Laos: Luxembourg becomes first EU member to sign tax treaty with Laos

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Laos: Luxembourg becomes first EU member to sign tax treaty with Laos

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Daniel Harrison

In an effort to avoid the double taxation of international income and thus promote foreign direct investment, Laos has concluded double taxation agreements (DTAs) with 12 countries to date – the most recent of which was with Luxembourg on November 4 2012, the first EU member to do so. The Laos-Luxembourg DTA is pending ratification, but it is understood that it will offer a maximum dividend withholding tax rate of 5% where at least 10% of the shares are directly held.

Of the 12 DTAs Laos has concluded, only eight are effective at the moment. Table 1 summarises the status of the various DTAs Laos has with other countries.

Other notable recent activity is the signing of a DTA with Indonesia in September 2012, and the completion of the negotiation process with Singapore – it is understood that the Laos-Singapore DTA is awaiting signing.

Other countries with which Laos is in the process of preparing for negotiations are Ukraine, Turkey, Portugal, Serbia and India, with the Legislation Division of the Tax Department studying drafts of the tax treaties.

Singapore and India are no doubt highly anticipated agreements, with many foreign enterprises in Laos operating through a head office located in Singapore, and the Laos government keen to encourage investment from India – one of the world's largest economies.

Table 2 outlines the current domestic withholding tax rates and the corresponding rates under the DTAs that are currently in effect.

Given Laos' already low withholding tax rates on royalties and service fees, none of the DTAs in effect offer any tax relief for Laos-sourced income of this nature.

However, notably, the China, South Korea, Brunei, Myanmar and Malaysia DTAs offer significant tax relief in relation to Laos-sourced dividends, while the China DTA also offers significant tax relief in relation to Laos-sourced interest.

Table 1

Country

Signed

Entered into force

Effective

Vietnam

14/01/1996

24/02/1996

01/01/1997

Thailand

20/06/1997

23/12/1997

01/01/1998

China

25/01/1999

22/06/1999

01/01/2000

Russia

14/05/1999



North Korea

17/07/2001

01/05/2004

01/01/2005

South Korea

29/11/2004

09/02/2006

01/01/2007

Brunei

22/04/2006

20/10/2010

01/01/2011

Kuwait

05/08/2008



Myanmar

20/11/2009

21/09/2010

01/01/2011

Malaysia

03/06/2010

06/01/2011

01/01/2012

Indonesia

08/09/2012



Luxembourg

04/11/2012


Table 2

Country

Dividends

Interest

Royalties

Service Fees

Laos (domestic)

10%

10%

5%

4.8%1


Vietnam

10%

10%

10%


Thailand

15%

10%2

15%


China

5%

5%3

5%3


North Korea

10%

10%

5%


South Korea

5%4

10%

5%


Brunei

5%4

10%

10%

10%

Myanmar

5%

10%

10%


Malaysia

5%4

10%

10%

10%

1 ‘Effective’ rate; takes into account the ‘profit deeming’ provisions in the tax regulations.

2 Recipient must be a financial institution (insurance companies included). The rate is 15% in all other cases.

3 Applicable where the source country is Laos; 10% if the source country is China.

4 Recipient must be a company directly holding at least 10% of the shares. The rate is 10% in all other cases

Daniel Harrison (daniel.harrison@vdb-loi.com)

VDB Loi

Tel: +85 62 145 4679

Website: www.vdb-loi.com

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