The Ministry of Finance of Laos has adopted new requirements for non-resident suppliers of digital goods and services to customers based in the country. The MoF has published official instructions(Notification Act) that explain these requirements via its official webpage on Facebook. These circulars replace the Notification Act, which has been adopted and applicable for two years.
The Notification Act from February 2022 introduced obligations for foreign suppliers of digital goods and services to customers based in the country.
It defined that foreign suppliers of digital goods and services, i.e., platforms, e-commerce marketplaces, and e-merchants without fixed establishment in Laos, are obliged to register, file, and pay VAT to competent authorities.
The Instruction introduced a threshold of USD 34,000 for foreign suppliers. Interestingly, non-resident suppliers are also mandated to file and pay corporate income tax when the conditions are met.
The Ministry of Finance adopted a new Notification Act on February 14, 2024, and it is still pending official publication in the National Gazette.
However, the circular introduces new requirements for foreign suppliers of digital services. It clarifies some points that could “mislead” taxpayers since the inception of the indirect and direct tax liabilities for foreign digital platforms.
Timeline
The new rules will be applicable from August 1, 2024.
Coverage and Impact of New Circular
Taxpayers surpassing the threshold must register for tax purposes via an online portal, which is made available to simplify registration, filing, and payment of the owed tax. Tax chargeability covers both B2C and B2B transactions.
Registered taxpayers that supply digital products to domestic businesses could be obliged to report their sales alongside the digital filing of quarterly VAT returns. The obligation of digital reporting or issuance of e-invoices will not cover the taxpayers working exclusively with end customers residing in the country.
Under specific circumstances, digital platform operators should be obliged to withhold income tax from natural persons(not registered for VAT) who supply digital products through the platform to residents of Laos.
When the conditions are met, the foreign digital platform operator should be treated as a deemed supplier for the underlying supply of its foreign service providers.
Nonresident digital services and goods providers operating in Laos should know their tax responsibilities. The compliant behavior will protect them from significant penalties and fines and the potential blocking of their digital activity in the country.
Unfortunately, the foreign taxpayer’s responsibility under specific circumstances doesn’t finish simply on VAT duties. It goes significantly beyond that; it can cover corporate income tax, withholding tax, and various due diligence operations for the underlying suppliers
Aleksandar Delic
1stopVAT Senior Indirect Tax Researcher (Global Content)