Myanmar’s tax reform process gained unprecedented momentum in March 2012, following changes to two important tax laws, the Income Tax Law (ITL) and the Commercial Tax (CT) Law (CTL). The changes came into effect on April 1, 2012, and the reforms resulted in an overall reduction of tax rates. For example, the corporate tax rate was reduced from 30% to 25%, and CT rates on goods and services, which previously varied from 5% to 30%, were dropped to a flat 5%. CT rates on special goods went from 30-200% to 8-100%, and exemptions for exports – except crude oil, natural gas, teak logs, hardwood logs and precious stones – were established. As a continuing reform measure, the government enacted several changes: amendments to the ITL; amendments to the CTL; a new Union Taxation Law (UTL); amendments to the Stamp Duty Act; and amendments to the Court Fee Stamp Act.
The law and amendments reduced tax rates and enhanced allowances and reliefs for taxpayers. The first three reforms became effective on April 1, 2014, and the others were effective immediately.
Currently, three principal laws, the ITL, the CTL and the UTL, provide the basis for taxation. The UTL in general earmarks collection of taxes receivable as per a schedule outlined in the law relating to the 2014/15 fiscal year. It also rearranges the schedules and types of goods and services contained in the CTL, specifies CT rates and exemptions, as well as threshold amounts for CT collection. Furthermore, it prescribes IT rates and threshold amounts for IT collection, deduction allowances for IT collection and the responsibilities of relevant Ministries. The law is subject to revision every fiscal year.
Corporate Income Tax (CIT)
For the purpose of taxation, corporations are classified as resident or nonresident. A corporation incorporated in Myanmar is treated as a resident, while a corporation incorporated overseas and registered locally as a branch is treated as a non-resident. Resident companies are subject to income tax on income accruing or arising within and outside Myanmar, that is, on worldwide income. However, foreign branches (non-residents) and companies or branches operating under the Foreign Investment Law (FIL) are only taxed on income accruing or arising within Myanmar. The CIT rate applicable to a resident company is 25%. A non-resident firm pays 35%. However, a branch operating under the FIL is assessed 25%, the same CIT rate as applicable to a resident company.
Income is computed under: “salaries”, “profession”, “business”, “property”, “capital gains”, “income escaped assessment” and “other sources”. Corporate income is assessed under “business”, meaning any trading, commercial or production business including services. Taxable income is computed by deducting expenditures incurred for the purpose of earning income and depreciation allowances at the rates prescribed by IT regulations from the total income, which includes interest earned from investment in security instruments and income from buying and transferring instruments as a business. Non-deductible expenditures comprise capital expenditure, personal expenditure, expenditure not commensurate with the volume of business, and payment made to a member of an association excepting a company and a cooperative society.
However, payments made for professional service are deductible. A full year’s depreciation can be claimed the year a capital asset is acquired, but no depreciation is allowed the year the asset is disposed.
Capital Gains Tax (CGT)
CGT is levied on gains from the sale, exchange or transfer by any means of capital assets of the business in Myanmar kyats (MMK) or foreign currency, if the proceeds of all assets disposed in an income year exceed MMK5m ($5000). Regardless of the currency, CGT is payable in MMK. CGT is 10% for residents and 40% for non-residents.
In the case of the oil and gas sector, the progressive income tax rates, ranging from 40% to 50%, are applicable on the capital gains received from sales, exchange or transfer of shares and capital assets. The above CGT shall be payable in the foreign currency in which gain is realised. Losses from any source may be offset against income from any other source of income accruing in a year, except where the loss is incurred from capital assets. Capital losses cannot be carried forward and offset against future capital gains or taxable profits.
If a company suffers business losses that are not fully deducted in a year, it can carry forward unabsorbed losses and set them off against profits in the next three consecutive years. However, in the case of a FIL company, losses incurred during the income tax holiday period cannot be carried forward for set off against future taxable profits. Dividends received from an association of persons (i.e., partnerships, joint ventures, companies, etc.) are exempt from tax.
Withholding Tax (WHT)
WHT is applicable to both payments to residents (R) and non-residents (NR). A payer is required to withhold income tax at the rates shown below in respect of following payments at the time of disbursement:
- Interest payment rates: R-0%, NR-15%;
- Royalty payments for the use of all licences, trademarks and patent rights; rates: R-15%, NR-20%;
- Payments made under contracts or agreements by state organisations, local authorities, cooperatives, partnerships, companies, entities formed under any existing laws for procurement and services rendered within Myanmar: R-2%, NR-3.5%; and
- Payments made under contracts or agreements by foreign entrepreneurs or foreign companies for procurement and services rendered within Myanmar: R-2%, NR-3.5%. An advance income tax of 2% is imposed by the Internal Revenue Department (IRD) on imports and exports.
The WHT is not applicable on dividends, as it is exempted from tax. The tax withheld shall be paid on behalf of the payer to the IRD within seven days from the date of withholding. Tax withheld from payments to residents will be set off against the tax due under their final assessments, whereas the tax withheld from payment to non-resident foreigners is a final tax.
The standard tax year ends on March 31.
A projection for the year’s income is made by the taxpayer and the tax for the year shall be paid in advance, in quarterly instalments before the end of each quarter. If the liability exceeds the tax instalment, a penalty of 10% is imposed on the amount falling short of actual assessment.
Administration & Compliance
Income tax returns must be filed within three months of the end of the income year, together with financial statements audited by certified public accountants. However, tentative unaudited financial statements may be filed with the prior approval of IRD on reasonable ground. Tax returns for capital gains must be filed within one month from the date of disposal of the capital assets.
The IRD will generally review the tax return and raise any queries before finalising the assessment. The advance payments and any taxes withheld are credited against the final tax liability. The date for settling the final tax liability is specified in the notice of demand issued by the IRD. Excess tax may be refunded or carried forward as advance for the subsequent year’s tax payment. If there is a suspicion of concealment or fraud, a tax audit will be conducted by the IRD. In the case of concealment, the tax payer is asked to fully disclose the facts within a specified time frame. There is no time limit for a tax audit.
Payroll Taxes & Social Security Contributions
Employers need to withhold salary tax monthly at the time of salary disbursement and deposit the sum deducted within seven days from the date of withholding. Monthly salary statements showing the salary amount and tax deducted shall be filed with the relevant township revenue office before the tax is deposited. An annual salary statement must also be filed by June 30. According to the Social Security Law 2012, employers having five and more staff under their employ must register with the relevant township social security office. Both employers and employees are also required to contribute towards the Social Security Scheme based on the employees’ monthly wages at 2% each for health and social care. Employers must contribute an additional 1% on the employees’ wages for injury benefit. Maximum monthly contribution is limited to MMK9000 ($9) by employer and MMK6000 ($6) by employee. Contributions must be paid within 15 days of the following month. Employees’ contribution shall be deducted by the employer from wages.
Taxation On Individuals
Myanmar citizens and resident foreigners are taxed on their world-wide income. A foreigner is a resident if he or she stays in Myanmar for 183 days or more in a fiscal year. Nonresident foreigners are taxed only on income accrued in or earned from Myanmar. Foreigners working in companies operating under the FIL are permitted to pay income tax on their income received within Myanmar only at the same tax rates applicable to the resident citizens although they are non-resident foreigners. Personal allowances (basic, spouse and children, insurance premiums and social security contributions) can be deducted from residents’ taxed salary income.
Non-resident foreigners are required to pay tax in the denominated currency in which income is earned under the UTL. Total income comprises salary, profession, property, business and other sources. Tax rates on income after deducting allowances are at progressive slab rates ranging from 0% to 25%. Taxable income amounts up to MMK2m ($2000) after deducting legitimate personal allowances not taxable (0% rate). The law prescribes fines at 10% to 50% of additional tax due, depending on the type of default or offence relating to income tax provisions, and imprisonment from one to 10 years for not disclosing or concealing income.
Myanmar does not levy value-added tax (VAT). Instead, commercial tax based on turnover is levied either on goods domestically produced, imported, and exports of certain goods under the CTL. CT is also levied on certain types of services rendered within Myanmar. The UTL categorises goods in order to apply different CT rates, which are as follows:
- Special goods – 16 items (imported or manufactured and sold): 8% to 100%;
- Basic and essential goods – 60 items: 0% (for those goods produced and sold locally); 5% (for those goods imported and sold locally);
- Medicines, fertilisers, animal feed, school books, etc. – 18 items: 0%;
- Other goods not included in the above categories: 5%;
- Goods produced and sold by Myanmar-owned companies (for goods normally subject to commercial tax rate of 5%): 2; and
- Exports of goods: 0% (except natural gas, crude oil, jade and jewellery, teak log and wood).
There are 26 types of services exempted from CT, and other types of services which are not included in the CT exemption list are subject to CT at uniform rate of 5%. The threshold for levying CT is MMK15m ($15,000). In order to be compliant with CT regulations, companies must complete the following steps:
- Register with the IRD as a CT payer one month before commencement of business;
- Intimation within 10 days of commencement of business;
- Filing of quarterly CT returns within one month after the end of each quarter;
- Filing of annual CT return within three months after the end of the fiscal year;
- Pay monthly assessable CT within 10 days of the following month;
- Appear for examination upon receiving notice served by the IRD;
- Pay the assessed tax within the stipulated or extended time;
- Maintain prescribed invoices or receipts as evidence, according to the CT regulation; and
- Issue an invoice or receipt to a purchaser or service recipient.
The law prescribes a fine of 10% or 100% of additional tax due depending on the default, and one year’s imprisonment, or a fine amounting to MMK100,000 ($100) or both for not disclosing or concealing income.
Customs duty is payable according to the Custom Tariff of Myanmar at rates of 0% to 40%. Excise duty as licence fees on alcoholic beverage sales are collected by the General Administration Department. Property tax is levied on immovable property based on the township and location in the city as determined by the City Development Committee. Royalties at prescribed scheduled rates are payable on the extraction of natural resources. Stamp duty is payable on various instruments at different rates. Some instruments and applicable rates are as follows:
- Joint venture agreement, production or profit sharing contract or similar agreement: 1% of value, with a maximum of MMK150,000 ($150);
- Lease agreement: for lease term less than three years: 1.5% of amount or value; for more than three years: 3% of the amount or value of average rent;
- Bonds: 1.5% of the amount or value;
- Sales or transfer of immovable property: 3% of the amount or value for conveyances, with an additional 2% for immovable property in the cities of Yangon, Mandalay and Naypyidaw, as a development charge;
- Gifts: 3% of the amount or value;
- Property settlement: 1% of the amount or value; and
- Share transfer: 0.3% of the share value.
Duties are payable in MMK and penalties of 10 times the prescribed duty will be imposed if instruments are not stamped prior to their execution.
Double Taxation Agreement (DTA)
Myanmar has signed DTAs with the UK, Malaysia, Singapore, Vietnam, Thailand, the Republic of Korea, India, Laos, Indonesia and Bangladesh. Among these countries, DTAs with all but Indonesia and Bangladesh are in effect.
New Special Economiic Zone (SEZ)
The government enacted the long-awaited new SEZ Law on January 23, 2014 which supersedes SEZ Law 2011 and Dawei SEZ 2011. It is aimed at developing export-oriented industries and encouraging growth of supply chain firms for export-oriented companies established within the SEZ. The law provides higher incentives than those provided under the previous laws.
Three zones, the Dawei SEZ (located in south-east Myanmar along the Andaman coast), the Kyaukpyu SEZ (located along the central western coast of Myanmar on Ramree Island) and the Thilawa SEZ (located 23 km south-east of the Yangon Region) were established under the previous SEZ Laws.
Of them, the Thilawa SEZ has been the most attractive to foreign investors, because of its comparatively advantageous location. The Ministry of National Planning and Economic Development issued Notification on October 1, 2014 regulating application for investment in Thilawa SEZ, while the approval of parliament regarding SEZ Rules and Regulations is pending. Implementation processes at the Thilawa SEZ are going on at an accelerated pace and foreign investors are rushing to invest in this SEZ.
Permanent Resident (PR) Policy
The Ministry of Immigration and Population recently announced a PR Policy for foreigners and former Myanmar citizens. This is seen as another move to boost foreign investment. The policy was launched in December 2014. Under the policy, foreigners who lived in Myanmar for one year (if other criteria are met) can apply for PR.
Comparison of Incentives Or Reliefs Under The SEZ Law & FIL
Foreign investors intending to conduct long-term business in Myanmar can do so either within the SEZs under SEZ Law (2014) and/or outside SEZs under the FIL (2012). Both the laws provide attractive incentives to investors. Incentives provided under the SEZ Law and FIL are below. Incentives under the SEZ Law for investors:
- In a free zone (FZ) or FZ business, the income tax holiday is for the first seven years from commencement of commercial operation;
- In the promotion zone (PZ) or other business within the SEZ boundary, the income tax holiday is the first five years from commencement of operations;
- In the FZ and PZ, a 50% relief on the income tax rate stipulated under the existing law for the second five years;
- In the FZ and PZ, a 50% relief of the income tax rate is stipulated by the existing law for the third five years on the business’s profit, if reinvested within one year and maintained as a reserve fund. Incentives under FIL for investors:
- An income tax holiday of up to five consecutive years for an enterprise engaged in the production of goods or services. The income tax holiday period is extendable by the Myanmar Investment Commission (MIC) for a further reasonable period, depending on the success of the enterprise;
- Exemptions or relief from income tax are available for business profits that are maintained in a reserve fund and subsequently re-invested within one year after the reserve fund; Incentives under the SEZ Law for investors:
- An income tax holiday for the first eight years from commencement of business operations;
- A 50% relief from the income tax rate stipulated by the existing law for the second five years; and
- A 50% relief from the income tax rate stipulated by the existing law for the third five years on the business’s profit, if reinvested within one year in the business as a reserve fund. Incentives under the FIL for investors:
- Relief from income tax of up to 50% of profits accrued on exported goods that are produced by any manufacturing business;
- The right to pay income tax on the income of foreign employees at the rates applicable to citizens residing within the country; Incentives for investors under FIL:
- If the investor increases the amount of investment and expands the business within the approved timeframe, it may enjoy exemption or/and relief from Customs duties or other internal taxes on machinery, equipment, instruments, machinery components, spare parts and materials that are imported for the expansion of business; and
- Exemption from commercial tax on goods that are produced for export.
- Exemption or relief from Customs duties or other internal taxes on machinery equipment, instruments, machinery components, spare parts and materials used in the business, and items which are imported and required to be used during the construction period of the business;
- Exemption or relief from Customs duties or other internal taxes on imported raw materials for the first three years of commercial production following the completion of construction; Some incentives for investors in SEZ:
- Investors can carry forward losses for offset for five years from the year incurred.
- The right to carry forward and set off losses for up to three consecutive years from the year the loss is sustained, within two years of the tax holiday;
Repatriation Of Pofit (Dividend)
Investors may apply for exemption from income tax for dividends distributed to shareholders. Investors have the right to transfer net profit, after deducting all taxes and relevant funds from annual profit.
Investors in FZs are entitled to deduct business research and development expenses associated with training workers in management. Deductible expenses include:
- Right to deduct expenses in respect of research and development relating to business from assessable income, which are actually required and are carried out within the country; and
- Right to deduct depreciation of machinery, equipment, building or other capital assets used in the business at the rates approved by MIC;
Insurance companies that are owned by citizens of Myanmar, foreigners, or that are jointly owned by citizens and foreigners, are authorised to operate their agency offices and conduct insurance business within the various SEZs.
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