VDB Loi Laos’ Alert – New VAT Instructions: Financial sector updates

On 11 January 2017, the Ministry of Finance released Instruction No. 0077/MOF on the Implementation of the Law on Value Added Tax (“the Instruction”) to clarify the rules on value added tax (“VAT”). The Instruction heralded in quite a few changes for the financial sector. Now, with four months of experience seeing it put into practice, we provide an update below. 

Banks and financial institutions

• Goods and services exempt from VAT
  • Any deposit interest, loan interest, money transfer fees, or gains from foreign currency trading that is received by commercial banks and financial institutions licensed by the Bank of the Lao PDR
• Goods and services subject to VAT
  • Sales of company assets such as cars and houses (including assets repossessed by the bank or financial institution because of borrower default) and other income collected from customers (e.g. administrative service fees)

Financial leasing companies

• Services subject to VAT
  • Financial leasing transactions; VAT is calculated on the selling price (including interest), excluding VAT, and is collected for each payment received.
  • Proceeds from the disposal of assets (including those repossessed because of customer default); VAT is applicable on the amount of the gross proceeds.
  • Collection service fees

Input VAT

• Input VAT deductions
  • Input VAT associated with the purchase of goods and services that are necessary and directly used for VATable activities in relation to production, distribution, promotion advertising, and trading is now accepted as fully deductible.
  • A limited deductibility of 80% of the input VAT relating to water, electricity and fuel costs directly used for business operations is now deductible.
  • A limited deductibility of 70% of the input VAT relating to building acquisition, leasing or rental is now deductible.
• Input VAT not deductible
  • Input VAT relating to vehicles computers, notebooks, tablets or mobile phones given to a shareholder or a staff member is no longer deductible.

VAT declaration and payment

• Branches in other localities must set up their own VAT compliance process and report their VAT payable to their local tax authority. The branches’ VAT returns must then be reported to the head office, which must consolidate the VAT paid by all the branches and report it centrally.

At VDB Loi, we encourage our clients to ensure they have an adequate process in place to manage data and reporting to meet VAT compliance requirements. VDB Loi has developed strong expertise in VAT compliance solutions, and we also provide integrated tax reviews and audit assistance. Our experts can help you navigate the complexities of the regulations so that your company can meet its operational objectives.