Key changes of Lao’s Amended Investment Promotion Law

On 19 April 2017, Lao’s amended Investment Promotion Law (“IPL”) came into effect. The IPL aims to improve market access for foreign investors by improving clarity and ease of doing business in the country. Relevant regulations and procedures will also be revised by the Lao government consequential to the IPL in order to accelerate the investment sector.

Key changes introduced by the IPL:

1. Barriers such as high capital requirements have been lifted

Previously, the minimum registered capital is one billion kip (approximately USD 125,000). Under the IPL, there is no minimum registered capital stipulated for general investments as it will be based on the business activity of each sector. The minimum paid up registered capital should be at least 30% of the total registered capital of the enterprise which is paid up within 90 days from the date of the investment license with the remaining balance within one year.

For concession investments, the minimum registered capital must not be less than 30% of the total capital. Investors will have the discretion to determine what the total capital is. With regard to the percentages for minimum paid up registered capital, it will be based on the value of the registered capital i.e. from 1% to 3% of the registered capital. The minimum paid up registered capital should be paid up within 90 days from the date of the investment license and the remaining balance is within two years.

2. Incentives offered to attract investment

Incentives have been offered where there will be an exemption from profit tax as follows:

• over 10 years for businesses that invest and operate in Zone 1 e. in hardship communities where infrastructure development is less favourable
• an additional 5 years for businesses that invest and operate in promoted sectors whose businesses are located in hardship zones. This brings the total of up to 15 years of exemption of profit tax. Promoted sectors include, among others, human resource development, pharmaceutical factories, environmentally-friendly agri-product processing, modern hospitals and education
• 4 years for businesses that invests and operates in Zone 2 where infrastructure and facilities are developed and favourable while investment in promoted sectors will enjoy an additional 3 years bringing the total incentive to 7 years exemption from profit taxes.

Additionally, businesses can enjoy import tariff and value-added tax exemptions under the IPL where they:

• import vehicles and machinery as well as equipment that cannot be sourced in Laos for use in the businesses’ operations and are used directly in the production process
• import raw materials, equipment and spare parts for the production of goods to be exported
• are involved in businesses using non-natural resource raw materials sourced locally to produced finished and partially-finished goods for export.

3. Maximum investment period for new concession projects reduced to 50 years

Previously the maximum investment period for new concession projects were 99 years. Under the IPL, the investment period for a concession project varies depending on the type, scale and investment cost of the project with a maximum period to be set at 50 years.

The investment period, however, can be extended by the government, the National Assembly or the Provincial People’s Council thus investors may be allowed to apply for an extension of their concession period.

4. Central and provincial Investment Promotion and Management Committees to be established

Under the IPL, a central and provincial Investment Promotion and Management Committee will be established to oversee investment affairs by holding at least two meetings a month. The central committee will be chaired by the deputy prime minister and the provincial committees will be chaired by provincial governors.

5. A shorter timeline for the issuing of license for the establishment of a representative office

The timeline for the issuing of license for the establishment of a representative office has been shortened. Licenses now will be issued within 15 working days after the receipt of the application.

Please note that for existing companies that still receive benefits under the old law, they may still continue to do so until the agreement signed with the government expires. For existing companies that wish to receive benefits under the IPL, they may apply for such incentives under the IPL but they would need to obtain a confirmation from the government no later than 17 August 2017.

If you have any questions or require any additional information, please contact Aristotle David or Khamphaeng Phochanthilath or the ZICO Law partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.