How to Claim Investment Promotion Incentives in Laos: New Guidelines in Effect

Foreign investors in Laos face new requirements for accessing investment promotion incentives.

The Laotian government published the new guidelines, the Instructions on the Promotion of Investment Incentives Concerning the State Land Rental and Concession Fees, in late May 2021. The guidelines clarify what type of investments qualify for incentives and set out procedures on how investors can secure them.

The guidelines supplement the Law on Investment Promotion, one of Laos’ most important laws governing domestic and foreign investment in the country. While the guidelines add more detail about how investors can secure incentives, they put forward numerous industry-specific requirements to regulate the process.

Although qualifying for incentives in Laos can be complicated, the guidelines offer foreign investors greater certainty about what incentives they are eligible for and how they can go about securing them. Here, we offer an overview of what foreign investors must do to claim investment incentives in Laos.

The Law on Investment Promotion at a glance

The Law on Investment Promotion No. 14/NA (the “Law”), which came into effect in 2009, was a major milestone in Laos’ transition to a market-based economy. The Law put governance on domestic and foreign investment under a single legal regime and moved Laos’ investment standards closer to international best practices – especially the ASEAN Comprehensive Investment Agreement.

Previously, Laos regulated foreign direct investment through a law first enacted in 1986, which differentiated between domestic and foreign investment.

While the Law represented progress for Laos’ investment policies, stakeholders criticized it for poor implementation in practice.

In 2016, the Laotian government amended the Law to add clearer investment protection and dispute settlement provisions, as well as to clarify the definition of a ‘domestic’ company. The latter provision is important because it was sometimes unclear which incentives applied to domestic companies, and which ones applied to foreign ones.

The amended Law included a number of other revisions, including streamlining business applications and approvals and delineating industry and regional investment incentives.

Who qualifies for investment incentives in Laos?

Laos offers a variety of incentives for investments in different business sectors and regions, including exemptions on profit tax, customs duties, and land use.

According to Part II, Chapter 1 of the Law, investors can qualify for incentives if they operate in a priority business sector or region.

Article 9 lists nine business sectors that are entitled to incentives. They are:

1. High tech, scientific research, innovation, efficient use of natural resources and energy, etc.
2. Clean agriculture, forestry development, environment, and biodiversity protection, etc.
3. Environmentally friendly agro-processing, handicrafts specializing in national traditional handicrafts;
4. Development of environmentally friendly and sustainable eco-tourism, cultural, and historical tourism industry;
5. Education, sports, human resources development, vocational training, etc.
6. Development of modern hospitals, pharmaceutical, and medical equipment factories, traditional medicine production and treatment;
7. Investment in public infrastructure solving urban traffic congestion and overpopulated residential area issues, the infrastructure supporting agriculture and industry, cargo transportation, etc.
8. Policy banks and micro-finance institutions focusing on poverty reduction and communities with limited access to finance; and
9. Modern commercial centers promoting domestic products and world-renowned brands, exhibition centers, and fairs for domestic industrial, handicraft, and agricultural products.

Next, Article 10 separates region-based incentives into three zones:

• Zone 1: Poor and remote areas with socio-economic infrastructure unfavorable to investment;
• Zone 2: Area with socio-economic infrastructure favorable to investment; and
• Zone 3: Special economic zones.

Zone 1 refers to rural areas, while Zone 2 refers to more developed urban areas.

The exact nature of the incentive depends on factors, such as business sector, zone, and investment size and duration. At their most generous, incentives can last for up to 15 years.

What is the process for claiming investment incentives?

The new guidelines offer greater detail on how investors can claim the aforementioned incentives.

According to the guidelines, investors must submit an application to receive an incentive certificate at either the central or the provincial level. The Ministry of Planning and Investment manages the application process, alongside other relevant departments depending on the nature of the investment.

Once the ministry receives the application, authorities will begin reviewing the application within 10 working days. Approval requires an inspection of the investor’s business premises to ensure they meet the various standards.

To qualify, investors must meet the general requirements for all investment projects, as well as numerous technical sector-specific requirements.

General requirements necessitate investors to have invested at least 1.2 billion LAK (US$125,000) in a priority sector or employ a minimum of 30 Laotian technical staff or 50 Laotian employees on contracts lasting at least one year. Authorities will also investigate whether investors are in compliance with other relevant laws and regulations.

After the relevant authorities submit the assessment to the Ministry of Planning and Investment, it will issue a decision within 15 working days. If approved, it will issue the certificate within five working days; if rejected, it will announce the decision within two working days.

Authorities maintain the right to withdraw incentives if the investor fails to comply with incentive requirements and other relevant regulations.

The Laotian government manages incentives for major investment projects on a more case-by-case basis. Such projects do not require incentive certificates if they have signed a concession agreement with the government or qualify for larger incentives set forth by Laos’ National Assembly.

Given the industry-specific nature of the application process, investors are advised to conduct an internal audit to ensure they meet the standards for their sector, while also ensuring they are compliant with other Laotian laws and regulations.

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