In line with the Government's commitment to attracting inward investment, the 1994 Foreign Investment Law simplified the tax system for foreign investors. This law has since been updated by a number of presidential decrees.
The Foreign Investment Law abolished an established system of tax incentives for foreign direct investment projects. However, a reduction is given when the investment is large or considered of national importance. In these cases, tax-free or investment promotion zones are created. Natural resources and energy generation projects have been subject to favourable treatment.
The Government imposes taxes on all persons or legal entities consuming goods or services, conducting business, performing independent professions and generating income in the Lao PDR.
There are several broad categories of tax, which are described in the promulgation of the Tax Law. These are:
• Turnover Tax;
• Personal Income Tax (PIT);
• Profit Tax (also called Company Income Tax);
• Social Security (to be implemented gradually);
• Minimum Tax;
• Charges and service fees;
• Other taxes.
In 1998, the Prime Minister’s Office issued decrees modifying the turnover tax, excise tax, minimum tax and income tax from leasing.
Enterprises pay one of the following two taxes, whichever produces the higher tax return:
• Minimum Tax, at a flat rate of 1% of gross profits;
• Profit Tax, based on net profit. The tax rate for all Lao business enterprises is fixed by the Tax Law at 35%; under the Foreign Investment Law, the rate for all foreign business enterprises is set at 20%. Joint venture companies need to negotiate with the FIMC to benefit from the foreign currency rte. (These rates may be modified according to the Company's business licence).
Most import duty rates are set at 5% or 10%. The full list of goods subject to import tax rates is in the first amendment of the Decree of the Prime Minister's Office dated 28 September 1998.
Administrative fees are at a rate of 5% ad valorem on equipment and materials.
Turnover tax is collected on imports and the sale of general imported or locally produced goods. In addition, general services, constituting the supply of labour to others against a service fee as compensation, are also subject to turnover tax.
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