The amended tax law no.05/NA, dated 20 December 2011, is scheduled to be implemented in the Lao PDR on 1 October 2012

The Tax Law 2005 was amended and replaced by the 2011 version and adopted by the 2nd Ordinary Session of the National Assembly (7th legislative) of the Lao PDR on 20 December 2011 and shall become effective on 1 October 2012. Under the Tax Law 2011, the taxation system in Laos is still comprised of direct and indirect taxes. However, the current amendment provides new tax categories including small business tax, environment tax, official fees and technical service fees.

Under the current amendment, the tax categories are divided into two categories:

• Direct taxes, which include profit tax, income tax, small business tax, environment
  tax, official fees, and technical service fees; and
• Indirect taxes, which are value added tax and excise tax.

Definition and rate for each type of tax:

Direct taxes are taxes collected from individuals, legal entities and organizations who have income in the Lao PDR or who carry out business activities in Laos or in foreign countries.

• Profit tax: Profit tax is a direct tax collected on the annual net profit of business operations of a legal entity or an individual of investment activity in a one year period. This tax is collected from the annual profits of individuals and entities that carry out business in the Lao PDR and also from persons who generate income operating business operations outside the Lao PDR.

• Rate: In general, 24% tax is applied for all national and foreign legal entities; 26% applied for operating business in production, import and selling of tobacco; and 0%-24% applied for sole-trade enterprises and freelancers based on a basic accounting system (Article 29 of the Tax Law 2011).

• Income tax: Income tax is a direct tax collected on the income of an individual or legal entity from general income as defined by the Tax Law.

• An individual who resides in the Lao PDR and who works and generates income aboard must declare and pay individual income tax in the Lao PRD if such person is exempt from having to pay income tax aboard.
• Foreign workers in the Lao PDR who receive salaries in the Lao PDR or aboard must pay income tax in the Lao PDR unless specific provisions defined on the Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Tax Income and/or defined on the inter-governmental Investment Agreement with such investor through adoption of the National Assembly of the Lao PDR designate otherwise.
• Article 45 of the Tax Law 2011 provides the operating activities required to be declared for income tax payment.
• Rate: An individual who has an income of more than one million Lao Kips (1,000,000 LAK) under the law is subject to pay income tax.

• Small business tax (new): The small business tax is a newly formed direct tax that is to be collected annually on individuals and legal entities that conduct the business activities of producing, trading and service for small and medium sized enterprises that are not subject to value added tax. This means that such amount of small business tax shall be determined and paid under contract of the small business tax made between the tax officer and the taxpayer.

• Rate: The basic calculation of the small business tax is the annual income of an individual or legal entity multiplied by the small business tax ratio as defined on the rate table (Article 56 of the Tax Law).
• Under Article 56 of the Tax Law, an enterprise with an annual business income not more than 12,000,001 LAK shall be exempt from paying the small business tax.

• Environment tax (new): The environment tax is a newly formed direct tax that is collected on individuals, legal entities and organizations that are permitted to conduct the business activity of production, importation or utilization of the natural resources in the Lao PDR where such activities may pollute the environment, and damage the health and life of people, animals, plants and the balance of the ecological system.

• The environment tax under the Tax Law 2011 applies to all national and foreign individuals, legal entities and organizations. Payment of the environment tax is to be used to ensure healing, treating or eliminating pollution and waste.
• Rate: Specific regulations shall determine the rate of environment tax, exemptions (if any), the modality of calculation, and the fixed rate in regard to each type of activity.

• Official fee and technical service fee (new): Official fees are fees collected on all individuals, legal entities and organizations permitted to operate in connection with commerce purposes in order to issue certificates and permissions. Payment of the official fees is conducted through the relevant governmental authorities.

• Technical service fees are a direct obligation of the technical service of the relevant government authorities collected on all individuals, legal entities and organizations permitted to operate in connection with commerce purposes.
• Rate: The rate and its specific modalities of collection are defined in the Presidential Decree on Fees and Service Fees no.03/PS, and other relevant regulations issued from time to time.
• Indirect taxes are collected on the consummation of goods and services in general through persons who spend money or purchase goods within the Lao PDR. Indirect taxes include value added tax and excise tax.

• Value added tax: Value added tax is an indirect tax collected on the value added proportion of goods and services occurring from all processes of production, distribution, service supply to consumption, etc; and is also collected on the value of goods and services imported into the Lao PDR.

• The Value Added Tax Law no.04/NA was adopted on 26 December 2006 replacing the business turnover tax that was defined by the Tax Law 2005. The Value Added Tax Law 2006 has been in force since 1 January 2010.
• Rate: Value added tax is currently levied at 10% with exemptions provided in Article 10 of the Value Added Tax Law.

• Excise tax: The excise tax is an indirect tax collected from the consumption of goods and certain services as defined by tax law.

• Rate: Exercise taxes of 5%-80% are applied depending on the type of goods and certain services as defined in the rate table (Article 20 of the Tax Law 2011).

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

Mr. Phanthasak Mingnakhone, Associate
Email: phanthasak@laopremier.com