Laos

GDP (US$ Billion)

17.15 (2017)

World Ranking 113/191

GDP Per Capita (US$)

2,568 (2017)

World Ranking 135/190

Economic Structure

(in terms of GDP composition, 2018)

Services
(41.62%)
Industry
(31.55%)
Agriculture
(15.70%)

External Trade (% of GDP)

78.5 (2016)

Currency (Period Average)

Lao Kip

8,179.27per US$ (2016)

Political System

Unitary single-party people's republic

Overview

Laos is one of the fastest-growing economies in East Asia and the Pacific, underpinned by improving access to electricity, education and roads, and the implementation of structural reforms aimed at improving the business environment. However, it still lags behind its regional peers. That said, the country’s economic performance will cool somewhat over the medium term as the recent accumulation of public debt places increased pressure on its growth potential. The government is seeking to maintain macroeconomic stability by taking steps to improve domestic revenue collection, control expenditure and strengthen public debt management.

Sources: World Bank, Fitch Solutions

 

Major Economic/Political Events and Upcoming Elections

April 2016
At its five-year congress, the National Assembly appointed Bounnhang Vorachith as president and leader of the ruling Lao People's Revolutionary Party (LPRP), succeeding Choummaly Sayasone who, served as the ruling party's general secretary and president of Laos from 2006 to 2016.

 

September 2016
Former United States President Barack Obama became the first sitting United States president to visit Laos. The United States committed USD90 million dollars over three years to help clear unexploded bombs that the United States dropped on Laos during the Vietnam War.

 

December 2016
The governments of Laos and Mainland China announced the joint construction of a high speed rail line between Mainland China and Thailand to link Laos with the transport hubs in these countries.

 

July 2018
The collapse of a dam in July triggered a pause in the approvals of new hydropower projects and an official review of all existing ones in the country.

 

August 2018
A consultation process (scheduled to last six months) began for the proposed 770MW Pak Lay hydropower project on the Mekong mainstream in Laos. The consultation involved two regional stakeholder forums and a field visit to the Pak Lay project. The power plant was estimated to require a USD2.13 billion investment. Construction is likely to begin in 2022.

 

August 2018
Mainland China Southern Power Grid Co signed a memorandum of understanding with the Government of Laos to carry out a feasibility study to explore the possibilities of developing a national power grid in Laos.

 

December 2018
The Chinese government approved a special fund at the 4th Mekong-Lancang Cooperation Foreign Ministers’ Meeting. The fund would enable Mekong countries to carry out 138 projects, with Laos receiving about USD4.5 million to implement 21 projects.

 

June 2019
New 500kV and 230kV transmission lines would be installed in the capital city, Vientiane, as a joint project between Électricité du Laos and Mainland China Electric Power Equipment and Technology, an affiliate of State Grid Corporation. The project would provide a sustainable supply of electricity for the development of the capital city.

 

June 2019
Mainland China and Thailand announced that it has banned the direct and indirect import of pigs, wild boars and related products from Laos due to the first African swine fever outbreak reported by the country in June.

 

July 2019
Souliyapon Intertrade Co has selected Mainland China Machinery Engineering Co (CMEC) to serve as the general contractor for a 230MWp solar photovoltaic (PV) project in Laos' Borikhamxay Province. Under the USD345 million contract, CMEC will be responsible for the power plant's design, supply, civil engineering, construction, installation, commissioning and other works. The deal is subject to certain conditions. The construction of the facility is expected to be completed over a period of two years.

 

September 2019
Tropical storm Podul and tropical depression Kajiki caused flooding in Laos' southern provinces, which caused more than 580,000 people to be displaced and damaged infrastructure and crops in the region.

 

Sources: BBC Country Profile – Timeline, Mekong River Commission, Vientiane Times, Asia News, Fitch Solutions

Major Economic Indicators
Graph: Laos real GDP and inflation
 
Graph: Laos real GDP and inflation
 
Graph: Laos GDP by sector (2018)
 
Graph: Laos GDP by sector (2018)
 
Graph: Laos unemployment rate
 
Graph: Laos unemployment rate
 
Graph: Laos current account balance
 
Graph: Laos current account balance
 

e = estimate, f = forecast
Sources: IMF, World Bank
Date last reviewed: November 7, 2019

External Trade

Merchandise Trade

Graph: Laos merchandise trade
 
Graph: Laos merchandise trade
 
 

Source: WTO
Date last reviewed: November 7, 2019

Graph: Laos major export commodities (2016)
 
Graph: Laos major export commodities (2016)
 
Graph: Laos major export markets (2016)
 
Graph: Laos major export markets (2016)
 
Graph: Laos major import commodities (2016)
 
Graph: Laos major import commodities (2016)
 
Graph: Laos major import markets (2016)
 
Graph: Laos major import markets (2016)
 

Note: Direct 2017 and 2018 data not available
Sources: Trade Map, Fitch Solutions
Date last reviewed: November 7, 2019

 

Trade in Services

Graph: Laos trade in services
 
Graph: Laos trade in services
 
 

e = estimate
Source: WTO
Date last reviewed: November 7, 2019

Trade Policies
  • Laos became the 158th member of the World Trade Organization (WTO) on February 2, 2013.

  • All goods imported into Laos are subject to import duty. Exemptions are available to enterprises operating promoted investment activities.

  • The Association of South East Asian Nations (ASEAN) was established on August 8, 1967 in Bangkok, Thailand, with the signing of the ASEAN Declaration (Bangkok Declaration) by the founding members of ASEAN, namely Indonesia, Malaysia, the Philippines, Singapore and Thailand. Laos joined the association on July 23, 1997. ASEAN Vision 2020, adopted by the ASEAN leaders on the 30th Anniversary of ASEAN, agreed on a shared vision of ASEAN to promote economic growth and regional stability.

  • Generally, duty rates are based on the ASEAN tariff nomenclature for imports from ASEAN member countries (ASEAN Trade in Goods Agreement – ATIGA).

  • Under ATIGA, ASEAN aims to deepen economic linkages among member states by reducing trade barriers to allow a free flow of goods in the region. Cambodia, Laos, Myanmar and Vietnam have reduced their import duties to 0-5% on 98.86% of their tariff lines. Laos is continuing efforts to reduce its tariffs for ASEAN imports to zero. Focus is given to addressing non-tariff barriers, which is positive for investors as it will help to lower overall trade costs, increase trade volumes and create a larger market and economies of scale for businesses.

  • Laos has signed free trade agreements (FTAs) with ASEAN dialogue countries: Australia and New Zealand (under their Closer Economic Relations FTA), Mainland China, India, Japan and South Korea; otherwise, normal rates are applied. Duty rates range between 0% and 40% depending on whether the goods are from within the ASEAN region or from another source.

  • Excise tax is levied on consumers of certain imported goods, domestic produced goods, and services within the territory of Laos. The rates range from 5% to 90%. Importers file and pay excise tax at the time of filing at customs checkpoints. Domestic producers and service suppliers file their monthly excise tax returns no later than the 15th day of the following month.

  • The standard value-added tax (VAT) rate is 10%. VAT is imposed on the final consumer of goods and services. Domestic goods and services used for production, trading, and consumption in Laos; goods imported into Lao, and services rendered by foreigners to Lao customers, are subject to VAT. Certain goods and services are exempt including unprocessed agricultural products, seeds, fertilisers, textbooks, education services, medical services, certain bank services, and financial institution services.

  • Exported goods are zero-rated, except for natural resources that are not finished goods, which are subject to a 10% VAT. The conventional credit method is used to calculate the VAT payable. Excess input VAT can be carried forward for six months (extendable) relating to goods and services. Excess input VAT arising from capital expenditures that are regarded as fixed assets can be claimed until it is fully utilised. Input VAT for exports is refundable.

  • One unique feature is that VAT is imposed on the services rendered by overseas service providers to domestic service users (withholding VAT at a rate of 10%).

  • 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, which weakens profitability and flexibility in this sector. Other goods prohibited for import and export range from explosives and weapons to certain forestry products and wildlife.

  • In May 2016, Lao Prime Minister Thongloun Sisoulith issued a moratorium on the export of logs and timber in order to decrease shipments of illegally obtained logs, timber, processed wood, roots, branches, and trees from natural forests.

Sources: WTO – Trade Policy Review, national sources, Fitch Solutions

Trade Agreements

Multinational Trade Agreements

Active

  1. ASEAN: The ASEAN Free Trade Area (AFTA) is a trade bloc agreement supporting local manufacturing in all ASEAN countries. Laos benefits from increased regional integration and tariff liberalisation, which includes the elimination of import duties in various sectors and classes of goods and maximum tariffs of up to 5% between members. These factors will help reduce input costs for businesses and increase the country's exporting capacity and industrial base in the long term. The 10 member states are Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Myanmar, Cambodia, Laos and Vietnam. Exports of most agricultural and industrial products from Laos to these markets are not subject to tariff rates, except for those under the General Exception List or the Sensitive List when exporting to newer ASEAN members (Cambodia, Myanmar and Vietnam). As a member of ASEAN, Laos' economy is open to other significant trade agreements with key regional markets, such as China and India.

  2. ASEAN-Mainland China Free Trade Area (ACFTA): The framework agreement on Comprehensive Economic Cooperation between ASEAN and Mainland China – signed on November 5, 2002 – marked ASEAN's first FTA with a dialogue partner. Trade relations between Laos and Mainland China benefit from trade preference in terms of tariff exemption or reduction under ACFTA. Mainland China is an important market for Laos as it is the country's major trading partner and an important source of investment.

  3. ASEAN-Japan FTA (AJFTA): The framework for a Comprehensive Economic Partnership (CEP) between ASEAN and Japan was signed by leaders at the ASEAN-Japan Summit on October 8, 2003, and was aimed at establishing a CEP agreement between ASEAN and Japan. The agreement on the ASEAN-Japan CEP (AJCEP) concluded in November 2007 and signing was completed on April 14, 2008. The AJCEP is comprehensive in scope, with chapters on trade in goods; sanitary and phytosanitary measures; standards, technical regulations and conformity assessment procedures; investment; services and economic cooperation. The agreement aims to liberalise and facilitate the trade in goods between ASEAN and Japan, and to promote cooperation in fields such as information and communications technology, intellectual property, and small- and medium-sized enterprise development. The parties will also continue to discuss and negotiate improvements to the chapters on trade in services and investment. Trade relations between Laos and Japan benefit from trade preference in terms of tariff exemption or reduction under the AJFTA. Japan is a large developed market and one of Laos' major trade partners.

  4. ASEAN-South Korea FTA (AKFTA): ASEAN and South Korea consolidated their partnership by signing the Framework Agreement on Comprehensive Economic Cooperation at the ninth ASEAN-South Korea Summit on December 13, 2005, which – among others – provides for the establishment of the ASEAN-South Korea Free Trade Area. Under this framework, three major agreements on trade in goods (August 24, 2006), trade in services (November 20, 2007) and investment (June 2, 2009) were signed. The agreement provides for the progressive reduction and elimination of tariffs by each country on almost all products. Laos benefits from trade preference in terms of tariff exemption or reduction under this agreement.

  5. ASEAN-India FTA (AIFTA): The ASEAN-India Trade in Goods Agreement (TIG) was signed at the 7th ASEAN Economic Ministers (AEM) – India Consultations on August 13, 2009. The agreement entered into force on January 1, 2010 for India and some ASEAN member states. The ASEAN-India Trade in Services and Investment Agreements were signed in November 2014. Laos benefits from trade preference in terms of tariff exemption or reduction under the AIFTA. This will help Laos in terms of trade growth and diversification given the size and performance of the Indian economy and other ASEAN member states.

  6. Laos-Vietnam Border Trade Agreement: Apart from ASEAN, Laos benefits from reciprocal access under the trade agreement between Laos and Vietnam for 32 tariff lines with 50% of the AFTA rate, while all other products are at a 0% rate, except for 155 tariff lines which fall under the GEL of Vietnam. Vietnam is a high-growth developing market and Laos's third highest import source and export destination.

  7. The ASEAN-Australia-New Zealand FTA (AANZFTA): Signed on February 27, 2009, the agreement is ASEAN's first FTA with two developed countries simultaneously and the first ASEAN FTA done in a single undertaking. AANZFTA represents ASEAN's most ambitious FTA to date, covering 18 chapters that include new areas that ASEAN had not previously negotiated on, such as competition policy and intellectual property. The AANZFTA also includes an AANZFTA Economic Cooperation Support Programme, which will provide technical assistance and capacity building to the parties of the AANZFTA with the aim of supporting the implementation of the agreement and supporting the overall regional economic integration process. The agreement entered into force for all parties in 2012 and work is currently under way to resolve and implement the built-in agenda as stipulated under the agreement. The agreement aims to eliminate tariffs on 99% of exports to key ASEAN markets by 2020.

  8. ASEAN-Hong Kong FTA (AHKFTA): Hong Kong and ASEAN commenced negotiations of an FTA and an investment agreement in July 2014. After 10 rounds of negotiations, Hong Kong and ASEAN announced the conclusion of the negotiations in September 2017 and forged the agreements on November 12, 2017. The agreements are comprehensive in scope, encompassing trade in goods and in services, investment, economic and technical co-operation, dispute settlement mechanisms and other areas. The agreements will bring legal certainty, better market access and fair and equitable treatment in trade and investment, thus creating new business opportunities and further enhancing trade and investment flows between Hong Kong and ASEAN. The agreements will also extend Hong Kong's FTA and investment agreement network to cover all major economies in South East Asia. The agreement came into force on January 1, 2019, but will take time for all members of ASEAN to comply as implementation is subject to the completion of the necessary procedures. Hong Kong is a key export market and the reduction of tariffs will ease the trading process. Hong Kong's potential as a key export market increases the importance of the AHKFTA.

Under Negotiation

Regional CEP (RCEP): There are ongoing negotiations about the RCEP, a regional economic agreement being negotiated between the ASEAN governments and their six FTA partners: Australia, Mainland China, India, Japan, New Zealand and South Korea. This is a combined population of more than three billion people responsible for contributing to around one-third of the world's GDP. The RCEP is envisioned to be a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement that aims to advance economic cooperation, via the broadening and deepening of integration in the region, building on existing economic linkages. The RCEP would lower tariff and non-tariff barriers to the trade of goods among the 16 countries that are in, or have existing trade deals with ASEAN.

Note: Only major FTAs cited
Sources: WTO Regional Trade Agreements database, Asean.org, Fitch Solutions

Investment Policy

Foreign Direct Investment

Graph: Laos FDI stock
 
Graph: Laos FDI stock
 
Graph: Laos FDI flow
 
Graph: Laos FDI flow
 

Source: UNCTAD
Date last reviewed: November 7, 2019

 

Foreign Direct Investment Policy

  1. Under its National Development Vision for 2021-2025, the government has identified investment in agriculture, services, industry and handicraft and has demarcated the country into three zones that are eligible for various tax and other non-fiscal investment incentives. These efforts by the Lao government to attract foreign direct investment (FDI) inflows have huge potential for investors.

  2. The Laotian Investment Promotion Department (IPD) promotes FDI and evaluates foreign investment proposals. Laos has set up various special economic zones (SEZs) in the country, offering benefits, such as profit tax (PT) and VAT reductions. PT incentives are provided under the Law on Investment Promotion 2016. This law divides investment areas into three zones, namely Zone 1, Zone 2, and Zone 3. The PT exemptions are as follows:

    • Zone 1: Areas designated as poor zones or remote zones with socio-economic infrastructure unfavourable to investment; PT is exempt for 10 years.

    • Zone 2: Areas designated as zones with socio-economic infrastructure favourable to investment; PT is exempt for four years.

    • Zone 3: Areas designated as SEZs; PT is exempt as per relevant regulations.

  3. Additional PT exemptions are available if investment is in the activities set out in item 2, 3, 5, and 6 of Article 9 of the Law on Investment Promotion, as follows:

    • Item 2: Clean, toxic-free agriculture, planting seed production, animal breeding, industrial plantation, forestry development, protection of environment and bio diversity, activities promoting rural development and poverty reduction.

    • Item 3: Environmentally-friendly agricultural processing industry; national, traditional and unique handicraft processing industry.

    • Item 5: Educations, sports, human resources development and labour skill development, vocational training institutions or centres, and the production of educational and sports equipment.

    • Item 6: Construction of modern hospitals, pharmaceutical and medical equipment factories, and the production of and treatment by traditional medicine.

    •  
    PT exemption starts from the date of the investing enterprise generating business revenues. After finishing the period of PT exemption – as mentioned above – the enterprise will pay PT in accordance with the Law on Tax.

    •  
  4. The Law on Investment Promotion stipulated uniform business registration requirements and tax incentives for foreign and domestic investors. The government also provides special incentives for priority sectors, including tourism, telecommunication and education.

  5. The 2010 Law on Investment Promotion states that foreign and domestic investors are offered the same tax incentives and business registration procedures.

  6. Under the 2010 Prime Ministerial Decree 443 on SEZs and Specific Economic Zones, foreign investors are encouraged to invest in the country's various zones.

  7. Foreign investors seeking to establish operations in Laos are typically required to go through several steps prior to commencing operations. In addition to an investment licence, 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, appropriate permits from local authorities, and an import-export licence. Obtaining the necessary permits can pose a challenge, especially in areas outside the capital. In addition, the lack of substantive regulations on merger and acquisition activities makes some transactions challenging to carry out.

  8. The government has instituted a number of measures to encourage foreign investment and increased private investment. The Lao Stock Exchange opened on October 10, 2010, and the first day of trade was January 11, 2011. Foreigners involved in large-scale FDI projects may also be obliged to give the state partial ownership in their firm.

  9. Foreign partners in a joint venture must contribute at least 30% of the company's registered capital. Throughout the period of operation of a foreign enterprise, the local assets of the enterprise must not be less than its registered capital.

  10. The exploitation of natural resources for the generation of energy requires a joint venture with a local party. 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.

  11. On September 13, 2011, Laos issued a new ministerial decree relating to the Law on Investment Promotion of 2009 in order to allow foreign investors to own land in Laos. According to this new regulation, foreigners are allowed to purchase a maximum of 800sq m of land from provincial and national authorities if they have invested at least USD500,000 in the country.

  12. There are local equity ownership requirements in the production of beer and other alcohol production, as well as the production of medicine and the wholesale of beverages, tobacco, clothes and machinery.

  13. Laos does not allow for investors to participate in the security and defence industries, funerals and related services, religious education, the manufacture of cultural products that are damaging to national culture, and chemical substances and industrial waste that may be hazardous to human health. Foreigners are also prohibited from producing a number of Lao cultural handicrafts, as well as from fishing and operating fish farms (unless certain conditions are met).

  14. The mining industry's future remains unclear as the negative environmental effects of mining activity worsen. In 2012, the government issued a moratorium on new mining ventures, and announced in November 2016 that it was considering a permanent ban on new projects in the sector. It is unlikely that this will be the case as Laos is heavily dependent on rents from the industry; however, potential investors should expect increased regulatory oversight.

  15. Laos has a number of bilateral investment treaties in place. The following countries have all entered into agreements with the the government of Laos including Australia, China, Cuba, Denmark, France, Germany, Japan, South Korea, Kuwait, Mongolia Myanmar, Netherlands, Pakistan, Russia, Singapore, Sweden, Switzerland, Thailand, United Kingdom and Vietnam. In addition, Malaysia, Belarus and Cambodia have signed agreements with Laos that have yet to come into effect.

  16. Mainland China is looking to establish a free trade zone in the Mekong region on the border between Laos and Thailand. The Chinese government will waive tariffs and VAT on goods coming from the zone.

Sources: WTO – Trade Policy Review, ITA, US Department of Commerce, Fitch Solutions

 

Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive Programme Main Incentives Available
Savan-Seno SEZ (established in 2003) Location Advantage:

- The project sites are close to Road No 9 as part of the East-West Economic Corridor and the Second Lao-Thai Friendship Bridge.

Tax Incentives by Sector:

- The services sector will be granted exemption from PT for a period of 2-10 years; after the exemption expires; 8% or 10% corporate profit tax will be applied based on investment capital.

- Trade sector activities are granted the exemption from PT for a period of 2-5 years; after expiry of exemption, a 10% corporate profit tax will be applied.

- Industrial sector activities are granted the exemption from PT for a period of 5-10 years; after expiry of exemption, an 8% corporate profit tax will be applied.
Boten Beautiful Land SEZ (established in 2003) Location Advantage:

- The project site is geographically located adjacent to Road A3 as a strategic route to connect to ASEAN+3 (Mainland China, South Korea and Japan).
Golden Triangle SEZ (established in 2007) Location Advantage:

- The site is situated on the borders of two countries: Thailand and Myanmar.
Thatluang Lake SEZs (established in 2011) Location Advantage:

- The site is situated in the centre of the capital city, Vientiane.
Thakhek SEZs (established in 2012) Location Advantage:

- The site is located along the 450 Year Road in Vientiane.

Key incentives:

- Land Tenure: 75 years
- Land Leasing: 0.0-0.19 USD/m2/month
- Electricity: 0.059-0.065 USD/kWh
- Water Fee: USD0.05/m3
Long Thanh – Vientiane Specific Economic Zone (established in 2012) Location Advantage:

- The site is located along the 450 Year Road in Vientiane Capital, 400m from the Lao-Thai Friendship Bridge and 16km from the centre of Vientiane.
Dongphosy SEZ (established in 2012) Location Advantage:

- The project site is located along the 450 Year Road in Vientiane Capital, 400m from the Lao-Thai Friendship Bridge and 16km from the centre of Vientiane.
Phoukhyo SEZ (established in 2010)
 
Location Advantage:

- The site is located 14km from the Third Lao-Thai Friendship Bridge and close to Road No 12 as a main route to Vuong Anh deep sea port in Vietnam.

Key Incentives:

- Land Tenure: 99 years
- Low electricity costs: USD0.06-0.08/kWh

Tax Incentives by sector:

- Finance, education and public health sectors will be granted exemption from profit tax for a period of 3-6 years; after the expiry of the exemption, a 3-4% corporate profit tax will be applied.

- The tourism, sport and agriculture sectors will be granted exemption from profit tax for a period of 3-7 years; after expiry of the exemption, a 4-5% corporate profit tax will be applied.

- The trade, transport and services sector will be granted exemption from profit tax for a period of 3-8 years; after expiry of the exemption, a 5-6% corporate profit tax will be applied.

- The light industries sector will be granted exemption from PT for a period of 3-9 years; after expiry of the exemption, a 6-7% corporate profit tax will be applied.

- The industries sector will be granted the exemption of PT for a period of 3-10 years; after the expiry of the exemption, a 7-8% corporate profit tax will be applied.
Pakse-Japan SME SEZ (established 2015) In September 2015, the government approved the development of an SEZ in the southern city of Pakse, a 625-hectare site dedicated to small-and medium sized Japanese companies.

Location Advantage:

- By car, Pakse City is 20 minutes with the International Airport 15 minutes away.

- The border with Thailand (Van Tao) is 60 minutes by car.
For all Special Zones: Generally, investors also benefit from:

- Zone-specific incentives and exemption from import duties for the import of raw material, equipment, spare-parts and vehicles that are directly used for production.

- Exemption from export duties for the export of general goods and products.

- If an investor suffers losses after the completion of tax finalisation with the tax office, the investor will be permitted to carry the losses forward for three consecutive accounting years.

Sources: Laos Ministry of Planning and Investment – Investment Promotion Department, Fitch Solutions

Taxation – 2019
  • Value Added Tax: 10%
  • Corporate Income Tax: 24%

Source: Lao PDR Ministry of Finance

 

Important Updates to Taxation Information

The passage of the revised State Budget Law (SBL) in December 2015 should help to strengthen public financial management in Laos over the coming years. According to the Ministry of Finance, the revised law, which became effective in 2017, will help to strengthen the authority of the National Assembly in budget oversight, as well as enhance the capacity of the Ministry of Finance in budget management. Greater fiscal discipline and monitoring, as well as improving regional integration, will have positive implications for the tax burden that firms and individuals in the country face.

 

Business Taxes

Type of Tax Tax Rate and Base
PT Corporate income tax is staggered such that the standard rate is 24%. Tobacco businesses are subject to tax at a rate of 26%. A progressive tax rate of between 3% and 7% is applicable to small and medium enterprises, depending on the nature of the business and its revenue.
Withholding Tax Dividends: 10%
Interest from lending activities (non-bank), commission, and guarantee fees: 10%
Intellectual property (IP) royalty: 5%
Profit from sale of shares: 2% to 10%
Profit from sale of real property: 2% to 5%
VAT 10%; applicable to businesses with an annual income of LAK400 million (USD50,000) or more
Social security Both employers and employees are required to pay into the national social security fund under the Social Security Decree at 6% of gross salary by the employer and 5.5% by the employee.

Sources: Lao PDR Ministry of Finance, Fitch Solutions
Date last reviewed: November 7, 2019

Foreign Worker Requirements

Localisation Requirements

Employers are required to give priority to Lao nationals. To employ foreign nationals, approval must be obtained from the Ministry of Labour and Social Welfare.

Foreign workers also need to possess a skill that is in short supply in the country to be able to work in Laos.

Companies must make a proposal through the Skills Development and Employment Department of the Ministry of Labour and Social Welfare – or through labour sections of provinces or municipalities – in order to hire foreign employees.

The total percentage of foreign workers as a proportion of the total workforce is capped at 10%, for foreign workers undertaking menial labour and 20% for professionals with specialised skills.

Foreign workers are allowed to enter into employment agreements for an initial period of 12 months, renewable for another 12 months. The period of employment for a foreign worker in Laos cannot exceed five years in total.

Depending on the expertise of the employee and the requirements of the business, employers can request from the Labour Administration Authority that a foreign worker continues working for another additional period, which cannot exceed five years.

 

Obtaining Foreign Worker Permits for Skilled Workers

Foreign workers are legally required to have a valid employment visa and work permit before commencing work in Laos. A sponsor is required from a locally licensed and incorporated entity in order to apply for work permits. There are different types of work visas issued in Laos. A labour visa (LA-B2) is the most common type held for the purposes of living and working in Laos. Work visas may be valid for a period of 3, 6 or 12 months and are be renewable for a total period not exceeding 5 years.

 

Visa/Travel Restrictions

Laos has an open visa policy; nationals of many countries can be issued a visa on arrival. Nationals from member states of the ASEAN do not require a visa to enter Laos (for a limited stay of between 14 and 90 days, depending on the country and type of passport held), and nationals of many other countries can be issued a visa on arrival. However, nationals of certain countries are not eligible for a visa on arrival and must secure one in advance. On July 11, Laos launched its eVisa service to streamline the application and approval process. However, the eVisa system can currently only be used at three international ports, namely Wattay International Airport, Lao-Thai Friendship Bridge 1 and Luang Prabang International Airport.

Sources: Government websites, Fitch Solutions

Risks

Sovereign Credit Ratings

  Rating (Outlook) Rating Date
Moody's No rated N/A
Standard & Poor's No rated N/A
Fitch Ratings No rated N/A

 

Competitiveness and Efficiency Indicators

  World Ranking
2018 2019 2020
Ease of Doing Business Index 141/190 154/190 154/190
Ease of Paying Taxes Index 156/190 155/190 157/190
Logistics Performance Index 82/160 N/A N/A
Corruption Perception Index 132/180 N/A N/A
IMD World Competitiveness N/A N/A N/A

Sources: World Bank, Transparency International

 

Fitch Solutions Risk Indices

  World Ranking
2017 2018 2019
Economic Risk Index Rank N/A 157/202 170/202
Short-Term Economic Risk Score 34.6 34.6 34.2
Long-Term Economic Risk Score 41.5 41.3 40.1
Political Risk Index Rank N/A 128/202 127/202
Short-Term Political Risk Score 80.4 80.4 80.4
Long-Term Political Risk Score 55.8 56.5 56.5
Operational Risk Index Rank N/A  144/201 146/201
Operational Risk Score 38.6 38.3 38.4

Source: Fitch Solutions
Date last reviewed: November 7, 2019

 

Fitch Solutions Risk Summary

ECONOMIC RISK

The outlook for the economy remains positive and momentum should be supported by growth in the power sector, ASEAN regional growth and infrastructure project investment. However, overdependence on foreign investment and rising external debt leave the country vulnerable to external risks. Ongoing efforts by the Lao government to attract foreign direct investment inflows to the hydropower and tourism sectors will keep the economy on a strong growth trajectory over the coming years. Laos's long-term economic risk outlook reflects the government's poor track record of managing expenditure, the elevated external debt stock, as well as an underdeveloped financial system. In addition, the current account deficit will likely widen in 2019, driven by imports related to the infrastructure projects. A narrow economic base also poses risks to the country's ability to sustain its economic growth momentum.

OPERATIONAL RISK

The major industries in Laos include mining, hydropower, agriculture and light manufacturing. As a developing state which is still in the process of implementing investor-friendly reforms and regional economic integration, Laos poses a number of pertinent operational risks to businesses. The small and largely undiversified labour market suffers from limited skills development, particularly in rural areas. The transport network is underdeveloped and relies heavily on a poor-quality road system and limited alternative freight options, further increasing logistics costs which are already elevated due to still-burdensome trade bureaucracy and high fuel costs.

Source: Fitch Solutions
Date last reviewed: November 7, 2019

 

Fitch Solutions Political and Economic Risk Indices

Graph: Laos short term political risk index
 
Graph: Laos short term political risk index
 
Graph: Laos long term political risk index
 
Graph: Laos long term political risk index
 
Graph: Laos short term economic risk index
 
Graph: Laos short term economic risk index
 
Graph: Laos long term economic risk index
 
Graph: Laos long term economic risk index
 

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: November 7, 2019

 

Fitch Solutions Operational Risk Index

  Operational Risk Labour Market Risk Trade and Investment Risk Logistics Risk Crime and Security Risk
Laos score 38.4 40.5 34.5 40.8 37.6
East and Southeast Asia average 55.5 55.9 56.7 55.6 53.6
East and Southeast Asia position (out of 18) 15 17 15 14 14
Asia average 48.4 49.7 48.2 46.8 49.1
Asia position (out of 35) 26 28 25 20 27
Global average 49.7 50.3 49.8 49.3 49.2
Global Position (out of 201) 146 158 153 125 142

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Laos vs global and regional averages
 
Graph: Laos vs global and regional averages
 
Country Operational Risk Labour Market Risk Trade and Investment Risk Logistics Risk Crime and Security Risk
Singapore 83.0 78.2 88.6 78.9 86.3
Hong Kong 81.6 72.3 88.8 80.6 84.5
Taiwan 72.5 65.6 76.2 76.3 71.9
South Korea 71.8 65.9 71.4 79.6 70.4
Malaysia 69.5 63.8 73.6 73.9 66.8
Macao 64.0 61.7 66.5 58.7 69.1
Brunei 62.3 61.6 60.7 60.0 67.0
Thailand 60.4 55.6 67.2 69.1 49.4
Mainland China 57.6 53.8 57.7 71.7 47.3
Indonesia 53.8 54.4 53.3 55.6 51.8
Vietnam 52.8 47.8 56.6 57.7 49.0
Mongolia 51.6 56.0 53.8 40.9 55.6
Philippines 47.3 57.0 50.7 45.4 36.2
Cambodia 40.8 44.5 43.7 35.0 39.8
Laos 38.4 40.5 34.5 40.8 37.6
North Korea 31.0 45.8 18.5 27.6 32.3
Myanmar 30.3 43.9 31.9 27.7 17.8
Timor-Leste 29.9 37.9 27.8 21.5 32.3
Regional Averages 55.5 55.9 56.8 55.6 53.6
Emerging Markets Averages 46.9 48.5 47.4 45.8 45.9
Global Markets Averages 49.7 50.3 49.8 49.3 49.2

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: November 7, 2019

Hong Kong Connection

Hong Kong’s Trade with Laos

Graph: Major export commodities to Laos (2018)
 
Graph: Major export commodities to Laos (2018)
 
Graph: Major import commodities from Laos (2018)
 
Graph: Major import commodities from Laos (2018)
 

Note: Graph shows the main Hong Kong export to/import from Laos (by consignment)
Date last reviewed: November 7, 2019

Graph: Merchandise exports to Laos
 
Graph: Merchandise exports to Laos
 
Graph: Merchandise imports from Laos
 
Graph: Merchandise imports from Laos
 

Note: Graph shows Hong Kong exports to/import from Laos (by consignment)
Exchange Rate HK$/US$, average
7.76 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Source: Hong Kong Census and Statistics Department
Date last reviewed: November 7, 2019

  2018 Growth rate (%)
Number of Lao residents visiting Hong Kong 3,356 12.3

Sources: Hong Kong Tourism Board, Fitch Solutions

  2018 Growth rate (%)
Number of Asia Pacific residents visiting Hong Kong 61,043,576 12.0
  2017 Growth rate (%)
Number of East Asians and South Asians residing in Hong Kong 2,784,870 1.6

Sources: Fitch Solutions, United Nations Department of Economic and Social Affairs - Population Division
Date last reviewed: November 7, 2019

 

Commercial Presence in Hong Kong

  2016 Growth rate (%)
Number of Lao companies in Hong Kong N/A N/A
- Regional headquarters
- Regional offices
- Local offices

 

Treaties and Agreements between Hong Kong and Laos

  • Laos has a Bilateral Investment Treaty with China that entered into force on June 1, 1993.
  • The agreement between China and Laos for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, was signed in January 1999 and entered into force in June 1999.

Sources: State Taxation Administration, UNCTAD

 

Chamber of Commerce (or Related Organisations) in Hong Kong

Hong Kong-ASEAN Economic Cooperation Foundation (HKAECF) Limited

The main activities of HKAECF are to contribute to the fostering, promotion and facilitation of economic cooperation between Hong Kong and the 10 member countries of ASEAN ('1+10'), and between the ASEAN region and China ('10+1') with Hong Kong serving as a high value-adding and facilitating key international hub, bridge, connector, promotor and investor.

Address: Hong Kong-ASEAN Economic Cooperation Foundation Limited, G.P.O. Box 12779, Hong Kong

Email: secretariat@hk-asean.com

Source: Hong Kong-ASEAN Economic Cooperation Foundation Limited

 

Consulate General of the Lao PDR in Hong Kong

Address: Room 1402, 14/F, Arion Commercial Centre, 2-12 Queen's Road West, Sheung Wan, Hong Kong

Website: www.laoconsulatehongkong.gov.la

Tel: (852) 2544 1186

Source: Visa on Demand

 

Visa Requirements for Hong Kong Residents

HKSAR passport holders need a visa to enter Laos. Diplomatic and service passport holders have visa-free access to Laos for 14 days. HKSAR passport holders can also apply for a visa upon arrival at Lao International Airports or Lao International border checkpoints for tourist purpose for 30-day stay. Visitors intending to travel to Laos through the specific five ports of entry can apply for online visa via the e-visa system www.laoevisa.gov.la.

Source: Visa on Demand

Date last reviewed: Nov 15, 2019

Image name View