The aim of the government is to create a full-developed trust market in the country which can liberally attract foreign investment. It guided by three principles of providing certainty, security and flexibility to the investor or the ‘trustor’.

Trusts in Cambodia are turning out to be the new vehicles routing foreign investment into the country. The concept is relatively new in the Kingdom, but it has generated much interest within a short span of time that nearly 500 trust companies have queued up for registration with over USD 300 million funds in their hands.

According to Sok Dara, Director General of the Trust Regulator (TR), this could even go up to USD 600 million by end of the year, considering the enthusiasm of the new Trust Law has created in the market.

Of course, not all trust funds are foreign investments, but a sizeable chunk can be so, according to the market vibes, especially as investments in land. More and more foreigners have taken to the trust route to invest land in Cambodia as they are barred from directly purchasing land in the Kingdom.

According to the Constitution of Cambodia, adopted in 1993, foreigners cannot own landed property in the country. However, they are allow to purchase apartments or condominiums from the first floor upwards.

The Trust Law, enacted in 2019, gives foreigners an opportunity to invest in land in Cambodia with the title of the property to be held by a trust. “Foreigners can now make a profit from land price appreciation without acquiring the land in their name. They can also do so without relinquishing their nationality or without obtaining Cambodian nationality,” said Vichet Lor, Phnom Penh President of Global Real Estate Association.

Under Prakas 003 on the establishment, function, and management of trusts in the country, issued in January this year by Non-Banking Financial Services Authority (NBFSA) of Cambodia, a trust operation is any activity pertaining to the transfer of property from its owner (the trustor) to an entity or person to control, manage, and maintain it for the benefit of another person or entity (the beneficiary).

Sok Dara, Director General of the Trust Regulator (TR), reported to media that so far there are 52 trusts that have been registered with the Regulator under the Trust Law. “Under the law, trusts can be of varied types such as public trust, commercial trust, financial trust, social trust, and individual trust.  But all trusts established by trustor or settlor in Cambodia shall register with the TR in accordance with the law and regulations,” Dara pointed out.

Under the Trust Law promulgated on January 2, 2019, a trust is a three-party legal relationship in which the trustor (or investor) transfers property or fund to a trustee who shall hold, manage, and protect it, apart from its own estate, for the trust’s beneficiary. The trustee (or the trust company) is licensed by the NBFSA under the Ministry of Economy and Finance and the Trust Regulator. If holding Cambodian nationality, the trustee can hold the land for the benefit of the foreign beneficiary circumventing the reality that a non-Cambodian cannot register landed property ownership.

The law establishes four kinds of trusts that all serve different purposes. While commercial trusts are created with the purpose of making profit for the benefit of trust contributor(s), public trusts are created for the benefit of the Cambodian people. They include the development of the banking and microfinance sectors in Cambodia and other public benefits.

Social trusts are created through a donation or a will to a special fund for the cultural, educational, humanitarian, religious or scientific benefit of the public. These trusts cannot seek profit or conduct any commercial activity.

Private or individual trusts are created for the benefit of the trustor by those who can be either alive or have made a will.

The type of trust that would apply to foreign investment would depend upon the purpose of the investment. Most likely, a majority of investors would fall under commercial or private trusts.

According to the director general of TR, to carry out the trust business and operation in Cambodia, all companies must also be licensed by the Regulator. Recently, the TR has also granted additional authorization to ACLEDA BANK PLC to act as the trustee operator to provide retention or escrow services for trusts.

There are also several commercial banks in Cambodia that have already applied for licenses to provide retention or escrow services and several companies have applied to become trust companies as well.

Trustees who got the license to operate Collective Investment Scheme (CIS) business from the Securities and Exchange Regulator of Cambodia (SERC) have already registered as the trust operator with TR. Six other companies have also applied for additional authorization to do their business in the trust sector, Dara said.

Cambodia’s government followed up the Trust Law by implementing several sets of regulations outlining the registration and license requirements for trusts in a series of steps over the last three years.

But Vichet is of the view that the trust market may take another five years to mature in Cambodia. The trust companies have to really generate confidence and trust in the minds of the investors apart from educating them. “Legally licensed trust companies need to build their credibility and maintain a good long-term reputation in order for the foreign investors to trust their services,” he rightly pointed out.

There are also other concerns regarding the trusts in the market. The main one is about the taxation part, which the government is yet to make clear. Indications are that the Trust Regulator is still working with the General Department of Taxation (GDT) on a tax structure for the trusts.

Chhean Sokhary, Director of the Department of Legal Affairs and Inspection, said at the workshop that the Trust Regulator is watching closely the functioning of the trusts and evaluating their efficiency as well, besides working with the GDT for a tax structure on investments.

Prospective investors, meanwhile, are hoping that the GDT will ensure that there is no double taxation – taxing both the incoming investment into the trusts and the outgoing income for the beneficiaries.