James Whitehead, director of content at Realestate.com.kh, answers what has proven to be a most-ubiquitous question for many expats in Cambodia: Can foreigners own land in the Kingdom?
Broadly, under Article 44 of the Constitution, foreigners cannot own land in Cambodia. However, foreigners can establish control over land several ways: Buying land through a local company; by leasing land; by attaining Cambodian citizenship; or by buying land through a Cambodian nominee (note: this one is actually outlawed by the constitution).
B2B: How can foreigners buy land in Cambodia through a locally-incorporated company?
Whitehead: The Law on the Investment of the Kingdom of Cambodia estipulates that “legal entities in which more than 51% of the equity capital are directly owned by natural persons or legal entities holding Cambodian citizenship” are allowed to own land.
This option presents the least risk for foreign investors and multiple pieces of land can be held. However, the costs of creating a landholding company can be expensive, with high maintenance costs, and relatively high rental income taxes.
While a minimum of 51% Cambodian ownership is necessary, when such a company is structured with two classes of shares having different rights of control (whereby one class of share is held by the foreign investor, and another by the local investors), this shareholder dominance can be kept in check by the foreign investor party.
Private agreements are also commonly created in which the Cambodian shareholding partners grant the foreigner special rights over the land in the company’s holdings.
Another tool to secure the business’s land is by registering a mortgage on that land, with express terms saying that the land cannot be transferred without the consent of the foreign shareholders. Yet, this method is not flawless as in theory the local partner could still deny their legal obligations.
It would be prudent to conduct due diligence and seek legal counsel before entering into any such agreement.
B2B: How about leasing the land?
Whitehead: Often when people first ask the question “can foreigners buy land in Cambodia” they quickly decide leasing is a better option. And for most foreign business people, long-term leases can be as effective for their purposes as outright ownership.
As the Law on the Investment of the Kingdom of Cambodia states, “use of land shall be permitted to investors, including long-term leases of up to a period of 70 years, renewable upon request”.
Leases generally last for 50 years, 70 years, or in some cases 99 years. If you are trying to lease state-owned land, there is a 40 years maximum though there are still possibilities for extensions. Any leases lasting longer than 15 years must be registered at the Land Office to be valid.
Long-term leases allow all rights to develop the land, though the lessee is still required to obtain the necessary construction permissions.
Leasing structures are ultimately less secure than the formerly discussed company structure approach, nevertheless, progress is being made in the simplification of these structures.
Whenever leasing though, do your due diligence on the owner, as you should for any type of business partnership. Further, ensure that the lease contract includes dispute resolution outside Cambodia.
There are various other means to protect your lease: for instance, clauses requiring the owner to get the lessee’s permission before they may sell, or until the new owner fully-recognizes the pre-existing lease. You can also lodge a ‘block sale notice’ with the relevant Land Office, stopping any attempts to sell the land without the lease owner’s’ consent.
To reiterate that last point, you really need to enlist experienced legal support whenever considering a lease in Cambodia as a foreigner.
B2B: Can foreigners buy land in Cambodia with Cambodian citizenship?
Whitehead: Yes. The Government considers citizenship applications from foreigners when a serious and significant investment is being made.
B2B: Can foreigners buy land in Cambodia through a Nominee Purchase?
Whitehead: Buying in a local’s name is very easy and is the most inexpensive means of controlling Cambodian land. But, by doing so, you will be ignoring the Constitutional prohibition on direct ownership of property by foreigners. Therefore it is illegal and strongly discouraged by legal support in Cambodia.
To buy through a nominee structure, very basically, the investor signs a trust agreement with the landholder guaranteeing to hold the land on their behalf. The owner then mortgages that land and leases it to you.
However, if things don’t go as planned, a foreigner can easily face expropriation by the state, or be forced to sell the land. Again, speak with a qualified lawyer or legal adviser before going down such a path.