LAOS: An Introduction to General Business Law

Chambers Asia-Pacific 2021: Practice Area Overview

McDonald Patafta & Associates Lawyers 

Economic disruption in Laos as a result of COVID-19 has been significantly less than that of other markets globally and the Mekong sub-region as a whole seems to be responding comparatively well to altered global economic conditions. We are seeing strong, continued interest across all sectors of foreign investment and the Government of Lao PDR is working to actively support mid and large-scale investment as part of its economic recovery response to COVID-19.

Laos has recently signed the ASEAN Regional Comprehensive Economic Partnership, which establishes a single set of trade and investment rules across the Asia-Pacific region and will encourage domestic export businesses in Laos to meet these trade and investment targets to ensure greater market access opportunities, including expansion into regional value chains with China, Australia, Japan and South Korea. With the support of the ASEAN Member States, Laos is well placed to see continued, strong growth and position itself as key market player within the region.

The Vientiane-Boten railway, connecting Vientiane and China, is due for completion in late 2021. This will inevitably strengthen tourism and trade between China and Laos and we have seen increased interest and engagement from investors benefiting from the significant infrastructure development and increased connectivity to regional areas of Laos.

Market Trends 

As Laos is a relatively new economy experiencing rapid growth and continued decentralization supporting both foreign and domestic investment, we are seeing a number of startups and SMEs entering the market and taking advantage of the strong opportunities to break ground in new sectors. The professional workforce in Laos is growing steadily and the Government of Lao PDR is enacting a number of initiatives to support economic growth, including cooperation agreements with its ASEAN neighbours to promote investment opportunities.

As Laos’ skilled workforce develops, the Government of Lao PDR is committed to supporting the development of domestic workers and imposes foreign labour quotas on foreign owned entities operating in Laos to ensure that domestic skill development is prioritized and foreign investment directly benefits the domestic workforce.

Outside of Vientiane, there remains an abundance of opportunities for both private corporations and NGOs to tap into developing cities and communities, particularly in the education, transport and technology sectors. Regional government offices are supporting development within the regions and the Government of Lao PDR is committed to supporting regional development, particularly in the infrastructure and hydropower sectors.

Law Reform 

There has been substantial law reform in relation to enterprise registration and licensing, with Laos taking significant and frequent steps to improve its ranking on the World Bank Doing Business database, to encourage foreign investment and streamline the enterprise registration process. Throughout 2021 and beyond the government, supported by the Ministry of Industry and Commerce, is committed to further developing processes and mechanisms to support foreign investors into the Lao market.

The recently enacted Law on Land No. 70/NA dated 21 June 2019 (2019 Land Law) includes new provisions relating to the limited ownership of land-use rights by foreigners under certain circumstances, and the limited ownership of individual units in a condominium or apartment building. This is an important step forward in the development of the Lao PDR real estate market and we have seen strong interest from a number of foreign investors and property developers taking advantage of relaxed property investment/ownership laws.

The Civil Code No. 55/NA (Civil Code) came into effect in May 2020 and has been one of the most significant developments for the Lao legal system to date. Prior to the enactment of the Civil Code, there was a plethora of laws and regulations governing civil and commercial transactions. The Civil Code has simplified and collated key laws and regulations, particularly those relevant to foreign investors such as property and contract laws and regulations. It is anticipated that there will be further supplementary instructions and regulations issued to expand upon the provisions of the Civil Code.

Considerations to doing business in Laos 

The developing nature of foreign investment and enterprise registration in Laos means that there are still a number of potential difficulties faced by foreign investors looking to enter and operate in the Lao PDR market. Many interactions with government authorities occur face-to-face and there remains strong involvement of Village Chiefs and local authorities in relation to transactions, particularly those relating to land.

It is advised that all foreign investors in Laos develop a strong partnership with a local law firm to assist them to navigate the developing, and at times challenging, legal framework. Often current laws and regulations may not be publicly available and there may be inconsistencies or ambiguities in available laws and regulations that require direct liaison with the relevant local or government authorities to gain a full understanding of any legal requirements that need to be met in relation to particular activities.

Civil disputes are not an area which is actively adjudicated by the People’s Court and it is imperative that contractual agreements, including finance documents, are secured by moveable and immoveable assets in line with the Civil Code to ensure voluntary enforcement mechanisms can be utilised upon an event of default. There are a range of security and dispute resolution mechanisms available and it is recommended that foreign investors seek specific advice on the enforcement and recovery mechanisms prior to doing business in Lao PDR.