Laos reformed its investment law to streamline how to set up a business and offer incentives to businesses, including removal of a minimum registered capital requirement and tax incentives in targeted sectors and locations. The government hopes that the changes will make doing business in Laos easier and help it remain competitive for foreign direct investment with neighbouring countries, such as Vietnam, Myanmar and Thailand. However, observers in Laos are concerned that some provisions are still vague.
“The changes to the law are welcomed as they should provide more transparency for businesses by offering incentives certificates,” says Kristy Newby, country managing director, DFDL. “Existing operators will need to determine if they should voluntarily opt in for the incentives depending on their sector and location.”
Features of the amended law
The amended Investment Promotion Law has a number of features:
- Establishment of the Investment Promotion and Management Committee to supervise and approve all investments in controlled, concession and special economic zone activities
- Setup of the One-Stop Service Office to process all business applications for controlled and concessionary business operations
- National and Provincial Assemblies to oversee approval requirements for projects with significant adverse environmental or social impacts
- Two new investment structures: a joint venture investment jointly owned and operated by a state-owned enterprise and private enterprise; and a joint venture investment between the government sector and private sector for public-private partnerships (PPP)
- Removal of minimum registered capital requirement
- Tax incentives for promoted sectors, which are science and technology, agriculture, information and culture, tourism, education, sports, labour development, public health, public works, transportation, banks and financial institutions, and shopping malls
Concession activities include investments requiring government concessions, such as land, minerals, power, airlines, telecommunications, insurance and finance. Investment terms for these activities may not be more than 50 years but may be extended with approval.
Tax incentives are determined according the promoted sectors and promoted zones, which are divided into three categories with each having different profit tax exemptions:
- Zone 1-remote areas where socio-economic infrastructure does not facilitate investment; profit tax exemption for 10 years to 15 years
- Zone 2-areas where socio-economic infrastructure supports investment; profit tax exemption for four years to seven years
- Zone 3-special economic zones; profit tax exemption based on relevant laws
For general business activities, there are two types of activities, those that are not included in the negative list and those that are. “The Ministry of Planning and Investment is preparing a new negative list which will consolidate a number of decrees and notifications, but these will continue to be valid and enforceable until a new list is issued,” says Aparat Sanpibul, senior associate at ZICOlaw.
A number of areas require subsidiary legislation or implementing rules to provide more clarity, such as the PPP model and approvals for overseas investment. “The clarity of PPP investment will enable the government to attract more private investors to fund new infrastructure and construction projects. However, it is currently unclear how this PPP model differs from the current concession investment,” says Sanpibul.
“It appears that there is no minimum registered capital requirement in the amended law, but it is uncertain how the registration officer will implement the requirement for registered capital,” says Sanpibul. “There is a possibility that in the meantime, the minimum requirement of $125,000 for general investments may be continued.”
“Article 64 of the new law indicates that the newly established One-Stop Service Office Ministry must approve overseas investment but it’s unclear what activities are regulated,” says Newby.
The amended investment law aims to overcome the hindrances to further develop Laos’ economy and society, but provisions are still vague. Further implementing decrees will be needed to support the amended law to provide assurance and certainty to potential investors.