The nominee structure was once a widely used mechanism by foreign investors in Cambodia's business and property sectors, but as Cambodia is turning into a more structured legal framework, it is not the case anymore. This article aims to shed light on what the nominee structure entails, the advantages and drawbacks associated with its usage, and explore alternative options available in Cambodia.
What Is a Nominee Structure?
A nominee structure refers to a legal arrangement in which a person or entity (the nominee) holds assets, shares, or other rights on behalf of another individual or entity (the beneficial owner). In Cambodia, the nominee structure is often used to own landed properties. While it can present several advantages, such as anonymity, asset protection, and ease of asset transfer. It is crucial to highlight the significant disadvantages associated with this arrangement, particularly the potential deterioration of the relationship between the nominee and the beneficial owner.
By entrusting assets to a nominee, the beneficial owner inherently surrenders a level of control. The nominee, who holds legal ownership, may not always act in the best interest of the beneficial owner, increasing the likelihood of misuse, mismanagement, or conflicts of interest. This breakdown in the relationship can have far-reaching consequences, including financial losses, disputes, and reputational damage. In addition, while the nominee structure may offer benefits, it can also present legal and regulatory risks. Authorities may view the use of nominees as a means of evading taxes, or disguising illicit activities leading to potential legal consequences. In conclusion, it is essential to carefully evaluate the potential risks before opting for a nominee structure, considering alternative options that offer greater control and transparency.
Alternatives to Nominee Structure
Trusts provide a legal framework where a trustee holds assets on behalf of beneficiaries. Trusts can offer similar benefits to the nominee structure, such as privacy and asset protection, while ensuring a higher level of control and legal compliance. In Cambodia, trust services enable foreigners to own and transact properties. Trust services act as representatives, oversee the property and charge a management fee on behalf of the foreign buyer.
Land Holding Company
Foreigners can own property in Cambodia by establishing a locally registered company with a minimum joint share of 51% for local shareholders and 49% for foreign shareholders. The land holding company can then purchase or transact properties under its registered company’s title enabling foreigners to have ownership while adhering to local requirements.
A leasehold agreement, on the other hand, involves the purchase of the right to occupy a property for a fixed period, as stipulated in a lease agreement with the landowner or the developer. In this scenario, the land on which the real estate stands is owned by another party, such as a developer or landowner. The leasehold period can vary widely, in Cambodia, leasehold ownership is a common arrangement, with a typical lease term of 50 years and the option for a one-time renewal of 99 years.
In conclusion, the safety of using a nominee structure in Cambodia requires careful consideration. Over the years, the use of nominee structures has not always been favoured by foreign investors looking to purchase landed property. However, it is worth noting that alternative options are available for foreign investors seeking to own landed property in Cambodia. Foreign investors interested in landed properties are advised to seek professional guidance from real estate experts at Realestate.com.kh. We provide accurate and up-to-date information daily on the property market in Cambodia.
If you are interested to learn more in detail about the ownership structure in Cambodia, our real estate agents are ready to assist you. Contact us today.