Corporate tax in Laos

Summary  
Corporate Income Tax Rate (%) 24 (a)
Capital Gains Tax (%) – (b)
Branch Tax Rate (%) 24 (c)
Withholding Tax (%)(d)
Dividends
10
Interest 10
Royalties 5
Net Operating Losses (Years)  
Carryback 0
Carryforward 3

a) This tax is known as the “profit tax.” Tobacco businesses are subject to tax at a rate of 26%.

b) The tax law does not provide for the taxation of capital gains derived from the transfer of tangible assets. Income from the sale of shares is subject to income tax at a rate of 10%.

c) Lao income tax regulations do not contain a definition of a “permanent estab­lishment.” A foreign company may establish a branch only in certain sectors of the economy. Only a foreign bank, financial institution, insurance company or airline company may establish a branch in Laos.

d) These are withholding taxes that are imposed on Lao and foreign legal enti­ties and individuals.

Taxes on corporate income

Profit tax. Companies and individuals engaged in manufacturing, trading and services are subject to profit tax on their Lao-source income. Foreign companies deriving income from Laos or enter­ing into joint venture contracts with project owners in Laos are also subject to profit tax.

The accounts of a branch of a Lao company are consolidated with the accounts of the parent company for purposes of calculating profit tax.

Rates of profit tax. The standard rate of profit tax for business activities is 24%.

Companies in certain industries, such as mining, are taxed at dif­ferent rates, depending on their agreement with the government of Laos.

Foreign investors may be entitled to profit tax exemptions for certain periods, depending on the activities and location of the business.

Listed companies in Laos may be entitled to a reduced tax rate for a four-year period.

Lump Sum Tax. Lump Sum Tax applies to the income of indi­viduals and small and medium-sized businesses not registered for value-added tax (VAT) purposes.

Capital gains. The law is silent on the taxation of capital gains arising from the transfer of tangible assets. However, income derived from sales of securities is subject to a withholding tax of 10%.

Administration. The fiscal year in Laos is the calendar year.

For companies and individuals using the ad vanc ed or ordinary accounting system, profit tax must be declared and paid quarterly on 10 April, 10 July and 10 October with a final payment due on 10 March of the following year. The quarterly payments are based on the final tax liability of the preceding year or the pro­jected liability for the current year. Any excess payments may be credited against the final annual profit tax liability or future pro­fit tax liability.

For companies or individuals using the basic accounting system, profit tax is declared and paid based on their agreements with the government.

Dividends. A 10% withholding tax is imposed on dividends paid.

Foreign tax relief. Laos has entered into double tax treaties with several countries (see Section F).

Determination of taxable business income

General. The calculation used to determine the taxable income of companies and individuals subject to profit tax depends on wheth­er the taxpayers use the advanced, ordinary or basic ac counting system. Taxpayers that use the advanced or ordinary accounting system may determine taxable income using either of the follow­ing calculations:

  • The difference between the actual value of the assets at the close of the year and the value of those assets at the beginning of the year less capital contributed during the year plus personal draw­ings of the shareholders (this method is known as the “profit method”)
  • Gross income less total authorized deductions

Companies and individuals using the basic accounting system determine their taxable business income by deducting their total authorized expenses from gross income. Alternatively, they may declare their gross annual profit if the difference between gross income and expenses cannot be calculated. Gross annual profit is equal to the annual income multiplied by the profit ratio for each type of activity.

Taxable income consists of all income from available sources, such as the following:

  • Income from handicraft and agriculture
  • Income from the exploration of natural resources
  • Income from import and export business
  • Income from banking, insurance and financial activities
  • Income from tourism including hotels
  • Income from lottery, casino and sports activities
  • Income from the provision of general services

Deductions from gross income include the following:

  • General business expenses such as electricity, advertising, repair charges, salaries and wages, welfare and social security expens­es, rent, interest and insurance
  • Depreciation (see Depreciation)
  • Cost of travel, up to 0.6% of annual income
  • Cost of guest entertainment and telephone, up to 0.4% of annual income
  • Donations and support, up to 0.3% of annual income

Expenses not related to business activities are not deductible. Other nondeductible expenses include the following:

  • Profit tax
  • Interest paid to shareholders on capital contributions
  • Penalties or fines
  • Golf expenses, dancing expenses, gifts and awards
  • Reserves for risks and unexpected expenses

Inventories. The law does not prescribe a basis for the valuation of inventory. Inventory for a tax year is valued at the lower of cost or net realizable value.

Depreciation. Depreciation can be claimed based on the straight-line or declining-value method. In the year of acquisition or dis­posal, depreciation may be claimed for the portion of the asset that was put in use. The following are straight-line depreciation rates.

Assets Annual rate (%)
Intangible fixed assets 20 to 50
Buildings
Industrial 2 to 5
Commercial and residential 5 to 10
Plant and machinery 20
Motor vehicles 20
Office equipment 20
Software 50

Establishment expenses are expensed over two years.

Relief for losses. Losses can be carried forward for a period of three consecutive years. Losses may not be carried back.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
VAT applies to businesses with annual
revenues exceeding LAK400 million
(USD50,000) and businesses that
voluntarily register for VAT
Goods, materials and services 10
Production or importation of raw materials,
chemicals, machinery and equipment that
cannot be domestically produced and
exportation of finished goods or products
0
Tax on income from the lease of immovable
property; payable by the recipient each time
the income is received
10
Excise duty; on the import value of various
commodities
Fuel 5 to 25
Alcoholic drinks 50 to 70
Soft drinks and mineral water 5 to 10
Cigarettes and cigars 60
Perfume and cosmetics 20
Motorbikes 10 to 25
Cars 25 to 150
Motorboats 15
Electrical products (televisions, cameras and
musical instruments)
10
Refrigerators, washing machines and vacuum
cleaners
10
Sport related (for example, snooker, football
and any game cabinet)
20 to 30
Entertainment (nightclub, disco and karaoke) 60
Mobile phone and internet 10
Lottery and casino activities 25 to 80
Social Security contributions; imposed on
salaries of up to LAK2 million per month
Employee 5.5
Employer 6

Foreign-exchange controls

The Bank of Laos determines foreign-exchange controls. Foreign investors can freely repatriate their after-tax profits (including withholding tax on dividends) and capital to other countries, sub­ject to certain substantiation requirements.

The currency of Laos is the kip (LAK). Bank accounts may be held in other currencies.

Treaty withholding tax rates

 

.                           Dividends

.                                        %

Interest

%

Royalties

%

Brunei Darussalam 5/10 10 10
China 5 5/10 5/10
Korea (South) 5/10 10 5
Malaysia 5/10 10 10
Myanmar 5 10 10
Thailand 15 10/15 15
Vietnam 10 10 10
Non-treaty countries 10 10 5