Laos to Introduce Transfer Pricing Rules and Global Minimum Tax

Overview of Transfer Pricing Rules in Laos

Historically, Laos has had limited transfer pricing regulations, but recent updates signal a shift toward stricter oversight of intercompany transactions. While comprehensive TP documentation (e.g., Master File, Local File, and Country-by-Country Reporting) is not yet mandatory, the Lao Tax Authority is increasingly focused on ensuring that transactions between related parties adhere to the arm’s length principle. This principle requires that pricing for goods, services, or intangibles between related entities mirrors what independent parties would agree upon in comparable circumstances.

Key points regarding Laos’ TP rules include:

Increased Audit Focus: Tax authorities are prioritizing audits of MNEs, particularly targeting loss-making entities, intercompany service charges, intellectual property remuneration, and financing arrangements. Non-compliance may lead to penalties of 50% of underreported corporate income tax.

Alignment with OECD Standards: Laos is gradually adopting elements of the OECD’s Transfer Pricing Guideline, which emphasizes transparency through detailed transfer pricing documentation. Although full compliance with Master File and Local File requirements is not yet enforced, MNEs should anticipate future mandates.

Regional Context: Unlike some ASEAN peers (e.g., Vietnam, Thailand, Malaysia, Singapore), Laos’ TP framework is less developed. The lack of regional harmonization within ASEAN means MNEs must tailor compliance strategies to Laos’ specific requirements.

Introduction of the Global Minimum Tax

Laos is expected to implement the Global Minimum Tax (GMT) under Pillar 2 of the OECD/G20 BEPS 2.0 project, potentially as early as January 1, 2026, following the lead of neighboring countries such as Malaysia, Singapore, Thailand, and Vietnam.

The GMT applies to MNEs that have met the revenue threshold in at least two of the past four fiscal years. It targets profit shifting to low-tax jurisdictions by imposing top-up taxes when the effective tax rate (ETR) falls below 15%.

The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.