9 September 2020
Laos

When investing in Laos, similar to in other jurisdictions, investors are advised to comply with their fiscal and corporate compliance obligations as prescribed in the relevant laws and regulations. However, it is not always easy, especially for foreign investors, to identify all existing obligations, given their general unfamiliarity with the complicated Lao regulatory framework. This would expose investors to potential administrative, civil and criminal sanctions.

To provide an overview on fiscal and legal compliance regimes, this article will discuss the main compliance obligations applicable to investors in Laos, and briefly detail risks associated with non-compliance.

Fiscal Compliance

General Information

Generally, the incorporation of a limited liability company is the preferred form of investment in Laos, especially for foreign investors. In addition to conferring the status of legal entity, the establishment of a company will result in the creation of taxpayer status of the legal entity. Currently, Laos no longer requires legal entity to apply for a tax identification number. A legal entity may utilise their enterprise registration code, depicted on the face of their enterprise registration license, for tax compliance purposes.[1] Nevertheless, in practice, the integration of corporate registration and fiscal system has yet to be fully completed. For example, after completing the incorporation process, investors are still required to notify the tax authority of the registration of enterprise manually.

Profit Tax and Personal Income Tax

For the types of tax filings that investors must take into account, income tax would be the initial point requiring consideration. Under the Law on Income Tax No. 67/NA dated 18 June 2019 (“Income Tax Law”), taxes that are payable in the income tax system comprises profit tax and personal income tax.[2] In Laos, profit tax is a type of corporate income tax to be levied upon net profit of incorporated legal entity that operates business(es) and generates income within the country.[3] Profit tax rate for general businesses is set at 20% of generated net profit.[4] However, Income Tax Law applies an adjusted profit tax rate to control and/or promote certain activities whilst imposing obligations to pay tax on compulsory profit tax basis on entities without proper accounts, and non-residential entities.[5] When it is determined that there is obligation to pay profit tax, profit taxpayers would file for and pay this bi-annually, on 20 January and 20 July each year.

Further to the obligation to pay profit tax, as labour units with employers, given that income tax on salary is operated entirely on withholding basis,[6] investors must also ensure that income tax is deducted from the employees’ salaries before each monthly payment is made, and file such tax with the the competent tax authority within 20 days after payment of salaries are made.[7]

Failure to comply with the income tax obligation, such as late submission or incomplete filing, may entail imposition of fines at the rate specified within the Income Tax Law relative to the given offence.[8] In the event that a taxpayer continually fails to pay the outstanding income taxes, administrative sanctions, including revocation of enterprise license or cancellation of investment license, may be imposed.[9] Authorities can also employ other measures such as issuance of warning or filing of a lawsuit for civil or criminal sanctions in accordance with relevant laws and regulations.[10]

Value-Added Tax

Business units operating in distribution of products or provisions of services in Laos will be considered as a tax collector in the value-added tax (“VAT”) system.[11] The VAT rate for domestic consumption of goods or services is 10% of tax base.[12] When tax collectors collect VAT from their customers, they are obligated to forward the collected amount to the tax authority on a monthly basis, within 15 days following the VAT collection date.[13]

Failure to comply with obligations related to VAT may entail imposition of fines and administrative sanctions pursuant to the Law on Value-Added Tax No. 48/NA dated 20 June 2018 (“Law on VAT”).[14] Other sanctions, such as issuance of warning or filing of a lawsuit, may also be applied, depending on the severity of the offence.[15]

Other Taxes

In addition to VAT and income taxes, business units that are involved in importation activities are obliged to observe the laws and regulations on customs. With regards to customs duty, Laos is party to several bilateral and multinational instruments on customs tariffs. Import duties applicable to a particular product may differ depending on the product’s countries or region of origin. For customs declarations, the customs declarant is under obligation to make a detailed declaration within 15 official working days from that which a customs officer records such goods as being imported.[16]

Some goods and services are also be subject to the excise tax regime. Excise tax rates are relative depending on the types of goods or services being taxed, and range from 3%-100%.[17] While importers are obliged to declare excise tax during customs declarations, domestic manufacturers and services provider have to file excise tax on a monthly basis within 20 days of the following month from when the excise tax accrues.[18]

Failure to honour these customs obligations may lead to imposition of sanctions, such as the requirement to re-familiarise oneself with relevant laws and regulations, issuance of warning or filing of civil or criminal lawsuit, upon the non-complying entity.[19] For excise tax, the Law on Excise Tax No. 68/NA dated 19 June 2019 sets specific fines for offences related to excise tax and allows application of administrative sanctions, such as revocation of enterprise licenses for continual offenders, similar to the provisions in Income Tax Law.[20]

Legal Compliance

Corporate Compliance and Internal Management

Although legal entity status is conferred to investors upon completion of the enterprise registration process, the enterprise registration authority still retains a certain degree of control over investor activities, specifically through reporting obligations. As part of the reporting obligations newly incorporated enterprises will have to provide information on progress made by the enterprises in relation to commencement of business during the period of 90 days from incorporation, such as application for licenses, importation of capital and construction of factory.[21] This report is due 10 official days after 90 days from incorporation date.[22] Subsequently, incorporated entities established in accordance with Lao law will be required to produce an annual report in a form specified by the enterprise registration authorities.[23] This is to confirm the existence of enterprises and the result of operations in the previous year.[24] The report should be submitted at the end of the first quarter.[25]

Enterprises that fail to submit aforementioned reports for the first time will be required to execute an agreement with enterprise registration officers specifying reasons for non-compliance and pledging commitment to submit such reports within a specified period.[26] If enterprises continue to not adhere these reporting obligations, enterprise registration officers may consider suspending business operations or deregistering the enterprise in accordance with the law on enterprise.[27]

For internal management, enterprises in the form of limited companies are obliged to create and maintain share certificates, a shareholder register book and a director register book under the supervision of the enterprise registration authority.[28] In the event that investors opt to establish a sole limited enterprise, it is important to note that share certificate of the sole shareholder must be endorsed by the competent enterprise registration authority within 30 days from the incorporation date.[29] Non-compliance with internal management obligations may lead to imposition of sanctions, ranging from warning to filing of lawsuit for civil and criminal liability in accordance with the Law on Enterprise No. 46/NA dated 26 December 2013.[30]

Labour Compliance

Registered enterprises in Laos are also required to register as labour units within the social security system once an employee has been hired.[31] Upon registration, Lao enterprises will have two main obligations as labour units in the social security funding system. First, a contribution to the social security fund must be deducted from the employee’s salaries. Currently, the rate of contribution is set at 5.5% of gross salary and benefits.[32] Second, enterprises are obliged to contribute to the individual employee’s social security fund at the rate of 6% for each relevant employee’s gross salary and benefits.[33]

Contributions are to be paid to the account of the National Social Security Organisation on a monthly basis.[34] Employers who deviate from the obligations are required to pledge commitment to comply to the relevant social security authority in writing within 90 days from the date of execution of the commitment agreement with the authority.[35] If the employers continue to ignore their obligations, fines equivalent to the overdue amount will be imposed, along with various other discretionary sanctions.[36]

Conclusion

The article demonstrates the need for investors to be more proactive in ensuring that their investments honour all compliance obligations that are imposed by laws and regulations in Laos. Failure to do so, they risk the imposition of punitive sanctions. Nevertheless, the author notes that, given that the focus of this article is on the key compliance matters, compliance obligations discussed herein are thus not exhaustive. Compliance matters may not be the same for all investments due to different legislations. For example, concessionaire may be exempted from the duty to comply with some laws and regulations by the resolution of the National Assembly which, in turn, relieves it from having to observe certain compliance formalities. Further, some investors may receive investment incentives under law related to investment, such as tax holidays, affecting fiscal and legal compliance obligations. Thus, investors are advised to study relevant laws and regulations to their particular investment to determine exact obligations requiring compliance with.

Lastly, whilst the information provided in this article is accurate at the time of publication, the laws of Lao PDR are continually developing, and changes in relevant legislation may be introduced in the near future. The foregoing discussion should thus not be taken as legal advice, and it is recommended that further consultation be made with a qualified legal professional in respective jurisdictions to ensure up-to-date information applicable for the precise circumstances of a given business is imparted.

If you have any questions or require any additional information, please contact Tuchakorn Kitcharoen or the ZICO Law Lao partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.

[1] Notification on Issuance of Tax Identification Number (TIN) No. 489/PSO.MOF dated 5 March 2019.

[2] Law on Income Tax No. 67/NA dated 18 June 2019, Article 2.

[3] Ibid, Article 11.

[4] Ibid, Article 15.

[5] Ibid, Article 16. For detailed discussion, please refer to T. Kitcharoen, The New Income Tax Regime in Lao PDR under the Law on Income Tax, ZICOlaw, 6 March 2020, available at https://www.zicolaw.com/resources/alerts/the-new-income-tax-regime-in-lao-pdr-under-the-law-on-income-tax/

[6] Ibid, Article 40.

[7] Ibid.

[8] Ibid, Article 73.

[9] Ibid.

[10] Ibid, Article 72.

[11] Law on Value-Added Tax No. 48/NA dated 20 June 2018, Article 10.

[12] Ibid, Article 17.

[13] Ibid, Article 30.

[14] Ibid, Articles 60-61.

[15] Ibid, Article 59.

[16] Law on Customs, No. 04/NA dated 20 December 2011, Article 24.

[17] Law on Excise Tax No. 68/NA dated 19 June 2019, Article 15.

[18] Ibid, Article 18.

[19] Law on Customs, No. 04/NA dated 20 December 2011, Article 118.

[20] Law on Excise Tax No. 68/NA dated 19 June 2019, Article 37.

[21] Ibid.

[22] Ibid, Article 3.

[23] Ibid, Article 4.

[24] Ibid.

[25] Ibid.

[26] Ibid, Article 8.

[27] Ibid.

[28] Law on Enterprise No. 46/NA dated 26 December 2013, Articles 106, 112 and 133.

[29] Ibid, Article 177.

[30] Ibid, Part IX.

[31] Law on Social Security No. 64/NA dated 27 June 2020, Article 80.

[32] Ibid, Article 74.

[33] Ibid.

[34] Ibid, Article 75.

[35] Ibid, Article 117.

[36] Ibid, Article 116 and 119.