After two years of internal preparation [1986-1988], the Government has launched an open policy for foreign direct investment[FDI] A law on foreign investment in July 1988 were adopted by the People's Assembly at the time. This law was an omnibus legal document. At the time, the laws were not so developed, but for rendering possible the launched open policy 4 the Government, the law of 1988 has to contain all aspects of legal matters.

After some 5 years of experience in dealing with FDI, the National Assembly has adopted a new law on the Promotion and Management of foreign investment on march 14,1994 and this new law is effective from July 1, 1994. The essence of the new law is to favor the promotion of more investment and to make foreign investment in the Lao PDR more attractive.

Under the law, foreign investors shall be free to operate their enterprises within the limits of laws and regulations of the Lao PDR and without interference of the Government in the business management of such . enterprises. This clause is to mark at the outset, the difference between the management of the enterprises during the era of planning with the prosperous State- enterprises operated since 1975 and prior to the introduction of the new economic mechanism [NEM] in 1986 and the management of the enterprises under the era of the market-oriented economies under the NEM.

The law encourages foreign investors to invest capital and to favour the development of investment which shall have significant positive impacts on socioeconomic development of the Lao PDR. Such impacts may be resulted from successful operation of productives enterprises, proper transfer of technology, creation of local employment, promotion of exports of Lao goods ans services and their access to foreign markets, achievement of import substitution, generation of Government revenues, contribution for enhancement opportunities for domestic investment.

The law gives necessary protection of investment. Its article 3 stipulates specifically the " the property and .investment in the Lao PDR of foreign investors shall be fully protected by the laws and regulations of the Lao PDR. Such property and investments may not be requisitioned, confiscated or nationalized except for a public purpose and upon payment of prompt, adequate and effective compensation".

The above highlighted points are intended to clearly announce that the Government is firmly determined to engage in its open-policy towards foreign investment, to have some expectation from such investment and to settle a new climate of confidence for our partners through the law.

The new law introduces some changes and, substantially, its covers the following :

Promoted sectors and introduction of negative list

Foreign investors may invest and operate in all fields of lawful economic activity. The permitted sectors are agriculture and forestry, manufacturing, energy, mineral extraction, handicraft, communication and transport, construction, eco-tourism, services and others. The new law introduce some negative list" for project which shall be detrimental to national security, national environment public health and national culture. Project which violate the laws and regulations of the Lao PDR is also on the negative list. However, any project, big or small, shall be screened by the FIMC.

Form of investment

The law recognized 2 forms of investment : a joint-venture and a wholly foreign-owned enterprise. The "cooperation by contract" of prior law is no longer maintained simply because of the contract law. The new law allows however the project "agreement" to be entered into by and between the Government and the investors, particularly project involving natural resources exploitation and energy ,, generation. After such Agreement, the incorporation of the company shall be either in the form of Joint-Venture or wholly foreign-owned.

Taxes

The new law introduces a uniform flat rate of 20% corporate income tax. Such rate shall generally be applied to companies.

In introducing such low flat rate on income tax, the new law, in contrast with prior law, prescribed that no tax holiday shall be permitted except in highly exceptional cases. Only the Government shall have the competence to take specific decision on granting special privileges and benefits. exemption or reduction- for foreign investment.

Import duty

The law introduces an uniform flat rate of 1% import duty on equipment, means of production,, spare-parts and other materials for the investment project not for purpose of sale or rental or personal use. Such rate shall generally be applied to companies.

Other taxes, duties and fees

Other lao taxes, duties and fees shall be payable in accordance with the applicable laws and regulations of the Lao PDR.

Accounting system

Enterprises established in the Lao PDR have to utilize the national accepted after large including with the accounting system. Such system is internationally consultations and studies with foreign experts, international Audit firms.

Management

The Foreign Investment Management Committee ["FIMC"] is maintained as such. It is an Agency in charge of making decision on investment.

The new law permits the FIMC to establish a 11 one-stop-Service" within its Permanent Office for assisting, licensing and monitoring all foreign investment in the Lao PDR.

The new law prescribes that foreign investment licensing decision shall be taken by the FIMC within 60 days [instead of 90 days under prior law] thus upon receipt of completed application and supporting documentation required by the FIMC.

As a focal point the Permanent Office of the FIMC has to consult with the ministries and provincial authorities for views on project which shall be given within 20 days. Do note that project which shall be located in Provinces shall have the views of the provincial authorities. Theses ministries and Provincial authorities shall have the responsibilities to perform their respective monitoring and enforcement obligation on foreign investment.

Relation with prior law

The prior law shall cease to have its effects upon the entry into force of the new law but without prejudice to the right and Privileges granted under prior law and, the obligations imposed upon by such prior law.

Upon the entry inter force of the new law, the FIMC has delivered about 478 foreign investment licenses. Prior investors may choose to remain under the regime of the prior law with the understanding that their rights and obligations shall be strictly observed or they may petition for transfer to the regime of the new law.

The FIMC has perfectly realized that among Investment under prior number were licensed under the form of "business by contract". particularly with the Government. Certainly, the Government shall honour one�s signature and in case of petition for transfer, the contract shall be renegotiated.

Before ending my presentation, I would like to let you know that after the open-policy of the Government since 1988, and up to December of 1994, some 544 investment projects were licensed by the FIMC with the aggregate value of about 1.1 billion US dollars. 30 nationals have committed to invest in the Lao PDR.

The Lao PDR has its own potentialities such as the availability of land, low cost labour, low cost of electricity, proximity to the big neighboring markets, unexploited natural resources, its location as being at the center of .SEA and particularly the political stability.