Since 1989, the Lao People's Democratic Republic (Lao PDR) has undertaken substantial reforms in its transition to a market economy. The reform process has accelerated in the past four years and a wide variety of commercial legal reforms have recently been adopted.
Furthermore, Lao PDR became a member of World Trade Organisation (WTO) on February 2 2013. Commitments pursuant to WTO membership concern protection of intellectual property, transparency, taxes, sanitary and phyto-sanitary measures and ban on quantitative restrictions and price controls.
Below is a discussion of some key reforms related to investments, foreign exchange, secured transactions, civil procedure and securities.
The Law on Investment Promotion came into effect on September 18 2009 and was implemented on May 2 2011. The Investment Law governs both local and foreign investment.
The Law provides for three general types of investment activities in Lao PDR:
In order to facilitate investment in Lao PDR, the government has established a one-stop-service providing information, enterprise or concession registration certificates. This service also issues notices on investment. In certain instances attendance at various line ministries may also be required in order to process the necessary investment applications.
Tax incentives for foreign investors have been revised under the Investment Law. Tax incentives are granted in respect of profit tax, import duties and customs duties. Profit tax exemption may be allowed for up to ten years depending on the economic sector and the location of the investment.
Foreign exchange transactions are governed by the Decree regarding the Management of Exchange Control and Precious Metal of March 17 2008 (the FX Decree). The FX Decree prohibits individuals and legal entities operating in Lao PDR from directly paying or receiving foreign exchange for the goods and services rendered to them or by them, or from settling debts in foreign exchange within Lao PDR, without approval from the Bank of Lao PDR (BoL). The FX Decree further provides that foreign exchange can be used for specified purposes only, including payment for import-export related services, repayment of foreign source loans under a BoL-approved loan agreement, and repatriation or transfer of profits, dividends, capital, interest, or salaries by foreign investors to a third country, provided that such use is compliant with regulations issued by the BoL.
All transactions must be performed through the Lao PDR banking system (and domestic bank accounts) unless BoL approval has been obtained for the use of offshore bank accounts. Exemptions from these capital control regulations have been granted on occasion by the National Assembly, or the National Assembly Standing Committee, in the case of large infrastructure and mining projects.
The Secured Transactions Law (2005) and the Secured Transactions Decree (2011) govern security interests in both movable and immovable assets in the Lao PDR.
Various types of security interests are recognised under the Secured Transactions Law. The Secured Transactions Law provides for the following types of security interests:
Under the Secured Transactions Decree, a security interest is "perfected" upon notarisation by the Notary Office and due registration at the State Assets Management Department (or the Ministry of Natural Resources and Environment, in the case of immovable property), provided that certain notification formalities, as applicable, have been completed.
Pursuant to the implementing decree, security documents involving movable assets are valid for five years and must be re-registered every four years and nine months.
Perfection grants the secured party a first priority security interest over the collateral set out in the security agreement with priority over all unsecured claims, unregistered security interests and subsequent registered security interests.
With regard to enforcement, the implementing decree requires that advance written enforcement notice be provided. In the case of immovable assets, enforcement notices of 75 cumulative days must be provided to the debtor, other creditors with security in the same asset, the government and the owner of the immovable asset (if not the debtor) such as a lessor. In the case of movable assets, 10 days enforcement notice must be provided to the debtor, other creditors with security in the same asset and via mass media notice.
There are generally no differences in enforcement procedure undertaken by foreign creditors compared to a local creditor, however, a foreign entity cannot hold land use rights or usufructs and in an enforcement sale, a qualified Lao individual or entity must be found to purchase the land use rights or usufructs.
Lao PDR Securities Law
The Government established the Lao Securities Exchange (LSX) on October 10 2010. This has created a further avenue through which the country is able to attract foreign capital. The LSX has seen steady growth during the course of 2012 with the number of foreign sourced investments on the exchange exceeding 1,500 as of December 2012.
The securities exchange is now governed by the Securities Law No. 21/NA, December 10 2012 (Securities Law). The Securities Law is applicable to individuals, legal entities and organisations (both domestic and foreign) that conduct securities business activities in Lao PDR. Further regulations are required to be issued under the Securities Law pending issuance of those further regulations, the current regulations issued under the prior decree which do not conflict with the Securities Law are likely to remain applicable.
Under the Securities Law, securities include stocks, debentures, mutual funds and other types of securities. The Securities Law also provides for establishment and operation of mutual funds (open-end funds and closed-end funds) and asset management companies.
Foreign investors may buy securities in the Lao PDR subject to foreign ownership limits determined in specific regulations. Foreign investors may also establish a wholly owned securities company (i.e. a broker) in the Lao PDR.