Generally, business expenses (including accrued expenses) are deductible unless specifically indicated as non-deductible under the Lao Tax Law. Reserves and provisions are not deductible until actually incurred.
Depreciation
Depreciation rates prescribed under the Lao Tax, may differ from financial accounting. Depreciation shall commence from acquisition date. Depreciation may be calculated on the cost of a business asset by straight-line, double-declining or activity-based methods over the prescribed useful lives, as follows:
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Assets
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Years
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Buildings used for industrial purposes:
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With useful life of 20 years or less
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20
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With useful life over 20 years
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50
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Buildings used for commercial and residential purposes:
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Permanent structures
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20
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Semi-permanent structures
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10
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Machinery, equipment, vehicles
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5
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Software
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2
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Land and water transport vehicles
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5
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Ships, cruises, ferries, and other similar boats
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10
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Office equipment
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5
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Passenger and cargo airplanes
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Based on flight hours
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Goodwill
There is no specific guidance on the deductibility of the amortization of goodwill. However, the Lao Tax Law states that depreciation of intangible assets with undetermined useful life are not allowed.
Start-up expenses
Start-up expenses can be amortised over a two-year period.
Interest expenses
Interest that are not capital in nature are generally deductible subject to certain conditions.
Provisions
Provisions for expenses not yet incurred and reserves (e.g. bad debts) are not tax-deductible. A deduction for bad debts is allowed if a certain procedure has been followed.
Charitable contributions
Deduction for charitable contributions are limited to 0.3% of total annual business turnover.
Deductible expenses with limitations
Deductions for the following business expenses have a limit under the Lao Tax Law:
- Travel expenses for administrative activities are limited to 0.6% of total annual business turnover.
- Reception and telephone charges are each limited to 0.4% of total annual business turnover.
- Donation expense are limited to 0.3% of total annual business turnover.
- Advertisement costs are limited to 0.5% of total annual business turnover.
Entertainment expenses
Entertainment expenses are not deductible.
Pension expenses
Pension expenses are deductible when paid in Lao PDR.
Bribes, kickbacks, and illegal payments
Bribes, kickbacks, and illegal payments are not deductible.
Fines and penalties
Generally, fines and penalties are not deductible.
Taxes
Taxes levied on income and VAT on fixed assets used in the business are not deductible for PT purposes.
Net operating and capital losses
Tax losses may be carried forward for three years, but loss carrybacks are not allowed. A change in control will not impact a company's loss carryforward. Capital losses are treated as ordinary losses.
Payments to foreign affiliates
Subject to the normal and specific rules on deductibility, a deduction may be claimed for payments to foreign affiliates.