Lao tax update: amended tax law

Anthony Ludovic Assassa of VDB Loi in Laos looks at the recently amended tax law

Amended Tax Law No. 70/NA adopted December 15 2015 was published in the Lao Official Gazette of May 9 2016 and will come into force on May 24 2016.

The new law was issued while Laos is facing a looming budgetary crisis. The new Government is trying to find ways to meet its financial priorities by increasing its profit tax, income tax and excise tax revenue.

From our reading of it, the new law will not impact any of the tax and financial incentives previously granted to investors under agreements executed between the government and investors. The main changes under this new law are:

• Determination of non-taxable revenue

• Clarification of and additions to list of deductible and non-deductible expenses

• Additions to capped deductible expenses

• New filing deadline for the last quarter’s profit tax return

• New deemed profit rates for entities that do not fully comply with Lao accounting standards

• Modification and introduction of new income tax rates on sales of shares and transfers of land- and building-use rights

• New excise tax rates

We provide details of the changes below.

A. Profit tax

One of the most significant changes is in the filing requirement for the last quarter. Whereas previously, the last quarter’s profit tax filing deadline was by 10 March of the following year, the new law moves it two months earlier, to 10 January of the following year.

Other major changes concern the list of tax adjustments, the depreciation tax rates and the deemed profit rate mechanism for withholding or compulsory tax calculation for entities that have not fully complied with the Lao accounting standards.

Under the non-deductible expenses section, the non-taxable revenue list and non-deductible expense list have been clarified and reorganised. Notable changes are that dividend income (from a subsidiary) is no longer subject to profit tax (as it has already been taxed); and a donation made as part of an investment agreement/memorandum of understanding executed with the Government can no longer be taken as a deductible expense.

Under the capped deductible expenses section, advertising costs are now deductible up to 0.5% of total annual business turnover.

Changes in the depreciation tax rates are mostly corrections of mistakes in the 2011 Tax Law:

Businesses that have not fully maintained a complete accounting system in accordance with the accounting law, for example, non-resident service providers in Laos, are still subject to 24% profit tax by using the deemed profit rate mechanism for withholding. The new law introduces new deemed profit rates for each activity as follows:

B. Income tax

Changes have been made to certain taxable transactions as follows:

• Sales of shares are now taxed at the following specific rates:

- 10% of the difference between the purchase and selling prices if relevant supporting evidence can be provided.
- 2% of the sales value if no relevant supporting evidence can be provided.

• Prizes and lottery gains are now subject to 5% income tax only if they exceed LAK5 million.

• Income from transfers of land- and building-use rights are now subject to the following particular rates:

- 5% of the difference between the purchase and selling prices if relevant supporting evidence can be provided.

- 2% of the sales value if no relevant supporting evidence can be provided. 

C. Excise tax

The Amended Tax Law modifies the excise tax regime with a particular emphasis on the importation and domestic production of vehicles and their spare parts.

The new excise tax rate structure is as follows: 

Anthony Ludovic Assassa

VDB Loi