VDB Loi Laos Alert – New Income Tax Law 2025 (effective 1 July 2026)

The National Assembly has adopted the Law on Income Tax No. 88/NA (the “New Income Tax Law”), replacing the previous Income Tax Law of 2019 and its subsequent amendments. The New Income Tax Law was published in the Lao Official Gazette on 19 June 2026 and became effective on 1 July 2026.

The New Income Tax Law introduces significant changes, particularly in relation to transfer pricing, multinational enterprises (“MNE”), permanent establishments (“PEs”), and tax compliance obligations. Key amendments are summarized below.

1. Key Definitions

The New Income Tax Law introduces several important concepts, including:

• Market price – The price that goods or services would ordinarily command in an open market under comparable conditions.
• Transfer pricing – The prices applied to transactions between related parties, regardless of whether such prices align with market price.
• Related parties – Individuals or entities with direct or indirect management, control, investment, partnership, or family relationships.
• PE – A business presence, including a dependent representative, of a non-resident operating in the Lao PDR.
• MNE – An enterprise operating or controlling entities in more than one country through subsidiaries, acquisitions, joint ventures, or other investments.
• Net interest – The difference between interest income and interest expense during a fiscal year.
• Minimum corporate income tax (“Minimum CIT”) – An additional tax that ensures that qualifying members of an MNE group are subject to an effective corporate income tax (“CIT”) rate of at least 15% in the Lao PDR.

2. Corporate Income Tax

2.1 Transfer pricing and CIT calculation

The New Income Tax Law introduces formal transfer pricing provisions, including that:

• A PE of an MNE must calculate taxable profits as if it were an independent enterprise performing similar functions, using similar assets, and assuming similar risks.
• The Lao tax authority may adjust taxable profits where transactions between related parties are not conducted on an arm’s-length basis.
• Transactions lacking reasonable commercial or financial justification may be adjusted or disregarded for CIT purposes.

2.2 CIT rates

The New Income Tax Law revises several sector-specific CIT rates and activities as follows:

Business Activity	Old CIT Rate	New CIT Rate
Alcohol businesses	20%	22%
Casino businesses	20%	30%
Mining concessionaires plus the addition of mineral exporters under the New Income Tax Law	35%	35%
Listed companies	13% for a four-year period	10% for 10 years from the listing date
Minimum CIT for qualifying MNE groups	N/A	15%

2.3 Non-taxable revenue and non-deductible expenses

2.3.1.        Excluded from taxable revenue

The following items are expressly excluded from taxable revenue:

• Dividends or profit distributions already subject to CIT and dividend tax
• Financial discount income

2.3.2.        Non-deductible expenses

Additional non-deductible expenses include:

• Capitalized fixed asset acquisition costs
• Depreciation of unregistered assets or finance lease assets (except lease payments)
• Depreciation on administrative vehicles exceeding LAK1 billion per vehicle
• Net interest expenses exceeding 20% of earnings before interest, taxes, depreciation and amortization
• Financial discount expenses
• Domestic expenses exceeding LAK1 million per invoice and overseas expenses that are not paid through a Lao commercial bank account

2.4 Tax declaration and payment

The New Income Tax Law requires provisional CIT payments to be made twice annually, as previously, with a change in the deadline for the second payment:

Payment	Deadline
First provisional payment	20 July
Second provisional payment	31 December

3. Microenterprises

The tax regime for microenterprises has been substantially revised.

• Microenterprises will now be subject to a uniform 5% CIT on net profit, replacing the previous activity-based tax regime.
• Businesses that fail to maintain proper accounting records or comply with reporting requirements may be subject to compulsory taxation.

4. Personal Income Tax

4.1 Overtime exemption

Overtime income is exempt from personal income tax (“PIT”) where an employee’s monthly salary does not exceed LAK3 million, an increase from the previous threshold of LAK2 million.

4.2 PIT thresholds

The PIT exemption threshold is now linked to the statutory minimum wage (currently LAK2.5 million per month) instead of the previous fixed threshold of LAK1.3 million per month.

The progressive PIT rates are as follows:

Level	Monthly income basis (LAK millions)	Calculation basis (LAK millions)	Tax Rate	Income tax at each level (LAK millions)	Cumulative income tax (LAK millions)
1	2.5 or less	2.5	0%	0	0
2	Over 2.5 – 5	2.5	5%	0.125	0.125
3	Over 5 – 15	10	10%	1.000	1.125
4	Over 15 – 25	10	15%	1.500	2.625
5	Over 25 – 65	40	20%	8.000	10.625
6	Over 65	Income exceeding 65	25%	(Monthly income − 65) × 25%	10.625 + [(Monthly Income − 65) × 25%]

The rates for the annual PIT table have been updated as follows:

Level	Annual income basis (LAK millions)	Calculation basis (LAK millions)	Tax rate	Income tax at each level (LAK millions)	Cumulative income tax (LAK millions)
1	30 or less	30	0%	0	0
2	Over 30 – 60	30	5%	1.5	1.5
3	Over 60 – 180	120	10%	12	13.5
4	Over 180 – 300	120	15%	18	31.5
5	Over 300 – 780	480	20%	96	127.5
6	Over 780	Income exceeding 780	25%	(Annual income − 780) × 25%	127.5 + [(Annual Income − 780) × 25%]

5. Income tax for individuals and other income

5.1 Expanded taxable income categories

The New Income Tax Law expands the scope of taxable income to include:

• Income from the sale of carbon credits, subject to a rate of 10%;
• Income from the sale of agricultural products, handicrafts, and other goods and services by individuals with an annual revenue exceeding LAK100 million, subject to a rate of 2%;
• Income from the sale of forestry products by authorized individuals, subject to a rate of 10%; and
• Other income as prescribed by the Lao government from time to time.

5.2 Increase in certain exempted income

The New Income Tax Law sets exemption thresholds for the following income:

• Lottery winnings exceeding LAK10 million (previously all winnings were taxed),at the same rate of 5%
• Gifts and awards exceeding LAK5 million (previously only LAK1.3 million was exempt), at the same rate of 5%

Revised tax rates

• 5% Tax rate

A 5% withholding tax rate now applies to:

• Construction and repair services (increased from 2%); and
• Sports and performing arts activities where payments exceed the minimum wage (reduced from 10%).
• 10% Tax rate

A 10% withholding tax rate now applies to:

• Online sales (e-commerce) (increased from 2%); and
• Commissions, consultancy fees, and service fees (increased from 5%).

5.3 Declaration and payment deadline

The deadline for declaring and remitting withholding income tax has been shortened from 15 working days to 15 calendar days from the date of payment or receipt.

6. Key Takeaways

The New Income Tax Law represents a significant modernization of the Lao PDR’s income tax framework, particularly through the introduction of transfer pricing rules, related party transaction provisions, and minimum taxation for MNE groups. The law also revises the CIT and PIT regimes, broadens taxable income categories, and introduces stricter compliance requirements.

Businesses operating in the Lao PDR—particularly multinational groups and related party structures—should review their existing arrangements and tax compliance processes to ensure alignment with the new requirements, which are effective from 1 July 2026.