Laos – Foreign Providers of Digital Services and VAT Compliance

In our previous Article, we mentioned that the Ministry of Finance has adopted Instruction No.558  issued by the Lao Tax Department, which introduces the obligation of foreign providers of digital services to levy local VAT for taxable supplies. 

The obligation to register for VAT applies to both non-resident digital platform operators, as well as to digital suppliers operating independently. The Instruction was pending publication in the Official Gazette, as the necessary condition for this legislation to be officially registered and applicable. 

The Instruction was finally published in the Gazette on March 26, 2024. 

Timeline

Starting from August 1, 2024 non-resident suppliers of digital services and products are obliged to register for VAT in Laos when they provide taxable services to customers based in the country. 

Impact of the New Requirements

After more than two years of the publication of the first Instruction on the “Implementation of VAT obligations for Foreign Suppliers of Digital Services”, and all the accompanying amendments in the timeframe of two years, finally, with this piece of legislation the non-resident suppliers of digital services will have at their disposal clarity when it comes to VAT compliance obligations for their taxable supplies in the country. 

In the initial period, the foreign taxable persons could register for VAT only through the usage of services of local tax representatives, because the registration procedure could be pursued only by manual application at the offices of local authorities. 

The defined goal of the Lao Tax Department is to develop an additional online service for simplified registration of non-resident digital service providers. Through this service the foreign companies will be able besides the fulfillment of their registration duty, they will be able also to submit quarterly declarations and make the payment.

There are three reporting periods within the calendar year. These quarterly periods cover a timeframe of four months. The additional benefit for foreign suppliers is that they will be able to make the payments of owed tax in EUR or USD, besides local currency. 

In Laos, foreign taxable persons should levy local VAT on B2C and B2B transactions. For B2B transactions they will also be obligated to issue invoices ( sometimes also to digitally report the invoice). 

Taxable persons should be aware of this significant change, and should accordingly start the necessary preparation for following logical steps to operate following the new provisions starting from August 1, 2024. 

Laos is one of the many countries that have lately implemented the obligation for foreign providers of digital services to register for local VAT and to establish the necessary VAT compliance system in accordance with domestic rules. As one of the moves to equalize the treatment of the domestic and foreign providers of digital services the Ministry of Finance has adopted an Instruction that permits this. 

Starting from August 1, 2024, foreign providers of digital services should be aware of their VAT obligations towards countries’ tax authorities, when they provide taxable services to customers residing in the country. 

If they haven’t done so already, the taxable persons should seek a tax representative who can help them to operate in alignment with the complex tax system in the country.