Myanmar Legislation, Tax and Accounting Systems 12 Wirat Sirikajornkij
Disclaimer This brief presentation on Myanmar tax and structuring investments into Myanmar is intended to provide an introduction to some of the key issues and considerations relevant to potential investors. The information is intended for general information purposes only and should not be used for decision making purposes. The applicability of the information to specific situations should be determined through consultation with professional advisors, including any updates to Myanmar tax legislation which is a regular event.
A brief introduction to Investment in Myanmar
Foreign Direct Investment Key Legislations: Myanmar Foreign Investment Law, 2012 (MFIL) Foreign Investment Rules Myanmar Investment Commission Notification No. 1/2013 (Notification 1/2013) Myanmar Companies Act, 1913 (MCA) Types of Incorporation/ Registration 100% owned foreign subsidiaries Joint Venture companies with Myanmar citizens Branch of Foreign Company Representative Offices Under Notification 1/2013, the types of allowed and prohibited economic activities and forms of entities relevant to those activities are stipulated. Such Notifications and MFIL remain under the close interpretation of the Myanmar government authorities and a foreign investment proposal will be considered on a case by case basis.
Corporate Income Tax Tax Residency based on registration. Resident companies subject to tax on world wide source income except companies registered under the MFIL which are subject to tax on Myanmar source income only. Corporate Income Tax Rates: Resident companies 25% Branch with incentives under the MFIL 25% Branches without MFIL incentives 35% Thus, Branches, without tax incentives are taxed 10% more than Myanmar companies. Capital Gains Tax rates: Resident tax payers 10% Non-resident tax payers 40% Oil and gas industry 40 to 50% Withholding Tax on transactions with Non-Residents: Dividends 0% Interest 15% Royalties 20% Services and goods 3.5%
Double Tax Agreements Myanmar has entered DTA s with United Kingdom Singapore Malaysia Vietnam Thailand India South Korea Laos Bangladesh - Negotiated, not yet in force Indonesia Negotiated, note yet in force 8 DTS s out of 10 above, i.e. United Kingdom, Singapore, Malaysia, Thailand, India, Vietnam, South Korea and Laos have already been ratified and are enforceable. Recommend verifying DTA application before arranging structures.
Withholding Tax under DTA s Withholding Taxes Type of Payment to Foreigner Rates applicable to resident citizens and resident foreigners Rates applicable to nonresident foreigners Thai Residents DTA Rate Singapore Resident DTA Rate Dividends 0% 0% 0% 0% Interest 0% 15% 10% 8/10% Royalties 15% 20% 10% 10/15% Share Sale Gains 10% 40% Exempt 1 10% or Exempt 2 Goods and Services 2% 3.5% 0% 0% Note 1: If gains relates to sale of shares of company which the shares sold constitute less than 35% of the capital of the company Note 2: Broadly, the same as note 1, but with additional restrictions that seller must sell less than 20% of its shareholding in the Myanmar company and the seller must not be principally the owner of immovable property.
Tax Incentives Companies registered under the Myanmar Foreign Investment Law can be granted a number of incentives, including: 5 year corporate income tax holiday from the month of commencement the commercial operation (normally, 25%) CIT exemption on profits that are reinvested within one year Accelerated depreciation Reduction of 50% of CIT for export income generating activities (following a tax holiday period) 3 years carry forward losses (no carry back) Exemption from customs duties for machinery Exemption from customs duties on raw materials The benefits are approved by the Myanmar Investment Commission (MIC) upon application.
Commercial Tax Commercial Tax Turnover based Certain mechanisms to prevent aggregation Also applies to non-resident entities Changes from April 2012 Includes new reference to services little guidance from tax authorities
Commercial Tax - Goods Tax Rate Essential and basic commodities 0% Other goods 8% to 25% Luxury goods (liquor, pearls, cigarettes) 30% to 100% Goods produced and sold from industrial zones (Tax Department issues exemption order annually) Up to 20% of applicable rates
Commercial Tax - Services Activity Some Examples Tax Rate Trading Businesses 5% Tourism 5% Passenger Transportation 5% Hotels, including Restaurants 5% Public Entertainment 5% Cinemas/Movies 5% Brokerage 5% Land, Building (Design, Drawing, Landscaping and Decoration, Renovation) 5% Auditors, Practicing Accountants, Practicing Lawyers 5%
Taxation of Individuals Individuals are tax resident in Myanmar if they stay for 183 days or more during the fiscal year. Resident taxpayers subject to tax on world-wide source income. Non-residents subject to tax on Myanmar source income. Tax rates - Salaries: Resident Foreigner - 1% to 20% (effectively, 20%) Non-resident 35% Social security contribution Applicable if 5 employees or more 4% (employer of 1.5% + employee of 2.5%) of salary or wages Cap amount: Employer of MMK774/ Employee of MMK465 per month
Taxation of non residents Non Resident company Settled WHT represents final tax payments If WHT not settled tax liability?
Repatriation Right to transfer Foreign Currency: MFIL provides investors the right to transfer foreign currencies out of Myanmar Transfer is through approved banks; Based on stipulated exchange rate; The following can be transferred: i) Net profit after deducting all taxes, relevant funds from annual profit (Businesses) ii) legitimate balance after taxes and living expenses (Persons)
Case Study Structures Illustration
Structuring considerations: Equity Only certain economic activities is prohibited from having 100 per cent foreign ownership, i.e. paper manufacturing, tourism etc. Transfer of shares from local citizen to foreigner is still prohibited Transfer of shares between foreigner to foreigner requires an approval from the Myanmar Investment Commission Loans Need approval by Central Bank Interest cap: i) domestic lending 13 percent; ii) offshore lending market rates Financial Instruments Complex financial instruments not well known Legitimate? Have to consider on a case by case basis Management fee structures Indirect allocations not approved for tax deduction?
Offshore Holding structures Popular Holding Regimes for investments into Myanmar are: Singapore Thailand Easy to structure tax efficient repatriation of dividends No WHT on distributed dividends from Myanmar Utilize exemption in holding regime
Case Study Trading Business Key Concept: Foreigner is prohibited from undertaking retail business in Myanmar. Wholesale Business? Currently allowed under the new MFIL on the proviso that a recommendation from the Ministry of Commerce is obtained. Any solution for retail company to be able to invest in Myanmar? Most common form: licensing agreement, distributorship agreement; and Setting up a service company to provide marketing, after-sale services to local distributors and customers.
Case Study Basic Investment Structures Most common forms: Branch of foreign entities Subsidiary Holding Company Structure
Case Study Basic Investment Structures Branch of Foreign Entity Myanmar Rates Thai Company Corporate Income Tax - 35% - 25% for branch incorporated under MFIL with 5 years tax holiday Profit Repatriation No withholding tax on profit repatriation Thailand Thailand Rates Branch Myanmar Corporate Income Tax All income derived from business operation in Myanmar shall be recognized as Thai Co s income which will be subject to corporate income tax in Thailand at the rate of 20% (applicable rate during 2013-2014) Tax credit All taxes which has been paid in Myanmar can be credited in Thailand
Case Study Basic Investment Structures Subsidiary Myanmar Rates Corporate Income Tax - 25% - a subsidiary incorporated under MFIL will be eligible for 5 years tax holiday Thai Company Thailand Dividend 0% Capital gains from share transfer Thailand Thai Co: Exempt* or 40% Myanmar Resident: 10% Rates Local Partner (Optional) Myanmar Dividend derived from Myanmar company Tax credit Exempt* * or 20% Capital gains tax paid in Myanmar is eligible for tax credit in Thailand Project Company Note: * Capital gains tax may be exempt If gains relate to sale of shares of company which the shares sold constitute less than 35% of the capital of the company ** Dividend derived from Myanmar Company may be exempt if a Thai company holds more than 25% shares of a Myanmar company for the period of not less than 6 months and no less than 15% tax of the dividend has already been paid in Myanmar.
Case Study Basic Investment Structures Holding Company Structure Myanmar Rates Corporate Income Tax 25% Myanmar Partner (Optional) Thai Company Thailand Third Countries Dividend 0% Capital gains from share transfer Thailand Dividend derived from Myanmar company Tax credit Foreigner: Exempt*, 10%, 40% Local Partner: 10% Rates Exempt** or 20% Capital gains tax paid in Myanmar is eligible for tax credit in Thailand Holding Co. Project Company Myanmar Note: * Capital gains tax may be exempt or reduced subject to applicable DTAs. ** Dividend derived from Myanmar Company may be exempt if a Thai company holds more than 25% shares of a Myanmar company for the period of not less than 6 months and no less than 15% tax of the dividend has already been paid in Myanmar.
Accounting System Corporate compliance
Accounting/Finance for Companies Financial Statements The Myanmar Accounting Standards, 2004 based very closely on International Accounting Standards. Companies must maintain proper books of accounts which are required to be kept at the registered office of the company. Audit Requirements It is required that the annual accounts of a company to be audited. Fiscal year/ Currency The fiscal year in Myanmar is 1 April to 31 March. Myanmar Kyat (MMK)
Sample Tax Return Corporate Income Tax Return Corporate Income Tax Slip Tax Demand Note (Myanmar) Tax Receipts (Myanmar)
KPMG in Myanmar KPMG first of Big 4 to re-open office in Yangon Mix of experienced locals and expatriates Backed by KPMG Thailand and KPMG Singapore in addition the rest of our network. Initially to provide Tax and Advisory services (not audit services at this time) KPMG s available! in our website at www.kpmg.com/mm
Thank you Wirat Sirikajornkij Partner, Tax KPMG Phoomchai Tax Ltd. Tel: +66 2 677 2423 Email: wirat@kpmg.co.th