Land Ownership

The ownership of land in Cambodia is regulated primarily by the Constitution and the Land Law, and is further regulated by the Law on Investment (“LoI”), as amended on March 23, 2004, and the LoI Sub-Decree on the Implementation of the Amendment to the Law on Investment of the Kingdom of Cambodia, dated September 27, 2005, which is an implementing regulation for the LoI. Pursuant to Article 44 of the Constitution, “Only Khmer legal entities and citizens of Khmer nationality shall have the right to own land.

Article 8 of the Land Law elaborates that:
Only natural persons or legal entities of Khmer nationality have the right to ownership of land in the Kingdom of Cambodia. Thus, the following persons or entities may be owners of land in Cambodia: Cambodian citizens, public territorial collectives, public institutions, Cambodian communities or associations, public enterprises, Cambodian civil or commercial enterprises and any Cambodian organization which is recognized by law as a legal entity. A foreigner who falsifies national identity to become an owner of land in Cambodia shall be punished as determined under Article 251 of this law. Any property bought under these circumstances will be seized as State property without compensation from the State.

Article 8 of the LoI states that:
A foreign investor shall not be treated in any discriminatory way by reason only of the investor being a foreign investor, except in respect of ownership of land as set forth in the Land Law.
The LoI does not have restrictions on other business activities based solely on the foreign ownership of such entity.
Similarly, the LoI Sub-Decree provides that:
Ownership: The Land Ownership serving the Investment Activity is to be vested in a Cambodian natural person or legal entity in compliance with the Law in force (LoI Sub-Decree Article 19.1).
Ownership Rights: Under the Constitution of the Kingdom of Cambodia, the foreign natural person or legal entity may not own land in the Kingdom of Cambodia (LoI Sub-Decree Article 19.3).
Pursuant to Article 101 of the Law on Commercial Enterprise (“LOCE”), a foreign individual or entity may own up to forty-nine percent (49%) or less of a company incorporated to own land, and such company may legally own title to land in Cambodia if:
a) the landholding company is registered as a private limited liability company and has a registered office located in the Kingdom of Cambodia; and (b) at least fifty-one percent (51%) or more of the voting shares in the landholding company are held by individuals or entities of Cambodian nationality.
The Law on Commercial Regulations and Registration dated June 26, 1995, and as further amended on November 18, 1999 (the “LCRR”) states that a private limited company shall be deemed to be of Cambodian nationality if:
a) Its stated office of origin is located in the Kingdom of Cambodia;

(b) At least 51% of its stated capital is held by a Khmer citizen; and

(c) At least 51% of its financial interests in the profits and losses are held by a Khmer citizen
Part or all of the shares of the shareholder in the Limited Company may, at any time, whether wholly or partly, be transferred to another shareholder or third party (LCRR Chapter IV, 1 D).
The LCRR Instructional Circular Chapter IV, 1 D is not always consistent with the LOCE. For example, it requires that 51% of the shares be held by Cambodian citizens (i.e. physical persons), as opposed to Cambodian citizens or Cambodian entities pursuant to the LOCE. However, the LCRR Instructional Circular is an Instructional Circular that was distributed by the MOC before the LOCE came into effect. In accordance with Article 158 of the 1999 Constitution, the LCRR is still in force and effect insofar as its provisions do not conflict with provisions of the LOCE. Therefore, subject to the qualifications below, it is our interpretation that the LOCE supersedes the LCRR Instructional Circular because it came into effect after the LCRR and overrides its provisions in accordance with Article 158 of the Constitution, and also because the LOCE is a law passed by the National Assembly and Senate and promulgated by the King, and is therefore considered to take precedence over Instructional Circulars of individual Ministries.
Applying these legal standards means that a company established for the purposes of owning land in Cambodia will be of Cambodian nationality if it has fifty-one percent (51%) or more of the voting shares in the company held by either one or more Cambodian individuals, or else held by an entity, such as another company, which itself has at least fifty-one percent (51%) or more of its shares Cambodian owned, as will be the case for the landholding company to be established.
Although this ownership structure of landholding companies has, to our knowledge, not been subject to authoritative judicial interpretation, in practice, the MOC currently registers private limited companies with 51% Cambodian held voting shares, whether held by Cambodian citizens or entities, and approves for such companies business objectives which include the ownership, sale and transfer of land in Cambodia. These MOC practices are consistent with the legal requirements set out in the LOCE.

With regards to the use of the Cambodian shareholder’s services as a shareholding entity in the landholding company, it should also be noted that the LoI Sub-Decree provides that:
Investment Activity: This Sub-Decree applies to all investment activities other than those activities set out in the Negative List in Schedule 1, Part 1 of this Sub-Decree as provided in Article 7 of the Law on Investment (LoI Sub-Decree Article 2).
Foreign and Cambodian Investment: The Royal Government welcomes investments in all economic activities from Cambodian Entities and Foreign Entities, subject only to the restrictions set out in Article 2 of this Sub-Decree (LoI Sub-Decree Article 3.1).
Use of Nominees: An individual or legal entity controlled by Cambodian citizens must not act for, or represent, either directly or indirectly, a Foreign Entity for the purpose of avoiding the effects of the provisions of this Sub-Decree, which restrict or prohibit the activities of Foreign Entities or Foreign nationals (LoI Sub-Decree Article 3.2).
Subject to our qualifications, our interpretation of the legal effect of Articles 2 and 3 of the LoI Sub-Decree is that the use of nominees seems to be prohibited to circumvent restrictions on other business activities for foreign entities in Cambodia which may have been implemented through prior laws, regulations or sub-decrees; and it may not be directed to the restriction on ownership of land, although a broad interpretation of Articles 2 and 3 of the LoI Sub-Decree could possibly include foreign control of a landholding company owning land in Cambodia. However, it is uncertain what would constitute “acting for” or “representing” a Foreign Entity with respect to land ownership rights, and furthermore, there has been no public disclosure by any governmental entity or any court in the Kingdom of Cambodia regarding the interpretation or providing instruction on the application of Article 3.2 of the LoI Sub-Decree.
In order to address the nominee issue, we usually recommend that the Cambodian shareholder in such circumstances be provided with remuneration and/or a certain consideration in the proceeds of any sales of the land owned by the landholding company. This can be addressed by yearly payments or, in our view preferably, direct proceeds from the sale of assets or dividends of the company.

 

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