Considerations when Exiting the Cambodian Market
In an emerging market such as Cambodia, the process of exiting the market, such as dissolving a subsidiary and company deregistration, can be difficult to navigate. A notable issue is when a company is registered with the Ministry of Commerce (“MOC”) but that is not reflected on the online MOC official database.
In such a circumstance, a company that is not registered online is still capable of being sued by the creditors. With respect to this, MOC, as a matter of practice, advise one of two options; (1) the MOC initiates the tax assessment and possibly, liquidation procedures; or (2) the MOC does not take any action and the company remains in the status quo indefinitely. Pursuant to Law on the Commercial Regulations and Commerce Register, “If a merchant ceases his/her business or dies without any transfer of his/her shares or if any company is dissolved, the name of such merchant or company shall be removed from the register. If the merchant, representative, or liquidator fails to apply for cancellation, such cancellation shall be automatically made in accordance with the regulations of the Ministry of Commerce.” For one thing, there shall be no legal risk and consequence on the company’s shareholders and directors for non-compliance with mandatory regulatory filing requirements with MoC, because the monetary penalties for non-filing of annual declarations will be imposed on the company itself. However, if non-filing of Tax Declaration with General Department of Taxation (“GDT”) takes place, taxpayers are deemed to be obstructing the implementation of tax provisions if they (a) fail to submit a nil tax declaration; and (b) fail to maintain proper records of account and other documentation.
The deregistration process of a company in Cambodia must be done with the following entities:
- Council of Development of Cambodia (“CDC”): the CDC must be informed in writing regarding the company’s reasons for ending its activity in Cambodia.
- General Department of Custom and GDT (“DOC”): all required documents and information for deregistration must be submitted to the DOC
- MOC: the company is required to submit the Prakas for deregistration from the CDC, certificate of custom clearance from DOC and certificate of tax situation from GDT with another supporting document to MOC.
Pursuant to this, article 406 of Civil Code of Cambodia states that “The period of extinctive prescription applicable to right to demand compensation for damages based on non-performance is five years from the time when the damages occurred.” However Article 120 of the Labour law of Cambodia states that any claims made by a worker resulting from the labour contract, as well as the indemnity in the event of a dismissal, shall be subject to a limitation period of three years from the date the right to claim is exercisable.
This alert is for general information only and is not a substitute for legal advice.