INVESTMENT OVERVIEW LAO PDR

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1 Credit : Nasa, Visible Earth INVESTMENT OVERVIEW LAO PDR

2 Investment Overview First Legal and Tax Consultancy DFDL was established in People s Democratic Republic of Lao ( Lao PDR ) in 1994, as the first officially authorized foreign legal and tax consultancy. Licensed by the Lao authorities as legal and tax advisers, our firm is permitted to advise foreign investors and international organizations on all aspects of Lao law. Our foreign and Lao advisers are fully committed to providing international standard services coupled with an in-depth knowledge of the local environment. DFDL is pleased to set out below a brief overview of some of the key legal and tax considerations for foreign investors contemplating an investment in the Lao PDR. legal considerations Available Forms of Corporate Structures: Corporate structures which are available to investors in the Lao People s Democratic Republic ( Lao PDR ) include representative offices, limited liability companies and branch offices. Limited liability companies can be owned 100% by foreign investors (depending on the sector), however a foreign investor may not own less than 10% of the equity in a limited liability company. Branch offices were previously only available in limited sectors (banking, insurance, airlines, etc.) however, that restriction appears to no longer apply under the Investment Promotion Law of 2009 ( Investment Law ) (subject to clarification in upcoming implementing regulations). A representative office has a limited lifespan of one (1) year, which can be renewed twice for a total of three (3) years. Representative offices are not permitted to conduct investment activities and hence are generally used to conduct feasibility studies/market research. Additional forms (including partnerships and business cooperation by contract ) are permitted, but these forms are rarely used in practice. Types of Investment Activities: There are four general types of investment activities in Laos: General Activities, which are general business activities excluding businesses which are on the negative list under the Investment Law (the Negative List ) (the Government of Lao ( GoL ) is yet to issue the Negative List). Concession Activities relating to concessions in respect of land, minerals, electric power, airlines, railways, telecommunications, insurance and financial institutions. Bond requirements can apply, depending on the relevant investment sector. Special Activities, including universities, vocational schools, kindergarten schools. Development activities for Special and Specific Economic Zones ( SEZ ). Current SEZs include Savan-Seno SEZ (Savannakhet), Boten SEZ (Luangnamtha), Phou Kieu Nakhon SEZ (Khammouan), Sarmliem Den Kham SEZ (Bokeo), Non Thong Industrial Park (Vientiane). Favourable investment incentives apply, as set out in specific regulations established for each zone.

3 Capital Requirements Minimum registered capital (equity) for foreign invested entities undertaking General Activities is one billion Kip (equal to approximately ~USD 125,000). There are no debt to equity ratio requirement for General Activities, however, for Concessionary Activities registered capital must not be less than 30% of Total Capital (which equals registered capital + long-term debt + retained earnings). The percentage of registered capital that must be paid up and the time for payments of capital depend upon the relevant business sector. During the period of business operations the value of an entity s assets must not be less than the amount of its registered capital. Restrictions for Investors Under the Investment Law, the GoL promotes the investment in all sectors, all activities, and all areas throughout the country. However, the GoL does not promote investment in areas and activities that are detrimental to national security, to the natural environment (at present and in the long-term), to the public health and to the national culture. The GoL has not yet issued the Negative List of investment sectors restricted to foreigners under the 2009 Law on Investment Promotion. Certain sectors are reserved for Lao citizens and entities under industry specific regulations, including (but not limited to) wholesale and retail sales and warehousing. Land Matters Foreigners generally cannot own land in Lao PDR and must hold land via a lease or concession. Maximum lease terms applicable to foreigners range from 30 years in respect of leases from individuals to 50 years for leases from the Government (concessions). Embassies and international organizations can lease land for up to 99 years. The above lease terms are extendable, with GoL approval. Specific limits apply in electric, mining and plantation sectors. Under the Investment Law, foreign investors with registered capital (equity) of not less than USD500,000 are stated to be allowed to hold land use rights (not exceeding 800 m2) for residential or business purposes, however this provision is not yet widely implemented. Financing Considerations Capital control provisions in Lao PDR prohibit individuals and legal entities operating in the Lao PDR from paying or receiving foreign exchange for the goods and services rendered to them or by them, or from settling debts in foreign exchange within the Lao PDR, without approval from the Bank of Lao PDR (the BoL ). Foreign exchange can be used to achieve certain objectives, including paying for imported goods, paying for importexport related services, repaying foreign debts in accordance with a loan agreement that has been approved by the BoL, and repatriating or transferring profits, dividends, capital, interest, or salaries by foreign investors to a third country, provided that such use is compliant with regulations issued by the BoL. All transactions must be performed through the Lao PDR banking system (and domestic bank accounts) unless BoL approval has been obtained for the use of offshore bank accounts. Exemptions from these capital control regulations have been granted on occasion by the National Assembly, or the National Assembly Standing Committee, in the case of large infrastructure and mining projects. Lao PDR Labor Law Requirements Labor Law requires foreign employers to give priority to Lao citizens when hiring staff. However, foreign employers are permitted to hire skilled or expert foreign personnel when necessary, and with approval from the relevant authority within certain parameters. Foreign workers may not represent more than 10% of the employer s total labor force in non-skilled work, and 20% in skilled work.

4 Tax considerations Tax Incentives for Investors Various investment incentives are available to investors in Lao PDR including tax holidays. Investment incentives are granted based on the activities of the investor and location of the proposed investment. Activities are divided into three (3) levels as follows: Level 1: Activities with top level promotion; Level 2: Activities with moderate level promotion; and Level 3: Activities with low level promotion. Locations are divided into three promoted zones as follows: Zone 1: Locations where socio-economic infrastructure is sub-standard and does not facilitate investments. These zones are mainly mountainous remote areas. These zones will be classified as top level of investment promotion; Zone 2: Zones with socio-economic that partially facilitates investments. These zones will be classified as intermediate level of investment promotion; Zone 3: Zones with good infrastructure to support investments. These zones will be classified as low level of investment promotion. The applicable tax holidays can range from 1 to 10 years. Investments in certain concessionary activities, including mining, telecom and hydro power can receive further tax resulting from negotiations with the Government of Lao PDR. The standard rate of profit tax for investors with no investment incentives is 28%. This rate will reduce to 24% with the implementation of the Amended Tax Law in October The standard rate of VAT is 10%. Tax Compliance Obligations Upon registering an investment in Lao PDR, investors will automatically be registered as taxpayers. Registered taxpayers are required to file the following tax returns: Monthly salary income tax return (by 15th of the following month) Monthly VAT return (by 15th of the following month) Quarterly profit tax return (by the 10th of April, the 10th of July, the 10th of October and the 10th of March of the following year) Annual profit tax return Withholding tax returns for dividends, interest and royalty payments with 10 days from the payment date Withholding taxes on payment to foreign services providers within 30 days. Failure for compliance would expose taxpayers to a risk of administrative penalties and interest charge on late payment at the rate of between 5% - 15% per month on the outstanding Profit Tax liability. The tax authorities have the right to perform tax audits as prescribed in the Tax Law. For purpose of tax audit the accounting documents and certifying documents should be kept for a period of ten years. Tax Planning and Other Tax Considerations Depending on the nature of the investment, investors can opt for various corporate structures with varying tax consequences including branches, limited company, representative office and business cooperation by contract. Profit repatriations from Lao PDR will generally be subject to withholding taxes. There are no transfer pricing regulations in the Lao PDR; however, the tax authorities are authorized to scrutinize transactions which are not on an arm s length basis. Lao PDR Tax Law has no thin capitalization rules and no antiavoidance provisions. The sale or transfer of shares in a Lao PDR entity is subject to capital gains tax at 10%. It may be tax efficient for both profit repatriation and capital gains tax planning to structure the investment in Lao PDR through a holding or intermediary company. Lao PDR has signed a number of Double Tax Agreements ( DTA ) with its regional neighbors including Thailand, China, Vietnam and Korea. Advance tax rulings are not available and tax disputes and generally resolved at a local level between the parties.

5 About DFDL DFDL was established in 1994 and is the first international law firm specializing in emerging markets with a pan-regional tax and legal expertise throughout the Mekong region (Cambodia, Lao PDR, Thailand, Myanmar, Vietnam), Singapore, Bangladesh and Indonesia. With a team of over 250 foreign and local lawyers, advisers and support staff working closely together within a network of 11 offices, we provide personalized and cost-effective legal, tax and consulting services and solutions with particular expertise in: Energy and Infrastructure, Corporate and Commercial, Taxation & Customs, M&A, Securities, Real Estate and English law governed transactions. Our clients are major international and Asian foreign investors participating in foreign direct investment in the Lao PDR, including large foreign and Asian financial institutions. We have been involved in most major projects in the Lao PDR for more than 10 years, including most large hydro-electricity and mining projects. Specialty services Described in Legal 500 as being very professional and offering excellent local experience and expertise, DFDL s attorneys and legal advisers have an outstanding reputation for offering personalized legal services covering a broad scope of legal issues. In order to better serve our clients business needs, DFDL s Lao PDR office is organized into distinct practice groups with experts in each field attending to every aspect of your business. Corporate & Commercial DFDL has developed a dynamic and active corporate and commercial practice in the Lao PDR from its comprehensive and varied client base to meet the growing demands of foreign companies investing in new projects and purchasing interests in local businesses. DFDL offers personalized service with a wealth of knowledge in international and Lao PDR corporate and commercial law issues. We have extensive experience in mergers and acquisitions; joint ventures; equity investments; securities; real estate; leasing; intellectual property; labor and employment; and insurance, among other matters. We often act as our clients general counsel in the Lao PDR. Project Finance & Infrastructure As the region s preeminent full service law firm, DFDL has a leading project finance and infrastructure practice in the Lao PDR. Our commitment is always to find a competitive edge for our clients through innovative financing techniques. DFDL takes a team approach with close relationships between corporate and tax lawyers who work together to satisfy your tax, security, regulatory and other objectives through the creation of tailored joint venture, partnership, lease and other financing forms. Taxation Due to increased interest in investment in the Mekong Region and the correlating demand for clear advice on complex cross border tax issues, in 2006 DFDL established a dedicated tax division. Our extensive experience in the Lao PDR gives us the ability to assist clients in identifying major tax issues affecting their investment locally and region wide, to provide strategies to minimize unnecessary adverse tax exposures and consequences.

6 It is head and shoulders above any law firm in Laos. It provides international standard advice like that you find in Hong Kong or the US. In Laos, the legal framework is constantly evolving and this firm is very good in advising you on how best to operate in this environment. (Chambers Asia 2012) CONTACT BRENNAN COLEMAN Managing Director DFDL Lao PDR JACK SHEEHAN Regional Director Tax & Customs Practice Group Brennan has practiced as a corporate and commercial lawyer for over 11 years in Australia, the United Kingdom, Lao PDR and in Cambodia. He has extensive experience in all areas of corporate and commercial practice with an emphasis on mergers and acquisitions, joint ventures, financings, private equity, public company listings and capital raisings, manufacturing agreements, licensing and distribution agreements, corporate advisory work and the provision of employment advice to employers. He holds Bachelor of Arts (Mass Comm) and Bachelor of Laws Degrees from Macquarie University, Sydney, Australia, a Diploma of Legal Practice from the College of Law, Sydney, and is a solicitor admitted to practice law in the Supreme Court of New South Wales, Australia. brennan.coleman@dfdl.com Jack is the Regional Director, Tax & Customs Practice Group. He has over twelve years experience in Europe and Asia and previously headed the tax team of a Big Four firm managing a team of tax specialists. Jack specializes in providing international tax planning and consulting, cross border tax advisory services, corporate restructuring and reorganization and tax compliance advice. Jack is a regular speaker on current taxation issues in the region and his speaking engagements include European Chamber of Commerce, Chinese Chamber of Commerce, Australian New Zealand Business Association, Lao Stock Exchange (LSX), Cambodian Stock Exchange (CSX) and various DFDL sponsored events throughout the region including Thailand, Singapore and Laos. Jack is a member of the Association of Chartered Certified Accountants in the United Kingdom. jack.sheehan@dfdl.com BANGLADESH DHAKA bangladesh@dfdl.com CAMBODIA PHNOM PENH cambodia@dfdl.com LAO PDR VIENTIANE laos@dfdl.com MYANMAR YANGON myanmar@dfdl.com THAILAND BANGKOK thailand@dfdl.com PHUKET phuket@dfdl.com SAMUI samui@dfdl.com Indonesia Jakarta indonesia@dfdl.com SINGAPORE SINGAPORE singapore@dfdl.com VIETNAM HANOI hanoi@dfdl.com HO CHI MINH CITY hcmc@dfdl.com