Promulgation of the Agreement on Wholesale and Retail Business No. 1005/IC.DT, dated 22 May 2015

The Ministry of Industry and Commerce has approved the promulgation of the Agreement on Wholesale and Retail Business No. 1005/IC.DT, dated 22 May 2015 (the “Agreement on Wholesale and Retail Business”) which was made official by publication in the Lao Official Gazette on 24 June 2015. The major changes announced by this agreement are that foreigners are now allowed to invest in the wholesale and retail business under certain conditions. The Agreement on Wholesale and Retail Business is set to attract many foreign distributors to establish the wholesale and retail business in the Lao PDR, including automobile distributors. This newsletter summarizes the significant points, procedures and timeframes of the automobile distribution services business in regard to the relevant laws, specifically on the Agreement on Wholesale and Retail Business.

In past years, foreign investors interested in investing in the Lao PDR for most types of businesses in relation to public infrastructure development were unable to do so given the Lao PDR’s government policy of investment promotion being reserved only for people holding Laotian nationality. Pursuant to the prior Agreement on Wholesale and Retail Business No. 0977/IC.DT, dated 18 May 2012, foreign investors were only allowed to carry out the retail business in the Lao PDR through the following channels:

1. Through Laotian distributor(s);
2. Investing or participating in a joint venture to build a modern, new-style Trade Centre to allow other business entities to make their reservation and to conduct their trading activities there; or

Establishing a factory to manufacture and distribute goods they have produced under strict restriction not to distribute other goods which have not been produced themselves under any circumstance.

Legal terms and conditions of automobile distribution services in the Lao PDR

Distribution of Cars in the Lao PDR No. 0075/IC.DIE, dated 13 January 2012 (the “Agreement on Approval Procedures for the Importation and Distribution of Cars in the Lao PDR”), individuals, entities or any establishments, either domestic or foreign, may import cars into the Lao PDR by complying with the relevant rules and regulations. In this regard, there are not legal provisions that expressly prohibit or restrict the engagement of such business by foreign investors.

However, in order to engage or invest in the importation of cars business, it is provided by the Agreement on Approval Procedures for the Importation and Distribution of Cars in the Lao PDR that a certification of approval or import license (the “Import License”) from the Department of Import and Export, Ministry of Industry and Commerce (the “DIE”) is required. In regard to the issuance of the Import License, the relevant officials of the DIE informed that they will also consider the objective of the importation. Where the cars are intended to be imported for distribution within the country, the investor must also comply with relevant rules and regulations concerning the investment in the distribution of cars business.

According to the Agreement on Approval Procedures for the Importation and Distribution of Cars in the Lao PDR, it is provided that only an enterprise registered under the laws of the Lao PDR may distribute cars within the country.

In order to engage in the distribution of cars within the Lao PDR, said enterprise must fulfill the following conditions:

1. Being a distributor of the cars’ manufacturer or being a branch of the same;
2. Having showrooms or shops for the selling of cars; and
3. Having after sale service centers.

In addition, the distribution of cars is also subject to the Agreement on Wholesale and Retail Business which governs mainly the ratio of foreign shareholders allowed investing in the wholesale and retail business.

However, nowadays, wholesale and retail business is not reserved for Laotian anymore. It currently allows foreigners to invest in the wholesale and retail business under the following conditions:

1. Foreign investors shall establish an entity and operate the wholesale and retail business in compliance with the Agreement on Trade Centre or Shopping Mall promulgated by the Ministry of Industry and Commerce.

Note that such agreement has not yet been enforced. We have been informed by relevant officials of the Ministry of Industry and Commerce that such agreement is still under the studying and drafting stage in order to be enforced respectively;

2. The place of business must be located in a trade center, shopping mall or other venue as approved by the government. According to the Letter on Clarification of the Agreement on Wholesale and Retail Business No. 0611/DT.MTD, dated 16 July 2015, details of the venue approved by the government shall be governed by a specific regulation to be enforced respectively;
3. Having a minimum registered capital of 4,000,000,000 LAK (approximately 500,000 USD); and
4. The shareholding ratio of foreign investors allowed in the business entities operating wholesale and retail business depends on the amount of the registered capital as follows:

• In case that the registered capital is less than 10,000,000,000 LAK (approximately 1,250,000 USD) but not less than 4,000,000,000 LAK (approximately 500,000 USD), foreign investors may hold shares of no more than 50% of the total shares;
• In case that the registered capital is less than 20,000,000,000 LAK (approximately 2,500,000 USD) but not less than 10,000,000,000 LAK (approximately 1,250,000 USD), foreign investors may hold shares of no more than 70% of the total shares; and
• In case that the registered capital is 20,000,000,000 LAK (approximately 2,500,000 USD) or more, the foreign investors are allowed to hold 100% shares in the entity.

After considering the relevant provisions concerning the importation and distribution of cars business above, it can be concluded that it is possible at a certain level for foreign investors to conduct and engage in the importation and distribution of cars business in the Lao PDR as the retail business is no longer restricted to Laotian people. However, so long as the Agreement on Trade Centre or Shopping Mall and the specific regulations on the venue approved by the government to set up a place

of retail business have not been promulgated, it leaves room for officers’ discretion, which results in an uncertainty for approval to engage in said business by foreign investors.

Corporate Establishment

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

Ms. Arpon Tunjumras, Advisor
Email: arpon@siampremier.com