Regulation Changes on Foreign Investments in Wholesale and Retail Businesses in the Lao PDR

The regulations on foreign investments in wholesale and retail businesses in the Lao PDR have been changed. Previously, the operation of wholesale and retail businesses in the Lao PDR by foreign investors was strictly controlled. Foreign investors were not permitted to engage in retail businesses while certain strict conditions were applied when investing in wholesale businesses. However, after 22 May 2015, these conditions were amended by the Decision on Wholesale and Retail Business No. 1005/MOIC (the “Decision”) with the intention to allow foreign investors to operate in both retail and wholesale business in the Lao PDR under certain conditions.

For a better understanding of this, a wholesale business is defined as a sale of goods as wholesale to individuals or entities for further production or for wholesale or retail sales. A retail business is a sale of goods in the last phase sold to individuals or entities for general consumption.

Foreign investors may now hold shares in companies engaging in both retail and wholesale businesses, subject to the following requirements:

1. Operation of a wholesale or retail business must be in compliance with the Decision on Shopping Centers and Department Stores issued by the Ministry of Industry and Commerce;
2. The operating venue in shopping centers or department stores or any place must be approved by the government;
3. The registered capital must not be less than 4 billion kip (approximately 494,000 USD); and
4. A maximum percentage of foreign investment is placed on the business depending on the registered capital of the company. The requirements are as follows:
• Foreign investors can hold 100% shares in the company if its registered capital is 20 billion kip (approximately 2,470,000 USD) or more; and
• Foreign investors can jointly invest with a Lao national(s) in a company which has a registered capital of less than 20 billion kip but not less than 4 billion kip under the following proportions:
• – Not more than 70% share if the registered capital is less than 20 billion kip but not less than 10 billion kip (approximately 1,235,000 USD); and
• – Not more than 50% share if the registered capital is less than 10 billion kip but not less than 4 billion kip.

In the case the registered capital of the company is less than 4 billion kip, the business is strictly required to be operated by Lao nationals only.

For clarification, ‘foreign investor’ is not defined in the Decision. But considering Notification Re: List of Conditional Business for Foreign Investor No. 1327/MOIC.DTD, dated 13 July 2015 (the “Notification”), ‘foreign investor’ refers to any person who is not a Lao citizen under the Law on Nationality or any entity which is registered outside the Lao PDR. However, a current practical interpretation of ‘foreign investor’ by officers is observably different from that which is stipulated in the Notification. In practice, entities are identified as foreign or Lao by considering the shareholding structure.

In order to establish the business of a proposed company with foreign investors and having the registered capital from 20 billion kip or more, the applicant must submit an application and the required materials together with supporting documents to the Ministry of Industry and Commerce. For other applications, including a company which has foreign investors but having a registered capital less than 20 billion kip and the company is 100% wholly owned by Lao nationals, the required documents must be submitted to the Division of Industry and Commerce.

For enterprises that are 100% foreign owned or are a joint venture with a Lao national(s) operating the wholesale and retail businesses before the Decision comes into effect, the businesses may continue but their shareholding structures are required to be amended to be in compliance with the Decision within the following period, otherwise such businesses will be subject to the relevant legal punishment:

• 3 years for the enterprise with a registered capital from 20 billion kip or more;
• 2 years for the enterprise with a registered capital less than 20 billion kip but not less than 10 billion kip; and
• 1 year for the enterprise with a registered capital less than 10 billion kip but not less than 4 billion kip.

Mr. Rawat Chomsri, Partner
Email: rawat@laopremier.com