Hot Tax and Investment Issues when Structuring Investment into Myanmar

Transcription

1 Hot Tax and Investment Issues when Structuring Investment into Myanmar

2 At a Glance Myanmar Laos Cambodia Vietnam Singapore 6 countries More than 50 professional staff Indonesia Our Vision Southeast Asia s first full service international law firm with a major specialization in taxation Our Commitment We sell results, not time. We believe that you don t want our time. We believe you want results. That s our value. That s how we bill. 2

3 Our Practice Areas Tax Advisory Corporate tax planning strategies Tax-efficient market entry advisory services Real estate tax structuring Oil, gas and mining tax services Customs and excise advisory Mergers & acquisitions and tax due diligence International and regional tax optimization Transfer pricing advisory and benchmarking Taxation of banks, insurance & financial services Controversy and litigation in tax matters Government Relations In a region where regulations and legal precedents are not always clear, local knowledge and relationships are the key to getting results. Our advisers excellent and long-standing working relationships with government authorities throughout the region enable us to advise you on relationships with government agencies and provide strategic guidance on maneuvering the intricacies of a country s regulatory and legislative framework. Legal Advisory Mergers & acquisitions (cross-border and single market) Real estate projects (including legal structuring) Corporate & commercial law Investment licensing and market entry Capital markets Compliance (including FCPA and regulatory compliance) Trade (treaty analysis and anti-dumping) Infrastructure, mining and energy (including project financing) Intellectual property Corporate Advisory Expatriate employee tax services Payroll administration Corporate tax compliance Accounting services 3

4 Contents Forms of Entity for Foreign Investment / Residency Investment Licensing Tax Incentives (MIC Permit) Corporate Income Tax Features Withholding Taxes Commercial Tax Personal Income Tax Treaties and Agreements Withholding Tax and Capital Gains Capital Gains on Myanmar Shares and Oil & Gas Interests Taxing right under the DTAs? Holding Structures for Investments in Myanmar: Labuan vs. Singapore Example: Tax Efficient Holding Structure Financing Structures: Case Study Profit Extraction Alternative Structures to Repatriate Income Income Derived from Myanmar: No presence in Myanmar Permanent Establishment Withholding Tax 4

5 Forms of Entity for Foreign Investment / Residency The forms of business for foreign investment in Myanmar are: Foreign-owned company (in the form of an LLC, sole proprietorship, partnership) Joint venture Branch The most common forms for foreign investors are an LLC or branch A resident company is a company as defined and formed under the Myanmar Companies Act of 1913 or any other existing law of Myanmar (i.e. the Myanmar Foreign Investment Law) A branch is a non-resident 5

6 Investment Licensing DICA Directorate of Investment & Company Administration Company set up for locally owned or foreign-owned companies and branches MIC Myanmar Investment Commission List: Agriculture Livestock and Fishery Forestry Mining Industry Construction Transport Road transport and repair services Hotels and tourist industries 6

7 Tax Incentives (MIC Permit) Incentive Mandatory: 3 Year Income Tax Exemption Discretionary: Extension of Income Tax Exemption Income Tax Exemption for Reinvested Funds Accelerated Depreciation Export Income Tax Relief Right to Pay Foreign Employee Income Tax Deduction for R&D Expenses Loss Carry forward Customs Duty Exemption 7

8 Corporate Income Tax Features 25% CIT for Myanmar companies, foreign-owned resident companies, joint ventures and non-resident foreign companies engaged in special State sponsored projects 35% CIT for branches, except if granted an Investment Permit by the Myanmar Investment Commission (25% CIT) Tax exemption under the Foreign Investment Law (FIL): 3 years; expected to be extended to 5 years under the new FIL (not 8 years, as was incorrectly reported) Losses may be carried forward for 3 consecutive years following the end of the exemption period 8

9 Withholding Taxes Payment type Paid to Residents Paid to Non- Residents Dividends 0% 0% Interest 0% 15% Royalties 15% 20% Procurement of goods (excluding imported goods) Services (performed in Myanmar or abroad) 2% 3.5% 2% 3.5% Notes: Rates amended effective 26 August 2011 (Notification 167/2011) Tax is triggered by receipt of payment or accrual WHT on payments to residents in not a final tax, but tax on payments to nonresidents is a final tax 9

10 Commercial Tax Was significantly amended in 2012 Old: 6 rates (exempt, 5%, 10%, 20%, 25% and 30%-200%) New: exempt, 5% or 8%-100% Schedule 1: 70 types of goods Domestic production or domestic sales are exempt Importation subject to CT at 5% Schedule 6: Specific goods Including alcohol, fuel and cigarettes CT applies for both importation and domestic sales Schedules 2, 3, 4, 5 and 7 now at 5% including 14 types of services Including hotel, restaurant, transport, entertainment, trading services, tourism, insurance (except life), broker, advertising/movie distribution and agent/accounting/legal services 10

11 Commercial Tax Threshold for operators to apply CT was introduced this year Credit system Yes, but not for all operators (depends on activity) Recent update: credit possible for downstream petroleum products (Notification 323/2012) Exemptions for agriculture sector (Notification 288/2012) Special Economic Zones 11

12 Personal Income Tax Foreigners who reside in Myanmar for 182 days or more during the financial year are considered as resident foreigners. Previously, resident foreigners were taxed at a flat rate of 15%. From 1 April 2012, progressive rates of 1% to 20% now apply to both resident foreigners and resident Myanmar citizens. In addition, an expatriate working for a foreign-owned company incorporated under the FIL is deemed to be a tax resident of Myanmar, regardless of period. Non-residents are taxed at a flat rate of 35%, except under certain circumstances. Myanmar Income Tax Rates on Salary Residents and Citizens Non- Residents 1%-20% 35% Progressive rate, allowances Flat rate 12

13 Treaties and Agreements Double Taxation Agreements Bangladesh (signed, but not in force) India (in force) Indonesia (signed, but not in force) Korea (in force) Malaysia (in force) Singapore (in force) Thailand (in force) United Kingdom (in force) Vietnam (in force) Laos (signed, but not yet in force) Note: negotiations in process with 4 more countries Bilateral Investment Treaties concluded China Philippines Laos Thailand China India Kuwait ASEAN Comprehensive Investment Agreement (ACIA) Member states: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam 13

14 Withholding Tax and Capital Gains Myanmar Tax Rates Non-residents Dividends 0% Interest 15% Royalties 20% Services/ goods 3.5% DTA with Singapore Dividends 5-10% Gains on shares: Interest 8% - banks; 10% -others Royalties 10-15% Service PE if > 6 months, no general WHT Gains 40% (oil/gas %) Myanmar may tax if (1) participation is at least 35% and the alienated shares amount to at least 20% of the holding or (2) company consists principally of immovable property DTA with Thailand Dividends 10% Gains on Interest 10% Royalties % Service 10% (deemed as royalty) DTA with Korea shares: Myanmar may tax if (1) participation is at least 35% or (2) company consists principally of immovable property Dividends 10% Gains on Interest 10% Royalties 10% Service PE if > 6 months shares: Myanmar may tax if (1) participation is at least 35% or (2) company consists principally of immovable property DTAs in force at 1 August 2012 Rate reduced to 10% 14

15 Withholding Tax and Capital Gains Myanmar Tax Rates Non-residents Dividends 0% Interest 15% Royalties 20% Services/ goods 3.5% Gains 40% (oil/gas %) DTA with UK Dividends 0% Interest No DTA article Royalties 0% Service No DTA article No article on capital gains DTA with Vietnam DTA with India Dividends 5% Interest 10% Royalties 10% Service 10% (deemed as royalty) Gains on shares: Myanmar may tax DTAs in force at 1 August 2012 DTA with Malaysia Dividends Interest 10% 10% Gains on shares: Myanmar Royalties 10% may tax if (1) participation is at least 35% or (2) company Service 10% consists principally of immovable property Dividends 10% Interest 10% Royalties 10% Service 10% Gains on shares: Myanmar may tax 15

16 Capital Gains on Myanmar Shares and Oil & Gas Interests Tax on Capital Gains Residents 10% Non-residents 40% Oil & gas sector 40% for gains up to US$100M; 45% for gains between US$100M and US$150M; and 50% for gains above US$150M Income Tax Law Capital assets include Assets of an enterprise Land Shares Compliance: tax return is due within 1 month following execution of the transfer or the date of delivery of the asset, whichever is earlier. 16

17 Capital Gains on Myanmar Shares and Oil & Gas Interests Taxing right under the DTAs? Myanmar-Singapore DTA Article 13: Capital Gains 1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State. 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State. 3. Gains from the alienation of ships or aircraft operated in international traffic, boats engaged in inland, waterways transport of movable property pertaining to the operation of such ships, aircraft or boats shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated. 17

18 Capital Gains on Myanmar Shares and Oil & Gas Interests Taxing right under the DTAs? 4. Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in a Contracting State may be taxed in that State. 5. Gains from the alienation of shares of a company other than those mentioned in paragraph 4 may be taxed in the Contracting State of which the company is a resident but only if: a) The shares held or owned, directly of indirectly, by the alienator amount to at least 35 percent of the entire share capital of such company at any time during the fiscal year in which alienation takes places: and b) The total of the shares alienated by the alienator during the fiscal year in which the alienation takes places amounts to at least 20 percent of the aggregate of his holding in the share capital of such company at the beginning of such fiscal year and any acquisition of the shares in that year. 18

19 Capital Gains on Myanmar Shares and Oil & Gas Interests Taxing right under the DTAs? 6. The tax on the gains from the alienation of property referred to in paragraphs 1,2,4 and 5 shall not exceed 10 percent of such gains. 7. Gains from the alienation of any property other than that referred to in paragraphs 1,2,3,4 and 5 shall be taxable only in the Contracting State of which the alienator is a resident. 8. Notwithstanding the provisions of the preceding paragraphs, gains derived by the government of a Contracting State from the alienation of property referred to in paragraphs 1,2,4 and 5 shall be exempt from tax in the other Contracting State. The term Government shall have the same meaning as provided in paragraphs 4 of Article

20 Capital Gains on Myanmar Shares and Oil & Gas Interests MOGE Singapore Holding Co 100% Myanmar-Singapore DTA Article 13(6): The tax on the gains from the alienation of property referred to in paragraphs 1,2,4 and 5 shall not exceed 10 % of such gains. PSC Singapore SPV Interest in PSC 20

21 Capital Gains on Myanmar Shares and Oil & Gas Interests Oil Companies Shareholders of SPV Oil & Gas Myanmar Income Tax Law - Cap. gain 40/45/50% - Includes non-residents MOGE PSC SPV Oil & Gas PSC & Side letter - Tax rate? - Refers to Myanmar Income tax law - Calculation of gain? - Impact of recovery petroleum? BLOCK Myanmar DTAs Article 6 & 13(1) Article 5 Article 13(4) Article 13(5) Is a block immovable property? Does holding rights to a block trigger a PE? Is disposal of an interest in a block equivalent to disposal of a PE? Is a company that holds an interest in a block principally holding immovable property? 21

22 Holding Structures for Investment in Myanmar: Labuan vs. Singapore Malaysia (Labuan) DTA with Myanmar: cap gains taxed at 0-40% 0%: alienated shares > 35% and not principally holding immovable property 40%: others Malaysia does not tax capital gains Labuan taxes by means of a fixed fee or at 3% rate Singapore DTA with Myanmar: cap gains taxed at 0-10% 0%: alienated shares > 20% and participation held > 35% and not principally holding immovable property 10%: others Singapore does not tax capital gains (but some short term gains may be deemed profit) 22

23 Example: Tax Efficient Holding Structure In case of divesting Singapore Holding Co: no tax in Singapore In case of divesting Myanmar Co: cap. gain at 10% Cayman Co 100% Singapore Holding Co 100% Myanmar Foreign Invested Company Dividend No WHT Key points of attention: Obtain a Certificate of Residence from Singapore IRAS, which may depend on substance and shareholding Myanmar dividends not taxed in hands of Singapore Co ( tax sparing ) Stamp duty Obtain approval from Myanmar IRD (CCTO) for application of DTA PROJECT 23

24 Financing Structures: Case Study 100% Fund LLP Cayman Financing Structure A: SPV lends directly to Project Co Myanmar WHT = 15% on interest Cayman SPV Capital 100% Loan Project Co, LLC Myanmar HOSPITALITY PROJECT 24

25 Financing Structures: Case Study 100% Fund LLP Cayman Cayman SPV Pledge Singapore Bank Financing Structure B: SPV provides cash pledge to Singapore Bank Bank provides back-to-back loan to Project Co Myanmar WHT = 8% on interest Capital 100% Loan Loan Acceptable to Myanmar tax authorities? Project Co, LLC Myanmar HOSPITALITY PROJECT 25

26 Profit Extraction Shareholders Holding Company Myanmar Project Co (foreign invested LLC) Dividend Corporate Income Tax 25% tax rate (35% for branch) 3/5 year tax holiday Reinvestment reserve 50% reduction on export profits Accelerated depreciation possible Dividend Distribution No withholding tax Approvals for dividend needed Foreign exchange issues 26

27 Alternative Structures to Repatriate Income Shareholders Corporate Income Tax 25% tax rate (35% for branch) 3/5 year tax holiday Reinvestment reserve Supplier Holding and Procurement Company 100% Myanmar Project Co (foreign invested LLC) Purchase price for supplier and dividend 50% reduction on export profits Accelerated depreciation possible Dividend Distribution No withholding tax Approvals for dividend needed Foreign exchange issues 27

28 Income Derived from Myanmar No presence in Myanmar 3 Questions? Permanent Establishment Withholding Tax Personal Income Tax Myanmar WHT on Payments to Non-Resident Foreign Companies Services performed in Myanmar Services performed outside Myanmar 3.5% 3.5% Malaysia Singapore Thailand Goods (excluding imports) 3.5% 28

29 Permanent Establishment From Art. 5 (2) Art. 5 (3) (b) Myanmar-Singapore Malaysia Singapore Thailand A PE shall include especially [ ] a drilling rig, ship or aircraft used for exploration or exploitation of natural resources A PE shall include especially [ ] an installation, structure, drilling rig or ship used for the exploration or exploitation of natural resources but only if such exploration or exploitation is not preliminary or preparatory in nature - The term "permanent establishment" likewise encompasses: [ ] (b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or a connected project) within the country for a period or periods aggregating more than six months within any 12-month period. A PE shall include especially [ ] drilling rig, ship or aircraft used solely for exploration or exploitation of natural resources (and not specifically for the purposes of international traffic as referred to in Article 8) - 29

30 Withholding Tax Malaysia [Art. 13 on Technical Fees] Technical fees derived from one of the Contracting States by a resident of the other Contracting State who is the beneficial owner thereof and is subject to tax in that other State in respect thereof may be taxed in the first-mentioned Contracting State at a rate not exceeding 10 per cent of the gross amount of the technical fees. The term "technical fees" as used in this Article means payments of any kind to any person, other than to an employee of the person making the payments, in consideration for any services of a technical, managerial or consultancy nature. Singapore Thailand [In royalty article] - 10 per cent of the gross amount of the royalties for the consideration for any service of a managerial or consultancy nature 30

31 Thought Leadership 31

32 Professional Services Ahead of the Curve