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Sep 17, 2014

Foreign Investment Promotion in Laos


By Raymond Alikpala and Leeland D. Jones

As the dawning of the ASEAN Economic Community draws near, Laos stands as a member of one of the largest global free trade areas, which in 2013 had a combined GDP of approximately US$2.4 trillion. In February 2013 Laos became the 158th member of the World Trade Organization after meeting its membership requirements to pass a wide range of laws to bring the country in line with international standards.
 
In 1986, Laos established the New Economic Mechanism and began the process of opening up its economy and developing policies designed to usher in a liberalized market-oriented system. A key plank of the economic reforms was the passage of new laws, including “open door” policies, to attract foreign direct investment.
 
The most recent relevant law is the Law on Investment Promotion, No.02/NA (8 July 2009), which is the governing law on foreign investment. This law replaced the two previously separate 2004 laws on domestic investment and on foreign investment. The 2009 law introduced the “One Stop Service” units in the Ministry of Planning and Investment and the Ministry of Industry and Commerce, meant to facilitate the application process for foreign investors.
 
Under the Law on Investment Promotion, foreign investment is classified under four categories of economic activities, namely, (1) general, (2) concession, (3) special economic zone, and (4) specific economic zones.
 
In order to obtain an Investment License and register a foreign enterprise, an Investment Application Form must be submitted to the One Stop Service unit, along with the following documents: 
 
Articles of Association of the company;
Feasibility Study/Business Plan;
Investor’s Curriculum Vitae, Passport Copy, and six 3x4 photos;
Bank Statement/Financial Statement certifying investment solvency
Letter of Authorization/Power of Attorney/Board resolution authorizing the investment
 
Additionally, if a joint venture company is to be established, a Joint Venture Agreement must be submitted.
 
General activities are any business ventures that fall outside the scope of activities listed as concession activities. Foreign investment in a general business enterprise, in most cases, has an unlimited term and requires a minimum registered capital of at least one billion kip, which is roughly US$125,000.
 
Concession activities require significantly higher capitalization, and the list includes business ventures involving land development, natural resources, electrical power, aviation, telecommunication, insurance, financial institutions and infrastructure. Foreign investment in a concession activity must be authorized by the Lao Government in conformity with relevant industry regulations.
 
The term of a concession investment is determined on an individual basis considering such factors as the type, size, and monetary value of the project. The concession term can be up to 99 years and may be extended with the approval of the Government or provincial authorities, particularly when the project has promoted the general welfare of the country, contributed to the development of the local community, and considered a successful business.
 
All applications for concession activities are initially submitted and evaluated by the One Stop Service unit, then forwarded to the relevant Government authorities for further consideration. Factors to be considered include overall feasibility, inputs from relevant ministries, and whether the proposed project is consistent with government policy.
 
In addition to the Enterprise Registration Certificate to be issued to the investment, a separate Business Operating License will be issued by the relevant line ministry, such as the Ministry of Post, Telecommunications and Communication for telecommunication service activities.
 
Admittedly, the process is not perfect, and the timeframes provided under the law are not always followed. Delays are inevitable in a context of an emerging economy, but they should be seen as a necessary reflection of the Government’s careful review of all investment applications.
 
In December 2013 the National Assembly passed 14 new laws, including amendments of the existing laws on labor, taxation, and enterprise. The newly promulgated Law on Enterprise (Amended), No. 46 (26 December 2013) will become legally effective on 17 September 2014.
 
The continuing efforts of Laos to improve its laws and policies has fundamentally changed its economic landscape and stimulated national development. Laos stands ready to benefit from the ASEAN economic integration come 2015.
 
Sciaroni & Associates Laos
 
Since economic integration with ASEAN and the WTO, Laos has seen its economy grow steadily over the last ten years, with GDP growth reaching 8% in 2013. Most of the foreign investments are in mining and hydropower, with large sectors of the economy still underdeveloped. The Lao government has been pushing for diversification of its economy, thus offering unique business opportunities for investors. Strategically located, this landlocked country shares borders with five others—Cambodia, Vietnam, Thailand, Myanmar, and China—making business expansion in the region very convenient. Sciaroni & Associates, with its many years of local experience and keen insight into the particular cultures and societies, is well-placed to assist investors in maximizing their growth potential in the region. Sciaroni & Associates Laos seasoned legal advisors can assist with cross-border investments, market entry and the full range of legal and investment advisory services.
 
Sciaroni & Associates
 
S&A Asia, a leading legal and investment advisory firm serving Southeast Asia since 1993 with offices in Cambodia, Laos, and Myanmar, assists clients in understanding the complex business conditions in those markets while efficiently identifying and resolving issues following strict international ethical standards. Our firm provides experienced advice and seasoned business insights to many of the world’s leading companies, governments, economic think tanks, global development funds and international NGOs. For more information please visit www.sa-asia.com or contact us at info@sa-asia.com.
 

 
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Sciaroni & Associates is a leading professional and investment advisory firm doing business in Southeast Asia since 1993. Based in Cambodia with legal offices in Laos and Myanmar, we provide experienced advice and business insights to many of the world’s leading companies, governments, economic think tanks, global development funds, international NGOs and the Royal Government of Cambodia in accordance with strict international standards.
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