Being the smallest country in ASEAN in terms of GDP, Laos has been relatively quiet relative to its big brothers in the region such as Myanmar, Vietnam, and Thailand. However, that does not mean it is not a force to be reckoned with. The country is the only one in Southeast Asia which borders five other countries, and is increasingly being used as a hub for the region.
For the past decade, Laos has achieved noteworthy rapid economic growth of 7-8% annually. Similar emerging and frontier markets in the region, the spurts of growth were accelerated by the presence of abundant natural resources, low cost of raw materials, and low cost of production.
In addition, one of the drivers of growth Laos has tried to strengthen is foreign investment, and the country has implemented what are called Special Economic Zones (SEZs) to attract more FDI from Southeast Asia and the rest of the world.
What Exactly are SEZs?
Special economic zones (SEZs) are used to refer to any modern economic zone. They are zones where business and trades laws differ from the rest of the country. They zones aim to increase trade, facilitate investment, and create jobs.
To encourage businesses to set up in the zone, generous policies, regulations, and laws are introduced. These policies typically regard investing, taxation, trading, quotas, customs and labor regulations. Additionally, companies may be offered tax holidays for as long as several years.
How to Set Up Business in Laos SEZs
The very first thing that needs to be done to set up a business in a special economic zone is for the company to apply for a license with the Secretariat to National Committee for Special Economic Zones (NCSEZ).
The licenses are granted on a case by case basis and the terms of the contract will depend on many factors including, but not limited to, the type, size and place of each special economic zone. Generally speaking, investments in special economic zones cannot exceed 99 years and are reviewed on a case by case basis with the approval of the government.
SEZ investment can be carried out in one of two ways: general investment and promotional investment.
A general investment involves an investor investing in any of the sectors within the SEZ, except those forbidden by the government, such as the trading of weaponry, illegal drugs, poisonous chemicals, etc.
A promotional investment involves an investor investing in industries that are strongly supported within the SEZ and regulated by the SEZ Administrative Committee. These activities include investment in industries that the government deems necessary to develop quickly such as electronics, scientific and new technology research, tourism infrastructure, organic products, etc.
The application process for both types of investment is the same. In each economic zone, there is a One Stop Service Office to facilitate all the investment applications within the zone. This system ensures that the investors interact with only one regulatory authority to guarantee clarity and streamline the application process. This authority will carry out all required licensing and approvals from various government agencies.
Both domestic and foreign investors must send the investment application to the Economic Board of the SEZ making it clear where they wish to invest. The application can be submitted via fax, email or in person to the One Stop Service Office, which depends on a case by case basis.
Benefits of Investing in Laos SEZs
Many benefits are available to developers and investors that are looking to set up business in SEZ. A quick overview of the benefits offered by the NCSEZ includes tax exemptions for importing equipment, raw materials for infrastructure construction, and reductions in income tax and value added tax, the magnitude of which depends on the type of business.
Additionally, one of the more outstanding benefits indicated is that foreign investors will be given the right to reside in Laos with their family during the time of investment.
The Future of Laos
Laos looks to continue its economic ascent over the next decade, with its development of SEZ among other things. While the country undeniably offers an attractive opportunity in ASEAN, there are still some significant regulatory risks and uncertainty. In order to really overcome those, investors new to the country will find it most necessary to enlist the services of a professional services firm with deep regional expertise.