The Lao Government ‘slipped through’ a revised tax law recently (Amended Tax Law No. 70/NA, dated 15 December 2015), with the law set to take effect next week on 24 May 2016. But fear not: much of the revised law is similar to the law it replaces, the Tax Law (2011), with a few new inclusions, revisions and corrections.
That said, one glaring adjustment is the insertion of a new article on profit tax withholding for foreign entities deriving income from Laos. Under the soon-to-be-replaced Tax Law (2011), Lao payers had to refer to the old Tax Guidelines (2005) to obtain the rates required for calculating the profit tax withholding.
Below are some of the key changes the revised law will impose.
Profit Tax (Withholding)
As mentioned above, an entirely new article on profit tax withholding has been added (Article 33), which no doubt helps to clarify which withholding rates should apply to certain payments. Article 33 stipulates the ‘profit deeming’ ratio for each business activity, and expands the list of business activity categories beyond the current four – the new list of activities includes 12 separate profit deeming ratios, with services heavily segregated.
The result of this is that profit tax withholding on services provided by foreign entities may actually reduce under the revised tax law, depending on the service type – by up to 75% in some cases.
The key change under the income tax provisions appears to be non-salary income tax rates, with the noteworthy introduction of a new 2% tax rate on certain taxable income.
Under the Tax Law (2011), dividends and share-sale profits were included in the same line item under the income tax provisions and taxed at 10%. However, the revised tax law includes dividends and share-sale profits as separate line items and introduces two-tiered tax rates for the latter: a 10% tax rate will apply to the net profit of share sales that can be properly substantiated, whereas a 2% tax rate will apply to the gross amount of share sales where the net profit cannot be properly substantiated.
Likewise, the revised tax law introduces two-tiered tax rates for income from the sale/transfer of land and/or buildings (real property transactions): a 5% tax rate will apply to the net profit of real property transactions that can be properly substantiated, whereas a 2% tax rate will apply to the gross amount of real property transactions where the net profit cannot be properly substantiated.
The key change under excise tax provisions appears to be the ‘tweaking’ of tax rates. The list of taxable items is too extensive to go into in this article, however, notably, we expect the cost of fuel, motor vehicles and motorcycles to change on the back of excise tax rate adjustments (fuel to increase, motorcycles to increase – motor vehicles will be mixed, depending on the motor vehicle type, as the classifications have also been revised).
For any motorcycle enthusiasts out there: the excise tax rate on 500cc+ models will be 80%, and that’s excluding any import duties and VAT applicable at the time of import (that new Harley-Davidson just got a little further out of reach, for now).
We are still working through our analysis of this revised tax law and will keep you updated on our progress.
The Amended Tax Law (2015) will come into force on 24 May 2016, 15 days after publication on the Official Gazette, in accordance with the Law on Making Legislation (2013).
Author: Daniel Harrison CPA, Senior Tax Advisor