The DDFI automatically awards all approved foreign investors an incentive tax rate of 20 percent, compared to the general tax rate of 35%. Unlike most other countries, this 20 percent rate applies to foreign investment in all sectors of the economy and does not depend on company or performance. Foreign investors must pay a 10 % dividend withholding tax. Foreign investors and expatriate personnel pay a flat 10 % personal income tax.

There is a minimum tax on all companies (unless tax holidays are granted) of 1% of turnover, i.e., foreign-owned companies pay either 20 % tax on profits or 1 % tax on turnover, whichever is greater. In special cases, primarily for hydroelectric projects or resource-based development projects, tax holidays can be negotiated.

As an incentive to all foreign investors, a duty of only 1 % is charged for imports of capital equipment, spare parts, and other means of production. No duties or import turnover taxes are payable on any imported inputs for export production. Foreign investors whose products substitute for imports can negotiate incentive duties and turnover taxes on imported inputs on case by case basis.

At present, an administrative ruling of the Minister of Finance allows all imports subject to incentive duty rates to be free of turnover tax and excise tax. Producers, whose output is sold on both the domestic and export markets, pay no duty on the inputs for export production and a negotiated rate on inputs for import substituting production. This simple system obviates the necessity of instituting cumbersome duty drawback systems or creating free trade or export processing zones.

In the future, however, the government may move to a system in which foreign investors face the same tax and tariff incentives as do domestic investors. Under this system, investment in "promoted industries" would receive tax and duty reduction incentives, but investment in other sectors would pay the normal corporate profit tax, turnover tax and duty rates.

The government provides the following incentives to all foreign investors:

1. Permission to bring in foreign nationals to undertake investment feasibility studies.
2. Permission to bring in foreign technicians, experts, and managers if qualified Lao nationals are not available to work on investment projects.
3. Permission to lease land for up to 20 years from a Lao national and up to 50 years from the government.
4. Permission to own all improvements and structures on the leased land, transfer leases to other entities, and permission to sell or remove improvements or structures.
5. Facilitation of entry and exit visa facilities and work permits for expatriate personnel.

The government also offers guarantees against nationalization, expropriation, or requisition without compensation.

Under the FI Law, the government does not offer incentives of import protection (in the form of increasing duties or banning imports) for import substituting investments and it does not provide measures to restrict further entry to reduce competition for current investors. The policy of not reducing market competition as an incentive for investors is not a feature of the foreign investment systems of most other countries, such as Thailand and Vietnam, in the region.