The Lao Government’s latest updated draft Income Tax Law indicates its commitment to aligning with international tax standards and combating tax avoidance by multinational enterprises (MNEs).
(i) Transfer Pricing Rules in Laos
Historically, Laos has had limited transfer pricing regulations, however, the draft Tax Law formally introduces transfer pricing rules to Laos. The Lao Tax Authority is increasingly focused on ensuring that transactions between related parties adhere to the arm’s length principle and documentation requirements are likely to become a requirement.
This principle requires that pricing for intragroup goods, services, or intangibles between related entities mirrors what independent parties would agree upon in comparable circumstances.
While comprehensive TP documentation (e.g., Master File, Local File, and Country-by-Country Reporting) is not currently mandatory, taxpayers should anticipate this as a future compliance requirement in Laos.
Key points regarding Transfer Pricing rules in Laos include:
Increased Audit Focus: Tax authorities are prioritizing audits of companies, particularly targeting loss-making entities, intercompany service charges such as management fees, intellectual property remuneration, and loan and financing arrangements. Non-compliance may lead to penalties of 50% of underreported corporate income tax.
Transfer Pricing Documentation and Alignment with OECD Standards: Laos is gradually adopting elements of the OECD’s Transfer Pricing Guidelines, which emphasizes transparency through detailed transfer pricing documentation. Although full compliance with Master File and Local File requirements is not yet enforced, companies should anticipate these requirements in the future.
Furthermore, the draft Tax Law does not provide for any exemptions for companies under certain revenue or transactions thresholds (i.e. small companies, transactions under specific values). However, we will be raising these issues in our discussions with the tax authorities.
Regional Context: Unlike some ASEAN peers (e.g., Vietnam, Thailand, Malaysia, Singapore), Laos’ TP framework is less developed. The lack of regional harmonization within ASEAN means MNEs must tailor compliance strategies to Laos’ specific requirements.
(ii) Introduction of the Global Minimum Tax
Laos is expected to implement the Global Minimum Tax (GMT) under Pillar 2 of the OECD/G20 BEPS 2.0 project, potentially as early as January 1, 2026, following the lead of neighboring countries such as Malaysia, Singapore, Thailand, and Vietnam.
The GMT introduces a minimum corporate tax rate of 15% and applies to multinational companies that have met the revenue threshold in at least two of the past four fiscal years.
For further information, please visit DFDL.
