2014 04 November

Lao PDR updates and amendments

#Laos #Legal #Legal & Tax Update


Recently several notifications and amendments have been issued in the Lao PDR:

  • Amended Law on Enterprises (“2013 Enterprise Law”)
  • Notification on Importation of Materials, Products and Objects (“Notification 06068”) 
  • Notification on Condition and Document Completion for the Establishment of Financial Leasing Company (“Financial Leasing Company Notification”)
  • Decision on Forward Contract for the Sale-Purchase of Foreign Currency (“Decision 619”)

1) Amended Law on Enterprises
The National Assembly adopted an amended Enterprise Law (No. 46/NA, 26 December 2013), effective 17 September 2014 (“2013 Enterprise Law”) which repeals Enterprise Law No. 11/NA (“2005 Enterprise Law”). A couple noteworthy articles follow.

Enterprise Registration Certificate (“ERC”). An ERC must not be transferred to other individuals or legal entities for use. Violators are liable for all the acts of the individual/entity using the ERC rights. Business operations performed by the individual/entity misusing the ERC are illegal and the transferor is subject to a fine. The interests of a creditor of an unregistered individual/entity using the ERC, however, are protected if their transaction was concluded in good faith.

Joint-Companies. Establishment of joint companies under the 2005 Enterprise Law applied when both State and non-State investors each held 50% of the shares. The 2013 Enterprise Law provides that a joint company is an investment between the State or a State Enterprise and non-State investors and the amount of capital from State investors is decided as agreed by the parties.

2) Notification on importation of materials, products and objects for processing and modification to become the finished product, semi-finished product and re-export (No. 06068/MoF.CD, 27 August 2014) (“Notification 06068”)

The Ministry of Finance passed Notification 06068 to guide the implementation of the Customs Law (No 04/NA, 20/12/2011) by the Heads of International Customs Checkpoints throughout the country with respect to re-exportation of goods. To increase satisfaction by offshore customers with respect to goods which are imported for processing or modification, importers must follow a strict procedure. An importer must: (i) complete a customs declaration in accordance with the temporary importation regime; (ii) have an importation or production plan as authorized by the relevant authorities; and (iii) submit a security deposit of 120% of the importation value or a letter of guarantee from a financial institution or bank. The importer will receive customs fee and tax exemptions for 6 months. Additional conditions apply if the 6 month period cannot be achieved by the importers.

3) Notification on Condition and Document Completion for the Establishment of Financial Leasing Company (No 1038/BOL, 24 July 2014) (“Financial Leasing Company Notification”)

Supplementary to the Decree on Leasing (No. 11/PM, 18 February 1999) (“Leasing Decree”), the Bank of Lao PDR (“BOL”) published a Notification providing the requirements to operate a financial leasing business or expand a branch of a leasing company in Lao PDR.

Establishment of a Leasing Company. The Financial Leasing Company Notification sets forth additional requirements to the Leasing Decree’s basic requirements to establish a leasing company on shareholding and organizational structure. In addition to these requirements, foreign investors must: (i) pay up to ten percent (10%) of the total capital if partnering with a local shareholder; (ii) submit a bank statement certifying capital sufficiency and (iii) provide an authorization from the relevant authority of the foreign investor’s country. The Notification also sets out requirements for branch expansion of a leasing company.

This notification repeals Notification No. 158/FISD, 17 February 2012.

4) Decision on Forward Contract for the Sale-Purchase of Foreign Currency (No. 619/BOL, 14 August 2014) (“Decision 619”)

The Bank of Lao PDR (“BOL”) published Decision 619, effective 14 August 2014, which determines the process and conditions to sell and purchase foreign currency under forward contracts and applies to financial transactions provided by open-market operators, banking sector operators including commercial banks, branches of foreign commercial banks and currency exchange agencies.

Foreign Currency and Exchange Rate. Decision 619 specifies the type of the foreign currency authorized to conclude forward contracts and provides that the exchange rate is determined in three different ways depending on the Forward Contract parties:

  • BOL and open-market or inter-bank market operators: the BOL determines the exchange rate.
  • Open-market or inter-bank market operators: based on mutual agreement.
  • Commercial bank and business operators: commercial bank determines the exchange rate.

Conclusion of the Contract. Conclusion of Forward Contacts must be conducted each day through the interbank system. Forward Contracts between the open-market and inter-bank market operators or between commercial banks and business operators must be conducted in the form of an “Over-the-Counter Contract” or through electronic transfer and must be reported to the Monetary Policy Department of the BOL on a daily basis. Commercial banks, including branches of offshore commercial banks must formulate rules to conclude Forward Contracts in accordance with the Law on Commercial Banks (No. 02/PO, 16 January 2006) and the Presidential Edict on the Management of Foreign Exchange and Precious Metal (No. 01/PS, 17 March 2008) and must obtain BOL approval of these rules.

For further information on these notices, please contact our advisers:Rupert HawDanyel ThomsonSenesakoune Sihanouvong