Laos has issued important new guidelines on obtaining investment promotion incentives in the country. The Instructions on the Promotion of Investment Incentives concerning the State Land Rental and Concession Fee, which was published in the Lao Official Gazette on May 28, 2021, supplement the Law on Investment Promotion of 2016 by clarifying procedural requirements for general investment, obtaining an incentive certificate, activity-specific requirements, and zone categories for various districts.
The Law on Investment Promotion plays a key role in clarifying Laos’ approval process for investments and business activities. The law provides a list of promoted sectors that can receive certain incentives (e.g., profit tax holidays and exemption from state land rental or concession fees) if they fulfill the law’s general requirements. The incentives can last for 4 to 15 years, depending on the type of promoted activity and the zone in which it is located (i.e., zone 1 for remote areas, zone 2 for developed areas, and zone 3 for special economic zones). Additionally, the Law on Investment Promotion introduced the “incentive certificate,” which is issued upon request when an investment activity is approved for receiving promotion incentives.
However, the Law on Investment Promotion was considered to be very general, and these instructions represent the Lao authorities’ attempt to clarify the law by specifying the types of investment activities eligible for incentives, the procedure for requesting and obtaining an incentive certificate, and other requirements for businesses and investments to thrive in Laos.
According to the investment promotion instructions, legal entities must submit an application for an incentive certificate to the appropriate section of the Ministry of Planning and Investment (MPI), which will coordinate internally and with other governmental agencies, including the Ministry of Finance. If the activity is deemed eligible and all requirements are met, the authorities will issue the certificate within 30 working days in accordance with the following procedure:
According to the instructions, large investment projects that have signed a concession agreement with the Lao government, and are subject to a National Assembly resolution on incentives beyond those provided in the Law on Investment Promotion, do not have to request an incentive certificate.
A legal entity that receive an incentive certificate must implement the incentive-eligible activities from its certificate, comply with its sector’s laws and regulations, pay its taxes and other official fees, and report its activity every six months to the MPI, Ministry of Finance, and any other relevant governmental agencies.
The instructions provide that an initial warning will be issued to a legal entity that does not observe the country’s law and regulations. If it does not correct the wrongs in accordance with the warning within 45 working days, its tax incentives may be withdrawn.
The instructions group investment requirements into two categories—general and specific.
All legal entities seeking investment promotion incentives must fulfill the general investment requirements (termed “horizontal requirements” in the instructions). According to the instructions, an entity must invest LAK 1.2 billion (approx. USD 127,000) in one of the promoted sectors, or employ at least 30 Lao technical staff or at least 50 Lao workers with employment contracts of at least one year. In addition, entities must pay up their registered capital, comply with all applicable laws and regulations (including environmental requirements), and fulfill their tax obligations.
Additional specific requirements apply to 108 activities within the promoted sectors in the Law on Investment Promotion, a list of which are detailed in the instructions. The law’s promoted sectors are broad, each encompassing a range of business activities as follows:
The annex that contains the 108 activities mentioned above also contains the specific requirements for the activities that are subject to them. These are myriad and are often concerned with meeting domestic or international standards—for example:
As mentioned above, the Law on Investment Promotion offers different promotional incentives based on the location—or “zone”—of the activity, with zone 1 being remote areas with limited infrastructure, zone 2 for areas with better socioeconomic infrastructure to support investment, and zone 3 for special economic zones. The Law on Investment Promotion did not provide further guidance on which specific areas of the country were located in zone 1 or zone 2, and the recently issued instructions clarify this point by listing the districts that fall into each zone.
The instructions strengthen the Law on Investment Promotion by adding clarity and legal certainty to areas of the law that had formerly been left up to the discretion of local authorities. Now, however, the conditions and requirements are confirmed by the recent instructions and are made available to every investor in Laos. This movement toward regulatory consistency is another encouraging step taken by the Lao government to improve the country’s business climate and foster a more welcoming environment for foreign direct investment.