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General Information: Guide for Investing in Lao PDR Foreign direct investment has come to be widely recognized over the past decade as a major potential contributor to growth and development. It can bring capital, technology, management know-how and access to new markets. In comparison with other forms of capital flows, it is also more stable, with a longer-term commitment to the host economy.

The investment promotion becomes one of the key in attracting both domestic and foreign investors to do business in Lao PDR. The pro-active in the investment promotion can lead to have more number of investment projects. There are quite numbers of the investment promotion mechanism, one of these mechanism is the investment guide book. The Lao PDR’s Investment Guide is a collection of key investment legislations currently in force to facilitate potential investors’ understanding of relevant policies, regulations, procedures, methods, processes of investment promotion, and management, in the Lao PDR. This is the 2011 edition of the Lao PDR’s Investment Guide Book. The main reason of editing this guide book, as in 2009, the government of Lao PDR amended the investment Law by combining the domestic investment promotion law and foreign investment promotion law together. Thus, the new features of such new law are presented here such as the procedure of the investment approval for the concession projects and so on. This 2011 edition of the guide book consists of nine parts:

1. General Information: The map of Lao PDR 2. Regulatory Authorities 3. General Customs, Tax System and Fiscal Incentives; 4. Forms of Investment and Term of Investment; 5. Investment Approval Procedures; 6. Regulations on Importation; 7. Reporting on Investment Activities; 8. Regulations on Changing Legal Basics; 9. Disputes Resolution Mechanism; and

In this 2011 edition investment guide book, the main features of the new investment promotion law are presented and the new features of this law are also stated. However, there is not much changing in terms of the incentives offered to domestic and foreign investors. We hope that this guide book will be useful in facilitating a better understanding of the investment environment in the Lao PDR. At the same time we welcome any comments and suggestions that will further improve the contents of this investment guide book.

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Name

Lao People's Democratic Republic

Surface Area

total: 236,800 sq km

land: 230,800 sq km

water: 6,000 sq km

Population

6.2 Millions (2008)

Density

26 people per sq km

Land Boundaries

total: 5,083 km

Borders Myanmar 235 km, Cambodia 541 km, China 423km, Thailand 1,754 km, Viet Nam 2,130 km

Languages

Lao (official), French, English, and various ethnic languages

Climate Tropical monsoon; rainy season (May to October); dry season (October to April)

Religion Buddhist 65 percent , animist 32.9 percent , Christian 1.3 percent , other and unspecified 0.8 percent (1995 census)

Time Zone

UTC+7

Currency Kip (LAK)

Exchange Rates As March 2011:

1 Dollar: 8,000 Kips

GDP 39,284 billion Kips (Nominal, 2007 estimate)

4.1 US$ billion $5.788 billion (2009)

GDP Growth 7.5% annually for the 2006-2010

GDP per Capita 1046 US$ (2010)

Source: The Economic Research Department, Planning Department, Investment Promotion Department of Ministry of Planning and Investment, (2010)

- General Information: Lao PDR at a Glance

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- General Information: Investment Promotion Zoning in Lao PDR

-Zone I

-Zone II

-Zone III

Investment Promotion Zoning

CHINA

MYANMAR

VIETNAM

THAILAND

CAMBODIA

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General Information: Investment Climate and Advantages in Investment in Laos

In terms of investment in Lao PDR, the investment destination in Lao PDR is known as: LAOS: Land of Ample of Opportunities & Success. This slogan is tell the true about doing business in Lao PDR. We have a lot of advantages in offering investors both domestics and foreign. By doing business in Laos, the investors can enjoy a lot of opportunities as stated below.

1. Advantages of Investing in Lao PDR Integrated to regional and international arena Member of international organizations General Special Preferences (GSP) Privileges with 42 countries Normal Trade Relations (NTR) with USA (04/02/2005) Bilateral Investment Treaties with 27 countries In process of joining World Trade Organization (WTO)

Comparative Advantages: Plentiful Natural Resources with unexploited Large Area of Fertile Agricultural Land Varieties of Tourism Development Sites Virtually no damaging natural disaster

Competitive Advantages: One of the most Politically Stable Country in the Region Socio-Economic and Financial Stability High Security (Low Crime Rate) Low Labor Costs compared to neighboring countries GSP Privileges given from 42 countries Liberal Laws and Regulations creating favorable business and investment

environments

Note: At the moment, the government of Lao PDR is negotiating for the WTO accession. By participating in the WTO rules, we can ensure foreign investors for our commitment in the international arena.

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Part II. General Customs and Tax System and Fiscal Incentives

1. Regular Customs and Tax Systems in the Lao PDR: Regular Import duty rates are between 3% - 40% Indirect taxes include

Business turnover tax between 5% - 10%

Excise tax between 5% - 90% Direct taxes include

Corporate Profit Tax:

Existing law on tax: Foreign (20%) and Domestic (35%)

As of November 2011, the law on tax is in the course of revising to unify the general profit tax for foreing and domestic investors. The new tax rate is speculated in the range of 24%-28%

Minimum tax at the rate of 0.1% of total revenue

Personal income tax between 0%-25% (progressive rate) after revising the law on tax.

Fees and service charges

2. Investment Promotion Incentives: According to Article 49 of the Investment Promotion Law (IP Law), the promoted sectors are agriculture, industry, handicraft and services. Details of promoted activities under the sectors are determined by the Government and classified into three different levels based on prioritized activities of the Government, the activities related to the poverty reduction, the improvement of living conditions of people, construction of infrastructure, human resource development, jobs creation, etc. The Government has established the following fiscal incentive systems:

2.1 Incentive on Corporate Profit Tax (Based article 50 and 51 of the IP Law) Zone Level Period of Exemption (Years)

1 1 10 2 6 3 4

2 1 6 2 4 3 2

3 1 4 2 2 3 1

Note: Refer to Zoning Map on page number 3. Zone 1: Mountainous, plateau zones with no economic infrastructure to facilitate investments;

Zone 2: Mountainous, plateau zones with a moderate level of economic infrastructure to accommodate investments;

Zone 3: Plateau zones with good economic infrastructure available for investments.

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Part II. General Customs and Tax System and Fiscal Incentives (Cont.)

2.2 Specific Promotion Incentives (According to Article 54 of IP Law) Investment in the construction of hospitals, kindergartens, academic schools, vocational schools, colleges, universities, research centers and public utilities shall obtain the exemption of rental or land concession as follows:

2.3 Other Promotion Incentives (According to Article 52 of IP Law)

In addition to the corporate tax incentives, investors shall be also entitled to customs duty and tax incentives, as follows: 1. Exemption from profit tax in the next accounting year, if the net profit derived from

business activities is used for business expansion.

2. Exemptions from import duties for the importation of raw material, equipment, spare parts and vehicles which are directly used for production. However, exemption of import tax shall comply with specific regulations.

3. Exemption from export duties for exportation of general goods and products. The exportation of natural resources and natural resources-made products shall comply with concerned regulations and laws. The importation of all types of fuel is not exempted from duties and taxes.

4. If an investor suffers losses after completion of tax finalization with the tax office, the investor shall be permitted to carry the losses forward to three consecutive accounting years. After ending of the period, any remaining losses shall not be allow to be deducted from profit. For special economic zones and specific

Education and health Sectors

Exempted land lease or land concession up to:

1. Zone 1: 15 Years

2. Zone 2: 10 Years

3. Zone 3: 03 years

Provided additional 05 years for cooperate profits tax exemption to the period shown in

2.1

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economic zones, the provision of incentive treatment shall be in compliance with the Decree on the Establishment and Activities of respective zone.

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Part III. Forms of Investment and Terms of Investment

1. There are three (03) types of investment in Lao PDR as follow: General business (Ministry of Industry and Commerce will issue the business

license).

Concession business (Ministry of Planning and Investment will issue the concession license)

Activities for development of special economic zones and specific economic zones

(Secretariat to National Committee for Special Economic Zones at Government Office will issue the license).

2. There are three (03) Investment Forms in Lao PDR

According to the article 8 of the investment promotion law, the form of the investment is classified as the following forms:

1. The 100% ownership (Foreigners and Local people or business identities can apply for this form of business in Laos).

2. The Joint Venture form (foreigners or local people can make the joint venture or company-company or company-persons).

3. Business by contract (foreign companies can make the contract or agreement with the local partners in order to order the products or goods from Laos or vise versus)

3. Investment Terms in Lao PDR The investment in general business has unlimited term of investment except

business of which the term has been determined in separate regulations and laws of relevant sectors (Article 20 of the investment promotion law).

The term of investment in concession depends on the nature, size, investment value; conditions of the concession activities based on concerned regulations and laws but shall not exceed 99 years and may be extended with the approval of the government (Article 28 of the investment promotion law).

The term of investment in the special economic zones and specific economic zones depends on the type, size and conditions of each special economic zone and specific economic zone; it shall not exceed ninety nine (99) years and may be extended on a case by case basis with the approval of the Government, especially in the case where the project has generated maximum benefits to the country, the investor has effectively implemented the signed agreement and has recorded good performance in contributing to local development (Article 42 of the investment promotion law).

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Part IV Investment Application and Approval Procedures

1. Procedures for Investment Approval in Lao PDR 1.1 General business

General business is an investment in the general business sector including businesses defined in the list of controlled businesses and it is not a concession business.

1.2 Concession business Concession business refers to investment activities authorized by the Government to utilize ownership and other rights of the Government in conformity with regulations, for the purpose of developing and conducting business operations; these include rights on land concession, minerals, electric power, airlines, telecommunication, insurance and financial institutions. The list of concession activities is determined by the Government.

1.3 Activities for Development of Special Economic and Specific Economic Zones

Activities in the development of special economic zones are investment for the purpose of construction of complete infrastructure and new city development. Activities in the development of specific economic zones are investment for the purpose of construction of infrastructure and development of each zone as required for the specific zones in accordance to actual conditions and laws; including industrial zones, export processing zones, touristic zones, etc. The organization and activities of special economic zones and specific economic zones are determined in separate regulations.

Ministry of Industry and Commerce

Secretariat of Specific & Special Economic Zone

Ministry of Planning and Investment

1. General/Opened Activities

2. Branch of Foreign entity

1. Concession activities

2. Representative Office

Investment in specific &Special Economic Zones

Enterprise Registration License Concession License Representative Office License

Special Economic Zone License

Procedure for Investment Approval

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Part IV Investment Application and Approval Procedures (Cont) (General Business Activities)

2. Approval Procedures for General Activities

2.1 Composition of investment application form: Business registered forms (Obtaining from MOIC) Business plan or Feasibility Study of the Business. Joint venture agreement (in case there are more than two share holders) Draft Articles of Association of the enterprise which will be established in the Laos. Certified documents for corporate income tax paid for the past three years

retroactively in case of investment proposed by entity(s). Other certified documents of the investors: (1) Biographic information; (2) Copy of

a passport; (3) Copy card and criminal record in case of domestic investors); (4) 6 copies of 3 X 4cm recent photos of the person who will be general manager or representative in the Lao PDR.

2.2 Location for submitting investment application for the general business

Ministry of Industry and Commerce (MOIC) Department of Domestic Trade, Enterprises Registration Office Phonxay Road, Ban Phonxay, Xaysetha District, Vientiane Capital, Lao PDR Tel: +856-21-415929, +856-21-412435 Fax: +856-21-412013

Website Address: www.moc.gov.la

Requesting for comments from concerning ministry/department within

10 working days

Issuing the Enterprise Registration Certificate

Investors submit the application

Issuing the enterprise Registration Certificate within 3 working days

Issuing within 10 working days

Business not fall into controlled list Business fall into controlled list

Ministry/Department of Industry and Commerce

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Part IV Investment Application and Approval Procedures (Cont)

(Concession Business Activities)

5. Approval procedures for concession activities

1. Composition of investment application form: Investment forms (can be obtained at the CPMI, central and local level) Business plan. Joint venture agreement (in case there are more than two share holders) Draft Articles of Association of the enterprise which will be established in the Lao

PDR. Certified documents for corporate income tax paid for the past three years

retroactively in case of investment proposed by entity(s). Other certified documents of the investors:

OSU preparing the meeting to the CMPI meeting in order to get basic approval for reporting to the government

Investors submit the application

After IPD negotiation for the mutual benefits, then MPI makes the report to PMO and get approval for signing the agreement

Giving guidance for investors in preparing necessary documents

Ministry/Department of Planning and Investment

IPD received the application for appraisal and technically approval on the investment

Submitting report to the government or provincial authorities for considering and approving for the negotiation

After getting the signing authorization from PMO, then MPI prepares the signing the agreement with investors, and then issue the concession license to investors

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o Biographic information

Part IV Investment Application and Approval Procedures (Cont) (Concession Business Activities)

o Copy of a passport o Copy card and criminal record number 3 in case of domestic investors)6

copies of 3 X 4cm recent photos of the person who will be general manager or representative in the Lao PDR.

Note: (Investors must file 10 sets of the above mentioned documents)

2. Location for submitting investment application for the concession business

Ministry of Planning and Investment Investment Promotion Department (IPD), Souphanouvong Road, Vientiane Capital 01001, Lao PDR.

Tel: +856-21-217012, 223002, Fax: +856-21-21 5491

E-mail : investinlaos@gmail.com Website: http://www.investlaos.gov.la

For the General Business Activities:

1. All investors shall submit the application at the department of domestic trade (Enterprises Registration Office).

2. Regarding the submission at the local level, at the moment, the ministry of industry and commerce is working on the procedure of such empower to the local department at the provincial level.

For the Concession Business Activities: 1. All investors shall submit the application at the Investment Promotion

Department (One Stop Service Unit), Ministry of Planning and Investment.

2. Regarding the submission at the local level, at the moment, the ministry of Planning and Investment is working on the procedure of such empower to the local department at the provincial level

3. Please refer to the list of concession business activities at annex 3 of the

decree on implementation of the investment promotion law.

Note: The submitting investment applications at the local level

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Part V Regulation on Importation

Under the new investment law, the master plan of the importation has to be submitted at the Custom Department, Ministry of Finance directly. 1. Investors must submit their annual importation plans in accordance with the Custom

Department standard forms at the Department of Custom (DOC), Ministry of Finance. DOC will consider approving and issuing a certificate within 20 business days from the date of receiving the request*.

2. The approved annual importation plans will be transmitted to officials at the border

where the importation will take place to monitor and deduct the balance based on actual importation.

3. Approved annual importation plans can be modified once. 4. Additional importation not included in the annual importation plans such as utilities

or emergency spare parts to replace the old and broken ones shall be consulted or submitted to the Ministry of Finance (Custom Department) directly.

Approval Producer for the annual importation plan

Note: * Timing for approval depends on the investment activities and the type of goods to be imported. But normally, it will take 20 working days for such approval. For greater detail on this, please consult with the Custom Department, Ministry of Finance.

Custom Department Meeting for approval the yearly

imported quotas

Custom Department adopted annual importation plans

Investors file 05 copies of documents to Custom Department, MOF

Custom Department appraisers and presents to the CMPI meeting

Custom Department examines the completed of the documents

20 W

D

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Part VI Report on Investment Activities/operations

1. Quarterly and Annually Reports of General Business Activities

Under the new investment law, all investors both domestic and foreign investors require to submit the quarterly and annually reports to the Ministry of Industry and Commerce. Contents of the report on investment operation activities of investment enterprises consist of the following criteria:

Capital importation;

Value of assets on reporting day. Record of compliance with custom and tax obligations;

The use of domestic raw materials;

Value of exported commodities (for activities which produce commodities for export);

Labor used within the enterprise;

The implementation of social welfare regime;

Investment enterprises must submit reports on the status of operations according to the standard ministry forms on a semi-annual and annual basis. Any enterprise not complying with this requirement will not receive the investment promotion incentive from the MPI and will be considered in violation of investment rules and regulations. 2. Quarterly and Annually Reports of Concession Agreements Under the new investment law, all investors both domestic and foreign investors require to submit the quarterly and annually reports to the Planning Strategy and Service Division of Investment Promotion Department, Ministry of Planning and Investment. The contents and detail of the reports are stated in the concession agreement with the Lao government. Any fail to report to the IPD, the result can be terminated the concession agreement. Therefore, all investors need to comply with the reporting to the IPD according to the law and regulations stated in the concession agreement.

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Part VII. Regulations on changing legal basis

1. Types of Changing in the legal status of the investment

In case an investment enterprise wishes to modify their investment terms as provided for in item 1 below, an application requesting such modifications must be made to the Investment Promotion Department, MPI.

1.1 Changing legal basis of existing investment which needs approval from CPMI: The extension of investment license Request to add more business activities or increase investment capital Request for opening branches of invested company within Lao PDR Request for splitting or merging of company Request for permanent termination of business Request for extension of license of representative office

1.2 Changing legal basis of investment, which needs approval from IPD. Request for temporary suspension of business Request for increase of investment capital without expanding of the company’s

business activities Request for endorsement of changing of shareholder Request for endorsement of new directors or representatives Request for endorsement of changing location of company or representative

offices Request for changing of name of the company or representative’s.

Please note that the changing legal statuses of the investment licenses are based on the requested of the investors. In the case of Joint Venture business, please make sure that the agreements among shareholders are signature. In the case of the concession agreement, the investors need to get approval from the Lao government in order to change in any legal status. Note:

1. The above mentioned regarding to the changing legal basis applied only for those who got investment licenses from IPD and implemented under the 2004 investment promotion law.

2. Those who implemented the 2009 investment promotion law, they should submit their applications for changing the legal status through Ministry of Industry and Commerce, Department of Domestic Trade (Enterprises Registered Office).

For Further information, please contact Investment Promotion Department staff at Tel: +856 21 218377, or +856 20 22203813, by Fax: +856 21 215491

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Part VII. Regulations on changing legal basis (Cont)

1. The request for changing legal basis

Note (**)

1. Application/request form; 2. Copy of investment license, enterprise registration, tax registration, business operation

license, article of association which has been approved; 3. Performance Report (in cease of extension of investment license of a

company/representative office, expansion of business activities); 4. Original Investment license or representative office license (in cease of extension of

company license or representative offices, modification, permanently termination of investment);

5. Certification of the importation of investment capital from the bank of the Lao PDR (in case of capital increase);

6. Business plan (in case of expansion of business) or operation plans (in case of opening branches or request for extension of representative offices);

7. Short biography and copy of passport of Director (in case of changing of new Director or extension of representative office)and copy of identification card, short biography and criminal record number 3 (in case of a Lao national);

8. Notes or shareholders’ resolution or executive board of director’s resolution, share transfer agreement or share purchase agreement. Documents must be notarized at the Notary Public Office, joint-memorandum between two or more companies (in case of shareholder changes or in case of merging of two or more companies);

9. Property lease agreement with certificate recognized by village authority, certified receipt of lease payment (in case of changing location)

Approval

Refusal

CPMI meeting

Investors submit the documents**

IPD appraisers and presents to the CMPI meeting or

prepare for endorsement

Sectors from whom the technical comments are needed in case of extension of investment license of a company or representative office, expansion of business activities, termination of business and opening of branches.

OSU examines the completed of the documents