Laos

6 Chapter Tax

    • Tax law of Laos

      Laos　established its nation in 1975, but until around 1980 the domestic tax system did not exist. Thereafter, Custom and tariff Bureau and Tax Office were established in 1989. Tax law was established for the first time in 1995.
      Compared to the other developing countries, the history of tax law is relatively new, therefore, Laotian system of tax law is so different that Cabinet Ordinance was promulgated as a secondary supplementary stipulated to tax law unlike this Japanese system such as the law concerned, enforced ordinance and, regulation and notifications.
      Currently, there are two kinds of laws related to tax; one is Law on Value Added Tax enacted in 2006 and the other is New Tax Law in 2012. In Laos, both were revised.
      As to the tax authorities in Laos direct tax is authorized by the tax authority of Ministry of Finance, and indirect tax is under the control of the custom and tariff bureau inside Ministry of Finance. In the rural areas, the state governments collect taxes and conduct tax investigation respectively.


      ■Tax items
      In Laos' domestic law, the following kinds of taxes are stipulated.

      Major taxes are as stated above and are handled by the tax authority and of custom and tariff bureau of the Ministry of Finance. As in Japan, there is no classification of national and local tax in these tax items and in Laos all national taxes are collected by the country.
      Also, in 2011, traditional tax items such as minimum tax and business turnover tax, have been abolished and new Lump-Sum tax and Environmental tax have been determined to introduce it.

       

      ■ Direct tax and indirect tax
      [Direct tax]
      "Tax" is divided into "direct tax" and "indirect tax", depending on the method of collection and burden. Direct tax means the one that tax payer who performs a tax payment and tax bearer who actually takes a pay burden are the same. In Laos, this is true of profit tax and income tax..Regarding direct taxes, the tax bureau of the Ministry of Finance administrates this tax..
      [Indirect tax]
      Indirect tax is different from direct tax, which means the tax that tax payers and tax bearers are different.. It is called as indirect tax. In Laos, sales tax, Value Added Tax (VAT), customs duties are included in this tax that the tax bureau of Ministry of Finance administrates.

       

      ■ Trends in tax revenues in Laos
      Revenues by major tax items in Laos from 2005-2006 to 2009-2010 as follows.

       

      Source: Central Bank of Laos "Annual Report 2013"
      【Tax Revenue Amount】 (Unit: 1 billion Keep)

      Source: Central Bank of Laos "Annual Report 2013"
      Over the entire tax revenue, the proportion of indirect tax (excise tax, transaction high tax, value added tax) on transactions is as large as about 49%, then business income tax and import tax.
       

    • Income tax

      ■ Outline of personal income tax
      When calculating the personal income tax amount for individuals who live in Laos and work as Japanese expatriates, it is necessary to see whether they are "resident" or "non-resident". Due to this status, the range of income tax is different.

      ■ Definition of residents
      In Laos, the calendar year (January 1 to January 31 of the year) is the taxable fiscal year. If the cumulative days that they stay in Laos within this calendar year are over 180 days, they are regarded as "residents". If less than 180 days, they are considered as "nonresidents".
      Based on the above sentences, the range of taxable income is determined by judging whether it falls under the status of resident or nonresident (Article 55 of Tax Law of 2005).

       
       　

      In Laos, if you become a "resident" of Laos, all incomes generated not only inside but also outside the country (foreign source income) are going to be taxed regardless of the place.
      For example, if a Japanese expatriates become a resident of Laos and obtain an income from a rent of real estate in Japan, it is levied to put together with income of Laos. In addition, if the expatriate are regarded as a non-resident, only domestic source income is generated and levied in Laos.

      Calculation of the amount of income tax in Laos

       

      At first you have to see whether a person is a resident or a non-resident in Laos, then divide the personal income into taxable or non-taxable depending on the kind of income and calculate the e amount to multiply it by income tax rate. But you have to be aware that this tax rate varies depending on the type of income. 



      [Calculation of gross income amount]
      First of all, you need to divide all incomes of the year into taxable income and non-taxable. The taxable income is prescribed in the tax law as follow (Article 56 of      　tax law　of 2005).

      　

      ·Salary income
      · Income from usage fee of patent rights and trademark
      · Interest and dividend income
      · Capital gain
      · Income from lease fee of real estate of land or building
      * Salary income includes labor wages, bonuses, executive allowances as well as the other financial benefits (such as rent borne by the employer).

      The income gathered from a personal business is not subject to personal income tax, and profit tax will be levied like the corporation. Please read on the paragraph of p543).

      [Non-taxable income]
      With regard to non-taxable income, it is prescribed in tax law as follow (Article 57 of tax law of 2005).

      　

      · Revenue from agricultural crops cultivated by farmers
      · Revenues from foreign experts who are engaged in medical projects based on contracts with Lao government or its authorities concerned
      · Revenues of foreign diplomats who live in Laos, workers of international organizations
      · Allowance to be paid from the company prescribed by the labor law
      · Contributions borne by employers such as pensions
      · Pension income
      · Revenues from cultural activities, sports,  volunteer projects approved by the government
      · Interest income from deposits, national  bonds, etc.
      · Benefit of social security system benefits
      · Income from lotteries ·  reward income provided by government or government authority
      · Reward income provided by government or government authority

      ■  Calculation of income tax amount
      After calculating the taxable income amount, you  calculate the income tax amount by multiplying the amount of taxable income by the income tax rate. The tax rate varies depending on whether you are a citizen of Laos or a foreigner, but since January 2002, except for some foreign workers, it is unified to be the same. The tax rate of personal income  is as follow (Presidential Ordinance No. 001).

       

       

      [Income tax rate for foreigners]
      Foreign workers including Japanese who work in Laos were  taxed at a  fixed rate of 10% by Foreign Investment Promotion Law. However  since January 2002  this system was abolished, as principal, a progressive tax rate of 0 to 24%  was applied (Presidential Ordinance No. 001), like the other Laotian People.
      However, as an exception, if a worker  of company of concession business enters into an employment contract without limited labor period  before January 2012, the tax rate is 10%. After the end of contract, if this person enters into the renewal contract after January 2012, the rate is from 0 to 24% as mentioned above. But, this exceptional provision is not applied to the employee who engages in general business.
      [Tax rate except salary income]
      Income  except salary is taxed at the following tax rate.

       

       

      ■  Notice / Payment Procedure
      After calculating the personal income tax amount, you will file a personal income tax return  and payment procedure.       Regarding notice and payment, it depends on the contents of income of the  person concerned. 

      [In case of only salary income]
      As a general rule, the tax return schedule of personal salary income tax depends on monthly notice and withholding tax by employer (Article 65 of tax law of 2005).
      The employer pays monthly withholding tax from the amount of salary and will file a tax return by the date 15thof the following month.
      In the case of the difference amount of excess or shortage of the total amount of personal income tax between the monthly notice  and  the annual amount calculated  of the year, when you submit the annual tax return to tax authority concerned, the  different amount is going to be adjusted.
      If  it is a shortage, you need to pay the shortage amount. Also, if the actual  amount exceeds the actual amount of annual personal income tax, the excessed amount is deducted from the taxable amount of the future.

       

      [ In the case of incomes  except salary occurred]
      For rents gathered  from real estate such as land or buildings, the recipient notifies it to the tax authority and pays  its income tax within 10 days from the date of  income (Article Law 66 of Tax Law).
      With regard to income from interest, dividend, capital gains, patents, trademark rights, and others, after the taxpayers collect withholding taxes they have to notify its profit and pay the income tax within 10 days .

      ■ Withholding tax system
      Among the transactions  in Laos, business owners those who pay compensation and reward need to withhold tax  at the following tax rate at the time of payment.

       

      　　　　　　　　　　　　　　　　　　　　　　　　　　　

       

      Source: Japan Bank for International Cooperation "Investment Environment in Laos"

      For the amount of withholding income tax the payment must be done to tax authorities within 10 days from the date of income.
      Also, with regard to the withholding tax amount, it can be deducted from the income tax amount  of the recipient who obtains the income.

    • Profit tax

      Profit tax is a tax  levied on earning income of individuals or corporations as a consideration  of business such as  manufacture and sale of goods and service providing. Here, we will explain you of it based on the case of a corporation (Article 30 of taxation law of 2005).

      ■ Taxpayer
      The professional tax taxpayer means all corporations established under the laws of Laos y and foreign laws (hereinafter referred to as "foreign corporations").also regarded as the corporation  whose operation is domestically conducted in Laos. Also, Even if  you perform a business on an individual basis, you will be taxpayers of profit tax. With these categories, the range of taxable income  will differ (Article 31 of  Tax Law of 2005).

       

      Taxable year
      The tax year for profit tax is the calendar year from January 1 to January 31 (Article 46 of Tax Law of 2005).

      ■ Calculation of taxable income
      Taxable income is calculated by deducting the amount of all deductible items from the amount of all gross profits related to the business held during the business year.

      [Amount of profit ]
      In the calculation of the profit tax, the following items are included in gross profit.

      · Income from agriculture or forestry
      · Business income related to industrial products or crafts
      · Income from mining natural resources
      · Income from import / export sales
      · Income from wholesale or retail trade
      · Income from  service providing(logging, mining, transport, postal, communication, construction, repair, real estate development, casino, lottery, art, entertainment, sports, surrogacy, mediation, projects of Laos’ investment, and loan of foreign capital, etc)

       

      ［Amount of deductible]
      The following expenses are included in the amount of deductible for the calculation of profit tax ( Paragraph 1of Article 37 of tax law of 2005).

       origin cost of sales
       Utilities, communications, advertising, announcement
      Travel expenses and entertainment expenses ( 0.4% of annual net sales is a maximum limit)
      Employee’s salary, welfare expense
      · Service fee, interest expense, remittance charge
      · Rent  incurred for from rental for business purposes
      · Insurance fee
      · Expenditures for other business purposes

      Depreciation of fixed assets
      Regarding the depreciation of fixed assets, deductibility is allowed to calculate to the amount up to the limit amount of depreciation and amortization stipulated by the standards of tax law(Paragraph 2 of Article 37oftax law of 2005).the maximum amount of depreciation and amortization is calculated by the straight-line method; assuming the remained amount as zero and basing on depreciation rate (useful life) according to the type of asset.

       

       

      [Intangible fixed assets]
      For intangible fixed assets, the deferral of the establishment and opening costs is permitted and is amortized over two years. These amortization expenses are allowed to be included in the amount of deductible expenses.

      [ Sum of various provisions]
      According to the accounting standards of Laos, it is not permitted to sum various provisions, but tax law stipulated that a certain amount of allowance for accounts receivable and inventory can be included in the amount of loss. However, in practice, there are very few cases where the loss inclusion of the sum amount of provisions is permitted.

      [Expenses  excluded from deductible amount]
      The following costs are not allowed to be included in the amount of deductible (Article 38 of  Tax Law of 2005).

      · Expenses indirectly related to business (entertainment expenses such as golf, dance, sports and other entertainment)
      • Profit tax
      · The salary paid with the partnership to the other partner, salary paid to the individual owner
      · Interest  payment on  loan by shareholders
      · Fine, etc.
      · Cost of donation, aid, gifts etc.

      [Carry-over losses]
      Tax loss (loss amount) can offset against income within  the business year. For the amount of loss that could not be offset, it is possible to carry over for three years.

      ■ Tax calculation
      The tax rate of the profit tax depends on whether it  would be paid by an individual business owner or a corporation.

      [Individual business owner]
      A progressive tax rate from 0 to 24% is applied to individual business owners.
      ※ From January 2012, the maximum tax rate was reduced from 35% to 248%.

      [ Corporation ]
      For corporations, a flat rate of 24% is applied.
      ※ From 2013,  the maximum was lowered from 35% to 24%

       You also calculate taxable income by using the  following rate of deemed profit   if you are a small individual business  owner or your company is corporation that does not have a regular accounting book. Then,  you can calculate the profit tax by applying the tax rate of 24% to the calculated amount of deemed profit.


      　 

      ■ Minimum taxation system
      A taxpayer is obliged to pay the minimum tax even if the net asset is regarded as loss without profit.
      [Exemption] The payment of tax is exempted under these cases  (Article 590 of taxation law of 2005,).

      · Based on the Investment Promotion  Law, foreign investors  while the exemption period of profit tax
      · Based on the Domestic Investment Promotion Law,  Laotian investors  while the exemption period of profit tax
      · In the case that you  take an accounting auditor’s examination

      [Tax rate]
      There are two tax kinds of rates  set by the type of industry (Article 51 of Tax Law of 2005). Sales profits can be set as the taxable standard, but sales tax can be excluded.

       

      ■Notification and Payment

      As to the notification of profit tax, taxpayer has to notify a tax return to the tax by the date of 10th March every year(Article 52 of tax law of 2005). The direction of tax return is the tax authority concerned in the competent area of your company’s location. Also, there is no any the regional tax in Laos but all kinds of taxes are administrated and levied by the national government. Therefore, even though you have several offices nationwide in Laos, you have to apply it to one authority. As a result, the planned tax payment should be conducted quarterly a year; each deadline is every date of 10th of April, July and October. Its amount would be determined by calculation of with the methods based on the total assets of previous year or the planned profit.

    • Value-added tax

      Outline of VAT

      The Laotian government introduced Value Added Tax (VAT) from April 2010.
      At that time Laos  had aimed for joining the association of WTO(officially joining in 2013) but Laos suppress the  decline of ax revenue due to the reduction of tariff rate accompanying this join of WTO, then  introduce VAT to maintain the stability of tax revenue..
      VAT is a tax that is subject to added value in Laos. It is similar to Japanese consumption tax and has the following characteristic points.
      (Article 2 of VAT law of 2006).

      · Indirect tax imposed on the consumption of goods, goods, services
      · The one who bear tax burden is the ultimate consumer

       

       

      ■ Taxpayer
      VAT's taxpayer is a person under  either of the following descriptions (Article 13 of the Value Added Tax Act of 2006).

      · Companies with annual sales of over 400 million kips
      · Person who imports goods, products and services regardless of purpose or frequency in Laos
      · Persons who are non-residents in Laos or those who do not register as taxpayer  but who sell goods and products and provide services in Laos

      ■ Transaction of VAT exemption
      VAT is taxed on acts such as sales, providing service, production, import transactions in Laos, but from the viewpoint of social policy as well as things whose particularity is not met with the property of VAT, The bellowing 15 items and services  are excluded from the subject of VAT  and is regarded as a non taxable transaction.
       Please note of these following main examples (Article 10 of the Value Added Tax Law of 2006).

       

       

      · Raw agricultural products and crafts by farmers or agricultural cooperative associations
      · Seeds of agricultural crops, livestock for breeding, insecticides, vaccines, fertilizers
      · Import of items such as raw material, equipment, and chemical products that it’s difficult to produce domestically for the usage of scientific research and examination at Laotian government and related organizations.
      · Import of gold which is necessary for issuing money in Laos
      · Imports and activities related to revenue stamps and stamps
      · Import of aircraft and aircraft related equipment, fuel, products related to international aviation, etc.
      · Export and sale of goods to Laos diplomats, foreign embassies, international organizations approved by Ministry of Foreign Affairs of Laos
      · Imports of goods but no commercial objective for diplomats, public officials, students who  live abroad for more than 3 months, (for example the automobiles are not included)
      · Production and sale of approved school’s textbooks, guidance materials for teachers, newspapers, government publications, radio and television programs for public relations by the government
      · Educational activities such as nursery school, kindergarten, elementary school, junior high school, university, vocational training school
      · Banking, financial institutions and health insurance, life insurance, livestock, insurance industry for farmland
      · Inspection, cure treatment, diagnosis, traditional medicine, organ transplantation, medial activity  for medical equipment and products for patients and disabled persons

      ・Firefighter’s car, ambulance, vichleses for repairment and vichleses for television and radio for the purpose of national protection and the security of the public.

      ・The supply of material products for the institution concerned, based on the contract and agreement between Laos and foreign countries

       

      ■ Taxable standard amount

      VAT taxable standard amount is deemed as the following classification(Article 17 of Valued Added Tax law of 2006).

      ■ Tax rate
      The legal tax rate of VAT is stipulated as follow according to the classification of transactions of taxable subjects (Article VI of 2006, Article 19).

       

      The tax rate of VAT is in principal 10%, but depending on export transaction of products, goods or service it would be zero taxable transaction(tariff exempted transaction). In this case VAT is not going to be imposed on ultimate consumer in the transaction outside of Laos. For the importer side, it is common that VAT is levied at the time of importing custom, which means the cause of double taxation and possibly damages international competitiveness of exported products.

      Therefore, in order to apply for zero rate, each company must properly save documents that their products were transported abroad (the documents concerning to exporting custom clearance).

       

      The calculation of tax amount

      If you need to take the costs which are equivalent to products and services from your customers, you must withhold sale VAT, If you pay its cost, you have to pay purchase VAT.

       

      Sale VAT

      Sale VAT is the tax imposed on the purchase price of sale and service. It is total amount described on VAT invoice (Article 3 and 11 of Valued Added Tax law of 2006).

       

      Purchase VAT

      The total amount described on VAT invoice when you pay the price of service in the taxable transaction and service (Article 3 and 11 of Valued Added Tax law of 2006). Also, a calculation of VAT amount is to deduct the paid VAT from the deposited VAT, which concludes the total amount of VAT that you should pay with TAX deduction method.

       

       

      ■Notification and Payment

      Taxpayers of VAT shall notify a tax return form to the tax authorities concerned by the date 15th of the following month after VAT was incurred and pay the tax amount even whether they have VAT that they shall pay or not (Article 33 of Value Added Tax law of 2006)

       

      ■Return procedure of VAT

      In the result of the deduction of purchase VAT from sale VAT of the month, there is any unexempted amount in the following cases you may obtain tax return of purchase VAT that you might not exempt(Article 42 of Valued Added Tax law of 2006).

       

      ・Stipulated in article 10 of Value Added Tax law, “purchase VAT” incurred by purchase of  goods, products and services including exporting stuffs but excluding natural woods and minerals deemed by the government

      ・VAT that you paid more than actual amount or can’t perfectly offset.

       

      In regard with VAT you may receive tax return of VAT at the time of merging, spirit and bankruptcy of corporations (Article 8 of Value Added Tax law of 2006). Only portioned amount incurred by exporting is returned in the business which you obtain any profits from the domestic sale and exporting sale deemed by Value Added Tax and other laws and might not offset its VAT (Article 22 of Value Added Tax law of 2005).

    • Other tax items

       

      ■ Excise Tax
      Excise tax is  levied when certain items are produced or imported from overseas. The subjected item of  excise tax and its applicable tax rates  are as follows (2005 Tax Law Article 28).

       

      　In the case of goods produced domestically in Laos, you have to notify  / pay excise tax by the date 15th of the following month  after the month the producers sold  their goods (Tax Law 29 of 2005).
      When importing taxable goods of excise tax, you have to pay this tax at the time of import clearance.

      ■ Import and export duties
      Custom Duty Custom duty is subjected to Custom duty law, whose tax rate  is from 5% to 40% if depending on each item. The tariff rate is determined for each item in according to HS code * classification. Prior to join of Laos to WTO tariffs are planned to be gradually revised  with the WTO guidelines. Therefore, regarding tariff rates, you always need to check the latest information. In addition, foreign companies can  take various preferential treatments at the time of importing and exporting, so it is necessary to confirm also these provisions together.
      * HS code is established for the purpose of unifying the names and classifications of international trade commodities      　as "Harmonized Commodity Description and Coding System" (a unified system of the name and classification of goods), It is the code with 6 numbers.

       

      ■ Environmental Tax (Environmental Tax)
      Environmental tax is imposed on individuals or organizations that conduct businesses that affect ecosystems and human health conditions. Although the introduction was decided in 2011, the specific tax rate is not defined even now, and the environmental tax is not       incurred until these are decided. I

      ■Lump-sum Tax
      Lump sun tax is imposed on small and medium enterprises that are not registered in VAT system, and is considered as part of corporate tax. A progressive tax rate from 3 to 7% is applied depending on business contents and sales.
      　　　　　　　　　　　　　　　　　　　　　　　　　　　　　
      Source: New Tax Law 2012 56
       

    • Other

      [1] Investment in Lao 2009/KPMG

      [2] Laos PDR tax advice/DFDL Mekong

      [3] Investment guides collection 2011-2012 EDITION/ DFDL Mekong