• Computation of the PT by means of fixing (mandatory tax assessment) under Article 21 of Instruction N0. 2137/MOF on Implementation of Tax Law 2005 is still effective until the relevant supporting regulations of Tax Law 2011 are issued.

Laos Introduction The new Tax Law 2011 was enacted in December 2011 and promulgated in January 2012. This law replaces Tax Law 2005. Under Tax Law 2005, taxes in the Lao People’s Democratic Republic (Lao PDR) were divided into two main groups: • Indirect taxes consisted of business turnover tax and excise tax. • Direct taxes consisted of profit tax (PT) or corporate income tax (CIT), minimum tax (MT) and income tax (including personal income tax (PIT)). Under the new Tax Law 2011, the business turnover tax and MT are abolished, and the environmental tax and lump-sum tax are introduced. These two new taxes are categorised as direct taxes. Tax Law 2011 took effect starting from 1 October 2012 but in practice, some provisions did not come into force until 31 December 2012, or until the relevant supporting regulations are issued. This means some provisions of the Tax Law 2005 and its relevant regulations are still in force and are as follows: • The PT rate of 28% was effective until 31 December 2012. The new PT rate of 24% is effective as of 1 January 2013. • The MT was applicable until 31 December 2012. It was abolished as of 1 January 2013.

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Asia Pacific Tax Notes

• The excise tax rates on vehicles under Tax Law 2005 are still applicable until the relevant supporting regulations of the Tax Law 2011 are issued. • The environmental tax will not be applicable until the relevant regulations are issued.

Profits tax or corporate income tax All companies and enterprises registered under the laws of the Lao PDR are subject to PT on their worldwide income. Companies formed under foreign law, operating as a business in the Lao PDR, and conducting business in the Lao PDR are subject to tax on their income derived in the Lao PDR. Under Tax Law 2011, the standard rate of PT for companies registered in the Lao PDR has been lowered to 24% from 28%. The 24% rate applies to both domestic and foreign-invested companies. Although Tax Law 2011 took effect from 1 October 2012, the new PT rate of 24% was not implemented until 1 January 2013. For companies whose business activities involve importation, production and distribution of tobacco, the rate of PT is 26%, 2% higher than for other companies.

PT incentives in the form of tax holidays are applicable to companies whose investment activities qualify as promoting investment. PT incentives are provided under the Law on Investment Promotion 2009. This law divides investment areas into three zones, namely Zone 1, Zone 2, and Zone 3, and divides the investment activities into three different levels of promoted activities, namely Promoted Investment 1, Promoted Investment 2, and Promoted Investment 3. Tax holidays are as follows: Zone Areas 1

2

3

Promoted Investment 1

Mountainous, plain, and plateau zones with no economic infrastructure to facilitate investments.

10 years

Mountainous, plain, and plateau zones with a moderate level of economic infrastructure suitable to accommodate investments to some extent.

6 years

Mountainous, plain, and plateau zones with good infrastructure to support investments.

4 years

Promoted Investment 2 6 years

4 years

2 years

Promoted Investment 3 4 years

2 years

1 year

The PT exemption is effective from the date the enterprise begins its business operations. For activities producing new products, research and new technology, the PT exemption is effective from the date the enterprise makes a profit. Once the PT tax holiday expires, as mentioned above, the enterprise shall pay PT in accordance with the Tax Law 2011. MT was abolished under the Tax Law 2011 but similar to the reduction in the PT rate, the abolishment of MT only took effect from 1 January 2013.

Income tax Withholding tax Withholding tax (WHT) is a form of income tax. WHT is applied to various types of payments made to domestic and overseas recipients. The rates of WHT are as follows: Profits from the sale of shares

10%

Interest on loans by individuals or juristic entities, commissions, or guarantee fees

10%

Income from the lease of land, houses, building structures, vehicles, machinery or other properties

10%

Income from sales, transfer of land-use rights, building structures or land with building structures (except the transactions specified in Article 46 paragraph 18 of the Tax Law 2011)

5%

Royalty for the use of patents, trademarks or other intellectual property

5%

Other withholding taxes WHT on payments to foreign contractors applies when a Lao entity contracts with an overseas party that is not licensed and does not maintain a presence in the Lao PDR. This WHT, called the foreign contractor withholding tax (FCWT), comprises both PT and VAT elements if the business activity is undertaken onshore, or only VAT if the business activity is undertaken offshore. The FCWT is the final tax on the overseas company.

Lump-sum tax Lump-sum tax is a new tax that was introduced under Tax Law 2011. It is a tax imposed on small and medium business operators that are not registered in the value added tax (VAT) system. For small and medium business operators, the lump-sum tax is paid in lieu of PT. Therefore, the lump-sum tax is regarded as a tax within the PT category.

Laos

45

PT is calculated based on a deemed percentage of taxable turnover. The deemed rates are determined according to the nature of the contract or activity. The rate for each type of business activity is as follows: Deemed profit margin (% of business revenue)1

Deemed PT rate

Commerce

5%

1.4%

Production

8%

2.24%

Transportation and construction 10%

2.8%

Services

5.6%

20%

The PT is added to VAT at 10% for the total FCWT.

Personal income tax Personal income tax (PIT) is categorised as income tax. Both Lao and foreign individuals earning income in the Lao PDR in the form of salaries, benefits in kind and other remuneration are subject to PIT at the same rate of 0 – 24%. Expatriates who work in Laos and obtain remuneration in Laos or in a foreign country are obligated to pay PIT in Laos regardless of the length of time of their employment and/or stay in the Lao PDR. Before 1 January 2012, the PIT rate for expatriates was fixed at 10% whereas the PIT rate for Lao nationals was progressive, 0 – 5% and 5 – 25% depending on the amount of income. Between 1 January 2012 and 30 September 2012, the rate of PIT for both Lao nationals and expatriates was 0 – 28%. Starting from 1 October 2012, the PIT was reduced to 0 – 24%. For details about the current PIT, please see the table below. Monthly income threshold (LAK)

Basis of computation (LAK)

Tax rate

PIT of each threshold (LAK)

Total PIT (LAK)

1

1,000,000 and below

1,000,000

0%

0

0

2

From 1,000,001 to 3,000,000

2,000,000

5%

100,000

100,000

3

From 3,000,001 to 6,000,000

3,000,000

10%

300,000

400,000

4

From 6,000,001 to 12,000,000

6,000,000

12%

720,000

1,120,000

5

From 12,000,001 to 24,000,000

12,000,000

15%

1,800,000

2,920,000

6

From 24,000,001 to 40,000,000

16,000,000

20%

3,200,000

6,120,000

7

Above 40,000,000

……

24%

……

……

The above rates are under Article 21 of Instruction No. 2137/MOF on Implementation of the Tax Law 2005. According to the Tax Department, these rates are applicable until the relevant supporting regulations of the new Tax Law 2011 are issued.

1

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Asia Pacific Tax Notes

Value-added tax Value-added tax (VAT) was introduced in 2010 under the VAT Law 2009 to replace the business turnover tax. However, the business turnover tax was still applicable to the business operators not registered or not qualified for the VAT system until 1 October 2012, before it was abolished by Tax Law 2011. The standard VAT rates are 0% and 10%. VAT is imposed on the final consumers of goods and services. Goods and services used for production, trading and consumption in the Lao PDR, goods imported into the Lao PDR, and services rendered by foreigners to Lao PDR customers are subject to VAT. Certain goods and services are exempted from VAT. Exempted items include unprocessed agricultural products, seeds, fertilisers, textbooks, education services, medical services, banking services and insurance. Exported goods and services are subject to VAT at 0% (i.e. zero rated), except exported natural resources like timbers and minerals. The conventional credit method is used to calculate the VAT payable (i.e. output VAT less input VAT). Excess input VAT can be carried forward for six months (extendable). Input VAT for exports is refundable. Business operators engaged in production or trading of taxable goods and services must register in the VAT system if their annual revenue is LAK400 million or above. Companies below this threshold may voluntarily register. Only registered VAT taxpayers may claim VAT refunds. However, VAT related to production for export is refundable.

Excise tax Excise tax (ET) is an indirect tax, which applies to: • the importation and sale of certain luxury goods such as alcohol, beer, cigarettes, perfume, car, etc. • production of these goods, and • services such as entertainment (karaoke and bar) bowling, massage, sauna, beauty, telecommunications, cable television, digital television, internet, golf, lottery, casino and casino machines. The list of goods and services that are subject to ET is set out in Article 18 of the Tax Law 2011. Article 19 lists the goods and services that are exempted from ET. ET rates range from 5% – 150%. Under Tax Law 2011, the ET rates on vehicles range from 25% – 150%. However, the rates under Tax Law 2005 are still applicable until the relevant supporting regulations of Tax Law 2011 are issued.

Administrative fees Under the Tax Law 2011, government sectors can collect fees for issuing fiscal licences, business licences, permits, visas, advertisement boards, broadcasting rights and other services. The charges and service fees are set periodically by Presidential Decree.

Laos

47

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