LECC - BUY LAND EASY AS YOU LIKE
- 4 months ago
THE FOUR WAYS OF ESTABLISHING CONTROL OVER LAND
1. Buying land through a locally-incorporated company
Foreigners often hold land in Cambodia through a company. This structure offers the least risk for the foreign investor, who can be an individual, or a legal person. More than one piece of land can be held. But setting up a landholding company is expensive, and there is a high maintenance cost, and taxes on rental income are quite high (see above).
The applicable legislation is the Law on the Investment of the Kingdom of Cambodia (Chapter VI, Article 16), which states that ownership of land can be vested in "legal entities in which more than 51% of the equity capital are directly owned by natural persons or legal entities holding Cambodian citizenship". Moreover, "use of land shall be permitted to investors, including long-term leases of up to a period of 70 years, renewable upon request".
There are 3 layers of security in the land-holding company structure:
- Different classes of shares. The land holding company must be 51% Cambodian owned, but is usually structured with 2 classes of shares having different rights, one class held by foreign investor, one by local investors. For example the Cambodian entities or persons might have lesser rights to transfer shares and to nominate directors, and company decisions might require a 2/3rds majority.
- Minority control document. A series of private agreements are usually drawn up by which the Cambodian shareholders grant the foreigner special rights - e.g. a permanent majority on the board, or different powers of attorney, or blank shareholder transfer forms.
- Land Security. The landholding company often registers a mortgage on the land, which means that the land cannot be transferred without the consent of the foreigner.
The result is not 100% bullet proof - the main risk is always the Cambodian partner. Because the Cambodian courts are corrupt and decisions are normally bought, the buyer should also methodically undertake due diligence on the local partner to reduce the likelihood of an issue arising in future which will reach the courts.
"In 10 years, we have only had 2 problems," says Martin DeSautels, managing director of DFDL Mekong Phnom Penh. "But if you have a problem and you have to go to court, sorting things out can cost a lot."