- Basic data
- Public finances and the state budget
- Banking system
- Tax system
In 2020, the Cambodian economy shrank by almost 2% of GDP. As a result of the pandemic, a decline was recorded for the first time since the 1980s. The Covid-19 pandemic manifested itself in a strong decline in all key sectors of the economy – the textile industry, construction and tourism. In 2021, the economy as a whole has already grown by 1.6%, starting from 2022, a return to the previous growth rate of 6-7% is expected. In the long term, the growth of the economy is primarily driven by the growing export of goods from the clothing and footwear industry. The newly adopted investment law, the recently signed free trade agreement with China, or South Korea, as well as the establishment of a free economic zone within the framework of the Regional Economic Partnership (RCEP) should ensure an increased inflow of foreign direct investment into the country and further growth of foreign trade in the future. On the other hand, it is expected that within the next few years, Cambodia will move out of the category of least developed countries in the world and will no longer benefit from preferential access to developed markets. To increase Cambodia’s competitiveness, it is necessary to implement structural reforms, which are part of the government’s economic recovery plan. This is mainly about reducing the costs of doing business, logistics and energy and eliminating the inflexibility of the labor market. Check ebizdir for economical facts of Cambodia.
Table from MOP + additionally balance of payments, indebtedness/GDP.
|GDP growth (%)||7.1||-1.7||1.6||6.6||7|
|Export of goods (billion USD)||15||18.1||19.6||20.8||20.6|
|Import of goods (billion USD)||22.3||20.7||30.5||23.8||25.8|
|Trade Balance (Billion USD)||-7.3||-2.5||-10.9||-2.9||-5.3|
|Industrial production (% change)||ON||ON||ON||ON||ON|
|OECD export risk||06.VII||06.VII||06.VII||ON||ON|
Source: EIU, OECD, IMD
Public finance and state budget
|State budget balance (% of GDP)||-5.3|
|Public debt (% of GDP)||35.1|
|Current account balance (billion USD)||-11.8|
Public finances and the state budget are long-term dependent on foreign development cooperation and grant mechanisms. Public debt has been increasing slightly in the long term, but in relation to GDP it continues to reach sustainable values. The 2022 budget features continued (counter-cyclical) fiscal support with a fiscal deficit target of percent of GDP (60% to be financed by soft loans). The government has planned additional fiscal support for 2022 to reach 3.2% of GDP, compared to 4.5% and 3.1% in 2020 and 2021, respectively. In 2022, one-third of fiscal resources are earmarked for spending on prevention and treatment COVID-19, down from 57 percent in 2021.
The Cambodian banking sector has experienced significant growth in recent years, expanding banking services and expanding bank branches into the provinces. The real estate and mortgage market was the main driving force. The exuberant construction of residential and commercial real estate, experienced in particular by the cities of Phnom Penh and Sihanoukville, may result in a real estate bubble. The greatly expanded microloan market and the willingness of households to cover possible income shortfalls with loans are also risky.
Acleda Bank, the largest Cambodian bank in terms of assets and branches, maintains its dominant position. Other top banks were ABA Bank, Canadia Bank, Cambodian Public Bank (Campu), J Trust Royal Bank, Vattanac Bank, Cambodia Mekong Bank Public, Maybank Cambodia and Chip Mong Bank. In recent years, the popularity of microfinance institutions, which mainly specialize in small loans to small entrepreneurs and households, has also grown significantly, which is related to the lower availability of banking services (including electronic ones) compared to developed countries. Mobile electronic wallet services such as PiPay or PayGo are also popular.
The Cambodian economy is heavily dollarized. Most Cambodians use both the national currency, the Khmer riel (KHR), and the US dollar in their daily lives and in business. This situation is often referred to as one of the weaknesses of the Cambodian economy, as it can be a serious obstacle if the state needs to implement monetary policy. In 2020, a cautious process of de-dollarization began, but in practice this only means the gradual withdrawal of US$1 and US$5 notes from circulation.
Letters of credit are a very common method of payment and are preferred over bank guarantees or advance payments. For large commercial transactions, additional guarantees may be required from exporters and importers. Private commercial banks provide trade finance services and have foreign correspondent banks in the US, Europe or Asia.
Cambodia has a more lenient tax regime compared to neighboring countries. Previously, there were three regimes of the tax law: real, simplified and estimated. However, due to the inefficiency and impracticality of such a division, the 2016 law abolished the estimated and simplified regime. Only real mode remained.
At the end of each year, the taxpayer pays either the profit tax or the minimum tax, whichever is higher.
- The standard profit tax is 20%. A special rate is intended for the mining industry (30%) and the insurance industry (5% of gross premiums). It applies to the worldwide profit of a resident taxpayer.
- The minimum tax is set at 1% of the annual turnover including all taxes except VAT. The monthly income tax advance will usually cover the minimum tax, so if you pay the minimum tax instead of the income tax, you usually don’t have to pay any additional fees.
- The profit tax deposit is set at 1% of the monthly turnover including all taxes except VAT.
- Every resident taxpayer doing business in Cambodia is required to pay withholding tax on payments to resident and non-resident taxpayers. This tax is remitted to the Tax Office (General Department of Taxation). Withholding tax does not apply to payments related to the sale of goods.
- Resident taxpayers’ wages and salary income from abroad are subject to a progressive rate of 0% to 20%, while non-resident taxpayers are subject to a rate of 20% of income in Cambodia. A person who has a place of residence in Cambodia or stays in the territory of Cambodia for at least 182 days in 12 months is considered a resident taxpayer.
- Value added tax (VAT) has a uniform rate of 10% for goods and services.
Source: DFDL. More information about the tax system in Cambodia – BNG Legal