Lao Legal Update : Lao Government Makes Significant Reforms To Investment Promotion Law

The much anticipated amendments to the Investment Promotion Law became effective on 19 April 2017.  The amended law (No. 14/ NA, 17 November 2016) makes positive changes to the regulatory framework for investors and represents an encouraging step in alleviating barriers to investment in the Lao PDR.

Some key changes under the amended law are the:

  1. Regulatory authorities;
  2. National and Provincial Assembly Approval Requirements;
  3. Joint Venture Contracts;
  4. Structure and content of investment incentives;
  5. Registered capital requirements; and
  6. Special Economic Zones.

Regulatory Authorities

One of the major changes under the amended law is the creation of the Investment Promotion and Management Committee. This is a cross-cutting committee headed by the Deputy Prime Minister with representatives from 10 ministries that will have ultimate responsibility for approving and overseeing all investment in controlled business sectors, concessionary businesses and Special Economic Zones (SEZ). The Ministry of Industry and Commerce (MOIC) retains registration authority over all general business activities while a revitalized one-stop-shop within the Ministry of Planning and Investment (MPI) will receive and process applications for businesses in controlled and concessionary business sectors. The changes in the registration process are intended to streamline the approvals process and truncate the timeframes for company establishment.

National and Provincial Assembly Approval Requirements

The amended law formalizes the long-standing practice of a requirement of National Assembly final approval of special tax and other incentives to be granted to projects (such as mining, electric power and plantations) which are not eligible for the standard investment incentives and confirms the requirement of National Assembly approval for: (i) the use of protected forest zones, (ii) the development of projects with significant adverse environmental or social impacts and (iii) projects requiring large areas of State land. A new role is created for the Provincial People’s Assemblies which are delegated the National Assembly’s approval authority for certain smaller scale projects.

Contractual Joint Ventures

The law continues to provide for a contractual joint venture so as to facilitate investment between a foreign and a domestic entity without the foreign entity having to establish an entity or branch in the Lao PDR. However, now the joint venture agreement must be approved by the MPI and notarized with the Notary Office.

Investment Incentives

Other key changes include the addition of VAT exemptions and State land lease/concession rental fee holidays to the investment incentives authorized under the law and the introduction of an Investment Promotion Certificate issued by the MPI which centralizes and clarifies all investment incentives granted to a company.

Registered Capital Requirements

Minimum registered capital requirements have been removed for general business activities other than as provided under other legislation although it is not clear how this will be implemented in practice. A foreign investor is still required to contribute a minimum of 10% registered capital for a joint venture limited company and for concessionary companies the requirement that registered capital (share capital) be not less than 30% of total capital (registered capital + long-term debt + retained earnings) remains.  Registered capital (share capital) pay in requirements for large infrastructure projects has been clarified to more accurately reflect the anticipated required timing for the share capital.

Special Economic Zones

There has been a reduction in the land concession term for an SEZ from the previous 99 year term (75 years in the Land Law) to 50 years with a possible extension which is subject to National Assembly approval.

Overseas Investment

New provisions increase government scrutiny of domestic investors conducting business outside the Lao PDR which is now subject to approval by the One-Stop Service Office of the MPI.

The full implementation of the amendments to the Investment Promotion Law remains pending enabling legislation, particularly in regards to restricted business activities and the operation of SEZs. However, the legal clarity and streamlined regulatory procedures point towards increased ease of doing business in the Lao PDR.

If you need further information about how the amended law may impact your investment in the Lao PDR please don’t hesitate to contact us. Stay tuned for more detailed updates and seminars on the amended Investment Promotion Law from DFDL.

DFDL Contact :

Kristy Newby

Country Managing Director, Lao PDR

kristy.newby@dfdl.com

and

Senesakoune Sihanouvong

Partner; Legal & Tax Adviser

senesakoune.sihanouvong@dfdl.com

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