevant financial information. It also facilitates the remote authorization of bank transactions.
For small and medium enterprises (SMEs) with operations in multiple countries, payment systems with efficient international payment mechanisms provide adequate working capital, lower costs, and promote more timely transactions and decisions.
Profit Repatriation, Dividends, and Capital Transfers Out of Cambodia
Foreign investors must take both inbound and outbound capital flows into consideration when deciding on investments in Cambodia. Repatriation of capital can be done through legally permitted transactions, which include the distribution of profits, dividends, and the repayment of loans.
As long as the foreign investment in Cambodia complies with tax regulations, Camb and dividends foreign investors to repatriate profits. This policy encourages investors to invest in Cambodia.
Profit repatriation can take several forms, including:
- Dividend payments
- Shareholder loan repayments
- Management fees
- Service fees
- Royalties
- Intercompany charges
Foreign businesses must ensure that they comply with tax obligations prior to repatriating their profits. This may include payment of withholding tax. Payment requests to banks may be accompanied by the tax payment receipt and other support.
Commonly requested documents include:
- Audited financial statements
- Tax filings
- Board resolutions
- Dividend declarations
- Service agreements
- Loan agreements
- Proof of beneficial ownership
Banks are obligated to assess controls on large payment requests and ensure compliance with AML regulations.
Foreign businesses are encouraged to maximize their repatriation of profits through planning. Engaging in discussions with tax advisors, accountants, and bankers prior to the repatriation of profits through planned transactions helps identify tax liabilities and facilitates the repatriation.
Profit repatriation is usually delayed when businesses fail to provide sufficient supporting documentation. Transaction requests are denied until the documentation is completed. To prevent delays and denials, businesses must maintain sufficient supporting documentation and proper accounting records.
Practically, Cambodia is still advantageous for international investors transporting their capital. Nevertheless, profit repatriation requires adherence to tax obligations, corporate governance, and banking procedures.
Businesses that consider compliance an ongoing process rather than a final step are more likely to manage the transfer of capital effectively and facilitate long-term operations in the region.
Conclusion
In Southeast Asia, Cambodia is relatively easy for international payment and capital transfer systems. Cambodia’s economy is highly dollarized and frameworks for foreign exchange are relatively flexible. Cambodia’s growing banking system dollarized, for businesses that engage in international trade, investment, and cross-border operations.
Investors and SMEs need a proper understanding of the regulations in place, solid banking relationships, and compliance in order to succeed. Capital contribution, international payments, trade finance, and profit repatriation all require documentation along with banking and tax seal compliance.
As Cambodia keeps developing as a regional investment hub, the businesses with the strengths in financial controls and proactive banking of Cambodia’s neighbors will be the best positioned to manage international transactions. The first thing a business needs to secure a competitive position in the regional economy is to understand financial movement in and out of Cambodia.