Laos Implements Mandatory Bank Accounts for Foreign Investors

The Bank of the Lao PDR (BOL), the country’s central bank, issued a new regulation that mandates foreign investors to open a local bank account, within 15 days of obtaining a business license. This rule applies from February 10, 2024. The account can be kept in multiple currencies but limited to one commercial bank. 

The move is part of the government’s efforts to ensure more foreign currency enters the banking system, as it was found that the recorded foreign investment inflows were much lower than the agreed value of investment capital. Further, the new regulation is also aimed to address the shortfall in the country’s balance of payments and as such, help stabilize the Kip.

According to the IMF, Laos’ publicly guaranteed debt stood at 123 percent of GDP as of 2023 and more than half is owed to China which has funded major infrastructure projects for the Southeast Asian nation. The largest is the US$5.9 billion railway connecting the Laotian capital Vientiane to the Chinese city of Kunming.

What are the requirements for foreign investors

Foreign investors who wish to open a bank account in Laos are required to:

• Provide valid identity documents, such as passport and visa;
• Explain their investment objectives in Laos; and
• Provide proof of the source of their investment funds; and
• Make a minimum initial deposit of US$10,000 (only if required by relevant ministries or the terms and conditions of the chosen bank).

The BOL also requires banks to conduct background verification on foreign investors before opening a bank account. Banks must also monitor foreign investors’ financial transactions and report suspicious activities to the BOL.

With this regulation, foreign investors must also have documents stating that all financial transactions carried out by the investor will go through such bank accounts including the transfers of profits, the diversion of investment capital to Laos, and the repayment of interest of companies abroad.

Foreign investors who pay for goods and services, debts, dividends, and wages must convert their foreign currency to the Kip through commercial banks in Laos and retain currency exchange documents for audit purposes. In addition, foreign investors are also required to move all the investment capital to Laos in the amount specified in the investment agreement and business permit.

This regulation also prohibits foreign investors from carrying out financial transactions through bank accounts other than those specifically opened for this purpose at commercial banks in Laos. They are also prohibited from exchanging money through individuals or legal entities, except for commercial banks.

Impact

Foreign investors will take longer to open bank accounts in Laos with compliance costs for banks likely to increase. The BOL emphasized that these regulations are necessary to protect Laos’ financial system and ensure that foreign investments are used for legitimate purposes.

This new Regulation is a positive step to increase transparency and prevent money laundering and terrorism financing in Laos.

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