China–Laos Cross-Border Compliance | Laos's Income Tax Law: key changes and compliance considerations

The National Assembly of Laos adopted the revised Income Tax Law (No. 88/NA) on 25 June 2025. It entered into force on 1 July 2026. The law systematically revises corporate profit tax, deemed gross-profit assessment, expense deductions, non-resident taxation and the global minimum tax, with more stringent administration and collection requirements.

I. Principal changes

1. Corporate profit tax

The standard corporate profit tax rate remains 20%. The law retains and refines sector-specific adjustments:

• Tobacco manufacturers, importers and sellers are subject to a 22% rate, of which 2% is earmarked for the tobacco control fund.
• Stock-exchange-listed companies enjoy a preferential 10% rate for ten years from listing. Education and other encouraged industries continue to receive incentives under the Investment Promotion Law.

These rate adjustments also apply to enterprises with deficient accounting and to non-resident enterprises. This separates eligibility for the incentives from the level of accounting compliance and broadens their coverage.

The global minimum tax is a major feature of the reform. Article 15 states that Lao legal entities within multinational corporate groups whose effective tax rate, calculated under international rules, is below 15% must pay the difference so that the minimum domestic profit tax is paid in full. This connects with the OECD/G20-led two-pillar international tax reform and represents a significant step in Laos's integration into regional and international tax systems.

2. Deemed gross-profit assessment and financial disclosure

The law substantially strengthens the tax authority's power to assess tax on a deemed basis. For entities with inaccurate or incomplete accounts, those refusing to cooperate with tax inspections, non-resident enterprises without a permanent establishment and entities breaching accounting requirements, taxable income may be assessed directly by multiplying turnover by the applicable industry gross-profit margin. The mandatory margins are 7% for agriculture and handicraft production, 10% for industrial production and processing, 15% for trade and services, and 30% for electricity and mining.

Annual returns must include a full set of documents, including financial statements, tax/accounting reconciliation schedules, transfer pricing reports, withholding tax certificates, depreciation schedules, bank statements and inventory summaries. Enterprises with branches must prepare aggregated financial statements; corporate groups must prepare separate business statements and consolidated statements. Ordinary enterprises must file by 31 March of the following year; listed companies have until 30 April.

3. Detailed deduction rules

Article 18 lists 24 categories of non-deductible expenses, including undocumented expenditure, excess depreciation, personal consumption, unreasonable related-party pricing and excessive interest:

• The depreciation ceiling for administrative vehicles is LAK 1 billion per vehicle; the excess is not deductible.
• Domestic expenses exceeding LAK 1 million per transaction, and all overseas expenses, must be paid through a commercial bank account in Laos to qualify for deduction.
• Net interest expense may not exceed 20% of EBITDA; the excess is not deductible.
• Expenses without compliant invoices or unrelated to business operations are not deductible.

4. Non-resident income tax and withholding

Articles 45–49 establish the rules for taxing non-resident income. Salaries, remuneration, dividends, interest, rent, royalties and equity transfer income sourced in Laos are subject to income tax, with differentiated rates:

• Salaries follow the resident individual progressive rates of 0%–25%.
• Remuneration, dividends, interest, asset rentals, brokerage and consulting are generally subject to 10%.
• Services by teachers and researchers, and royalties for copyrights, patents and trademarks, attract a preferential 5% rate.
• Equity transfer income is subject to 2%.

Payers must withhold and remit the tax within 15 days of payment. Chinese-invested enterprises paying offshore service fees, royalties or dividends will therefore face stricter withholding compliance checks.

Article 50 establishes annual comprehensive filing for resident individuals using seven progressive bands. Annual taxable income below LAK 30 million is exempt, while the portion exceeding LAK 780 million attracts the highest rate of 25%. Foreign nationals residing in Laos for 183 days become tax residents and must pay Lao tax on worldwide income.

For Chinese employees posted to Laos, the 183-day rule directly affects tax residence. Personnel paid by an overseas parent but working in Laos must file and pay personal income tax in Laos if their stay exceeds the threshold. Enterprises should correspondingly adjust payroll structures and social security arrangements.

II. Global minimum tax

Laos's introduction of a 15% global minimum tax is presented as both an ASEAN tax-coordination measure and an alignment with the international two-pillar reform. Where a multinational group's effective tax rate (ETR) in a jurisdiction is below 15%, that jurisdiction may levy top-up tax to ensure an income tax burden of at least 15% in each place of operation.

The law describes the relevant entities as “legal entities within multinational corporate groups”. Under OECD standards, this generally refers to large multinational groups meeting the EUR 750 million consolidated annual revenue threshold. However, the specific details remain subject to implementing rules to be issued by the government under the Lao law.

Laos's standard corporate income tax rate of 20% is nominally above the 15% minimum. In practice, tax holidays or encouraged-industry rates under the Investment Promotion Law may reduce an enterprise's effective rate below 15%. If the minimum tax rules apply, the enterprise will need to pay the difference.

III. Implications for Chinese-invested enterprises in Laos

Impact 1: Reassessing investment structures

Structures using intermediate holding companies in Singapore, Hong Kong or elsewhere to obtain treaty benefits require renewed effective-tax-rate calculations. Projects relying on tax holidays should reassess expected returns and include potential top-up tax in their costs. Cross-border royalties and technical service fees require a renewed balance between source-country tax and residence-country tax credits.

Impact 2: Expatriate taxation

Article 50 requires annual comprehensive filing by resident individuals under seven progressive bands. Annual taxable income below LAK 30 million is exempt; the portion above LAK 780 million is taxed at up to 25%. Foreign nationals residing in Laos for 183 days become tax residents and must pay Lao tax on worldwide income.

Impact 3: Increased compliance obligations

Enterprises need accounting systems compliant with Lao financial reporting standards and qualified finance personnel. Chinese-invested groups with substantial related-party transactions must prepare transfer pricing documentation demonstrating arm's-length pricing. Expenses above the applicable thresholds must pass through corporate bank accounts, making cash transactions and receipts through personal accounts difficult to sustain. Consistency between funds, invoices and contracts becomes a key inspection focus.

IV. Compliance recommendations

1. Conduct an internal tax review

Review compliance with the revised law, focusing on Lao accounting standards, supporting documents for deductions, the reasonable commercial purpose of related-party pricing, withholding on overseas payments and completeness of expatriate personal income tax filings.

2. Improve accounting and invoice management

Establish strict invoice controls so that major expenses have compliant invoices and are paid through corporate bank accounts. Maintain schedules for items prone to exceeding limits, including administrative vehicles, interest and business entertainment, and make accurate tax adjustments.

3. Assess the global minimum tax promptly

Chinese-invested enterprises belonging to large multinational groups should:

• Calculate the Lao entity's adjusted effective tax rate and assess potential top-up tax obligations;
• Review the actual benefits of current incentives and the extent to which minimum tax may offset them;
• Where necessary, adjust intragroup profit allocation and funding arrangements to optimise global tax within the compliance framework.