I. Overview of Laos
Lao PDR’s growth model has traditionally relied on the exploitation of natural resources, placing increasing pressure on the environment. Recognizing the limitations of this growth model, Lao PDR is focusing on reforms to support greener, more inclusive growth. This is important as 70 percent of the Lao population still depends on forests and waterways for income and nutrition. Many of the country’s poorest people, moreover, live in rural areas and are the most vulnerable to pollution, climate risks, and deforestation. The green growth agenda aims at improving local livelihoods by diversifying income sources and involving the private sector to spur market developments, for instance by promoting sustainable forest management and nature-based tourism.
Economic growth in Lao PDR has slowed over the past 5 years. Growth fell from 6.3 percent in 2018 to 4.8 percent in 2019 due primarily to natural disasters that affected the agricultural sector. The COVID-19 outbreak is expected to further intensify the country’s macroeconomic vulnerabilities, with limited fiscal and foreign currency buffers constraining the ability of the Government of Lao PDR to mitigate the economic impacts of the pandemic.
In the next few years, Laos needs more foreign exchanges for importation and the rise of trade deficit may lead to fluctuation of domestic exchange rate and forex reserve. The Ministry of Trade and Industry planned to take 6 actions to stimulate exportation, including increasing quality and quantity of agricultural products, raising efficiency of production and management, conducting training for enterprises, streamlining application procedure of export license and promoting SME development through e-commerce platform.
Laos mainly exports mineral products, electricity, agriculture products and handmade products. The major imports are industrial products, processed products, building materials, daily necessities and household appliances.
II. How to do Business in Laos
The Government promotes investment in all economic sectors, both domestic and foreign, by formulating policies to create a favorable investment climate, including construction of infrastructure, providing necessary information, customs and tax policies, labor, and the rights to land use; access to finance, equal treatment, promoting awareness and protecting ownership regarding use rights, usufruct rights, inheritance rights, transfer rights and other rights as provided by law.
The Government promotes the investment in all sectors, business operations and in areas throughout the country except for areas and business operations which are considered detrimental to national security, the natural environment, at present and in long-term, public health and national culture.
The Government also provides special incentives for Government’s prioritized sectors appropriately as set out in a separate regulation.
Investment in Laos consists of 2 types: General business and Concession investment
For General business consists of the following types:
1. Business activities under controlled business list One-Stop Service (OSS) Planning and Investment Sector (See Decree on The Endorsement of the [Business Activities under] the Controlled Business List and the Concession List of Lao PDR No.03/PM, Dated 10.01.2019);
2. Business activities outside controlled business list Industry and Commerce Sector. (See Decision on Enterprise Registration No. .0023/MOIC.DERM, Dated 9.01.2019);
For the Business activities outside controlled business list are businesses opened for general businesses and which may be file for enterprise registration and shall be authorized for operation according to the Enterprise Law and relevant regulations. Investors wishing to invest in general business not included in the controlled business list shall submit an application to industry and commerce sector authority for enterprise registration as set out in the Enterprise Law and other relevant regulations.
Enterprise registration is the acceptance of lawful enterprise establishment for both domestic and foreign individual and legal entity, which is established and carries out business operations in Lao PDR, which is a one-time registration that is valid throughout its operations.
III. Imports and Exports Prohibited
|Prohibition to import bullets and weapons
||Prohibition to import bullets and weapons of all kinds (except for explosives used in industries) and war vehicles
|Prohibition to export certain archeological objects
||Archeological objects including Buddha statues, angel statues and holy objects, national heritages with historical and cultural values of 50 years old or older are prohibited to export. If it is necessary to export such things, exporter shall present an application form to Ministry of Information, Culture and Tourism for consideration and recommendation to get approval from the Government of Lao PDR.
|Prohibition to export bat guano/manure
||It's prohibited for state agencies, enterprises, private sectors, and state enterprise to export bat guano/manure. If any local authorities, department, and/or enterprise is digging guano for export, such business must be stop right after this order is enforce. In case, the guano was excavated, and placed in the warehouse, the guano should be distributed to the production of within the country.
|Prohibition to import banknote paper, banknote ink, banknote printers and coin making machines
||Banknote paper, banknote ink, banknote printer and coin making machines are fall under the list of prohibited import goods.
|Prohibition to import prohibitied narcotic drugs.
||Opium, Opium balls, poppy seeds, Opium poppies, other finished and dried opium poppies made from coco leaves, marihuana in various forms, heroin, cocaine and their derivatives.
|Prohibition to import high dangerous chemicals (Type 1)
||chemicals of high-level danger used in industries are prohibited, except that it is approved by government. If it is necessary to import such goods, importers may present an application form to Department of Industry and Handicraft, MOIC
|Prohibition to import destructive fishing tools
||Destructive fishing tools is prohibited to import. If it is necessary to import Destructive fishing tools, importer shall present an application form to Ministry of Agriculture and Forestry for consideration and recommendation to get approval from the Government of Lao PDR. IF such tools are imported to sale at the market, it is considered illegal.
|Export Prohibition - Raw medicinal natural resource
||The raw medicinal natural resource is prohibited to export.
|Import Prohibition - Right Hand Steering Wheel Vehicle
||It is prohibited to import vehicle that has steering wheel on right hand side to be used permanently in Lao PDR
|Prohibition to export - Logs, trunk, bark, transformed timber
||Logs, trunk, bark, transformed timber (as indicated Annex 1 of Decision on Timber Product No. 2005/MoIC. DoIH, dated 28 September 2015) from natural forest is prohibited to export according to the government policy
IV. Import Tariffs
The Lao import tax system aims to promote imports of inputs for investment and production while protecting domestic production and limiting luxury imports. Certain foreign investments are not obliged to pay import duties on imports of capital machinery and equipment for production. Furthermore, in some SEZs, inputs do not require duties as long as the final product is exported from Laos. Raw materials and intermediate goods imported for import substituting industries can be accorded special treatment based on an incentive agreement.
The tariff nomenclature of Lao PDR, which is based on ASEAN Harmonized Tariff Nomenclature (AHTN 2012), observes standard ASEAN import tariff rates varying from zero to 40 percent, excluding non-ASEAN countries. These published rates are levied by the Customs Department.
Excise tax rates range from 5-90 percent on many goods. The Lao government phased out turnover taxes over the last several years and replaced those with a Value Added Tax (VAT) regime, though the VAT remains inconsistently applied. Additional tax information can be found at the Tax Department, Ministry of Finance.
V. Notes of doing business
1. Regulations of trade
Under the trade administration in Lao, different commodities have different regulations. For example, as to timber trade, wood log and converted timber are not allowed to export and only wooden manufactured goods can be exported; as to mineral products, the raw ore is not allowed to export unless its semi-finished products; as to medicinal materials trade, Rhubarb cane is not allowed to export before applying for quota to Lao government. In addition, products imported with aid-to-Laos and investment projects enjoy zero-tariff treatment during the project implementation period.
2. Pay attention to quality of product and service
Before doing business with Laos, trader should learn more about belief, custom, and climate of Laos. The effect of hot climate in Laos on the quality of commodities must be considered. Increase the competitiveness in stable supply and after-sales service.
3. Business etiquette
It is significant to have a Lao translator. Also, Laos is a Buddhist country, so foreign businessmen should respect local custom and rules.
Reference: 1. Chinese Ministry of Commerce Department of Outward Investment and Economic Cooperation
2. World Bank Group
3. Investment Promotion Department
4. Department of Import and Export MOIC
5. The International Trade Administration (ITA), U.S. Department of Commerce