Foreign investors who wish to invest in the Lao PDR have to look at two principal pieces of legislation.
1. Decree No. 47, of the Council of Ministers on the State Tax System, issued on 26th June, 1989. This law is the basis of the current tax system now implemented for both foreign and domestic investors in the Lao PDR.
2. Law on the Promotion and Management of Foreign Investment in the Lao PDR, (hereafter called "Foreign Investment Law") issued by Presidential Decree No.23 on 21st April, 1994 and coming into force on 20th June, 1994.
Generally, all foreign investors in Lao PDR will be subject to the Foreign Investment Law regarding the imposition of the tax system. Moreover, they will have to comply with the provisions regarding the tax system under Decree No. 47, as they have to set up their Permanent Branch Office Establishments in Lao PDR.
(A) Law on the Promotion and Management of Foreign Investment in the Lao PDR
This law provides that the Foreign Investment Management Committee (FIMC) is responsible for the administration, protection and promotion of foreign investment within the Lao PDR. All foreign investors who intend to invest in Lao PDR have to submit the appropriate application form to the FIMC. Moreover, foreign investors who seek tax exemption must apply to the FIMC at the same time. Exemptions or reductions of the tax rate are considered on a case by case basis. Tax exemption will be considered by reference to the amount of capital invested, the potential volume of exports, sector of investment, activities and duration of the enterprise. The exact criteria, infact, is not set out. The FIMC will study the case to see if it is appropriate to grant privileges and will then notify the Ministry of Economy, Planning and Finance as to what exemptions or reductions, if any, should apply.
The Foreign Investment Law also sets out the tax provisions for foreign investors, as follows:-
- Personal Income Tax
Foreign investors and their foreign personnel working within the Lao PDR shall pay, to the Government of the Lao PDR, a personal income tax at a flat rate of 10 per cent of their income earned in the Lao PDR. Regarding Lao personnel workers, they shall pay personal income tax at the progressive rate set forth in Decree No. 47.
- Annual Profit Tax
Foreign investors must pay a Lao PDR annual profit tax at a uniform flat rate of 20 per cent of net profits of revenue, after deducting capital and expenses.
- Import Duty
Foreign investments subject to this Law shall pay Lao PDR import duty on any imported equipment or material used in the operation of their investment project at a uniform flat rate of 1 per cent of the imported value.
Nevertheless, foreign investors may be granted special privileges, such as tax exemption or reduction of profit tax and import duty, if FIMC considers that their investments are large and have a significant positive impact on the socio-economic development of the Lao PDR.
(B) Decree No. 47 of the Council of Ministers on the State Tax System
Foreign Investment Law also states that other Lao PDR taxes, duties and fees shall be payable in accordance with the applicable Laws and regulations. Therefore, foreign investors must comply with Decree No. 47.
Decree No. 47 includes the following taxes :-
- Agriculture Tax;
- Land Tax;
- Resource Tax;
- Customs or Import-Export Tax; and
- Internal Tax.
Internal Tax consists of Turnover Tax and Income Tax. A Foreign Investor which operates in the Lao PDR and has a permanent establishment there will be subject to these basic tax systems.
1. Turnover Tax
Turnover Tax, under Decree No. 47, is deemed as indirect tax. The revenue of the enterprise which carries on business in Lao PDR will pay Turnover Tax at the rate of 5%, for the commodities and 10% for luxury goods. These tax rates were amended by Resolution No. 12.
Regarding declaration of tax payment, enterprises must declare revenue for every month not later than the 15th day of the following month, in order to pay the monthly Turnover Tax .
For example, telecommunication services subject to this law have to pay Turnover Tax at the rate of 5% of the revenue of the enterprise.
2. Income Tax
Income Tax applies to both domestic and foreign investors in the Lao PDR.
- Corporate Tax
All foreign investment enterprises, whether they are in contractual businesses, joint equity ventures, or wholly foreign-owned enterprises, must pay tax at the same rate depending on the sector in which the investment is made. There are two basic groupings with graduated taxes. They are as follows:
- income from banking business...................................60%;
- income from production businesses and services.......45%.
However, according to The Foreign Investment Law, after foreign investment enterprises have paid annual profit tax, they do not have to pay additional Corporate Tax as provided in Decree No. 47.
- Personal Income Tax
All Lao citizens are subject to this Law and have to pay Personal Income Tax at the progressive rate on their income earned in or outside the Lao PDR.
Foreign investors and foreign personnel working within the Lao PDR will be subject to the Foreign Investment Law paying Personnel Income Tax, at the rate of 10 percent, of their income earned in Lao PDR.
- Dividend Tax
Persons who have an income from dividends of enterprises will be taxed at the rate of 10 per cent of the dividend.
- Interest Tax
Persons who have income from interest lending shall pay Interest Tax at the rate of 20 per cent. However, the provision does not apply to income earned from the interest of bank accounts and credit co-operatives.
- Rental Tax
Persons who have an income earned from letting property shall pay Rental Tax, at the rate of 30 per cent.
3. Additional Taxes
A foreign investor not only pays Income Tax and Turnover Tax but he will also be subject to a number of additional taxes for the use of land and resources. These are set forth in Decree No. 47 on the State Tax System.
Under the provision of Lao Law, all land, forests, rivers, canals, and other natural resources in the territory of the Lao PDR are owned by the Lao people and represented by the Lao PDR Government. Therefore, an enterprise has to lease land from the Government to use for its business by paying for the use of such land or resources.