Significant Progress in Tax Regulations
On May 6, 2025, the Lao government announced an update to its Income Tax bill, marking a significant step towards alignment with international tax standards. This bill formally introduces Transfer Pricing (TP) rules and establishes the Global Minimum Tax (GMT) implementation under Pillar 2 of the OECD/G20 BEPS 2.0 draft.
Introduction of Transfer Pricing Rules
Laos had been implementing limited Transfer Pricing regulations. Conversely, the new bill emphasizes that related party transactions must be under the Arm’s Length Principle. Although comprehensive documentation, such as a Master or Local File, is not currently required, it could be needed soon.
The Lao tax authorities are intensifying audits, especially on loss-making companies, intercompany service charges, intellectual property remuneration, and financing arrangements. Failure to comply with these new regulations could result in penalties of 50% on underreported corporate income tax.
Implementation of the Global Minimum Tax
Laos plans to implement the Global Minimum Tax as of January 1, 2026. This tax establishes a minimum rate of 15% for multinational companies that have met certain income thresholds in at least two of the last four fiscal years. This measure seeks to prevent tax base erosion and ensure that multinationals contribute fairly in the jurisdictions where they operate.
Implications for Multinational Corporations
Introducing these regulations significantly changes the Lao tax landscape. Multinational companies operating domestically must prepare to comply with the new documentation requirements and ensure that their intercompany transactions are under the Arm’s Length Principle. In addition, they should assess the effects of the Global Minimum Tax on their tax and operational structures.
Source: Kaohoon International: DFDL Update: Laos to Introduce Transfer Pricing Rules and Global Minimum Tax