Laos. Introduction. Profits tax

Transcription

1 Laos Introduction Under the existing Tax Law 2011, taxes in Laos, officially the Lao People s Democratic Republic (Lao PDR), are divided into two main groups: indirect taxes and direct taxes. Indirect taxes consist of (i) value-added tax (VAT) and (ii) excise tax. Direct taxes consist of (i) profit tax (which is also known as corporate income tax) and lump-sum tax, (ii) personal income tax and other income taxes (some are also known as withholding tax), and (iii) environmental tax. Tax Law 2011 took effect on 1 October However, environmental tax has not been implemented due to the lack of supporting regulations. Profits tax All companies and enterprises registered under the laws of Laos are subject to profit tax (PT) on their worldwide incomes. Companies formed under foreign law, operating as business entities in Laos, and conducting business in Laos, are subject to tax on their incomes derived in Laos.

2 Under the existing Tax Law 2011, the standard rate of PT for companies registered in Laos has been lowered to 24% from 28%. The 24% rate applies to both domestic and foreign-invested companies. For companies whose business activities involve importation, production and distribution of tobacco, the rate of PT is 26%, 2% higher than for other companies. PT incentives in the form of tax holidays are applicable to companies whose investment activities qualify as promoted investments. PT incentives are provided under the Law on Investment Promotion This Law divides investment areas into three zones, namely Zone 1, Zone 2, and Zone 3, and classified investment activities into three different levels of promoted activities, namely Promoted Activity 1, Promoted Activity 2, and Promoted Activity 3. Tax holidays available are as follows: Zone Areas Promoted Activity 1 1 Mountainous, plain, and plateau zones with no economic infrastructure to facilitate investments. 2 Mountainous, plain, and plateau zones with a moderate level of economic infrastructure suitable to accommodate investments to some extent. 3 Mountainous, plain, and plateau zones with good infrastructure to support investments. Promoted Activity 2 Promoted Activity 3 10 years 6 years 4 years 6 years 4 years 2 years 4 years 2 years 1 year The PT exemption is effective from the date the enterprise begins its business operations. For activities producing new products, research, and new technology, the PT exemption is effective from the date the enterprise makes a profit. Once the above-mentioned PT tax holiday expires, the enterprise shall pay PT in accordance with Tax Law Lump-sum tax Lump-sum tax is a new tax introduced under Tax Law It is a direct tax imposed on small and medium business operators that are not registered under the VAT system. For small and medium business operators, the lump-sum tax is paid in lieu of PT. Therefore, the lump-sum tax is regarded as a tax within the PT category.

3 Income taxes Withholding tax Withholding tax (WHT) is applied to various types of payments made to both domestic and overseas recipients. The rates of WHT are as follows: Foreign contractor withholding tax WHT on payments to foreign contractors applies when a Lao entity contracts with an overseas party that is not licensed and does not maintain a presence in Laos. This WHT, called the foreign contractor withholding tax (FCWT), comprises both PT and VAT elements if the business activity is undertaken onshore, or only VAT if the business activity is undertaken offshore. The FCWT is the final tax on the overseas company. Type of income Dividend, profits (gain) from sales of shares Interest on loans by individuals or juristic entities, commissions, or guarantee fees Income from lease of land, houses, building structures, vehicles, machinery or other properties Income from sales or transfer of land-use rights, building structures or land with building structures (except the transactions specified in Article 46 paragraph 18 of Tax Law 2011) Royalties from the use of intellectual property rights such as patents, trademarks, etc Tax rate 5% 5% PT is calculated based on a deemed percentage of the taxable turnover. The deemed rates are determined according to the nature of the contract or activity. The rates for different types of business activity are as follows: Deemed profit margin Deemed PT rate (% of business revenue) 1 Commerce 5% 1.4% Production 8% 2.24% Transportation and construction 2.8% Services 20% 5.6% The PT rate is added to the VAT rate of for the total rate of FCWT. Personal income tax Both Lao and foreign individuals earning income in Laos in the form of salaries, benefits in kind and other remunerations are subject to personal income tax (PIT) at the same rates of 0 24%. Expatriates who work in Laos and obtain remuneration from their Lao employers are obligated to pay PIT in Laos regardless of (i) the length of time of their employment and/or stay in Laos and (ii) the place of payment of remuneration (i.e. in Laos or a foreign country). The current PIT rates are 0 to 24%. For details about the current PIT rates, please see the table below. Monthly income threshold Basis of computation Tax rate PIT of each threshold 1 1,000,000 and below 1,000,000 0% 0 0 Total PIT 2 From 1,000,001 to 3,000,000 2,000,000 5% 100, ,000 3 From 3,000,001 to 6,000,000 3,000, , ,000 4 From 6,000,001 to 12,000,000 6,000,000 12% 720,000 1,120,000 5 From 12,000,001 to 24,000,000 12,000,000 15% 1,800,000 2,920,000 6 From 24,000,001 to 40,000,000 16,000,000 20% 3,200,000 6,120,000 7 Above 40,000,000 Actual amount of monthly income 24% N/A 24% x actual amount of monthly income 1 The above rates are under Article 21 of Instruction No. 2137/MOF on Implementation of the Tax Law According to the Lao Tax Department, these rates are applicable until the relevant supporting regulations of the new Tax Law 2011 are issued.

4 Amended article O% VAT rate on equipment, machinery and vehicles to be used in production and invested as fixed assets VAT VAT is governed by a separate VAT Law and VAT regulations. The existing VAT Law and VAT regulations are: VAT Law No. 04/NA dated 26 December 2006 VAT Law Implementation Decree No. 270/OPM dated 18 September 2009, and VAT Law and Regulations Implementation Guidelines No. 3111/MOF dated 27 November The standard VAT rate is 0% and. VAT is imposed on the final consumer goods and services. Under VAT Law No. 04/NA dated 26 December 2006, goods and services used for production, trading, and consumption in Laos, goods imported into Laos, and services rendered by foreigners to Lao customers are subject to VAT at the rate. However, Article 19 of the VAT Law No. 04/NA dated 26 December 2006 was amended and become effective from 3 February Under this amended Article 19, the rate of VAT on equipment, machinery and vehicles to be used in production and invested as fixed assets is 0%, regardless of whether they are domesticallyproduced or imported. Certain goods and services are exempted from VAT, including unprocessed agricultural products, seeds, fertilisers, textbooks, education services, medical services, banking services, and insurance. Exported goods and services are subject to VAT at 0%, except exported natural resources like timbers and minerals. The conventional credit method is used to calculate the VAT payable (i.e. output VAT less input VAT). Excess input VAT can be carried forward for six months (extendable). Input VAT for export is refundable. Business operators engaged in production or trading of taxable goods and services must register under the VAT system if their annual revenue is LAK400 million or above. Companies having annual revenue below this threshold may voluntarily register. Only registered VAT taxpayers may claim VAT refunds. However, only VAT related to production for export is refundable. Excise tax Excise tax (ET) applies to (i) the importation and sale of certain luxury goods such as alcohol, beer, cigarettes, perfume, cars, etc, (ii) production of these goods, (iii) services such as entertainment (karaoke, bar, etc) bowling, massage, sauna, beauty, telecommunications, cable television, digital television, internet, golf, lottery, casino and casino machines. The list of goods and services that are subject to ET is under Article 18 of the existing Tax Law Article 19 also lists the goods and services that are exempted from ET. ET rates range from 5% 150%. Under Tax Law 2011, the ET rates on vehicles range from 25% 150%. However, the implementation decree of Tax Law 2011 which stipulates a detailed rate for each type of vehicle, has yet to be issued, therefore, the rates under Implementation Decree of the Tax Law 2005 are still applicable now. Administrative fees Under Tax Law 2011, government sectors can collect fees for issuing fiscal licences, business licences, permits, visas, advertisement boards, broadcasting rights, and other services. The charges and service fees are set periodically by Presidential Decree.

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