Phnom Penh is grappling with a rapidly shifting landscape for foreign investment as mounting US trade pressures and stringent tax compliance demands threaten to reshape the Kingdom’s economic appeal. Industry leaders and government officials, speaking at a recent forum, highlighted both the opportunities and the growing risks for businesses eyeing Cambodia as a regional hub.
US Tariffs Cast a Long Shadow
Cambodia’s export market, a key driver of its economic growth, is under siege from unprecedented US trade measures. A staggering 3,500% tariff on certain Cambodian solar panel exports, imposed by the US Department of Commerce, has sent shockwaves through the business community. Casey Barnett, president of the American Chamber of Commerce in Cambodia (AmCham), described the tariff as a troubling omen for the future of Cambodian exports to the US market. “This shows that the US Department of Commerce is taking a very hard line” he warned, speaking at the UK-Cambodia Joint Trade & Investment Forum Deep Dive Series on April 29, hosted by BritCham Cambodia and the British Embassy at KPMG Cambodia’s head office.
Barnett cautioned that Cambodia’s limited leverage as a market for US goods could lead to even harsher tariffs compared to other countries. The root of the tension lies in US allegations that Cambodia serves as a conduit for Chinese goods to bypass American tariffs—a claim both Barnett and Cambodian officials have firmly rejected. Seng Cheaseth, director of the Department of Law, Tax Policy and International Tax Cooperation at the General Department of Taxation (GDT), defended Cambodia’s stance, asserting that the country maintains neutrality in its trade policies. “We do not discriminate between US, Chinese, or any other companies” he stated. “We provide the same public safety system, the same incentives to all sectors.”
Cheaseth did not shy away from criticizing US trade tactics, suggesting that the World Trade Organization (WTO) is ill-equipped to challenge American policies due to fears of asset freezes and other repercussions. “No judges at the WTO dare to go against the US because they’ll freeze your assets from entering the country” he remarked, pointing to a systemic imbalance in global trade dispute resolution.
Tax Compliance: A Make-or-Break Issue
Beyond trade disputes, Cambodia’s investment climate is increasingly defined by the need for rigorous tax compliance. Barnett emphasized that while the Kingdom offers “fantastic opportunities” such as a growing market and limited competition, missteps in navigating tax regulations can be costly. “Companies may start out on the wrong foot, misunderstand the tax regulations or even be dismissive of the consequences” he noted, highlighting a punitive 1.5% monthly tax on reassessments that can accumulate rapidly over time.
The Cambodian government is responding to these challenges with reforms aimed at fostering transparency. A newly established Special Tax Audit Unit (STAU) under the GDT is tasked with overseeing audits for foreign investors and taxpayers. According to Cheaseth, the unit comprises staff from Cambodia’s enterprise and large tech sectors, ensuring expertise in handling complex international audits. “The new system guarantees that eligible companies will undergo a single, standardized audit—preventing confusion and undue complexity” he explained. Only certified, compliant companies will face audits, a move designed to streamline the process and eliminate redundant reviews.
James Roberts, head of advisory at KPMG Cambodia, underscored the significance of this development. “The law introduces a separate audit process for international companies that meet compliance standards, ensuring they are treated with utmost transparency and fairness” he said. This approach has garnered positive feedback from foreign investors. Steven Solomon, partner and head of M&A Tax Deal Advisory at KPMG in Vietnam and Cambodia, praised Cambodia’s focus on fair tax treatment over mere incentives. “Most countries focus on offering tax incentives, but Cambodia is prioritizing fair tax treatment, which is just as critical for investors” he observed.
Global Reforms and Local Ambitions
The challenges facing Cambodia are not merely bilateral but are tied to broader global shifts in tax policy. The implementation of the OECD’s Pillar 2 rules under the Global Anti-Base Erosion Model is reshaping how countries incentivize foreign investment, placing additional pressure on Cambodia’s existing tax frameworks. Barnett noted that the GDT’s adoption of a risk-based approach to audits marks a positive step, yet he cautioned that “with global tax reforms and ongoing US negotiations, uncertainty is the new reality.”
Despite these hurdles, Cambodia remains committed to its Vision 2050 economic goals, which prioritize industrial growth and technological advancement. Cheaseth highlighted the country’s efforts to attract high-tech manufacturing, citing recent investments from global giants like BYD, Toyota, and Ford. “We want the technologies here” he said. “If they come, they invest. That’s good for Cambodia.” These investments signal a shift toward a more diversified economy, moving beyond traditional sectors like garments and tourism to embrace advanced industries.
Navigating an Uncertain Future
For investors, the evolving landscape in Cambodia presents a dual-edged sword. On one hand, the Kingdom’s strategic location in Southeast Asia, young workforce, and government incentives continue to make it an attractive destination. On the other, the specter of US trade penalties and the complexities of global tax reforms demand a cautious approach. Barnett urged businesses to brace for a more intricate playing field, emphasizing the importance of aligning with local regulations from the outset to avoid costly penalties.
The Cambodian government’s push for transparency through initiatives like the STAU is a step in the right direction, but its effectiveness will depend on consistent implementation and the ability to balance investor needs with national interests. Meanwhile, the ongoing friction with the US over trade practices raises questions about the long-term viability of Cambodia’s export-driven growth model. If the US persists with punitive tariffs, Cambodian officials and businesses may need to pivot toward alternative markets in Asia and Europe to mitigate the impact.
The broader implications of these developments extend beyond Cambodia’s borders. As global trade dynamics shift and tax regimes tighten, smaller economies across Southeast Asia may face similar pressures to adapt. Cambodia’s response—balancing compliance with ambition—could serve as a blueprint for others in the region navigating the same turbulent waters.
As the Kingdom forges ahead with its economic vision, the road to 2050 will likely be marked by both opportunity and uncertainty. For now, investors and policymakers alike are watching closely to see how Cambodia weathers this storm of trade tensions and regulatory reforms.