If you employ even one person in Laos — a shop assistant in Vientiane, a cook in Luang Prabang, a part-time bookkeeper working from home — your July payroll was computed under a different tax law than your June payroll. The first LAK 2.5 million of every worker's monthly pay is now tax-free, nearly double the old LAK 1.3 million band, and the change arrived inside a full rewrite of the country's income tax law that also reshapes how your own business profits are taxed. Nothing about this happens automatically in your payroll spreadsheet. Here is what changed, what it saves your staff, and the short list of updates your books need.
What actually changed
On 25 June 2025, the Lao National Assembly passed a new Law on Income Tax (No. 88/NA), promulgated by presidential decree on 6 August 2025, published in the Official Gazette on 19 June 2026, and effective 1 July 2026. It replaces the 2019 income tax law outright. The headline change for employers and workers is the personal income tax (PIT) exemption: monthly employment income up to LAK 2.5 million (about $113.50) is now taxed at 0%, up from LAK 1.3 million (about $58.80).
Everything else about the rate structure stayed familiar. Income above the tax-free band is taxed progressively from 5% to 25%, and each rate applies only to the slice of income inside its bracket — a raise that pushes a worker into a higher bracket never taxes their whole salary at the higher rate. The new law covers salaries, wages, bonuses, allowances, and other employment income, so the relief reaches total monthly compensation, not just base pay.
The timing is deliberate relief. Laos spent several years fighting high inflation and a volatile kip that shrank real wages even as nominal pay crept upward — pushing workers into taxable territory on earnings worth less every month. The government paired the tax cut with an economy that grew 5% in the first half of 2026 while annual inflation slowed to 7.4% in June: room, finally, to give lower earners a break while still strengthening public finances.
The new monthly brackets, with the math shown
The monthly PIT table for both Lao and foreign individuals now reads as follows (all figures in millions of kip):
| Monthly income (LAK millions) | Rate | Tax on the full band |
|---|---|---|
| Up to 2.5 | 0% | 0 |
| Over 2.5 – 5 | 5% | 125,000 |
| Over 5 – 15 | 10% | 1,000,000 |
| Over 15 – 25 | 15% | 1,500,000 |
| Over 25 – 65 | 20% | 8,000,000 |
| Over 65 | 25% | 25% of the excess |
Walk through the example the Ministry of Finance published: a worker earning LAK 6 million a month (about $272) pays nothing on the first LAK 2.5 million, 5% on the next LAK 2.5 million (LAK 125,000), and 10% on the remaining LAK 1 million (LAK 100,000) — LAK 225,000 in total. Under the old threshold, that same worker paid 5% on LAK 3.7 million instead of LAK 2.5 million — LAK 185,000 on that band, or LAK 285,000 in total once the 10% slice is added. The new table cuts that bill to LAK 225,000, saving LAK 60,000 a month and roughly LAK 720,000 over a full year: modest in dollars, but more than half the old monthly tax-free allowance handed back.
Two subtler points deserve attention. First, the exemption threshold is no longer a fixed number in the statute: it is now linked to the statutory minimum wage, which currently sits at LAK 2.5 million a month. The next time the minimum wage rises, the tax-free band rises with it — no new decree required. Second, overtime income is now exempt from PIT for employees whose monthly salary does not exceed LAK 3 million, up from the old LAK 2 million ceiling. If you run a shop or restaurant where junior staff regularly work extra hours, that wider overtime shelter is worth knowing about before you quote anyone their take-home pay.
Your business profits got a new regime too
The same law rewrote the rules for microenterprises — the category most small Lao businesses fall into. Microenterprises now pay a uniform 5% corporate income tax on net profit, replacing the old activity-based regime that taxed turnover at different rates depending on what the business did.
That single sentence carries a sting: a tax on net profit requires knowing your net profit, which requires real books. The new law says so explicitly — businesses that fail to maintain proper accounting records or comply with reporting requirements may face compulsory taxation, where the tax office assesses you rather than the other way around. Under a turnover tax you could get away with a rough sales log. Under a profit tax, undocumented expenses are expenses you cannot deduct, and missing records invite an assessment you cannot easily dispute.
The law also repriced several other income types your business might touch: transfers of agricultural land for farming at 1% of total income; 2% on share sales, property transfers, land-use rights, and business income from agriculture, handicrafts, trade, and services where annual income exceeds LAK 100 million (about $4,528); 5% on lottery prizes above LAK 10 million, gifts or awards above LAK 5 million, intellectual property income, qualifying sports and entertainment earnings, and construction or repair services; and 10% on dividends, profit distributions, and other shareholder benefits, unchanged.
What to update in your payroll before the next run
Laos puts payroll compliance squarely on the employer: you withhold PIT from every salary each month, remit it with social security contributions by the 15th of the following month, and file an annual report of each employee's total pay and total withholding. The rate change does not alter that machinery — but every number inside it moved. Work through this list:
1. Recompute every employee's withholding from July onward
Do not just shave the difference off last month's figure. Re-run each salary through the new table from the first pay period on or after 1 July 2026, because the band boundaries interact with each pay level differently. Income paid earlier in 2026 may still fall under the 2019 rules, so mid-year joiners, back-pay, and bonuses earned before July need their period checked, not just their payment date.
2. Fix the overtime line separately
Overtime for staff earning LAK 3 million or less a month is now fully exempt. If your payroll template computes overtime tax by habit — same formula for everyone — split that line: exempt overtime for staff under the ceiling, normal marginal rates above it. Getting this wrong over-withholds from your lowest-paid workers, the exact group the reform was written for.
3. Show the change on the payslip
Workers who lived through years of inflation will notice extra take-home pay; show them it came from the tax line, not from you. A payslip that itemizes gross pay, the LAK 2.5 million exempt band, taxable balance, and tax withheld turns an abstract reform into a visible benefit — and gives each employee the paper trail they need if the tax office ever asks.
4. Keep withholding and net pay in separate ledger accounts
This is the bookkeeping habit that makes the whole system auditable. Each payroll creates three facts — the salary expense, the tax you owe the government on your employees' behalf, and the net cash your staff receive — and they belong in three places. A July payroll for one LAK 6 million employee looks like this:
2026-07-31 * "July salary — shop assistant, Vientiane"
Expenses:Payroll:Salaries 6000000 LAK
Liabilities:Payroll:PIT-Withheld -225000 LAK
Liabilities:Payroll:Net-Pay -5775000 LAK
2026-08-10 * "Remit July PIT withholding to Tax Department"
Liabilities:Payroll:PIT-Withheld 225000 LAK
Assets:Bank:Checking -225000 LAKWhen the remittance clears before the 15 August deadline, the withholding liability returns to zero and your balance sheet proves — without any extra reconciliation — that every kip withheld reached the tax office. If you track payroll in Beancount, the double-entry structure in the docs extends naturally to the employer social security leg, which is a genuine additional expense rather than a withholding.
5. Start the profit-tax paper trail now
With microenterprises moving to 5% of net profit, every deductible expense needs a receipt and a ledger entry. The discipline is simple: no record, no deduction, and possibly a compulsory assessment. File supplier invoices monthly, log cash purchases the day they happen, and reconcile the bank account before month-end rather than at year-end when the faded receipts have become unreadable.
Three mistakes to avoid
Applying the new threshold to pre-July income. The law took effect 1 July 2026. June salaries paid in July, second-quarter bonuses, and any arrears for earlier periods belong to the old regime. Date the income by when it was earned, then pick the table.
Treating the exempt band as a deduction from tax instead of from income. The LAK 2.5 million is taxed at 0% — it drops out of the computation entirely. A worker earning LAK 4 million owes 5% of LAK 1.5 million (LAK 75,000), not 5% of LAK 4 million minus something. This is the single most common payroll-table error, and it over-withholds from everyone.
Forgetting that foreign staff use the same table. The monthly PIT rates apply to both Lao and foreign individuals. If you employ expatriate managers or technicians, their withholding moves to the new bands on the same date — there is no separate foreign-worker schedule to leave untouched.
The bottom line for your next payroll run
Pull up your payroll sheet, replace the LAK 1.3 million exemption with LAK 2.5 million, re-run every salary through the six bands, split out the newly exempt overtime, and confirm the July withholding reached the tax office by 15 August. Then turn to your own books: under the 5%-of-net-profit regime, the receipts you file this month are the deductions you keep next year. The reform handed your workers real money and handed you a real record-keeping obligation — update the spreadsheet today, and both sides of that bargain stay in your favor.
