Type of Taxation In Lao Law System

Taxation structure and rules are governed by a 1995 Tax Law, which has been four times amended, in 1998, 2001, 2003 and in 2005 and completed by an Implementing Decree and other separate provisions. The 2004 Foreign Investment Law also contains certain tax provisions which apply to foreign investors. Together, these laws and decrees create a single tax regime applicable to all organizations and persons conducting business or working in Laos. The tax regime of the Lao PDR is comprised of direct and indirect taxes. Indirect taxes are business turnover tax and use tax. Direct taxes are profit taxes, income taxes, de minimus taxes and fees.

The regular modifications have not affected the overall taxation system. They were mainly directed on "luxurious" imports, among which tax rates have been increased and new taxes imposed.

Business Turnover Tax ("BTT")
The turnover tax shall be collected upon imports, first time sale of imported goods or domestically produced goods and services. Initially, there were four rates of BTT in Laos. Under the new system as resulting from the latest amendment, two rates are applicable, 5% and 10%, plus a 0% rate for the exempted goods as they are listed in the Tax Law.

For imports, the business turnover tax is paid at the point of importation, while, for domestic transactions of goods/services, it is declared and paid monthly to the tax authority, the month following the collection. The basis of taxation for imported goods is the customs value, plus customs duties, plus excise tax. Tax on services shall be calculated after the completion of the work. All purchases and sales must be substantiated by tax invoices. Importers of goods for resale are allowed to deduct the business turnover tax paid at the point of importation from the monthly business turnover tax transactions assessment. Importers of goods for re-exports are exempt from the business turnover tax.

Excise Tax / "Use" Tax
The excise tax (often referred to as "use tax") is collected on the importation or domestic supplies of petroleum products and selected consumer goods. Like the turnover tax structure, the excise tax structure was also recently modified. The excise tax on these goods ranges from 5% to 90%, depending on the type of goods and on the value declared upon importation or on the ex factory value, if it was produced domestically. Like turnover tax, excise tax is declared to the tax authority either at the point of importation or monthly following the month of production.

Profit Tax
Profit tax is levied on annual net profits derived from business operations, unless the Tax Law or specific agreements with the Lao Government specifically provides exemptions. The annual net profit is calculated on the basis of the difference between the total income and the total deductible expenses of the year. It is payable in advance on a quarterly basis. As an example, at the profit tax rate applicable to Lao-owned companies is of 0% for the incomes not higher than Kip 2,400,000, at rates of 10% to 35% on net profits derived from professional services and of 35% on net profits derived from business operations. The profit tax rates applicable to foreign invested companies vary, subject to the incentives as granted under the 2004 Foreign Investment Law, from 0% to 20%.

Minimum Tax
A minimum tax (also called the "de minimus tax") is applicable to gross turnover of the previous year of those enterprise who do not make a profit, or who make a profit that would create a lower profit tax payment to the Government than the application of minimum tax. Minimum Tax is payable on an annual basis. Even if the year-end financial statement states that the company had losses in its business operations in the previous year, the company must pay its de minimus tax. These minimum rates are:

• For the domestic producer: 0.25% of total revenue of whole year,
  
• For the trading and general services businesses: 1% of total revenue of whole year.

Certain foreign and domestic investors who are exempted from annual profit tax may also be exempted from the minimum tax. Exemption of the minimum tax is also applicable when losses as shown in the company's financial statements are certified by external auditors recognized by the Lao Government.

Income Taxes
Taxes on incomes are comprised of the following:

• Personal Income Tax levied monthly on wages, salaries, bonuses and other emoluments derived from employment in the Lao PDR, at a rate varying from 0 to 25% for Lao employees and at a flat rate of 10% for foreign employees employed by entities licensed under the Foreign Investment Law, which the employers are responsible to collect and to declare to the tax authority;
  
• Tax levied on the incomes generated by licensed intellectual property rights, at a fixed rate of 5%;
  
• Tax levied on the incomes arising from the property of movable capital, including dividends, profits from the sale of shares, interests on loans and guarantee fees at a flat rate of 10%;
  
• Tax levied on the incomes arising from by the property of immovable capital, including lease of constructions, land and other material properties, at a flat rate of 15%; and
  
• Tax on the incomes perceived from non-business entities, such as the mass organizations, at a flat rate of 10%.

Lao Law does not make expressly mention of any "withholding tax" as applicable to entities not established in Lao PDR. However, such taxation is applied in practice under the category of the tax to be levied on incomes arising through licensing intellectual property rights, leasing immovable property, dividends, sale of shares, interest on loans and guarantee fees when this tax is payable by an entity outside of Laos (the entity within Laos making the payment will "withhold" the income tax).

Fees
Government divisions collect fees for issuing tax registrations, licenses to conduct activities, approvals, certifications or registrations of other official documents, the use of roads, the entry into and exit from the country, the issuance of visas to enter and exit the country, residency in Laos, the use of radio and television satellite receivers, the use of television, the affixing of signs advertising goods, shop signs, and other services within the territory of Lao PDR.

The fees for the registration documents are based either on an ad valorem or on a fixed rate, depending on the type of document. Fixed registration fees are minimal, and are generally applicable to documents that do not involve transfer of property (e.g., power of attorney, service and manufacturing contracts).

Other Taxes
Import and Export Duties
Under the Customs Law, all goods, imported or exported, are subject to duties, unless contrary exemptions are provided for by law or by specific agreement with the Lao Government. Export goods are declared at their actual value, whereas import goods are declared at their actual value plus insurance, transportation and other costs. Import and export duties must be paid at the point of importation before the goods can be removed from the customs services. Import duties, like export duties, range from 5% to 40% (except for certain types of goods, notably luxurious goods and vehicles). As previously mentioned, for companies which undertake promoted activities, the import duties may be exempted for certain goods to be used in the production.

Goods exempt from import duties include, among others:

• goods in transit with enclosed circulation permit;
  
• goods to be re-exported in their initial quantity and conditions;
  
• goods to be processed, assembled, improved or repaired, before being re-exported;
  
• personal property of persons temporarily visiting the Lao PDR;
  
• certain types of inherited property;
  
• samples which are not for sale; and
  
• humanitarian assistance materials.