Concession Agreements

The National Assembly enacted the Law on Concessions in 2007 which defines power, roads, bridges, rail, airport, seaport, canal transportation facilities, water, agriculture, waste management, health, education, and telecommunication facilities as eligible for concessions. A draft sub-decree that would implement the LoC has been drafted, but has not yet been approved and promulgated into law.

 

What documents would typically be needed for a concession application?
The types of documents that would typically form part of a validly completed Concession acquisition application are set out below. Please note that the order that the below documents are listed accords with the typical stages of the concession acquisition process (i.e. the in-principle approval of the Government is required first, before the detailed documents are submitted/entered into). Please note that we have also sought to order the steps to reflect the typical sequence of events (though note that steps 3 to 5 will often take place concurrently).

The typical documents/sequence of events includes:

  • a letter of approval in principle on the provision of concession rights over the land to investor company in the form of a Notification properly issued by the Council of Ministers;
  • the Certificate of Conditional Registration issued to the investor company by the Council for Development of Cambodia (“CDC”);
  • the Memorandum and Articles of Association of investor company (“MOA”) properly registered with the CDC and Ministry of Commerce (“MOC”);
  • Lease/Concession Agreement of the land with the Royal Government of Cambodia;
  • MOC Certificate of Registration;
  • evidence of registration of the land as “State Private Property”. This would include a sub-decree of land conversion and a title deed to that effect;
  • approved Master Plan;
  • approved Environmental Impact Assessment Study; and
  • letter of handover.

Please note that the Conditional Registration Certificate does not guarantee the investor rights to the Concession as the investor is still required to obtain several other regulatory approvals, as set out in the Certificate (e.g. the requirement to conduct environmental impact assessment approved by the Ministry of Environment; settlement and compensation agreement with inhabitants on the land if any, etc.) before the final registration status can be granted.
Finally, for further information on the concession acquisition procedure, please view the following webpages:

http://www.elc.maff.gov.kh/en/procedure.html

http://www.elc.maff.gov.kh/en/criteria.html

It will be necessary to engage an environmental consultant to advise on the submission of an “Environmental Impact Assessment Study” (which forms part of the application documentation).

Dealing with third party claims
A common issue with economic land concessions involves land disputes (i.e. third parties claiming rights to parts of concession area – the State land). The Government is tasked with dealing with this issue. In cases where the Government has recognized the rights of third parties as being legitimate, the Government/concession applicant has dealt with this issue in a variety of ways:

  • payment of compensation;
  • by “carving out” those parts of the land from the concession (this is why it is important to pay a per hectare price, rather than a fixed sum);
  • obtaining title for the third parties.

Other potential third party problems that may arise include overlying mining concessions (which trump economic land concessions), protected forests, or parts of the land being used for national defense purposes. Again, the Government representative would be responsible for resolving these types of issues. These are types of issues (amongst many others) that we would be seeking to identify during the due diligence process.

CDC/QIP Application Process
To secure Qualified Investment Project or “QIP” status for its investment activities, X will first need to submit an investment proposal to the CDC (including a detailed feasibility study).

Assuming that the application contains all necessary information, the investment activity is not on the “negative list” (which it is not), and that the amount of capital investment is at or above the required level, the CDC will issue a Conditional Registration Certificate or “CRC” within three working dates of the submission of the application. The CRC specifies all of the necessary approvals, permits etc that will be needed to carry out the QIP. Please see [ ] for examples of typical CRC conditions.
Irrespective of whether the CRC conditions are satisfied, the CDC must issue a Final Registration Certificate or “FRC” within 28 days of the issuance of the CRC. However, please note that all such approvals, permits etc must be obtained in order for the QIP to operate lawfully. Please see [ ] for examples of typical FRC conditions. The CDC offers a “one stop service” and actively assists the QIP applicant to obtain all necessary approvals etc.

Available Investment Incentives
In short, QIPs are eligible for the following investment incentives:

  • Profit tax exemptions for specific periods (the profit tax exemption period);
  • Exemption from pre-payment of profit tax during the profit tax exemption period;
  • Exemption from payment of minimum tax during the profit tax exemption period;
  • For export QIPs, customs duty exemption on import of production equipment, construction materials, raw materials, intermediate goods and production input accessories (except for export QIPs that operate under the custom bonded warehouse mechanism). However un-exported processed production inputs are subject to payment of customs duties and taxes applicable at time of import as are inputs that are re-sold;
  • Export tax exemptions generally (although there appear to be no export taxes currently levied on X).

Exemptions do not apply to tax on salary, withholding taxes, additional profit tax on distribution of dividends, VAT, specific tax on certain merchandises and services, and other import duties and taxes not referred to above.
Exemptions apply throughout the life of the QIP, provided that the QIP continues to be issued with Compliance Certificates by the CDC.
In addition to the above, QIPs enjoy the following investment guarantees:

  • Equal treatment of all investors regardless of their nationality (except for land ownership and some investment activities);
  • No nationalization adversely affecting investors’ properties;
  • No price control on investors’ products or services; and
  • Remittance of foreign currencies abroad.

Specific investment incentives are granted by the CDC on a case by case project basis. We are not aware of additional incentives being granted to “preferred” investors, but it would certainly be worthwhile discussing what additional incentives (if any) the CDC can offer.

Impact on QIP investment incentives of future levies and taxes
The Law on Concessions provides generally that a concessionaire may receive compensation for changes in laws or regulations that substantially alter the costs of or the returns on the concession.

Governmental Fees/Receipts
You will not receive any receipts in respect of any Governmental fees. Its “receipt” is effectively the Service Agreement that it will enter into with the Government’s representative, and the Land Concession Agreement itself. Our policy is to only make payments to Governmental officials that are either contained in an official fee schedule or where a receipt is provided.

Estimated timeframes for entire process
Based on past experience, the entire process for obtaining approval typically takes from 3 to 6 months (excluding of course the time it takes you to identify and settle on a suitable site). As discussed, the process can take considerably longer in the event that issues arise – such as third party claims to the subject land.

%d bloggers like this: