Identifier
Created
Classification
Origin
09VIENTIANE63
2009-02-09 00:44:00
UNCLASSIFIED
Embassy Vientiane
Cable title:
2009 INVESTMENT CLIMATE STATEMENT FOR LAOS
how-toVZCZCXRO5864 RR RUEHCHI RUEHCN RUEHDT RUEHHM DE RUEHVN #0063/01 0400044 ZNR UUUUU ZZH R 090044Z FEB 09 FM AMEMBASSY VIENTIANE TO RUEHC/SECSTATE WASHDC 2396 INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS RUCPCIM/CIMS NTDB WASHDC RUCPDOC/USDOC WASHDC RUCPDOC/DEPT OF COMMERCE WASHDC RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 33 VIENTIANE 000063
SIPDIS
STATE FOR EAP/MLS EMERY
STATE FOR EEB/IFD/OIA
STATE PASS USTR FOR BISBEE
COMMERCE FOR HP PHO
E.O. 12958: N/A
TAGS: ECON, EINV, OPIC, USTR, KTDB, LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS
REF: 08 STATE 123909
------------------------------
OPENNESS TO FOREIGN INVESTMENT
------------------------------
UNCLAS SECTION 01 OF 33 VIENTIANE 000063
SIPDIS
STATE FOR EAP/MLS EMERY
STATE FOR EEB/IFD/OIA
STATE PASS USTR FOR BISBEE
COMMERCE FOR HP PHO
E.O. 12958: N/A
TAGS: ECON, EINV, OPIC, USTR, KTDB, LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS
REF: 08 STATE 123909
--------------
OPENNESS TO FOREIGN INVESTMENT
--------------
1. The Lao government is open to foreign investment as a matter of
policy. It allows 100% foreign ownership of investments. The
overall investment climate is poor but improving. Laos rates very
low in international indices of transparency and ease of doing
business.
2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated
October 22, 2004, purport to promote foreign direct investment as a
means of boosting development and economic growth. Under the 2004
Law on the Promotion of Foreign Investment, scheduled to be updated
at the end of 2009, foreign investors may invest in all business
sectors and zones of investment in the Lao People's Democratic
Republic, except in business activities which are detrimental to
national security, have a negative impact on the environment, or are
regarded as detrimental to health or national traditions. In recent
years Laos has seen a significant increase in FDI, especially in
mining, hydropower, and plantation agriculture. Major foreign
investors are Thailand, China, Vietnam and Australia.
3. When bidding for the right to large contracts, companies
frequently offer the government the "option" of purchasing part of
the company at a later date, often with money borrowed from the
investor or multilateral institutions. The investment term of a
foreign investment enterprise depends on the nature, size, and
conditions of the business project but normally cannot exceed fifty
years. Under special circumstances, foreign investment enterprises
may be extended with the approval of the government. However,
foreign enterprises that receive extension approval from the
government may not exceed a total investment term of seventy-five
years.
4. Foreign investors seeking to establish operations in Laos must
submit project proposals to the Department for Promotion and
Management of Domestic and Foreign Investment (DDFI),Ministry for
Planning and Investment (MPI). The proposal is then screened by the
relevant line ministries and adjudicated by the Prime Minister's
Office. Under Prime Minister Decree No 301, dated October 12, 2005,
proposals for projects worth US$20 million or more require the
approval of the Prime Minister. The Minister of MPI can approve
investments below $20 million USD while the vice Minister can
approve investments of less than $10 million USD. FDI equal to or
less than $3 million USD 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
provincial level approval is $5 million.
5. Foreign investors 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 either be a new company or a branch
office of an existing foreign company. Throughout the period of
operation of a foreign investment enterprise, the assets of the
enterprise must not be less than its registered capital. The
screening process at the Department for Promotion and Management of
Domestic and Foreign Investment (DDFI) in the Ministry of Planning
and Investment (MPI) takes into account the financial and technical
feasibility of the project, input from relevant line ministries, and
whether the proposed project conflicts with government policy. Upon
receipt of an application, the MPI must coordinate with relevant
sectors and local authorities to consider and respond in writing to
the foreign investor. Responses to projects, depending on project
type, are supposed to be forthcoming within 15-45 working days.
6. Foreign investors are required to obtain a foreign investment
license, an enterprise registration certificate, and a tax
registration certificate from the MPI office nearest the place where
the foreign investors are licensed. Thereafter they shall be
considered as enterprises established in conformity with the laws of
the Lao People's Democratic Republic. Within 90 days from the date
of receipt of an investment license the foreign investment
enterprise must commence business activities. If the investors fail
to do so, the foreign investment license is subject to termination.
7. In addition to the investment license, foreign investors are
required to obtain other permits. These include a business
registration which must be annually renewed from the Ministry of
Industry and Commerce, a tax registration from the tax department in
the Ministry of Finance, a business logo registration from the
Ministry of Public Security, permits from each line ministry related
to the investment (i.e., Ministry of Industry and Commerce for
manufacturing; Ministry of Public Works and Transportation, etc.),
VIENTIANE 00000063 002 OF 033
appropriate permits from local authorities, and an import-export
license, if needed. Obtaining the necessary permits can pose a
challenge to foreign investors, especially in areas outside the
capital. The recent creation of a "one-stop shop" for many permits
within the Ministry of Planning and Investment should help ease
permitting difficulties in the future.
8. Lao law provides for sanctity of contracts. The following link
is for a translation of the Lao contract law.
http://www.undplao.org/ whatwedo/bgresource/demogov/
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf
However, since Laos is a communist one-party state, the sanctity of
contracts is subject both to political interference and a number of
socialist principles enshrined in the law. For example, according
to the contract law:
A contract can be voided if it is disadvantageous to one party, and
A voidable contract can be declared void by the disadvantaged
party.
9. 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.
10. In 2006 the Lao government ceased imposing import restrictions
on trading companies, whether foreign or domestic, in an effort to
let the market respond to actual demand. The Lao government no
longer requires companies to file an annual import plan for approval
by the Ministry of Commerce. The main exception is the fuel
industry, where individual companies are still required to file an
annual import plan. The government controls the retail price and
profit margins of gasoline and diesel. A large American oil company
announced in late 2007 that it was leaving the Lao market to focus
on more profitable countries within Asia. Government documents
articulating the restrictions and explaining the policy are
difficult to obtain. Goods that are always 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. For a detailed list of import & export
restrictions please visit http://www.moc.gov.la/default.asp
11. Agriculture production and most manufacturing production is
private. State-owned enterprises (SOEs) currently account for only
one percent of total employment. Approximately 97 percent of
manufacturing units are small (fewer than 10 employees). Foreign
companies interested in acquiring SOEs should apply through the
Department for
--------------
CONVERSION AND TRANSFER POLICIES
--------------
12. In order to facilitate business transactions, foreign investors
generally open commercial bank accounts in both local and foreign
convertible currency at domestic and foreign banks in Laos.
Australian, Vietnamese, Thai, Cambodian and Malaysian banks
currently have a presence in Laos. Bank accounts must be maintained
in accordance with the Enterprise Accounting Law. The law places no
limitations on foreign investors transferring after-tax profits,
income from technology transfer, initial capital, interest, wages
and salaries, or other remittances to the company's home country or
third countries so long as they request approval from the Lao
government. These transactions are conducted at the official
exchange rate on the day of execution, upon presentation of
appropriate documentation. Supply of foreign exchange has in the
past been limited in Laos, which imposed a de facto limit on
repatriation of capital. Foreign currency inflows in recent years,
however, have reportedly solved this problem and large
multinationals in Laos report no problems with access to foreign
exchange. Foreign enterprises must report on their performance
annually and submit annual financial statements to the Ministry of
Planning and Investment (MPI).
--------------
EXPROPRIATION AND COMPENSATION
--------------
13. Foreign assets and investments in Laos are protected by laws and
regulations against seizure, confiscation, or nationalization except
when this is deemed necessary for a public purpose, in which case
foreign investors are to be compensated. While there have been no
expropriations, the Lao Government has revoked the foreign
investment licenses of companies in a less than transparent process.
Revocation of an investment license cannot be appealed to an
independent body, and companies whose licenses are revoked must then
VIENTIANE 00000063 003 OF 033
liquidate their assets relatively rapidly. In addition, a company
that fails to begin conducting business within ninety days of
registering could be dissolved, if it does not have a reasonable
explanation.
--------------
DISPUTE SETTLEMENT
--------------
14. According to the Foreign Investment Law, investors involved in
investment disputes must seek arbitration before taking legal
action. If arbitration does not result in an amicable settlement,
litigants may submit their claims to the economic arbitration
authority of Laos, or that of the investor's country, or an
international organization agreed on by both parties. In practice,
there are no adequate independent arbitration venues in Laos.
Foreign investors are therefore generally advised to seek
arbitration outside the country, since Laos' nascent domestic
arbitration authority lacks enforcement powers. Laos is not a
member of the International Center for the Settlement of Investment
Disputes. It became a party to the New York Convention of 1958 on
the Recognition and Enforcement of Foreign Arbitral Awards on
September 15, 1998, but Laos has never been asked to enforce a
foreign arbitral award. Laos is a member of the United Nations
Convention on International Trade Law.
15. In disputes involving the Ministry of Planning and Investment,
decisions can only be appealed back to the Ministry itself. There
is no separate independent body. Thus a company which feels it is
receiving unfair treatment from the government has no independent
recourse. In 2007, two U.S.-owned small companies were involved in
disputes with the Lao government. One company had its investment
license revoked and the U.S. owners were given no option other than
to liquidate their assets. Another is still working with Lao
authorities to resolve the issue. The Lao government has cooperated
with the Embassy in addressing the disputes.
16. Laos' legal system is evolving, but remains incomplete in many
regards. Laws sometimes contradict each other and often lack
implementing regulations. For example, tax exemptions and low
import duties guaranteed to foreign investors under the foreign
investment law are not reflected in customs or tax law. Supported
by the Japan International Cooperation Agency (JICA),Singapore, and
the United Nations Development Program (UNDP),some laws have been
officially translated into English. These include the business,
tax, bankruptcy, customs, and secured transaction laws.
Implementing regulations for the Foreign Investment Law, which are
crucial to enforcement, were approved on October 10, 2005. The
reliability of unofficial translations varies considerably, which
can create an environment of uncertainty and ambiguity among foreign
investors. Application of Lao law remains inconsistent and
knowledge of the laws themselves is often limited (especially
outside the capital). The existence of a large number of government
decrees, sometimes unpublished, further complicates the situation.
While the trend under the current government is towards more
openness and more accountability, investors are cautioned to
recognize that economic and legal reform remain a work in progress.
17. Projects funded by the Australian government, the EU, the U.S.,
and the UN Development Program to assist Lao accession to the World
Trade Organization (WTO) include components aimed at bringing Lao
commercial law into conformity with WTO standards. A commercial
court was established during 2003, and began to hear cases in 2005.
The Lao Bar Association was set-up in 2007.
18. Laos has no anti-trust statutes. The bankruptcy law permits
either the business or creditor the right to petition the court for
a bankruptcy judgment, and allows businesses the right to request
mediation. There is no record of foreign-owned enterprises, whether
as debtors or as creditors, petitioning the courts for a bankruptcy
judgment.
--------------
PERFORMANCE REQUIREMENTS AND INCENTIVES
--------------
19. Laos does not impose performance requirements per se. Foreign
investors are encouraged to give priority to Lao citizens in
recruiting and hiring. According to the foreign investment law,
foreign personnel can be hired, although they may not exceed ten
percent (10%) of the enterprise's total labor force. In the case of
skilled labor, or politically important projects, the Ministry of
Planning and Investment has confirmed that enterprises can hire over
10% foreign labor if necessary. Before bringing in foreign labor,
the enterprise must apply for work permits from the Ministry of
Labor and Social Welfare. A foreign personnel list must also be
submitted to the Planning, Monitoring and Evaluation Division of the
Department for Promotion and Management of Domestic and Foreign
VIENTIANE 00000063 004 OF 033
Investment (DDFI).
20. Incentives for Foreign Investment: Laos grants incentives for
foreign investment depending on the sectors and zones of investment
promotion. The government defines promoted activities under Article
16 as follows:
1) production for export;
2) activities relating to agriculture or forestry, and agricultural,
forestry and handicraft processing activities;
3) activities relating to industrial processing, industrial
activities using modern techniques and technology, research and
development, and activities relating to the protection of the
environment and biodiversity;
4) human resource development, skills development and public health;
5) construction of infrastructure;
6) production of raw materials and equipment to be supplied to key
industrial activities; and,
7) development of the tourism industry and transit services.
21. The Law on the Promotion of Foreign Investment:
http://www.undplao.org/whatwedo/bgresource/
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%
20Investment.pdf
describes geographic and tax incentives in articles 17 and 18.
22. Foreigners employed in Laos, including foreign investors, must
pay an income tax of 10 percent of their total income to the Lao
Government, unless they are citizens of a country with which the Lao
Government has signed a double taxation agreement. The United
States has no such agreement with Laos. The turnover tax is
scheduled to be replaced in 2009 with a Value Added Tax (VAT).
23. Foreign investors are not required to pay import duty on
equipment, spare parts and other materials used in the operation of
their enterprises. Raw materials and intermediate goods imported
for the purpose of processing and re-export are exempt from import
duties. Raw materials and intermediate goods imported for the
purpose of import substitution are also eligible for import duty
reductions on a case-by-case basis. On an individual basis, foreign
investors are also eligible for profit tax and import duty
reductions or exemptions, if the investment is significantly large
or determined to have a significant benefit to Laos' socio-economic
development. To date the Lao Government appears to have honored its
incentives. Annual business license renewal is contingent upon
certification that corporate income taxes have been paid. The tax
code was streamlined and simplified in April 2005, but some
investors still report significant difficulties in obtaining tax
certifications in a timely manner.
24. The Foreign Investment Law stipulates that foreign investors
and their families, including foreign professionals and foreign
employees of an enterprise, shall be facilitated by issue of
multiple entry visas and, if approved by the government, long term
residence in the Lao PDR. They also, in theory, have the right to
apply for Lao nationality in accordance with the Law on Nationality.
--------------
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------
25. The government recognizes the right of private enterprise
ownership, and foreigners may transfer shares of a foreign-invested
company without prior government approval. However, the business
law requires that all shareholders be listed in the articles of
association, and changes in the articles of association of a
foreign-invested company must be approved by DDFI-Ministry of
Planning and Investment (MPI) , per the Enterprise Law
http://www.moc.gov.la/default.asp. Thus, transferring shares in a
foreign-invested company registered in Laos does require the
indirect approval of the government (DDFI-MPI).
--------------
PROTECTION OF PROPERTY RIGHTS
--------------
26. Foreign investors are not permitted to own land. The
government grants long-term leases, and allows the ownership of
leases and the right to transfer and improve leasehold interests.
Government approval is not required to transfer property interests,
but the transfer must be registered and a registration fee paid.
This includes mortgage leases.
27. Secured interests in property are inadequately covered by the
Secured Transactions Law of 1994. Because the law offers no
VIENTIANE 00000063 005 OF 033
instructions for the creditor to enforce security rights (the
creditor, for example, can only request repayment from the debtor),
the law favors the debtor. Moreover, since the Ministry of
Finance's registry system is not computerized, and cannot
cross-reference records, it is difficult to determine if a piece of
property is encumbered. Enforcement of a mortgage is further
complicated by the legal protection given mortgagees against
forfeiture of their sole place of residence.
28. Laos issued a trademark decree in January 1995. The National
Science and Technology Organization (NSTO),part of the Prime
Minister's Office, controls the issuance of trademarks on a
first-come, first-register basis. Applicants do not have to
demonstrate prior use. There are currently over 18,109 trademarks
registered in Laos.
29. Laos became a member of the ASEAN Common Filing System on
patents in 2000 but lacks adequate personnel qualified to serve as
patent examiners. A draft decree on patents was sent to the Prime
Minister in February 2000 for approval and in 2002 the Prime
Minister's Office issued patent regulations. Since Thailand and
Laos have a bilateral Intellectual Property Rights (IPR) agreement,
in principle a patent issued in Thailand would also be recognized in
Laos.
30. Currently, no system exists to issue copyrights in Laos. Laos
became a member of the World Intellectual Property Organization
(WIPO) Convention in January 1995 and the Paris Convention on the
Protection of Industrial Property in October 1998; it has not yet
joined the Bern Convention on Copyrights, however. Although WIPO
began to assist Laos in drafting an intellectual property law in
1996, a WTO-compliant law has not yet been implemented. In December
2007 the National Assembly approved a law the Lao government claims
will cover its U.S. Bilateral Trade Agreement (BTA)
responsibilities, as well as be WTO compliant. An English
translation sponsored by the U.S. Government is currently being
finalized. Overall, there is currently little protection for
intellectual property rights in Laos, although the authorities have
taken steps to crack down on some pirated goods.
--------------
TRANSPARENCY OF THE REGULATORY SYSTEM
--------------
31. The principal laws, regulations, decrees and guidelines
governing international trade and investment, as well as the current
protection of intellectual property, are available to the public,
although not all have been officially translated into English. Laws
and their schedules for implementation are customarily published in
Lao daily newspapers, and relevant line ministries are beginning to
put laws and regulations on websites. The website for UNDP Laos
maintains a partial list of translated Lao laws:
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php
Laws can also be found via the following websites. Laws on the
National Assembly website represent the officially approved English
translations:
http://www.na.gov.la/index.php (look under legislation on the left
side);
http://www.poweringprogress.org/ index.php?option=com_
content&view=
index.php?option=com _content&view=article&id= 242&Itemid=109
http://www.moc.gov.la/gioithieuAP.asp
In addition, implementation of the budget law commenced with the
restructuring of the Ministry of Finance (MoF) via Prime Ministerial
Decree Number 80 of February 28, 2007. In September 2007, the Prime
Minister issued Order No 35 instructing the MoF to move ahead with
centralization of customs, tax and treasury departments. In January
2009 the Government introduced a Value-Added Tax (VAT). Full
implementation of the tax is likely to take a number of years.
32. A lack of transparency in a centralized decision-making
process, as well as the difficulty encountered in obtaining
information, augment the perception of the regulatory framework as
arbitrary and inscrutable. There have been reports that the
government has recently begun discussing some proposed laws and
regulations with the business community, and acted upon the advice
given, before making final decisions. The Lao Tourist Association
has repeatedly urged the Lao government at the "Lao Business Forum,"
a business-government meeting sponsored by the Lao government and
the International Finance Corporation (IFC),to discuss proposed
laws with industry prior to implementation.
-------------- --------------
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
-------------- --------------
33. Laos does not have a developed capital market. Three-month
treasury bills are occasionally offered for sale when there is a
need to absorb excess liquidity in the economy. The largest
VIENTIANE 00000063 006 OF 033
denomination of currency is 50,000 kip (about US$5). Credit is not
available on the local market for large capital investments,
although letters of credit for export can sometimes be obtained
locally. International reserves fluctuate, with the latest
available 2007 data showing sufficient coverage for 5 months of
imports and numbering $485 million.
34. The banking system is under the supervision of the Bank of Lao
PDR, and includes:
* three state-owned commercial banks: Banque pour Le Commerce
Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion
Bank;
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;
* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai
Military and Ayoudhiya Banks whose activities are mainly limited to
providing services to local Thai businesses;
* one Vietnamese bank: Sacombank
* five private banks (3 foreign and two domestic): Malaysia - Public
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the
Association of Cambodia Local Economic Development Agencies (ACLEDA)
Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao
Bank
one representative office: Standard Chartered Bank.
35. A new banking law passed in 2006 allows private foreign banks
to establish branches in all provinces of Laos. (Previously,
foreign banks were permitted to establish branches only in
Vientiane.) The Commercial Bank Law is available on the Bank of Lao
PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has
correspondence arrangements with the following banks (US dollars):
JP Morgan Chase Bank, New York
Citibank, New York
Wachovia Bank, New York
American Express Bank, Ltd., New York
HSBC Bank, New York
Standard Chartered Bank, New York
Barclays Bank Plc., London
Credit Suisse First Boston, Zurich
Bank of Tokyo-Mitsubishi, Ltd, Tokyo
Natexis Banque Populaires, Singapore
Standard Chartered Bank, Singapore
Bank for Foreign Trade of Vietnam, Hanoi
TMB, Bank Public Co, Ltd, Bangkok
Bank Thai Public Co. Ltd. Bangkok
Calyon, Bangkok
Sumitomo Mitsui Banking Corporation, Tokyo
36. The Lao banking sector is in flux, with new private and foreign
banks opening to provide modern banking options to Lao and foreign
businesses. While continuing to receive outside assistance, central
bank supervision of the sector remains somewhat weak. Although
non-performing loans have decreased significantly since 2003,
through work-outs, write-offs, and transfers off balance sheets, the
three state-owned commercial banks (SCBs) remain, according to
official estimates, insolvent. For detailed information see the IMF
Article IV report:
http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf
The Asian Development Bank has provided both program loans and
technical assistance to Laos' financial sector, as have the World
Bank and the IMF. These programs have led to some reforms but
overall capacity within the governance structure remains weak and
the banks face many challenges.
The Government of Laos is planning to open a stock exchange in 2010,
with technical assistance provided from the South Korean
government.
--------------
POLITICAL VIOLENCE
--------------
37. Laos is generally a peaceful and politically stable country.
The remnants of an insurgency occasionally carry out small-scale
attacks on government personnel and civilians. Foreign persons are
not deliberately targeted, but visitors are advised to use caution
when traveling in remote districts.
--------------
CORRUPTION
--------------
38. The Prime Minister's Office has made combating corruption a
priority, including issuance of an anticorruption decree in November
1999, but corruption remains a problem. Although the 1999 decree
VIENTIANE 00000063 007 OF 033
specifically notes the responsibility of the state-owned mass media
in publicizing corruption cases, there has been no reporting on this
issue. In 2005, an anti-corruption law was passed by the National
Assembly. According to the State Inspection Authority, the Lao
Government has prosecuted some individuals for corruption but it
cannot publicize the information. The State Inspection Authority,
located in the Prime Minister's Office, is charged with analyzing
corruption at the national level and serves as a central office for
gathering details and evidence of suspected corruption.
Additionally, the State Inspection Department in each Ministry is
responsible for a ministry's internal problems.
39. Laos is not a signatory to the OECD Convention on Combating
UNCLASSIFIED
PROG 02/06/09
AMB: RRHUSO
ECON: JCARCHIBALD
DCM: PMHAYMOND
POL PDS
AMEMBASSY VIENTIANE
SECSTATE WASHDC
INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS
CIMS NTDB WASHDC
USDOC WASHDC
US DEPARTMENT OF COMMERCE WASHDC
US DEPARTMENT OF TREASURY WASH DC
SIPDIS
STATE FOR EAP/MLS EMERY
STATE FOR EEB/IFD/OIA
STATE PASS USTR FOR BISBEE
COMMERCE FOR HP PHO
E.O. 12958: N/A
TAGS: ECON, EINV, OPIC, USTR, KTDB, LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS
REF: 08 STATE 123909
--------------
OPENNESS TO FOREIGN INVESTMENT
--------------
1. The Lao government is open to foreign investment as a matter of
policy. It allows 100% foreign ownership of investments. The
overall investment climate is poor but improving. Laos rates very
low in international indices of transparency and ease of doing
business.
2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated
October 22, 2004, purport to promote foreign direct investment as a
means of boosting development and economic growth. Under the 2004
Law on the Promotion of Foreign Investment, scheduled to be updated
at the end of 2009, foreign investors may invest in all business
sectors and zones of investment in the Lao People's Democratic
Republic, except in business activities which are detrimental to
national security, have a negative impact on the environment, or are
regarded as detrimental to health or national traditions. In recent
years Laos has seen a significant increase in FDI, especially in
mining, hydropower, and plantation agriculture. Major foreign
investors are Thailand, China, Vietnam and Australia.
3. When bidding for the right to large contracts, companies
frequently offer the government the "option" of purchasing part of
the company at a later date, often with money borrowed from the
investor or multilateral institutions. The investment term of a
foreign investment enterprise depends on the nature, size, and
conditions of the business project but normally cannot exceed fifty
years. Under special circumstances, foreign investment enterprises
may be extended with the approval of the government. However,
foreign enterprises that receive extension approval from the
government may not exceed a total investment term of seventy-five
years.
4. Foreign investors seeking to establish operations in Laos must
submit project proposals to the Department for Promotion and
Management of Domestic and Foreign Investment (DDFI),Ministry for
Planning and Investment (MPI). The proposal is then screened by the
relevant line ministries and adjudicated by the Prime Minister's
Office. Under Prime Minister Decree No 301, dated October 12, 2005,
proposals for projects worth US$20 million or more require the
approval of the Prime Minister. The Minister of MPI can approve
investments below $20 million USD while the vice Minister can
approve investments of less than $10 million USD. FDI equal to or
VIENTIANE 00000063 008 OF 033
less than $3 million USD 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
provincial level approval is $5 million.
5. Foreign investors 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 either be a new company or a branch
office of an existing foreign company. Throughout the period of
operation of a foreign investment enterprise, the assets of the
enterprise must not be less than its registered capital. The
screening process at the Department for Promotion and Management of
Domestic and Foreign Investment (DDFI) in the Ministry of Planning
and Investment (MPI) takes into account the financial and technical
feasibility of the project, input from relevant line ministries, and
whether the proposed project conflicts with government policy. Upon
receipt of an application, the MPI must coordinate with relevant
sectors and local authorities to consider and respond in writing to
the foreign investor. Responses to projects, depending on project
type, are supposed to be forthcoming within 15-45 working days.
6. Foreign investors are required to obtain a foreign investment
license, an enterprise registration certificate, and a tax
registration certificate from the MPI office nearest the place where
the foreign investors are licensed. Thereafter they shall be
considered as enterprises established in conformity with the laws of
the Lao People's Democratic Republic. Within 90 days from the date
of receipt of an investment license the foreign investment
enterprise must commence business activities. If the investors fail
to do so, the foreign investment license is subject to termination.
7. In addition to the investment license, foreign investors are
required to obtain other permits. These include a business
registration which must be annually renewed from the Ministry of
Industry and Commerce, a tax registration from the tax department in
the Ministry of Finance, a business logo registration from the
Ministry of Public Security, permits from each line ministry related
to the investment (i.e., Ministry of Industry and Commerce for
manufacturing; Ministry of Public Works and Transportation, etc.),
appropriate permits from local authorities, and an import-export
license, if needed. Obtaining the necessary permits can pose a
challenge to foreign investors, especially in areas outside the
capital. The recent creation of a "one-stop shop" for many permits
within the Ministry of Planning and Investment should help ease
permitting difficulties in the future.
8. Lao law provides for sanctity of contracts. The following link
is for a translation of the Lao contract law.
http://www.undplao.org/ whatwedo/bgresource/demogov/
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf
However, since Laos is a communist one-party state, the sanctity of
contracts is subject both to political interference and a number of
socialist principles enshrined in the law. For example, according
to the contract law:
A contract can be voided if it is disadvantageous to one party, and
A voidable contract can be declared void by the disadvantaged
party.
9. 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.
10. In 2006 the Lao government ceased imposing import restrictions
on trading companies, whether foreign or domestic, in an effort to
let the market respond to actual demand. The Lao government no
longer requires companies to file an annual import plan for approval
by the Ministry of Commerce. The main exception is the fuel
industry, where individual companies are still required to file an
annual import plan. The government controls the retail price and
profit margins of gasoline and diesel. A large American oil company
announced in late 2007 that it was leaving the Lao market to focus
on more profitable countries within Asia. Government documents
articulating the restrictions and explaining the policy are
difficult to obtain. Goods that are always 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. For a detailed list of import & export
restrictions please visit http://www.moc.gov.la/default.asp
11. Agriculture production and most manufacturing production is
private. State-owned enterprises (SOEs) currently account for only
one percent of total employment. Approximately 97 percent of
manufacturing units are small (fewer than 10 employees). Foreign
companies interested in acquiring SOEs should apply through the
VIENTIANE 00000063 009 OF 033
Department for
--------------
CONVERSION AND TRANSFER POLICIES
--------------
12. In order to facilitate business transactions, foreign investors
generally open commercial bank accounts in both local and foreign
convertible currency at domestic and foreign banks in Laos.
Australian, Vietnamese, Thai, Cambodian and Malaysian banks
currently have a presence in Laos. Bank accounts must be maintained
in accordance with the Enterprise Accounting Law. The law places no
limitations on foreign investors transferring after-tax profits,
income from technology transfer, initial capital, interest, wages
and salaries, or other remittances to the company's home country or
third countries so long as they request approval from the Lao
government. These transactions are conducted at the official
exchange rate on the day of execution, upon presentation of
appropriate documentation. Supply of foreign exchange has in the
past been limited in Laos, which imposed a de facto limit on
repatriation of capital. Foreign currency inflows in recent years,
however, have reportedly solved this problem and large
multinationals in Laos report no problems with access to foreign
exchange. Foreign enterprises must report on their performance
annually and submit annual financial statements to the Ministry of
Planning and Investment (MPI).
--------------
EXPROPRIATION AND COMPENSATION
--------------
13. Foreign assets and investments in Laos are protected by laws and
regulations against seizure, confiscation, or nationalization except
when this is deemed necessary for a public purpose, in which case
foreign investors are to be compensated. While there have been no
expropriations, the Lao Government has revoked the foreign
investment licenses of companies in a less than transparent process.
Revocation of an investment license cannot be appealed to an
independent body, and companies whose licenses are revoked must then
liquidate their assets relatively rapidly. In addition, a company
that fails to begin conducting business within ninety days of
registering could be dissolved, if it does not have a reasonable
explanation.
--------------
DISPUTE SETTLEMENT
--------------
14. According to the Foreign Investment Law, investors involved in
investment disputes must seek arbitration before taking legal
action. If arbitration does not result in an amicable settlement,
litigants may submit their claims to the economic arbitration
authority of Laos, or that of the investor's country, or an
international organization agreed on by both parties. In practice,
there are no adequate independent arbitration venues in Laos.
Foreign investors are therefore generally advised to seek
arbitration outside the country, since Laos' nascent domestic
arbitration authority lacks enforcement powers. Laos is not a
member of the International Center for the Settlement of Investment
Disputes. It became a party to the New York Convention of 1958 on
the Recognition and Enforcement of Foreign Arbitral Awards on
September 15, 1998, but Laos has never been asked to enforce a
foreign arbitral award. Laos is a member of the United Nations
Convention on International Trade Law.
15. In disputes involving the Ministry of Planning and Investment,
decisions can only be appealed back to the Ministry itself. There
is no separate independent body. Thus a company which feels it is
receiving unfair treatment from the government has no independent
recourse. In 2007, two U.S.-owned small companies were involved in
disputes with the Lao government. One company had its investment
license revoked and the U.S. owners were given no option other than
to liquidate their assets. Another is still working with Lao
authorities to resolve the issue. The Lao government has cooperated
with the Embassy in addressing the disputes.
16. Laos' legal system is evolving, but remains incomplete in many
regards. Laws sometimes contradict each other and often lack
implementing regulations. For example, tax exemptions and low
import duties guaranteed to foreign investors under the foreign
investment law are not reflected in customs or tax law. Supported
by the Japan International Cooperation Agency (JICA),Singapore, and
the United Nations Development Program (UNDP),some laws have been
officially translated into English. These include the business,
tax, bankruptcy, customs, and secured transaction laws.
Implementing regulations for the Foreign Investment Law, which are
VIENTIANE 00000063 010 OF 033
crucial to enforcement, were approved on October 10, 2005. The
reliability of unofficial translations varies considerably, which
can create an environment of uncertainty and ambiguity among foreign
investors. Application of Lao law remains inconsistent and
knowledge of the laws themselves is often limited (especially
outside the capital). The existence of a large number of government
decrees, sometimes unpublished, further complicates the situation.
While the trend under the current government is towards more
openness and more accountability, investors are cautioned to
recognize that economic and legal reform remain a work in progress.
17. Projects funded by the Australian government, the EU, the U.S.,
and the UN Development Program to assist Lao accession to the World
Trade Organization (WTO) include components aimed at bringing Lao
commercial law into conformity with WTO standards. A commercial
court was established during 2003, and began to hear cases in 2005.
The Lao Bar Association was set-up in 2007.
18. Laos has no anti-trust statutes. The bankruptcy law permits
either the business or creditor the right to petition the court for
a bankruptcy judgment, and allows businesses the right to request
mediation. There is no record of foreign-owned enterprises, whether
as debtors or as creditors, petitioning the courts for a bankruptcy
judgment.
--------------
PERFORMANCE REQUIREMENTS AND INCENTIVES
--------------
19. Laos does not impose performance requirements per se. Foreign
investors are encouraged to give priority to Lao citizens in
recruiting and hiring. According to the foreign investment law,
foreign personnel can be hired, although they may not exceed ten
percent (10%) of the enterprise's total labor force. In the case of
skilled labor, or politically important projects, the Ministry of
Planning and Investment has confirmed that enterprises can hire over
10% foreign labor if necessary. Before bringing in foreign labor,
the enterprise must apply for work permits from the Ministry of
Labor and Social Welfare. A foreign personnel list must also be
submitted to the Planning, Monitoring and Evaluation Division of the
Department for Promotion and Management of Domestic and Foreign
Investment (DDFI).
20. Incentives for Foreign Investment: Laos grants incentives for
foreign investment depending on the sectors and zones of investment
promotion. The government defines promoted activities under Article
16 as follows:
1) production for export;
2) activities relating to agriculture or forestry, and agricultural,
forestry and handicraft processing activities;
3) activities relating to industrial processing, industrial
activities using modern techniques and technology, research and
development, and activities relating to the protection of the
environment and biodiversity;
4) human resource development, skills development and public health;
5) construction of infrastructure;
6) production of raw materials and equipment to be supplied to key
industrial activities; and,
7) development of the tourism industry and transit services.
21. The Law on the Promotion of Foreign Investment:
http://www.undplao.org/whatwedo/bgresource/
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%
20Investment.pdf
describes geographic and tax incentives in articles 17 and 18.
22. Foreigners employed in Laos, including foreign investors, must
pay an income tax of 10 percent of their total income to the Lao
Government, unless they are citizens of a country with which the Lao
Government has signed a double taxation agreement. The United
States has no such agreement with Laos. The turnover tax is
scheduled to be replaced in 2009 with a Value Added Tax (VAT).
23. Foreign investors are not required to pay import duty on
equipment, spare parts and other materials used in the operation of
their enterprises. Raw materials and intermediate goods imported
for the purpose of processing and re-export are exempt from import
duties. Raw materials and intermediate goods imported for the
purpose of import substitution are also eligible for import duty
reductions on a case-by-case basis. On an individual basis, foreign
investors are also eligible for profit tax and import duty
reductions or exemptions, if the investment is significantly large
or determined to have a significant benefit to Laos' socio-economic
development. To date the Lao Government appears to have honored its
VIENTIANE 00000063 011 OF 033
incentives. Annual business license renewal is contingent upon
certification that corporate income taxes have been paid. The tax
code was streamlined and simplified in April 2005, but some
investors still report significant difficulties in obtaining tax
certifications in a timely manner.
24. The Foreign Investment Law stipulates that foreign investors
and their families, including foreign professionals and foreign
employees of an enterprise, shall be facilitated by issue of
multiple entry visas and, if approved by the government, long term
residence in the Lao PDR. They also, in theory, have the right to
apply for Lao nationality in accordance with the Law on Nationality.
--------------
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------
25. The government recognizes the right of private enterprise
ownership, and foreigners may transfer shares of a foreign-invested
company without prior government approval. However, the business
law requires that all shareholders be listed in the articles of
association, and changes in the articles of association of a
foreign-invested company must be approved by DDFI-Ministry of
Planning and Investment (MPI) , per the Enterprise Law
http://www.moc.gov.la/default.asp. Thus, transferring shares in a
foreign-invested company registered in Laos does require the
indirect approval of the government (DDFI-MPI).
--------------
PROTECTION OF PROPERTY RIGHTS
--------------
26. Foreign investors are not permitted to own land. The
government grants long-term leases, and allows the ownership of
leases and the right to transfer and improve leasehold interests.
Government approval is not required to transfer property interests,
but the transfer must be registered and a registration fee paid.
This includes mortgage leases.
27. Secured interests in property are inadequately covered by the
Secured Transactions Law of 1994. Because the law offers no
instructions for the creditor to enforce security rights (the
creditor, for example, can only request repayment from the debtor),
the law favors the debtor. Moreover, since the Ministry of
Finance's registry system is not computerized, and cannot
cross-reference records, it is difficult to determine if a piece of
property is encumbered. Enforcement of a mortgage is further
complicated by the legal protection given mortgagees against
forfeiture of their sole place of residence.
28. Laos issued a trademark decree in January 1995. The National
Science and Technology Organization (NSTO),part of the Prime
Minister's Office, controls the issuance of trademarks on a
first-come, first-register basis. Applicants do not have to
demonstrate prior use. There are currently over 18,109 trademarks
registered in Laos.
29. Laos became a member of the ASEAN Common Filing System on
patents in 2000 but lacks adequate personnel qualified to serve as
patent examiners. A draft decree on patents was sent to the Prime
Minister in February 2000 for approval and in 2002 the Prime
Minister's Office issued patent regulations. Since Thailand and
Laos have a bilateral Intellectual Property Rights (IPR) agreement,
in principle a patent issued in Thailand would also be recognized in
Laos.
30. Currently, no system exists to issue copyrights in Laos. Laos
became a member of the World Intellectual Property Organization
(WIPO) Convention in January 1995 and the Paris Convention on the
Protection of Industrial Property in October 1998; it has not yet
joined the Bern Convention on Copyrights, however. Although WIPO
began to assist Laos in drafting an intellectual property law in
1996, a WTO-compliant law has not yet been implemented. In December
2007 the National Assembly approved a law the Lao government claims
will cover its U.S. Bilateral Trade Agreement (BTA)
responsibilities, as well as be WTO compliant. An English
translation sponsored by the U.S. Government is currently being
finalized. Overall, there is currently little protection for
intellectual property rights in Laos, although the authorities have
taken steps to crack down on some pirated goods.
--------------
TRANSPARENCY OF THE REGULATORY SYSTEM
--------------
31. The principal laws, regulations, decrees and guidelines
governing international trade and investment, as well as the current
protection of intellectual property, are available to the public,
although not all have been officially translated into English. Laws
and their schedules for implementation are customarily published in
VIENTIANE 00000063 012 OF 033
Lao daily newspapers, and relevant line ministries are beginning to
put laws and regulations on websites. The website for UNDP Laos
maintains a partial list of translated Lao laws:
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php
Laws can also be found via the following websites. Laws on the
National Assembly website represent the officially approved English
translations:
http://www.na.gov.la/index.php (look under legislation on the left
side);
http://www.poweringprogress.org/ index.php?option=com_
content&view=
index.php?option=com _content&view=article&id= 242&Itemid=109
http://www.moc.gov.la/gioithieuAP.asp
In addition, implementation of the budget law commenced with the
restructuring of the Ministry of Finance (MoF) via Prime Ministerial
Decree Number 80 of February 28, 2007. In September 2007, the Prime
Minister issued Order No 35 instructing the MoF to move ahead with
centralization of customs, tax and treasury departments. In January
2009 the Government introduced a Value-Added Tax (VAT). Full
implementation of the tax is likely to take a number of years.
32. A lack of transparency in a centralized decision-making
process, as well as the difficulty encountered in obtaining
information, augment the perception of the regulatory framework as
arbitrary and inscrutable. There have been reports that the
government has recently begun discussing some proposed laws and
regulations with the business community, and acted upon the advice
given, before making final decisions. The Lao Tourist Association
has repeatedly urged the Lao government at the "Lao Business Forum,"
a business-government meeting sponsored by the Lao government and
the International Finance Corporation (IFC),to discuss proposed
laws with industry prior to implementation.
-------------- --------------
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
-------------- --------------
33. Laos does not have a developed capital market. Three-month
treasury bills are occasionally offered for sale when there is a
need to absorb excess liquidity in the economy. The largest
denomination of currency is 50,000 kip (about US$5). Credit is not
available on the local market for large capital investments,
although letters of credit for export can sometimes be obtained
locally. International reserves fluctuate, with the latest
available 2007 data showing sufficient coverage for 5 months of
imports and numbering $485 million.
34. The banking system is under the supervision of the Bank of Lao
PDR, and includes:
* three state-owned commercial banks: Banque pour Le Commerce
Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion
Bank;
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;
* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai
Military and Ayoudhiya Banks whose activities are mainly limited to
providing services to local Thai businesses;
* one Vietnamese bank: Sacombank
* five private banks (3 foreign and two domestic): Malaysia - Public
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the
Association of Cambodia Local Economic Development Agencies (ACLEDA)
Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao
Bank
one representative office: Standard Chartered Bank.
35. A new banking law passed in 2006 allows private foreign banks
to establish branches in all provinces of Laos. (Previously,
foreign banks were permitted to establish branches only in
Vientiane.) The Commercial Bank Law is available on the Bank of Lao
PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has
correspondence arrangements with the following banks (US dollars):
JP Morgan Chase Bank, New York
Citibank, New York
Wachovia Bank, New York
American Express Bank, Ltd., New York
HSBC Bank, New York
Standard Chartered Bank, New York
Barclays Bank Plc., London
Credit Suisse First Boston, Zurich
Bank of Tokyo-Mitsubishi, Ltd, Tokyo
Natexis Banque Populaires, Singapore
Standard Chartered Bank, Singapore
Bank for Foreign Trade of Vietnam, Hanoi
TMB, Bank Public Co, Ltd, Bangkok
Bank Thai Public Co. Ltd. Bangkok
VIENTIANE 00000063 013 OF 033
Calyon, Bangkok
Sumitomo Mitsui Banking Corporation, Tokyo
36. The Lao banking sector is in flux, with new private and foreign
banks opening to provide modern banking options to Lao and foreign
businesses. While continuing to receive outside assistance, central
bank supervision of the sector remains somewhat weak. Although
non-performing loans have decreased significantly since 2003,
through work-outs, write-offs, and transfers off balance sheets, the
three state-owned commercial banks (SCBs) remain, according to
official estimates, insolvent. For detailed information see the IMF
Article IV report:
http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf
The Asian Development Bank has provided both program loans and
technical assistance to Laos' financial sector, as have the World
Bank and the IMF. These programs have led to some reforms but
overall capacity within the governance structure remains weak and
the banks face many challenges.
The Government of Laos is planning to open a stock exchange in 2010,
with technical assistance provided from the South Korean
government.
--------------
POLITICAL VIOLENCE
--------------
37. Laos is generally a peaceful and politically stable country.
The remnants of an insurgency occasionally carry out small-scale
attacks on government personnel and civilians. Foreign persons are
not deliberately targeted, but visitors are advised to use caution
when traveling in remote districts.
--------------
CORRUPTION
--------------
38. The Prime Minister's Office has made combating corruption a
priority, including issuance of an anticorruption decree in November
1999, but corruption remains a problem. Although the 1999 decree
specifically notes the responsibility of the state-owned mass media
in publicizing corruption cases, there has been no reporting on this
issue. In 2005, an anti-corruption law was passed by the National
Assembly. According to the State Inspection Authority, the Lao
Government has prosecuted some individuals for corruption but it
cannot publicize the information. The State Inspection Authority,
located in the Prime Minister's Office, is charged with analyzing
corruption at the national level and serves as a central office for
gathering details and evidence of suspected corruption.
Additionally, the State Inspection Department in each Ministry is
responsible for a ministry's internal problems.
39. Laos is not a signatory to the OECD Convention on Combating
UNCLASSIFIED
PROG 02/06/09
AMB: RRHUSO
ECON: JCARCHIBALD
DCM: PMHAYMOND
POL PDS
AMEMBASSY VIENTIANE
SECSTATE WASHDC
INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS
CIMS NTDB WASHDC
USDOC WASHDC
US DEPARTMENT OF COMMERCE WASHDC
US DEPARTMENT OF TREASURY WASH DC
SIPDIS
STATE FOR EAP/MLS EMERY
STATE FOR EEB/IFD/OIA
STATE PASS USTR FOR BISBEE
COMMERCE FOR HP PHO
E.O. 12958: N/A
TAGS: ECON, EINV, OPIC, USTR, KTDB, LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS
REF: 08 STATE 123909
--------------
OPENNESS TO FOREIGN INVESTMENT
--------------
VIENTIANE 00000063 014 OF 033
1. The Lao government is open to foreign investment as a matter of
policy. It allows 100% foreign ownership of investments. The
overall investment climate is poor but improving. Laos rates very
low in international indices of transparency and ease of doing
business.
2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated
October 22, 2004, purport to promote foreign direct investment as a
means of boosting development and economic growth. Under the 2004
Law on the Promotion of Foreign Investment, scheduled to be updated
at the end of 2009, foreign investors may invest in all business
sectors and zones of investment in the Lao People's Democratic
Republic, except in business activities which are detrimental to
national security, have a negative impact on the environment, or are
regarded as detrimental to health or national traditions. In recent
years Laos has seen a significant increase in FDI, especially in
mining, hydropower, and plantation agriculture. Major foreign
investors are Thailand, China, Vietnam and Australia.
3. When bidding for the right to large contracts, companies
frequently offer the government the "option" of purchasing part of
the company at a later date, often with money borrowed from the
investor or multilateral institutions. The investment term of a
foreign investment enterprise depends on the nature, size, and
conditions of the business project but normally cannot exceed fifty
years. Under special circumstances, foreign investment enterprises
may be extended with the approval of the government. However,
foreign enterprises that receive extension approval from the
government may not exceed a total investment term of seventy-five
years.
4. Foreign investors seeking to establish operations in Laos must
submit project proposals to the Department for Promotion and
Management of Domestic and Foreign Investment (DDFI),Ministry for
Planning and Investment (MPI). The proposal is then screened by the
relevant line ministries and adjudicated by the Prime Minister's
Office. Under Prime Minister Decree No 301, dated October 12, 2005,
proposals for projects worth US$20 million or more require the
approval of the Prime Minister. The Minister of MPI can approve
investments below $20 million USD while the vice Minister can
approve investments of less than $10 million USD. FDI equal to or
less than $3 million USD 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
provincial level approval is $5 million.
5. Foreign investors 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 either be a new company or a branch
office of an existing foreign company. Throughout the period of
operation of a foreign investment enterprise, the assets of the
enterprise must not be less than its registered capital. The
screening process at the Department for Promotion and Management of
Domestic and Foreign Investment (DDFI) in the Ministry of Planning
and Investment (MPI) takes into account the financial and technical
feasibility of the project, input from relevant line ministries, and
whether the proposed project conflicts with government policy. Upon
receipt of an application, the MPI must coordinate with relevant
sectors and local authorities to consider and respond in writing to
the foreign investor. Responses to projects, depending on project
type, are supposed to be forthcoming within 15-45 working days.
6. Foreign investors are required to obtain a foreign investment
license, an enterprise registration certificate, and a tax
registration certificate from the MPI office nearest the place where
the foreign investors are licensed. Thereafter they shall be
considered as enterprises established in conformity with the laws of
the Lao People's Democratic Republic. Within 90 days from the date
of receipt of an investment license the foreign investment
enterprise must commence business activities. If the investors fail
to do so, the foreign investment license is subject to termination.
7. In addition to the investment license, foreign investors are
required to obtain other permits. These include a business
registration which must be annually renewed from the Ministry of
Industry and Commerce, a tax registration from the tax department in
the Ministry of Finance, a business logo registration from the
Ministry of Public Security, permits from each line ministry related
to the investment (i.e., Ministry of Industry and Commerce for
manufacturing; Ministry of Public Works and Transportation, etc.),
appropriate permits from local authorities, and an import-export
license, if needed. Obtaining the necessary permits can pose a
challenge to foreign investors, especially in areas outside the
capital. The recent creation of a "one-stop shop" for many permits
within the Ministry of Planning and Investment should help ease
permitting difficulties in the future.
VIENTIANE 00000063 015 OF 033
8. Lao law provides for sanctity of contracts. The following link
is for a translation of the Lao contract law.
http://www.undplao.org/ whatwedo/bgresource/demogov/
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf
However, since Laos is a communist one-party state, the sanctity of
contracts is subject both to political interference and a number of
socialist principles enshrined in the law. For example, according
to the contract law:
A contract can be voided if it is disadvantageous to one party, and
A voidable contract can be declared void by the disadvantaged
party.
9. 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.
10. In 2006 the Lao government ceased imposing import restrictions
on trading companies, whether foreign or domestic, in an effort to
let the market respond to actual demand. The Lao government no
longer requires companies to file an annual import plan for approval
by the Ministry of Commerce. The main exception is the fuel
industry, where individual companies are still required to file an
annual import plan. The government controls the retail price and
profit margins of gasoline and diesel. A large American oil company
announced in late 2007 that it was leaving the Lao market to focus
on more profitable countries within Asia. Government documents
articulating the restrictions and explaining the policy are
difficult to obtain. Goods that are always 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. For a detailed list of import & export
restrictions please visit http://www.moc.gov.la/default.asp
11. Agriculture production and most manufacturing production is
private. State-owned enterprises (SOEs) currently account for only
one percent of total employment. Approximately 97 percent of
manufacturing units are small (fewer than 10 employees). Foreign
companies interested in acquiring SOEs should apply through the
Department for
--------------
CONVERSION AND TRANSFER POLICIES
--------------
12. In order to facilitate business transactions, foreign investors
generally open commercial bank accounts in both local and foreign
convertible currency at domestic and foreign banks in Laos.
Australian, Vietnamese, Thai, Cambodian and Malaysian banks
currently have a presence in Laos. Bank accounts must be maintained
in accordance with the Enterprise Accounting Law. The law places no
limitations on foreign investors transferring after-tax profits,
income from technology transfer, initial capital, interest, wages
and salaries, or other remittances to the company's home country or
third countries so long as they request approval from the Lao
government. These transactions are conducted at the official
exchange rate on the day of execution, upon presentation of
appropriate documentation. Supply of foreign exchange has in the
past been limited in Laos, which imposed a de facto limit on
repatriation of capital. Foreign currency inflows in recent years,
however, have reportedly solved this problem and large
multinationals in Laos report no problems with access to foreign
exchange. Foreign enterprises must report on their performance
annually and submit annual financial statements to the Ministry of
Planning and Investment (MPI).
--------------
EXPROPRIATION AND COMPENSATION
--------------
13. Foreign assets and investments in Laos are protected by laws and
regulations against seizure, confiscation, or nationalization except
when this is deemed necessary for a public purpose, in which case
foreign investors are to be compensated. While there have been no
expropriations, the Lao Government has revoked the foreign
investment licenses of companies in a less than transparent process.
Revocation of an investment license cannot be appealed to an
independent body, and companies whose licenses are revoked must then
liquidate their assets relatively rapidly. In addition, a company
that fails to begin conducting business within ninety days of
registering could be dissolved, if it does not have a reasonable
explanation.
--------------
DISPUTE SETTLEMENT
VIENTIANE 00000063 016 OF 033
--------------
14. According to the Foreign Investment Law, investors involved in
investment disputes must seek arbitration before taking legal
action. If arbitration does not result in an amicable settlement,
litigants may submit their claims to the economic arbitration
authority of Laos, or that of the investor's country, or an
international organization agreed on by both parties. In practice,
there are no adequate independent arbitration venues in Laos.
Foreign investors are therefore generally advised to seek
arbitration outside the country, since Laos' nascent domestic
arbitration authority lacks enforcement powers. Laos is not a
member of the International Center for the Settlement of Investment
Disputes. It became a party to the New York Convention of 1958 on
the Recognition and Enforcement of Foreign Arbitral Awards on
September 15, 1998, but Laos has never been asked to enforce a
foreign arbitral award. Laos is a member of the United Nations
Convention on International Trade Law.
15. In disputes involving the Ministry of Planning and Investment,
decisions can only be appealed back to the Ministry itself. There
is no separate independent body. Thus a company which feels it is
receiving unfair treatment from the government has no independent
recourse. In 2007, two U.S.-owned small companies were involved in
disputes with the Lao government. One company had its investment
license revoked and the U.S. owners were given no option other than
to liquidate their assets. Another is still working with Lao
authorities to resolve the issue. The Lao government has cooperated
with the Embassy in addressing the disputes.
16. Laos' legal system is evolving, but remains incomplete in many
regards. Laws sometimes contradict each other and often lack
implementing regulations. For example, tax exemptions and low
import duties guaranteed to foreign investors under the foreign
investment law are not reflected in customs or tax law. Supported
by the Japan International Cooperation Agency (JICA),Singapore, and
the United Nations Development Program (UNDP),some laws have been
officially translated into English. These include the business,
tax, bankruptcy, customs, and secured transaction laws.
Implementing regulations for the Foreign Investment Law, which are
crucial to enforcement, were approved on October 10, 2005. The
reliability of unofficial translations varies considerably, which
can create an environment of uncertainty and ambiguity among foreign
investors. Application of Lao law remains inconsistent and
knowledge of the laws themselves is often limited (especially
outside the capital). The existence of a large number of government
decrees, sometimes unpublished, further complicates the situation.
While the trend under the current government is towards more
openness and more accountability, investors are cautioned to
recognize that economic and legal reform remain a work in progress.
17. Projects funded by the Australian government, the EU, the U.S.,
and the UN Development Program to assist Lao accession to the World
Trade Organization (WTO) include components aimed at bringing Lao
commercial law into conformity with WTO standards. A commercial
court was established during 2003, and began to hear cases in 2005.
The Lao Bar Association was set-up in 2007.
18. Laos has no anti-trust statutes. The bankruptcy law permits
either the business or creditor the right to petition the court for
a bankruptcy judgment, and allows businesses the right to request
mediation. There is no record of foreign-owned enterprises, whether
as debtors or as creditors, petitioning the courts for a bankruptcy
judgment.
--------------
PERFORMANCE REQUIREMENTS AND INCENTIVES
--------------
19. Laos does not impose performance requirements per se. Foreign
investors are encouraged to give priority to Lao citizens in
recruiting and hiring. According to the foreign investment law,
foreign personnel can be hired, although they may not exceed ten
percent (10%) of the enterprise's total labor force. In the case of
skilled labor, or politically important projects, the Ministry of
Planning and Investment has confirmed that enterprises can hire over
10% foreign labor if necessary. Before bringing in foreign labor,
the enterprise must apply for work permits from the Ministry of
Labor and Social Welfare. A foreign personnel list must also be
submitted to the Planning, Monitoring and Evaluation Division of the
Department for Promotion and Management of Domestic and Foreign
Investment (DDFI).
20. Incentives for Foreign Investment: Laos grants incentives for
foreign investment depending on the sectors and zones of investment
promotion. The government defines promoted activities under Article
16 as follows:
VIENTIANE 00000063 017 OF 033
1) production for export;
2) activities relating to agriculture or forestry, and agricultural,
forestry and handicraft processing activities;
3) activities relating to industrial processing, industrial
activities using modern techniques and technology, research and
development, and activities relating to the protection of the
environment and biodiversity;
4) human resource development, skills development and public health;
5) construction of infrastructure;
6) production of raw materials and equipment to be supplied to key
industrial activities; and,
7) development of the tourism industry and transit services.
21. The Law on the Promotion of Foreign Investment:
http://www.undplao.org/whatwedo/bgresource/
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%
20Investment.pdf
describes geographic and tax incentives in articles 17 and 18.
22. Foreigners employed in Laos, including foreign investors, must
pay an income tax of 10 percent of their total income to the Lao
Government, unless they are citizens of a country with which the Lao
Government has signed a double taxation agreement. The United
States has no such agreement with Laos. The turnover tax is
scheduled to be replaced in 2009 with a Value Added Tax (VAT).
23. Foreign investors are not required to pay import duty on
equipment, spare parts and other materials used in the operation of
their enterprises. Raw materials and intermediate goods imported
for the purpose of processing and re-export are exempt from import
duties. Raw materials and intermediate goods imported for the
purpose of import substitution are also eligible for import duty
reductions on a case-by-case basis. On an individual basis, foreign
investors are also eligible for profit tax and import duty
reductions or exemptions, if the investment is significantly large
or determined to have a significant benefit to Laos' socio-economic
development. To date the Lao Government appears to have honored its
incentives. Annual business license renewal is contingent upon
certification that corporate income taxes have been paid. The tax
code was streamlined and simplified in April 2005, but some
investors still report significant difficulties in obtaining tax
certifications in a timely manner.
24. The Foreign Investment Law stipulates that foreign investors
and their families, including foreign professionals and foreign
employees of an enterprise, shall be facilitated by issue of
multiple entry visas and, if approved by the government, long term
residence in the Lao PDR. They also, in theory, have the right to
apply for Lao nationality in accordance with the Law on Nationality.
--------------
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------
25. The government recognizes the right of private enterprise
ownership, and foreigners may transfer shares of a foreign-invested
company without prior government approval. However, the business
law requires that all shareholders be listed in the articles of
association, and changes in the articles of association of a
foreign-invested company must be approved by DDFI-Ministry of
Planning and Investment (MPI) , per the Enterprise Law
http://www.moc.gov.la/default.asp. Thus, transferring shares in a
foreign-invested company registered in Laos does require the
indirect approval of the government (DDFI-MPI).
--------------
PROTECTION OF PROPERTY RIGHTS
--------------
26. Foreign investors are not permitted to own land. The
government grants long-term leases, and allows the ownership of
leases and the right to transfer and improve leasehold interests.
Government approval is not required to transfer property interests,
but the transfer must be registered and a registration fee paid.
This includes mortgage leases.
27. Secured interests in property are inadequately covered by the
Secured Transactions Law of 1994. Because the law offers no
instructions for the creditor to enforce security rights (the
creditor, for example, can only request repayment from the debtor),
the law favors the debtor. Moreover, since the Ministry of
Finance's registry system is not computerized, and cannot
cross-reference records, it is difficult to determine if a piece of
property is encumbered. Enforcement of a mortgage is further
VIENTIANE 00000063 018 OF 033
complicated by the legal protection given mortgagees against
forfeiture of their sole place of residence.
28. Laos issued a trademark decree in January 1995. The National
Science and Technology Organization (NSTO),part of the Prime
Minister's Office, controls the issuance of trademarks on a
first-come, first-register basis. Applicants do not have to
demonstrate prior use. There are currently over 18,109 trademarks
registered in Laos.
29. Laos became a member of the ASEAN Common Filing System on
patents in 2000 but lacks adequate personnel qualified to serve as
patent examiners. A draft decree on patents was sent to the Prime
Minister in February 2000 for approval and in 2002 the Prime
Minister's Office issued patent regulations. Since Thailand and
Laos have a bilateral Intellectual Property Rights (IPR) agreement,
in principle a patent issued in Thailand would also be recognized in
Laos.
30. Currently, no system exists to issue copyrights in Laos. Laos
became a member of the World Intellectual Property Organization
(WIPO) Convention in January 1995 and the Paris Convention on the
Protection of Industrial Property in October 1998; it has not yet
joined the Bern Convention on Copyrights, however. Although WIPO
began to assist Laos in drafting an intellectual property law in
1996, a WTO-compliant law has not yet been implemented. In December
2007 the National Assembly approved a law the Lao government claims
will cover its U.S. Bilateral Trade Agreement (BTA)
responsibilities, as well as be WTO compliant. An English
translation sponsored by the U.S. Government is currently being
finalized. Overall, there is currently little protection for
intellectual property rights in Laos, although the authorities have
taken steps to crack down on some pirated goods.
--------------
TRANSPARENCY OF THE REGULATORY SYSTEM
--------------
31. The principal laws, regulations, decrees and guidelines
governing international trade and investment, as well as the current
protection of intellectual property, are available to the public,
although not all have been officially translated into English. Laws
and their schedules for implementation are customarily published in
Lao daily newspapers, and relevant line ministries are beginning to
put laws and regulations on websites. The website for UNDP Laos
maintains a partial list of translated Lao laws:
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php
Laws can also be found via the following websites. Laws on the
National Assembly website represent the officially approved English
translations:
http://www.na.gov.la/index.php (look under legislation on the left
side);
http://www.poweringprogress.org/ index.php?option=com_
content&view=
index.php?option=com _content&view=article&id= 242&Itemid=109
http://www.moc.gov.la/gioithieuAP.asp
In addition, implementation of the budget law commenced with the
restructuring of the Ministry of Finance (MoF) via Prime Ministerial
Decree Number 80 of February 28, 2007. In September 2007, the Prime
Minister issued Order No 35 instructing the MoF to move ahead with
centralization of customs, tax and treasury departments. In January
2009 the Government introduced a Value-Added Tax (VAT). Full
implementation of the tax is likely to take a number of years.
32. A lack of transparency in a centralized decision-making
process, as well as the difficulty encountered in obtaining
information, augment the perception of the regulatory framework as
arbitrary and inscrutable. There have been reports that the
government has recently begun discussing some proposed laws and
regulations with the business community, and acted upon the advice
given, before making final decisions. The Lao Tourist Association
has repeatedly urged the Lao government at the "Lao Business Forum,"
a business-government meeting sponsored by the Lao government and
the International Finance Corporation (IFC),to discuss proposed
laws with industry prior to implementation.
-------------- --------------
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
-------------- --------------
33. Laos does not have a developed capital market. Three-month
treasury bills are occasionally offered for sale when there is a
need to absorb excess liquidity in the economy. The largest
denomination of currency is 50,000 kip (about US$5). Credit is not
available on the local market for large capital investments,
although letters of credit for export can sometimes be obtained
locally. International reserves fluctuate, with the latest
available 2007 data showing sufficient coverage for 5 months of
imports and numbering $485 million.
VIENTIANE 00000063 019 OF 033
34. The banking system is under the supervision of the Bank of Lao
PDR, and includes:
* three state-owned commercial banks: Banque pour Le Commerce
Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion
Bank;
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;
* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai
Military and Ayoudhiya Banks whose activities are mainly limited to
providing services to local Thai businesses;
* one Vietnamese bank: Sacombank
* five private banks (3 foreign and two domestic): Malaysia - Public
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the
Association of Cambodia Local Economic Development Agencies (ACLEDA)
Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao
Bank
one representative office: Standard Chartered Bank.
35. A new banking law passed in 2006 allows private foreign banks
to establish branches in all provinces of Laos. (Previously,
foreign banks were permitted to establish branches only in
Vientiane.) The Commercial Bank Law is available on the Bank of Lao
PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has
correspondence arrangements with the following banks (US dollars):
JP Morgan Chase Bank, New York
Citibank, New York
Wachovia Bank, New York
American Express Bank, Ltd., New York
HSBC Bank, New York
Standard Chartered Bank, New York
Barclays Bank Plc., London
Credit Suisse First Boston, Zurich
Bank of Tokyo-Mitsubishi, Ltd, Tokyo
Natexis Banque Populaires, Singapore
Standard Chartered Bank, Singapore
Bank for Foreign Trade of Vietnam, Hanoi
TMB, Bank Public Co, Ltd, Bangkok
Bank Thai Public Co. Ltd. Bangkok
Calyon, Bangkok
Sumitomo Mitsui Banking Corporation, Tokyo
36. The Lao banking sector is in flux, with new private and foreign
banks opening to provide modern banking options to Lao and foreign
businesses. While continuing to receive outside assistance, central
bank supervision of the sector remains somewhat weak. Although
non-performing loans have decreased significantly since 2003,
through work-outs, write-offs, and transfers off balance sheets, the
three state-owned commercial banks (SCBs) remain, according to
official estimates, insolvent. For detailed information see the IMF
Article IV report:
http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf
The Asian Development Bank has provided both program loans and
technical assistance to Laos' financial sector, as have the World
Bank and the IMF. These programs have led to some reforms but
overall capacity within the governance structure remains weak and
the banks face many challenges.
The Government of Laos is planning to open a stock exchange in 2010,
with technical assistance provided from the South Korean
government.
--------------
POLITICAL VIOLENCE
--------------
37. Laos is generally a peaceful and politically stable country.
The remnants of an insurgency occasionally carry out small-scale
attacks on government personnel and civilians. Foreign persons are
not deliberately targeted, but visitors are advised to use caution
when traveling in remote districts.
--------------
CORRUPTION
--------------
38. The Prime Minister's Office has made combating corruption a
priority, including issuance of an anticorruption decree in November
1999, but corruption remains a problem. Although the 1999 decree
specifically notes the responsibility of the state-owned mass media
in publicizing corruption cases, there has been no reporting on this
issue. In 2005, an anti-corruption law was passed by the National
Assembly. According to the State Inspection Authority, the Lao
Government has prosecuted some individuals for corruption but it
cannot publicize the information. The State Inspection Authority,
VIENTIANE 00000063 020 OF 033
located in the Prime Minister's Office, is charged with analyzing
corruption at the national level and serves as a central office for
gathering details and evidence of suspected corruption.
Additionally, the State Inspection Department in each Ministry is
responsible for a ministry's internal problems.
39. Laos is not a signatory to the OECD Convention on Combating
UNCLASSIFIED
PROG 02/06/09
AMB: RRHUSO
ECON: JCARCHIBALD
DCM: PMHAYMOND
POL PDS
AMEMBASSY VIENTIANE
SECSTATE WASHDC
INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS
CIMS NTDB WASHDC
USDOC WASHDC
US DEPARTMENT OF COMMERCE WASHDC
US DEPARTMENT OF TREASURY WASH DC
SIPDIS
STATE FOR EAP/MLS EMERY
STATE FOR EEB/IFD/OIA
STATE PASS USTR FOR BISBEE
COMMERCE FOR HP PHO
E.O. 12958: N/A
TAGS: ECON, EINV, OPIC, USTR, KTDB, LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS
REF: 08 STATE 123909
--------------
OPENNESS TO FOREIGN INVESTMENT
--------------
1. The Lao government is open to foreign investment as a matter of
policy. It allows 100% foreign ownership of investments. The
overall investment climate is poor but improving. Laos rates very
low in international indices of transparency and ease of doing
business.
2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated
October 22, 2004, purport to promote foreign direct investment as a
means of boosting development and economic growth. Under the 2004
Law on the Promotion of Foreign Investment, scheduled to be updated
at the end of 2009, foreign investors may invest in all business
sectors and zones of investment in the Lao People's Democratic
Republic, except in business activities which are detrimental to
national security, have a negative impact on the environment, or are
regarded as detrimental to health or national traditions. In recent
years Laos has seen a significant increase in FDI, especially in
mining, hydropower, and plantation agriculture. Major foreign
investors are Thailand, China, Vietnam and Australia.
3. When bidding for the right to large contracts, companies
frequently offer the government the "option" of purchasing part of
the company at a later date, often with money borrowed from the
investor or multilateral institutions. The investment term of a
foreign investment enterprise depends on the nature, size, and
conditions of the business project but normally cannot exceed fifty
years. Under special circumstances, foreign investment enterprises
may be extended with the approval of the government. However,
foreign enterprises that receive extension approval from the
government may not exceed a total investment term of seventy-five
years.
4. Foreign investors seeking to establish operations in Laos must
submit project proposals to the Department for Promotion and
Management of Domestic and Foreign Investment (DDFI),Ministry for
Planning and Investment (MPI). The proposal is then screened by the
relevant line ministries and adjudicated by the Prime Minister's
Office. Under Prime Minister Decree No 301, dated October 12, 2005,
proposals for projects worth US$20 million or more require the
approval of the Prime Minister. The Minister of MPI can approve
investments below $20 million USD while the vice Minister can
approve investments of less than $10 million USD. FDI equal to or
less than $3 million USD 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
provincial level approval is $5 million.
5. Foreign investors in a joint venture must contribute at least
thirty percent (30%) of the venture's registered capital. Capital
VIENTIANE 00000063 021 OF 033
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 either be a new company or a branch
office of an existing foreign company. Throughout the period of
operation of a foreign investment enterprise, the assets of the
enterprise must not be less than its registered capital. The
screening process at the Department for Promotion and Management of
Domestic and Foreign Investment (DDFI) in the Ministry of Planning
and Investment (MPI) takes into account the financial and technical
feasibility of the project, input from relevant line ministries, and
whether the proposed project conflicts with government policy. Upon
receipt of an application, the MPI must coordinate with relevant
sectors and local authorities to consider and respond in writing to
the foreign investor. Responses to projects, depending on project
type, are supposed to be forthcoming within 15-45 working days.
6. Foreign investors are required to obtain a foreign investment
license, an enterprise registration certificate, and a tax
registration certificate from the MPI office nearest the place where
the foreign investors are licensed. Thereafter they shall be
considered as enterprises established in conformity with the laws of
the Lao People's Democratic Republic. Within 90 days from the date
of receipt of an investment license the foreign investment
enterprise must commence business activities. If the investors fail
to do so, the foreign investment license is subject to termination.
7. In addition to the investment license, foreign investors are
required to obtain other permits. These include a business
registration which must be annually renewed from the Ministry of
Industry and Commerce, a tax registration from the tax department in
the Ministry of Finance, a business logo registration from the
Ministry of Public Security, permits from each line ministry related
to the investment (i.e., Ministry of Industry and Commerce for
manufacturing; Ministry of Public Works and Transportation, etc.),
appropriate permits from local authorities, and an import-export
license, if needed. Obtaining the necessary permits can pose a
challenge to foreign investors, especially in areas outside the
capital. The recent creation of a "one-stop shop" for many permits
within the Ministry of Planning and Investment should help ease
permitting difficulties in the future.
8. Lao law provides for sanctity of contracts. The following link
is for a translation of the Lao contract law.
http://www.undplao.org/ whatwedo/bgresource/demogov/
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf
However, since Laos is a communist one-party state, the sanctity of
contracts is subject both to political interference and a number of
socialist principles enshrined in the law. For example, according
to the contract law:
A contract can be voided if it is disadvantageous to one party, and
A voidable contract can be declared void by the disadvantaged
party.
9. 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.
10. In 2006 the Lao government ceased imposing import restrictions
on trading companies, whether foreign or domestic, in an effort to
let the market respond to actual demand. The Lao government no
longer requires companies to file an annual import plan for approval
by the Ministry of Commerce. The main exception is the fuel
industry, where individual companies are still required to file an
annual import plan. The government controls the retail price and
profit margins of gasoline and diesel. A large American oil company
announced in late 2007 that it was leaving the Lao market to focus
on more profitable countries within Asia. Government documents
articulating the restrictions and explaining the policy are
difficult to obtain. Goods that are always 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. For a detailed list of import & export
restrictions please visit http://www.moc.gov.la/default.asp
11. Agriculture production and most manufacturing production is
private. State-owned enterprises (SOEs) currently account for only
one percent of total employment. Approximately 97 percent of
manufacturing units are small (fewer than 10 employees). Foreign
companies interested in acquiring SOEs should apply through the
Department for
--------------
CONVERSION AND TRANSFER POLICIES
--------------
VIENTIANE 00000063 022 OF 033
12. In order to facilitate business transactions, foreign investors
generally open commercial bank accounts in both local and foreign
convertible currency at domestic and foreign banks in Laos.
Australian, Vietnamese, Thai, Cambodian and Malaysian banks
currently have a presence in Laos. Bank accounts must be maintained
in accordance with the Enterprise Accounting Law. The law places no
limitations on foreign investors transferring after-tax profits,
income from technology transfer, initial capital, interest, wages
and salaries, or other remittances to the company's home country or
third countries so long as they request approval from the Lao
government. These transactions are conducted at the official
exchange rate on the day of execution, upon presentation of
appropriate documentation. Supply of foreign exchange has in the
past been limited in Laos, which imposed a de facto limit on
repatriation of capital. Foreign currency inflows in recent years,
however, have reportedly solved this problem and large
multinationals in Laos report no problems with access to foreign
exchange. Foreign enterprises must report on their performance
annually and submit annual financial statements to the Ministry of
Planning and Investment (MPI).
--------------
EXPROPRIATION AND COMPENSATION
--------------
13. Foreign assets and investments in Laos are protected by laws and
regulations against seizure, confiscation, or nationalization except
when this is deemed necessary for a public purpose, in which case
foreign investors are to be compensated. While there have been no
expropriations, the Lao Government has revoked the foreign
investment licenses of companies in a less than transparent process.
Revocation of an investment license cannot be appealed to an
independent body, and companies whose licenses are revoked must then
liquidate their assets relatively rapidly. In addition, a company
that fails to begin conducting business within ninety days of
registering could be dissolved, if it does not have a reasonable
explanation.
--------------
DISPUTE SETTLEMENT
--------------
14. According to the Foreign Investment Law, investors involved in
investment disputes must seek arbitration before taking legal
action. If arbitration does not result in an amicable settlement,
litigants may submit their claims to the economic arbitration
authority of Laos, or that of the investor's country, or an
international organization agreed on by both parties. In practice,
there are no adequate independent arbitration venues in Laos.
Foreign investors are therefore generally advised to seek
arbitration outside the country, since Laos' nascent domestic
arbitration authority lacks enforcement powers. Laos is not a
member of the International Center for the Settlement of Investment
Disputes. It became a party to the New York Convention of 1958 on
the Recognition and Enforcement of Foreign Arbitral Awards on
September 15, 1998, but Laos has never been asked to enforce a
foreign arbitral award. Laos is a member of the United Nations
Convention on International Trade Law.
15. In disputes involving the Ministry of Planning and Investment,
decisions can only be appealed back to the Ministry itself. There
is no separate independent body. Thus a company which feels it is
receiving unfair treatment from the government has no independent
recourse. In 2007, two U.S.-owned small companies were involved in
disputes with the Lao government. One company had its investment
license revoked and the U.S. owners were given no option other than
to liquidate their assets. Another is still working with Lao
authorities to resolve the issue. The Lao government has cooperated
with the Embassy in addressing the disputes.
16. Laos' legal system is evolving, but remains incomplete in many
regards. Laws sometimes contradict each other and often lack
implementing regulations. For example, tax exemptions and low
import duties guaranteed to foreign investors under the foreign
investment law are not reflected in customs or tax law. Supported
by the Japan International Cooperation Agency (JICA),Singapore, and
the United Nations Development Program (UNDP),some laws have been
officially translated into English. These include the business,
tax, bankruptcy, customs, and secured transaction laws.
Implementing regulations for the Foreign Investment Law, which are
crucial to enforcement, were approved on October 10, 2005. The
reliability of unofficial translations varies considerably, which
can create an environment of uncertainty and ambiguity among foreign
investors. Application of Lao law remains inconsistent and
knowledge of the laws themselves is often limited (especially
outside the capital). The existence of a large number of government
VIENTIANE 00000063 023 OF 033
decrees, sometimes unpublished, further complicates the situation.
While the trend under the current government is towards more
openness and more accountability, investors are cautioned to
recognize that economic and legal reform remain a work in progress.
17. Projects funded by the Australian government, the EU, the U.S.,
and the UN Development Program to assist Lao accession to the World
Trade Organization (WTO) include components aimed at bringing Lao
commercial law into conformity with WTO standards. A commercial
court was established during 2003, and began to hear cases in 2005.
The Lao Bar Association was set-up in 2007.
18. Laos has no anti-trust statutes. The bankruptcy law permits
either the business or creditor the right to petition the court for
a bankruptcy judgment, and allows businesses the right to request
mediation. There is no record of foreign-owned enterprises, whether
as debtors or as creditors, petitioning the courts for a bankruptcy
judgment.
--------------
PERFORMANCE REQUIREMENTS AND INCENTIVES
--------------
19. Laos does not impose performance requirements per se. Foreign
investors are encouraged to give priority to Lao citizens in
recruiting and hiring. According to the foreign investment law,
foreign personnel can be hired, although they may not exceed ten
percent (10%) of the enterprise's total labor force. In the case of
skilled labor, or politically important projects, the Ministry of
Planning and Investment has confirmed that enterprises can hire over
10% foreign labor if necessary. Before bringing in foreign labor,
the enterprise must apply for work permits from the Ministry of
Labor and Social Welfare. A foreign personnel list must also be
submitted to the Planning, Monitoring and Evaluation Division of the
Department for Promotion and Management of Domestic and Foreign
Investment (DDFI).
20. Incentives for Foreign Investment: Laos grants incentives for
foreign investment depending on the sectors and zones of investment
promotion. The government defines promoted activities under Article
16 as follows:
1) production for export;
2) activities relating to agriculture or forestry, and agricultural,
forestry and handicraft processing activities;
3) activities relating to industrial processing, industrial
activities using modern techniques and technology, research and
development, and activities relating to the protection of the
environment and biodiversity;
4) human resource development, skills development and public health;
5) construction of infrastructure;
6) production of raw materials and equipment to be supplied to key
industrial activities; and,
7) development of the tourism industry and transit services.
21. The Law on the Promotion of Foreign Investment:
http://www.undplao.org/whatwedo/bgresource/
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%
20Investment.pdf
describes geographic and tax incentives in articles 17 and 18.
22. Foreigners employed in Laos, including foreign investors, must
pay an income tax of 10 percent of their total income to the Lao
Government, unless they are citizens of a country with which the Lao
Government has signed a double taxation agreement. The United
States has no such agreement with Laos. The turnover tax is
scheduled to be replaced in 2009 with a Value Added Tax (VAT).
23. Foreign investors are not required to pay import duty on
equipment, spare parts and other materials used in the operation of
their enterprises. Raw materials and intermediate goods imported
for the purpose of processing and re-export are exempt from import
duties. Raw materials and intermediate goods imported for the
purpose of import substitution are also eligible for import duty
reductions on a case-by-case basis. On an individual basis, foreign
investors are also eligible for profit tax and import duty
reductions or exemptions, if the investment is significantly large
or determined to have a significant benefit to Laos' socio-economic
development. To date the Lao Government appears to have honored its
incentives. Annual business license renewal is contingent upon
certification that corporate income taxes have been paid. The tax
code was streamlined and simplified in April 2005, but some
investors still report significant difficulties in obtaining tax
certifications in a timely manner.
VIENTIANE 00000063 024 OF 033
24. The Foreign Investment Law stipulates that foreign investors
and their families, including foreign professionals and foreign
employees of an enterprise, shall be facilitated by issue of
multiple entry visas and, if approved by the government, long term
residence in the Lao PDR. They also, in theory, have the right to
apply for Lao nationality in accordance with the Law on Nationality.
--------------
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------
25. The government recognizes the right of private enterprise
ownership, and foreigners may transfer shares of a foreign-invested
company without prior government approval. However, the business
law requires that all shareholders be listed in the articles of
association, and changeQin the articles of association of a
foreign-invested company must be approved by DDFI-Ministry of
Planning and Investment (MPI) , per the Enterprise Law
http://www.moc.gov.la/default.asp. Thus, transferring shares in a
foreign-invested company registered in Laos does require the
indirect approval of the government (DDFI-MPI).
--------------
PROTECTION OF PROPERTY RIGHTS
--------------
26. Foreign investors are not permitted to own land. The
government grants long-term leases, and allows the ownership of
leases and the right to transfer and improve leasehold interests.
Government approval is not required to transfer property interests,
but the transfer must be registered and a registration fee paid.
This includes mortgage leases.
27. Secured interests in property are inadequately covered by the
Secured Transactions Law of 1994. Because the law offers no
instructions for the creditor to enforce security rights (the
creditor, for example, can only request repayment from the debtor),
the law favors the debtor. Moreover, since the Ministry of
Finance's registry system is not computerized, and cannot
cross-reference records, it is difficult to determine if a piece of
property is encumbered. Enforcement of a mortgage is further
complicated by the legal protection given mortgagees against
forfeiture of their sole place of residence.
28. Laos issued a trademark decree in January 1995. The National
Science and Technology Organization (NSTO),part of the Prime
Minister's Office, controls the issuance of trademarks on a
first-come, first-register basis. Applicants do not have to
demonstrate prior use. There are currently over 18,109 trademarks
registered in Laos.
29. Laos became a member of the ASEAN Common Filing System on
patents in 2000 but lacks adequate personnel qualified to serve as
patent examiners. A draft decree on patents was sent to the Prime
Minister in February 2000 for approval and in 2002 the Prime
Minister's Office issued patent regulations. Since Thailand and
Laos have a bilateral Intellectual Property Rights (IPR) agreement,
in principle a patent issued in Thailand would also be recognized in
Laos.
30. Currently, no system exists to issue copyrights in Laos. Laos
became a member of the World Intellectual Property Organization
(WIPO) Convention in January 1995 and the Paris Convention on the
Protection of Industrial Property in October 1998; it has not yet
joined the Bern Convention on Copyrights, however. Although WIPO
began to assist Laos in drafting an intellectual property law in
1996, a WTO-compliant law has not yet been implemented. In December
2007 the National Assembly approved a law the Lao government claims
will cover its U.S. Bilateral Trade Agreement (BTA)
responsibilities, as well as be WTO compliant. An English
translation sponsored by the U.S. Government is currently being
finalized. Overall, there is currently little protection for
intellectual property rights in Laos, although the authorities have
taken steps to crack down on some pirated goods.
--------------
TRANSPARENCY OF THE REGULATORY SYSTEM
--------------
31. The principal laws, regulations, decrees and guidelines
governing international trade and investment, as well as the current
protection of intellectual property, are available to the public,
although not all have been officially translated into English. Laws
and their schedules for implementation are customarily published in
Lao daily newspapers, and relevant line ministries are beginning to
put laws and regulations on websites. The website for UNDP Laos
maintains a partial list of translated Lao laws:
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php
Laws can also be found via the following websites. Laws on the
VIENTIANE 00000063 025 OF 033
National Assembly website represent the officially approved English
translations:
http://www.na.gov.la/index.php (look under legislation on the left
side);
http://www.poweringprogress.org/ index.php?option=com_
content&view=
index.php?option=com _content&view=article&id= 242&Itemid=109
http://www.moc.gov.la/gioithieuAP.asp
In addition, implementation of the budget law commenced with the
restructuring of the Ministry of Finance (MoF) via Prime Ministerial
Decree Number 80 of February 28, 2007. In September 2007, the Prime
Minister issued Order No 35 instructing the MoF to move ahead with
centralization of customs, tax and treasury departments. In January
2009 the Government introduced a Value-Added Tax (VAT). Full
implementation of the tax is likely to take a number of years.
32. A lack of transparency in a centralized decision-making
process, as well as the difficulty encountered in obtaining
information, augment the perception of the regulatory framework as
arbitrary and inscrutable. There have been reports that the
government has recently begun discussing some proposed laws and
regulations with the business community, and acted upon the advice
given, before making final decisions. The Lao Tourist Association
has repeatedly urged the Lao government at the "Lao Business Forum,"
a business-government meeting sponsored by the Lao government and
the International Finance Corporation (IFC),to discuss proposed
laws with industry prior to implementation.
-------------- --------------
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
-------------- --------------
33. Laos does not have a developed capital market. Three-month
treasury bills are occasionally offered for sale when there is a
need to absorb excess liquidity in the economy. The largest
denomination of currency is 50,000 kip (about US$5). Credit is not
available on the local market for large capital investments,
although letters of credit for export can sometimes be obtained
locally. International reserves fluctuate, with the latest
available 2007 data showing sufficient coverage for 5 months of
imports and numbering $485 million.
34. The banking system is under the supervision of the Bank of Lao
PDR, and includes:
* three state-owned commercial banks: Banque pour Le Commerce
Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion
Bank;
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;
* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai
Military and Ayoudhiya Banks whose activities are mainly limited to
providing services to local Thai businesses;
* one Vietnamese bank: Sacombank
* five private banks (3 foreign and two domestic): Malaysia - Public
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the
Association of Cambodia Local Economic Development Agencies (ACLEDA)
Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao
Bank
one representative office: Standard Chartered Bank.
35. A new banking law passed in 2006 allows private foreign banks
to establish branches in all provinces of Laos. (Previously,
foreign banks were permitted to establish branches only in
Vientiane.) The Commercial Bank Law is available on the Bank of Lao
PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has
correspondence arrangements with the following banks (US dollars):
JP Morgan Chase Bank, New York
Citibank, New York
Wachovia Bank, New York
American Express Bank, Ltd., New York
HSBC Bank, New York
Standard Chartered Bank, New York
Barclays Bank Plc., London
Credit Suisse First Boston, Zurich
Bank of Tokyo-Mitsubishi, Ltd, Tokyo
Natexis Banque Populaires, Singapore
Standard Chartered Bank, Singapore
Bank for Foreign Trade of Vietnam, Hanoi
TMB, Bank Public Co, Ltd, Bangkok
Bank Thai Public Co. Ltd. Bangkok
Calyon, Bangkok
Sumitomo Mitsui Banking Corporation, Tokyo
36. The Lao banking sector is in flux, with new private and foreign
banks opening to provide modern banking options to Lao and foreign
businesses. While continuing to receive outside assistance, central
VIENTIANE 00000063 026 OF 033
bank supervision of the sector remains somewhat weak. Although
non-performing loans have decreased significantly since 2003,
through work-outs, write-offs, and transfers off balance sheets, the
three state-owned commercial banks (SCBs) remain, according to
official estimates, insolvent. For detailed information see the IMF
Article IV report:
http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf
The Asian Development Bank has provided both program loans and
technical assistance to Laos' financial sector, as have the World
Bank and the IMF. These programs have led to some reforms but
overall capacity within the governance structure remains weak and
the banks face many challenges.
The Government of Laos is planning to open a stock exchange in 2010,
with technical assistance provided from the South Korean
government.
--------------
POLITICAL VIOLENCE
--------------
37. Laos is generally a peaceful and politically stable country.
The remnants of an insurgency occasionally carry out small-scale
attacks on government personnel and civilians. Foreign persons are
not deliberately targeted, but visitors are advised to use caution
when traveling in remote districts.
--------------
CORRUPTION
--------------
38. The Prime Minister's Office has made combating corruption a
priority, including issuance of an anticorruption decree in November
1999, but corruption remains a problem. Although the 1999 decree
specifically notes the responsibility of the state-owned mass media
in publicizing corruption cases, there has been no reporting on this
issue. In 2005, an anti-corruption law was passed by the National
Assembly. According to the State Inspection Authority, the Lao
Government has prosecuted some individuals for corruption but it
cannot publicize the information. The State Inspection Authority,
located in the Prime Minister's Office, is charged with analyzing
corruption at the national level and serves as a central office for
gathering details and evidence of suspected corruption.
Additionally, the State Inspection Department in each Ministry is
responsible for a ministry's internal problems.
39. Laos is not a signatory to the OECD Convention on Combating
UNCLASSIFIED
PROG 02/06/09
AMB: RRHUSO
ECON: JCARCHIBALD
DCM: PMHAYMOND
POL PDS
AMEMBASSY VIENTIANE
SECSTATE WASHDC
INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS
CIMS NTDB WASHDC
USDOC WASHDC
US DEPARTMENT OF COMMERCE WASHDC
US DEPARTMENT OF TREASURY WASH DC
SIPDIS
STATE FOR EAP/MLS EMERY
STATE FOR EEB/IFD/OIA
STATE PASS USTR FOR BISBEE
COMMERCE FOR HP PHO
E.O. 12958: N/A
TAGS: ECON, EINV, OPIC, USTR, KTDB, LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS
REF: 08 STATE 123909
--------------
OPENNESS TO FOREIGN INVESTMENT
--------------
1. The Lao government is open to foreign investment as a matter of
policy. It allows 100% foreign ownership of investments. The
overall investment climate is poor but improving. Laos rates very
low in international indices of transparency and ease of doing
business.
VIENTIANE 00000063 027 OF 033
2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated
October 22, 2004, purport to promote foreign direct investment as a
means of boosting development and economic growth. Under the 2004
Law on the Promotion of Foreign Investment, scheduled to be updated
at the end of 2009, foreign investors may invest in all business
sectors and zones of investment in the Lao People's Democratic
Republic, except in business activities which are detrimental to
national security, have a negative impact on the environment, or are
regarded as detrimental to health or national traditions. In recent
years Laos has seen a significant increase in FDI, especially in
mining, hydropower, and plantation agriculture. Major foreign
investors are Thailand, China, Vietnam and Australia.
3. When bidding for the right to large contracts, companies
frequently offer the government the "option" of purchasing part of
the company at a later date, often with money borrowed from the
investor or multilateral institutions. The investment term of a
foreign investment enterprise depends on the nature, size, and
conditions of the business project but normally cannot exceed fifty
years. Under special circumstances, foreign investment enterprises
may be extended with the approval of the government. However,
foreign enterprises that receive extension approval from the
government may not exceed a total investment term of seventy-five
years.
4. Foreign investors seeking to establish operations in Laos must
submit project proposals to the Department for Promotion and
Management of Domestic and Foreign Investment (DDFI),Ministry for
Planning and Investment (MPI). The proposal is then screened by the
relevant line ministries and adjudicated by the Prime Minister's
Office. Under Prime Minister Decree No 301, dated October 12, 2005,
proposals for projects worth US$20 million or more require the
approval of the Prime Minister. The Minister of MPI can approve
investments below $20 million USD while the vice Minister can
approve investments of less than $10 million USD. FDI equal to or
less than $3 million USD 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
provincial level approval is $5 million.
5. Foreign investors 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 either be a new company or a branch
office of an existing foreign company. Throughout the period of
operation of a foreign investment enterprise, the assets of the
enterprise must not be less than its registered capital. The
screening process at the Department for Promotion and Management of
Domestic and Foreign Investment (DDFI) in the Ministry of Planning
and Investment (MPI) takes into account the financial and technical
feasibility of the project, input from relevant line ministries, and
whether the proposed project conflicts with government policy. Upon
receipt of an application, the MPI must coordinate with relevant
sectors and local authorities to consider and respond in writing to
the foreign investor. Responses to projects, depending on project
type, are supposed to be forthcoming within 15-45 working days.
6. Foreign investors are required to obtain a foreign investment
license, an enterprise registration certificate, and a tax
registration certificate from the MPI office nearest the place where
the foreign investors are licensed. Thereafter they shall be
considered as enterprises established in conformity with the laws of
the Lao People's Democratic Republic. Within 90 days from the date
of receipt of an investment license the foreign investment
enterprise must commence business activities. If the investors fail
to do so, the foreign investment license is subject to termination.
7. In addition to the investment license, foreign investors are
required to obtain other permits. These include a business
registration which must be annually renewed from the Ministry of
Industry and Commerce, a tax registration from the tax department in
the Ministry of Finance, a business logo registration from the
Ministry of Public Security, permits from each line ministry related
to the investment (i.e., Ministry of Industry and Commerce for
manufacturing; Ministry of Public Works and Transportation, etc.),
appropriate permits from local authorities, and an import-export
license, if needed. Obtaining the necessary permits can pose a
challenge to foreign investors, especially in areas outside the
capital. The recent creation of a "one-stop shop" for many permits
within the Ministry of Planning and Investment should help ease
permitting difficulties in the future.
8. Lao law provides for sanctity of contracts. The following link
is for a translation of the Lao contract law.
http://www.undplao.org/ whatwedo/bgresource/demogov/
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf
However, since Laos is a communist one-party state, the sanctity of
VIENTIANE 00000063 028 OF 033
contracts is subject both to political interference and a number of
socialist principles enshrined in the law. For example, according
to the contract law:
A contract can be voided if it is disadvantageous to one party, and
A voidable contract can be declared void by the disadvantaged
party.
9. 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.
10. In 2006 the Lao government ceased imposing import restrictions
on trading companies, whether foreign or domestic, in an effort to
let the market respond to actual demand. The Lao government no
longer requires companies to file an annual import plan for approval
by the Ministry of Commerce. The main exception is the fuel
industry, where individual companies are still required to file an
annual import plan. The government controls the retail price and
profit margins of gasoline and diesel. A large American oil company
announced in late 2007 that it was leaving the Lao market to focus
on more profitable countries within Asia. Government documents
articulating the restrictions and explaining the policy are
difficult to obtain. Goods that are always 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. For a detailed list of import & export
restrictions please visit http://www.moc.gov.la/default.asp
11. Agriculture production and most manufacturing production is
private. State-owned enterprises (SOEs) currently account for only
one percent of total employment. Approximately 97 percent of
manufacturing units are small (fewer than 10 employees). Foreign
companies interested in acquiring SOEs should apply through the
Department for
--------------
CONVERSION AND TRANSFER POLICIES
--------------
12. In order to facilitate business transactions, foreign investors
generally open commercial bank accounts in both local and foreign
convertible currency at domestic and foreign banks in Laos.
Australian, Vietnamese, Thai, Cambodian and Malaysian banks
currently have a presence in Laos. Bank accounts must be maintained
in accordance with the Enterprise Accounting Law. The law places no
limitations on foreign investors transferring after-tax profits,
income from technology transfer, initial capital, interest, wages
and salaries, or other remittances to the company's home country or
third countries so long as they request approval from the Lao
government. These transactions are conducted at the official
exchange rate on the day of execution, upon presentation of
appropriate documentation. Supply of foreign exchange has in the
past been limited in Laos, which imposed a de facto limit on
repatriation of capital. Foreign currency inflows in recent years,
however, have reportedly solved this problem and large
multinationals in Laos report no problems with access to foreign
exchange. Foreign enterprises must report on their performance
annually and submit annual financial statements to the Ministry of
Planning and Investment (MPI).
--------------
EXPROPRIATION AND COMPENSATION
--------------
13. Foreign assets and investments in Laos are protected by laws and
regulations against seizure, confiscation, or nationalization except
when this is deemed necessary for a public purpose, in which case
foreign investors are to be compensated. While there have been no
expropriations, the Lao Government has revoked the foreign
investment licenses of companies in a less than transparent process.
Revocation of an investment license cannot be appealed to an
independent body, and companies whose licenses are revoked must then
liquidate their assets relatively rapidly. In addition, a company
that fails to begin conducting business within ninety days of
registering could be dissolved, if it does not have a reasonable
explanation.
--------------
DISPUTE SETTLEMENT
--------------
14. According to the Foreign Investment Law, investors involved in
investment disputes must seek arbitration before taking legal
action. If arbitration does not result in an amicable settlement,
litigants may submit their claims to the economic arbitration
VIENTIANE 00000063 029 OF 033
authority of Laos, or that of the investor's country, or an
international organization agreed on by both parties. In practice,
there are no adequate independent arbitration venues in Laos.
Foreign investors are therefore generally advised to seek
arbitration outside the country, since Laos' nascent domestic
arbitration authority lacks enforcement powers. Laos is not a
member of the International Center for the Settlement of Investment
Disputes. It became a party to the New York Convention of 1958 on
the Recognition and Enforcement of Foreign Arbitral Awards on
September 15, 1998, but Laos has never been asked to enforce a
foreign arbitral award. Laos is a member of the United Nations
Convention on International Trade Law.
15. In disputes involving the Ministry of Planning and Investment,
decisions can only be appealed back to the Ministry itself. There
is no separate independent body. Thus a company which feels it is
receiving unfair treatment from the government has no independent
recourse. In 2007, two U.S.-owned small companies were involved in
disputes with the Lao government. One company had its investment
license revoked and the U.S. owners were given no option other than
to liquidate their assets. Another is still working with Lao
authorities to resolve the issue. The Lao government has cooperated
with the Embassy in addressing the disputes.
16. Laos' legal system is evolving, but remains incomplete in many
regards. Laws sometimes contradict each other and often lack
implementing regulations. For example, tax exemptions and low
import duties guaranteed to foreign investors under the foreign
investment law are not reflected in customs or tax law. Supported
by the Japan International Cooperation Agency (JICA),Singapore, and
the United Nations Development Program (UNDP),some laws have been
officially translated into English. These include the business,
tax, bankruptcy, customs, and secured transaction laws.
Implementing regulations for the Foreign Investment Law, which are
crucial to enforcement, were approved on October 10, 2005. The
reliability of unofficial translations varies considerably, which
can create an environment of uncertainty and ambiguity among foreign
investors. Application of Lao law remains inconsistent and
knowledge of the laws themselves is often limited (especially
outside the capital). The existence of a large number of government
decrees, sometimes unpublished, further complicates the situation.
While the trend under the current government is towards more
openness and more accountability, investors are cautioned to
recognize that economic and legal reform remain a work in progress.
17. Projects funded by the Australian government, the EU, the U.S.,
and the UN Development Program to assist Lao accession to the World
Trade Organization (WTO) include components aimed at bringing Lao
commercial law into conformity with WTO standards. A commercial
court was established during 2003, and began to hear cases in 2005.
The Lao Bar Association was set-up in 2007.
18. Laos has no anti-trust statutes. The bankruptcy law permits
either the business or creditor the right to petition the court for
a bankruptcy judgment, and allows businesses the right to request
mediation. There is no record of foreign-owned enterprises, whether
as debtors or as creditors, petitioning the courts for a bankruptcy
judgment.
--------------
PERFORMANCE REQUIREMENTS AND INCENTIVES
--------------
19. Laos does not impose performance requirements per se. Foreign
investors are encouraged to give priority to Lao citizens in
recruiting and hiring. According to the foreign investment law,
foreign personnel can be hired, although they may not exceed ten
percent (10%) of the enterprise's total labor force. In the case of
skilled labor, or politically important projects, the Ministry of
Planning and Investment has confirmed that enterprises can hire over
10% foreign labor if necessary. Before bringing in foreign labor,
the enterprise must apply for work permits from the Ministry of
Labor and Social Welfare. A foreign personnel list must also be
submitted to the Planning, Monitoring and Evaluation Division of the
Department for Promotion and Management of Domestic and Foreign
Investment (DDFI).
20. Incentives for Foreign Investment: Laos grants incentives for
foreign investment depending on the sectors and zones of investment
promotion. The government defines promoted activities under Article
16 as follows:
1) production for export;
2) activities relating to agriculture or forestry, and agricultural,
forestry and handicraft processing activities;
3) activities relating to industrial processing, industrial
activities using modern techniques and technology, research and
development, and activities relating to the protection of the
VIENTIANE 00000063 030 OF 033
environment and biodiversity;
4) human resource development, skills development and public health;
5) construction of infrastructure;
6) production of raw materials and equipment to be supplied to key
industrial activities; and,
7) development of the tourism industry and transit services.
21. The Law on the Promotion of Foreign Investment:
http://www.undplao.org/whatwedo/bgresource/
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%
20Investment.pdf
describes geographic and tax incentives in articles 17 and 18.
22. Foreigners employed in Laos, including foreign investors, must
pay an income tax of 10 percent of their total income to the Lao
Government, unless they are citizens of a country with which the Lao
Government has signed a double taxation agreement. The United
States has no such agreement with Laos. The turnover tax is
scheduled to be replaced in 2009 with a Value Added Tax (VAT).
23. Foreign investors are not required to pay import duty on
equipment, spare parts and other materials used in the operation of
their enterprises. Raw materials and intermediate goods imported
for the purpose of processing and re-export are exempt from import
duties. Raw materials and intermediate goods imported for the
purpose of import substitution are also eligible for import duty
reductions on a case-by-case basis. On an individual basis, foreign
investors are also eligible for profit tax and import duty
reductions or exemptions, if the investment is significantly large
or determined to have a significant benefit to Laos' socio-economic
development. To date the Lao Government appears to have honored its
incentives. Annual business license renewal is contingent upon
certification that corporate income taxes have been paid. The tax
code was streamlined and simplified in April 2005, but some
investors still report significant difficulties in obtaining tax
certifications in a timely manner.
24. The Foreign Investment Law stipulates that foreign investors
and their families, including foreign professionals and foreign
employees of an enterprise, shall be facilitated by issue of
multiple entry visas and, if approved by the government, long term
residence in the Lao PDR. They also, in theory, have the right to
apply for Lao nationality in accordance with the Law on Nationality.
--------------
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------
25. The government recognizes the right of private enterprise
ownership, and foreigners may transfer shares of a foreign-invested
company without prior government approval. However, the business
law requires that all shareholders be listed in the articles of
association, and changes in the articles of association of a
foreign-invested company must be approved by DDFI-Ministry of
Planning and Investment (MPI) , per the Enterprise Law
http://www.moc.gov.la/default.asp. Thus, transferring shares in a
foreign-invested company registered in Laos does require the
indirect approval of the government (DDFI-MPI).
--------------
PROTECTION OF PROPERTY RIGHTS
--------------
26. Foreign investors are not permitted to own land. The
government grants long-term leases, and allows the ownership of
leases and the right to transfer and improve leasehold interests.
Government approval is not required to transfer property interests,
but the transfer must be registered and a registration fee paid.
This includes mortgage leases.
27. Secured interests in property are inadequately covered by the
Secured Transactions Law of 1994. Because the law offers no
instructions for the creditor to enforce security rights (the
creditor, for example, can only request repayment from the debtor),
the law favors the debtor. Moreover, since the Ministry of
Finance's registry system is not computerized, and cannot
cross-reference records, it is difficult to determine if a piece of
property is encumbered. Enforcement of a mortgage is further
complicated by the legal protection given mortgagees against
forfeiture of their sole place of residence.
28. Laos issued a trademark decree in January 1995. The National
Science and Technology Organization (NSTO),part of the Prime
Minister's Office, controls the issuance of trademarks on a
first-come, first-register basis. Applicants do not have to
VIENTIANE 00000063 031 OF 033
demonstrate prior use. There are currently over 18,109 trademarks
registered in Laos.
29. Laos became a member of the ASEAN Common Filing System on
patents in 2000 but lacks adequate personnel qualified to serve as
patent examiners. A draft decree on patents was sent to the Prime
Minister in February 2000 for approval and in 2002 the Prime
Minister's Office issued patent regulations. Since Thailand and
Laos have a bilateral Intellectual Property Rights (IPR) agreement,
in principle a patent issued in Thailand would also be recognized in
Laos.
30. Currently, no system exists to issue copyrights in Laos. Laos
became a member of the World Intellectual Property Organization
(WIPO) Convention in January 1995 and the Paris Convention on the
Protection of Industrial Property in October 1998; it has not yet
joined the Bern Convention on Copyrights, however. Although WIPO
began to assist Laos in drafting an intellectual property law in
1996, a WTO-compliant law has not yet been implemented. In December
2007 the National Assembly approved a law the Lao government claims
will cover its U.S. Bilateral Trade Agreement (BTA)
responsibilities, as well as be WTO compliant. An English
translation sponsored by the U.S. Government is currently being
finalized. Overall, there is currently little protection for
intellectual property rights in Laos, although the authorities have
taken steps to crack down on some pirated goods.
--------------
TRANSPARENCY OF THE REGULATORY SYSTEM
--------------
31. The principal laws, regulations, decrees and guidelines
governing international trade and investment, as well as the current
protection of intellectual property, are available to the public,
although not all have been officially translated into English. Laws
and their schedules for implementation are customarily published in
Lao daily newspapers, and relevant line ministries are beginning to
put laws and regulations on websites. The website for UNDP Laos
maintains a partial list of translated Lao laws:
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php
Laws can also be found via the following websites. Laws on the
National Assembly website represent the officially approved English
translations:
http://www.na.gov.la/index.php (look under legislation on the left
side);
http://www.poweringprogress.org/ index.php?option=com_
content&view=
index.php?option=com _content&view=article&id= 242&Itemid=109
http://www.moc.gov.la/gioithieuAP.asp
In addition, implementation of the budget law commenced with the
restructuring of the Ministry of Finance (MoF) via Prime Ministerial
Decree Number 80 of February 28, 2007. In September 2007, the Prime
Minister issued Order No 35 instructing the MoF to move ahead with
centralization of customs, tax and treasury departments. In January
2009 the Government introduced a Value-Added Tax (VAT). Full
implementation of the tax is likely to take a number of years.
32. A lack of transparency in a centralized decision-making
process, as well as the difficulty encountered in obtaining
information, augment the perception of the regulatory framework as
arbitrary and inscrutable. There have been reports that the
government has recently begun discussing some proposed laws and
regulations with the business community, and acted upon the advice
given, before making final decisions. The Lao Tourist Association
has repeatedly urged the Lao government at the "Lao Business Forum,"
a business-government meeting sponsored by the Lao government and
the International Finance Corporation (IFC),to discuss proposed
laws with industry prior to implementation.
-------------- --------------
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
-------------- --------------
33. Laos does not have a developed capital market. Three-month
treasury bills are occasionally offered for sale when there is a
need to absorb excess liquidity in the economy. The largest
denomination of currency is 50,000 kip (about US$5). Credit is not
available on the local market for large capital investments,
although letters of credit for export can sometimes be obtained
locally. International reserves fluctuate, with the latest
available 2007 data showing sufficient coverage for 5 months of
imports and numbering $485 million.
34. The banking system is under the supervision of the Bank of Lao
PDR, and includes:
* three state-owned commercial banks: Banque pour Le Commerce
Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion
Bank;
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;
VIENTIANE 00000063 032 OF 033
* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai
Military and Ayoudhiya Banks whose activities are mainly limited to
providing services to local Thai businesses;
* one Vietnamese bank: Sacombank
* five private banks (3 foreign and two domestic): Malaysia - Public
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the
Association of Cambodia Local Economic Development Agencies (ACLEDA)
Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao
Bank
one representative office: Standard Chartered Bank.
35. A new banking law passed in 2006 allows private foreign banks
to establish branches in all provinces of Laos. (Previously,
foreign banks were permitted to establish branches only in
Vientiane.) The Commercial Bank Law is available on the Bank of Lao
PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has
correspondence arrangements with the following banks (US dollars):
JP Morgan Chase Bank, New York
Citibank, New York
Wachovia Bank, New York
American Express Bank, Ltd., New York
HSBC Bank, New York
Standard Chartered Bank, New York
Barclays Bank Plc., London
Credit Suisse First Boston, Zurich
Bank of Tokyo-Mitsubishi, Ltd, Tokyo
Natexis Banque Populaires, Singapore
Standard Chartered Bank, Singapore
Bank for Foreign Trade of Vietnam, Hanoi
TMB, Bank Public Co, Ltd, Bangkok
Bank Thai Public Co. Ltd. Bangkok
Calyon, Bangkok
Sumitomo Mitsui Banking Corporation, Tokyo
36. The Lao banking sector is in flux, with new private and foreign
banks opening to provide modern banking options to Lao and foreign
businesses. While continuing to receive outside assistance, central
bank supervision of the sector remains somewhat weak. Although
non-performing loans have decreased significantly since 2003,
through work-outs, write-offs, and transfers off balance sheets, the
three state-owned commercial banks (SCBs) remain, according to
official estimates, insolvent. For detailed information see the IMF
Article IV report:
http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf
The Asian Development Bank has provided both program loans and
technical assistance to Laos' financial sector, as have the World
Bank and the IMF. These programs have led to some reforms but
overall capacity within the governance structure remains weak and
the banks face many challenges.
The Government of Laos is planning to open a stock exchange in 2010,
with technical assistance provided from the South Korean
government.
--------------
POLITICAL VIOLENCE
--------------
37. Laos is generally a peaceful and politically stable country.
The remnants of an insurgency occasionally carry out small-scale
attacks on government personnel and civilians. Foreign persons are
not deliberately targeted, but visitors are advised to use caution
when traveling in remote districts.
--------------
CORRUPTION
--------------
38. The Prime Minister's Office has made combating corruption a
priority, including issuance of an anticorruption decree in November
1999, but corruption remains a problem. Although the 1999 decree
specifically notes the responsibility of the state-owned mass media
in publicizing corruption cases, there has been no reporting on this
issue. In 2005, an anti-corruption law was passed by the National
Assembly. According to the State Inspection Authority, the Lao
Government has prosecuted some individuals for corruption but it
cannot publicize the information. The State Inspection Authority,
located in the Prime Minister's Office, is charged with analyzing
corruption at the national level and serves as a central office for
gathering details and evidence of suspected corruption.
Additionally, the State Inspection Department in each Ministry is
responsible for a ministry's internal problems.
VIENTIANE 00000063 033 OF 033
39. Laos is not a signatory to the OECD Convention on Combating
SIPDIS
STATE FOR EAP/MLS EMERY
STATE FOR EEB/IFD/OIA
STATE PASS USTR FOR BISBEE
COMMERCE FOR HP PHO
E.O. 12958: N/A
TAGS: ECON, EINV, OPIC, USTR, KTDB, LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS
REF: 08 STATE 123909
--------------
OPENNESS TO FOREIGN INVESTMENT
--------------
1. The Lao government is open to foreign investment as a matter of
policy. It allows 100% foreign ownership of investments. The
overall investment climate is poor but improving. Laos rates very
low in international indices of transparency and ease of doing
business.
2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated
October 22, 2004, purport to promote foreign direct investment as a
means of boosting development and economic growth. Under the 2004
Law on the Promotion of Foreign Investment, scheduled to be updated
at the end of 2009, foreign investors may invest in all business
sectors and zones of investment in the Lao People's Democratic
Republic, except in business activities which are detrimental to
national security, have a negative impact on the environment, or are
regarded as detrimental to health or national traditions. In recent
years Laos has seen a significant increase in FDI, especially in
mining, hydropower, and plantation agriculture. Major foreign
investors are Thailand, China, Vietnam and Australia.
3. When bidding for the right to large contracts, companies
frequently offer the government the "option" of purchasing part of
the company at a later date, often with money borrowed from the
investor or multilateral institutions. The investment term of a
foreign investment enterprise depends on the nature, size, and
conditions of the business project but normally cannot exceed fifty
years. Under special circumstances, foreign investment enterprises
may be extended with the approval of the government. However,
foreign enterprises that receive extension approval from the
government may not exceed a total investment term of seventy-five
years.
4. Foreign investors seeking to establish operations in Laos must
submit project proposals to the Department for Promotion and
Management of Domestic and Foreign Investment (DDFI),Ministry for
Planning and Investment (MPI). The proposal is then screened by the
relevant line ministries and adjudicated by the Prime Minister's
Office. Under Prime Minister Decree No 301, dated October 12, 2005,
proposals for projects worth US$20 million or more require the
approval of the Prime Minister. The Minister of MPI can approve
investments below $20 million USD while the vice Minister can
approve investments of less than $10 million USD. FDI equal to or
less than $3 million USD 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
provincial level approval is $5 million.
5. Foreign investors 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 either be a new company or a branch
office of an existing foreign company. Throughout the period of
operation of a foreign investment enterprise, the assets of the
enterprise must not be less than its registered capital. The
screening process at the Department for Promotion and Management of
Domestic and Foreign Investment (DDFI) in the Ministry of Planning
and Investment (MPI) takes into account the financial and technical
feasibility of the project, input from relevant line ministries, and
whether the proposed project conflicts with government policy. Upon
receipt of an application, the MPI must coordinate with relevant
sectors and local authorities to consider and respond in writing to
the foreign investor. Responses to projects, depending on project
type, are supposed to be forthcoming within 15-45 working days.
6. Foreign investors are required to obtain a foreign investment
license, an enterprise registration certificate, and a tax
registration certificate from the MPI office nearest the place where
the foreign investors are licensed. Thereafter they shall be
considered as enterprises established in conformity with the laws of
the Lao People's Democratic Republic. Within 90 days from the date
of receipt of an investment license the foreign investment
enterprise must commence business activities. If the investors fail
to do so, the foreign investment license is subject to termination.
7. In addition to the investment license, foreign investors are
required to obtain other permits. These include a business
registration which must be annually renewed from the Ministry of
Industry and Commerce, a tax registration from the tax department in
the Ministry of Finance, a business logo registration from the
Ministry of Public Security, permits from each line ministry related
to the investment (i.e., Ministry of Industry and Commerce for
manufacturing; Ministry of Public Works and Transportation, etc.),
VIENTIANE 00000063 002 OF 033
appropriate permits from local authorities, and an import-export
license, if needed. Obtaining the necessary permits can pose a
challenge to foreign investors, especially in areas outside the
capital. The recent creation of a "one-stop shop" for many permits
within the Ministry of Planning and Investment should help ease
permitting difficulties in the future.
8. Lao law provides for sanctity of contracts. The following link
is for a translation of the Lao contract law.
http://www.undplao.org/ whatwedo/bgresource/demogov/
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf
However, since Laos is a communist one-party state, the sanctity of
contracts is subject both to political interference and a number of
socialist principles enshrined in the law. For example, according
to the contract law:
A contract can be voided if it is disadvantageous to one party, and
A voidable contract can be declared void by the disadvantaged
party.
9. 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.
10. In 2006 the Lao government ceased imposing import restrictions
on trading companies, whether foreign or domestic, in an effort to
let the market respond to actual demand. The Lao government no
longer requires companies to file an annual import plan for approval
by the Ministry of Commerce. The main exception is the fuel
industry, where individual companies are still required to file an
annual import plan. The government controls the retail price and
profit margins of gasoline and diesel. A large American oil company
announced in late 2007 that it was leaving the Lao market to focus
on more profitable countries within Asia. Government documents
articulating the restrictions and explaining the policy are
difficult to obtain. Goods that are always 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. For a detailed list of import & export
restrictions please visit http://www.moc.gov.la/default.asp
11. Agriculture production and most manufacturing production is
private. State-owned enterprises (SOEs) currently account for only
one percent of total employment. Approximately 97 percent of
manufacturing units are small (fewer than 10 employees). Foreign
companies interested in acquiring SOEs should apply through the
Department for
--------------
CONVERSION AND TRANSFER POLICIES
--------------
12. In order to facilitate business transactions, foreign investors
generally open commercial bank accounts in both local and foreign
convertible currency at domestic and foreign banks in Laos.
Australian, Vietnamese, Thai, Cambodian and Malaysian banks
currently have a presence in Laos. Bank accounts must be maintained
in accordance with the Enterprise Accounting Law. The law places no
limitations on foreign investors transferring after-tax profits,
income from technology transfer, initial capital, interest, wages
and salaries, or other remittances to the company's home country or
third countries so long as they request approval from the Lao
government. These transactions are conducted at the official
exchange rate on the day of execution, upon presentation of
appropriate documentation. Supply of foreign exchange has in the
past been limited in Laos, which imposed a de facto limit on
repatriation of capital. Foreign currency inflows in recent years,
however, have reportedly solved this problem and large
multinationals in Laos report no problems with access to foreign
exchange. Foreign enterprises must report on their performance
annually and submit annual financial statements to the Ministry of
Planning and Investment (MPI).
--------------
EXPROPRIATION AND COMPENSATION
--------------
13. Foreign assets and investments in Laos are protected by laws and
regulations against seizure, confiscation, or nationalization except
when this is deemed necessary for a public purpose, in which case
foreign investors are to be compensated. While there have been no
expropriations, the Lao Government has revoked the foreign
investment licenses of companies in a less than transparent process.
Revocation of an investment license cannot be appealed to an
independent body, and companies whose licenses are revoked must then
VIENTIANE 00000063 003 OF 033
liquidate their assets relatively rapidly. In addition, a company
that fails to begin conducting business within ninety days of
registering could be dissolved, if it does not have a reasonable
explanation.
--------------
DISPUTE SETTLEMENT
--------------
14. According to the Foreign Investment Law, investors involved in
investment disputes must seek arbitration before taking legal
action. If arbitration does not result in an amicable settlement,
litigants may submit their claims to the economic arbitration
authority of Laos, or that of the investor's country, or an
international organization agreed on by both parties. In practice,
there are no adequate independent arbitration venues in Laos.
Foreign investors are therefore generally advised to seek
arbitration outside the country, since Laos' nascent domestic
arbitration authority lacks enforcement powers. Laos is not a
member of the International Center for the Settlement of Investment
Disputes. It became a party to the New York Convention of 1958 on
the Recognition and Enforcement of Foreign Arbitral Awards on
September 15, 1998, but Laos has never been asked to enforce a
foreign arbitral award. Laos is a member of the United Nations
Convention on International Trade Law.
15. In disputes involving the Ministry of Planning and Investment,
decisions can only be appealed back to the Ministry itself. There
is no separate independent body. Thus a company which feels it is
receiving unfair treatment from the government has no independent
recourse. In 2007, two U.S.-owned small companies were involved in
disputes with the Lao government. One company had its investment
license revoked and the U.S. owners were given no option other than
to liquidate their assets. Another is still working with Lao
authorities to resolve the issue. The Lao government has cooperated
with the Embassy in addressing the disputes.
16. Laos' legal system is evolving, but remains incomplete in many
regards. Laws sometimes contradict each other and often lack
implementing regulations. For example, tax exemptions and low
import duties guaranteed to foreign investors under the foreign
investment law are not reflected in customs or tax law. Supported
by the Japan International Cooperation Agency (JICA),Singapore, and
the United Nations Development Program (UNDP),some laws have been
officially translated into English. These include the business,
tax, bankruptcy, customs, and secured transaction laws.
Implementing regulations for the Foreign Investment Law, which are
crucial to enforcement, were approved on October 10, 2005. The
reliability of unofficial translations varies considerably, which
can create an environment of uncertainty and ambiguity among foreign
investors. Application of Lao law remains inconsistent and
knowledge of the laws themselves is often limited (especially
outside the capital). The existence of a large number of government
decrees, sometimes unpublished, further complicates the situation.
While the trend under the current government is towards more
openness and more accountability, investors are cautioned to
recognize that economic and legal reform remain a work in progress.
17. Projects funded by the Australian government, the EU, the U.S.,
and the UN Development Program to assist Lao accession to the World
Trade Organization (WTO) include components aimed at bringing Lao
commercial law into conformity with WTO standards. A commercial
court was established during 2003, and began to hear cases in 2005.
The Lao Bar Association was set-up in 2007.
18. Laos has no anti-trust statutes. The bankruptcy law permits
either the business or creditor the right to petition the court for
a bankruptcy judgment, and allows businesses the right to request
mediation. There is no record of foreign-owned enterprises, whether
as debtors or as creditors, petitioning the courts for a bankruptcy
judgment.
--------------
PERFORMANCE REQUIREMENTS AND INCENTIVES
--------------
19. Laos does not impose performance requirements per se. Foreign
investors are encouraged to give priority to Lao citizens in
recruiting and hiring. According to the foreign investment law,
foreign personnel can be hired, although they may not exceed ten
percent (10%) of the enterprise's total labor force. In the case of
skilled labor, or politically important projects, the Ministry of
Planning and Investment has confirmed that enterprises can hire over
10% foreign labor if necessary. Before bringing in foreign labor,
the enterprise must apply for work permits from the Ministry of
Labor and Social Welfare. A foreign personnel list must also be
submitted to the Planning, Monitoring and Evaluation Division of the
Department for Promotion and Management of Domestic and Foreign
VIENTIANE 00000063 004 OF 033
Investment (DDFI).
20. Incentives for Foreign Investment: Laos grants incentives for
foreign investment depending on the sectors and zones of investment
promotion. The government defines promoted activities under Article
16 as follows:
1) production for export;
2) activities relating to agriculture or forestry, and agricultural,
forestry and handicraft processing activities;
3) activities relating to industrial processing, industrial
activities using modern techniques and technology, research and
development, and activities relating to the protection of the
environment and biodiversity;
4) human resource development, skills development and public health;
5) construction of infrastructure;
6) production of raw materials and equipment to be supplied to key
industrial activities; and,
7) development of the tourism industry and transit services.
21. The Law on the Promotion of Foreign Investment:
http://www.undplao.org/whatwedo/bgresource/
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%
20Investment.pdf
describes geographic and tax incentives in articles 17 and 18.
22. Foreigners employed in Laos, including foreign investors, must
pay an income tax of 10 percent of their total income to the Lao
Government, unless they are citizens of a country with which the Lao
Government has signed a double taxation agreement. The United
States has no such agreement with Laos. The turnover tax is
scheduled to be replaced in 2009 with a Value Added Tax (VAT).
23. Foreign investors are not required to pay import duty on
equipment, spare parts and other materials used in the operation of
their enterprises. Raw materials and intermediate goods imported
for the purpose of processing and re-export are exempt from import
duties. Raw materials and intermediate goods imported for the
purpose of import substitution are also eligible for import duty
reductions on a case-by-case basis. On an individual basis, foreign
investors are also eligible for profit tax and import duty
reductions or exemptions, if the investment is significantly large
or determined to have a significant benefit to Laos' socio-economic
development. To date the Lao Government appears to have honored its
incentives. Annual business license renewal is contingent upon
certification that corporate income taxes have been paid. The tax
code was streamlined and simplified in April 2005, but some
investors still report significant difficulties in obtaining tax
certifications in a timely manner.
24. The Foreign Investment Law stipulates that foreign investors
and their families, including foreign professionals and foreign
employees of an enterprise, shall be facilitated by issue of
multiple entry visas and, if approved by the government, long term
residence in the Lao PDR. They also, in theory, have the right to
apply for Lao nationality in accordance with the Law on Nationality.
--------------
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------
25. The government recognizes the right of private enterprise
ownership, and foreigners may transfer shares of a foreign-invested
company without prior government approval. However, the business
law requires that all shareholders be listed in the articles of
association, and changes in the articles of association of a
foreign-invested company must be approved by DDFI-Ministry of
Planning and Investment (MPI) , per the Enterprise Law
http://www.moc.gov.la/default.asp. Thus, transferring shares in a
foreign-invested company registered in Laos does require the
indirect approval of the government (DDFI-MPI).
--------------
PROTECTION OF PROPERTY RIGHTS
--------------
26. Foreign investors are not permitted to own land. The
government grants long-term leases, and allows the ownership of
leases and the right to transfer and improve leasehold interests.
Government approval is not required to transfer property interests,
but the transfer must be registered and a registration fee paid.
This includes mortgage leases.
27. Secured interests in property are inadequately covered by the
Secured Transactions Law of 1994. Because the law offers no
VIENTIANE 00000063 005 OF 033
instructions for the creditor to enforce security rights (the
creditor, for example, can only request repayment from the debtor),
the law favors the debtor. Moreover, since the Ministry of
Finance's registry system is not computerized, and cannot
cross-reference records, it is difficult to determine if a piece of
property is encumbered. Enforcement of a mortgage is further
complicated by the legal protection given mortgagees against
forfeiture of their sole place of residence.
28. Laos issued a trademark decree in January 1995. The National
Science and Technology Organization (NSTO),part of the Prime
Minister's Office, controls the issuance of trademarks on a
first-come, first-register basis. Applicants do not have to
demonstrate prior use. There are currently over 18,109 trademarks
registered in Laos.
29. Laos became a member of the ASEAN Common Filing System on
patents in 2000 but lacks adequate personnel qualified to serve as
patent examiners. A draft decree on patents was sent to the Prime
Minister in February 2000 for approval and in 2002 the Prime
Minister's Office issued patent regulations. Since Thailand and
Laos have a bilateral Intellectual Property Rights (IPR) agreement,
in principle a patent issued in Thailand would also be recognized in
Laos.
30. Currently, no system exists to issue copyrights in Laos. Laos
became a member of the World Intellectual Property Organization
(WIPO) Convention in January 1995 and the Paris Convention on the
Protection of Industrial Property in October 1998; it has not yet
joined the Bern Convention on Copyrights, however. Although WIPO
began to assist Laos in drafting an intellectual property law in
1996, a WTO-compliant law has not yet been implemented. In December
2007 the National Assembly approved a law the Lao government claims
will cover its U.S. Bilateral Trade Agreement (BTA)
responsibilities, as well as be WTO compliant. An English
translation sponsored by the U.S. Government is currently being
finalized. Overall, there is currently little protection for
intellectual property rights in Laos, although the authorities have
taken steps to crack down on some pirated goods.
--------------
TRANSPARENCY OF THE REGULATORY SYSTEM
--------------
31. The principal laws, regulations, decrees and guidelines
governing international trade and investment, as well as the current
protection of intellectual property, are available to the public,
although not all have been officially translated into English. Laws
and their schedules for implementation are customarily published in
Lao daily newspapers, and relevant line ministries are beginning to
put laws and regulations on websites. The website for UNDP Laos
maintains a partial list of translated Lao laws:
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php
Laws can also be found via the following websites. Laws on the
National Assembly website represent the officially approved English
translations:
http://www.na.gov.la/index.php (look under legislation on the left
side);
http://www.poweringprogress.org/ index.php?option=com_
content&view=
index.php?option=com _content&view=article&id= 242&Itemid=109
http://www.moc.gov.la/gioithieuAP.asp
In addition, implementation of the budget law commenced with the
restructuring of the Ministry of Finance (MoF) via Prime Ministerial
Decree Number 80 of February 28, 2007. In September 2007, the Prime
Minister issued Order No 35 instructing the MoF to move ahead with
centralization of customs, tax and treasury departments. In January
2009 the Government introduced a Value-Added Tax (VAT). Full
implementation of the tax is likely to take a number of years.
32. A lack of transparency in a centralized decision-making
process, as well as the difficulty encountered in obtaining
information, augment the perception of the regulatory framework as
arbitrary and inscrutable. There have been reports that the
government has recently begun discussing some proposed laws and
regulations with the business community, and acted upon the advice
given, before making final decisions. The Lao Tourist Association
has repeatedly urged the Lao government at the "Lao Business Forum,"
a business-government meeting sponsored by the Lao government and
the International Finance Corporation (IFC),to discuss proposed
laws with industry prior to implementation.
-------------- --------------
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
-------------- --------------
33. Laos does not have a developed capital market. Three-month
treasury bills are occasionally offered for sale when there is a
need to absorb excess liquidity in the economy. The largest
VIENTIANE 00000063 006 OF 033
denomination of currency is 50,000 kip (about US$5). Credit is not
available on the local market for large capital investments,
although letters of credit for export can sometimes be obtained
locally. International reserves fluctuate, with the latest
available 2007 data showing sufficient coverage for 5 months of
imports and numbering $485 million.
34. The banking system is under the supervision of the Bank of Lao
PDR, and includes:
* three state-owned commercial banks: Banque pour Le Commerce
Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion
Bank;
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;
* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai
Military and Ayoudhiya Banks whose activities are mainly limited to
providing services to local Thai businesses;
* one Vietnamese bank: Sacombank
* five private banks (3 foreign and two domestic): Malaysia - Public
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the
Association of Cambodia Local Economic Development Agencies (ACLEDA)
Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao
Bank
one representative office: Standard Chartered Bank.
35. A new banking law passed in 2006 allows private foreign banks
to establish branches in all provinces of Laos. (Previously,
foreign banks were permitted to establish branches only in
Vientiane.) The Commercial Bank Law is available on the Bank of Lao
PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has
correspondence arrangements with the following banks (US dollars):
JP Morgan Chase Bank, New York
Citibank, New York
Wachovia Bank, New York
American Express Bank, Ltd., New York
HSBC Bank, New York
Standard Chartered Bank, New York
Barclays Bank Plc., London
Credit Suisse First Boston, Zurich
Bank of Tokyo-Mitsubishi, Ltd, Tokyo
Natexis Banque Populaires, Singapore
Standard Chartered Bank, Singapore
Bank for Foreign Trade of Vietnam, Hanoi
TMB, Bank Public Co, Ltd, Bangkok
Bank Thai Public Co. Ltd. Bangkok
Calyon, Bangkok
Sumitomo Mitsui Banking Corporation, Tokyo
36. The Lao banking sector is in flux, with new private and foreign
banks opening to provide modern banking options to Lao and foreign
businesses. While continuing to receive outside assistance, central
bank supervision of the sector remains somewhat weak. Although
non-performing loans have decreased significantly since 2003,
through work-outs, write-offs, and transfers off balance sheets, the
three state-owned commercial banks (SCBs) remain, according to
official estimates, insolvent. For detailed information see the IMF
Article IV report:
http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf
The Asian Development Bank has provided both program loans and
technical assistance to Laos' financial sector, as have the World
Bank and the IMF. These programs have led to some reforms but
overall capacity within the governance structure remains weak and
the banks face many challenges.
The Government of Laos is planning to open a stock exchange in 2010,
with technical assistance provided from the South Korean
government.
--------------
POLITICAL VIOLENCE
--------------
37. Laos is generally a peaceful and politically stable country.
The remnants of an insurgency occasionally carry out small-scale
attacks on government personnel and civilians. Foreign persons are
not deliberately targeted, but visitors are advised to use caution
when traveling in remote districts.
--------------
CORRUPTION
--------------
38. The Prime Minister's Office has made combating corruption a
priority, including issuance of an anticorruption decree in November
1999, but corruption remains a problem. Although the 1999 decree
VIENTIANE 00000063 007 OF 033
specifically notes the responsibility of the state-owned mass media
in publicizing corruption cases, there has been no reporting on this
issue. In 2005, an anti-corruption law was passed by the National
Assembly. According to the State Inspection Authority, the Lao
Government has prosecuted some individuals for corruption but it
cannot publicize the information. The State Inspection Authority,
located in the Prime Minister's Office, is charged with analyzing
corruption at the national level and serves as a central office for
gathering details and evidence of suspected corruption.
Additionally, the State Inspection Department in each Ministry is
responsible for a ministry's internal problems.
39. Laos is not a signatory to the OECD Convention on Combating
UNCLASSIFIED
PROG 02/06/09
AMB: RRHUSO
ECON: JCARCHIBALD
DCM: PMHAYMOND
POL PDS
AMEMBASSY VIENTIANE
SECSTATE WASHDC
INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS
CIMS NTDB WASHDC
USDOC WASHDC
US DEPARTMENT OF COMMERCE WASHDC
US DEPARTMENT OF TREASURY WASH DC
SIPDIS
STATE FOR EAP/MLS EMERY
STATE FOR EEB/IFD/OIA
STATE PASS USTR FOR BISBEE
COMMERCE FOR HP PHO
E.O. 12958: N/A
TAGS: ECON, EINV, OPIC, USTR, KTDB, LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS
REF: 08 STATE 123909
--------------
OPENNESS TO FOREIGN INVESTMENT
--------------
1. The Lao government is open to foreign investment as a matter of
policy. It allows 100% foreign ownership of investments. The
overall investment climate is poor but improving. Laos rates very
low in international indices of transparency and ease of doing
business.
2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated
October 22, 2004, purport to promote foreign direct investment as a
means of boosting development and economic growth. Under the 2004
Law on the Promotion of Foreign Investment, scheduled to be updated
at the end of 2009, foreign investors may invest in all business
sectors and zones of investment in the Lao People's Democratic
Republic, except in business activities which are detrimental to
national security, have a negative impact on the environment, or are
regarded as detrimental to health or national traditions. In recent
years Laos has seen a significant increase in FDI, especially in
mining, hydropower, and plantation agriculture. Major foreign
investors are Thailand, China, Vietnam and Australia.
3. When bidding for the right to large contracts, companies
frequently offer the government the "option" of purchasing part of
the company at a later date, often with money borrowed from the
investor or multilateral institutions. The investment term of a
foreign investment enterprise depends on the nature, size, and
conditions of the business project but normally cannot exceed fifty
years. Under special circumstances, foreign investment enterprises
may be extended with the approval of the government. However,
foreign enterprises that receive extension approval from the
government may not exceed a total investment term of seventy-five
years.
4. Foreign investors seeking to establish operations in Laos must
submit project proposals to the Department for Promotion and
Management of Domestic and Foreign Investment (DDFI),Ministry for
Planning and Investment (MPI). The proposal is then screened by the
relevant line ministries and adjudicated by the Prime Minister's
Office. Under Prime Minister Decree No 301, dated October 12, 2005,
proposals for projects worth US$20 million or more require the
approval of the Prime Minister. The Minister of MPI can approve
investments below $20 million USD while the vice Minister can
approve investments of less than $10 million USD. FDI equal to or
VIENTIANE 00000063 008 OF 033
less than $3 million USD 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
provincial level approval is $5 million.
5. Foreign investors 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 either be a new company or a branch
office of an existing foreign company. Throughout the period of
operation of a foreign investment enterprise, the assets of the
enterprise must not be less than its registered capital. The
screening process at the Department for Promotion and Management of
Domestic and Foreign Investment (DDFI) in the Ministry of Planning
and Investment (MPI) takes into account the financial and technical
feasibility of the project, input from relevant line ministries, and
whether the proposed project conflicts with government policy. Upon
receipt of an application, the MPI must coordinate with relevant
sectors and local authorities to consider and respond in writing to
the foreign investor. Responses to projects, depending on project
type, are supposed to be forthcoming within 15-45 working days.
6. Foreign investors are required to obtain a foreign investment
license, an enterprise registration certificate, and a tax
registration certificate from the MPI office nearest the place where
the foreign investors are licensed. Thereafter they shall be
considered as enterprises established in conformity with the laws of
the Lao People's Democratic Republic. Within 90 days from the date
of receipt of an investment license the foreign investment
enterprise must commence business activities. If the investors fail
to do so, the foreign investment license is subject to termination.
7. In addition to the investment license, foreign investors are
required to obtain other permits. These include a business
registration which must be annually renewed from the Ministry of
Industry and Commerce, a tax registration from the tax department in
the Ministry of Finance, a business logo registration from the
Ministry of Public Security, permits from each line ministry related
to the investment (i.e., Ministry of Industry and Commerce for
manufacturing; Ministry of Public Works and Transportation, etc.),
appropriate permits from local authorities, and an import-export
license, if needed. Obtaining the necessary permits can pose a
challenge to foreign investors, especially in areas outside the
capital. The recent creation of a "one-stop shop" for many permits
within the Ministry of Planning and Investment should help ease
permitting difficulties in the future.
8. Lao law provides for sanctity of contracts. The following link
is for a translation of the Lao contract law.
http://www.undplao.org/ whatwedo/bgresource/demogov/
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf
However, since Laos is a communist one-party state, the sanctity of
contracts is subject both to political interference and a number of
socialist principles enshrined in the law. For example, according
to the contract law:
A contract can be voided if it is disadvantageous to one party, and
A voidable contract can be declared void by the disadvantaged
party.
9. 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.
10. In 2006 the Lao government ceased imposing import restrictions
on trading companies, whether foreign or domestic, in an effort to
let the market respond to actual demand. The Lao government no
longer requires companies to file an annual import plan for approval
by the Ministry of Commerce. The main exception is the fuel
industry, where individual companies are still required to file an
annual import plan. The government controls the retail price and
profit margins of gasoline and diesel. A large American oil company
announced in late 2007 that it was leaving the Lao market to focus
on more profitable countries within Asia. Government documents
articulating the restrictions and explaining the policy are
difficult to obtain. Goods that are always 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. For a detailed list of import & export
restrictions please visit http://www.moc.gov.la/default.asp
11. Agriculture production and most manufacturing production is
private. State-owned enterprises (SOEs) currently account for only
one percent of total employment. Approximately 97 percent of
manufacturing units are small (fewer than 10 employees). Foreign
companies interested in acquiring SOEs should apply through the
VIENTIANE 00000063 009 OF 033
Department for
--------------
CONVERSION AND TRANSFER POLICIES
--------------
12. In order to facilitate business transactions, foreign investors
generally open commercial bank accounts in both local and foreign
convertible currency at domestic and foreign banks in Laos.
Australian, Vietnamese, Thai, Cambodian and Malaysian banks
currently have a presence in Laos. Bank accounts must be maintained
in accordance with the Enterprise Accounting Law. The law places no
limitations on foreign investors transferring after-tax profits,
income from technology transfer, initial capital, interest, wages
and salaries, or other remittances to the company's home country or
third countries so long as they request approval from the Lao
government. These transactions are conducted at the official
exchange rate on the day of execution, upon presentation of
appropriate documentation. Supply of foreign exchange has in the
past been limited in Laos, which imposed a de facto limit on
repatriation of capital. Foreign currency inflows in recent years,
however, have reportedly solved this problem and large
multinationals in Laos report no problems with access to foreign
exchange. Foreign enterprises must report on their performance
annually and submit annual financial statements to the Ministry of
Planning and Investment (MPI).
--------------
EXPROPRIATION AND COMPENSATION
--------------
13. Foreign assets and investments in Laos are protected by laws and
regulations against seizure, confiscation, or nationalization except
when this is deemed necessary for a public purpose, in which case
foreign investors are to be compensated. While there have been no
expropriations, the Lao Government has revoked the foreign
investment licenses of companies in a less than transparent process.
Revocation of an investment license cannot be appealed to an
independent body, and companies whose licenses are revoked must then
liquidate their assets relatively rapidly. In addition, a company
that fails to begin conducting business within ninety days of
registering could be dissolved, if it does not have a reasonable
explanation.
--------------
DISPUTE SETTLEMENT
--------------
14. According to the Foreign Investment Law, investors involved in
investment disputes must seek arbitration before taking legal
action. If arbitration does not result in an amicable settlement,
litigants may submit their claims to the economic arbitration
authority of Laos, or that of the investor's country, or an
international organization agreed on by both parties. In practice,
there are no adequate independent arbitration venues in Laos.
Foreign investors are therefore generally advised to seek
arbitration outside the country, since Laos' nascent domestic
arbitration authority lacks enforcement powers. Laos is not a
member of the International Center for the Settlement of Investment
Disputes. It became a party to the New York Convention of 1958 on
the Recognition and Enforcement of Foreign Arbitral Awards on
September 15, 1998, but Laos has never been asked to enforce a
foreign arbitral award. Laos is a member of the United Nations
Convention on International Trade Law.
15. In disputes involving the Ministry of Planning and Investment,
decisions can only be appealed back to the Ministry itself. There
is no separate independent body. Thus a company which feels it is
receiving unfair treatment from the government has no independent
recourse. In 2007, two U.S.-owned small companies were involved in
disputes with the Lao government. One company had its investment
license revoked and the U.S. owners were given no option other than
to liquidate their assets. Another is still working with Lao
authorities to resolve the issue. The Lao government has cooperated
with the Embassy in addressing the disputes.
16. Laos' legal system is evolving, but remains incomplete in many
regards. Laws sometimes contradict each other and often lack
implementing regulations. For example, tax exemptions and low
import duties guaranteed to foreign investors under the foreign
investment law are not reflected in customs or tax law. Supported
by the Japan International Cooperation Agency (JICA),Singapore, and
the United Nations Development Program (UNDP),some laws have been
officially translated into English. These include the business,
tax, bankruptcy, customs, and secured transaction laws.
Implementing regulations for the Foreign Investment Law, which are
VIENTIANE 00000063 010 OF 033
crucial to enforcement, were approved on October 10, 2005. The
reliability of unofficial translations varies considerably, which
can create an environment of uncertainty and ambiguity among foreign
investors. Application of Lao law remains inconsistent and
knowledge of the laws themselves is often limited (especially
outside the capital). The existence of a large number of government
decrees, sometimes unpublished, further complicates the situation.
While the trend under the current government is towards more
openness and more accountability, investors are cautioned to
recognize that economic and legal reform remain a work in progress.
17. Projects funded by the Australian government, the EU, the U.S.,
and the UN Development Program to assist Lao accession to the World
Trade Organization (WTO) include components aimed at bringing Lao
commercial law into conformity with WTO standards. A commercial
court was established during 2003, and began to hear cases in 2005.
The Lao Bar Association was set-up in 2007.
18. Laos has no anti-trust statutes. The bankruptcy law permits
either the business or creditor the right to petition the court for
a bankruptcy judgment, and allows businesses the right to request
mediation. There is no record of foreign-owned enterprises, whether
as debtors or as creditors, petitioning the courts for a bankruptcy
judgment.
--------------
PERFORMANCE REQUIREMENTS AND INCENTIVES
--------------
19. Laos does not impose performance requirements per se. Foreign
investors are encouraged to give priority to Lao citizens in
recruiting and hiring. According to the foreign investment law,
foreign personnel can be hired, although they may not exceed ten
percent (10%) of the enterprise's total labor force. In the case of
skilled labor, or politically important projects, the Ministry of
Planning and Investment has confirmed that enterprises can hire over
10% foreign labor if necessary. Before bringing in foreign labor,
the enterprise must apply for work permits from the Ministry of
Labor and Social Welfare. A foreign personnel list must also be
submitted to the Planning, Monitoring and Evaluation Division of the
Department for Promotion and Management of Domestic and Foreign
Investment (DDFI).
20. Incentives for Foreign Investment: Laos grants incentives for
foreign investment depending on the sectors and zones of investment
promotion. The government defines promoted activities under Article
16 as follows:
1) production for export;
2) activities relating to agriculture or forestry, and agricultural,
forestry and handicraft processing activities;
3) activities relating to industrial processing, industrial
activities using modern techniques and technology, research and
development, and activities relating to the protection of the
environment and biodiversity;
4) human resource development, skills development and public health;
5) construction of infrastructure;
6) production of raw materials and equipment to be supplied to key
industrial activities; and,
7) development of the tourism industry and transit services.
21. The Law on the Promotion of Foreign Investment:
http://www.undplao.org/whatwedo/bgresource/
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%
20Investment.pdf
describes geographic and tax incentives in articles 17 and 18.
22. Foreigners employed in Laos, including foreign investors, must
pay an income tax of 10 percent of their total income to the Lao
Government, unless they are citizens of a country with which the Lao
Government has signed a double taxation agreement. The United
States has no such agreement with Laos. The turnover tax is
scheduled to be replaced in 2009 with a Value Added Tax (VAT).
23. Foreign investors are not required to pay import duty on
equipment, spare parts and other materials used in the operation of
their enterprises. Raw materials and intermediate goods imported
for the purpose of processing and re-export are exempt from import
duties. Raw materials and intermediate goods imported for the
purpose of import substitution are also eligible for import duty
reductions on a case-by-case basis. On an individual basis, foreign
investors are also eligible for profit tax and import duty
reductions or exemptions, if the investment is significantly large
or determined to have a significant benefit to Laos' socio-economic
development. To date the Lao Government appears to have honored its
VIENTIANE 00000063 011 OF 033
incentives. Annual business license renewal is contingent upon
certification that corporate income taxes have been paid. The tax
code was streamlined and simplified in April 2005, but some
investors still report significant difficulties in obtaining tax
certifications in a timely manner.
24. The Foreign Investment Law stipulates that foreign investors
and their families, including foreign professionals and foreign
employees of an enterprise, shall be facilitated by issue of
multiple entry visas and, if approved by the government, long term
residence in the Lao PDR. They also, in theory, have the right to
apply for Lao nationality in accordance with the Law on Nationality.
--------------
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------
25. The government recognizes the right of private enterprise
ownership, and foreigners may transfer shares of a foreign-invested
company without prior government approval. However, the business
law requires that all shareholders be listed in the articles of
association, and changes in the articles of association of a
foreign-invested company must be approved by DDFI-Ministry of
Planning and Investment (MPI) , per the Enterprise Law
http://www.moc.gov.la/default.asp. Thus, transferring shares in a
foreign-invested company registered in Laos does require the
indirect approval of the government (DDFI-MPI).
--------------
PROTECTION OF PROPERTY RIGHTS
--------------
26. Foreign investors are not permitted to own land. The
government grants long-term leases, and allows the ownership of
leases and the right to transfer and improve leasehold interests.
Government approval is not required to transfer property interests,
but the transfer must be registered and a registration fee paid.
This includes mortgage leases.
27. Secured interests in property are inadequately covered by the
Secured Transactions Law of 1994. Because the law offers no
instructions for the creditor to enforce security rights (the
creditor, for example, can only request repayment from the debtor),
the law favors the debtor. Moreover, since the Ministry of
Finance's registry system is not computerized, and cannot
cross-reference records, it is difficult to determine if a piece of
property is encumbered. Enforcement of a mortgage is further
complicated by the legal protection given mortgagees against
forfeiture of their sole place of residence.
28. Laos issued a trademark decree in January 1995. The National
Science and Technology Organization (NSTO),part of the Prime
Minister's Office, controls the issuance of trademarks on a
first-come, first-register basis. Applicants do not have to
demonstrate prior use. There are currently over 18,109 trademarks
registered in Laos.
29. Laos became a member of the ASEAN Common Filing System on
patents in 2000 but lacks adequate personnel qualified to serve as
patent examiners. A draft decree on patents was sent to the Prime
Minister in February 2000 for approval and in 2002 the Prime
Minister's Office issued patent regulations. Since Thailand and
Laos have a bilateral Intellectual Property Rights (IPR) agreement,
in principle a patent issued in Thailand would also be recognized in
Laos.
30. Currently, no system exists to issue copyrights in Laos. Laos
became a member of the World Intellectual Property Organization
(WIPO) Convention in January 1995 and the Paris Convention on the
Protection of Industrial Property in October 1998; it has not yet
joined the Bern Convention on Copyrights, however. Although WIPO
began to assist Laos in drafting an intellectual property law in
1996, a WTO-compliant law has not yet been implemented. In December
2007 the National Assembly approved a law the Lao government claims
will cover its U.S. Bilateral Trade Agreement (BTA)
responsibilities, as well as be WTO compliant. An English
translation sponsored by the U.S. Government is currently being
finalized. Overall, there is currently little protection for
intellectual property rights in Laos, although the authorities have
taken steps to crack down on some pirated goods.
--------------
TRANSPARENCY OF THE REGULATORY SYSTEM
--------------
31. The principal laws, regulations, decrees and guidelines
governing international trade and investment, as well as the current
protection of intellectual property, are available to the public,
although not all have been officially translated into English. Laws
and their schedules for implementation are customarily published in
VIENTIANE 00000063 012 OF 033
Lao daily newspapers, and relevant line ministries are beginning to
put laws and regulations on websites. The website for UNDP Laos
maintains a partial list of translated Lao laws:
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php
Laws can also be found via the following websites. Laws on the
National Assembly website represent the officially approved English
translations:
http://www.na.gov.la/index.php (look under legislation on the left
side);
http://www.poweringprogress.org/ index.php?option=com_
content&view=
index.php?option=com _content&view=article&id= 242&Itemid=109
http://www.moc.gov.la/gioithieuAP.asp
In addition, implementation of the budget law commenced with the
restructuring of the Ministry of Finance (MoF) via Prime Ministerial
Decree Number 80 of February 28, 2007. In September 2007, the Prime
Minister issued Order No 35 instructing the MoF to move ahead with
centralization of customs, tax and treasury departments. In January
2009 the Government introduced a Value-Added Tax (VAT). Full
implementation of the tax is likely to take a number of years.
32. A lack of transparency in a centralized decision-making
process, as well as the difficulty encountered in obtaining
information, augment the perception of the regulatory framework as
arbitrary and inscrutable. There have been reports that the
government has recently begun discussing some proposed laws and
regulations with the business community, and acted upon the advice
given, before making final decisions. The Lao Tourist Association
has repeatedly urged the Lao government at the "Lao Business Forum,"
a business-government meeting sponsored by the Lao government and
the International Finance Corporation (IFC),to discuss proposed
laws with industry prior to implementation.
-------------- --------------
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
-------------- --------------
33. Laos does not have a developed capital market. Three-month
treasury bills are occasionally offered for sale when there is a
need to absorb excess liquidity in the economy. The largest
denomination of currency is 50,000 kip (about US$5). Credit is not
available on the local market for large capital investments,
although letters of credit for export can sometimes be obtained
locally. International reserves fluctuate, with the latest
available 2007 data showing sufficient coverage for 5 months of
imports and numbering $485 million.
34. The banking system is under the supervision of the Bank of Lao
PDR, and includes:
* three state-owned commercial banks: Banque pour Le Commerce
Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion
Bank;
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;
* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai
Military and Ayoudhiya Banks whose activities are mainly limited to
providing services to local Thai businesses;
* one Vietnamese bank: Sacombank
* five private banks (3 foreign and two domestic): Malaysia - Public
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the
Association of Cambodia Local Economic Development Agencies (ACLEDA)
Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao
Bank
one representative office: Standard Chartered Bank.
35. A new banking law passed in 2006 allows private foreign banks
to establish branches in all provinces of Laos. (Previously,
foreign banks were permitted to establish branches only in
Vientiane.) The Commercial Bank Law is available on the Bank of Lao
PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has
correspondence arrangements with the following banks (US dollars):
JP Morgan Chase Bank, New York
Citibank, New York
Wachovia Bank, New York
American Express Bank, Ltd., New York
HSBC Bank, New York
Standard Chartered Bank, New York
Barclays Bank Plc., London
Credit Suisse First Boston, Zurich
Bank of Tokyo-Mitsubishi, Ltd, Tokyo
Natexis Banque Populaires, Singapore
Standard Chartered Bank, Singapore
Bank for Foreign Trade of Vietnam, Hanoi
TMB, Bank Public Co, Ltd, Bangkok
Bank Thai Public Co. Ltd. Bangkok
VIENTIANE 00000063 013 OF 033
Calyon, Bangkok
Sumitomo Mitsui Banking Corporation, Tokyo
36. The Lao banking sector is in flux, with new private and foreign
banks opening to provide modern banking options to Lao and foreign
businesses. While continuing to receive outside assistance, central
bank supervision of the sector remains somewhat weak. Although
non-performing loans have decreased significantly since 2003,
through work-outs, write-offs, and transfers off balance sheets, the
three state-owned commercial banks (SCBs) remain, according to
official estimates, insolvent. For detailed information see the IMF
Article IV report:
http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf
The Asian Development Bank has provided both program loans and
technical assistance to Laos' financial sector, as have the World
Bank and the IMF. These programs have led to some reforms but
overall capacity within the governance structure remains weak and
the banks face many challenges.
The Government of Laos is planning to open a stock exchange in 2010,
with technical assistance provided from the South Korean
government.
--------------
POLITICAL VIOLENCE
--------------
37. Laos is generally a peaceful and politically stable country.
The remnants of an insurgency occasionally carry out small-scale
attacks on government personnel and civilians. Foreign persons are
not deliberately targeted, but visitors are advised to use caution
when traveling in remote districts.
--------------
CORRUPTION
--------------
38. The Prime Minister's Office has made combating corruption a
priority, including issuance of an anticorruption decree in November
1999, but corruption remains a problem. Although the 1999 decree
specifically notes the responsibility of the state-owned mass media
in publicizing corruption cases, there has been no reporting on this
issue. In 2005, an anti-corruption law was passed by the National
Assembly. According to the State Inspection Authority, the Lao
Government has prosecuted some individuals for corruption but it
cannot publicize the information. The State Inspection Authority,
located in the Prime Minister's Office, is charged with analyzing
corruption at the national level and serves as a central office for
gathering details and evidence of suspected corruption.
Additionally, the State Inspection Department in each Ministry is
responsible for a ministry's internal problems.
39. Laos is not a signatory to the OECD Convention on Combating
UNCLASSIFIED
PROG 02/06/09
AMB: RRHUSO
ECON: JCARCHIBALD
DCM: PMHAYMOND
POL PDS
AMEMBASSY VIENTIANE
SECSTATE WASHDC
INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS
CIMS NTDB WASHDC
USDOC WASHDC
US DEPARTMENT OF COMMERCE WASHDC
US DEPARTMENT OF TREASURY WASH DC
SIPDIS
STATE FOR EAP/MLS EMERY
STATE FOR EEB/IFD/OIA
STATE PASS USTR FOR BISBEE
COMMERCE FOR HP PHO
E.O. 12958: N/A
TAGS: ECON, EINV, OPIC, USTR, KTDB, LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS
REF: 08 STATE 123909
--------------
OPENNESS TO FOREIGN INVESTMENT
--------------
VIENTIANE 00000063 014 OF 033
1. The Lao government is open to foreign investment as a matter of
policy. It allows 100% foreign ownership of investments. The
overall investment climate is poor but improving. Laos rates very
low in international indices of transparency and ease of doing
business.
2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated
October 22, 2004, purport to promote foreign direct investment as a
means of boosting development and economic growth. Under the 2004
Law on the Promotion of Foreign Investment, scheduled to be updated
at the end of 2009, foreign investors may invest in all business
sectors and zones of investment in the Lao People's Democratic
Republic, except in business activities which are detrimental to
national security, have a negative impact on the environment, or are
regarded as detrimental to health or national traditions. In recent
years Laos has seen a significant increase in FDI, especially in
mining, hydropower, and plantation agriculture. Major foreign
investors are Thailand, China, Vietnam and Australia.
3. When bidding for the right to large contracts, companies
frequently offer the government the "option" of purchasing part of
the company at a later date, often with money borrowed from the
investor or multilateral institutions. The investment term of a
foreign investment enterprise depends on the nature, size, and
conditions of the business project but normally cannot exceed fifty
years. Under special circumstances, foreign investment enterprises
may be extended with the approval of the government. However,
foreign enterprises that receive extension approval from the
government may not exceed a total investment term of seventy-five
years.
4. Foreign investors seeking to establish operations in Laos must
submit project proposals to the Department for Promotion and
Management of Domestic and Foreign Investment (DDFI),Ministry for
Planning and Investment (MPI). The proposal is then screened by the
relevant line ministries and adjudicated by the Prime Minister's
Office. Under Prime Minister Decree No 301, dated October 12, 2005,
proposals for projects worth US$20 million or more require the
approval of the Prime Minister. The Minister of MPI can approve
investments below $20 million USD while the vice Minister can
approve investments of less than $10 million USD. FDI equal to or
less than $3 million USD 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
provincial level approval is $5 million.
5. Foreign investors 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 either be a new company or a branch
office of an existing foreign company. Throughout the period of
operation of a foreign investment enterprise, the assets of the
enterprise must not be less than its registered capital. The
screening process at the Department for Promotion and Management of
Domestic and Foreign Investment (DDFI) in the Ministry of Planning
and Investment (MPI) takes into account the financial and technical
feasibility of the project, input from relevant line ministries, and
whether the proposed project conflicts with government policy. Upon
receipt of an application, the MPI must coordinate with relevant
sectors and local authorities to consider and respond in writing to
the foreign investor. Responses to projects, depending on project
type, are supposed to be forthcoming within 15-45 working days.
6. Foreign investors are required to obtain a foreign investment
license, an enterprise registration certificate, and a tax
registration certificate from the MPI office nearest the place where
the foreign investors are licensed. Thereafter they shall be
considered as enterprises established in conformity with the laws of
the Lao People's Democratic Republic. Within 90 days from the date
of receipt of an investment license the foreign investment
enterprise must commence business activities. If the investors fail
to do so, the foreign investment license is subject to termination.
7. In addition to the investment license, foreign investors are
required to obtain other permits. These include a business
registration which must be annually renewed from the Ministry of
Industry and Commerce, a tax registration from the tax department in
the Ministry of Finance, a business logo registration from the
Ministry of Public Security, permits from each line ministry related
to the investment (i.e., Ministry of Industry and Commerce for
manufacturing; Ministry of Public Works and Transportation, etc.),
appropriate permits from local authorities, and an import-export
license, if needed. Obtaining the necessary permits can pose a
challenge to foreign investors, especially in areas outside the
capital. The recent creation of a "one-stop shop" for many permits
within the Ministry of Planning and Investment should help ease
permitting difficulties in the future.
VIENTIANE 00000063 015 OF 033
8. Lao law provides for sanctity of contracts. The following link
is for a translation of the Lao contract law.
http://www.undplao.org/ whatwedo/bgresource/demogov/
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf
However, since Laos is a communist one-party state, the sanctity of
contracts is subject both to political interference and a number of
socialist principles enshrined in the law. For example, according
to the contract law:
A contract can be voided if it is disadvantageous to one party, and
A voidable contract can be declared void by the disadvantaged
party.
9. 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.
10. In 2006 the Lao government ceased imposing import restrictions
on trading companies, whether foreign or domestic, in an effort to
let the market respond to actual demand. The Lao government no
longer requires companies to file an annual import plan for approval
by the Ministry of Commerce. The main exception is the fuel
industry, where individual companies are still required to file an
annual import plan. The government controls the retail price and
profit margins of gasoline and diesel. A large American oil company
announced in late 2007 that it was leaving the Lao market to focus
on more profitable countries within Asia. Government documents
articulating the restrictions and explaining the policy are
difficult to obtain. Goods that are always 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. For a detailed list of import & export
restrictions please visit http://www.moc.gov.la/default.asp
11. Agriculture production and most manufacturing production is
private. State-owned enterprises (SOEs) currently account for only
one percent of total employment. Approximately 97 percent of
manufacturing units are small (fewer than 10 employees). Foreign
companies interested in acquiring SOEs should apply through the
Department for
--------------
CONVERSION AND TRANSFER POLICIES
--------------
12. In order to facilitate business transactions, foreign investors
generally open commercial bank accounts in both local and foreign
convertible currency at domestic and foreign banks in Laos.
Australian, Vietnamese, Thai, Cambodian and Malaysian banks
currently have a presence in Laos. Bank accounts must be maintained
in accordance with the Enterprise Accounting Law. The law places no
limitations on foreign investors transferring after-tax profits,
income from technology transfer, initial capital, interest, wages
and salaries, or other remittances to the company's home country or
third countries so long as they request approval from the Lao
government. These transactions are conducted at the official
exchange rate on the day of execution, upon presentation of
appropriate documentation. Supply of foreign exchange has in the
past been limited in Laos, which imposed a de facto limit on
repatriation of capital. Foreign currency inflows in recent years,
however, have reportedly solved this problem and large
multinationals in Laos report no problems with access to foreign
exchange. Foreign enterprises must report on their performance
annually and submit annual financial statements to the Ministry of
Planning and Investment (MPI).
--------------
EXPROPRIATION AND COMPENSATION
--------------
13. Foreign assets and investments in Laos are protected by laws and
regulations against seizure, confiscation, or nationalization except
when this is deemed necessary for a public purpose, in which case
foreign investors are to be compensated. While there have been no
expropriations, the Lao Government has revoked the foreign
investment licenses of companies in a less than transparent process.
Revocation of an investment license cannot be appealed to an
independent body, and companies whose licenses are revoked must then
liquidate their assets relatively rapidly. In addition, a company
that fails to begin conducting business within ninety days of
registering could be dissolved, if it does not have a reasonable
explanation.
--------------
DISPUTE SETTLEMENT
VIENTIANE 00000063 016 OF 033
--------------
14. According to the Foreign Investment Law, investors involved in
investment disputes must seek arbitration before taking legal
action. If arbitration does not result in an amicable settlement,
litigants may submit their claims to the economic arbitration
authority of Laos, or that of the investor's country, or an
international organization agreed on by both parties. In practice,
there are no adequate independent arbitration venues in Laos.
Foreign investors are therefore generally advised to seek
arbitration outside the country, since Laos' nascent domestic
arbitration authority lacks enforcement powers. Laos is not a
member of the International Center for the Settlement of Investment
Disputes. It became a party to the New York Convention of 1958 on
the Recognition and Enforcement of Foreign Arbitral Awards on
September 15, 1998, but Laos has never been asked to enforce a
foreign arbitral award. Laos is a member of the United Nations
Convention on International Trade Law.
15. In disputes involving the Ministry of Planning and Investment,
decisions can only be appealed back to the Ministry itself. There
is no separate independent body. Thus a company which feels it is
receiving unfair treatment from the government has no independent
recourse. In 2007, two U.S.-owned small companies were involved in
disputes with the Lao government. One company had its investment
license revoked and the U.S. owners were given no option other than
to liquidate their assets. Another is still working with Lao
authorities to resolve the issue. The Lao government has cooperated
with the Embassy in addressing the disputes.
16. Laos' legal system is evolving, but remains incomplete in many
regards. Laws sometimes contradict each other and often lack
implementing regulations. For example, tax exemptions and low
import duties guaranteed to foreign investors under the foreign
investment law are not reflected in customs or tax law. Supported
by the Japan International Cooperation Agency (JICA),Singapore, and
the United Nations Development Program (UNDP),some laws have been
officially translated into English. These include the business,
tax, bankruptcy, customs, and secured transaction laws.
Implementing regulations for the Foreign Investment Law, which are
crucial to enforcement, were approved on October 10, 2005. The
reliability of unofficial translations varies considerably, which
can create an environment of uncertainty and ambiguity among foreign
investors. Application of Lao law remains inconsistent and
knowledge of the laws themselves is often limited (especially
outside the capital). The existence of a large number of government
decrees, sometimes unpublished, further complicates the situation.
While the trend under the current government is towards more
openness and more accountability, investors are cautioned to
recognize that economic and legal reform remain a work in progress.
17. Projects funded by the Australian government, the EU, the U.S.,
and the UN Development Program to assist Lao accession to the World
Trade Organization (WTO) include components aimed at bringing Lao
commercial law into conformity with WTO standards. A commercial
court was established during 2003, and began to hear cases in 2005.
The Lao Bar Association was set-up in 2007.
18. Laos has no anti-trust statutes. The bankruptcy law permits
either the business or creditor the right to petition the court for
a bankruptcy judgment, and allows businesses the right to request
mediation. There is no record of foreign-owned enterprises, whether
as debtors or as creditors, petitioning the courts for a bankruptcy
judgment.
--------------
PERFORMANCE REQUIREMENTS AND INCENTIVES
--------------
19. Laos does not impose performance requirements per se. Foreign
investors are encouraged to give priority to Lao citizens in
recruiting and hiring. According to the foreign investment law,
foreign personnel can be hired, although they may not exceed ten
percent (10%) of the enterprise's total labor force. In the case of
skilled labor, or politically important projects, the Ministry of
Planning and Investment has confirmed that enterprises can hire over
10% foreign labor if necessary. Before bringing in foreign labor,
the enterprise must apply for work permits from the Ministry of
Labor and Social Welfare. A foreign personnel list must also be
submitted to the Planning, Monitoring and Evaluation Division of the
Department for Promotion and Management of Domestic and Foreign
Investment (DDFI).
20. Incentives for Foreign Investment: Laos grants incentives for
foreign investment depending on the sectors and zones of investment
promotion. The government defines promoted activities under Article
16 as follows:
VIENTIANE 00000063 017 OF 033
1) production for export;
2) activities relating to agriculture or forestry, and agricultural,
forestry and handicraft processing activities;
3) activities relating to industrial processing, industrial
activities using modern techniques and technology, research and
development, and activities relating to the protection of the
environment and biodiversity;
4) human resource development, skills development and public health;
5) construction of infrastructure;
6) production of raw materials and equipment to be supplied to key
industrial activities; and,
7) development of the tourism industry and transit services.
21. The Law on the Promotion of Foreign Investment:
http://www.undplao.org/whatwedo/bgresource/
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%
20Investment.pdf
describes geographic and tax incentives in articles 17 and 18.
22. Foreigners employed in Laos, including foreign investors, must
pay an income tax of 10 percent of their total income to the Lao
Government, unless they are citizens of a country with which the Lao
Government has signed a double taxation agreement. The United
States has no such agreement with Laos. The turnover tax is
scheduled to be replaced in 2009 with a Value Added Tax (VAT).
23. Foreign investors are not required to pay import duty on
equipment, spare parts and other materials used in the operation of
their enterprises. Raw materials and intermediate goods imported
for the purpose of processing and re-export are exempt from import
duties. Raw materials and intermediate goods imported for the
purpose of import substitution are also eligible for import duty
reductions on a case-by-case basis. On an individual basis, foreign
investors are also eligible for profit tax and import duty
reductions or exemptions, if the investment is significantly large
or determined to have a significant benefit to Laos' socio-economic
development. To date the Lao Government appears to have honored its
incentives. Annual business license renewal is contingent upon
certification that corporate income taxes have been paid. The tax
code was streamlined and simplified in April 2005, but some
investors still report significant difficulties in obtaining tax
certifications in a timely manner.
24. The Foreign Investment Law stipulates that foreign investors
and their families, including foreign professionals and foreign
employees of an enterprise, shall be facilitated by issue of
multiple entry visas and, if approved by the government, long term
residence in the Lao PDR. They also, in theory, have the right to
apply for Lao nationality in accordance with the Law on Nationality.
--------------
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------
25. The government recognizes the right of private enterprise
ownership, and foreigners may transfer shares of a foreign-invested
company without prior government approval. However, the business
law requires that all shareholders be listed in the articles of
association, and changes in the articles of association of a
foreign-invested company must be approved by DDFI-Ministry of
Planning and Investment (MPI) , per the Enterprise Law
http://www.moc.gov.la/default.asp. Thus, transferring shares in a
foreign-invested company registered in Laos does require the
indirect approval of the government (DDFI-MPI).
--------------
PROTECTION OF PROPERTY RIGHTS
--------------
26. Foreign investors are not permitted to own land. The
government grants long-term leases, and allows the ownership of
leases and the right to transfer and improve leasehold interests.
Government approval is not required to transfer property interests,
but the transfer must be registered and a registration fee paid.
This includes mortgage leases.
27. Secured interests in property are inadequately covered by the
Secured Transactions Law of 1994. Because the law offers no
instructions for the creditor to enforce security rights (the
creditor, for example, can only request repayment from the debtor),
the law favors the debtor. Moreover, since the Ministry of
Finance's registry system is not computerized, and cannot
cross-reference records, it is difficult to determine if a piece of
property is encumbered. Enforcement of a mortgage is further
VIENTIANE 00000063 018 OF 033
complicated by the legal protection given mortgagees against
forfeiture of their sole place of residence.
28. Laos issued a trademark decree in January 1995. The National
Science and Technology Organization (NSTO),part of the Prime
Minister's Office, controls the issuance of trademarks on a
first-come, first-register basis. Applicants do not have to
demonstrate prior use. There are currently over 18,109 trademarks
registered in Laos.
29. Laos became a member of the ASEAN Common Filing System on
patents in 2000 but lacks adequate personnel qualified to serve as
patent examiners. A draft decree on patents was sent to the Prime
Minister in February 2000 for approval and in 2002 the Prime
Minister's Office issued patent regulations. Since Thailand and
Laos have a bilateral Intellectual Property Rights (IPR) agreement,
in principle a patent issued in Thailand would also be recognized in
Laos.
30. Currently, no system exists to issue copyrights in Laos. Laos
became a member of the World Intellectual Property Organization
(WIPO) Convention in January 1995 and the Paris Convention on the
Protection of Industrial Property in October 1998; it has not yet
joined the Bern Convention on Copyrights, however. Although WIPO
began to assist Laos in drafting an intellectual property law in
1996, a WTO-compliant law has not yet been implemented. In December
2007 the National Assembly approved a law the Lao government claims
will cover its U.S. Bilateral Trade Agreement (BTA)
responsibilities, as well as be WTO compliant. An English
translation sponsored by the U.S. Government is currently being
finalized. Overall, there is currently little protection for
intellectual property rights in Laos, although the authorities have
taken steps to crack down on some pirated goods.
--------------
TRANSPARENCY OF THE REGULATORY SYSTEM
--------------
31. The principal laws, regulations, decrees and guidelines
governing international trade and investment, as well as the current
protection of intellectual property, are available to the public,
although not all have been officially translated into English. Laws
and their schedules for implementation are customarily published in
Lao daily newspapers, and relevant line ministries are beginning to
put laws and regulations on websites. The website for UNDP Laos
maintains a partial list of translated Lao laws:
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php
Laws can also be found via the following websites. Laws on the
National Assembly website represent the officially approved English
translations:
http://www.na.gov.la/index.php (look under legislation on the left
side);
http://www.poweringprogress.org/ index.php?option=com_
content&view=
index.php?option=com _content&view=article&id= 242&Itemid=109
http://www.moc.gov.la/gioithieuAP.asp
In addition, implementation of the budget law commenced with the
restructuring of the Ministry of Finance (MoF) via Prime Ministerial
Decree Number 80 of February 28, 2007. In September 2007, the Prime
Minister issued Order No 35 instructing the MoF to move ahead with
centralization of customs, tax and treasury departments. In January
2009 the Government introduced a Value-Added Tax (VAT). Full
implementation of the tax is likely to take a number of years.
32. A lack of transparency in a centralized decision-making
process, as well as the difficulty encountered in obtaining
information, augment the perception of the regulatory framework as
arbitrary and inscrutable. There have been reports that the
government has recently begun discussing some proposed laws and
regulations with the business community, and acted upon the advice
given, before making final decisions. The Lao Tourist Association
has repeatedly urged the Lao government at the "Lao Business Forum,"
a business-government meeting sponsored by the Lao government and
the International Finance Corporation (IFC),to discuss proposed
laws with industry prior to implementation.
-------------- --------------
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
-------------- --------------
33. Laos does not have a developed capital market. Three-month
treasury bills are occasionally offered for sale when there is a
need to absorb excess liquidity in the economy. The largest
denomination of currency is 50,000 kip (about US$5). Credit is not
available on the local market for large capital investments,
although letters of credit for export can sometimes be obtained
locally. International reserves fluctuate, with the latest
available 2007 data showing sufficient coverage for 5 months of
imports and numbering $485 million.
VIENTIANE 00000063 019 OF 033
34. The banking system is under the supervision of the Bank of Lao
PDR, and includes:
* three state-owned commercial banks: Banque pour Le Commerce
Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion
Bank;
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;
* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai
Military and Ayoudhiya Banks whose activities are mainly limited to
providing services to local Thai businesses;
* one Vietnamese bank: Sacombank
* five private banks (3 foreign and two domestic): Malaysia - Public
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the
Association of Cambodia Local Economic Development Agencies (ACLEDA)
Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao
Bank
one representative office: Standard Chartered Bank.
35. A new banking law passed in 2006 allows private foreign banks
to establish branches in all provinces of Laos. (Previously,
foreign banks were permitted to establish branches only in
Vientiane.) The Commercial Bank Law is available on the Bank of Lao
PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has
correspondence arrangements with the following banks (US dollars):
JP Morgan Chase Bank, New York
Citibank, New York
Wachovia Bank, New York
American Express Bank, Ltd., New York
HSBC Bank, New York
Standard Chartered Bank, New York
Barclays Bank Plc., London
Credit Suisse First Boston, Zurich
Bank of Tokyo-Mitsubishi, Ltd, Tokyo
Natexis Banque Populaires, Singapore
Standard Chartered Bank, Singapore
Bank for Foreign Trade of Vietnam, Hanoi
TMB, Bank Public Co, Ltd, Bangkok
Bank Thai Public Co. Ltd. Bangkok
Calyon, Bangkok
Sumitomo Mitsui Banking Corporation, Tokyo
36. The Lao banking sector is in flux, with new private and foreign
banks opening to provide modern banking options to Lao and foreign
businesses. While continuing to receive outside assistance, central
bank supervision of the sector remains somewhat weak. Although
non-performing loans have decreased significantly since 2003,
through work-outs, write-offs, and transfers off balance sheets, the
three state-owned commercial banks (SCBs) remain, according to
official estimates, insolvent. For detailed information see the IMF
Article IV report:
http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf
The Asian Development Bank has provided both program loans and
technical assistance to Laos' financial sector, as have the World
Bank and the IMF. These programs have led to some reforms but
overall capacity within the governance structure remains weak and
the banks face many challenges.
The Government of Laos is planning to open a stock exchange in 2010,
with technical assistance provided from the South Korean
government.
--------------
POLITICAL VIOLENCE
--------------
37. Laos is generally a peaceful and politically stable country.
The remnants of an insurgency occasionally carry out small-scale
attacks on government personnel and civilians. Foreign persons are
not deliberately targeted, but visitors are advised to use caution
when traveling in remote districts.
--------------
CORRUPTION
--------------
38. The Prime Minister's Office has made combating corruption a
priority, including issuance of an anticorruption decree in November
1999, but corruption remains a problem. Although the 1999 decree
specifically notes the responsibility of the state-owned mass media
in publicizing corruption cases, there has been no reporting on this
issue. In 2005, an anti-corruption law was passed by the National
Assembly. According to the State Inspection Authority, the Lao
Government has prosecuted some individuals for corruption but it
cannot publicize the information. The State Inspection Authority,
VIENTIANE 00000063 020 OF 033
located in the Prime Minister's Office, is charged with analyzing
corruption at the national level and serves as a central office for
gathering details and evidence of suspected corruption.
Additionally, the State Inspection Department in each Ministry is
responsible for a ministry's internal problems.
39. Laos is not a signatory to the OECD Convention on Combating
UNCLASSIFIED
PROG 02/06/09
AMB: RRHUSO
ECON: JCARCHIBALD
DCM: PMHAYMOND
POL PDS
AMEMBASSY VIENTIANE
SECSTATE WASHDC
INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS
CIMS NTDB WASHDC
USDOC WASHDC
US DEPARTMENT OF COMMERCE WASHDC
US DEPARTMENT OF TREASURY WASH DC
SIPDIS
STATE FOR EAP/MLS EMERY
STATE FOR EEB/IFD/OIA
STATE PASS USTR FOR BISBEE
COMMERCE FOR HP PHO
E.O. 12958: N/A
TAGS: ECON, EINV, OPIC, USTR, KTDB, LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS
REF: 08 STATE 123909
--------------
OPENNESS TO FOREIGN INVESTMENT
--------------
1. The Lao government is open to foreign investment as a matter of
policy. It allows 100% foreign ownership of investments. The
overall investment climate is poor but improving. Laos rates very
low in international indices of transparency and ease of doing
business.
2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated
October 22, 2004, purport to promote foreign direct investment as a
means of boosting development and economic growth. Under the 2004
Law on the Promotion of Foreign Investment, scheduled to be updated
at the end of 2009, foreign investors may invest in all business
sectors and zones of investment in the Lao People's Democratic
Republic, except in business activities which are detrimental to
national security, have a negative impact on the environment, or are
regarded as detrimental to health or national traditions. In recent
years Laos has seen a significant increase in FDI, especially in
mining, hydropower, and plantation agriculture. Major foreign
investors are Thailand, China, Vietnam and Australia.
3. When bidding for the right to large contracts, companies
frequently offer the government the "option" of purchasing part of
the company at a later date, often with money borrowed from the
investor or multilateral institutions. The investment term of a
foreign investment enterprise depends on the nature, size, and
conditions of the business project but normally cannot exceed fifty
years. Under special circumstances, foreign investment enterprises
may be extended with the approval of the government. However,
foreign enterprises that receive extension approval from the
government may not exceed a total investment term of seventy-five
years.
4. Foreign investors seeking to establish operations in Laos must
submit project proposals to the Department for Promotion and
Management of Domestic and Foreign Investment (DDFI),Ministry for
Planning and Investment (MPI). The proposal is then screened by the
relevant line ministries and adjudicated by the Prime Minister's
Office. Under Prime Minister Decree No 301, dated October 12, 2005,
proposals for projects worth US$20 million or more require the
approval of the Prime Minister. The Minister of MPI can approve
investments below $20 million USD while the vice Minister can
approve investments of less than $10 million USD. FDI equal to or
less than $3 million USD 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
provincial level approval is $5 million.
5. Foreign investors in a joint venture must contribute at least
thirty percent (30%) of the venture's registered capital. Capital
VIENTIANE 00000063 021 OF 033
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 either be a new company or a branch
office of an existing foreign company. Throughout the period of
operation of a foreign investment enterprise, the assets of the
enterprise must not be less than its registered capital. The
screening process at the Department for Promotion and Management of
Domestic and Foreign Investment (DDFI) in the Ministry of Planning
and Investment (MPI) takes into account the financial and technical
feasibility of the project, input from relevant line ministries, and
whether the proposed project conflicts with government policy. Upon
receipt of an application, the MPI must coordinate with relevant
sectors and local authorities to consider and respond in writing to
the foreign investor. Responses to projects, depending on project
type, are supposed to be forthcoming within 15-45 working days.
6. Foreign investors are required to obtain a foreign investment
license, an enterprise registration certificate, and a tax
registration certificate from the MPI office nearest the place where
the foreign investors are licensed. Thereafter they shall be
considered as enterprises established in conformity with the laws of
the Lao People's Democratic Republic. Within 90 days from the date
of receipt of an investment license the foreign investment
enterprise must commence business activities. If the investors fail
to do so, the foreign investment license is subject to termination.
7. In addition to the investment license, foreign investors are
required to obtain other permits. These include a business
registration which must be annually renewed from the Ministry of
Industry and Commerce, a tax registration from the tax department in
the Ministry of Finance, a business logo registration from the
Ministry of Public Security, permits from each line ministry related
to the investment (i.e., Ministry of Industry and Commerce for
manufacturing; Ministry of Public Works and Transportation, etc.),
appropriate permits from local authorities, and an import-export
license, if needed. Obtaining the necessary permits can pose a
challenge to foreign investors, especially in areas outside the
capital. The recent creation of a "one-stop shop" for many permits
within the Ministry of Planning and Investment should help ease
permitting difficulties in the future.
8. Lao law provides for sanctity of contracts. The following link
is for a translation of the Lao contract law.
http://www.undplao.org/ whatwedo/bgresource/demogov/
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf
However, since Laos is a communist one-party state, the sanctity of
contracts is subject both to political interference and a number of
socialist principles enshrined in the law. For example, according
to the contract law:
A contract can be voided if it is disadvantageous to one party, and
A voidable contract can be declared void by the disadvantaged
party.
9. 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.
10. In 2006 the Lao government ceased imposing import restrictions
on trading companies, whether foreign or domestic, in an effort to
let the market respond to actual demand. The Lao government no
longer requires companies to file an annual import plan for approval
by the Ministry of Commerce. The main exception is the fuel
industry, where individual companies are still required to file an
annual import plan. The government controls the retail price and
profit margins of gasoline and diesel. A large American oil company
announced in late 2007 that it was leaving the Lao market to focus
on more profitable countries within Asia. Government documents
articulating the restrictions and explaining the policy are
difficult to obtain. Goods that are always 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. For a detailed list of import & export
restrictions please visit http://www.moc.gov.la/default.asp
11. Agriculture production and most manufacturing production is
private. State-owned enterprises (SOEs) currently account for only
one percent of total employment. Approximately 97 percent of
manufacturing units are small (fewer than 10 employees). Foreign
companies interested in acquiring SOEs should apply through the
Department for
--------------
CONVERSION AND TRANSFER POLICIES
--------------
VIENTIANE 00000063 022 OF 033
12. In order to facilitate business transactions, foreign investors
generally open commercial bank accounts in both local and foreign
convertible currency at domestic and foreign banks in Laos.
Australian, Vietnamese, Thai, Cambodian and Malaysian banks
currently have a presence in Laos. Bank accounts must be maintained
in accordance with the Enterprise Accounting Law. The law places no
limitations on foreign investors transferring after-tax profits,
income from technology transfer, initial capital, interest, wages
and salaries, or other remittances to the company's home country or
third countries so long as they request approval from the Lao
government. These transactions are conducted at the official
exchange rate on the day of execution, upon presentation of
appropriate documentation. Supply of foreign exchange has in the
past been limited in Laos, which imposed a de facto limit on
repatriation of capital. Foreign currency inflows in recent years,
however, have reportedly solved this problem and large
multinationals in Laos report no problems with access to foreign
exchange. Foreign enterprises must report on their performance
annually and submit annual financial statements to the Ministry of
Planning and Investment (MPI).
--------------
EXPROPRIATION AND COMPENSATION
--------------
13. Foreign assets and investments in Laos are protected by laws and
regulations against seizure, confiscation, or nationalization except
when this is deemed necessary for a public purpose, in which case
foreign investors are to be compensated. While there have been no
expropriations, the Lao Government has revoked the foreign
investment licenses of companies in a less than transparent process.
Revocation of an investment license cannot be appealed to an
independent body, and companies whose licenses are revoked must then
liquidate their assets relatively rapidly. In addition, a company
that fails to begin conducting business within ninety days of
registering could be dissolved, if it does not have a reasonable
explanation.
--------------
DISPUTE SETTLEMENT
--------------
14. According to the Foreign Investment Law, investors involved in
investment disputes must seek arbitration before taking legal
action. If arbitration does not result in an amicable settlement,
litigants may submit their claims to the economic arbitration
authority of Laos, or that of the investor's country, or an
international organization agreed on by both parties. In practice,
there are no adequate independent arbitration venues in Laos.
Foreign investors are therefore generally advised to seek
arbitration outside the country, since Laos' nascent domestic
arbitration authority lacks enforcement powers. Laos is not a
member of the International Center for the Settlement of Investment
Disputes. It became a party to the New York Convention of 1958 on
the Recognition and Enforcement of Foreign Arbitral Awards on
September 15, 1998, but Laos has never been asked to enforce a
foreign arbitral award. Laos is a member of the United Nations
Convention on International Trade Law.
15. In disputes involving the Ministry of Planning and Investment,
decisions can only be appealed back to the Ministry itself. There
is no separate independent body. Thus a company which feels it is
receiving unfair treatment from the government has no independent
recourse. In 2007, two U.S.-owned small companies were involved in
disputes with the Lao government. One company had its investment
license revoked and the U.S. owners were given no option other than
to liquidate their assets. Another is still working with Lao
authorities to resolve the issue. The Lao government has cooperated
with the Embassy in addressing the disputes.
16. Laos' legal system is evolving, but remains incomplete in many
regards. Laws sometimes contradict each other and often lack
implementing regulations. For example, tax exemptions and low
import duties guaranteed to foreign investors under the foreign
investment law are not reflected in customs or tax law. Supported
by the Japan International Cooperation Agency (JICA),Singapore, and
the United Nations Development Program (UNDP),some laws have been
officially translated into English. These include the business,
tax, bankruptcy, customs, and secured transaction laws.
Implementing regulations for the Foreign Investment Law, which are
crucial to enforcement, were approved on October 10, 2005. The
reliability of unofficial translations varies considerably, which
can create an environment of uncertainty and ambiguity among foreign
investors. Application of Lao law remains inconsistent and
knowledge of the laws themselves is often limited (especially
outside the capital). The existence of a large number of government
VIENTIANE 00000063 023 OF 033
decrees, sometimes unpublished, further complicates the situation.
While the trend under the current government is towards more
openness and more accountability, investors are cautioned to
recognize that economic and legal reform remain a work in progress.
17. Projects funded by the Australian government, the EU, the U.S.,
and the UN Development Program to assist Lao accession to the World
Trade Organization (WTO) include components aimed at bringing Lao
commercial law into conformity with WTO standards. A commercial
court was established during 2003, and began to hear cases in 2005.
The Lao Bar Association was set-up in 2007.
18. Laos has no anti-trust statutes. The bankruptcy law permits
either the business or creditor the right to petition the court for
a bankruptcy judgment, and allows businesses the right to request
mediation. There is no record of foreign-owned enterprises, whether
as debtors or as creditors, petitioning the courts for a bankruptcy
judgment.
--------------
PERFORMANCE REQUIREMENTS AND INCENTIVES
--------------
19. Laos does not impose performance requirements per se. Foreign
investors are encouraged to give priority to Lao citizens in
recruiting and hiring. According to the foreign investment law,
foreign personnel can be hired, although they may not exceed ten
percent (10%) of the enterprise's total labor force. In the case of
skilled labor, or politically important projects, the Ministry of
Planning and Investment has confirmed that enterprises can hire over
10% foreign labor if necessary. Before bringing in foreign labor,
the enterprise must apply for work permits from the Ministry of
Labor and Social Welfare. A foreign personnel list must also be
submitted to the Planning, Monitoring and Evaluation Division of the
Department for Promotion and Management of Domestic and Foreign
Investment (DDFI).
20. Incentives for Foreign Investment: Laos grants incentives for
foreign investment depending on the sectors and zones of investment
promotion. The government defines promoted activities under Article
16 as follows:
1) production for export;
2) activities relating to agriculture or forestry, and agricultural,
forestry and handicraft processing activities;
3) activities relating to industrial processing, industrial
activities using modern techniques and technology, research and
development, and activities relating to the protection of the
environment and biodiversity;
4) human resource development, skills development and public health;
5) construction of infrastructure;
6) production of raw materials and equipment to be supplied to key
industrial activities; and,
7) development of the tourism industry and transit services.
21. The Law on the Promotion of Foreign Investment:
http://www.undplao.org/whatwedo/bgresource/
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%
20Investment.pdf
describes geographic and tax incentives in articles 17 and 18.
22. Foreigners employed in Laos, including foreign investors, must
pay an income tax of 10 percent of their total income to the Lao
Government, unless they are citizens of a country with which the Lao
Government has signed a double taxation agreement. The United
States has no such agreement with Laos. The turnover tax is
scheduled to be replaced in 2009 with a Value Added Tax (VAT).
23. Foreign investors are not required to pay import duty on
equipment, spare parts and other materials used in the operation of
their enterprises. Raw materials and intermediate goods imported
for the purpose of processing and re-export are exempt from import
duties. Raw materials and intermediate goods imported for the
purpose of import substitution are also eligible for import duty
reductions on a case-by-case basis. On an individual basis, foreign
investors are also eligible for profit tax and import duty
reductions or exemptions, if the investment is significantly large
or determined to have a significant benefit to Laos' socio-economic
development. To date the Lao Government appears to have honored its
incentives. Annual business license renewal is contingent upon
certification that corporate income taxes have been paid. The tax
code was streamlined and simplified in April 2005, but some
investors still report significant difficulties in obtaining tax
certifications in a timely manner.
VIENTIANE 00000063 024 OF 033
24. The Foreign Investment Law stipulates that foreign investors
and their families, including foreign professionals and foreign
employees of an enterprise, shall be facilitated by issue of
multiple entry visas and, if approved by the government, long term
residence in the Lao PDR. They also, in theory, have the right to
apply for Lao nationality in accordance with the Law on Nationality.
--------------
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------
25. The government recognizes the right of private enterprise
ownership, and foreigners may transfer shares of a foreign-invested
company without prior government approval. However, the business
law requires that all shareholders be listed in the articles of
association, and changeQin the articles of association of a
foreign-invested company must be approved by DDFI-Ministry of
Planning and Investment (MPI) , per the Enterprise Law
http://www.moc.gov.la/default.asp. Thus, transferring shares in a
foreign-invested company registered in Laos does require the
indirect approval of the government (DDFI-MPI).
--------------
PROTECTION OF PROPERTY RIGHTS
--------------
26. Foreign investors are not permitted to own land. The
government grants long-term leases, and allows the ownership of
leases and the right to transfer and improve leasehold interests.
Government approval is not required to transfer property interests,
but the transfer must be registered and a registration fee paid.
This includes mortgage leases.
27. Secured interests in property are inadequately covered by the
Secured Transactions Law of 1994. Because the law offers no
instructions for the creditor to enforce security rights (the
creditor, for example, can only request repayment from the debtor),
the law favors the debtor. Moreover, since the Ministry of
Finance's registry system is not computerized, and cannot
cross-reference records, it is difficult to determine if a piece of
property is encumbered. Enforcement of a mortgage is further
complicated by the legal protection given mortgagees against
forfeiture of their sole place of residence.
28. Laos issued a trademark decree in January 1995. The National
Science and Technology Organization (NSTO),part of the Prime
Minister's Office, controls the issuance of trademarks on a
first-come, first-register basis. Applicants do not have to
demonstrate prior use. There are currently over 18,109 trademarks
registered in Laos.
29. Laos became a member of the ASEAN Common Filing System on
patents in 2000 but lacks adequate personnel qualified to serve as
patent examiners. A draft decree on patents was sent to the Prime
Minister in February 2000 for approval and in 2002 the Prime
Minister's Office issued patent regulations. Since Thailand and
Laos have a bilateral Intellectual Property Rights (IPR) agreement,
in principle a patent issued in Thailand would also be recognized in
Laos.
30. Currently, no system exists to issue copyrights in Laos. Laos
became a member of the World Intellectual Property Organization
(WIPO) Convention in January 1995 and the Paris Convention on the
Protection of Industrial Property in October 1998; it has not yet
joined the Bern Convention on Copyrights, however. Although WIPO
began to assist Laos in drafting an intellectual property law in
1996, a WTO-compliant law has not yet been implemented. In December
2007 the National Assembly approved a law the Lao government claims
will cover its U.S. Bilateral Trade Agreement (BTA)
responsibilities, as well as be WTO compliant. An English
translation sponsored by the U.S. Government is currently being
finalized. Overall, there is currently little protection for
intellectual property rights in Laos, although the authorities have
taken steps to crack down on some pirated goods.
--------------
TRANSPARENCY OF THE REGULATORY SYSTEM
--------------
31. The principal laws, regulations, decrees and guidelines
governing international trade and investment, as well as the current
protection of intellectual property, are available to the public,
although not all have been officially translated into English. Laws
and their schedules for implementation are customarily published in
Lao daily newspapers, and relevant line ministries are beginning to
put laws and regulations on websites. The website for UNDP Laos
maintains a partial list of translated Lao laws:
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php
Laws can also be found via the following websites. Laws on the
VIENTIANE 00000063 025 OF 033
National Assembly website represent the officially approved English
translations:
http://www.na.gov.la/index.php (look under legislation on the left
side);
http://www.poweringprogress.org/ index.php?option=com_
content&view=
index.php?option=com _content&view=article&id= 242&Itemid=109
http://www.moc.gov.la/gioithieuAP.asp
In addition, implementation of the budget law commenced with the
restructuring of the Ministry of Finance (MoF) via Prime Ministerial
Decree Number 80 of February 28, 2007. In September 2007, the Prime
Minister issued Order No 35 instructing the MoF to move ahead with
centralization of customs, tax and treasury departments. In January
2009 the Government introduced a Value-Added Tax (VAT). Full
implementation of the tax is likely to take a number of years.
32. A lack of transparency in a centralized decision-making
process, as well as the difficulty encountered in obtaining
information, augment the perception of the regulatory framework as
arbitrary and inscrutable. There have been reports that the
government has recently begun discussing some proposed laws and
regulations with the business community, and acted upon the advice
given, before making final decisions. The Lao Tourist Association
has repeatedly urged the Lao government at the "Lao Business Forum,"
a business-government meeting sponsored by the Lao government and
the International Finance Corporation (IFC),to discuss proposed
laws with industry prior to implementation.
-------------- --------------
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
-------------- --------------
33. Laos does not have a developed capital market. Three-month
treasury bills are occasionally offered for sale when there is a
need to absorb excess liquidity in the economy. The largest
denomination of currency is 50,000 kip (about US$5). Credit is not
available on the local market for large capital investments,
although letters of credit for export can sometimes be obtained
locally. International reserves fluctuate, with the latest
available 2007 data showing sufficient coverage for 5 months of
imports and numbering $485 million.
34. The banking system is under the supervision of the Bank of Lao
PDR, and includes:
* three state-owned commercial banks: Banque pour Le Commerce
Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion
Bank;
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;
* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai
Military and Ayoudhiya Banks whose activities are mainly limited to
providing services to local Thai businesses;
* one Vietnamese bank: Sacombank
* five private banks (3 foreign and two domestic): Malaysia - Public
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the
Association of Cambodia Local Economic Development Agencies (ACLEDA)
Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao
Bank
one representative office: Standard Chartered Bank.
35. A new banking law passed in 2006 allows private foreign banks
to establish branches in all provinces of Laos. (Previously,
foreign banks were permitted to establish branches only in
Vientiane.) The Commercial Bank Law is available on the Bank of Lao
PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has
correspondence arrangements with the following banks (US dollars):
JP Morgan Chase Bank, New York
Citibank, New York
Wachovia Bank, New York
American Express Bank, Ltd., New York
HSBC Bank, New York
Standard Chartered Bank, New York
Barclays Bank Plc., London
Credit Suisse First Boston, Zurich
Bank of Tokyo-Mitsubishi, Ltd, Tokyo
Natexis Banque Populaires, Singapore
Standard Chartered Bank, Singapore
Bank for Foreign Trade of Vietnam, Hanoi
TMB, Bank Public Co, Ltd, Bangkok
Bank Thai Public Co. Ltd. Bangkok
Calyon, Bangkok
Sumitomo Mitsui Banking Corporation, Tokyo
36. The Lao banking sector is in flux, with new private and foreign
banks opening to provide modern banking options to Lao and foreign
businesses. While continuing to receive outside assistance, central
VIENTIANE 00000063 026 OF 033
bank supervision of the sector remains somewhat weak. Although
non-performing loans have decreased significantly since 2003,
through work-outs, write-offs, and transfers off balance sheets, the
three state-owned commercial banks (SCBs) remain, according to
official estimates, insolvent. For detailed information see the IMF
Article IV report:
http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf
The Asian Development Bank has provided both program loans and
technical assistance to Laos' financial sector, as have the World
Bank and the IMF. These programs have led to some reforms but
overall capacity within the governance structure remains weak and
the banks face many challenges.
The Government of Laos is planning to open a stock exchange in 2010,
with technical assistance provided from the South Korean
government.
--------------
POLITICAL VIOLENCE
--------------
37. Laos is generally a peaceful and politically stable country.
The remnants of an insurgency occasionally carry out small-scale
attacks on government personnel and civilians. Foreign persons are
not deliberately targeted, but visitors are advised to use caution
when traveling in remote districts.
--------------
CORRUPTION
--------------
38. The Prime Minister's Office has made combating corruption a
priority, including issuance of an anticorruption decree in November
1999, but corruption remains a problem. Although the 1999 decree
specifically notes the responsibility of the state-owned mass media
in publicizing corruption cases, there has been no reporting on this
issue. In 2005, an anti-corruption law was passed by the National
Assembly. According to the State Inspection Authority, the Lao
Government has prosecuted some individuals for corruption but it
cannot publicize the information. The State Inspection Authority,
located in the Prime Minister's Office, is charged with analyzing
corruption at the national level and serves as a central office for
gathering details and evidence of suspected corruption.
Additionally, the State Inspection Department in each Ministry is
responsible for a ministry's internal problems.
39. Laos is not a signatory to the OECD Convention on Combating
UNCLASSIFIED
PROG 02/06/09
AMB: RRHUSO
ECON: JCARCHIBALD
DCM: PMHAYMOND
POL PDS
AMEMBASSY VIENTIANE
SECSTATE WASHDC
INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS
CIMS NTDB WASHDC
USDOC WASHDC
US DEPARTMENT OF COMMERCE WASHDC
US DEPARTMENT OF TREASURY WASH DC
SIPDIS
STATE FOR EAP/MLS EMERY
STATE FOR EEB/IFD/OIA
STATE PASS USTR FOR BISBEE
COMMERCE FOR HP PHO
E.O. 12958: N/A
TAGS: ECON, EINV, OPIC, USTR, KTDB, LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS
REF: 08 STATE 123909
--------------
OPENNESS TO FOREIGN INVESTMENT
--------------
1. The Lao government is open to foreign investment as a matter of
policy. It allows 100% foreign ownership of investments. The
overall investment climate is poor but improving. Laos rates very
low in international indices of transparency and ease of doing
business.
VIENTIANE 00000063 027 OF 033
2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated
October 22, 2004, purport to promote foreign direct investment as a
means of boosting development and economic growth. Under the 2004
Law on the Promotion of Foreign Investment, scheduled to be updated
at the end of 2009, foreign investors may invest in all business
sectors and zones of investment in the Lao People's Democratic
Republic, except in business activities which are detrimental to
national security, have a negative impact on the environment, or are
regarded as detrimental to health or national traditions. In recent
years Laos has seen a significant increase in FDI, especially in
mining, hydropower, and plantation agriculture. Major foreign
investors are Thailand, China, Vietnam and Australia.
3. When bidding for the right to large contracts, companies
frequently offer the government the "option" of purchasing part of
the company at a later date, often with money borrowed from the
investor or multilateral institutions. The investment term of a
foreign investment enterprise depends on the nature, size, and
conditions of the business project but normally cannot exceed fifty
years. Under special circumstances, foreign investment enterprises
may be extended with the approval of the government. However,
foreign enterprises that receive extension approval from the
government may not exceed a total investment term of seventy-five
years.
4. Foreign investors seeking to establish operations in Laos must
submit project proposals to the Department for Promotion and
Management of Domestic and Foreign Investment (DDFI),Ministry for
Planning and Investment (MPI). The proposal is then screened by the
relevant line ministries and adjudicated by the Prime Minister's
Office. Under Prime Minister Decree No 301, dated October 12, 2005,
proposals for projects worth US$20 million or more require the
approval of the Prime Minister. The Minister of MPI can approve
investments below $20 million USD while the vice Minister can
approve investments of less than $10 million USD. FDI equal to or
less than $3 million USD 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
provincial level approval is $5 million.
5. Foreign investors 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 either be a new company or a branch
office of an existing foreign company. Throughout the period of
operation of a foreign investment enterprise, the assets of the
enterprise must not be less than its registered capital. The
screening process at the Department for Promotion and Management of
Domestic and Foreign Investment (DDFI) in the Ministry of Planning
and Investment (MPI) takes into account the financial and technical
feasibility of the project, input from relevant line ministries, and
whether the proposed project conflicts with government policy. Upon
receipt of an application, the MPI must coordinate with relevant
sectors and local authorities to consider and respond in writing to
the foreign investor. Responses to projects, depending on project
type, are supposed to be forthcoming within 15-45 working days.
6. Foreign investors are required to obtain a foreign investment
license, an enterprise registration certificate, and a tax
registration certificate from the MPI office nearest the place where
the foreign investors are licensed. Thereafter they shall be
considered as enterprises established in conformity with the laws of
the Lao People's Democratic Republic. Within 90 days from the date
of receipt of an investment license the foreign investment
enterprise must commence business activities. If the investors fail
to do so, the foreign investment license is subject to termination.
7. In addition to the investment license, foreign investors are
required to obtain other permits. These include a business
registration which must be annually renewed from the Ministry of
Industry and Commerce, a tax registration from the tax department in
the Ministry of Finance, a business logo registration from the
Ministry of Public Security, permits from each line ministry related
to the investment (i.e., Ministry of Industry and Commerce for
manufacturing; Ministry of Public Works and Transportation, etc.),
appropriate permits from local authorities, and an import-export
license, if needed. Obtaining the necessary permits can pose a
challenge to foreign investors, especially in areas outside the
capital. The recent creation of a "one-stop shop" for many permits
within the Ministry of Planning and Investment should help ease
permitting difficulties in the future.
8. Lao law provides for sanctity of contracts. The following link
is for a translation of the Lao contract law.
http://www.undplao.org/ whatwedo/bgresource/demogov/
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf
However, since Laos is a communist one-party state, the sanctity of
VIENTIANE 00000063 028 OF 033
contracts is subject both to political interference and a number of
socialist principles enshrined in the law. For example, according
to the contract law:
A contract can be voided if it is disadvantageous to one party, and
A voidable contract can be declared void by the disadvantaged
party.
9. 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.
10. In 2006 the Lao government ceased imposing import restrictions
on trading companies, whether foreign or domestic, in an effort to
let the market respond to actual demand. The Lao government no
longer requires companies to file an annual import plan for approval
by the Ministry of Commerce. The main exception is the fuel
industry, where individual companies are still required to file an
annual import plan. The government controls the retail price and
profit margins of gasoline and diesel. A large American oil company
announced in late 2007 that it was leaving the Lao market to focus
on more profitable countries within Asia. Government documents
articulating the restrictions and explaining the policy are
difficult to obtain. Goods that are always 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. For a detailed list of import & export
restrictions please visit http://www.moc.gov.la/default.asp
11. Agriculture production and most manufacturing production is
private. State-owned enterprises (SOEs) currently account for only
one percent of total employment. Approximately 97 percent of
manufacturing units are small (fewer than 10 employees). Foreign
companies interested in acquiring SOEs should apply through the
Department for
--------------
CONVERSION AND TRANSFER POLICIES
--------------
12. In order to facilitate business transactions, foreign investors
generally open commercial bank accounts in both local and foreign
convertible currency at domestic and foreign banks in Laos.
Australian, Vietnamese, Thai, Cambodian and Malaysian banks
currently have a presence in Laos. Bank accounts must be maintained
in accordance with the Enterprise Accounting Law. The law places no
limitations on foreign investors transferring after-tax profits,
income from technology transfer, initial capital, interest, wages
and salaries, or other remittances to the company's home country or
third countries so long as they request approval from the Lao
government. These transactions are conducted at the official
exchange rate on the day of execution, upon presentation of
appropriate documentation. Supply of foreign exchange has in the
past been limited in Laos, which imposed a de facto limit on
repatriation of capital. Foreign currency inflows in recent years,
however, have reportedly solved this problem and large
multinationals in Laos report no problems with access to foreign
exchange. Foreign enterprises must report on their performance
annually and submit annual financial statements to the Ministry of
Planning and Investment (MPI).
--------------
EXPROPRIATION AND COMPENSATION
--------------
13. Foreign assets and investments in Laos are protected by laws and
regulations against seizure, confiscation, or nationalization except
when this is deemed necessary for a public purpose, in which case
foreign investors are to be compensated. While there have been no
expropriations, the Lao Government has revoked the foreign
investment licenses of companies in a less than transparent process.
Revocation of an investment license cannot be appealed to an
independent body, and companies whose licenses are revoked must then
liquidate their assets relatively rapidly. In addition, a company
that fails to begin conducting business within ninety days of
registering could be dissolved, if it does not have a reasonable
explanation.
--------------
DISPUTE SETTLEMENT
--------------
14. According to the Foreign Investment Law, investors involved in
investment disputes must seek arbitration before taking legal
action. If arbitration does not result in an amicable settlement,
litigants may submit their claims to the economic arbitration
VIENTIANE 00000063 029 OF 033
authority of Laos, or that of the investor's country, or an
international organization agreed on by both parties. In practice,
there are no adequate independent arbitration venues in Laos.
Foreign investors are therefore generally advised to seek
arbitration outside the country, since Laos' nascent domestic
arbitration authority lacks enforcement powers. Laos is not a
member of the International Center for the Settlement of Investment
Disputes. It became a party to the New York Convention of 1958 on
the Recognition and Enforcement of Foreign Arbitral Awards on
September 15, 1998, but Laos has never been asked to enforce a
foreign arbitral award. Laos is a member of the United Nations
Convention on International Trade Law.
15. In disputes involving the Ministry of Planning and Investment,
decisions can only be appealed back to the Ministry itself. There
is no separate independent body. Thus a company which feels it is
receiving unfair treatment from the government has no independent
recourse. In 2007, two U.S.-owned small companies were involved in
disputes with the Lao government. One company had its investment
license revoked and the U.S. owners were given no option other than
to liquidate their assets. Another is still working with Lao
authorities to resolve the issue. The Lao government has cooperated
with the Embassy in addressing the disputes.
16. Laos' legal system is evolving, but remains incomplete in many
regards. Laws sometimes contradict each other and often lack
implementing regulations. For example, tax exemptions and low
import duties guaranteed to foreign investors under the foreign
investment law are not reflected in customs or tax law. Supported
by the Japan International Cooperation Agency (JICA),Singapore, and
the United Nations Development Program (UNDP),some laws have been
officially translated into English. These include the business,
tax, bankruptcy, customs, and secured transaction laws.
Implementing regulations for the Foreign Investment Law, which are
crucial to enforcement, were approved on October 10, 2005. The
reliability of unofficial translations varies considerably, which
can create an environment of uncertainty and ambiguity among foreign
investors. Application of Lao law remains inconsistent and
knowledge of the laws themselves is often limited (especially
outside the capital). The existence of a large number of government
decrees, sometimes unpublished, further complicates the situation.
While the trend under the current government is towards more
openness and more accountability, investors are cautioned to
recognize that economic and legal reform remain a work in progress.
17. Projects funded by the Australian government, the EU, the U.S.,
and the UN Development Program to assist Lao accession to the World
Trade Organization (WTO) include components aimed at bringing Lao
commercial law into conformity with WTO standards. A commercial
court was established during 2003, and began to hear cases in 2005.
The Lao Bar Association was set-up in 2007.
18. Laos has no anti-trust statutes. The bankruptcy law permits
either the business or creditor the right to petition the court for
a bankruptcy judgment, and allows businesses the right to request
mediation. There is no record of foreign-owned enterprises, whether
as debtors or as creditors, petitioning the courts for a bankruptcy
judgment.
--------------
PERFORMANCE REQUIREMENTS AND INCENTIVES
--------------
19. Laos does not impose performance requirements per se. Foreign
investors are encouraged to give priority to Lao citizens in
recruiting and hiring. According to the foreign investment law,
foreign personnel can be hired, although they may not exceed ten
percent (10%) of the enterprise's total labor force. In the case of
skilled labor, or politically important projects, the Ministry of
Planning and Investment has confirmed that enterprises can hire over
10% foreign labor if necessary. Before bringing in foreign labor,
the enterprise must apply for work permits from the Ministry of
Labor and Social Welfare. A foreign personnel list must also be
submitted to the Planning, Monitoring and Evaluation Division of the
Department for Promotion and Management of Domestic and Foreign
Investment (DDFI).
20. Incentives for Foreign Investment: Laos grants incentives for
foreign investment depending on the sectors and zones of investment
promotion. The government defines promoted activities under Article
16 as follows:
1) production for export;
2) activities relating to agriculture or forestry, and agricultural,
forestry and handicraft processing activities;
3) activities relating to industrial processing, industrial
activities using modern techniques and technology, research and
development, and activities relating to the protection of the
VIENTIANE 00000063 030 OF 033
environment and biodiversity;
4) human resource development, skills development and public health;
5) construction of infrastructure;
6) production of raw materials and equipment to be supplied to key
industrial activities; and,
7) development of the tourism industry and transit services.
21. The Law on the Promotion of Foreign Investment:
http://www.undplao.org/whatwedo/bgresource/
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%
20Investment.pdf
describes geographic and tax incentives in articles 17 and 18.
22. Foreigners employed in Laos, including foreign investors, must
pay an income tax of 10 percent of their total income to the Lao
Government, unless they are citizens of a country with which the Lao
Government has signed a double taxation agreement. The United
States has no such agreement with Laos. The turnover tax is
scheduled to be replaced in 2009 with a Value Added Tax (VAT).
23. Foreign investors are not required to pay import duty on
equipment, spare parts and other materials used in the operation of
their enterprises. Raw materials and intermediate goods imported
for the purpose of processing and re-export are exempt from import
duties. Raw materials and intermediate goods imported for the
purpose of import substitution are also eligible for import duty
reductions on a case-by-case basis. On an individual basis, foreign
investors are also eligible for profit tax and import duty
reductions or exemptions, if the investment is significantly large
or determined to have a significant benefit to Laos' socio-economic
development. To date the Lao Government appears to have honored its
incentives. Annual business license renewal is contingent upon
certification that corporate income taxes have been paid. The tax
code was streamlined and simplified in April 2005, but some
investors still report significant difficulties in obtaining tax
certifications in a timely manner.
24. The Foreign Investment Law stipulates that foreign investors
and their families, including foreign professionals and foreign
employees of an enterprise, shall be facilitated by issue of
multiple entry visas and, if approved by the government, long term
residence in the Lao PDR. They also, in theory, have the right to
apply for Lao nationality in accordance with the Law on Nationality.
--------------
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------
25. The government recognizes the right of private enterprise
ownership, and foreigners may transfer shares of a foreign-invested
company without prior government approval. However, the business
law requires that all shareholders be listed in the articles of
association, and changes in the articles of association of a
foreign-invested company must be approved by DDFI-Ministry of
Planning and Investment (MPI) , per the Enterprise Law
http://www.moc.gov.la/default.asp. Thus, transferring shares in a
foreign-invested company registered in Laos does require the
indirect approval of the government (DDFI-MPI).
--------------
PROTECTION OF PROPERTY RIGHTS
--------------
26. Foreign investors are not permitted to own land. The
government grants long-term leases, and allows the ownership of
leases and the right to transfer and improve leasehold interests.
Government approval is not required to transfer property interests,
but the transfer must be registered and a registration fee paid.
This includes mortgage leases.
27. Secured interests in property are inadequately covered by the
Secured Transactions Law of 1994. Because the law offers no
instructions for the creditor to enforce security rights (the
creditor, for example, can only request repayment from the debtor),
the law favors the debtor. Moreover, since the Ministry of
Finance's registry system is not computerized, and cannot
cross-reference records, it is difficult to determine if a piece of
property is encumbered. Enforcement of a mortgage is further
complicated by the legal protection given mortgagees against
forfeiture of their sole place of residence.
28. Laos issued a trademark decree in January 1995. The National
Science and Technology Organization (NSTO),part of the Prime
Minister's Office, controls the issuance of trademarks on a
first-come, first-register basis. Applicants do not have to
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demonstrate prior use. There are currently over 18,109 trademarks
registered in Laos.
29. Laos became a member of the ASEAN Common Filing System on
patents in 2000 but lacks adequate personnel qualified to serve as
patent examiners. A draft decree on patents was sent to the Prime
Minister in February 2000 for approval and in 2002 the Prime
Minister's Office issued patent regulations. Since Thailand and
Laos have a bilateral Intellectual Property Rights (IPR) agreement,
in principle a patent issued in Thailand would also be recognized in
Laos.
30. Currently, no system exists to issue copyrights in Laos. Laos
became a member of the World Intellectual Property Organization
(WIPO) Convention in January 1995 and the Paris Convention on the
Protection of Industrial Property in October 1998; it has not yet
joined the Bern Convention on Copyrights, however. Although WIPO
began to assist Laos in drafting an intellectual property law in
1996, a WTO-compliant law has not yet been implemented. In December
2007 the National Assembly approved a law the Lao government claims
will cover its U.S. Bilateral Trade Agreement (BTA)
responsibilities, as well as be WTO compliant. An English
translation sponsored by the U.S. Government is currently being
finalized. Overall, there is currently little protection for
intellectual property rights in Laos, although the authorities have
taken steps to crack down on some pirated goods.
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TRANSPARENCY OF THE REGULATORY SYSTEM
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31. The principal laws, regulations, decrees and guidelines
governing international trade and investment, as well as the current
protection of intellectual property, are available to the public,
although not all have been officially translated into English. Laws
and their schedules for implementation are customarily published in
Lao daily newspapers, and relevant line ministries are beginning to
put laws and regulations on websites. The website for UNDP Laos
maintains a partial list of translated Lao laws:
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php
Laws can also be found via the following websites. Laws on the
National Assembly website represent the officially approved English
translations:
http://www.na.gov.la/index.php (look under legislation on the left
side);
http://www.poweringprogress.org/ index.php?option=com_
content&view=
index.php?option=com _content&view=article&id= 242&Itemid=109
http://www.moc.gov.la/gioithieuAP.asp
In addition, implementation of the budget law commenced with the
restructuring of the Ministry of Finance (MoF) via Prime Ministerial
Decree Number 80 of February 28, 2007. In September 2007, the Prime
Minister issued Order No 35 instructing the MoF to move ahead with
centralization of customs, tax and treasury departments. In January
2009 the Government introduced a Value-Added Tax (VAT). Full
implementation of the tax is likely to take a number of years.
32. A lack of transparency in a centralized decision-making
process, as well as the difficulty encountered in obtaining
information, augment the perception of the regulatory framework as
arbitrary and inscrutable. There have been reports that the
government has recently begun discussing some proposed laws and
regulations with the business community, and acted upon the advice
given, before making final decisions. The Lao Tourist Association
has repeatedly urged the Lao government at the "Lao Business Forum,"
a business-government meeting sponsored by the Lao government and
the International Finance Corporation (IFC),to discuss proposed
laws with industry prior to implementation.
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EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
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33. Laos does not have a developed capital market. Three-month
treasury bills are occasionally offered for sale when there is a
need to absorb excess liquidity in the economy. The largest
denomination of currency is 50,000 kip (about US$5). Credit is not
available on the local market for large capital investments,
although letters of credit for export can sometimes be obtained
locally. International reserves fluctuate, with the latest
available 2007 data showing sufficient coverage for 5 months of
imports and numbering $485 million.
34. The banking system is under the supervision of the Bank of Lao
PDR, and includes:
* three state-owned commercial banks: Banque pour Le Commerce
Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion
Bank;
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;
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* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai
Military and Ayoudhiya Banks whose activities are mainly limited to
providing services to local Thai businesses;
* one Vietnamese bank: Sacombank
* five private banks (3 foreign and two domestic): Malaysia - Public
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the
Association of Cambodia Local Economic Development Agencies (ACLEDA)
Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao
Bank
one representative office: Standard Chartered Bank.
35. A new banking law passed in 2006 allows private foreign banks
to establish branches in all provinces of Laos. (Previously,
foreign banks were permitted to establish branches only in
Vientiane.) The Commercial Bank Law is available on the Bank of Lao
PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has
correspondence arrangements with the following banks (US dollars):
JP Morgan Chase Bank, New York
Citibank, New York
Wachovia Bank, New York
American Express Bank, Ltd., New York
HSBC Bank, New York
Standard Chartered Bank, New York
Barclays Bank Plc., London
Credit Suisse First Boston, Zurich
Bank of Tokyo-Mitsubishi, Ltd, Tokyo
Natexis Banque Populaires, Singapore
Standard Chartered Bank, Singapore
Bank for Foreign Trade of Vietnam, Hanoi
TMB, Bank Public Co, Ltd, Bangkok
Bank Thai Public Co. Ltd. Bangkok
Calyon, Bangkok
Sumitomo Mitsui Banking Corporation, Tokyo
36. The Lao banking sector is in flux, with new private and foreign
banks opening to provide modern banking options to Lao and foreign
businesses. While continuing to receive outside assistance, central
bank supervision of the sector remains somewhat weak. Although
non-performing loans have decreased significantly since 2003,
through work-outs, write-offs, and transfers off balance sheets, the
three state-owned commercial banks (SCBs) remain, according to
official estimates, insolvent. For detailed information see the IMF
Article IV report:
http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf
The Asian Development Bank has provided both program loans and
technical assistance to Laos' financial sector, as have the World
Bank and the IMF. These programs have led to some reforms but
overall capacity within the governance structure remains weak and
the banks face many challenges.
The Government of Laos is planning to open a stock exchange in 2010,
with technical assistance provided from the South Korean
government.
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POLITICAL VIOLENCE
--------------
37. Laos is generally a peaceful and politically stable country.
The remnants of an insurgency occasionally carry out small-scale
attacks on government personnel and civilians. Foreign persons are
not deliberately targeted, but visitors are advised to use caution
when traveling in remote districts.
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CORRUPTION
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38. The Prime Minister's Office has made combating corruption a
priority, including issuance of an anticorruption decree in November
1999, but corruption remains a problem. Although the 1999 decree
specifically notes the responsibility of the state-owned mass media
in publicizing corruption cases, there has been no reporting on this
issue. In 2005, an anti-corruption law was passed by the National
Assembly. According to the State Inspection Authority, the Lao
Government has prosecuted some individuals for corruption but it
cannot publicize the information. The State Inspection Authority,
located in the Prime Minister's Office, is charged with analyzing
corruption at the national level and serves as a central office for
gathering details and evidence of suspected corruption.
Additionally, the State Inspection Department in each Ministry is
responsible for a ministry's internal problems.
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39. Laos is not a signatory to the OECD Convention on Combating