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Laos

Why Laos?

Surrounded by China, Vietnam, Cambodia, Thailand, and Burma, Laos is a mountainous country. As per Laos government’s anticipation, by 2025 hydropower will become the country’s biggest source of revenue. The Mekong River plays a vital role as transportation route for cargo and passengers, a source of electricity at dams, a water supply for crops, and a home to fishesh which shares a major part in the diet of the Laotian people. However, to make growth more sustainable and to increase its positive effects across society, Laos is looking to diversify its economy and create more jobs. Laos’ economic freedom score of 53.9, makes its economy the 141st freest in the 2021 Index and the country has ranked 32nd among 40 countries in the Asia Pacific region.Laos is among the least developed and poorest countries in Asia, but significant economic growth in the past decade has benefited the country. Challenges remain, however, and the Lao economy remains dependent on external demand for its natural resources, particularly mining, hydropower and forestry

Advantages

The country has experienced rapid economic growth over the past 25 years due to following reasons:

High growth country

After the Asian financial crisis Laos is growing with an impressive record of between 7% to 8% and this is really an impressive record.

Low competition from multinationals

Laos is a relatively unexplored market by multinationals which is a big advantage of doing business for foreign businesses in Laos. There is not much competition from major multinationals.

Renewable energy

Laos wants to become the battery of Southeast Asia whereby, combination of a mountainous territory and an abundance of rivers makes Laos a great place to produce electricity from hydropower. Moreover, the country is building around 100 dams mostly along the Mekong River and is planning to become an exporter of electricity to its big neighbors such as Vietnam, Thailand, Malaysia and Myanmar.

Infrastructure investments

Laos invests more than 30% of its Gross Domestic Product in infrastructures every year, apart from energy, mostly in transportation, i.e. roads and railways. Moreover, it is worth mentioning here a mega project that will connect the southern part of China to Bangkok by train passing through Laos.

Tax free zones

Following the examples of China, Vietnam and even Thailand, Laos has established tax free zones; these are investment zones where the foreign companies are given tax holidays for as long as 50 years from corporation tax and they do not have to pay tariffs and duties on the goods they import, if these are used in the production process in Laos.

Simple Tax Regime

In Laos personal income is taxed at a progressive rate from 0% to 24%, moreover, it applies to all income earned in Laos such as salary, benefits in kind and other remunerations, both for Laos people and expatriate receiving revenues from Laos PDR (The Lao People’s Democratic Republic)  or abroad regardless of the length of their employment and stay in Laos.

Individuals Tax

In Laos, all sole traders and independent contractors are liable for personal tax on their business income derived in Lao PDR. Both Laos and foreign individuals earning income in Laos in the form of salaries, benefits in kind, and other remuneration are subject to personal income tax.

Expatriates who work in Lao PDR and obtain remuneration in Lao PDR are liable to pay personal income tax, regardless of the period of their employment and stay in Lao PDR.

The foreigners who stay in Laos for periods aggregating more than 183 days in any one year period and obtain remuneration from a foreign country are liable to pay personal income tax. Following are the annual personal income tax rates available for both Lao and foreign individuals:

  • Income from LAK 0 to 15,600,000 is liable to tax at a rate of 0% of annual income;
  • Income from LAK 15,600,001 to 60,000,000 is liable to tax at a rate of 5% of annual income;
  • Income from LAK 60,000,001 to 180,000,00 is liable to tax at a rate of 10% of annual income;
  • Income from LAK 180,000,001 to 300,000,000 is liable to tax at a rate of 15% of annual income;
  • Income from LAK 300,000,001 to 780,000,000 is liable to tax at a rate of 20% of annual income; and
  • Income from LAK 780,000,001 and above is liable to tax at rate of 25% of annual income.

Corporate income taxes

Profit tax (PT)

In Laos, all companies including all forms of legal entities, like partnerships which are registered under Lao PDR law are subject to PT on their worldwide income. Further, the companies formed under foreign law, operating a business in Lao PDR, and conducting business in Lao PDR are liable to tax on their income derived in Lao PDR.

Following are the standard rate of PT for companies in Lao PDR, calculated on net profit after adjustments for non taxable income, non deductible expenses, and others in accordance with the Lao Income Tax Law:

  • Companies listed on the Lao Securities Exchange (LSX) are liable to PT at a rate of 13% for the first four years from registration;
  • Companies that produce, import, and distribute tobacco products are liable to PT at a rate of 22%;
  • Companies in the mineral industry with concession agreement are liable to PT at a rate of 35%;
  • Training and research centres are liable to tax at a rate of 5%;
  • Companies using green technology are liable to tax at a rate of 7%; and
  • All other companies, both domestic and foreign are liable to tax at a rate of 20%.

Laos Companies

Enterprise Law of Laos provides different types of legal structures in the country that can be used to operate a business in Laos, including:

Representative office

Representative offices will typically serve as an entity for collecting market information or performing surveys before an investor proceeds with heavier investment and establishing a revenue generating entity. Basically, these structures are limited in the types of activities it can engage in and is prohibited from conducting business activities or generating income.

Limited company

This type of entities is typically favored by investors, particularly foreign investors, however a limited company must have at least two shareholders and one director. As the name suggests the liability of the shareholders is limited to the capital invested by them. However there are many restrictions on foreign investors about share equity with a local partner, so they opt for the limited company structure because their liability is clearly limited.

Sole limited company

Sole limited companies follow the same rules as limited company, but the major difference is that the shareholding structure includes only a single shareholder. Further, if a regular limited company has a single shareholder during the course of its activities, then it will be required to change its legal structure to a sole limited company.

Public limited company

To form a public limited company, minimum capital investment required is USD 125,000. Further, it requires at least seven shareholders, three company directors, and one legal representative to set up a public limited company.

Wholly owned foreign company

Many businesses which usually export goods from Laos, set up this kind of business entity. It gives 100% ownership to the foreigner.

Branch Office

Companies such as banking institutions, financial services, insurance, airlines usually set up a branch office however, the parent company decides the activities of the branch office.

However, to make growth more sustainable and to increase its positive effects across society, Laos is looking to diversify its economy and create more jobs. Laos’ economic freedom score of 53.9, makes its economy the 141st freest in the 2021 Index and the country has ranked 32nd among 40 countries in the Asia Pacific region.

Author: Chandrawat & Partners

Date: April 2022

Topic: Doing Business in Laos

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