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

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
CountrySignedEntered into forceEffective
Vietnam14/01/199624/02/199601/01/1997
Thailand20/06/199723/12/199701/01/1998
China25/01/199922/06/199901/01/2000
Russia14/05/1999

North Korea17/07/200101/05/200401/01/2005
South Korea29/11/200409/02/200601/01/2007
Brunei22/04/200620/10/201001/01/2011
Kuwait05/08/2008

Myanmar20/11/200921/09/201001/01/2011
Malaysia03/06/201006/01/201101/01/2012
Indonesia08/09/2012

Luxembourg04/11/2012

Table 2
CountryDividendsInterestRoyaltiesService Fees
Laos (domestic)10%10%5%4.8%1

Vietnam10%10%10%
Thailand15%10%215%
China5%5%35%3
North Korea10%10%5%
South Korea5%410%5%
Brunei5%410%10%10%
Myanmar5%10%10%
Malaysia5%410%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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