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Laos Investment

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Tips:Investment:Openness to Foreign Investment The Lao PDR is one of the ten fastest-growing economies in the world. Foreign
 Investment:

Openness to Foreign Investment   

The Lao PDR is one of the ten fastest-growing economies in the world. Foreign

investment has been increasing over the last several years and continues to flow to

mining, hydropower, and agriculture. Vietnam, China, and Thailand are the largest

sources of foreign investment, with each investing about $2.5 billion in Laos from 2000 to 2010.  

According to the 7th National Socio-Economic Development Plan, which covers the

period from 2011 to 2015, Laos seeks to continue an annual economic growth rate in the

neighborhood of 8%. To accomplish this, the government of Laos estimates that it needs

approximately $15 billion of total investment in the next five years, $7 to $8 billion of

which it plans to source from foreign and domestic private investment.  The plan directs

formulation of “policies that would attract investments in addition to attracting Overseas

Development Assistance; begin to implement public investment and investment

promotion laws; and increase cooperation with friendly countries and international

organizations.”

Laos is likely to accede to the World Trade Organization (WTO) within the next two

years and has committed to joining the ASEAN Economic Community in 2015. Both of

these processes require considerable trade and regulatory reforms, which should make

the investment climate more attractive to Chinese enterprises.

Laos, while politically very stable, remains a poorly regulated economy with limited rule

of law.  The government of Laos (GOL) has taken steps to embrace a more transparent

economic and regulatory framework, but business transactions and investments are still

carried out in an opaque manner. Additionally, Laos struggles with corruption, patronage

and a weak legal system.  

The GOL is open to foreign investment as a matter of policy and allows 100% foreign

ownership of enterprises.  The 2009 Law on Investment Promotion governs foreign

investment in Laos. Under this law, foreign and domestic investors are supposed to be

given equal treatment and incentives, although in practice this is not uniformly the case. 

Foreigners may invest in any sector or business except those that the government

deems to be detrimental to national security, health or national traditions, or to have a

negative impact on the natural environment.  

Companies involved in large FDI projects, especially in mining and hydropower, often

either find it advantageous or are required to give the government partial ownership,

frequently with money borrowed from the investor or multilateral institutions.

The term of a foreign investment depends on the nature, size, and conditions of the

business project but normally cannot exceed ninety-nine years, according to Article 28 of

the Law on Investment Promotion. Under special circumstances, shorter-term foreign

investments may be extended with the approval of the government but still may not

exceed a total term of ninety-nine years. 

The Lao Securities Exchange opened in 2011 with two stocks listed.  In January 2012,

the Lao Securities and Exchange Commission announced that it was increasing the

percentage of shares that foreign investors can hold in publicly listed companies from

10% to 20%. 

Foreign investors seeking to establish operations in Laos are required to obtain a foreign

investment license, an enterprise registration certificate, and a tax registration certificate. 

Investors first submit project proposals to the One Stop Shop Unit in the Department of

Investment Promotion (DIP) in the Ministry of Planning and Investment (MPI). DIP

screens projects for financial and technical feasibility before forwarding them to relevant

line ministries for review.  Depending on the size of the investment, they are then sent to

the Prime Minister’s Office (PM) for adjudication. 

Under the 2009 amended Law on Investment Promotion and Prime Ministerial Decree

No. 119/PM issued in 2011, there are three investment categories: 1. General Business;

2. Concession Business; and 3. Activities for Development of Special Economic Zones

and Specific Economic Zones.  

General Business investments include controlled businesses, defined as those

businesses which affect national security, public order, national traditions and culture,

and the environment. These activities are subject to increased scrutiny prior to

enterprise registration. Goods prohibited for import and export range from explosives

and weapons, to literature that presents a negative view of the Lao government, to

certain forestry products and wildlife. Inclusion on the list of controlled businesses is not

a prohibition on investing in those areas.

Concession Businesses are those in which the GOL retains some ownership rights.

Concessions are commonly used for investments in land, minerals, electric power,

airlines, telecommunication, and insurance and financial institutions. Special Economic

Zones are intended to support development of new infrastructure and commercial

facilities and include incentives for investment.  Specific Economic Zones are meant to

develop existing infrastructure and facilities and provide a lower level of incentives and

support than Special Economic Zones.  

         

Foreign partners in a joint venture must contribute at least thirty percent (30%) of the

venture’s registered capital. Capital contributed in foreign currency must be converted

into kip based on the exchange rate of the Bank of the Lao People’s Democratic

Republic on the day of the capital contribution. Wholly foreign-owned companies may be

either a new company or a branch of an existing foreign enterprise. Throughout the

period of operation of a foreign investment enterprise, the assets of the enterprise must

not be less than its registered capital. 

Under the 2005 Prime Ministerial Decree No 301, projects worth $20 million or more

require the approval of the Prime Minister. The Minister of Planning and Investment can

approve projects below $20 million while the Vice Minister of Planning and Investment

can approve enterprises of less than $10 million. FDI equal to or less than $3 million can

be approved at the provincial level by all provinces, and in four of the larger provinces -

Vientiane Capital, Savannakhet, Champasack, and Luang Prabang - the ceiling for

approval is $5 million. 

In addition to the investment license, 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 (e.g., Ministry of Industry and Commerce for manufacturing; Ministry of

Energy and Mines for power sector development); appropriate permits from local

authorities; and an import-export license, if applicable. Obtaining the necessary permits

can pose a challenge, especially in areas outside the capital. 

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.

Government documents articulating the restrictions and explaining the policy are difficult

to obtain. 

Agriculture production and most manufacturing production are private. State-owned

enterprises (SOEs) currently account for only one percent of total employment. Over

90% of manufacturers have fewer than 10 employees. Foreign companies interested in

acquiring ownership in SOEs apply through the DIP. Equity in medium and large-sized

SOEs can be obtained through a joint venture with the Lao government.

The GOL is supposed to respond to proposed new business investment within 15–45

working days. Foreign enterprises must begin business activities within 90 days from the

date of receipt of an investment license, or the license is subject to termination.

Lao law provides for sanctity of contracts, but in practice contracts are subject to political

interference and patronage. A contract can be voided if it is disadvantageous to one

party, or if it conflicts with state or public interests. Foreign businessmen have described contracts in Laos as being considered “a framework for negotiation” rather than a

binding agreement. Although a commercial court system exists, in practice most judges

adjudicating commercial disputes have little training in commercial law. Those

considering doing business in Laos are strongly urged to contact a reputable law firm for

additional advice on contracts.
 


Keyword: Laos Investment

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