printable banner

U.S. Department of State - Great Seal

U.S. Department of State

Diplomacy in Action

2012 Investment Climate Statement - Laos


2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012
Report
Share

Openness to, and Restrictions Upon, Foreign Investment

The Lao PDR is one of the ten fastest-growing economies in the world. Foreign investment has been increasing over the last several years and continues to flow to mining, hydropower, and agriculture. Vietnam, China, and Thailand are the largest sources of foreign investment, with each investing about $2.5 billion in Laos from 2000 to 2010.

According to the 7th National Socio-Economic Development Plan, which covers the period from 2011 to 2015, Laos seeks to continue an annual economic growth rate in the neighborhood of 8%. To accomplish this, the government of Laos estimates that it needs approximately $15 billion of total investment in the next five years, $7 to $8 billion of which it plans to source from foreign and domestic private investment. The plan directs formulation of “policies that would attract investments in addition to attracting Overseas Development Assistance; begin to implement public investment and investment promotion laws; and increase cooperation with friendly countries and international organizations.”

Laos is likely to accede to the World Trade Organization (WTO) within the next two years and has committed to joining the ASEAN Economic Community in 2015. Both of these processes require considerable trade and regulatory reforms, which should make the investment climate more attractive to American enterprises. Additionally, WTO and AEC requirements reinforce fuller implementation of the conditions of the 2005 U.S.-Laos Bilateral Trade Agreement.

The government of Laos (GOL) has thus taken steps to embrace a more transparent economy. However, business transactions and investments are still carried out in an opaque manner. Laos, while politically very stable, remains a poorly regulated economy with limited rule of law. Corruption, patronage and a weak legal system are a drag on economic development. Contracts are not routinely honored according to American legal standards, and there are reports of expropriation of property by extra-legal methods.

Investment Policies

The GOL is open to foreign investment as a matter of policy and allows 100% foreign ownership of enterprises. The 2009 Law on Investment Promotion governs foreign investment in Laos. Under this law, foreign and domestic investors are supposed to be given equal treatment and incentives, although in practice this is not uniformly the case. Foreigners may invest in any sector or business except those that the government deems to be detrimental to national security, health or national traditions, or to have a negative impact on the natural environment.

Companies involved in large FDI projects, especially in mining and hydropower, often either find it advantageous or are required to give the government partial ownership, frequently with money borrowed from the investor or multilateral institutions.

The term of a foreign investment depends on the nature, size, and conditions of the business project but normally cannot exceed ninety-nine years, according to Article 28 of the Law on Investment Promotion. Under special circumstances, shorter-term foreign investments may be extended with the approval of the government but still may not exceed a total term of ninety-nine years.

The Lao Securities Exchange opened in 2011 with two stocks listed. In January 2012, the Lao Securities and Exchange Commission announced that it was increasing the percentage of shares that foreign investors can hold in publicly listed companies from 10% to 20%.

Laos’ Foreign Investment Approval Regime

Foreign investors seeking to establish operations in Laos are required to obtain a foreign investment license, an enterprise registration certificate, and a tax registration certificate.

Investors first submit project proposals to the One Stop Shop Unit in the Department of Investment Promotion (DIP) in the Ministry of Planning and Investment (MPI). DIP screens projects for financial and technical feasibility before forwarding them to relevant line ministries for review. Depending on the size of the investment, they are then sent to the Prime Minister’s (PM) for adjudication.

Under the 2009 amended Law on Investment Promotion and Prime Ministerial Decree No. 119/PM issued in 2011, there are three investment categories: 1. General Business; 2. Concession Business; and 3. Activities for Development of Special Economic Zones and Specific Economic Zones. General Business investments include controlled businesses, defined as those businesses which affect national security, public order, national traditions and culture, and the environment. These activities are subject to increased scrutiny prior to enterprise registration. Inclusion on the list of controlled businesses is not a prohibition on investing in those areas. Concession Businesses are those in which the GOL retains some ownership rights. Concessions are commonly used for investments in land, minerals, electric power, airlines, telecommunication, and insurance and financial institutions. Special Economic Zones are intended to support development of new infrastructure and commercial facilities and include incentives for investment. Specific Economic Zones are meant to develop existing infrastructure and facilities and provide a lower level of incentives and support than Special Economic Zones.

Foreign partners in a joint venture must contribute at least thirty percent (30%) of the venture’s registered capital. Capital contributed in foreign currency must be converted into kip based on the exchange rate of the Bank of the Lao People’s Democratic Republic on the day of the capital contribution. Wholly foreign-owned companies may be either a new company or a branch of an existing foreign enterprise. Throughout the period of operation of a foreign investment enterprise, the assets of the enterprise must not be less than its registered capital.

Under the 2005 Prime Ministerial Decree No 301, projects worth $20 million or more require the approval of the Prime Minister. The Minister of Planning and Investment can approve projects below $20 million while the Vice Minister of Planning and Investment can approve enterprises of less than $10 million. FDI equal to or less than $3 million can be approved at the provincial level by all provinces, and in four of the larger provinces - Vientiane Capital, Savannakhet, Champasack, and Luang Prabang - the ceiling for approval is $5 million.

In addition to the investment license, foreign investors are required to obtain other permits, including; an annual business registration from the Ministry of Industry and Commerce; a tax registration from the Ministry of Finance; a business logo registration from the Ministry of Public Security; permits from each line ministry related to the investment (i.e., Ministry of Industry and Commerce for manufacturing; Ministry of Energy and Mines for power sector development); appropriate permits from local authorities; and an import-export license, if applicable. Obtaining the necessary permits can pose a challenge, especially in areas outside the capital.

Individual companies in the petrochemical industry are required to file an annual import plan. The government controls the retail price and profit margins of gasoline and diesel. Government documents articulating the restrictions and explaining the policy are difficult to obtain. Goods prohibited for import and export range from explosives and weapons, to literature that presents a negative view of the Lao government, to certain forestry products and wildlife.

Agriculture production and most manufacturing production are private. State-owned enterprises (SOEs) currently account for only one percent of total employment. Over 90% of manufacturers have fewer than 10 employees. Foreign companies interested in acquiring ownership in SOEs apply through the DIP. Equity in medium and large-sized SOEs can be obtained through a joint venture with the Lao government.

The GOL is supposed to respond to proposed new business investment within 15–45 working days. Foreign enterprises must begin business activities within 90 days from the date of receipt of an investment license, or the license is subject to termination.

Lao law provides for sanctity of contracts, but in practice contracts are subject to political interference and patronage. A contract can be voided if it is disadvantageous to one party, or if it conflicts with state or public interests. Foreign businessmen have described contracts in Laos as being considered “a framework for negotiation” rather than a binding agreement. Although a commercial court system exists, in practice most judges adjudicating commercial disputes have little training in commercial law. Those considering doing business in Laos are strongly urged to contact a reputable law firm for additional advice on contracts.

International Rankings

The following table lists Laos’ most recent rankings in several international indexes and Millennium Challenge Corporation indicators:


Measure

Year

Index

Rank


Transparency International Corruption Perceptions Index

2011

2.2

154/182

Heritage Foundation Index of Economic Freedom

2012

50.0

150/179

World Bank Ease of Doing Business Index

2012

NA

165/183

Millennium Challenge Corporation Government Effectiveness

2012

-.08

42%

Millennium Challenge Corporation Rule of Law

2012

.03

53%

Millennium Challenge Corporation Control of Corruption

2012

-.29

32%

Millennium Challenge Corporation Regulatory Quality

2012

-.30

34%

Conversion and Transfer Policies

In order to facilitate business transactions, foreign investors generally open commercial bank accounts in both local and foreign convertible currency at domestic and foreign banks in Laos. Australian, Vietnamese, Thai, Cambodian, French and Malaysian banks currently have a presence in Laos. Bank accounts must be maintained in accordance with the Enterprise Accounting Law. The law places no limitations on foreign investors transferring after-tax profits, income from technology transfer, initial capital, interest, wages and salaries, or other remittances to the company’s home country or third countries provided that they request approval from the Lao government.

Transactions are conducted at the official exchange rate on the day of execution, upon presentation of appropriate documentation. There are no difficulties in obtaining foreign exchange in Laos. Foreign enterprises must report on their performance annually and submit annual financial statements to the Ministry of Planning and Investment (MPI).

Expropriation and Compensation

Foreign assets and investments in Laos are protected by laws and regulations against seizure, confiscation, or nationalization except when deemed necessary for a public purpose, in which case foreign investors are supposed to be compensated. Revocation of an investment license cannot be appealed to an independent body, and companies whose licenses are revoked must then quickly liquidate their assets.

Dispute Settlement

According to the Law on Investment Promotion, investors should resolve disputes in the following order: mediation; administrative dispute resolution; dispute resolution by the Committee for Economic Dispute Resolution; and finally, litigation. However, due to the poor state of the Lao legal system and low capacity of most Lao legal administrators, foreign investors are generally advised to seek arbitration outside the country.

Laos is not a member of the International Center for the Settlement of Investment Disputes. It became a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards on September 15, 1998, but Laos has never been asked to enforce a foreign arbitral award. Laos is a member of the United Nations Convention on International Trade Law.

In disputes involving the Ministry of Planning and Investment, decisions can only be appealed back to the ministry itself. There is no separate independent body. Thus a company which feels it is receiving unfair treatment from the government has no independent recourse. Lao laws often contradict each other and lack implementing regulations. Some laws have been officially translated into English, including the business, tax, bankruptcy, customs, and secured transaction laws. The reliability of unofficial translations varies considerably. Application of Lao law remains inconsistent and knowledge of the laws themselves is often limited (especially outside the capital). The existence of a large number of government decrees, sometimes unpublished, further complicates the situation.

A commercial court does exist in Laos. Laos has no anti-trust statutes. The bankruptcy law permits either the business or creditor the right to petition the court for a bankruptcy judgment, and allows businesses the right to request mediation. There is no record of foreign-owned enterprises, whether as debtors or as creditors, petitioning the courts for a bankruptcy judgment.

Performance Requirements and Incentives

Laos does not impose performance requirements but foreign investors are encouraged to give priority to Lao citizens in recruiting and hiring. Foreign personnel can be hired, although they may not normally exceed 10% of the enterprise’s total labor force, with exceptions for skilled labor or politically important projects. Before bringing in foreign labor, foreign enterprises must apply for work permits from the Ministry of Labor and Social Welfare. A list of foreign personnel must also be submitted to MPI.

Laos grants incentives for foreign investment depending on industry sectors and activities promoted by the government, and the level of infrastructure and socio-economic development in specific geographic zones. Under Articles 49, 50 and 51 of the Law on Investment Promotion, the government defines agriculture, industry, handicraft and services as promoted activities.

Investment promotion is divided into 3 levels: Level 1 - high, Level 2 - medium and Level 3- low. Additionally, the country is divided into three promotion zones. Zone 1 is defined as areas lacking in socio-economic infrastructure – primarily mountainous and remote areas – and is assigned a high level of investment promotion. Zone 2 applies to areas with socio-economic infrastructure that is partially able to facilitate investments and is given medium priority. Zone 3 has infrastructure available to support investments and is assigned a low level of investment promotion.

In Zone 1, Level 1 investments receive profit tax exemptions for 10 years, Level 2 investments for 6 years and Level 3 investments for 4 years.

In Zone 2, Level 1 investments receive profit tax exemptions for 6 years, Level 2 investments for 4 years and Level 3 investments for 2 years.

In Zone 3, Level 1 investments receive profit tax exemptions for 4 years, Level 2 investments for two years and Level 3 investments for 1 year. Profit tax exemptions in all zones start from the date the enterprise commences operations.

Incentives related to customs duties, access to finance, and other taxes are described in Articles 52, 53 and 54 of the Law on Investment Promotion. As of 2011, foreign investors and workers must pay an income tax of 24% to the Lao Government, unless they are citizens of a country with which the Lao Government has signed a double-taxation agreement. Previously, this rate was 10%. The United States does not have a double-taxation agreement with Laos. Article 67 of the Law on Investment Promotion stipulates that foreign investors and their families, including foreign professionals and foreign employees of an enterprise, may obtain multiple entry visas with a maximum term of five years. The government routinely approves long-term residence in the Lao PDR for foreign investors.

The government began replacing the turnover tax with a Value Added Tax (VAT) in 2010. Foreign investors are not required to pay import duty on equipment, spare parts and other materials used in the operation of their enterprises. Raw materials and intermediate goods imported for the purpose of processing and re-export are also exempt from import duties. Raw materials and intermediate goods imported for the purpose of import substitution are eligible for import duty reductions on a case-by-case basis. Foreign enterprises are also eligible for profit tax and import duty reductions or exemptions on an individual basis, if the investment is determined by the GOL to benefit to Laos’ socio-economic development. To date the Lao Government appears to have honored its incentives. Annual business license renewal is contingent upon certification that corporate income taxes have been paid. Investors report difficulties in obtaining tax certifications in a timely manner.

Right to Private Ownership and Establishment

The GOL recognizes the right of private ownership, and foreigners may transfer shares of a foreign-invested company without prior government approval. However, the business law requires that all shareholders be listed in the articles of association, and changes in the articles of association of a foreign-invested company must be approved by DIP. Thus, transferring shares in a foreign-invested company registered in Laos does require the indirect approval of the government.

Protection of Property Rights

Foreign investors are not permitted to own land in fee-simple. However, Article 58 of the Law on Investment Promotion stipulates that foreign investors with registered investment capital of $500,000 or above are entitled to purchase land use rights of less than 800 square meters in order to build housing or office buildings. The GOL grants long-term leases, and allows the ownership of leases and the right to transfer and improve leasehold interests. Government approval is not required to transfer property interests, but the transfer must be registered and a registration fee paid.

A creditor may enforce security rights against a debtor and the concept of a mortgage does exist. Although the GOL is engaged in a land parceling and titling project through the Ministry of Natural Resources and Environment, it remains difficult to determine if a piece of property is encumbered in Laos. Enforcement of mortgages is complicated by the legal protection given mortgagees against forfeiture of their sole place of residence.

Government reorganization in 2011 created the Ministry of Science and Technology, which controls the issuance of patents, copyrights and trademarks. Laos is a member of the ASEAN Common Filing System on patents but lacks qualified patent examiners. Since Thailand and Laos have a bilateral Intellectual Property Rights (IPR) agreement, in principle a patent issued in Thailand would also be recognized in Laos. Copyright protection in Laos is weak. There is no system to issue copyrights in Laos, only a certification of copyright information. Laos is a member of the World Intellectual Property Organization (WIPO) Convention and the Paris Convention on the Protection of Industrial Property but has not yet joined the Bern Convention on Copyrights.

Laos passed an Intellectual Property Law in January 2008. In 2011 the National Assembly passed a comprehensive revision of the law which brings it into compliance with WIPO and Trade-Related Aspects of Intellectual Property standards (TRIPS). However, weak enforcement capacity means that there is currently little protection for intellectual property rights in Laos.

Transparency of the Regulatory System

Principal laws, regulations, decrees, and guidelines governing international trade and investment are available to the public, although not all have been officially translated into English. Laws and their schedules for implementation are customarily published in Lao daily newspapers, and relevant line ministries are beginning to put laws and regulations on websites. The National Assembly includes a step for public consultations in the legislative process prior to sending laws to the Prime Minister for consideration. However, a highly centralized decision-making process, combined with difficulties in obtaining information, can make the regulatory system appear arbitrary and inscrutable. The government purports to seek the advice given of the business community through the Lao Business Forum.

Efficient Capital Markets and Portfolio Investment

Laos does not have a developed capital market. Three-month treasury bills are occasionally offered for sale when there is a need to absorb excess liquidity in the economy. The largest denomination of currency is 100,000 kip (about US$12.5). Credit is not available on the local market for large capital investments, although letters of credit for export can sometimes be obtained locally. The banking system is under the supervision of the Bank of Lao PDR, and includes 28 banks with assets of approximately $575 million. Private foreign banks can establish branches in all provinces of Laos. The Bank of the Lao PDR functions as the central bank, but its supervision of the financial sector remains weak. Technical assistance to Laos’ financial sector has led to some reforms but overall capacity within the governance structure is poor. The Lao Securities Exchange began operations in 2011 with two stocks listed, both of them state-owned – the Banque Pour l’Commerce Exterieur, and electrical utility Electricity du Laos.

Competition from State-Owned Enterprises

The GOL maintains ownership stakes in key sectors of the economy such as telecommunications, energy, finance, and mining. Where state interests conflict with private ownership, the state is in a position of advantage. In 2011, under the auspices of the Ministry of Post and Telecommunications, four large telecoms with high state ownership stakes cut service to a foreign-owned telecom in retaliation for alleged marketing violations.

Corporate Social Responsibility

Corporate Social Responsibility is not yet well understood and recognized by Lao producers and consumers, but protection of the environment and mitigation of social impacts are stressed by some foreign companies, particularly in the natural resources and energy sectors.

Political Violence

Laos is a peaceful and politically stable country. The risk of political violence directed at foreign enterprises or businesspersons is low.

Corruption

Corruption is a serious problem in Laos. The GOL has developed several anti-corruption laws but enforcement remains weak, with no high-profile cases ever having been brought to trial. According to the State Inspection Authority, the Lao Government has prosecuted some individuals for corruption but it cannot publicize the information. In September 2009, Laos ratified the United Nations Convention Against Corruption.

The State Inspection Authority, located in the Prime Minister’s Office, is charged with analyzing corruption at the national level and serves as a central office for gathering details and evidence of suspected corruption. Additionally, the State Inspection Department in each Ministry is responsible for combat internal ministry corruption. Laos is not a signatory to the OECD Convention on Combating Bribery. Both giving and accepting bribes are criminal acts punishable by fine and/or imprisonment. Foreign businesses frequently cite corruption as an obstacle to operating in Laos. Officials commonly accept bribes for the purpose of approving or expediting applications.

Bilateral Investment Agreements

Laos has bilateral investment agreements with Australia, Burma, Cambodia, China, Cuba, Denmark, France, Germany, India, Indonesia, Japan, Kuwait, Malaysia, Mongolia, Netherlands, North Korea, Pakistan, Philippines, Russia, South Korea, Singapore, Sweden, Switzerland, Thailand, the United Kingdom, the United States and Vietnam. On February 1, 2005 a Bilateral Trade Agreement (BTA) came into force between the U.S. and the Government of Laos. Laos and the United States do not have a bilateral taxation treaty.

OPIC and Other Investment Insurance Programs

The United States and Laos signed an Overseas Private Investment Cooperation (OPIC) agreement in March 1996. OPIC does not have any projects ongoing in Laos but the potential exists in the Lao economy for OPIC involvement. In 1998 Laos signed an agreement with the Multilateral Investment Guarantee Agency (MIGA). The Lao kip is not an internationally traded currency and fluctuated in a narrow range against the U.S. dollar in 2011.

Labor

75% of Laos ‘work force of 3.7 million is engaged in subsistence agriculture. The Lao government estimated the total non-agricultural work force in 2010 to be 923,000 people.

The 1994 labor law provides for the formation of trade unions; specifies working hours and compensation standards; allows for maternity leave and benefits; workers’ compensation and retirement benefits; and establishes procedures for labor dispute resolution. In January 2012, the Lao government raised the minimum wage for unskilled workers to $78 per month based on a six-day, eight hour per day work week.

Labor unions can be formed in private enterprises, but they must operate within the framework of the Lao Federation of Trade Unions (LFTU), which is controlled by the Lao People’s Revolutionary Party. Strikes are not prohibited by law, but a government ban on subversive activities or destabilizing demonstrations makes them unlikely.

Laos has human resource deficiencies in virtually all sectors. English is not widely spoken. In 2010, about 18 percent of the population age 15 and above remained illiterate. The shortage of skilled labor is particularly acute in high-tech sectors. The country has a few technical colleges, one scientific research facility-- the National Institute of Hygiene and Epidemiology--and almost no effective post-graduate degree programs.

The Lao Government has dedicated few of its own resources to improve the country’s education system and tends to rely heavily on international donors for support; there are a few state training programs and some foreign funded programs. Potential investors should note the need to dedicate substantial resources, both human and capital, to train employees. It is not unusual for foreign investors to bring in Thai managers due to a lack of skilled local personnel.

Foreign Trade Zones/Free Ports

The Foreign Investment Law allows for the establishment of Special Economic Zones (SEZ) and Specific Economic Zones as an investment incentive. Prime Ministerial Decree 443 on Special Economic Zones and Specific Economic Zones was issued in 2010 and provides guidance on the establishment of the zones. Special Economic Zones have a higher level of independence and incentives than Specific Economic Zones. Laos plans to construct 25 special and specific zones in the next ten years via foreign direct investment of US$3 billion.

The Savan-Seno Special Economic Zone in Savannakhet province borders both Vietnam and Thailand. It appears to be legitimately developing as a production, supply and distribution center. Other SEZ’s in the northern part of the country have experienced problems associated with casino gambling, prostitution and drug trafficking.

Lao laws pertaining to trade are supposedly applied uniformly across the entire customs territory of Laos, including all sub-central authorities, special economic zones and border trade regions. In reality, however, customs practices vary widely at ports of entry in the provinces. The recent centralization of customs collection with the central government could lead to more uniform practices and increase the flow of customs revenue to the central government by an estimated fifty to seventy percent. Laos continues centralizing its customs regime to comply with National Single Window requirements under the ASEAN Single Window 2012.

Foreign Direct Investment Statistics

GOL investment figures overstate actual investment, as they include all approved projects regardless of whether the investment actually takes place. Both the World Bank and the IMF have lower estimates than GOL figures.

Foreign investment figures fluctuate widely from year to year due to the prevalence of large-scale investments in the hydropower and mining sectors. Foreign investment comes primarily from Vietnam, China, and Thailand. Korea, France, Japan, India, Australia, Malaysia and Singapore are also major investors.

Foreign Direct Investment Year by Year Millions USD– (Source: World Bank)


2006

2007

2008

2009

2010

2011

502

838

976

796

724

1,027

Direct Investment Licensed in Laos by Country of Origin - Year 2000 through September 2011 (Source: DIP):


Rank

Country

Number of Projects

Capital

1

Laos

1,734

3,850,783,986

1

Vietnam

392

3,207,417,350

2

China

644

2,949,179,978

3

Thailand

392

2,842,748,369

4

Korean South

182

532,245,666

5

France

119

474,898,063

6

Norway

3

357,365,000

7

India

11

355,645,602

8

Japan

59

349,678,641

9

Australia

50

321,958,693

10

Malaysia

64

130,657,226

11

Singapore

46

87,946,860

12

United States

50

77,950,084

13

United Kingdom

33

67,388,795

14

Russia

12

53,957,310

15

Switzerland

11

46,559,250

16

Canada

21

40,719,897

17

Angola

1

37,500,000

18

Hong Kong

20

28,632,922

19

Sweden

8

23,183,338

20

Taiwan

24

19,181,504

21

Korea North

1

12,800,000


Foreign Investment Licensed in Lao PDR by Sector, from 2000 through September 2011, in US Dollars. (Source: DIP)

Ranks

Sector

No. of Projects

Capital

1

Electricity

25

4,575,270,341

2

Mining

230

3,655,214,097

3

Agriculture

785

2,254,468,051

4

Service

543

1,929,769,073

5

Industry & Handicraft

695

1,497,678,158

6

Construction

102

633,300,709

7

Hotel and Restaurant

229

463,315,548

8

Wood Industry

175

225,401,879

9

Trading

207

222,021,160

10

Banking

18

203,983,275

11

Telecom

11

129,938,595

12

Public Health

11

62,647,906

13

Consultancies

90

39,394,920

14

Garment

37

35,516,974

15

Education

60

22,981,961

Total

3,218

15,950,902,648

 



Back to Top
Sign-in

Do you already have an account on one of these sites? Click the logo to sign in and create your own customized State Department page. Want to learn more? Check out our FAQ!

OpenID is a service that allows you to sign in to many different websites using a single identity. Find out more about OpenID and how to get an OpenID-enabled account.