Mergers and Acquisitions in Cambodia: Legal Framework and Compliance Considerations

Mergers and acquisitions (“M&A”) are increasingly used by investors to expand business operations, restructure their business, and enter new markets. In Cambodia, M&A transactions are regulated through a combination of corporate, competition, investment, and taxation regulation rather than a single comprehensive statute.

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This article provides an overview of the legal framework governing M&A transactions in Cambodia and highlights key regulatory requirements and compliance considerations that investors should take into account when considering or undertaking M&A transactions in Cambodia.

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Key Legal Framework Governing M&A in Cambodia

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Corporate Law and Share Acquisition Structure

Corporate restructuring and ownership transfers in Cambodia are primarily governed by the Law on Commercial Enterprises promulgated by Royal Kram No. នស/រកម/0605/019 dated 19 June 2005 (as amended). This law establishes the legal forms of commercial enterprises operating in Cambodia and provides rules governing company formation, management, shareholder rights, and corporate governance.

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In practice, most M&A transactions involve the acquisition of shares in a limited liability company. Share acquisitions allow investors to obtain ownership, control or equity in a company while maintaining its existing legal and corporate structure.

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Commercial Registration Requirements

Corporate changes resulting from M&A transactions must also comply with registration obligations under the Law on Commercial Rules and Commercial Register promulgated by Royal Kram dated 26 June 1995 (as amended). Article 12 requires merchants and commercial companies to register their business information with the commercial register maintained by the Ministry of Commerce (the MoC), while Article 14 requires merchants to register their business before commencing operations.

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Following the completion of an M&A transaction, companies must update their corporate information with the MoC, including changes in shareholding, board of directors, capital, and company structure.

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Competition Law and Business Combination Regulation

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Competition Law Framework

Competition law plays an important role in regulating M&A transactions in Cambodia. The Law on Competition, promulgated by Royal Kram No. នស/រកម/1021/013 dated 5 October 2021 establishes a framework to prevent business practices that may significantly prevent, restrict, or distort competition in the Cambodian market.

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Under Article 3 of the Law on Competition, a “business combination” includes the acquisition of control or voting rights through the purchase of shares or assets by one person from another person, or the combination of two or more persons to acquire joint ownership of an existing or newly created legal entity.

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The law also establishes the Cambodia Competition Commission (CCC) as the authority responsible for regulating competition matters. Under Article 4 of the Law on Competition, the CCC has the authority to review business combinations that may significantly impact market competition.

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Sub-Decree on Requirements and Procedures for Business Combinations

To implement the competition law framework, the Royal Government of Cambodia issued Sub-Decree No. 60, dated 6 March 2023 on Requirements and Procedures for Business Combinations.

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According to Article 1 of the Sub-Decree, the regulation aims to establish procedures for reviewing business combinations, in order to monitor and evaluate their impact on competition. Article 2 provides that the Sub-Decree applies to business combinations that may significantly prevent, restrict, or distort competition in the Cambodian market, regardless of whether the transaction occurs inside or outside Cambodia.

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Article 4 introduces a pre-notification requirement for certain business combinations. Where the financial thresholds determined by the CCC are met, parties proposing a business combination must notify the CCC before completing the transaction. Transactions subject to pre-notification cannot be completed unless approval is granted by the CCC.

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Notification and Registration Requirements

Implementing regulations issued by the Ministry of Commerce clarify the notification procedures for business combinations.

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The Prakas on Requirements and Procedures of Registration of Completion of Business Combinations Subject to Pre-Notification requires notifying parties to register the completion of the business combination with the CCC. One of the notifying parties is required to submit the registration form within thirty working days after the substantive completion of the business combination.

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For transactions that do not meet the thresholds for pre-notification but still fall within the scope of competition monitoring, the Prakas on Procedures for the Post-Notification of Business Combinations establishes a post-notification regime requiring submission to the CCC within thirty working days after completion of the transaction.

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Investment Law Considerations

Where M&A transactions involve companies benefiting from investment incentives, the Law on Investment of the Kingdom of Cambodia promulgated by Royal Kram No. នស/រកម/1021/014 dated 15 October 2021 may also apply.

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Article 29 provides that the rights and incentives granted to a Qualified Investment Project (QIP) may only be transferred through acquisition, sale, or merger of the investment project. Article 30 further states that such transactions must comply with applicable laws and may require approval from the Council for the Development of Cambodia (CDC) or the relevant Municipal-Provincial Investment Sub-Committee.

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Tax Implications of M&A Transactions

Tax considerations represent another important aspect of M&A transactions in Cambodia. The Law on Taxation governs the determination of corporate tax liabilities arising from business activities.

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Key provisions include Article 20, which governs the determination of corporate income tax liability, and Article 11, which sets out rules regarding allowable deductions when calculating taxable income.

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Depending on the structure of the transaction, M&A activities may trigger capital gains tax arising from share transfers, transfer tax obligations for asset transfers, and other corporate tax liabilities.

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Key Compliance Considerations for Investors

Investors planning M&A transactions in Cambodia should carefully evaluate regulatory requirements before completing a transaction.

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Important considerations include competition law compliance where transactions meet notification thresholds, corporate registration requirements with the Ministry of Commerce, investment approvals where companies hold QIP status, and tax compliance related to share transfers or asset transfers, as well as labour compliance in Cambodia where applicable.

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Conducting comprehensive legal due diligence is essential to identify regulatory risks and ensure compliance with Cambodian law.

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Conclusion

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The legal framework governing M&A in Cambodia continues to evolve, particularly with the introduction of the competition law regime and regulatory requirements for business combinations. Investors considering or undertaking M&A transactions must therefore carefully assess applicable corporate, competition, investment, and taxation regulations to ensure full compliance with governing laws and and regulations.

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ILAW Cambodia Law Office stands ready to assist investors and enterprises in navigating the legal and regulatory requirements associated with mergers and acquisitions in Cambodia. Our team provides comprehensive legal advisory services, including transaction structuring, regulatory compliance review, preparation of legal documentation, and coordination with relevant authorities to support efficient and successful M&A transactions.

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Governing Regulations:

• Law on Taxation, Royal Kram No. នស/រកម/0523/004 dated 16 May 2023.
• Law on Investment of the Kingdom of Cambodia, Royal Kram No. នស/រកម/1021/014 dated 15 October 2021.
• Law on Competition, Royal Kram No. នស/រកម/1021/013 dated 5 October 2021.
• Law on Commercial Enterprises, Royal Kram No. នស/រកម/0605/019 dated 19 June 2005 (as amended).
• Law on Commercial Rules and Commercial Register, Royal Kram dated 26 June 1995 (as amended).
• Sub-Decree No. 60 on Requirements and Procedures for Business Combinations dated 6 March 2023.
• Prakas No. 177 dated 14 June 2023 on Requirements and Procedures of Registration of Completion of Business Combinations Subject to Pre-Notification.

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Disclaimer

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This article is prepared for general informational purposes only and does not constitute legal advice. The legal frameworks and regulations referenced in this article are not exhaustive and may not cover all applicable laws or regulatory requirements related to mergers and acquisitions in Cambodia. Additional laws, regulations, sub-decrees, prakas, or administrative guidance may also apply depending on the specific circumstances of each transaction.

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Readers are encouraged to seek professional legal advice for specific transactions or situations to ensure full compliance with applicable Cambodian laws and regulations.

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