Country Listing

Laos Table of Contents


Direct Foreign Investment


The Foreign Investment Law of July 1988 is modeled on legislation that has already been adopted in Vietnam and China. Laos seeks to encourage foreign investment as a means of facilitating economic development as called for by the New Economic Mechanism. The government hopes that foreign investment projects will help to shift the economy from a subsistence to a commodity production basis by improving the management skills of the labor force; introducing advanced technology to the manufacturing sector; fostering economic, scientific, and technological cooperation with other countries; and increasing the production of goods for export.

The Foreign Investment Law allows investors to enter into three types of investment arrangements. The first type of arrangement, contractual or cooperative businesses, entails investment in existing state or private companies, or with Laotian individuals; in this way, the law is more liberal than comparable legislation in either Vietnam or China. The second type of arrangement, joint ventures, requires foreigners to invest a minimum of 30 percent of total capital. In general, terms for either of these arrangements are not to exceed twenty years. The third type of arrangement, private ventures, requires foreigners to invest 30 percent of total capital, up to a maximum of 100 percent. Terms are generally limited to fifteen years. Tax exemptions or reductions for joint ventures and private enterprises are available for two to six years after the first year of profit, depending on the size of the investment, the volume of goods exported as a result of the project, the location of the project, and the sector on which it focuses.

Tax incentives--a reduction of 2 to 5 percent in the profit tax--are also used to encourage foreign investment. In order to qualify for the reduction, a foreign investment project has to meet three of the following criteria: the project will export more than 70 percent of the goods it produces; will obtain domestically more than 70 percent of the raw materials it uses; will use advanced technology; will aim to overcome unfavorable natural or socioeconomic conditions; will contribute to national economic development despite low profit margins; or will be established before 1995. The Foreign Investment Law allows foreign investors to remit profits to the countries of their choice; in addition, it prohibits the nationalization of their capital and property.

Other laws also seek to facilitate foreign investment. In early 1989, Decree 27 established the Foreign Investment Management Committee to centralize foreign investment approval procedures, thus enabling the Foreign Investment Law to be implemented. The Lao Chamber of Commerce was established in January 1990 to assist in attracting new business ventures. Private domestic and foreign investments have been encouraged by the gradual improvement of the legal environment, including the passage of laws regarding property rights (1990), contractual obligation (1990), inheritance (1990), crime (1990), civil procedures (1990), and labor (1991). The 1991 approval of the constitution, which protects the right to private ownership, is also an important factor in encouraging foreign investment. Also, as of late 1993, an arbitration law was being drafted that will provide a legal mechanism for the settlement of disputes. There was an informal arbitration procedure, but the lack of a law or decree made decisions nonbinding.

Data as of July 1994