Understanding Laos’ Special Economic Zones: Untapped Potential

For the past decade, Laos, one of the smaller economies in Southeast Asia, has seen economic growth at a rapid rate of 7-8 percent annually. The country has been able to do this by taking advantage of its abundant natural resources and low cost raw materials. Laos has also sought to attract investors through the implementation of special economic zones.  

There are two types of economic zones in Laos, Special Economic Zones and Specific Economic Zones. Among the Special Economic Zones (SEZs) in the country there are two: the Savan-Seno Zone SEZ located in central Laos’ Savannakhet Province – a central point of the East-West Economic Corridor; and the Golden Triangle SEZ located in the sub-Mekong region close to the country’s borders with Myanmar, Thailand, and China. The rest of the economic regions are designated as Specific Economic Zones with most of them located near the capital city of Vientiane. 

RELATED: Special Economic Zones in Myanmar

Setting up a Business in the SEZs

In order to set up a business in a special or specific economic zone companies need to apply for a license with the Secretariat to National Committee for Special Economic Zones (NCSEZ). The terms of the investment will depend on the type, size and location of each special and specific economic zone. In general however, investments on special or specific economic zones cannot exceed 99 years and are reviewed on case by case basis with the approval of the government.

Investing in SEZ can be done in two ways: general investment and promotional investment. A general investment allows the developer or investor to invest in all sectors within the SEZ, except those forbidden by the government, such as trading of arms, drugs, poisonous chemicals, etc. Promotional investment, meanwhile involves industries that are strongly supported within SEZ and regulated by the SEZ Administrative Committee, this activities include investment in electronic industries, scientific and new technology research, tourism infrastructure, organic products, etc. 

The application process for investing is the same for general and promotion investment. Each economic zone is equipped with a One Stop Service Office to facilitate investment applications within the zone. This system allows investors to interact with only one regulatory authority, which in turn acquires necessary licensing and approvals from various government agencies. Both domestic and foreign investors and legal entities shall submit the investment application to the Economic Board of the SEZ where they wish to invest. The application can be submitted via fax, email or in person to the One Stop Service Office, depending on a case by case basis.

 RELATED: Pre-Investment Services from Dezan Shira & Associates

Benefits on Investing in SEZs

Some of the benefits offered by the NCSEZ to developers and investors to setting up a business in the special economic zones include tax exemptions for importing equipment and raw materials for infrastructure construction, and reductions in income tax and value added tax (depending on the business type). Additionally, foreign investors have been given the right to reside in Laos with their family during the time of the investment, among some other privileges as indicated by the laws and regulations.

Looking Ahead

In an effort to further boost trade in the region and with its neighbors Laos has been taken steps to cooperate with Thailand in the creation of SEZs. The cooperation between Laos’ NCSEZ and Thailand’s Policy Committee on Special Economic Zone Development are preparing to sign a memorandum of understanding (MoU) that would implement bilateral cooperation. The creation of these new SEZs creates additional opportunities for Laos and Thailand, and offers investors access to a mostly untapped pool of inexpensive labor and cheap raw material inputs.

Laos became part of the World Trade Organization in 2013, and its regional integration is only set to increase with the implementation of the ASEAN Economic Community (AEC) at the end of this year. The opportunities this implementation will create, coupled with further development of its SEZ and the economic tries to other countries in the region means that Laos looks set to continue its economic ascent over the next decade.

While Laos undeniably offers investors a unique growth opportunity in ASEAN, investing in the country still entails significant regulatory hurdles and uncertainty. In order to best mitigate these risks, as well as  understand and predict coming changes in the regulatory environment, investors new to the country will find it beneficial to enlist the services of a professional services firm with deep regional expertise.

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