Investment under the Lao PDR Amended Law on Investment Promotion

The Lao People’s Democratic Republic’s (“Lao PDR”) amended Law on Investment Promotion (the “Law”) recently came into force on 19 April 2017. The Law sets out some new and amended articles regarding promoted business sectors and investment incentives, forms and types of investment, and investment management mechanisms that aim to better facilitate company incorporation and improve investment throughout the country.

 

  1. Changes to Minimum Registered Capital

The Ministry of Industry and Commerce (“MOIC”) recently released a Notification (No. 2633/MOIC dated 7 November 2017) (the “Notification”) regarding the abolishment of the minimum registered capital requirement for foreign investors in general business companies. This follows the enactment of the amended Law, which omitted the minimum capital requirement for general business companies.

While no implementing guidelines have been released, we understand that foreign-owned general business companies will no longer be required to meet the current standard minimum registered capital requirement of one billion kip. Instead, companies will be required to meet a certain minimum registered capital threshold nominated by the MOIC having regard to consideration of the individual proposed Lao-registered entity.

Current industry-specific minimum registered capital requirements that are set out in specific laws and regulations are not affected by the Notification.

We have yet to see how the above will be implemented by authorities and will provide further detail as it becomes available.

 

  1. Promoted business sectors with investment incentives

Investment incentives under the Law (the “Incentives”) with respect to exemptions on profit tax (3-15 years) and rent/concession fee exemptions (5-15 years) will be offered to investors based on whether they invest in a promoted business sector and the economic status of the zone in which they invest as determined by the government of Lao PDR from time-to-time. Besides the Incentives, investors also enjoy import tariff and value-added tax exemptions in cases in which they:

  • import equipment unable to be sourced or produced in Lao PDR to form fixed property, or machinery/vehicles for direct use in manufacturing;
  • import raw materials, equipment or components used in production of goods for export; and,
  • utilize local raw materials (excluding natural resources) to manufacture finished and semi-finished products for export.

Existing companies that meet the eligibility requirements and are not already receiving the Incentives under the Law may apply for them. While the deadline for the application to receive the Incentives lapsed on 17 August 2017, we have been informed that the One-Stop Service Office (the “OSSO”) of the Ministry of Planning and Investment will still receive and consider such applications on a case-by-case basis.

Companies wishing to claim the Incentives must fulfil the following requirements and conduct commercial operations in accordance with at least one of the listed activities set out below:

  • the investment value is at least LAK 1.2 billion (approximately US$150,000);
  • at least 30 Lao national technical staff are employed by the company on a long-term basis; or
  • at least 50 Lao nationals are hired on contracts of at least 1-year duration.

While a detailed list of commercial activities which, if conducted, will deem a company eligible to receive promotional incentives has yet to be released by the government, companies conducting the following activities will be eligible to claim the Incentives:

  • Activities that utilise modern technology, scientific analysis/research, research and development, innovation, environmentally friendly practices, and sustainable use of natural resources and energy;
  • Organic agriculture, animal and plant breeding, industrial plantations, forestry development, protection of the natural environment and biodiversity, rural development and poverty alleviation support activities;
  • Environmentally friendly industrial processing of agricultural products, and industrial production of handicrafts uniquely related to Lao national heritage;
  • Activities that develop the historical, cultural and eco-tourism industries in an environmentally friendly manner;
  • Education, sports and gymnastics, human resource development, skill development, vocational training centers or institutions, and production of educational and sports equipment;
  • Building of modern hospitals, pharmaceutical and medical equipment factories, and production of, and treatment by, herbal medicines;
  • Servicing and development of public infrastructure to resolve road traffic issues in cities and high-density housing areas, infrastructure building for agricultural and industrial production, goods transportation, national transport networks, and transit services;
  • Banks and microfinance institutions with policies aimed at alleviating poverty and supporting communities who are unable to access existing banks;
  • Modern shopping centers promoting domestic products and internationally well-known brands, exhibition centers and market fairs of industrial, handcrafted and agricultural domestic products.

 

  1. Investment forms and types and management authorities

Investors can choose any of the following investment forms as set forth under the Law, subject to any additional requirements:

  • 100% foreign or Lao owned company;
  • joint venture between foreign and Lao investors;
  • joint business investment by contract;
  • joint venture company between state-owned and private enterprises;
  • joint venture agreement between the government of Lao PDR and private investors.

Restrictions for foreign investors (minimum registered capital, minimum shareholding requirements, corporate governance, etc.) to any of the above forms of investment are specified under respective relevant laws and regulations and will depend on the commercial activities a company intends to undertake.

The Law provides that businesses can invest in two types of activities:

  • “general investment activities” and
  • “concession investment activities”.

General investment activities

General investment activities are divided into two categories in the Law: ‘activities in the negative list’ and ‘activities outside the negative list.’

The authorities under the Ministry of Planning and Investment manage the activities in the negative list, while the authorities under the MOIC administer the activities outside the negative list. For activities outside the negative list which fall in the promoted business sectors discussed above, investors can apply for the Incentives with the OSSO after the successful registration of their Lao entity.

The registered capital for general investment activities is based on the business activities of the relevant company, with at least 30% of the total registered capital needing to be paid up-front within 90 days of the date of issue of the investment licence. The remaining balance must be paid within 1 year or a period otherwise set out in specific regulations enacted by the authorities governing the proposed activities of the relevant company. The capital contribution can be made in cash and in-kind and requires a certification of the capital importation from the Bank of Lao PDR for all capital brought in from outside of Lao PDR.

The investment term for general business activities is unlimited unless otherwise stated in the relevant industry-specific regulations.

Concession investment activities

Concession investments comprise of the following main activities:

  • Activities requiring a concession for use of government-owned land;
  • Development of Special Economic Zones and ‘Industrial Processing for Export’ zones;
  • Mining;
  • Development of energy resources; and
  • Airlines and telecommunications.

For concession investment activities, the minimum registered capital must be at least 30% of the total capital. The minimum paid up registered capital is based on the investment value in which 1% to 3% of the registered capital must be paid within 90 days of the date of issue of a company’s investment licence with the remaining balance paid within 2 years. The registered capital shall be made up of assets the value of which shall not be less than the registered capital during the entire period of business operation.

The investment term for a concession project varies depending on the type, scale, value, conditions and feasibility studies of the project with a maximum possible term of 50 years. The government, the National Assembly or the Provincial People’s Assembly may allow investors to apply for an extension of their concession investment term on a case-by-case basis.

If you would like more information about the Investment Promotion Law or investing in Lao PDR please contact the Arion Legal team at enquiries@arionlegal.com to find out how we can help.