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, 2017)

Services
(41.50%)
Industry
(31.00%)
Agriculture
(16.00%)

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, as well as the implementation of structural reforms aimed at improving the business environment. Notwithstanding the flood-related disasters of mid-2018, economic growth is expected to remain robust in 2019, further supported by regional integration efforts. However, the country continues to face a challenging fiscal situation in the near term. In this way, the government is seeking to maintain macroeconomic stability by taking actions to improve domestic revenue collection, controlling expenditure and strengthening public debt management.

Sources: World Bank, Fitch Solutions

Major Economic/Political Events and Upcoming Elections

April 2016

National Assembly at its five-year congress appointed Bounnhang Vorachit 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 China announced the joint construction of a high speed rail line between China and Thailand to link Laos with the transportation 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.

Sources: BBC Country Profile – Timeline, Mekong River Commission, Fitch Solutions

Overview

Laos is one of the fastest growing economies in East Asia and the Pacific, underpinned by improving access to electricity, education and roads, as well as the implementation of structural reforms aimed at improving the business environment. Notwithstanding the flood-related disasters of mid-2018, economic growth is expected to remain robust in 2019, further supported by regional integration efforts. However, the country continues to face a challenging fiscal situation in the near term. In this way, the government is seeking to maintain macroeconomic stability by taking actions to improve domestic revenue collection, controlling expenditure and strengthening public debt management.

Sources: World Bank, Fitch Solutions

Major Economic/Political Events and Upcoming Elections

April 2016

National Assembly at its five-year congress appointed Bounnhang Vorachit 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 China announced the joint construction of a high speed rail line between China and Thailand to link Laos with the transportation 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.

Sources: BBC Country Profile – Timeline, Mekong River Commission, Fitch Solutions

Major Economic Indicators
Graph: Laos real GDP and inflation
 
Graph: Laos real GDP and inflation
 
Graph: Laos GDP by sector (2017)
 
Graph: Laos GDP by sector (2017)
 
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, Fitch Solutions

Date last reviewed: May 1, 2019

External Trade

Merchandise Trade

Graph: Laos merchandise trade
 
Graph: Laos merchandise trade
 
 

Source: WTO

Date last reviewed: May 1, 2019

Graph: Laos major export commodities (2018)
 
Graph: Laos major export commodities (2018)
 
Graph: Laos major export markets (2018)
 
Graph: Laos major export markets (2018)
 
Graph: Laos major import commodities (2018)
 
Graph: Laos major import commodities (2018)
 
Graph: Laos major import markets (2018)
 
Graph: Laos major import markets (2018)
 

Sources: Trade Map, Fitch Solutions

Date last reviewed: May 1, 2019

Trade in Services

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

Note: 2017 direct data not available

Source: WTO

Date last reviewed: May 1, 2019

Trade Policies
  • Laos became the 158th member of the World Trade Organisation (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, Philippines, Singapore and Thailand. Laos joined the association on July 23, 1997. The 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).

  • Lao has also signed free trade agreements (FTAs) with ASEAN dialogue countries: Australia and New Zealand (under their Closer Economic Relations FTA), China, India, Japan, and South Korea; otherwise, normal rates are applied. Duty rates range between 0% and 40%, depending on whether the goods are ASEAN 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 the customs declarations at the 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 Lao, goods imported into Lao, and services rendered by foreigners to Lao customers, are subject to VAT. Certain goods and services are exempt from VAT. Exempted items include 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 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.

Source: 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 that 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, Philippines, Singapore, Thailand, Myanmar, Cambodia, Laos and Vietnam. Exports from Laos destined to these markets are subject to 0% tariff rates for most agricultural and industrial products, except for those under the General Exception List (GEL), as well as under the Sensitive List (SL) exporting to newer ASEAN members (Cambodia, Myanmar and Vietnam). As a member of ASEAN, Lao's economy is open to other significant trade agreements with key regional markets, such as China and India.

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

  3. ASEAN-Japan FTA (AJFTA): The Framework for Comprehensive Economic Partnership between ASEAN and Japan was signed by leaders at the ASEAN-Japan Summit on October 8, 2003 and was aimed at establishing a Comprehensive Economic Partnership agreement between ASEAN and Japan (AJCEP. The agreement on Comprehensive Economic Partnership among member states of the ASEAN and Japan was concluded in November 2007 and signing was completed on April 14, 2008. 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 (SME) 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 9th 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, trade in services and investment were signed on August 24, 2006, November 20, 2007 and June 2, 2009 respectively. The agreement provides for 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 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' 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, including 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 as well as to support the overall regional economic integration process. As of 2012, the agreement has entered into force for all parties and work is currently underway 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, trade in services, investment, economic and technical co-operation, dispute settlement mechanism and other related 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 AHKFTA.

Under Negotiation

Regional Comprehensive Economic Partnership (RCEP): There are ongoing negotiations about the RCEP, a regional economic agreement being negotiated between the ASEAN governments and their six FTA partners: Australia, China, India, Japan, New Zealand and South Korea. This totals to a population of over three billion people responsible for contributing to around a 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

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 that 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, Philippines, Singapore, Thailand, Myanmar, Cambodia, Laos and Vietnam. Exports from Laos destined to these markets are subject to 0% tariff rates for most agricultural and industrial products, except for those under the General Exception List (GEL), as well as under the Sensitive List (SL) exporting to newer ASEAN members (Cambodia, Myanmar and Vietnam). As a member of ASEAN, Lao's economy is open to other significant trade agreements with key regional markets, such as China and India.

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

  3. ASEAN-Japan FTA (AJFTA): The Framework for Comprehensive Economic Partnership between ASEAN and Japan was signed by leaders at the ASEAN-Japan Summit on October 8, 2003 and was aimed at establishing a Comprehensive Economic Partnership agreement between ASEAN and Japan (AJCEP. The agreement on Comprehensive Economic Partnership among member states of the ASEAN and Japan was concluded in November 2007 and signing was completed on April 14, 2008. 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 (SME) 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 9th 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, trade in services and investment were signed on August 24, 2006, November 20, 2007 and June 2, 2009 respectively. The agreement provides for 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 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' 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, including 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 as well as to support the overall regional economic integration process. As of 2012, the agreement has entered into force for all parties and work is currently underway 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, trade in services, investment, economic and technical co-operation, dispute settlement mechanism and other related 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 AHKFTA.

Under Negotiation

Regional Comprehensive Economic Partnership (RCEP): There are ongoing negotiations about the RCEP, a regional economic agreement being negotiated between the ASEAN governments and their six FTA partners: Australia, China, India, Japan, New Zealand and South Korea. This totals to a population of over three billion people responsible for contributing to around a 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: May 1, 2019



Foreign Direct Investment Policy

  1. 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 exempted for 10 years.

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

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

  2. 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, production of educational and sports equipment.

    • Item 6: Construction of modern hospitals, pharmaceutical and medical equipment factory, production 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 to the Law on Tax.                                                                                                                
  3. 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 prioritised sectors, including tourism, telecommunication and education.

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

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

  6. 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.

  7. 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.

  8. 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.

  9. The exploitation of natural resources of 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.

  10. 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.

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

  12. Laos does not allow for investors to participate in the security and defence industries, funerals and related services, religious education, manufacturing of cultural products that are damaging to national culture, 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).

  13. 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.

  14. Laos has a number of bilateral investment treaties in place. The following countries have all entered into agreements with the Lao government 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.

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 the exemption of PT for a period of two to 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 of PT for a period of two to five years; after expiry of exemption, 10% corporate profit tax will be applied.



- Industrial sector activities are granted the exemption of PT for a period of five to ten years; after expiry of exemption, 8% corporate profit tax will be applied.
Boten Beautiful Land Specific Economic Zone (established in 2003) Location Advantage:



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



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



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



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



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 Capital.
Dongphosy Specific Economic Zone (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 Capital.
Phoukhyo Specific Economic Zone (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 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 the exemption of profit tax for a period of 3 to 6 years; after expiry of the exemption, a 3-4% corporate profit tax will be applied.



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



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



- The light industries sector will be granted the exemption of PT for a period of 3 to 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 to 10 years; after expiry of the exemption, a 7-8% corporate profit tax will be applied.
For all Special Zones: Generally, investors also benefit from:



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



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



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

Sources: Lao 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
Profit Tax

24% of net profit after adjustments for non-deductible expenses and others

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%

Source: Lao PDR Ministry of Finance

Date last reviewed: May 1, 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.



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% and 20%, for foreign workers undertaking menial labour and for professionals with specialised skills respectively.



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 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.

Sources: Government websites, Fitch Solutions

Risks

Sovereign Credit Ratings


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

Competitiveness and Efficiency Indicators


 
World Ranking
 
2017
 
2018 2019
Ease of Doing Business Index
 
139/190 141/190 154/190
Ease of Paying Taxes Index
 
146/190 156/190 155/190
Logistics Performance Index
 
N/A 82/160 N/A
Corruption Perception Index
 
135/180 132/180 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 157/202 167/202
Short-Term Economic Risk Score 34.58 34.6 33.1
Long-Term Economic Risk Score 41.5 41.3 40.2
Political Risk Index Rank N/A 128/202 128/202
Short-Term Political Risk Score 80.42 80.4 80.4
Long-Term Political Risk Score 55.77 56.5 56.5
Operational Risk Index Rank N/A
 
144/201 156/201
Operational Risk Score 38.6 38.3 36.5

Source: Fitch Solutions

Date last reviewed: May 1, 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 FDI inflows to the hydropower and tourism sectors will keep the economy on a strong growth trajectory over the coming years. Laos' 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 the country. In addition, the current account deficit will likely widen in 2019, driven by imports related to the infrastructure projects. At the same time, 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: April 30, 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: May 1, 2019

Fitch Solutions Operational Risk Index


 
Operational Risk Labour Market Risk Trade and Investment Risk Logistics Risk Crime and Security Risk
Laos score 36.5 40.6 34.5
 
34.1 36.7
East and Southeast Asia average 55.2 55.9 56.7 53.8 54.4
East and Southeast Asia position (out of 18) 15 17 15 15
 
14
Asia average 48.5 49.7 48.2 46.0 50.1
Asia position (out of 35) 29 28 25 25
 
27
Global average 49.7 50.3 49.8
 
49.0 49.8
Global Position (out of 201) 156 158 153
 
153
 
138

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 82.9 78.2
 
88.6
 
75.0
 
89.7
Hong Kong 81.9 72.3
 
88.8
 
77.1
 
89.5
 
Taiwan 73.6 65.5
 
76.2
 
73.4
 
79.2
 
South Korea 72.5 65.9
 
71.4
 
79.8
 
73.1
 
Malaysia 68.4 63.9
 
73.6
 
75.8
 
60.5
 
Macao 62.1 61.7
 
66.5
 
52.1
 
68.0
 
Brunei 62.0 61.6
 
60.7 55.1
 
70.6
 
Thailand 59.1 55.7
 
67.2
 
68.5
 
45.2
 
Mainland China 58.1 53.8
 
57.7
 
66.2
 
54.4
 
Indonesia 53.2 54.4
 
53.3
 
56.8
 
48.4
 
Vietnam 52.8 47.8
 
56.6
 
55.6
 
51.3
 
Mongolia 51.2 56.0
 
53.8
 
40.9
 
54.1
 
Philippines 45.4 57.1
 
50.7
 
42.5
 
31.3
 
Cambodia 41.3 44.5
 
43.7
 
37.6
 
39.5
 
Laos 36.5 40.6
 
34.5
 
34.1
 
36.7
 
Myanmar 32.7 43.9
 
31.9
 
30.0
 
24.9
 
North Korea 30.9 45.8
 
18.5
 
28.8
 
30.8
 
Timor-Leste 29.4 37.9
 
27.8
 
19.6
 
32.5
 
Regional Averages 55.2 55.9 56.7 53.8 54.4
Emerging Markets Averages 46.0 48.1 46.5 44.7
 
44.8
Global Markets Averages 49.7 50.3 49.8
 
49.0
 
49.8

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Operational Risk Index

Date last reviewed: May 1, 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: May 1, 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 (2013)

7.76 (2014)

7.75 (2015)

7.76 (2016)

7.79 (2017)

Source: Hong Kong Census and Statistics Department

Date last reviewed: May 1, 2019


 
2017
 
Growth rate (%)
 
Number of Lao residents visiting Hong Kong 2,988 15.4

Sources: Hong Kong Tourism Board, Fitch Solutions


 
2017
 
Growth rate (%)
 
Number of Asia Pacific residents visiting Hong Kong 54,482,538
 
3.5
 
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: May 1, 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.

Source: 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

Email: laoscghk@live.com

Tel: (852) 2544 1186

Fax: (852) 2544 1187

Source: Consulate General of the Lao PDR in Hong Kong
 

Visa Requirements for Hong Kong Residents

A Lao tourist visa is required for Hong Kong residents. A one- or two-month (60-day) tourist visa is only available from Lao Embassies and Consulates. Visa applications have to be submitted in person or by third party to the consulate. Electronic submission will not be accepted.

Source: Visa on Demand, Fitch Solutions

Date last reviewed: May 1, 2019

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