Laos VAT, GST, and Sales Tax

Lao, People’s Democratic Republic of

Vientiane GMT +7

Ernst & Young Lao Co., Ltd

23 Signha Road Kolao Tower I, Level 6 Nongbone Village Saysettha District Vientiane Capital, Lao PDR Vientiane

Indirect tax contacts

Quoc B. Luu +856 21 455 077 quoc.b.luu@la.ey.com

Nhung Thi-Hong Nguyen +84 24 3211 6663 (resident in Hanoi, Vietnam) nhung.hong.nguyen@vn.ey.com

Huong Vu +84 24 3211 6662 (resident in Hanoi, Vietnam) huong.vn@vn.ey.com

A. At a glance

Name of the tax

Local name

Value-added tax (VAT)

Date introduced 6 August 2018

Trading bloc membership Association of Southeast Asian Nations (ASEAN)

Administered by Ministry of Finance (http://www.mof.gov.la)

VAT rates

Standard 7% Other Zero-rated (0%) and exempt

VAT number format

Tax ID Number – 999999999 (12 digits)

VAT return periods Monthly

Thresholds

Registration Mandatory None Voluntary LAK400 million

Recovery of VAT by non-established businesses No

B. Scope of the tax

VAT applies to the following transactions:

• Supplies of taxable goods and services in the People’s Democratic Republic of Lao (Laos) in the course of a business by a taxable person

• Imports of taxable goods into Laos, regardless of the status of the importer

• Supplies of taxable goods and services in Laos from non-established suppliers

• Export of taxable goods and/or services by a taxable person

C. Who is liable

There is no VAT registration threshold in Laos. A taxable person must register for VAT for any taxable activity carried out. This means that all businesses (which covers individuals, legal enti ties and organizations) engaged in supplies of goods or services subject to VAT (including importing goods and/or services) are required to register for VAT in Laos. This also means those who purchase taxable goods and services from non-established or established businesses in Laos are liable to register and account for VAT. In principle, this only applies if the recipients of goods and services are a legal entity. This also means they can claim any input tax incurred (such importation VAT).

Exemption from registration. The VAT law in Laos does not contain any provision for exemption from registration.

Voluntary registration and small businesses. While there is no VAT registration threshold in Laos, it is possible for a taxable person who is not required to register for VAT under the VAT law in Laos (e.g., because it makes supplies within the scope of VAT, but its turnover is lower than the voluntary registration threshold, which is LAK400 million) to register for VAT on a voluntary basis (e.g., because all its supplies are made to other businesses and it wants to recover input tax on its purchases).

Small businesses may register for VAT voluntarily if their annual revenue exceeds LAK400 million. A business may also voluntarily register for VAT in advance of making taxable supplies if its supplies are expected to exceed LAK400 million.

Group registration. Group VAT registration is not allowed in Laos.

Non-established businesses. Non-established businesses do not have a requirement to register for VAT in Laos. This only applies to business-to-business (B2B) supplies, and not business-toconsumer (B2C) supplies.

The withholding VAT mechanism (at 7%) will apply on supplies made by non-established busi nesses to local business customers (B2B) in Laos. The local business customer will withhold and pay the VAT to the Laos tax authorities on behalf of non-established business.

For supplies made by non-established businesses to local private customers in Laos (B2C), the non-established business must register for VAT in Laos, via a local agent, representative office or subsidiary, and account for VAT on its supplies.

Tax representatives. Tax representatives are not required in Laos. However, the definition of a “tax representative” in Laos excludes local agents that are required to be registered and account for VAT in Laos on behalf of a non-established business making B2C supplies.

Reverse charge. VAT is charged via the reverse-charge mechanism, on services provided by nonestablished businesses, specifically “foreign contractors” who apply the foreign contractor (FCT) declaration under the deemed method. Upon making payment, the local taxable person must withhold the FCT amount (including VAT and corporate income tax). The FCT shall be declared and paid to the tax authorities within 15 working days from payment date. The Laos reversecharge mechanism is the same as the withholding VAT mechanism (see the subsection above Non-established businesses). Withholding FCT is the total of the withholding VAT and withholding CIT.

Domestic reverse charge. There are no domestic reverse charges in Laos.

Digital economy. Local taxable persons that supply digital services in Laos are liable to charge VAT on the services provided. It is considered as a general provision of services where the VAT liability will be triggered upon the receipt of services at the standard rate.

Nonresident providers of electronically supplied services for business-to-business (B2B) and business-to-consumer (B2C) supplies, need to register and account for VAT on supplies made in Laos, otherwise the VAT will be withheld by the payment services provider. For B2B supplies, if the nonresident provider does not register and account for VAT, the customer is required to withhold, declare and pay VAT on behalf of the service provider at the standard rate. The VAT due is withheld by the payment services provider.

For B2C supplies, if the nonresident provider does not register and account for the VAT due, the individual customer must pay directly to the nonresident provider and withhold VAT 7% on the payment. The VAT due is withheld by the payment services provider.

At the time of preparing this chapter, no specific guidance/regulations have been issued on the registration rules for nonresident providers of electronically supplied services. As such, this means that currently in practice, the withholding VAT mechanism is applied for nonresident providers operating in Laos.

There are no other specific e-commerce rules for imported goods. This means that VAT is paid for imported goods upon customs clearance.

Online marketplaces and platforms. For e-commerce businesses, the sale of goods via an online platform or marketplace by a taxable person is considered as a general sale of goods, where the VAT liability will be triggered upon the receipt of services/goods. The owner of the goods is the supplier (i.e., the taxable person, which can be a private individual or legal entity). If the sup plier is an established legal entity, then it is required to register and account for the VAT due on the supply. If the supplier is a nonresident, then there is no requirement to register and account for the VAT due. Instead, the customer or owner of the online platform or marketplace is required to account for the VAT due by withholding the VAT due on the payment and pay the VAT to the tax authorities. The VAT due is withheld by the payment services provider.

Registration procedures. For a newly established business that has completed the incorporation procedures and received an enterprise registration certificate and enterprise number, the tax identification number will be shown on this certificate and tax system server. No separate VAT registration procedures are required.

The relevant registration officer/authorities must notify the local tax authority where the newly established business is located.

The application for newly established businesses must be submitted by paper and include the following documents:

• Enterprise registration request form

• List of investors/shareholders and identification documents of such investors/shareholders

• Decision (i.e., the minutes of the meeting or announcement of shareholder on the new enter prise establishment) on enterprise establishment

• Rental contract of office where the enterprise located

• Investment license for foreign investor as stipulated under Investment Promotion Law.

The outcome of the registration application will be sent to the applicant within 10 working days from the submission date.

Deregistration. A taxable person can revoke its VAT registration number in Laos (i.e., deregister) only when it ceases its taxable activities in Laos. After it has paid all its outstanding tax liabilities, it can apply to revoke its VAT registration number.

The taxable person must inform the relevant government bodies and the tax authorities on its decision to revoke its VAT registration number. It will need to complete a tax inspection from the tax authority before it can deregister from VAT. After the tax inspection has been completed, and

the taxable person has paid any outstanding VAT due (if any), the tax authority and other relevant government bodies will issue the notice on the deregistration.

Changes to VAT registration details. If there is a material change in a taxable person’s VAT regis tration details, it must notify the tax administration within 15 days of the event. Material changes may include:

• Change to the number of branches

• Change to the amount of capital registered to the taxable person

• Change to business address

• Change to business name

• Change to business activities carried out by the taxable person

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero rate.

The VAT rates are:

• Standard rate: 7% (decreased from 10% to 7% with effect from 1 January 2022)

• Zero rate: 0%

The standard rate of VAT applies to all supplies of goods and services, unless a specific measure provides for the zero rate or an exemption.

Examples of goods and services taxable at 0%

• Exported goods and services, including goods and services sold to overseas organizations or individual outside Laos

• Construction and installation carried out overseas or supply of goods/services within special economic zone

• International transportation

The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Agriculture products, animals and animal products

• Fertilizer, agricultural processing industrial, bio-fertilizer, chemical fertilizer, pesticide for plants and animals

• Equipment and machinery use for agriculture activities

• Study textbooks, teaching methods, modern equipment that is used for learning and teaching

• Newspapers, political magazines, television programs, radio programs that work for publishing government’s political policies with no business purpose

• Education activities, such as children centers, kindergartens, primary and secondary schools, vocational schools, vocational training centers, colleges and universities, sport and gymnasium centers

• Deposit interest, loan interest, income from money transfer, gain on foreign exchange or other financial activities from the operation of commercial bank or finance institution as approved by the bank of Laos

Option to tax for exempt supplies. The option to tax exempt supplies is not available in Laos.

E. Time of supply

In Laos, the general time of supply rule for goods (i.e., the basic tax point), is when the ownership or use rights of the goods are transferred, regardless time of payment is made.

For services, the general time of supply rule (i.e., the basic tax point) is when the service is completely performed or when the VAT invoice is issued, regardless time of payment is made. This is because there are two ways to determine the gerneral time of supply rule. This depends on the nature of service being provided and the agreement between both parties involved in the transaction. For example, this can be the completion of the service or based on service progress (30%, 50%, etc.).

For the services provided by non-established business, the general time of supply rules is when the payment to non-established business is made.

Deposits and prepayments. For deposits and prepayments, the tax point is when the deposit/prepayment is made with the requirement for an invoice to be issued.

Continuous supplies of services. There are no specific time of supply rules in Laos for supplies of continuous supplies of services. As such, the general time of supply rules apply (as outlined above).

Goods sent on approval for sale or return. There are no special time of supply rules in Laos for supplies of goods sent on approval for sale or return. As such, the general time of supply rules apply (as outlined above).

Reverse-charge services. Reverse-charge services relate to foreign contractors who apply the foreign contractor tax (FCT) declaration under the deemed method. Upon making the payment, the Laos company shall withhold FCT then declare and payment on behalf of the foreign contrac tor. Withholding FCT is the total of the withholding VAT and withholding CIT.

Leased assets. The tax point for the supply of leased assets is upon the receipt of the rental fee or the issuance of an VAT invoice (whichever is earlier).

Imported goods. The tax point for imported goods is the date of importation, and at this point the VAT must be declared and paid.

F. Recovery of VAT by taxable persons

A taxable person may recover input tax, which is VAT charged on taxable goods and services supplied to it for business purposes, to the extent that costs corresponding to the input tax are for sales that are subject to VAT.

A taxable person generally recovers input tax by deducting from output tax, which is VAT charged on supplies made. If the input tax exceeds output tax due, this excess tax can be claimed as a refund.

A valid standard tax invoice or customs document must generally accompany a claim for input tax.

There is no time limit for reclaiming input tax from a previous period according to the VAT law. However, in practice, the tax authority may not accept a backdated input tax claim if the reclaim ing input tax is over one year, as it may prove difficult for reconciliation purposes and tracking the supplies and relevant documentations, etc.

Nondeductible input tax. In general, input tax may not be recovered on purchases of goods and services that are not use for business purposes (for example, goods acquired for private use). In addition, the input tax may not be recovered if the purchases are not supported by sufficient documents (e.g., VAT invoice, contract, payment documents).

Examples of items for which input tax is nondeductible

• Purchases used for nonbusiness purposes

• Entertainment or similar expenses

• Business gifts

• Laptops, tablets, telephones

• Purchase, lease or hire of benefits in kind (such as employee accommodation or personal cars)

Examples of items for which input tax is deductible (if related to taxable business use)

• Advertising/marketing services

• Purchase of raw materials, goods, fixed assets

• Payment for rental fees, electricity

• Attending conferences and seminars

• Purchase, lease or hire of cars, vans or trucks

• Maintenance and fuel for vans and trucks

• Business travel expenses

Partial exemption. Where a business makes supplies of taxable and nontaxable goods and ser vices, the input tax should be recalculated/proportionated to reflect the percentage of supplies that are taxable, to calculate the amount of input tax that can be recovered. Taxable persons must maintain separate accounts for taxable and nontaxable input tax.

If no separate accounts are maintained by the taxable person, the deductible input tax calculation must be calculated based on the ratio of the proportion of taxable revenue compared with total revenue.

Approval from the tax authorities is not required to use the partial exemption standard method in Laos. Special methods are not allowed in Laos.

Capital goods. In Laos, capital goods are defined as tangible fixed assets, such as buildings, vehicles, machines, equipment, etc. Under Laos VAT law, when capital goods are purchased, the input tax incurred can be deducted in full (subject to partial exemption). However, if the capital good purchased was a building, only up to 70% of the input tax incurred can be deducted, the remaining 30% is recorded as the value of the building.

There are no specific rules for capital goods in respect of time and duration of use.

Refunds. Businesses that pay VAT due using the “tax credit method” are eligible to claim a refund of input tax, where the input tax is not deducted all within three months from the month the VAT occurred. The “tax credit method” is the net amount between output and input tax. The input tax must be claimed on a monthly basis. Where the input tax has not all been deducted within three months, the taxable person can request a general VAT refund for the excess amount.

If the amount of input tax credits in a period exceeds the output tax in the same period, the excess amount is refundable. In general, refund claims must be made at the end of the year. However, certain taxable persons may claim refunds on a monthly basis. The Laos tax authorities conduct audits to ensure the validity of VAT refund claims. The tax audit must be concluded within one year after the date of the request for a refund.

Pre-registration costs. Input tax incurred on pre-registration costs in Laos, is not recoverable.

Bad debts. Output tax accounted for on supplies that do not get paid by the recipient (i.e., bad debts) can be recovered in Laos. To claim the bad debt, the output tax must have already been written off as an expense and as a provision for bad debts.

Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in Laos.

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses in Laos is not recoverable.

H. Invoicing

VAT invoices. A standard VAT invoice for all taxable supplies (goods, services, including exports) made must be provided by taxable persons.

The invoice can be presented in the following three forms:

• Purchase from tax authority: wholly printed and provided by tax authority

• Self-printing invoice: produced by a printing house by order to tax authority or of taxable per son

• Electronic invoice: must be created, issued and processed on computer; program of taxable person under Laos law and must get approval from tax authority in advance

Credit notes. Credit notes are not available in Laos. Any adjustment or cancellation to a supply must be reflected by way of an adjustment of the original invoice. If it concerns a return of goods, the customer is required to issue an invoice to the supplier (for B2B supplies only); or the sup plier must issue a memo on cancel of the original invoice and adjust its VAT return in the follow ing period. In case an issued invoice is incorrect before it is sent to the customer, the supplier must cross out the copies, keep the incorrect invoice and reissue the correct invoice.

Electronic invoicing. Electronic invoicing is allowed in Laos, but not mandatory. Electronic invoicing is available for all taxable person in Laos with effect from 1 January 2020. However, at the time of preparing the chapter, there is no specific guidance on electronic invoicing issued by the tax authority. As such, there are no details published on the mandatory conditions, design, information required to be reported, programs to be used, reporting, etc. Hence at this stage, in practice, for a taxable person to issue invoices electronically in Laos, an approval must be obtained in advance (on a case-by-case basis) from the tax authority

Simplified VAT invoices. Simplified VAT invoicing is not allowed in Laos. As such, full VAT invoic es are required.

Self-billing. Self-billing is not allowed in Laos.

Proof of exports. Exports of goods and services are subject to VAT at the zero rate. However, to zero-rate the supply of exports, such supplies must be supported with evidence that the goods were exported outside of Laos. Valid evidence of export includes full VAT invoice, customs declaration, contract, bill of lading and others payment documents.

Foreign currency invoices. For supplies invoiced in a foreign currency, the amounts must also be reported in the domestic currency, which is the Lao kip (LAK). The official exchange rate, issued by the Laos Central Bank on the date on which the VAT invoice is issued, must be used to convert the currency.

Supplies to nontaxable persons. There are no special invoicing rules for supplies to nontaxable person in Laos. As such, full VAT invoices are required.

Records. In general, a taxable person must keep and maintain tax records (e.g., tax returns, tax calculations, tax payment documents); invoices and others supporting documents. These shall be kept locally in the country.

Record retention period. All accounting data, accounting books and financial statements must be kept for 10 years in good condition and be available upon request for inspection by the tax authority.

Electronic archiving. Records can be kept and archived electronically. However, in the event of a tax audit or other dispute process, the tax authority may request the original hard copy of the records/documents, and only VAT invoices are acceptable as a printout of electronic form.

I. Returns and payment

Periodic returns. All taxable persons are required to file VAT returns on a monthly basis in Laos. The deadline for monthly VAT returns is the 20th of following month.

There is currently no requirement in Laos for the VAT to be reconciled and finalized with the tax authorities on an annual basis.

Periodic payments. The VAT payable, if any, must be settled before the submission deadline of the monthly VAT return, i.e., by the 20th of following month. Payments must be made electroni cally online, via the website of the tax authorities (i.e., internet banking or bank transfer).

Electronic filing. Electronic filling is mandatory in Laos for all taxable persons. The taxable person must submit the VAT return and payment via the website of the tax authorities (http://taxservice. mof.gov.la/websquare/websquare.do).

Payments on account. Payments on account are not required in Laos.

Special schemes. No special schemes are available in Laos.

Annual returns. Annual returns are not required in Laos.

Supplementary filings. No supplementary fillings are required in Laos. However, in case the tax declaration dossier (e.g., the VAT return, and in addition tax calculations and tax payment docu ments, etc., which are only required to be submitted upon request) submitted to the tax authority is erroneous or inadequate, supplementary documents may be provided within 10 years from the deadline for submission of the erroneous or inadequate tax declaration dossier, but before the tax authority announces a decision on tax documents examination.

Correcting errors in previous returns. Taxable persons can correct information recorded in the VAT return by amending the VAT return in following month. Taxable persons can submit a supplementary VAT return (e.g., the previous tax return, a letter outlining the reason(s) for the error and adjustment(s), previous calculation) to correct the previous return to tax authority. Depending on the size and scale of the error, a penalty ranging from LAK500,000 to LAK1 million may be charged.

Digital tax administration. There are no transactional reporting requirements in Laos.

J. Penalties

Penalties for late registration. If a taxable person registers late for VAT, penalties may be imposed on the supplies of taxable goods and services made before the date of registration. The penalty for late registration is LAK1 million.

Penalties for late payment and filings. Interest is charged for the late payment of VAT at 0.1% per day the payment is late.

For late filling, the penalty LAK500,000 per late filing will apply.

Failure to notify, or late notification to the tax authorities of changes to a taxable person’s VAT registration details may result in a penalty of LAK3 million. For further details, see the subsec tion above Changes to VAT registration details.

Penalties for errors. A penalty, charged at the rate of 50% of the VAT base amount, is imposed for any additional VAT payable that was misreported and underpaid.

Penalties for fraud. The definition of fraud under Laos VAT law includes not providing support to the tax authority or providing incorrect documents, providing information not clearly and/or incorrect. In such cases, a penalty of LAK1 million will apply.

Personal liability for company officers. In general, company officers are not personally liable for the company’s tax violations, unless criminal intent is detected. It is reviewed on a case-by-case basis, and it will depend on the seriousness of the violation, assessment by the relevant authorities (e.g., the tax authority, police) and applicable laws.

Statute of limitations. The statute of limitations in Laos is three years. Tax authorities can go back to review tax returns and collect VAT within three years from the date the taxable supplies are made. There is no specific time limit for taxable persons to voluntarily correct errors in previous VAT returns. However, in practice, taxable persons are advised to correct any errors before the tax inspection is carried out.