Lao PDR is following the regional trend of taxing the activities of non-resident E-Commerce and digital platform service providers. In this client update, we provide the key features and our commentary on the Ministry of Finance’s Notification on the Implementation of the Tax Obligations of the E-Commerce and Digital Platform No. 0541/MOF, dated 24 February 2022 (“the Notification”).
The following are the key highlights of the Notification:
Non-resident E-Commerce and Digital Platform Service Providers
- Non-resident companies not registered in Lao PDR that provide E-commerce marketplace and digital platform services to users within Lao PDR (Lao PDR market), such as:
- provision of online movies, music, games, and applications, including YouTube, JOOX, TikTok, Humble, Zoom, CODASHOP;
- provision of Streaming, including NETFLIX, Apple TV+, Disney+;
- provision of advertisement, advertising media, including Facebook, Google;
- provision of booking of hotel, accommodation, travel, including Agoda, Booking.com, Airbnb;
- provision of being an intermediate between the buyers and sellers, including Shopee, Lazada.
- If a non-resident company has E-Commerce and digital platform services income from Lao users of more than LAK 400 million per year (approx. US$34,000), it must register for VAT in Lao PDR.
- Non-resident companies must register a Tax Identification Number (“TIN”) through the Ministry of Finance’s online service: TaxRIS: http://taxservice.mof.gov.la/websquare/websquare.do.
- A non-resident company must calculate and collect the VAT on the sale of goods and provision of services through an electronic channel from users within Lao PDR and file and pay the Output VAT without deducting Input VAT.
- The non-resident company must also calculate profit tax (corporate income tax) on income arising from Lao PDR following the OECD Regulation on E-Commerce and Digital Service Tax adopted from time to time. Then, file and pay the profit tax through the TaxRIS.
- The due date for filing and paying of VAT and profit tax for non-resident E-Commerce and digital platform providers is twice a year: by 20 July and 20 January of the following year.
- The Tax Department may, on request, ask the non-resident company to provide additional information about the E-Commerce and digital platform services that they provide.
Resident and Non-resident Individuals
- Individuals who are residents and non-residents of Lao PDR who have income from E-Commerce and digital platform services must register for a TIN, for individuals, with the relevant tax authorities or through the application PTIN to file and pay tax.
- Income of resident individuals from online sales, through E-Commerce channels, trading on E-Commerce marketplaces, the provision of E-Commerce marketplace services will be subject to income tax at 2% on total income (i.e., without the deduction of costs or expenses).
- Under the Notification, a non-resident E-Commerce or digital platform service provider is required to withhold income tax before making payments to individuals who are residents of Lao PDR and pay through the online TaxRIS.
Tax Filing and Payment of Income Tax
- E-Commerce service providers with regular sales in Lao PDR must file and pay income tax by the 20th of the following month.
- E-Commerce service providers with periodic sales in Lao PDR must file and pay income tax within 15 working days.
This Notification is effective for implementation from the date of signature (24 February 2022).
The issuance of Notification No. 0541/MOF on the taxation of E-Commerce and Digital Service Platform Service Providers comes as no surprise as we have seen other countries implementing similar rules for non-resident E-Commerce and digital platforms service providers.
Under the new rules, non-resident E-Commerce and digital platform operators must register through an online portal called TaxRIS for a tax identification number (“TIN”) and can file and pay their taxes. At this early stage, it is unclear how efficient the online TaxRIS portal is and if taxpayers may encounter any teething problems with the online portal as experienced in other countries in the region.
Non-resident E-Commerce and digital platforms service providers will be required to register for Value Added Tax if they have sales within Lao PDR of LAK 400,000,000 (approx. US$ 34,000) or more within a year. Under the Notification, Output VAT will be due on the sales within Lao PDR, but no Input VAT credits will be allowed for deduction. The first filing and payment date for non-resident companies will be 20 July 2022.
In addition to the VAT rules under the Notification, non-resident E-Commerce service providers are required to pay corporate income tax (profit tax). The Notification makes reference to the “OECD Regulation on E-Commerce and Digital Tax.” However, it is not clear precisely what the Ministry of Finance is referring to in the OECD literature and how it specifically applies to the profit tax of non-resident E-Commerce service providers under Notification 0541/MOF. We are clarifying this with the Tax Department.
Under the current Income Tax Law and its amendment, non-resident companies and service providers are taxed on a deemed profit basis by assuming a fixed profit margin of 15% for trading/commerce and services. Therefore, the effective profit tax rate applied to non-resident providers is 3%.
The profit tax may be exempt under a tax treaty that Lao PDR has entered into with another country. However, at the time of writing, Lao PDR has concluded only a limited number of tax treaties, including Singapore, Thailand, Malaysia, Vietnam, Korea, China, and Luxembourg. Lao has no tax treaties with the United States or Ireland.
Under the Notification, non-resident E-Commerce and digital platform service providers are required to withhold income tax of 2% when making payments to individuals who are residents of Lao PDR. It is, however, unclear what constitutes regular and periodic sales for the purposes of tax filing and payments from the Notification.
In addition, there do not seem to be any invoicing requirements for non-residents companies under the current Notification. But – the Notification does provide that resident E-Commerce companies are subject to specific invoicing requirements.
We note that Notification No. 0541/MOF deals with both non-resident and resident E-Commerce and digital platform service providers, however, for this update we have focused only on the implications for non-resident service providers.
We are currently discussing with the Lao Tax Department these latest tax developments and will be providing additional updates soon.
Tax services required to be undertaken by a licensed tax agent in Cambodia are provided by Mekong Tax Services Co., Ltd, a member of DFDL and licensed as a Cambodian tax agent under license number – TA201701018.