The Counter-Corruption Committee in the Prime Minister’s Office is the Lao government agency responsible for fighting corruption. Under the Lao law, giving and accepting bribes are criminal acts, punishable by fine and/or imprisonment. Corruption remains an issue in Laos. Some of the issues concerning corruption known to occur in Laos include bribes to Lao officials to speed up FDI investment applications, such as business licenses or importation of perishable items (U.S Trade, 2005, p.20).
8.5 Labour Law
The Labour Law of 1994 covers labour and employment in the Lao PDR. This law applies to both Laos’ domestic companies and foreign companies. The legislation covers the rights and obligations of employees and employers. The Labour Law requires a written contract between employer and employee. However, in some cases an employment contract must be verbal, depending on employment conditions and the nature of the work, such as work on a temporary or daily basis, or employment involving only a small amount of work. The contracts can be for a fixed term or indefinite period. Article 13 requires that the form and duration of employment contract must be concluded in writing.
Lao law permits foreign investors to employ foreign workers when necessary, if no appropriately qualified workers are available in the Lao PDR. According to Article 7 ‘...The employment of foreign workers shall be limited in number and in duration, and a detailed scheme shall be established for the transfer of skills to Lao workers to replace such foreign workers once the duration of their employment contract has been completed. The introduction of short-and long-term foreign workers shall be authorised by the labour administration prior to their entry into the Lao PDR, except in cases where workers are imported by international and foreign aid projects to which special regulations shall apply’ (DDFIL, 2003, p.2).
If workers are employed on an indefinite contract, to dismiss a worker, 45 days notice must be given to skilled workers and 15 days for other workers. In the case of dismissal because of misconduct by the worker the employer has the right to terminate the contract within 3 days notice. However, the employer must also notify the trade union or worker's representative in the labour unit and the local labour administration. In the case of dismissal to reduce staff numbers, dismissed workers are entitled to compensation dependent on their length of service (DDFIL, 2003, p.4).
The parties to a fixed-term employment contract shall notify each other respective intentions at least 15 days prior to the expiry of such contract. Where they wish to continue their employment relationship, they shall conclude a new employment contract.
Article 16 states that ‘...An employment contract may be terminated by dismissal where the worker concerned lacks the required specialised skills, where the worker is not in good health and therefore cannot continue to work, or where the employer considers it necessary to reduce the number of workers in order to improve the organisation of work within the labour unit’ (DDFIL, 2003, p.4).
In the event of the termination of an employment contract on any of the above-mentioned grounds, the employer shall pay the workers concerned compensation according to their length of service. Such compensation amounts to 10 per cent of the monthly salary that was paid at the time of termination for each month of service. For workers who have worked for more than three years, the compensation shall be 15 per cent of such salary for each month of service.
For workers who are paid on a piece-rate basis or whose wages are not clearly fixed, the calculation of compensation shall be made on the basis of the average salary or wage that the workers received during the three months prior to termination.
The labour law prohibits foreign firms to employ persons under 18 years of age to perform arduous work or work which is damaging to their health, including all mining and quarrying work; work involving chemicals or explosives and poisonous substances; other work specified under Article 25 of this law; work at night in all branches of industry from 10 p.m. to 5 a.m. the next morning; this period shall be included in the 11 hours of rest before resuming work on the next day. Furthermore, employment of young workers under 15 years of age in all socio-economic sectors is prohibited (DDFIL, 2003, p.3).
In addition to the above requirements, the Foreign Investment Law and Labour Law require foreign investors to give priority to Lao citizens when hiring staff. In line with the government's commitment to attract inward investment, foreign companies have the right to employ skilled or expert foreign personnel when necessary and with approval from the relevant authority. Investors are required to upgrade the skills of their local employees through training within the Lao PDR or abroad.
9. Proposed Changes to Current Investment Policy
Government officials are considering ways to reduce the bureaucratic impediments that foreign investors face when applying to invest in Laos. The government is examining ways to improve investment laws, focusing on investment incentives such as special privileges, tax waivers and collection and customs procedures, speeding up and simplifying application procedures (Pansivongsay, Vientiane Times, 28/01/2005). It is likely that the government may allow foreign investors to receive the same treatment of tax and tariff incentives as domestic investors. Under this system, investments in "promoted industries" would receive tax and duty reduction incentives, but investments in other sectors would pay the normal corporate profit tax, turnover tax and duty rates (DDFIL, 2003). If and when Laos becomes a member of the WTO it is likely that foreign investors receive the same treatment of tax and tariff as domestic investors.
The deputy director of the Planning and Co-operation Department of Savannakhet, Sython Nantharat, comments “...Laos is at a disadvantage to Thailand and Vietnam if it relies on its existing investment laws. The current laws don’t protect the country in such things as tax collection” (Vientiane Times, 10 March 2002). Laos is making investment easier by making procedures faster, accepting documents for processing every Friday. According to Vientiane, Deputy Mayor, Dr. Sinlavong Khoutphaythone, “...If the project needs Government permission, the investor will receive an answer within seven days, faster than the 60 days specified in law. For projects worth up to US$5 million, Vientiane is empowered to make the decision, and will answer within 14 days. He added that this easing has been in operation since the start of the year” (Pansivongsay, Vientiane Times, 28/01/2005).
10. Conclusion
This paper reviewed the legal and regulatory framework for foreign investment in Laos including Investment Promotion Act, recent changes to FDI law on promotion and provisions of the Investment Promotion Act.
The Lao government promulgated the Law on Foreign investment in April 1988, which sets the procedures governing foreign investment. It has drawn much of the law from China and Vietnam. However, the foreign investment law of Laos is more flexible than the Chinese or Vietnamese laws. One of the unique features concerning wholly foreign owned investment enterprises in Laos is that there is no restriction on the activities in which a wholly foreign owned investment expertise can operate. Investment can be 100 per cent foreign owned and can take the form of a new company or a branch or representative office of a foreign company. The Foreign law requires business to be approved and be issued the appropriate licences by the state in order to operate. The law provides that businesses shall have freedom over their assets and be able to operate freely.
Since 1994, foreign investment law in Laos has been governed by the Investment Promotion, which are the laws on the Promotion and Management of Foreign Investment (1994), Law on Domestic investment (1995), the Business law (2004), the Customs law (1994), and Tax law (1998). Other laws governing foreign investment include mining law, land law, labour law and electricity law. The 1994 investment promotion law was revised and issued by the Prime Minister on 22 October 2004. The 2004 law is based on the law on the promotion and management of Foreign Investment (1994), the Business law (1994), the Customs Law (1994), and the Tax Law (1995). The revised law on the Promotion of Foreign Investment (2004) came into effect on 14 January 2005.
The laws and regulations have been revised recently to create a more favourable investment climate. The Lao government has provided a wide range of tax and non-tax incentives on investment projects within the SEZs, reduction on import taxes and tax on foreign corporate profit that is lower than for domestic enterprises. There are issues concerning unclear rules in the law on investment promotion such as investment barriers, services barriers and electronic commerce barriers.
The first SEZ was established in 2003 in Savannakhet province of Laos. Economic sector zones promoted in the Zone are as follows: Export (oriented) processing zone, Free trade Zone; and Free Service and logistics centre. Duty incentives were introduced in order to encourage foreign investors into the SEZs. The main incentives offered
include exemption of turnover tax, exemption of utilization (consumption tax) and exemption of minimum tax.