Trust Registration in Cambodia
On 2 january 2019, Cambodian authorities enacted their first-ever Trust Law.
Although this is a major development for Cambodia’s legal and commercial landscape, the adoption of this law may have raised questions as it is a legal instrument from common law jurisdictions whereas Cambodia is a civil law country. Reconciling these two aspects in order to create clear case law can be a complicated challenge and that is why the legal instruments that complement this law are crucial.
Some civil law countries such as France have similar legal mechanisms that could be useful as a basis for developing a jurisprudence to implement this law in the Cambodian legal framework, but the trust in French law was conceived as a completely different and independent institution from that known in Common Law. It remains to be seen how Cambodian courts will handle the matter.
Prior to January 2022, the competent regulator for the implementation of the new Trust Law was the Ministry of Economy of Finance, as stipulated in an August 2019 sub-decree. Some changes have been made by a recent ministerial decision (Prakas 003) which now empowers the Non-Banking Financial Services Authority (NBFSA) of Cambodia with respect to registration procedures and licence approvals.
In this article we will take a look at the implications of this trust law and its supporting legal instruments and how to register a trust in Cambodia.
What is a trust under Cambodian law ?
Under the new Prakas, a trust operation is defined as “the management and disposal of a Trust fund provided by a trustee for the benefit of a beneficiary in accordance with the Trust agreement or the regulations in force.”
In short, it is the assumption of a transfer of property to a person or legal entity for the purpose of control, management and maintenance of benefits, often through investment.
What are the different forms of trust in Cambodia?
The latest ministerial decision completing the initial Trust Law defines two types of trust managers (known as trustees) namely, trustee companies and individual trustees.
Whether the trustee is a legal entity or an individual, NBSFA approval must be sought through an application.
If the application is deemed valid, the NBSFA will issue a two-years licence to the trustee, which can be renewed for another three years.
How to set-up a trust in Cambodia?
The structure of the trust depends largely on the needs and objectives of the trustors and beneficiaries, i.e. an inheritance trust will not be structured in the same way as a commercial trust. Under the new trust regulations, one or more trustees may be appointed to manage the trust, but in the case of a multi-trustee structure, an odd number of trustees is required by law.
Duration of the trust
As a general rule, trusts can be established for an unspecified period of time, but the duration cannot exceed a period of 100 years.
According to the new procedure, trustees must start the operation no later than three months after receiving their licence from the NBSFA. This implies that the trustor starts transferring funds to the newly registered trust account.
It is possible to change the trustee provided that the NBSFA is informed and approves the changes.
The beneficiary of the trust has 30 days to object to the changes once they have been approved by the NBSFA.
Generally speaking, the legal compliance of the trustee is an important component of the transaction and requires careful monitoring.
How to terminate a trust?
In addition to the high costs and the difficulty of raising funds, the termination of the trust is often cited as one of the main disadvantages, as they are complex structures and therefore difficult to dissolve.
Cambodian Law recognises 4 events that can lead to the termination of the trust :
- The term of the agreement has expired.
- The purpose of the trust agreement is deemed to have been fulfilled.
- A unanimous decision by the trustees to terminate the agreement.
- A court decision to terminate the trust
In any case, the termination of trust is most often a complex affair that will be closely monitored by the NBSFA; The remaining funds will be distributed to the beneficiaries in accordance with the original agreement, or, in the absence of specific provisions in this regard, distributed equally among the beneficiaries.
Trust Law is a vast and complex area with many structuring possibilities. This is a new development for Cambodia, so there is a lot of work to be done to make this law a reality, but the opportunities for businesses and individuals are interesting and worth considering.
Given the significant resources involved in setting up a trust, it is important to ensure that the project is feasible and meets your needs.
To learn more about the ways of setting-up a trust in Cambodia, feel free to book a consultation with one of our experts.
Please note that this article is for information purposes only and does not constitute legal advice.
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