Laos sets rules to ensure incentives for investment promotion – Government, public sector


Laos has issued important new guidelines on securing incentives to promote investment in the country. The Instructions on Promoting Investment Incentives Regarding Rental and Concession Rights of State Land, published in the Official Gazette of Laos on May 28, 2021, complement the Investment Promotion Law of 2016 by clarifying the procedural requirements for general investment requirements, incentive certificate, activity specific requirements and zone categories for various districts.

The Investment Promotion Law plays a key role in clarifying Laos’ approval process for investments and business activities. The law provides a list of promoted sectors that may benefit from certain incentives (for example, income tax exemptions and exemption from rental or concession rights of state land) if they meet general requirements. of the law. Incentives can last from 4 to 15 years, depending on the type of activity promoted and the area in which it is located (ie zone 1 for remote areas, zone 2 for developed areas and zone 3 for special economic zones). In addition, the Investment Promotion Law introduced the “Incentive Certificate”, which is issued upon request when an investment activity is approved to receive promotion incentives.

However, the Investment Promotion Law was considered very general, and these instructions represent the Lao authorities’ attempt to clarify the law by specifying the types of investment activities eligible for the incentives, the procedure for applying and obtaining an incentive certificate, and other requirements for businesses and investments to thrive in Laos.

Certificate of encouragement

According to the investment promotion instructions, legal persons must submit an application for an incentive certificate to the appropriate section of the Ministry of Planning and Investment (MPI), which will coordinate internally and with other government agencies. , including the Ministry of Finance. If the activity is deemed eligible and all conditions are met, the authorities will issue the certificate within 30 working days in accordance with the following procedure:

  1. A legal person submits a request for an incentive certificate via the one-stop shop at the central or provincial level.
  2. Within 10 working days, the appropriate section of MPI coordinates with relevant government agencies at central and provincial levels to conduct an on-site inspection of the entity’s investment activity.
  3. The Single Window will submit its opinion on the matter to the Investment Promotion and Management Committee, which will render its decision within 15 working days.
  4. If approved, the incentive certificate will be issued within five business days. In case of rejection of the request, the one-stop shop will inform the requester within two working days.

According to the instructions, large investment projects that have signed a concession agreement with the Lao government and are subject to a resolution by the National Assembly on incentives beyond those provided by the Investment Promotion Law, do not have to apply for an incentive certificate.

A legal person that receives an incentive certificate must carry out the activities eligible for the incentive based on its certificate, comply with the laws and regulations of its sector, pay its taxes and other official fees and declare its activity every six months at MPI, Ministry of Finance, and any other relevant government agency.

The instructions provide that a first warning will be sent to a legal person that does not respect the law and regulations of the country. If he does not correct the wrongs in accordance with the warning within 45 working days, his tax incentives may be removed.

Investment requirements

The instructions group the investment requirements into two categories: general and specific.

All legal persons seeking investment promotion incentives must meet the general investment requirements (referred to as “horizontal requirements” in the instructions). According to the instructions, an entity must invest 1.2 billion LAK (approximately USD 127,000) in one of the promoted sectors, or employ at least 30 Laotian technicians or at least 50 Laotian workers with employment contracts of at least a year. In addition, entities must release their share capital, comply with all applicable laws and regulations (including environmental requirements) and meet their tax obligations.

Additional specific requirements apply to 108 activities in sectors promoted in the Investment Promotion Law, a list of which is detailed in the instructions. The sectors promoted by law are broad, each encompassing a range of business activities as follows:

  • High-tech and modern applications, scientific research, research and development, use of innovative and environmentally friendly technologies, efficient use of natural resources and energy;
  • Clean and non-toxic agriculture, seed production, animal husbandry, industrial plantations, forestry development, protection of the environment and biodiversity, activities promoting rural development and poverty reduction;
  • Environmentally friendly agricultural treatment, traditional and unique national artisanal processing;
  • Development of natural, cultural and historical tourism respectful of the environment and sustainable;
  • Education, sports, human resource development and workforce skills development, vocational training institutions or centers, production of educational and sports equipment;
  • Construction of modern hospitals, pharmaceutical and medical equipment factories, production and processing of traditional medicine;
  • Investment, provision of services and development of public infrastructure for the reduction of urban congestion and residential facilities, development of infrastructure for agricultural and industrial production, transport of goods, transit services and international links;
  • Political banks and microfinance focused on poverty reduction for people and communities with limited access to banks; and
  • Modern shopping centers for the promotion of national products and world-famous brands, fairs of national products (industrial, craft and agricultural).

The annex which contains the 108 activities mentioned above also contains the specific requirements for the activities subject to it. These are innumerable and often concern compliance with national or international standards, for example:

  • Factories that process sugar must comply with ISO 9001 and ISO 14000 standards and be GMP or HACCP certified within four years of the start of operations.
  • Factories that assemble two-wheeled vehicles (e.g. motorcycles) must assemble vehicles in an automated or semi-automated process using technologically advanced machinery, which must not be more than five years old from their date of production. year of manufacture. The activity must meet the ISO 9001 standards issued within four years, and the factories must be of the semi-disassembled type (SKD).

Zones

As mentioned above, the Investment Promotion Law offers different promotional incentives depending on the location – or “area” – of the activity, with Zone 1 being remote areas with limited infrastructure, Zone 1 being remote areas with limited infrastructure. 2 zones with better socio-economic infrastructure to support investment, and zone 3 for special economic zones. The Investment Promotion Law did not provide further guidance on specific areas of the country located in Zone 1 or Zone 2, and the recently issued instructions clarify this point by listing the districts that fall under each zone.

Conclusion

The instructions strengthen the investment promotion law by adding clarity and legal certainty to areas of the law that were previously left to the discretion of local authorities. Now, however, the conditions and requirements are confirmed by recent instructions and are made available to every investor in Laos. This move towards regulatory coherence is another encouraging step taken by the Laotian government to improve the country’s business climate and foster a more welcoming environment for foreign direct investment.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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