Merchandise Trade

• 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 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 links 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 expenditure that is 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

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 Mainland China and India.


2. ASEAN-Mainland China FTA (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. AJCEP is comprehensive in scope, with chapters on trade in goods; sanitary and phytosanitary measures; standards, technical regulations and conformity assessment procedures; investment; and services and economic cooperation. The agreement aims to liberalise and facilitate the trade in goods between ASEAN and Japan, and 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 provides for the establishment of the ASEAN-South Korea FTA. 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 Trade in Goods Agreement FTA (AIFTA): AIFTA 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'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 is 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. AANZFTA also includes an 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 signed 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 it 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 Comprehensive Economic Partnership (RCEP): Negotiations on a framework agreement for RCEP stalled after India announced its withdrawal from the trade pact at a RCEP summit held in Bangkok in November 2019. Expectations had been for negotiations to conclude in 2019, paving the way for the agreement to enter into force by late 2020. RCEP negotiations without India may now be concluded in 2020, but the withdrawal of India represents a setback to attempts to counter the growing wave of protectionism in the US and other parts of the world. RCEP will have broader and deeper engagement with significant improvements over existing regional FTAs and agreement will need to be reached on politically sensitive issues, including trade in services, investment rules and protection for intellectual property rights, as well as tariffs, where the target is to remove trade barriers on at least 92% of products within ten years. Formally launched in 2012, RCEP is a Mainland China and ASEAN-led project which, before the withdrawal of India, involved 16 countries, namely the  ten ASEAN countries and the ASEAN Free Trade Partners (Australia, Mainland China, India, Japan, South Korea and New Zealand). It would have been the world’s largest trade pact covering nearly half the world’s population, one third of global GDP and around 29% of global trade.

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

Foreign Direct Investment

• 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.

Sources: Lao PDR Ministry of Finance, Fitch Solutions

Business Taxes

Sources: Lao PDR Ministry of Finance, Fitch Solutions
Date last reviewed: April 19, 2020

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. Companies must make a proposal through the Skills Development and Employment Department of the Ministry of Labour and Social Welfare or through the 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 5 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 5 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 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. Nationals of many 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, 2019, Laos launched its e-visa service to streamline the application and approval process. However, the e-visa system can currently only be used at three international ports: Wattay International Airport, Lao-Thai Friendship Bridge 1 and Luang Prabang International Airport.

Sources: Government websites, Fitch Solutions

Sovereign Credit Ratings

Competitiveness and Efficiency Indicators

Sources: World Bank, Transparency International

Fitch Solutions Risk Indices

Source: Fitch Solutions
Date last reviewed: April 19, 2020

Hong Kong’s Trade with Laos

Export Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Miscellaneous manufactured articles	7.3
Commodity 2	Textile yarn, fabrics, made-up articles, and related products	6.5
Commodity 3	Telecommunications and sound recording and reproducing apparatus and equipment	2.2
Commodity 4	Office machines and automatic data processing machines	1.0
Commodity 5	Tobacco and tobacco manufactures	0.9

Import Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Tobacco and tobacco manufactures	6.1
Commodity 2	Electrical machinery, apparatus and appliances, and electrical parts thereof	2.4
Commodity 3	Miscellaneous manufactured articles	0.6
Commodity 4	Cork and wood	0.2
Commodity 5	Meat and meat preparations	0.1