Laos explores excellent benefits from a business perspective due to its proximity to China, Vietnam, Cambodia, and Thailand. Being located near other leading Asian markets, Laos obtains regional access to a market of more than 1.5 billion people.
Setting up a business in Laos can benefit companies as the country has to offer low workforce low-cost. Laos is also well-known as one of the greatest politically stable countries due to its excellent financial and socio-economic stability. Hence, it is one of the safest countries to expand your business.
One of the most straightforward ways to enter the Laos market is to set up a subsidiary in the country. It requires fewer paper requirements and compliance with local rules and regulations.
The following guide discusses all you must know about setting up a subsidiary in Laos.
What are the Types of Subsidiaries in Laos?
Laos has several business entities, but the most common is the limited liability company.
Before setting up a subsidiary system in Laos, you should be aware of different types of subsidiaries which are as follows:
i. Limited Liability Company (LLC):
- Companies can set up this type of subsidiary with a minimum capital of USD.
- LLCs only permit shareholding within the entity.
- After setting up a limited liability company, you must appoint a board of directors who can make crucial decisions.
ii. Public Limited Company (PLC):
- This subsidiary requires three directors, seven shareholders, and a legal representative.
- The minimum capital investment needed for setting up this type of subsidiary is $125,000.
- PLCs can sell shares to the public.
iii. Wholly foreign-owned enterprise:
- As the name suggests, a wholly-owned enterprise is owned and operated by foreigners.
- It allows you to export goods manufactured in Laos.
How to Set Up Subsidiary in Laos?
The following steps will help you in setting up a subsidiary in Laos.
Step 1: Company name registration
- Apply for a name reservation certificate at the Department of Enterprise Registration and Management.
Step 2: Company registration
- Apply for an enterprise registration certificate (ERC).
- In this step, you require an established structure with directors, shareholders, and articles of association.
- An ERC outlines the details, including the company registration number, names of directors, and shareholders.
Step 3: Obtaining an operating license
- Once you register your enterprise, you can apply for an operating license from the ministry that works with your sector.
- Register for a tax identification number (TIN) with all your official documentation, which allows you to pay corporate taxes.
Step 4: Company signs approval
- You can apply for the company sign approval and create your company seal from the Ministry of Public Security.
Step 5: Register with the Social Security Fund
- Companies need to register themselves for social security funds.
Step 6: Open a bank account
- The last stage is to open a local bank account.
- Having a local Laos bank account helps companies to make company-related transactions and keep track of them.
Benefits of Setting Up a Laos Subsidiary
Setting up a subsidiary company in Laos presents certain unique benefits, and they are discussed below:
- Tax exemptions on imports wherein specifically listed items belong to a special quota are one of the key benefits that the Laos subsidiary obtains from Japan and the European Union. For investors, it means that products from Laos would be able to get access to global markets. This will be either imposed with quite lower traffic or tax-free.
- Investors and their families get multiple-entry business visas connected to the investment while establishing subsidiary business in Laos.
- Foreign investors get the protection of their intellectual property applicable under Laos laws.
- Foreign investors can redeem capital and profits after paying taxes, duties, and other fees as per Laos laws.
- In the banks in Laos, foreign investors can open Kip and foreign currency accounts.
Documents to Prepare When Opening a Subsidiary in Laos
Before submitting to the Ministry of Industry and Commerce (“MOIC”), companies must prepare the following documents to support an application for subsidiary incorporation:
- Articles of Association
- Board/Shareholders’ Resolution confirming the particular company establishment (includes the company name and registered capital), and hiring the shareholder’s representative(s) and the managing director of the particular company you want to set up.
- Contract of Incorporation (if multiple shareholders are involved)
- CVs of directors and legal representatives
Apart from the subsidiary’s incorporation documents, the foreign company must prepare other documents too. Companies must submit these documents to the Trade Register. The documents to be provided to the Lao Government while registering a company are as follows:
- Articles of Association
- Shareholders’ or joint venture agreement: This document is required when there is more than one company owner. It defines the voting processes, the obligation for financial input, dispute resolution, etc.
- Lease agreement: Companies must take out a lease over premises before registering the application.
- Bank statements demonstrating the foreign investor’s financial viability
- Personal details of the investor, including resumes, passport photos, and passport copies
- Based on each application’s circumstances, the government may request to check the employment contracts of the key employees.
- Business plan: It is a document stating the number of employees, the business operations, the expected training for Laos employees, etc.
- Contract of incorporation
- Specific form to be filled from the applicable registration authority (the Ministry of Industry and Commerce or its associated department, or the Ministry of Planning and Investment or the associated department).
- Proceedings on the establishment of the company
- Power of attorney
- Copy of the passport/identity card and photos of the company’s director(s) with their curriculum vitae
- Business plan
- Office location certificate
Note: The authorities can demand further documents if required.
What Business Forms can Laos Subsidiaries Take?
There are different legal business structures available that subsidiaries can take in Laos. Two of the most common forms of a subsidiary include:
- a public company (wherein foreigners can hold shares),
- a limited liability company
Depending upon the requirements and the business plan, companies can decide which form is best for them.
Subsidiary Laws in Laos
Laos subsidiary laws vary as per the type of business you intend to set up. For instance, LLCs require a minimum of one director and one shareholder, but PLCs require a minimum of three directors and seven shareholders. Irrespective of your business type, you will require articles of association. It is an official document that encompasses your company’s processes, from hiring directors to tracking finances.
Post Incorporation Compliance
Being part of the reporting obligations, the newly incorporated subsidiary has to provide details on the business’s progress during the 90 days of duration from its incorporation. The details include the importation of capital, application for licenses, and construction of factories.
Companies must submit this report within ten days after 90 days from the date of incorporation. Afterwards, incorporated subsidiaries established as per Lao law will have to present an annual report in the format mentioned by the enterprise registration authorities. This report validates the existence of the subsidiary and the result of operations in the preceding year. You must submit it at the end of the first quarter.
The compliance checklist for incorporation of foreign subsidiaries in Laos also includes the following:
- Get the certificate of incorporation from the Registrar of companies.
- Collect the unique company number
- Submit all the necessary details of the shareholders to the Registrar.
- Issue the share certificates to all the shareholders (if the subsidiary is a public company) after obtaining the subscription money from the subscribers.
- Hire an auditor for the company
Taxes on Subsidiaries in Laos
A subsidiary in Laos is subject to the following taxes:
i. Corporate income tax
All companies registered in Laos and foreign companies working in Laos are taxed at 24%. This applies only if companies are registered under the VAT system, irrespective of residency status.
ii. Personal income tax
Personal income in Laos is levied at a rate ranging from 0% to 24%. This is valid for Lao citizens, and expatriates obtaining revenues from Lao PDR or foreign countries irrespective of their employment and stay in Laos.
LAK 0 – 1,000,000 | 0% |
LAK 1,000,001 – 3,000,000 | 5% |
LAK 3,000,001 – 6,000,000 | 10% |
LAK 6,000,001 – 12,000,000 | 12% |
LAK 12,000,001 – 24,000,000 | 15% |
LAK 24,000,001 – 40,000,000 | 20% |
Above LAK 40,000,001 | 24% |
iii. Specific corporate tax
Companies registered in the Lao Stock Exchange get a 5% diminution of the income tax rate for four years. It is valid from the date of registration in the Stock Exchange.
Importers/manufacturers/suppliers of tobacco and related products must pay a tax of 26%. 2% of their taxes is offered to the Cigarette Control Fund.
iv. Value Added Tax (VAT)
The value added tax (VAT) is an indirect tax valid on products sold in Laos at a standard rate of 10%, except they get a special exemption from the Lao government.
Small-sized and medium-sized companies with a yearly revenue of less than LAK 12 million are not registered in the VAT system. Instead, they have to pay a cumulative tax ranging from 3% to 7%, based on the type of their business and the revenue amount.
Tax Incentives for Businesses Setting Up a Subsidiary in Laos
The Laos government provides several tax incentives to attract foreign investors to invest in the country. Some of these tax incentives include:
- In the last few years, the government in Laos has employed a value-added tax system to create the required public infrastructure development.
- The government has reduced its corporate tax rate and created special economic zones that provide generous tax incentives.
- Laos offers duty-free and VAT free-entry of spare parts and raw materials required in the production for export.
- The government imposes zero VAT on certain raw materials (other than natural resources) required for producing finished and semi-finished products for export.
Other Important Considerations
To set up a subsidiary system in Laos, companies must focus on residence permits, insurance, applying for any licenses (if needed), and registration with the federal tax administration.
You must pay application fees during each step in the process, from registering a subsidiary name to creating a subsidiary seal. The government may even need high investment capital for your subsidiary based on the circumstances of the relevant sector.
Usually, it takes 6-8 weeks to finish the registration process. However, the exact time may vary due to factors like finding or setting up an office to run the business. Various clearances and permits are required to set up an office. It takes time to draft your articles of association and find directors.
How Multiplier’s Employer of Record Helps You Hire & Expand in Laos
If you want to expand a business in any foreign country, it needs substantial time and investment. Adhering to a country’s labor rules and industry standards can take time and effort. You can conveniently utilize services from a third-party service company like Multiplier to establish a subsidiary system in Laos.
Multiplier looks after all the formalities, including payroll processing, onboarding talent, etc., while entering a new market; there is no need to set up an entity. Besides, Multiplier aids you in onboarding local and global talent while guaranteeing adherence to Laos’s regulations and labor laws.