Tax Guide for US Expats Living and Working in Laos
Who Is Liable For Income Taxes in Laos
Resident Lao nationals are subject to personal income tax on their Laos-source income and foreign-source employment income. However, they are not taxed on their foreign-source income if they work abroad for less than 180 days and if their foreign-source income is taxed in the source country. Nonresident Lao nationals are subject to personal income tax on their Laos-source income only.
Resident foreigners are subject to personal income tax both on their Laos- and foreign-source income. Nonresident foreigners are subject to personal income tax on their Laos-source income only.
Residence for tax purposes is not based on an individual’s nationality, place of birth or place of domicile. Instead, tax residence status is determined by the duration of the individual’s stay in Laos. A person who spends more than 180 days in Laos is taxed as a resident.
Income subject to tax. The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. Taxable employment income includes income from salary, general labor wages, bonuses, position and title honoraria, annual allowances, allowances relating to board of directors meetings of a company and other benefits received in cash or in-kind.
Income received in foreign currency is converted to Lao kip in calculating taxable income.
The following items of employment income are exempt from tax:
- Salary below LAK 300,000
- Salaries of foreign experts implementing aid projects in Laos, as provided for in an agreement between the Lao government and the relevant party
- Salaries of diplomats and employees of other international organizations located in Laos
- Certain types of allowances that are required to be paid under the labor law
- One-time allowances, pensions and per diems
- Income from artistic activities, sports, charity or other public activities that have been properly authorized
Self-employment and business income. Sole-trader enterprises that belong to Lao citizens and resident foreigners that carry out activities generating profit in Laos are subject to corporate profit tax rather than personal income tax. Lao and foreign individuals engaged in business in Laos are subject to 35% profit tax on their business income. Effective from 1 October 2011, the rate is 28%.
Income from produce that is grown and sold by farmers in Laos, such as rice and vegetables, is exempt from tax.
Individuals who have been licensed by the government to invest in projects and other priority areas in Laos may receive tax exemptions or pay profit tax at a reduced rate on a case-by-case basis in accordance with the law on promotion of investment. To receive tax exemptions or to pay tax at a reduced rate, investors must maintain a proper accounting system in accordance with the enterprise accounting law.
Investment income. Certain types of income are subject to a final withholding tax at the rates.ype
Deductions
Personal deductions and allowances. For Lao nationals, a monthly deduction of LAK 300,000 is allowed against employment income if the individual earns a monthly salary of no more than LAK 1,500,000.
Monies withheld for pension funds and certain other welfare funds, and spousal or child allowances are also deductible.
Rates. Foreigners employed in Laos are taxed at a flat rate of 10% on gross income, including any benefits in kind. For Lao nationals, income is subject to progressive rates up to 25%.
Relief for losses. The personal income tax system does not provide relief for business losses. Individuals who are subject to profit tax can carry forward losses for a period of three years.
B. Other taxes
Net worth, estate and gift taxes are not levied in Laos.
C. Social security
Contributions. The rates for social security contributions in Laos are 4.5% for employers and 5% for employees. These rates are applied to salaries up to LAK 1 million. Consequently, the maximum monthly contributions are LAK 45,000 for employers and LAK 50,000 for employees.
Coverage.
Social security applies to the following:
- Employees of state-owned enterprises, private enterprises and joint ventures
- Enterprises that employ 10 or more persons
- Enterprises that employ less than 10 persons but are part of a larger entity
Social security does not apply to the following:
- Employees of diplomatic missions and international organizations
- Foreigners employed by companies that have networks covering several countries and that are established in Laos for less than 12 months
- Lao employees assigned overseas for 12 months or more
- Civil servants
- Students or other trainees who do not receive wages from employers
To learn more about the history, culture, economy and other information about Laos
We have been preparing US income tax returns for US Citizens and permanent residents living in Laos for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Laos and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Laos.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email