In this Newsletter, we do not deal in principle with laws and regulations relating to accounting and taxation, but as the increase in the VAT rate is an issue of interest when doing business in Laos, we make an exception and give a brief overview.

2.1  Presidential Decree on the revision of the value-added tax rate

Presidential Decree was issued on 19 March, increasing the VAT rate from 7% to 10%. The  Presidential Decree was published in the Official Gazette on 26 March and is legally effective, but it remains unclear when the rate will switch to 10%, although detailed regulations are expected to be issued by the Tax Department of the Ministry of Finance regarding its operation.

＜What should the foreign companies do？＞

First, it is necessary to check through the employing accounting firm, when the operation will start.

2.2 Others

2.2.1  An agreement on foreign currency earnings from exports in Lao PDR

1. Background

Following the implementation of the Revised Foreign Exchange Control Law (“Foreign Exchange Law”) on 1st October 2022 and the subsequent issuance of the Prime Minister’s Order (No10) on the Implementation of Foreign Exchange Control (“Prime Minister’s Order”) on 14 July 2023, the Lao Government has embarked on a number of measures to remedy the situation, in particular the shortage of foreign currency reserves. In accordance with the Foreign Exchange Law and the Prime Minister’s Order, the Bank of Lao PDR (“BOL”) has issued an Decision on the Management of Foreign Currency Revenue from Goods and Services Exports (No333) (“the Decision “), dated 7 March 2024 to increase foreign currency reserves by strengthening the system whereby foreign currency earnings from exports business are transferred to bank accounts for imports and exports in the Laos and the deposited foreign currency is exchanged in commercial banks in the Laos within a timely manner. The Decision is expected to come into force on 29 March.

2. Rate and Deadline for Remittance of Foreign Currency into the Laos (Article 5 of the Decision)

In principle, exporters are required to remit the foreign currency received to the account for imports and exports in Laos by the payment date stipulated in the sales contract. However, the deadline for remittance cannot exceed 180 days counting from the date of export. In addition, the following minimum remittance ratios and time limits for foreign currency income are separately stipulated for each sector.

If there are difficulties in remitting foreign currency to an account in the Laos within the above specified percentages and timeframes, conditions may be relaxed by negotiating with the Foreign Exchange Control Department of the BOL

After remitting the foreign currency proceeds to the deposit account in the Laos, the exporter must exchange the foreign currency at the commercial bank where the deposit account is held, in accordance with Article 12 of the Foreign Exchange Law.

3. Foreign Currency Exchange Ratio

Exporters are required to exchange foreign currency at commercial banks at least in the following ratios within three working days of the foreign currency income from exports arriving in their bank accounts in Laos (Article 7 of the Decision).

When goods imported from abroad are exported in their original form without being processed or assembled in Laos, the foreign currency income earned can be remitted to a bank account in Laos and then partially exchanged or exchanged when it is necessary to use the LAK in Laos.

4. Penalties

The Decision applies to exporters, commercial banks and BOL (Article 3 of the Decision). For exporters and commercial banks, penalties for first and minor violations of the Decision shall include guidance, warnings and memoranda (Article 21 of the Decision).

For commercial banks, notwithstanding the guidance for the first breach, if there is no improvement and the breach occurs again, the penalty is a fine as follows (Article 22 of the Decision).

(1) If the amount of the offence is less than 10,000,000 LAK (approximately USD 500) or if the offence violates a prohibition that cannot be priced: a fine of between 10,000,000 LAK and 20,000,000 LAK.
(2) If the offence amount is more than 10,000,000 LAK: fine of 10% of the offence amount. However, the minimum fine shall not be less than 20,000,000 LAK.

＜What should the foreign companies do？＞

After confirming whether it is possible to operate as stipulated in the agreement, if it is difficult, the BOL Foreign Exchange Management Department can negotiate with the company to relax the conditions.