Laos: VAT on cross-border provision of digital services

The Lao Tax Department (LTD) on 14 February 2024 issued Instruction No. 0558, which includes provisions requiring nonresident digital services providers to register for and collect value added tax (VAT), effective 1 August 2024.

Background

Laos first introduced VAT on cross-border digital services in February 2022, per Notification No. 0541/MoF on Taxation on E-Commerce and Digital Platform Services. This initial regime included a deemed profit tax (DPT) on income generated from digital services by nonresidents. However, following consultations, this regime was withdrawn for revision. Since then, the LTD has issued draft instructions that notably excluded the DPT. Instruction No. 0558 represents the final version of these amended rules and, notably also excludes the DPT.

Scope

Instruction No. 0558 imposes VAT of 7% (10% from April 2024) on the provision of digital services through the internet or other electronic channels, which includes the following non-exhaustive list of transactions:

• Online games, mobile application services, and online advertising services
• Digital products such as mobile applications
• Software programs
• Digital photos, videos, and financial information
• Digital music, movies, and games
• Provision of booking services for hotels, accommodation, and travel
• Distance learning through a recording system such as online teaching
• Electronic database management such as websites, web hosting, automation, and digital program maintenance
• Provision of (or assistance for) support for businesses, or individuals, through electronic networks
• Search programs such as specific search services
• Services which link buyers and sellers
• Listing services for products and services for sale on the online market or in online auctions
• Publication or transmission of images or sounds without interaction with the content provider
• Advertising services and advertising media
• Advertising services on nonpersonal media platforms
• Support services that operate electronically to prepare and facilitate the completion of transactions that may not be in digital form, such as fees for middlemen and service fees for users and stores transacting a sale of goods through an electronic market

The Instruction excludes the following services from the scope of the amended regime:

• Live teaching services delivered by an instructor transmitting course content on the internet or electronic network
• Services provided by specialized experts with human involvement and features that do not operate automatically, such as consulting services conducted by consultants through email communication or video chat
• Sales of newspapers, magazines, and textbooks in electronic format (e-books)

B2B v. B2C

The regime applies to covered services made to both businesses (B2B sales) and final consumers (B2C sales) located in Laos. It considers B2B sales as sales made to VAT-registered persons. 

Marketplace rules

In the case of services provided via a digital platform, the operator of the platform will be considered the provider and will bear the responsibility of charging and collecting VAT for sales made by third-party resident and nonresident vendors.

A taxpayer will be recognized as an electronic digital platform operator if they participate in any of the following activities:

• Directly or indirectly setting the terms and conditions for the provision of digital services
• Directly or indirectly involving in payment processing activities for digital services
• Directly or indirectly involving in activities related to the delivery of digital services
• Providing support services to customers in relation to the provision or use of digital services

Moreover, any invoice or other documents given to a customer for digital services must clearly detail the service provided, either entirely or partially, by the digital platform operator.

Registration

The Instruction does not include a registration threshold. Once the activity falls within the scope, the nonresident must register and secure a tax identification number (TIN) from the LTD. From March 2024, taxpayers have the option to register in person at the LTD office, but they must appoint a legal entity to aid with this in-person registration process. Starting from May 2024, taxpayers can also register online through the LTD portal.

Compliance

VAT filings are to be submitted via the LTD portal. VAT returns and corresponding payments are required three times per year as follows:

• 1st filing: Reporting period from January to April to be filed by 31 May
• 2nd filing: Reporting period from May to August to be filed by 30 September
• 3rd filing: Reporting period from September to December to be filed by 31 January of the following year

VAT invoicing

The regime requires taxpayers to issue VAT invoices to B2B customers but not B2C customers.

Penalties and interest

In addition to the standard penalty provisions in the tax code, the LTD has the authority to propose a temporary suspension or termination of the digital trade and digital service channels for those who violate the Instruction. It can also suggest the suspension or cancellation of the payment channels of service providers.

For more information, contact a KPMG tax professional:

John Andes | jandes@kpmg.co.th

Solida Bouddavanh | sbouddavanh@kpmg.com

Philippe Stephanny | philippestephanny@kpmg.com

Chinedu Nwachukwu | chinedunwachukwu@kpmg.com