Government to Tax Land Title Transfers

Land Title Tax
Laos is in the middle of a property boom, and it has caught the attention of the tax collectors and legislators. The result: a 5% income tax on the sale or transfer of land and/or buildings (real property) introduced in the Amended Tax Law No. 05/NA, dated December 20 2011 (amended tax law). This new obligation takes aim at individual taxpayers; taxpayers which have historically enjoyed tax-free gains on real property transactions. Notably, the legislation specifically includes transfers distinctly from sales to ensure transactions with no consideration are caught – perhaps an inclusion with transactions between relatives and the like in mind. Income from the sale or  transfer of real property by business taxpayers – for real property which is a registered business asset recorded in the balance sheet – is not caught by the new provisions. These business taxpayers are required to declare and pay taxes based on actual income as recorded in their accounts – though the amended tax law confusingly labels this tax-exempt income under the income tax provisions in Part IV, Chapter 2. Importantly, the transfer of real property which is the result of an inheritance between vertical line relatives (parents, spouses and children) is specifically exempted from taxation under the amended tax law.

 

Methodology
The amended tax law is silent on determination of the income amount subject to tax, only providing the right to tax and stipulating the rate. Thus taxpayers have  been in the dark as to how the tax might apply in practice. The associated implementing regulations of the amended tax law were slated for ratification by the Lao authorities before the end of 2012, and will provide further detail on the calculation basis. It is expected that the 5% income tax will apply to the gross income from the sale or transfer, rather than net income. Perhaps this is an acknowledgement that taxpayers – particularly those who have held real property on a long-term basis, previously not concerned with tax implications – may not hold the appropriate documentation to determine the net income on a transaction. Nonetheless, the method no doubt provides for simple administration in collecting income tax on real property gains in a developing tax jurisdiction.

 

Enforcement
The secret weapon in enforcing this new tax obligation will be the expected requirement that a certificate of tax remittance be presented to the authorities responsible for transferring ownership, before ownership can in fact be transferred. It is expected that should transfer of ownership be affected by the relevant authorities in the absence of a tax remittance certificate, the associated tax liability and any applicable penalties will be the responsibility of that relevant authority, which is unlikely.

By Daniel Harrison

VDB LoiVDB Loi is a specialized law and tax advisory firm with more than 60 commercial lawyers and tax advisors across our offices in Cambodia, Indonesia, Laos, Myanmar, Vietnam and a liaison office in Singapore. The office in Laos is a leading provider of tax and investment licensing advisory services. VDB Loi provides the highest quality solutions for transactions and taxation.

 

 

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VDB LoiDaniel Harrison (daniel.harrison@vdb-loi.com)
VDB-Loi
???????: +85 62 145 4679
????????: www.vdb-loi.com

 

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Revolution Translation Asia