Kara Sears
Cambodia's contract laws are governed by the Constitution and the 1997 Labour Law, which applies to all employment contracts performed in the country, regardless of the nationality or residence of the contracted parties. The Labour Law provides two types of contracts: Fixed or Specific Duration Contracts (FDC) and Undetermined or Unfixed Duration Contracts (UDC). FDCs must be in writing and contain specific start and end dates, while UDCs can be formed through intention or unintentionally if an FDC expires without a new contract in place. In addition, there are no execution formalities for written agreements to be enforceable in Cambodia, and private contracts signed by two parties are legally sufficient.
| Characteristics | Values |
|---|---|
| Labour contracts | Can be written or verbal |
| Fixed Duration Contracts (FDC) | Must be written, contain a specific start and end date, and can be for a period of two years or less |
| Undetermined Duration Contracts (UDC) | No fixed end date |
| Labour contract termination | Requires agreement from both parties, to be made in writing and witnessed by a Labor Inspector |
| Labour contract termination compensation | Worker entitled to damages equal to remuneration until the end of the contract |
| Foreign employee regulations | Foreigners must possess a work permit and employment card, have legally entered Cambodia, be fit for the job, and have no contagious diseases |
| Choice of foreign law | Regarded as binding and enforceable, but Cambodian courts may insist on applying Cambodian law |
| Statute of limitations for contractual claims | Five years from the date of performance or the date of the contract |
| Execution formalities | Not required for written agreements; private contracts signed by two parties are legally sufficient |
| Language of contracts | Khmer is the official language; a Khmer translation may be required for court proceedings |
| Taxpayer loan transactions | No need to notify GDT of "related party" transactions within 30 days, but must complete related party transactions annex with annual tax return |
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Labour contracts
Cambodia's Labour Law, enacted in March 1997, brought significant changes to the socialistic 1992 Labour Law, offering more protection for labourers' rights and unions. The law applies to all private labour contracts performed in Cambodia, regardless of where the contract was signed or the nationality of the contracted parties.
If an FDC is terminated early by the employer, the worker is entitled to compensation equal to the remaining remuneration of the contract. If the termination is due to the employee's serious misconduct or force majeure, the employer is not required to provide notice or pay compensation. However, the worker is still entitled to a severance pay of at least 5% of their total earnings.
The Constitution also outlines several major provisions relating to employment:
- Khmer citizens of either sex have the right to choose any employment according to their ability and the needs of society.
- Khmer citizens of either sex shall receive equal pay for equal work.
- Khmer citizens of either sex have the right to form and be a member of trade unions.
- The organisation and conduct of trade unions shall be determined by law.
It is important to note that the official language of Cambodia is Khmer, and a Khmer translation of the contract may be required in a Cambodian court for contract enforcement.
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Foreign laws
The Cambodian legal system has evolved from unwritten customary law to statutory law. The current legal system is a hybrid of Cambodian customs, the French-based legal system (from the French colonisation period), and the common law system (from foreign aid assistance). The Constitution of Cambodia, enacted with the restoration of the Monarchy in 1993, is the supreme law in Cambodia.
Cambodian law does not restrict parties from choosing a foreign law to govern a contract. The choice of foreign substantive law by private contracting parties is regarded as binding and enforceable. However, it is important to note that Cambodian courts are generally not familiar with applying foreign law and may insist on applying Cambodian law.
In the context of employment contracts for foreign employees, the Ministry of Labor and Vocational Training (MLVT) has made significant revisions. Previously, employers were required to submit an employment contract in Khmer according to an MLVT template, and the contract had to be a fixed-duration contract (FDC). The new notification allows employers to use their own employment contract template, either as an FDC or an undetermined duration contract (UDC), as long as it does not violate Cambodian law.
In terms of language, the Constitution recognises Khmer as the official language of Cambodia. A Cambodian court will require a Khmer translation of a contract in a case regarding contract enforcement. Obtaining an accurate translation into Khmer may be challenging due to the technical nature of contractual terms. It is acceptable to have only an English version of the contract, with the counterparty's express consent and signature. A Khmer translation can be created later if needed for court proceedings.
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Translation requirements
Cambodia's contract laws are governed by the 1997 Labour Law, which applies to all employment contracts performed in the country, regardless of where the contract was made or the nationality of the contracting parties. The law does not apply to certain employees, including judges, members of the police and military, and domestic workers.
Cambodia's Constitution recognises Khmer as the country's official language. In the case of contract enforcement, a Cambodian court will require a Khmer translation of the contract. Given the technical nature of contractual terms, obtaining an accurate translation into Khmer may be challenging. Even with a satisfactory translation, it is uncertain whether a court would interpret the Khmer version in the same way as an English speaker would interpret the original. This is due to the complexities of Khmer grammar, syntax, and legal reasoning.
To address this, it is acceptable to have only one language version of the contract, typically in English, with the counterparty's express consent and signature. A Khmer translation can be created later if needed for court proceedings. This approach ensures that the original English version is enforceable, and any potential issues with translation can be mitigated.
While there are no execution formalities for written agreements, it is advisable to have witnesses and a competent notary co-sign the agreement. Documents are often certified by a Cambodian Bar lawyer, who signs in the presence of the parties and affixes their seal. For contracts binding a company, the company stamp and the signature of an authorised representative are usually required.
In the context of labour contracts, the 1997 Labour Law sets out specific regulations for foreign employees. Foreigners must possess a work permit and an employment card issued by the Ministry of Labor, meet health requirements, and have legally entered the country. The work permit is valid for one year and may be extended, provided it does not exceed the validity of the residency permit.
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Tax laws
Cambodia's tax system is relatively straightforward, with a streamlined filing process and a simple tax rate for foreigners. The Law of Taxation is the principal taxation law, and taxpayers must submit and pay their taxes to the General Department of Taxation (GDT) annually and monthly.
There is no personal income tax in Cambodia. Instead, a monthly salary tax is imposed on individuals who derive income from employment. This includes wages, remunerations, bonuses, and other fringe benefits. The monthly cash salary of residents is taxed at varying rates depending on their income level, while non-residents are taxed at a flat rate of 20%, which is a final tax. An individual is considered a resident in Cambodia if they are domiciled in the country or are present for more than 182 days in any 12-month period. Residents are taxed on their worldwide sources of income, while non-residents are taxed only on Cambodian-sourced income.
Withholding tax applies to both resident and non-resident companies. There is no withholding tax on dividends paid to resident companies, but non-resident companies pay a 14% rate. The tax rate on interest, royalties, and fees for technical services is 15% for residents and 14% for non-residents.
Cambodia introduced new income tax thresholds for 2023 under Sub-Decree 196, which will determine the taxable income earned by physical persons, sole proprietorships, partnerships, and monthly taxable salaries received by residents. The standard corporate income tax (CIT) rate is 20%, implemented through a self-assessment regime.
US expats in Cambodia are subject to both Cambodian and US tax laws, which can make tax compliance complex. They must also pay Social Security taxes under US law, amounting to 6.2% of their taxable wages.
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Employment contracts
There are two main types of employment contracts in Cambodia: Fixed-Duration Contracts (FDCs) and Undetermined-Duration Contracts (UDCs). FDCs are suitable for temporary needs and projects, with a maximum duration of two years, while UDCs are used for ongoing employment relationships and do not have a fixed termination date. For FDCs, a written contract is required, including specific start and end dates, whereas UDCs may be formed unintentionally if an FDC is extended beyond two years or lacks an end date.
Seniority payments, which refer to the length of an employee's service, are required for employees on UDCs every six months. Additionally, employees are entitled to paid days off during festivals, memorials, and religious holidays, as well as sick leave with authorised certification.
Non-compete clauses are a common feature of employment contracts in Cambodia, restricting an employee's ability to work for competitors or start a competing business. However, these clauses are subject to legal scrutiny and must be reasonable in scope and duration to be enforceable.
When hiring foreign staff, employers must obtain approval from the Ministry of Labour and Vocational Training (MLVT) and apply for a work permit. Compliance with labour laws and regulations is crucial for businesses operating in Cambodia, ensuring a stable and productive work environment while protecting workers' rights.
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Frequently asked questions
The two types of employment contracts in Cambodia are Fixed or Specific Duration Contracts (FDC) and Undetermined or Unfixed Duration Contracts (UDC).
Foreign employees in Cambodia must possess a work permit and an employment card issued by the Ministry of Labor. They must also legally enter the country, be fit for their job, and have no contagious diseases.
For FDCs, termination during the term must be in writing and witnessed by a Labor Inspector if both parties agree. Termination without mutual agreement may result in the worker being entitled to damages. UDCs can be terminated at will by either party with prior notice.
