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Lao PDR - Legal and Regulatory Fr

Foreign Investment


Overall investment climate

Since the implementation of the NEM in 1986, the government of the Lao People's Democratic Republic has actively encouraged private investment, both foreign and domestic. The Foreign Investment Management Committee (FIMC), located in the Prime Minister's Office (PMO), administers the foreign investment system. To support and encourage investment, the government offers various incentives to investors, including reduced corporate profit taxes, reduced duties and turnover taxes on imported capital equipment and inputs to production, and investment permissions and guarantees.
The legal and regulatory frameworks for investment are relatively new and still seen as developing. The initial foreign investment law was passed in 1989, but then revised in 1994. A major boost to investment and the business environment in general was the promulgation of the 1991 Constitution. In Chapter 2 of the Constitution, which deals with the socio-economic system, an explicit reference is made to the "goods [market] economy" and to the guarantee of protection of "private ownership of domestic capitalists and foreigners."
The government welcomes foreign investment in "all fields of lawful economic activity, such as agriculture and forestry, manufacturing, energy, mineral extraction, handicrafts, communications and transport, construction, tourism, trade, services, and others."
Foreign investors, however, may not invest in enterprises that are "detrimental to national security, the natural environment, public health or the national culture, or which violate the laws and regulations of the Lao People's Democratic Republic."
The Lao People's Democratic Republic has no free trade zone, but the Ministry of Commerce has indicated its willingness to establish these in many areas of the country as an investment incentive on a case-by-case basis.

Foreign investment law

The Lao People's Democratic Republic has one of the most liberal investment codes in the region, and gradually the supporting legal framework is taking shape to match it. The main laws governing the promotion of investment are the Law on the Promotion and Management of Foreign Investment (1994), the Business Law (1994), the Customs Law (1994), the Law on Domestic Investment (1995), and the Tax Law (1995). The initial investment law was issued in 1989, but it was revised and simplified by the 1994 legislation. See Annex 1 for the full text of the foreign investment law.
The revised 1994 investment law allows for wholly-owned foreign firms, joint ventures, and foreign-owned branches. Investors are allowed full profit repatriation and, as noted above, guarantees are made against expropriation. The investment law also sets a flat profit tax rate of 20 percent and standard import duty concessions. Moreover, the 1994 legislation simplifies and shortens the investment application procedures: the number of procedures fell from 18 to 10, and processing time was reduced from 90 days to 60 days.
The investment law allows two forms of foreign investment: 1) wholly-owned foreign firms, and 2) joint ventures. Foreign investment can be 100 percent foreign owned and take the form of a new company or a branch or representative office of a foreign company. A foreign investment that is a branch or representative office of a foreign company must have Articles of Association consistent with the laws and regulations of the Lao People's Democratic Republic and subject to the approval of the FIMC.
Under the 1994 foreign investment law, a business cooperation contract (similar to a partnership) provides for the division of profits and liabilities between partners. In this case, the partners assume full liability as no separate legal entity is formed.
In joint ventures/licensing arrangements, the foreign partner mu t contribute at least 30 percent of total equity in the investment. The foreign partner's equity may be foreign currency, plant and equipment, capital goods, technology, and/or skills and management. The domestic partner's share, whether a private firm or the government, can comprise money, land, water rights, natural resources, and/or capital goods. The contributions of each partner are determined at international market rates but converted into Lao kip according to the exchange rate for the date of equity payment.
Other key points from the 1994 Foreign Investment Law include:
Landholding: Foreign investors may lease land within the Lao People's Democratic Republic and transfer their leasehold interests. They allowed to own improvements on the land and other moveable property, and to transfer the ownership of the improvements and moveable property.
Accounts: Foreign investors must open accounts both in Lao kip and in foreign convertible currency with a domestic or foreign bank established in the Lao People's Democratic Republic.


Personal income tax: Foreign investors and their foreign personnel working within the Lao People's Democratic Republic pay a flat rate of ten percent of the income earned in the Lao People's Democratic Republic.
Corporate tax: Foreign investments must pay an annual profit tax at a uniform flat rate of 20 percent. For foreign investments involving natural resources exploitation and energy generation, sector-specific taxes and royalties will vary, depending on the agreement entered into between the investors and Lao People's Democratic Republic Government.
Import duties: Foreign investments pay a one percent import duty on equipment, means of production, spare parts and other materials used in the operation of their investment projects or in their productive enterprises (based on their imported value). Raw materials and intermediate components imported for the purpose of processing and then re-exported are exempt from import duties. Raw materials and intermediate components imported for the purpose of achieving import substitution are eligible for special duty reductions as determined by the government. All exported finished products are exempted from export duties.

Investment licensing process (extracted from

To receive a foreign investment license (FI License) in all sectors, except mining, hydropower and forestry sectors, a foreign investor must submit the following to FIMC:
• completed application form (available from FIMC)
• projected assets and liabilities, pro forma income statement for five years
• biodata of the investor
• support of financial capacity of the investor to undertake the proposed investment
• application fee of $100-$200 depending on the size of the project
• four copies of all of the above
The Screening Division of the FIMC reviews the application form for completeness and accuracy. The investor is contacted to supply necessary additional information or to clarify issues arising from the application. The application is then forwarded to the line ministries concerned with the sector in which the investment project is to be made, to the Ministry of Finance and to the Bank of the Lao People's Democratic Republic. The ministries may come back to the FIMC with queries or requests for additional information.
When the ministries have formulated a position on the application, the application is brought before the Technical Committee at the FIMC on which the ministries have representatives. The decision of the Technical Committee is then forwarded to the Chairman of the FIMC for endorsement (either to approve or to reject the application). The Chairman of the FIMC then forwards the endorsed application to the PMO for a final decision.
If the PMO’s decision is in accordance with that of the FIMC, either a FI License is issued by the FIMC or the investor is informed that the application has not been approved. If the PMO’s viewpoint on the application is at variance with that of the FIMC, the FIMC resubmits the application for further study by the Technical Committee, for endorsement by the Chairman of the FIMC, and final decision by the PMO.
Under the FI Law, this process is required to take a maximum of 60 days. The government is currently studying proposals that would dramatically reduce the approval time for most applications and would radically change the procedures for vetting investment applications for most investments.
For applications in the hydropower, forestry, and mining sectors (and other sectors at the discretion of the FIMC), the investment approval process is significantly different. The application goes to the Mining and Hydropower Division of the FIMC for evaluation. If this evaluation is positive, a memorandum of understanding (MOU) is signed. Based on this MOU, the investor carries out a feasibility study and makes a detailed project proposal, including a thorough feasibility study and proposals for project financing. If the discussions and negotiations over this proposal are positive, a Project Development Agreement is signed and an investment license is issued.
Joint venture applications must also include an agreement on technology transfer and a joint venture agreement signed by both parties.
Within 90 days of receipt of the license, a company must register with the Ministry of Commerce and Tourism in order to obtain a business license, register with the Tax Department at the Ministry of Finance, and receive an industrial establishment authorization from the Department of Industry, Ministry of Industry and Handicrafts.

Setting up a business

The Business Law regulates the formation, conduct of affairs, and liquidation of all companies (The Bankruptcy Law of 1994 also deals with liquidations). All firms must register with the Ministry of Commerce and Tourism (MCT), Department of Enterprise Registration, for inclusion into the Company Register. Business operations can be established in a number of forms:
• Representative office
• Branch office
• Partnership
• Partnership
• Limited company
• Sole trader
• Public company
• Private-state mixed enterprise
(i) Representative and branch offices
Unlike the Foreign Investment Law, the Business Law does not mention either representative offices or branch offices, and therefore their legal status is not properly defined. Investors must negotiate their status with the MCT on a case by case basis, but this does not present much of a barrier to establishing a business. Under the FIMC terms for a representative office, such an office is not allowed to conduct business within the country and instead can only refer interested parties to its main offices outside of the country.
For branch offices, the office is regarded as the same legal entity as its parent company and can be held liable for actions and conduct of the branch office with the Lao People's Democratic Republic.
(ii) Partnership
As noted above, foreign firms can enter into joint ventures with domestic private firms or with the Lao Government. The partnership can be managed by either or all of the partners or by a designated manager. All partners are jointly and severally liable for the liabilities of the partnership.
(iii) Limited liability company
A limited liability company can comprise one to twenty shareholders, and the minimum capital requirement is five million kip, half of which must be paid up capital once the company is registered. The other half of the registered capital must be paid in full within two years of the company's registration. Shares within the company are transferable with the consent of twothirds of the shareholders. All limited liability companies must establish reserve funds based on 5 to 10 percent from their net profits.
(iv) Sole trader enterprise
The minimum registered capital requirements for a sole trader enterprise is 1 million kip.
(v) Public company
The establishment of a public company requires a minimum of seven shareholders and at least 50 million kip of registered capital. The maximum value of each share is 10,000 Kip. A public company must have five to seventeen members of a management team, including one or two workers’ representatives. Although there is no stock market in the Lao People's Democratic Republic, shares of a public company can be sold outside the firm.
(vi) Private-state mixed enterprise
This form of enterprise consists of the Lao Government and a private business, with the state holding at least a 51 percent stake in the firm. Mixed enterprises are regulated by the same rules as public companies but subject to the following exceptions:
• The government determines the transfer of shares owned by the state while the private shares are managed as shares of a public company
• The share certificates are transferable
• The Chairman of the Board of Director is appointed by the Minister of Finance and the Vice-Chairman is selected by the private party and approved by the Minister of Finance 
• The President of the Board of Directors has a casting vote. Firms must register with the MCT and obtain an Enterprise Registration Certificate from the Department of Enterprise Registration. A company must submit the following documents to register:
• Application form
• Resume of the owner/manager
• Declaration of Sentencing No. 3 (issued by the Lao courts)
• Joint venture applications must also include an agreement on technology transfer and a joint venture agreement signed by both sides.
• Articles of Association
• Feasibility study
• Copy of Passport (for foreign company)
• Eight 3cm x 4cm photos
• Certificate of Profession of the sectors concerned
• Construction License from the Committee of Planning Construction with Planning Details
• Foreign Investment License
• License from the Bank of the Lao People's Democratic Republic (for companies that operate in the financial sector)
• License from the Ministry of Public Health (for companies that are concerned with the medical sector)
• Notification of approval from the relevant ministry, as required
• Financial statement
• List of fixed assets along with a certificate of ownership which has been registered with a notary Companies must also have written by-laws containing the following:
• name, surname, occupation, nationality, and address of the investors
• name, objectives, duration and location of the headquarters of the company
• organization chart and management of the company
• distribution of dividends and responsibility for losses
• meeting and voting procedures
• dissolution and liquidation provisions
• settlement of dispute provisions

Labour issues

According to the Foreign Investment Law, foreign investors are required to give priority to Lao citizens in recruiting and hiring. However, foreign enterprises have the right to employ skilled and expert foreign personnel when necessary and with the approval of the Lao Government.
The Foreign Investment Law also calls for foreign investors to upgrade the skills of their Lao employees through training within the Lao People's Democratic Republic or abroad.

Investment incentives (extracted from

The FIMC automatically awards all approved foreign investors an incentive tax rate of 20 percent, compared to the general tax rate of 35 percent. This is among the lowest tax rates in Asia. Unlike most other countries, this 20 percent rate applies to foreign investment in all sectors of the economy and does not depend on company or performance. Accelerated depreciation and tax loss can be carried forward up to three years. The withholding tax on dividends, interest, royalties, and fees paid abroad is only 10 percent. Foreign investors and their expatriate staff pay only a 10 percent income tax. For large projects and others that are deemed to have a significant impact on the economic and social development of the country, tax holidays can be negotiated on a case-by-case basis. For companies that locate their projects outside major cities, the tax rate is reduced to 15 percent if located in lowland areas and 10 percent if located in mountainous and remote areas.
Additional incentives: The government provides the following incentives to all foreign investors: • Permission to bring in foreign nationals to undertake investment feasibility studies.
• Permission to bring in foreign technicians, experts, and managers if qualified Lao nationals are not available to work on investment projects.
• Permission to lease land for up to 20 years from a Lao national and up to 50 years from the government.
• Permission to own all improvements and structures on the leased land, transfer leases to other entities, and permission to sell or remove improvements or structures.
• Facilitation of entry and exit visa facilities and work permits for expatriate personnel. Repatriation of profits: There is no limitation on foreign investors transferring foreign currencies and their legal assets to their countries or to third countries for:
• Profits gained from business production activities
• Income from the transfer of technology and technical services
• Initial capital and interests from loans
• Capital stipulated in the agreement or the status of enterprises, including supplementary investments, salaries of foreign employees in units or enterprises with foreign shares.

Intellectual property rights

The protection of intellectual property rights (IPR) is gradually taking hold in the Lao People's Democratic Republic. One of the first steps towards IPR began with a decree from the Prime Minister in 1995 allowing for the registration of trademarks. The protection of IPR in the country is strengthened by its memberships in the World Intellectual Property Organization (WIPO) and the Paris Convention on the protection of industrial property. However, the Lao People's Democratic Republic has yet to sign the Berne Convention on copyrights.
WIPO has helped the Lao People's Democratic Republic in drafting legislation to protect patents, industrial designs, lay out designs, integrated circuits, specially bred plant species, and other relevant concerns. Also, additional legislation is being drafted in line with trade related aspects of intellectual property rights (TRIPS).
The Lao People's Democratic Republic is not perceived as a major violator of intellectual property rights. The United States Trade Representative has not placed the Lao People's Democratic Republic on its watch list of countries of concern for IPR violations.
Thailand and the Lao People's Democratic Republic signed a bilateral IPR agreement that ensures protection of patents that have been granted in Thailand.

Customs and Trade Procedures


Imports and exports

Firms seeking to import goods and other items are required to obtain an import license from the provincial trade authority where the importer is located. The license remains valid for three months. Importers must provide six types of documents for each shipment:
• a contract with the foreign supplier or a purchase order
• import license
• letter of credit or payment guarantee from a foreign exchange bank
• transport documents
• bill of lading
• customs clearance report
After receiving permission to import, firms must establish a line of credit through a foreign exchange bank within the specified time period for importing, although it is possible to apply for an amendment to the line of credit if the completion time for the entire import transaction exceeds the original timeframe. The amount of the line of credit should not exceed the authorized amount, and it must be expressed in the same currency specified in the import authorization form.
For customs purposes, the importer must submit a report to the superintendent of the customs house. The customs clearance report can only be prepared by a consignee (importer), employing a certified customs specialist or a certified customs clearance corporation.
Exporters are required to submit the following documents when applying for an export declaration:
• application for export declaration
• permission to export from the provincial trading authority
• invoice
• packing list
• certificate of country of origin and generalized system of preferences certificate of origin (if applicable)
• phytosanitary certificate for food exports
• industrial products certification for industrial products Exporters are recommended to have the appropriate authorities review the items for export after receiving a letter of credit from the importer but before obtaining export permission. This is to ensure that the goods to be exported are not on the government's list of restricted products for export.
Each export transaction requires permission from the provincial trade authorities, and thus exporters have to submit the export permission application and the other required documents each time. Goods are sometimes inspected prior to shipment by the customs house, depending on the type of goods.
Temporary goods, that is those brought in for processing and assembly into finished products and re-exported, and those for trans-shipment, are not subject to import or export taxes. However, the trans-shipment of goods requires all the necessary documents for importing and exporting, along with submitting an annual trans-shipment plan to the appropriate ministry and receiving permission for each shipment.
The importing or exporting of pharmaceuticals, food, and chemical products requires a license issued by the Food and Drug Control Import Division in the Ministry of Public Health.


All capital equipment, means of production, spare parts, and other materials used in operation of investment projects are subject to only a 1 percent duty on import and no turnover tax or excise tax. Raw materials and intermediate components imported for the purpose of processing and reexport are exempt from import duties and taxes. There is no minimum percentage of output for exports in order to receive these incentives. Raw materials and intermediate components imported for the purpose of import substitution also receive duty reductions at negotiated rates.
The government has simplified its tariff structure, although some non-tariff barriers, such as a quota on the import of automobiles, still exist. The Lao People's Democratic Republic uses two types of customs valuations:
1) Valuation based on the transaction value of the imported item, which is usually based on the shipping invoice.
2) Valuation based on certification by a Lao People's Democratic Republic embassy or a reputable organization having expertise on price and fair market value, such as the Chamber of Commerce of the country of origin.
If the importers cannot provide such documents, the customs valuation is based on domestic price minus 15 percent. The importers must employ a certified customs specialist or certified customs clearance corporation to complete the report.

There are six rates of import tariffs:
• five percent for promoted goods such as heavy equipment and machine tools
• 10 percent for some medicines and some materials used in light industry such as fabrics and  chemicals
• 20 percent for some food products, such as frozen fish
• 30 percent for certain kinds of fruit and vegetables
• 40 percent for automobiles.
In addition to the import tariff, the government also imposes an excise tax on a certain products, with the steepest assessed on automobiles (72-104 percent, depending on engine size), alcohol (60 percent), and motorcycles, beer and cigarettes (50 percent).
In addition to the excise tax, importers may also face a turnover tax of 5-10 percent on most goods. Most goods are assessed at the higher 10 percent rate, while goods considered essential to domestic production (such as agricultural equipment, power tools, construction equipment, fabric, and cotton thread) are assessed at five percent. Tax-exempt goods include rice, fertilizer and animal feed, along with others.
The government is expected to introduce a value added tax, which will replace the turnover tax, by 2002.
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