Introduction 1. Geography and climate 1. Population 1. Language 2. Business hours 2. Time 2. Public holidays 3

Transcription

1 LT 2017 version

2 Preface This book was prepared by EY Thailand and EY Myanmar. It was written to give the busy executive a quick overview of the investment climate, taxation, forms of business organization, and business and accounting practices in Myanmar. Making decisions about foreign operations is complex and requires an intimate knowledge of a country s commercial climate, with a realization that the climate can change overnight. Companies doing business in Myanmar, or planning to do so, are advised to obtain current and detailed information from experienced professionals. This book reflects information current at 30 April 2017.

3 Content Introduction 1 Geography and climate 1 Population 1 Language 2 Business hours 2 Time 2 Public holidays 3 A. Government structure and economic climate 5 A.1 Government structure 5 A.2 Economy 6 A.3 Leading industries 7 A.4 Financial system 8 A.5 Currency 9 B. Investment climate and foreign trade 10 B.1 Investment incentives 10 B.2 Special investment considerations 14 B.3 Regional and international trade associations and agreements 17 B.4 Major trading partners and leading exports and imports 18 B.5 Importing and exporting 18 C. Companies 20 C.1 Forms of enterprises 20 C.2 Mergers and acquisitions 22 C.3 Corporate taxes at a glance 22

4 C.4 Taxes on corporate income and gains 23 C.5 Determination of taxable income 25 C.6 Other significant taxes 27 C.7 Financial reporting and auditing 30 D. Individuals 32 D.1 Personal Income tax 38 D.2 Social security contributions 38 D.3 Tax filling and payment procedures 38 D.4 Tax treaties 38 D.5 Entry visas 39 D.6 Work permits 39 Appendices 41

5 Introduction Geography and climate The Republic of the Union of Myanmar, formerly known as Burma, is situated on the Indo-Chinese peninsula. It shares borders in the west with India and Bangladesh, in the east with Thailand and Laos, and in the north with China. It is flanked in the south by the Andaman Sea and the Bay of Bengal. Myanmar is the second largest country in Southeast Asia after Indonesia. Myanmar lies in the tropical zone and has three distinct seasons: summer, between March and April, with average temperatures of 35C to 37C ; the rainy season, between May and October, with average temperatures of 24 C to 35 C; and the cool season, between November and February, with average temperatures of 22 C to 37 C. Population The population of Myanmar was estimated million based on the result of the 2014 census and expected to reach approximately 54 million by the end of July The population consists of Burma, Doing Business in Myanmar 1

6 Shan, Kayah, Karen, Rakhine, Chin, Kachin, Mon and, other minority ethnic groups Most of the population are Buddhist and the rest primarily Muslim and Christian. Yangon, the nation s former capital, is the most populous city, but Nay Pyi Taw has been the capital city since November Language Burmese is the official language, and although the native language of only the Burma and related groups, it is spoken widely. English is often understood and used in urban and commercial circles. Currently, English is also used as a second language of instruction and it is seen as an important educational qualification. However, outside the large towns and tourism centers, it is spoken by a small minority of people. Business hours Normal business hours of most private offices are from 9.00 a.m. to 5.00 p.m., Monday to Friday; however, some companies also have working hours from 9.30 a.m. to p.m. on Saturday. Shops are normally open every day from 9:30 a.m. to 6.00 p.m. or later. Some retail shops like Capital Hypermarket and G&G open 24/7. Time Myanmar is six and a half hours ahead of Greenwich Mean Time (GMT). Time differences and approximate flying times from Yangon to some major cities are in the following table. 2 Doing Business in Myanmar

7 Hours ahead of or behind Yangon Flying time (hours) Bangkok Hong Kong Singapore Tokyo Sydney London New York Los Angeles Public holidays The following dates are observed as public holidays in The dates in italics vary from year to year, based on the lunar calendar Independence Day January 04 Union Day February 12 Peasant's Day March 02 Full Moon Day of Tabaung March 12 Armed Force Day March 27 MahaThingyan (Water Festival) long holidays April National Labour Day May 01 Full Moon Day of Kasong May 10 Full Moon Day of Waso July 8 Doing Business in Myanmar 3

8 2017 Martyrs' Day July 19 Full Moon Day of Thadingyut October 4-6 Full Moon Day of Tazaungmoe November 2-3 National Day November 13 Kayin New Year December 18 Christmas Day December 25 International New Year Eid Diwali (Deepavali) December X X 4 Doing Business in Myanmar

9 A. Government structure and economic climate A.1 Government structure For over a half century ( ) Myanmar was under the control of military juntas, but in the past few years, it began a transition from an authoritarian military system to democratic governance with the passage of a new constitution establishing the rights of citizens to elect their representatives in the government. Under the 2008 constitution, the national assembly (Pyidaungsu Hluttaw) consists of two chambers House of Nationalities or upper house (Amyotha Hluttaw) and House of Representatives or lower house (Pyithu Hluttaw). There are 224 members in the House of Nationalities, 168 of whom are directly elected and 56 appointed by the Commander-in-chief of the Defence Services under the Myanmar Armed Forces. The House of Representatives has 440 members, 330 of whom are directly elected from townships and the remaining 110 are military personnel nominated by the Defence Services Commander-in-Chief. Members of the national assembly vote for the President, who serves a five-year term. Doing Business in Myanmar 5

10 The President, as the head of State has the power to nominate and appoint the cabinet with the approval of the national assembly. The current president and cabinet occupied in 1 April 2016, as a result of the November 2015 elections ushering in the first democratically elected government into office after decades of military rule. The President swiftly acted to restructure and consolidate the number of ministries in the government, reducing the number to just 22 from 36. A.2 Economy Myanmar is an emerging market attracting foreign investors from around the world due to the presence of hydrocarbon resources and its strategic location between China and India. Since 2011, the Myanmar economy has been in transition from a centrally planned economy to a market-oriented one. The major reforms relating to corruption, currency exchange rates, foreign investment law and taxation have been implemented to remove restrictions, constraints and obstacles to economic progress and encourage the development of the private sector. A major step of reformed was thereplacement of Foreign Investment Law (FIL) combined with Myanmar Citizen Investment Law and set out as to Myanmar Investment Law and Special Economic Zone Law (SEZ), which allows foreigners to conduct business in Myanmar in the varities lists of exemption and reliefs facilities for Business activities with or without local partners, and guarantees that foreign investments will not be nationalized. However, some businesses will continue to be controlled by the government to protect public welfare or local operators, and foreign participation is allowed only in the form of a Joint Venture with Myanmar citizens, under specific requirements. After the opening up of Myanmar markets, foreign direct investment has been increasing, with large inflows of capital flooding into the country. 6 Doing Business in Myanmar

11 Type of economy The government encourages both domestic and foreign investment by offering incentives through the Myanmar Investment Law (MIL) and Special Economic Zone law (SEZ). Small-and-medium sized enterprises are an area of business that the government willingly promotes. Foreign exchange controls now facilitate foreign investment and transactions can be conducted through stated-owned banks and private banks, including branches of foreign banks. General economic trends Myanmar has embarked on significant economic reforms to attract foreign investment and encourage locals to operate businesses in order to support economic growth. In addition, good corporative government and anti-corruption schemes have been emphasized as the current objective of the major reforms. As a newly opening market, Myanmar welcomes investors to utilize its resources for the purpose of such investment, since it is expected that through foreign investment, locals can be trained as skilled workers or technicians, especially in the industries of power sector, agro-based sector, aquaculture & fisheries, urbanization, extractive sector, forestry based sector telecommunication, infrastructure, manufacturing, and hotel and tourism. A.3 Leading industries Agriculture With approximately 60% of the population engaged in agriculture and around 19% of the land used for this purpose, agriculture remains a significant sector of the economy. The main agricultural products include rice, pulses, beans, sesame, groundnuts, sugarcane, hardwood, perennial plants, and fisheries. Doing Business in Myanmar 7

12 Energy and mining Myanmar is rich in natural resources, with large potential mineral resources such as jade, copper, gold, coal, tin, tungsten and nickel. Myanmar also possesses approximately 9.8 trillion cubic feet of proven natural gas reserves. The energy sector is an important industry in the country, generating over USD 4.3 Billion from exports in a record for the country and triple the production of a decade earlier, under the statistics from Ministry of Electricity and Energy. Manufacturing Myanmar is gaining an advantage from its strategic location between the two biggest emerging markets in the world: India and China. With low minimum wages of approximately USD per month, and tax incentives including Special Economic Zone benefits, Myanmar has become an attractive destination for manufacturers of products such as garments, Value-Added Production of Food and beverages. Services Service industries are the biggest contributor to Myanmar s GDP growth, with transportation and tourism as the main sub-sectors driving their growth, especially hotel and tourism businesses. Since Myanmar emerged from isolation, foreign tourist arrivals have risen from 1 million in 2012 to 2 million in 2013 and over 3.4 million in and 4.7 million in As most service industries are still at the beginning stage of development, the government has sought to develop their potential to meet international standards. 8 Doing Business in Myanmar

13 A.4 Financial system Central bank and bank regulators The Central Bank of Myanmar (CBM) is responsible for formulating and implementing monetary policy to maintain macroeconomic stability and promote domestic savings. It functions as the regulatory and supervisory authority for the banking industry and foreign exchange development. The Central Bank of Myanmar Law (2013) clearly states its primary objectives which are to preserve and maintain domestic price stability, as well as to promote monetary stability, enhance financial system stability, improve the payment system and support the government s economic policies for sustained economic development. Financial institutions The monolithic bank was dismantled and 4 banks emerged: Myanma Investment and Commercial Bank, Myanmar Economic Bank (MEB), Myanma Foreign Trade Bank (MFTB) and Myanmar Agriculture Bank. The Financial Institutions of Myanmar Law (The SLORC Law No.16/90) is repealed by Financial Institutions Law There are 13 Foreign Banks Branches and 48 Representative Offices of Foreign Banks and Finance Company operating in Myanmar. Even though the banking system is still being developed, an electronic banking network is available to facilitate the clearing system, electronic fund transferring and reporting systems among financial institutions. In addition, debit card, credit card, Union Pay, Western Union, Master Card, Visa Card and ATM systems are available in Myanmar. Securities market Yangon Stock Exchange (YSX), Myanmar s sole securities market was established in late 2015 in Yangon under the Securities Exchange Law. First Myanmar Investment Co., Ltd, Myanmar Thilawa SEZ Holdings Doing Business in Myanmar 9

14 Public Ltd, Myanmar Citizens Bank Ltd and First Private Bank Ltd are listed under Yangon Stock Exchange Market in 2016 and A.5 Currency Myanmar s official currency is the Kyat (MMK). The exchange rate is determined by a managed floating exchange rate system based on demand and supply in the market and the reference rate of the Central Bank of Myanmar. B. Investment climate and foreign trade B.1 Investment incentives Myanmar Investment Law InOctober 2016, Myanmar issued the new Myanmar Investment Law (MIL) combining the Foreign Investment Law with the Myanmar Citizens Investment Law. The purpose of the Myanmar Investment Law 10 Doing Business in Myanmar

15 is to encourage more investment by granting more incentives to foreign investor than the Foreign Investment Law In addition to the Myanmar Investment Law, the Myanmar Investment Rule was announced on 30 March 2017 to provide further guidance and detail the scope of Myanmar investment. In2017, four notifications issued pursuant to the Myanmar Investment Law clarifying the Designation of Development Zone, Prescribing investment capital amount for investment activities for State and Regional Investment Committees to issue endorsement order, classification of Promoted Sector and List of Restricted Investment Activities. The Myanmar Investment Commission (MIC) is a government agency established under the Myanmar Investment Law, and its duties cover foreign investment projects, e.g., assessing investment proposals, granting investment licenses, and clarifying terms and conditions of foreign investment, granting tax incentives on endorsement application. In April 2017, the Myanmar Investment Commission (MIC) issued the List of restricted Investment activities under the Myanmar Investment Law. The key changes are in relation to the following: - Investment activities allowed to be carried out only by the Union; Investment activities that are not allowed to be carried out by foreign investors ; Investment activities allowed only in the form of a joint venture with any citizen owned entity or any Myanmar citizen and Investment activities to be carried out with the approval of the relevant ministries Doing Business in Myanmar 11

16 Guarantees The Foreign Investment Law offers conditional guarantees against nationalization, arbitrary project termination and restrictions on the repatriation of foreign-sourced capital invested. Land lease Investors registered under the Myanmar Investment Law (2016) are entitled to lease land for up to 50 years, depending on the category of the business, industry and the volume of investment, and the leases may be extended for two further consecutive 10-year periods upon expiry of the initial period. These periods may be extended if the lease is in the least developed and a remote region. Employment Investor need to appoint skilled citizen and foreign workers, technicians, and staff by signing an employment contract between employer and employee in accordance with the labor laws and rules; and also need to appoint only citizens for works which does not require skill. Tax incentives As per New Myanmar Investment Law 2016 combining the Foreign Investment Law with the Myanmar Citizens Investment Law, the Commission may grant one or more tax exemptions or reliefs if the investor applies for such exemptions or reliefs. a) Corporate income tax exemption will be offered based on the zones: Zone 1: The regions and states that are least-developed Tax exemption of 7 consecutive years including the year of commencement of the business 12 Doing Business in Myanmar

17 Zone 2: The regions and states that are moderately developed Tax exemption for a period of 5 consecutive years including the year of commencement of the business Zone 3: The regions and states that are adequately developed Tax exemption for a period of 3 consecutive years including the year of commencement of the business b) Exemptions or reliefs from customs duty or other internal taxes or both on machineries, equipment, instruments, machinery components, spare parts, construction materials unavailable locally, and materials used in the business, which are imported as they are actually required, during the construction period or during the preparatory period of the investment business; c) Exemptions or reliefs from the customs duty or other internal taxes or both on the importation of the raw materials and partially manufactured goods conducted by an export-oriented investment business for the purposes of the manufacture of products for export; d) Reimbursement of customs duty or other internal taxes or both on imported raw materials and partially manufactured goods which are used to manufacture products for export; e) If the volume of investment is increased with the approval of the Commission and the original investment business is expanded during the permitted period of investment, exemption or relief from the customs duty or other internal taxes or both on machineries, equipment, instruments, machinery components, spare parts, materials used in the business, and construction materials unavailable locally, which are imported as they are actually required for use in the business which is being expanded as such. f) Exemption or relief from income tax if the profit obtained from the investment business that has obtained a permit or an endorsement is reinvested in such investment business or in any similar type of investment business within one year; Doing Business in Myanmar 13

18 g) Right to depreciation for the purpose of income tax assessment, after computing such depreciation from the year of commencement of commercial operation based on a depreciation rate which is less than the stipulated lifetime of the machinery, equipment, building or capital assets used in the investment; h) Right to deduct expenses which are incurred for the research and development relating to the investment businesses carried out within the Union and actually required for the economic development of the Union from the assessable income. Special Economic Zone (SEZ) Special incentives are most readily available to companies located in industrial estates run by the Republic of the Union of Myanmar. Currently, there are 3 Special Economic Zones in Myanmar, namely: - 1. Dawei Special Economic Zone: located in the Southern part of the country in the Tanintharyi Region 2. KyaukPhyu Special Economic Zone: located in the Western part of the country in the Rakhine State 3. Thilawa Special Economic Zone: located approximately 20 km south of Yangon, covering about 2,400 hectares of land, and offering the following special tax incentives to investors. 5-year corporate income tax exemption in the promotion zone 7-year corporate income tax exemption in the free zone 50% corporate income tax reduction for 5 years after expiry of the tax exemption period 14 Doing Business in Myanmar

19 50% corporate income tax reduction on profits re-invested within 1 year for 5 years after the end of the 50% corporate income tax reduction period Import duty exemption on raw materials, machinery and equipment in the free zone Import duty exemption on machinery and equipment for construction in the free zone 5-year import duty exemption on machinery and equipment imported for construction in the promotion zone, followed by 50% reduction for another 5 years. Commercial tax exemption on products manufactured for export Permission to carry forward losses for 5 years Other incentives made available by the SEZ law include work permits and the right to use land or lease land for up to 50 years upon payment of the land lease fee or land use fee. If the investor wishes to continue their business after the expiry of the term, these terms may be extended for up to 25 years. B.2 Special investment considerations Intellectual property Myanmar is a signatory to the World Trade Organization s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). However, currently, the enforcement mechanism of the relevant laws does not yet comply with the norms and standards provided in the TRIPS Agreement and the intellectual property system in Myanmar is not well-developed. Patents Myanmar had a Patent and Design Act but it never came into effect. However, the Attorney General s Office, under the assignment of the Doing Business in Myanmar 15

20 Government, has now drafted a new Patent Law and Industrial Design Law in compliance with the TRIPS Agreement. For the time being, patents and designs may be registered in Myanmar under the Registration Act. Trademarks Currently, Myanmar has no statutory law on trademarks. Trademarks and the registration process are covered by several other statutes. Provisions in the Penal Code are used to regulate trademark cases, and the Registration Act allows trademarks to be registered in Myanmar. Even though there is no specific law on trademarks in Myanmar, trademark owners can seek trademark ownership recognition by means of a declaration with the Office of the Registration of Deeds and an announcement of such declaration in a local newspaper, or by the factual use of trademark. Since applicants for trademark registration must be Myanmar citizens, foreign owners of trademarks need to register their trademark through a local agent. Government-owned industries and privatisation Although Myanmar has opened its markets to both citizens and foreigners, certain industries are conducted by state enterprises pursuant to the State-owned Economic Enterprise Law (1989). State monopolies include economic activities relevant to teak, timber, forests, petroleum and natural gas, mineral resources, fisheries, post and telecommunications, air and railway transportation, banking and insurance services, broadcasting and television services, metals, the electricity industry, and manufacturing of products relating to security and defense. Since the Foreign Investment Law has been enacted, some of these sectors are in the process of being privatized and opened to not only citizens but also foreign investors. For example, up to April 2017, Central Bank of Myanmar awarded 13 foreign bank licenses to 16 Doing Business in Myanmar

21 promote services through branches, 48 representative offices of foreign banks and finance companies, and in the telecommunications sector, The Ministry of Transport and Communication formally awarded a license to Myanmar National Tele & Communications (MNTC) in January 2017 to operate networks in Myanmar. Restrictions on foreign investment Although the Myanmar government encourages foreign investment and allows 100% foreign-equity companies to carry on business in its jurisdiction, there are prohibitions and restrictions on certain types of business imposed by the Myanmar Investment Law and by-laws. The Myanmar Investment Commission stipulates 4 categories of business under prohibitions or restrictions as follows: List 1: Investment activities allowed to be carried out only by the Union (see Appendix 1) List 2: Investment activities that are not allowed to be carried out by foreign investors (see Appendix 2) List 3: Investment activities allowed only in the form of a joint venture with any citizen owned entity or any Myanmar citizen (see Appendix 3) List 4: Investment activities to be carried out with the approval of the relevant ministries, (1) If the restrictions for investment are described in the laws administered by the concerned ministries and organizations it shall follow in accord with such law. (2) For banking, insurance and financial services, it can be allowed according to the plan of the relevant Ministries and organizations. (3) If the investments which make export/import shall perform in accord with the policy of Ministry of Commerce. Doing Business in Myanmar 17

22 Foreign exchange controls Foreign exchange transactions can be executed through foreign exchange licensees such as private banks with exchange rates under the guidance of the Central Bank of Myanmar. Although a formal foreign exchange market has only recently emerged, it is expected to reach international standards in a short time frame, as the Central Bank of Myanmar allows international banks to participate in this sector. The repatriation and remittance of foreign currency out of Myanmar require the permission of the Foreign Exchange Control Department of the Central Bank of Myanmar. Antitrust regulations The Competitions Law (enacted February 2015) will come into force in February 2017 covering internationally recognised anti-trust notions of restrictive agreements, abuse of market dominance, unfair competition acts and merger controls. Price controls The Act on Prices of Goods and Services (1999) empowers the Office of the Central Commission on Prices of Goods and Services (CCP) to impose controls over the prices of goods and services in order to prevent price fixing or unfair trade conditions and practices which result in unreasonably low or high prices or cause unreasonable disturbances to prices of goods and services. Currently, 42 types of goods and services are classified as controlled, including, rice, sugar, detergent and cement. 18 Doing Business in Myanmar

23 B.3 Regional and international trade associations and agreements Myanmar is a member of a regional trade group, the Association of South-East Asian Nations (ASEAN), the International Monetary Fund (IMF) and the World Trade Organisation (WTO). Myanmar has also set up bilateral free trade partnerships with the United States and Bangladesh. Regionally, Myanmar has, through ASEAN, also entered into regional Free Trade Agreements (FTAs) with China, Japan, South Korea, India, Australia and New Zealand. B.4 Major trading partners and leading exports and imports Myanmar has historically traded mostly with neighboring countries. Myanmar's main trading partners are China, Thailand, India, Japan, Indonesia, South Korea, Germany and Hong Kong. Exports will be boosted by full regional liberalization under the ASEAN Free Trade Area (AFTA), the signing of FTAs with trading partners and the opendoor policy. Myanmar s principal exports are oil and natural gas, which account for almost half of all exports. Precious stones and agricultural products such as leguminous vegetables, wood, fish, and natural rubber are also significant exports. Principal import items are petroleum products, machinery and spare parts, construction materials, vegetable oil, vehicles and pharmaceutical products. B.5 Importing and exporting Import and export restrictions Imports are only allowed to the extent they do not exceed export earnings, with a view to promoting exports and overcoming the balance of trade deficit. However, private investors are encouraged Doing Business in Myanmar 19

24 to import capital goods, industrial machinery, raw materials and other essential items. Currently, importers can buy foreign currency at authorized local money changers. Exporters/importers can transfer money into and out of the country by Letter of Credit (L/C) or Telegraphic Transfer (TT) using foreign currency accounts. Licenses are not required for 983 items of H.S Code of goods for exports. Licenses are required for 3,988 items of H.S Code of goods for import.the authority to issue licenses and permits lies with the Directorate of Trade and Department of Border Trade under the Ministry of Commerce. The Directorate of Trade is authorised to issue export/import licenses and permits for all exports/imports while the Department of Border Trade is authorised to issue export/import licenses only for overland trade with neighbouring countries. The validity of export and import licenses and permits issued by the Directorate of Trade is 3 months from the date of issue, and cannot be extended. Goods subject to import prohibition and restrictions include counterfeit coins and currencies, pornographic articles, piece of goods without stamped measurement, goods with counterfeit trade mark, all kinds of narcotic drugs and psychotropic substances, playing cards, goods bearing the imprint or reproduction of the flag of the union of Myanmar and goods bearing the emblem of the Buddha or pagodas of Myanmar. Goods subject to export prohibition and restriction include arms and ammunition, pornographic articles, antiques and all kinds of narcotic drugs and psychotropic substances. Customs duty and procedures Customs duty is levied on imported goods at rates ranging from 0% to 40%. A company registered under the Myanmar Investment Law will be eligible for exemption or relief from customs duty on imported machinery, equipment, materials, etc. used during a designated 20 Doing Business in Myanmar

25 construction or expansion period, and on raw materials imported during the first 3 years of commercial production. C. Companies C.1 Forms of enterprises In Myanmar, foreign investors may carry on businesses in the form of limited company, branch office, representative office or joint venture. Limited liability Company A limited liability company can be majority owned by foreigners. A limited liability company with one share held by a foreign shareholder will be defined as a foreign company under the Myanmar Companies Act (MCA) and will be required to register and apply for a Permit to Trade. The two types of limited company in Myanmar are the private limited liability company and the public limited liability company. The private limited liability company is the most common form used for setting up a foreign entity in Myanmar, and is required to have at least 2 and no Doing Business in Myanmar 21

26 more than 50 shareholders. A limited liability company can be set up under either of the Myanmar Companies Act or the Myanmar Investment Law 2017 or Special Economic Zone Law with the primary difference being eligibility for tax incentives for foreign investors and Myanmar Citizen investors Setting up under the Myanmar Investment Law qualifies a company for tax incentives and other privileges, while setting up under the Myanmar Companies Act does not. Branch office Foreign corporations can establish a branch office to conduct their business in Myanmar. The branch office will be regarded as the same entity as the head office (the parent company). Representative office Representative offices are mainly set up for the purpose of acting as a liaison office supporting the head office overseas and can act as a cost centre but cannot generate income. Joint venture A joint venture can be set up between foreign investor and Myanmar partner (e.g. individuals, private limited liability companies and stateowned enterprises) as either a partnership or a limited liability company. Regulations under the Myanmar Investment Law 2017, classify 22 types of activity as activities that foreigners can only carry out by way of a joint venture with Myanmar citizens, for example, Development, Sale and lease of residential apartment, manufacturing and marketing of food and beverages, chemical substances, and packaging.. Except from the companies or branches which are established under Special Economic Zone Law, other types of companies including those 22 Doing Business in Myanmar

27 set up under the New Myanmar Investment Law 2017 will be required to renew the license every five years from incorporation date. C.2 Mergers and acquisitions The Myanmar Investment Law does not provide rules and procedures in relation to mergers and acquisitions by foreign investors since it was drawn up based on Myanmar s former policy that did not allow foreign investors to acquire shares from Burmese shareholders. This restriction has since been relaxed by the Ministry of National Planning and Economic Development, and foreign investors are allowed to acquire shares from a Burmese shareholder in a foreign-invested company, while Burmese shareholders are also allowed to acquire shares from foreign investors. However, the relaxation applies only to shares in joint venture companies and does not allow the acquisition of shares in a limited liability company. C.3 Corporate taxes at a glance Description Rate (%) Note Corporate income tax 25 Capital gains tax 10 Branch tax 25 Withholding tax Dividends / Profit remittance 0 Interest 15 (a) (b) Royalties from patents, know-how, etc. 15 (a) (b) Services in Myanmar 2.5 (b) (c) Local purchase of goods and services in Myanmar 2 (d) (e ) Doing Business in Myanmar 23

28 (a) (b) (c) (d) Withholding tax may be reduced or exempt under tax treaties. Applicable to payments to non-resident companies. Under Myanmar s tax treaties, withholding tax can be exempt if payment is made to a non-resident company that does not have a Permanent Establishment (PE) in Myanmar. Applicable to payments to resident citizens or resident foreigners. (e) Payment for local purchases and services/hiring of not exceeding MMK 1,500,000 (approximately USD 1,155) made by the companies under the tax assessment of Self-Assessment System ( SAS )/not exceeding MMK 500,000 (approximately USD 385) made by the companies not under the SAS, is not subject to withholding tax. C.4 Taxes on corporate income and gains Corporate income tax The standard corporate income tax rate is 25%. All companies incorporated in Myanmar are subject to corporate income tax on their worldwide income while branches of foreign companies and foreign companies which do not have permanent establishment in Myanmar are taxed only on their Myanmar-source income. Dividends Dividend distributions are not subject to withholding tax. 24 Doing Business in Myanmar

29 Interest Interest paid to resident recipients is not subject to withholding tax while interest paid to non-resident recipients is subject to withholding tax at the rate of 15%. Capital gains or losses Capital gains, from the disposal of a corporation s capital assets, are assessed separately from business income and are subject to a flat rate tax of 10% for both Myanmar resident companies and non- Myanmar resident companies. Resident companies must declare capital gains tax within 1 month after the date of the sale, exchange or transfer of capital assets. Capital losses cannot be treated as deductible expenses for corporate income tax purposes. Administration The tax period follows the accounting period and may not exceed 12 months. The Myanmar fiscal year runs from 1 April to 31 March. No alternative fiscal year is allowed. Typically, companies are required to file corporate income tax returns, together with audited financial statements within 3 months after the end of the fiscal year (that is, by 30 June). Companies under the Large Tax Payer Office (LTO) of the Myanmar Internal Revenue Department (MIRD) are required to submit the LTO tax return along with detailed attachment. Companies under the Medium Taxpayers Office (MTO) are allowed to submit the draft financial statements (signed by the authorised director) with the tax return, and audited financial statements can be submitted later. The audited financial statements must be submitted Doing Business in Myanmar 25

30 to MTO within the date specified in Call Letter that MTO circulate to taxpayers, usually 1-2 months from the date of filing the annual income tax return. In all cases, companies must submit the audited financial statements to MTO by the end of the calendar year. Failure to file a return and pay tax results in a penalty of 10% of the tax shortfall. Foreign tax relief Myanmar domestic tax law does not provide for a foreign tax credit. However, under the tax treaties, a foreign tax credit is allowed on the lower of the foreign tax paid and the amount of Myanmar tax calculated on the foreign-source income. C.5 Determination of taxable income General To determine taxable income, profits recorded and substantiated in a company s books of account in accordance with the Myanmar Financial Report Standard are adjusted in accordance with Myanmar Income Tax Law, subject to final assessment by the authorities. Deductible expenses In general, expenses are deductible for tax purposes when such expenses are incurred wholly and exclusively for the purpose of generating income. Provisional expenses and reserves, such as provisions for bad debts or stock obsolescence, are not tax-deductible until they are actually realised. Depreciation in excess of the prescribed rate is also not deductible. 26 Doing Business in Myanmar

31 Donations Donations to approved religious or charitable institutions or funds sponsored by a state organization or recognized by the Ministry of Finance are deductible up to a maximum of 25% of total taxable income. For the case of the company, 25% on net profit.royalties, management fees and technical service fees Royalties, management and technical service fees are deductible if they are supported by a relevant invoice, evidence of bank payment transfer and relevant tax documents, and provided that they are commensurate with the volume of business. Interest expenses Interest on onshore loans is deductible up to the interest rate limit set by the Central Bank of Myanmar. Interest on offshore loans is deductible provided that the loans are approved by Myanmar Investment Commission and the Central Bank of Myanmar. Depreciation and amortisation allowance The following table sets forth the useful lives and annual depreciation rates for depreciable assets. Doing Business in Myanmar 27

32 Assets Annual depreciation rate (%) Building 1.25 to 10 Furniture and fixtures 5 to 10 Machinery and plant 5 to 10 Machinery equipment 2.5 to 20 Waterway transport vehicle 5 to 10 Road transport vehicle 12.5 to 20 Other miscellaneous Other concerned work general 10 to 20 5 to 20 Disallowed expenses The key non-deductible expenses for corporate income tax purposes are as follows: Capital expenditures; Personal expenditures; Expenses not commensurate with the volume of business; and Payments made to any member of an association of persons other than a company or a cooperative society, and inappropriate expenditure. Taxable loss carried forward Operating losses can be carried forward and offset against profits in the following 3 consecutive years. The carryback of losses is not allowed. 28 Doing Business in Myanmar

33 Treatment of group companies The losses of one company cannot be used to reduce the profits of an affiliate. Related party transactions Payments made to related parties may be deducted if they are commensurate with the volume of business and the rate is at market price. Transfer pricing There are currently no formal transfer pricing regulations in Myanmar. C.6 Other significant taxes Special commodities tax The Special Commodities Tax law has come into force starting from April Previously, specific goods known as special goods were taxed under the Commercial tax law. Under the Union Tax Law 2017, 17 types of goods will be taxed at specific rates while another 5 types of goods will be taxed in Myanmar on exports at specific rates prescribed on the law (See appendix 5). With effect from 1 April 2016, any person who imports, manufactures or exports the special goods shall be liable to pay special commodities tax at the prescribed rate. Under the Union Tax Law 2017, the tax will be collected on the 17 special commodities with the rates ranging from 5% to 80% (See appendix 5). There will be 0% tax rate on the sale proceeds received from the exportation of special commodities except for the following types of goods; Doing Business in Myanmar 29

34 Special commodities to be exported (4 types) Tax rate (%) Natural Gas 8 Logs and primary stage conversions 10 Raw Jades 15 Ruby, sapphire, emerald, diamond and other raw precious gemstones Jade, ruby, sapphire, emerald, diamond and other processed precious stones and jewelries (finished products) 10 5 Commercial tax Generally, commercial tax at a rate of 5% is imposed on goods sold in Myanmar, provision of services, imported goods and exported goods. The tax base is the gross sales, service income and landed cost. Domestic flight services will be taxed at 3% and building developed and sold in Myanmar shall be also taxed at 3%. The Union Tax Law 2017 introduced 1% commercial tax on sale of golden jewelries. However, some types of service activity are exempt from commercial tax (see Appendix 6) In February 2016, under a notification issued by the Ministry of Finance, manufacturers, service providers and traders may offset the commercial tax already paid in connection with its related business. It is widely seen as the first step to introduce a full credit system similar to VAT/GST system in Myanmar. Business operators carrying on activities that are subject to commercial tax are required to register for commercial tax. However, if total income is below MMK 50 million in an accounting year, registration is not required. Commercial tax operators must pay commercial tax to the Large Taxpayers Office and Medium Taxpayers Officeof the Myanmar Internal Revenue Department on a monthly 30 Doing Business in Myanmar

35 basis and submit quarterly and annual commercial tax returns to the Tax Office. Advance corporate income tax Goods imported into Myanmar are subject to 2% advance corporate income tax on the assessable value of the goods. This advance corporate income tax can be credited against the year-end corporate income tax payable of the importer of goods. Property tax Property tax applies only to immovable properties (land and buildings) situated in Yangon. The property tax includes a general tax, lighting tax, water tax and conservancy tax, and the actual rates are decided by the city development committee. Stamp duty Stamp duty must be paid on certain instruments, including, service agreements, loan agreements, lease agreements and share transfer forms. The rates of stamp duty range from 0.1% to 2%, depending on the types of instrument. C.7 Financial reporting and auditing Method of accounting Companies generally use the accrual method of accounting for preparing financial statements. Standards of professional associations Accounting standards in Myanmar are set by the Myanmar Accountancy Council (MAC) which is headed by the Union Auditor General of the Republic of the Union of Myanmar. With regard to accounting standards, the MICPA is an advisory body to the MAC. Doing Business in Myanmar 31

36 Fundamental concepts Myanmar Financial Reporting Standards (MFRS), in principle, follow International Financial Reporting Standards (IFRS) but there are some differences since MFRS has not adopted the following: IFRS 9: Financial instruments; IFRS 10: Consolidated financial statements; IFRS 11: Joint arrangements; IFRS 12: Disclosure of interests in other entities; IFRS 13: Fair value measurement; and Interpretations from the Standing Interpretations Committee (SIC) and International Financial Reporting Interpretations Committee (IFRICs). IFRS 14 Regulatory Deferral Accounts IFRS 15 Revenue from Contracts with Customers IFRS 16 Leases Disclosure requirements Statutory financial statements are required to be prepared in either Burmese or English. Basic financial statements include a statement of financial position (balance sheet), income statement, a statement of comprehensive income, a statement of changes in shareholders equity, a statement of cash flows and notes to financial statements. Filing requirements Companies must submit audited financial statements for approval by an annual general meeting of their shareholders. A newly set-up company is required to hold its first annual general meeting within 18 months of the incorporation date. Any annual general meetings are 32 Doing Business in Myanmar

37 required to be held not more than 15 months after the last general meeting. Audit requirements Myanmar companies must appoint one or more auditors. The first auditor can be appointed by a company s directors. Subsequent auditors may be appointed by the shareholders at the annual general meeting. The directors of a company are required to submit a set of audited financial statements at each annual general meeting. Section 145(1) of the Myanmar Companies Act requires an auditor to report to the members of a company on the financial statements examined by the auditor at the annual general meeting. Books and records Companies must maintain books of account that accurately reflect their transactions, assets and liabilities. These books of account can be prepared in either Burmese or English and must be retained for accounting and tax inspection. Companies are required to maintain books of account for 3 years in general circumstances. Companies under LTO are required to maintain the accounts up to 5 years. Under SEZ rules, the Investor and the Developer shall maintain records for a period of 7 following years starting from the end of relevant financial year. Doing Business in Myanmar 33

38 D. Individuals D.1 Personal Income tax Who is liable? Tax is imposed based on residency status. Myanmar citizens and tax resident foreigners are subject to personal income tax on their worldwide income (except salary earned overseas will not be subject to tax in Myanmar). Non-resident foreigners are subject to tax on their Myanmar-sourced income only. Foreigners are considered to be resident foreigners for Myanmar tax purpose if they reside in Myanmar for a period or periods aggregating 183 days or more during a tax year. Income subject to tax Taxable income is assessable income less deductible expenses and allowances. The taxation of various types of income is descried below. 34 Doing Business in Myanmar

39 Employment income According to the Union Tax Law 2017, any person earning salary income of MMK 4.8 million or less per year, will not be subject to personal income tax. All benefits derived from employment are assessable unless expressly exempt by law. Assessable benefits include salaries, wages, annuities, bonus, award and fees or commissions instead of or in addition to salaries and wages, such as, the monetary value of rentfree accommodation provided by employers, and income tax paid and borne by employers on behalf of employees. Self-employment and business income Taxable self-employment and business income consist of assessable income less deductible expenses and allowances. In general, all types of income are assessable unless expressly exempt by law. For this purpose, business includes trading business, commercial business, and production business, service business, buying or transferring securities, and investing in securities to obtain interest for financial gain if such investments are performed repeatedly in a year as an economic business. Capital gains Gains derived from the sale, exchange or transfer of capital assets (e.g., land, buildings and the rooms therein, vehicles, any assets provided as a contribution to an enterprise, shares, bonds, securities and similar instruments) are generally subject to capital gains tax. Exemptions and deductions Tax-exempt benefits Under Myanmar Income Tax Law 2014, tax-exempt benefits include the following: Doing Business in Myanmar 35

40 (1) Claims under insurance policies (e.g., medical policies); (2) Income of any religious or charitable organization used exclusively for matters of religion or charity; (3) Income of a local official; (4) Income from the commutation of a pension, condolence payments; (5) Compensation recovered for a death or injury; (6) Income of a casual, non-recurring nature with the exceptions of capital gains and income from an enterprise. (7) Share of the after-tax profit of an association. Allowance and exemptions Basic allowance An annual standard allowance of 20% is provided for each class of income, but the total relief for a year may not exceed MMK 10 million. Relief allowed for the spouse A taxpayer may deduct relief in the amount of MMK 1 million per year for a spouse who does not earn any assessable income. Relief allowed for children A taxpayer may deduct annual relief of MMK 0.5 million per child for children under the age of 18 who earn no income and for children over 18 who are students with no income and unmarried. Relief allowed for parents and parents in law A taxpayer may deduct annual relief of MMK 1 million per parent and parent in law who live with the taxpayer. 36 Doing Business in Myanmar

41 Deductible expenses Payments for the following items are deductible for personal income tax calculation purposes: Premiums paid for the life insurance policy of a taxpayer and his or her spouse; Contributions to a social security fund; and Donations to religious or charitable organizations, up to 25% of the total income of a taxpayer. Certain expenses are fully or partially deductible, depending on the type of income. For some expenses, standard deductions are provided. Rates The following table provides a summary of the tax rates applicable to individuals in Myanmar. Residency status Income tax base Type of Income Income tax rate Resident citizen Myanmarsource income Salaries Progressive tax rates from 0% to 25% (see Note 1) Worldwide income Capital gains, rental income earned on lease of land, building and apartment 10% (see Note 2) Doing Business in Myanmar 37

42 Residency status Income tax base Type of Income Income tax rate Worldwide income Income that has escaped assessment 30% (see Note 3) Resident foreigner Worldwide income Salaries, professions, property and business Progressive tax rates from 0% to 25% (see Note 1) Capital gains 10% (see Note 2) Income that has escaped assessment 30% (see Note 3) Non-resident citizen Worldwide income Income earned abroad except salary 10% Capital gains 10% Income that has escaped assessment 30% Non-resident foreigner Myanmarsource income Salaries Progressive tax rates from 0% to 25% Profession, property and business 25% Capital gains 10% 38 Doing Business in Myanmar

43 Residency status Income tax base Type of Income Income tax rate Income that has 30% escaped assessment Notes: (1) The progressive tax rates are presented below. Assessable Income (MMK) Tax rate 2,000,000 or less 0% 2,000,001 to 5,000,000 5% 5,000,001 to 10,000,000 10% 10,000,001 to 20,000,000 15% 20,000,001 to 30,000,000 20% 30,000,0001 or over 25% (2) Capital gains from the sale, exchange or transfer of fixed assets of a company participating in Myanmar s oil and natural gas sector are subject to the progressive tax rates ranging from 40% to 50%. Rental income generated from the lease of land, building and apartment by an individual shall be subject to 10% capital gains tax. Relief for losses No losses may be carried forward or back. D.2 Social security contributions Employers and employees must each contribute to the Social Security Fund. The rates, which are applied to employee income, are 2% for Doing Business in Myanmar 39

44 employees and 3% for employers, with a maximum monthly contribution of MMK 6,000 for employees and MMK 9,000 for employers. These contributions finance benefits for pregnancy, accidents, illness, child welfare, old age, death and physical disability occurring outside working hours. Companies with 5 or more employees are required to register for the social security scheme with the Social Security Board (SSB) under the Ministry of Labor. D.3 Tax filling and payment procedures Personal income tax is withheld by employers. Employers are required to submit annual salary statements together with income tax returns of employees within 3 months after the end of the tax years (i.e. by the end of June). D.4 Tax treaties Myanmar has concluded double tax treaties with 8 countries. The tax treaties signed with Bangladesh and Indonesia has not yet been ratified. List of countries having a tax treaty with Myanmar Malaysia Thailand India Singapore United Kingdom South Korea Vietnam Laos D.5 Entry visas To enter Myanmar, all visitors must have a valid passport and an entry visa. Visitors may apply for single or multiple entry visas. A tourist visa allows a stay of 28 days, which is not entitled to extend the visa.. A business visa allows a stay of 10 weeks (70 days), which 40 Doing Business in Myanmar

45 may be extended up to 12 months on a case-by-case basis. A visa on arrival may be granted based on a prior arrangement with the Ministry of Hotel and Tourism. Infants and children require a separate visa even if traveling on a parent s passport. Individuals may apply for the different types of visa through Myanmar embassies or consulates overseas and also point of entry. D.6 Work permits Work permits Myanmar has introduced work & stay permit system for foreign personnel employed under the MIL or SEZ. Expatriate employees working under the company incorporated under the MCA can apply for a stay permit based on an employment contract with the employer. The stay permit has a duration of 3 months to 1 year. However, given that the Permit to Trade is one of the supporting documents required to apply for a stay permit for business executive and employee, in practice, expatriates working in Myanmar before the issuance of such permits need a business visa, which will allow the visa holder to stay in Myanmar for up to 10 weeks. Residence permits Relatives of a Myanmar citizen permanently residing in Myanmar (i.e., spouse, children, and parents) may apply for a permanent residence permit if they are residing in Myanmar. Even though the duration of permanent residence is unlimited, permanent residence cards are to be renewed every 5 years. Holders of a permanent residence card do not require a visa (except in the event of more than 24 consecutive month stay abroad) to enter Myanmar. Doing Business in Myanmar 41

46 Applications for a permanent residence permit are to be submitted to the Immigration Department of the city in which the foreigner resides. The application process is usually completed within 6 months. After confirmation, the Immigration Department issues the permanent residence card within 5 working days. Appendices Appendix 1: Investment activities allowed to be carried out only by the Union No. Type of economic activity 1 Manufacturing of products for security and defence being specified by the notification of the Government from time to time 2 Manufacturing and related services of Arms and ammunition for the national defence 3 Issuing the national postage stamps; establishment and hiring of post office and post boxes which are only to be performed by the 42 Doing Business in Myanmar