Note: Tax laws especially commercial tax changed with effect as of 1 April Taxation of TowerCos in Myanmar Sebastian Pawlita

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1 Note: Tax laws especially commercial tax changed with effect as of 1 April This presentation tti has NOT been updated dtdto reflect these changes. Taxation of TowerCos in Myanmar Sebastian Pawlita Partner 18 February 2014

2 Usual structure Operators (Telenor, Ooredoo) Subcontractwork Lease of towers Lease of land Import of equipment TowerCos Subcontract work Sale of equipment Site construction Construction Companies

3 Taxes levied on TowerCos / construction companies Income tax Commercial tax Stamp duty Customs duty

4 Income taxation of companies Sources of law: Income Tax Act 1974 as amended; Income Tax Regulations, Income Tax Rules, Income Tax Notifications Seven heads of income: (i) salaries; (ii) profession; (iii) business; (iv) property; (v) capital gains; (vi) undisclosed sources of income; (vii) other sources of income. Income from salary and capital gains is separately assessed; income under the other heads is aggregated and assessment is made on total

5 Income taxation of companies Tax rate: 25% (companies incorporated in Myanmar; theoretically also: Myanmar branch of a foreign company operating under an investment permit issued by the Myanmar investment Commission); 35% (non-resident foreign companies) Tax base: Profit/loss according to the annual audited financial statements (prepared according to the Myanmar Accounting Standards - similar to IFRS)

6 Income taxation of companies Financial year: 1 April - 31 March Expenses are deductible if there is a nexus between the business of the company and the expenses and the expenses do not appear to be out of proportion in view of the size of the business No depreciation allowance for buildings rented out in order to achieve income from property however, depreciation allowance for telco towers should be available.

7 Income taxation of companies Losses can be carried forward for three years Thin cap rules: No thin cap rules in tax law, but loans from foreign shareholders have to be approved by the MIC and the Central Bank No transfer pricing rules

8 Income taxation of companies Withholding tax rates (according to national tax law): Payment to a resident Payment to a non-resident Dividends/distributionid d ib ti of n/a n/a branch profits Interest n/a 15% (final tax?) Royalties, license fees 15% 20% (final tax?) Fees for services bought within the country or abroad Purchase of goods within the country 2% 3.5% (final tax?) 2% 3.5% (final tax?)

9 Income taxation of companies Withholding tax on rent paid by TowerCotothelessor of the land? Withholding tax on rent paid by Operator to TowerCo?

10 Income taxation of companies Quarterly advance payments,, annual income tax returns until 30 June Payment of withholding tax within 7 days after the deduction Declaration of a capital gain (if any) within 1 month after the alienation of the capital asset

11 Important tax incentives (at the discretion of the MIC) Income tax exemption for a period of 5 years starting at the end of the construction period Should be available for TowerCos Probably not available for construction companies Exemption from customs duty and commercial tax on machinery and equipment imported during the construction period

12 Important tax incentives (at the discretion of the MIC) Exemption from customs duty and commercial tax on import: Equipmenttobeimportedmustbelistedin the application for the MIC permit Example: TowerCo leases 500 towers to operators in 2014 and an additional 1,500 in 2015 When does the income tax exemption start? Can TowerCo import all the equipment duty free and free of commercial tax?

13 Commercial tax Similar to VAT - however: Only services listed in schedule 7 to the Commercial Tax Law are subject to commercial tax (e.g. NO commercial tax on the lease of land or the construction of sites) Offset of input with output tax limited Applies to the production and domestic sale of goods, the import of goods, the export (of a very limited number) of goods and to specific c services

14 Commercial tax Tax rate: usually 5% Tax base: Usually: turnover In case of import: 1.05 x CIF price plus import duty

15 Importing equipment TowerCo (importer) has to list the equipment in the MIC application; obtain a recommendation letter from the Ministry of Communications and Information Technology (MCIT). The MCIT will want to see the contract with the operator and a list of the equipment to be imported; register with the Ministry of Commerce as an importer; obtain a separate import license from the Ministry of Commerce of each shipment; conduct customs proceedings.

16 Importing equipment Applicable taxes: Commercial tax Import duty Temporary import If withdrawn from the country within 2 years (extension by one year may be possible): refund of 7/8 of customs duty No refund of commercial tax MIC may grant exemption from customs duty and commercial tax

17 Repatriating funds TowerCos may have expenses prior to obtaining an MIC permit and incorporating a subsidiary (e.g. for paying land owners in order to secure land for a tower site) It should be possible to treat these expenses (at least money paid to land owners) as part of the investment amount - state them clearly in the schedule for capital contribution that is submitted as part of the application dossier for the MIC permit and back them up with evidence.

18 Repatriating funds Loans from abroad require approval from the Central Bank (and, if the subsidiary operates under an MIC permit, from the MIC)

19 Repatriating funds Repatriating dividends: If the company operates under an MIC permit, the Foreign Investment Rules provide an explicit procedure. Submit audited financial statements and bank account balance statement to the MIC in order to obtain approval for the money transfer If the company does not operate under an MIC permit, there is no explicit procedure. Submit BoD resolution, audited financial statements and evidence of tax payment to local bank; the local bank may ask the Central Bank for approval

20 Myanmar