Generally, business expenses (including accrued expenses) are deductible unless specifically indicated as non-deductible under the Lao Income Tax Law. Reserves and provisions are not deductible until actually incurred, with certain exceptions (see Provisions below for more information).
Depreciation rates prescribed under the Lao Tax Law 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:
|Buildings used for industrial purposes:|
|With useful life of 20 years or less||20|
|With useful life over 20 years||50|
|Buildings used for commercial and residential purposes:|
|Machinery, equipment, vehicles||5|
|Land and water transport vehicles||5|
|Ships, cruises, ferries, and other similar boats||10|
|Passenger and cargo aeroplanes||Based on flight hours|
There is no specific guidance on the deductibility of the amortisation of goodwill. However, the Lao Income Tax Law states that depreciation of intangible assets with undetermined useful life is not allowed.
Start-up expenses can be amortised over a two-year period.
Interest that is not capital in nature is generally deductible, subject to certain conditions.
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.
Provisions entered by banks or other financial institutions based on the accounting standards and requirements of Bank of Lao PDR can be claimed as tax deductions.
Charitable contributions are not deductible.
Entertainment expenses are not deductible.
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 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 five years (previously 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.