The type of activity to be carried out by a foreign investor will determine the relevant authority handling the registration process. If the activity falls under general business, outside of the scope of the Decree on Controlled and Concession Activities, the investor will have to submit its application to incorporate a legal entity with the MOIC or its related department. This registration process is mostly set out in the Law on Enterprise. On the other hand, if the contemplated activity is contained in the Decree on Controlled and Concession Activities, the MPI will be the single window authority for the incorporation of the legal entity. These types of activities have their registration process set out in the Law on Investment Promotion.
The MOIC and the MPI will review the incorporation process of every application. Accordingly, they have the role to review and ensure that applicants abide by regulations with regard to (i) foreign share equity restrictions; and (ii) additional business operating licences that may be required for the contemplated activities. On a side note, discretionary decisions can be still be made, although this becomes less and less the case, and applications may have already been rejected because of national interests, although the rejection may not have been officially based on these grounds.
Law on Investment Promotion
The Law on Investment Promotion expressly recognises the possibility of having a 100 per cent foreign-owned entity including a wholly domestic or foreign-owned investment. Accordingly, companies owned by foreign investors are formally recognised under Lao law. This same law also refers to activities that now fall under the Decree on Controlled and Concession Activities, which may set specific restrictions to foreign investment, and also see the authorisation to operate in Laos thoroughly examined and approved by the Investment Promotion and Management Committee (the Committee).
The Committee will be the pivotal authority for consideration and approval of investments, and will include representatives from the MOIC, the MPI and other relevant government agencies. Two different levels of the Committee may be involved in the approval process - the central committee or provincial committees, depending on the nature and amount of the investment. Consideration and approval for controlled activities and concession activities that may have an adverse impact, as well as approval for the development of an SEZ, is overseen by the central committee only.
The Committee’s role does not end once investment approval has been granted, and subsequent approvals will be required during the course of the investment and throughout the life of the legal entity engaged in business activity in Laos if modifications to the initial investment or project are contemplated, such as transfer of shares, changes to the objectives of the company or the use of the concession or investment rights as a guarantee. The Committee can also suspend or cancel previously granted licences if investors do not meet requirements. Though this committee and the list of controlled and concession activities are not targeting foreign investments specifically, it aims to regulate the registration and approval process for activities that attract significant numbers of foreign investors.
The Law on Investment Promotion provides further requirements regarding specific investments, although this does not target foreign investment specifically. For instance, approval from the national assembly is required for investments that include state equity participation exceeding 20 billion kip in a public-private partnership; construction projects involving a nuclear power plant; investment in a casino business; businesses having a serious impact on the environment, nature and society, and especially relating to the diversion of natural water flow; resettlement of 500 families or more and concession of land totalling 10,000 hectares or more; and other projects as required under relevant laws. Therefore, for these activities, a high degree of discretion in the approval or rejection of a project can be expected.
For concession activities, concession agreements must be negotiated with the local government. Accordingly, although not required by law, requirements to have participation from the government may be requested. This is often the case for hydropower plant projects, and electricity generation projects in general, where the government directly or through state-owned entities may be required to be part of the shareholding structure. Similar conditions apply to sectors such as mining. These two sectors remain particularly important in the Lao investment landscape.
The Law on Enterprises
The Law on Enterprises is a set of rules relating to corporate governance, and the internal organisation of a legal entity in Laos, regardless of their activities. This law is also the one that is referred to for the registration process of general businesses that are out of the scope of the Decree on Controlled and Concession Activities. However, it is important to bear in mind that the Law on Enterprises does not guarantee that these general businesses will not be subject to any restrictions. A general business outside the scope of the Decree on Controlled and Concession Activities may be subject to restrictions on foreign investment if this is stipulated in a specific regulation. Below is example of general businesses that are displayed in the Decree on Controlled and Concession Activities and are subject to restrictions on foreign investment:
- The establishment of a wholesale and retail business is open to both domestic and foreign investors. However, local regulations set out specific requirements for foreign investors. Foreign investors must have registered capital of more than 4 billion kip, while there is no such high capital requirement imposed on local investors. If a foreign investor wants to hold 100 per cent of the capital of a legal entity, registered capital of more than 20 billion kip is required. The amount of registered capital will determine how much share equity a foreign investor may hold in a retail or wholesale business. For registered capital from 10 billion kip to less than 20 billion kip, foreign equity participation can be up to 70 per cent. For registered capital from 4 billion kip to less than 10 billion kip, foreign equity participation can be up to 50 per cent.
- While domestic transportation of goods was open to foreign investors - up to 100 per cent foreign equity - prior to August 2018, the Ministry of Public Works and Transport issued Decision No. 17582/MOPWT, dated 8 August 2018, which provides that the local government will open investment to foreign investors according to their obligation toward the World Trade Organization (WTO) and ASEAN, which may prevent a foreign investor from becoming a majority shareholder. Given its strategic location within ASEAN (common borders with five countries and serving as a great hub between the ASEAN region and China), transport business is viewed as a very promising industry for Laos. Preventing wholly owned foreign businesses in this sector can be seen as a way to protect this market for Lao nationals only, although there is a lack of competition locally, and heavy investment may be necessary.
The Regulation on Management of Foreign Investors regarding the Sale and Purchase of Securities
According to this regulation, the number of shares held by foreign investors in public companies may be limited by:
- resolution of the public company;
- regulation of relating sectors; and
- consideration from time to time of the Lao Stock Exchange Committee.
For instance, a decision issued by the Lao Stock Exchange Committee in August 2015 restricted foreign individuals from holding 1 per cent of shares, and foreign legal entities from holding 5 per cent of shares, in the public company Électricité du Laos. In addition, the total shares held by foreign parties may not exceed 25 per cent of the total shares issued.
Land in Laos is under the ownership of the national community and is centrally managed by the state. Lao nationals can be granted land use rights, which include (i) the right to protect land; (ii) the right to use land; (iii) the right of usufruct; (iv) the right to transfer land use rights; and (v) rights relating to inheritance of land use rights. Foreigners can lease land for a limited period and own buildings on that land. However, when the lease term expires, usually the buildings are given over to state ownership along with the land. As such, the purchase of land by foreign nationals is not possible. A lease agreement can be subject to an agreement with foreign investors; similarly, a concession activity may be granted a land concession for a period of up to 50 years, which may be renewed.
Law on Business Competition
The Law on Business Competition regulates abuse of market dominance as well as mergers whereby two or more enterprises agree to transfer all of their legitimate assets, rights, obligations and interests; and acquisition of enterprises whereby an enterprise agrees to buy a part or all of the assets of another enterprise to be under its ownership and administration.
Approval may be required when:
- holding the market share in the relevant market over the threshold as defined by the Business Competition Commission;
- causing any impact on the access to the market and the restraint of technological development; and
- causing any impact on consumers, other business operators and the national socio-economic development.
Additionally, the Law on Business Competition has created the Business Competition Commission (BCC). Generally, the BCC acts as an adviser to the government on issues relating to business competition. The BCC has also the express duty to examine the merger of businesses in regard to every type of business activity in Laos.
Notification on Reserved Business for Lao People
There covers activities that would usually require only a small investment capital, such as hairdresser, for instance. Investment in these types of business may be difficult for foreigners.
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