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

March 01 2013

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