In detail: The country’s tax system is evolving

Myanmar’s tax system is mainly based on the Income Tax Law and the Commercial Tax Law. As the reform agenda put in place by the Myanmar government continues to change the country’s political and economic landscape, we also expect that these tax laws will be updated through notifications issued by the Internal Revenue Department (IRD) to accommodate the rapidly changing business environment and to support the government’s aim of improving the investment climate in Myanmar. In November 2012 the new Myanmar Foreign Investment Law (MFIL) was approved by the Union Parliament and the president. Apart from establishing land use terms, legal structures and many matters important to an investor, the new MFIL also sets out tax incentives for foreign companies, demonstrating the government’s commitment to attract long-term foreign investors. Please refer to the section “Tax Concessions and Incentives under the Myanmar Foreign Investment Law” for further details. Foreign investors may now register their companies under the Myanmar Companies Act (CA) or in conjunction with the MFIL. Permits granted under the MFIL are issued by the Myanmar Investment Committee (MIC). The key differences between companies registered under the CA versus the MFIL include the eligibility for various tax incentives (not limited to corporate, individual and commercial taxes) and longer land use terms.

Corporate Income Tax

Generally, resident companies are taxed on a worldwide basis, and as such, income from sources outside Myanmar is taxable. Non-resident companies are taxed only on income derived from sources within Myanmar. It is worthwhile to note that although companies incorporated under the MFIL are treated as tax-resident companies in Myanmar, they are taxed only on income derived from sources within Myanmar. Income received from any capital assets within Myanmar and from any source of income within the country is deemed to be income received within Myanmar. The income is generally subject to tax under the normal rules for residents, except that different tax rates apply. Companies incorporated under both the CA and MFIL are subject to corporate income tax of 25% on their total income excluding capital gains, while non-resident foreign organisations are subject to a higher corporate income tax rate of 35% on their income derived from sources within Myanmar. Income that is capital in nature is subject to a different tax rate of 10% for resident companies and 40% for non-resident companies. Generally, branches of foreign companies are deemed to be non-resident companies and hence they are subject to the higher corporate income tax rate of 35%.

Income is defined as income from a profession, business, property, capital gains, other sources and undisclosed sources. Interest income and income from movable property are treated as business income. Tax is levied on total income, after the deduction of allowable expenditure and depreciation. In respect of business income, deductions are allowed for expenditure incurred for the purpose of earning income. Non-deductible items include capital expenditure, personal expenditure, expenditure that is not commensurate with the volume of business, payments made to any member of an association of persons other than a company or a cooperative society, and inappropriate expenditure.

As income from movable property is considered business income, depreciation allowances for the cost of such movable property can be deducted. Income from immovable property is generally computed in the same way as business income, except that no depreciation allowance can be deducted.

Technically, a taxpayer entity is required to claim tax depreciation on the qualifying assets used for its business purposes based on rates prescribed under the Myanmar Income Tax Law, using a prescribed tax depreciation claim form.

A taxpayer is entitled to a full year’s tax depreciation in the year the asset is acquired. However, no tax depreciation is allowed in the year in which the asset is disposed. Losses from any source may be offset against income accruing from any other sources in that year, except where the loss is from capital assets or a share of loss from an association of persons. If a company suffers losses that are not fully deducted in a year, it can carry forward these losses and set them off against profits in the next three consecutive years. Please note that in the case of a MFIL company, losses incurred during the income tax holiday cannot be carried forward for set off against future taxable profits. Any capital losses and a shares of loss from an association of persons cannot be set off against income from other sources, or carried forward. The Ministry of Finance and Revenue, with approval of the government may, prescribe, amend and add assessable income and rates of income tax.

Dividend Income

Myanmar has a one-tier corporate tax system where dividends received from an association of persons (i.e. partnerships, joint ventures, companies, etc.) are exempt from tax.

Withholding Tax

Myanmar’s withholding tax system applies to both payments to tax residents and non-tax residents. Any person making the following payments is required to withhold income tax at the time of payment at the respective withholding rates:

• Interest payments;

• Royalty payments for the use of licences, trade marks and patent rights, etc.;

• Payments made under contracts or agreements or any other agreement made by a state organisation, local authorities, cooperatives, partnership companies, entities formed under any existing laws for procurements and for services rendered; and/or

• Payments made under contracts or agreements or any other agreement made by foreign enterprises for work performed and procurements made within the country. The withholding tax rates are as follows:

• Interest payments, resident national or foreigner: 0%; non-resident or foreigner: 15%;

• Royalties for the use of licences, trademarks, patent rights, etc: resident national or foreigner: 15%; non-resident or foreigner: 20%;

• Payments made under contracts or agreements or any other agreement made by a state organisation, local authorities, cooperatives, partnership companies, entities formed under existing laws for procurements and for services rendered within the country: resident national or foreigner: 2%; non-resident or foreigner: 3.5%; and

• Payments made under contracts or agreements by foreign entrepreneurs or foreign companies for procurements and services made within the country: resident national or foreigner: 2% and non-resident or foreigner: 3.5%. Dividends, branch profits and share of profits of an association of persons which has been taxed are exempt, and therefore no withholding tax is deductible. The tax withheld on behalf of the payer is to be paid 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 on their final assessments while tax withheld from payments to non-resident companies is a final tax. Based on a Ministry of Finance and Revenue notification dated June 14, 2013, the Myanmar tax authorities will collect advance income tax of 2% from taxpayer companies on the import and export of goods. These advance taxes may be offset with the tax due upon annual finalisation of the company’s assessments.

There is no definition of a permanent establishment (PE) under the Myanmar Income Tax Act. In current practice, the Myanmar tax authorities seek to collect taxes from a non-resident foreigner on his or her income received from Myanmar by way of a withholding tax mechanism at the above withholding tax rates, regardless of whether the foreigner has a PE in Myanmar or not.

The term “PE” may be defined in the tax treaties that Myanmar has with other countries. Subject to the relevant tax treaty and agreement of the Myanmar tax authority, a foreigner who is tax resident of the treaty country may not be subject to Myanmar taxes if it does not have a PE in Myanmar.

Double-Tax Agreements

The Myanmar Income Tax Law specifies that if the government enters into an agreement with any foreign state or international organisation relating to income tax, and if the agreement is notified, the terms of the said agreement will be followed notwithstanding anything to the contrary contained in any other provisions of the Myanmar Income Tax Law.

Myanmar has concluded tax treaties with India, Indonesia, Malaysia, Singapore, South Korea, Thailand, the UK, Vietnam, Laos and Bangladesh.

The treaties with the UK, India, South Korea, Malaysia, Singapore, Thailand, Laos and Vietnam have been notified in the Myanmar gazette. In practice, the Company Circle Tax Office (CCTO) under the IRD has suggested that enquires be made with the CCTO first to ensure that correct tax has been withheld in compliance with the respective tax treaty. Currently there is no provision for unilateral relief.

Tax Administration & Payments

The taxable period of a company is the same as its financial year (income year), which is from April 1 to March 31. Income earned during the financial year is assessed for tax in the assessment year, which is the year following the financial year. In general, income tax returns must be filed within three months from the end of the financial year, i.e. by June 30 of the financial year. However, advance payments for tax must be made either in monthly or quarterly instalments throughout the income tax year based on the estimated total income for the year. The advance payments and any taxes withheld are creditable against the final tax liability of the taxpayer. The date for settling the final tax liability will be specified in the notice of demand issued by the IRD.

Tax returns for capital gains must be filed within one month from the date of disposal of the capital assets. The corresponding payment for capital gains tax must also be made within one month from the date of disposal. If a taxpayer discontinues his business, returns must be filed within one month from the date of discontinuance of business. The failure of a taxpayer to file income tax returns, knowing that assessable income has been obtained, is deemed to be a transaction of “fraudulent intention”.

The statute of limitation for the IRD to raise an assessment is three years after the financial year end. However, this does not apply in cases of fraudulent default. Mere filing of the income return and payment of advance tax in time does not constitute a final tax assessment. In May 2013 a tax collection and scrutiny board was also formed with the objective of reviewing and ensuring that proper tax payments have been collected. The authorities have also indicated that a self assessment tax system is likely to be rolled out in the near future.

Tax Audit Process

Under the Myanmar Income Tax Law, if it is found that there is a fraudulent intention to evade tax, the assessment or reassessment of income tax can be made at any time on the income that has avoided the assessment of tax.

Failure by a taxpayer to file a return of income knowing that assessable income has been obtained, and failure to comply with the notice of the IRD to submit accounts and documents including the tax return and profit and loss accounts within the time prescribed, or submitting forged instruments and other documents, are included within the meaning of fraudulent intention. If the tax authority in the course of investigation finds that a taxpayer has concealed income or particulars relating to income, the taxpayer may be required to fully disclose the facts within the specified time. In addition, the taxpayer must pay a penalty equal to 50% of the increased tax liabilities on account of the concealment. If the taxpayer fails to disclose the particulars within the specified time or discloses less than the income concealed, the director, officer or agent of the taxpayer company will also be subject to prosecution, in addition to paying the tax and penalty. If he is found guilty, the director, officer or agent of the taxpayer company may be punishable with imprisonment for between three to 10 years.

Payroll Taxes & Social Security

An employer is responsible for deducting income tax due from salaries at the time of payment of such salaries to employees, and must pay the amount within seven days from the date of deduction. If the employer fails to deduct and pay the tax on behalf of the employees, the employer is deemed to be a defaulter and will be held responsible for making good such payment. In addition, the employer is also responsible for filing the statement of annual salary within three months after the end of the income year.

Failure to file by the stipulated deadline may subject the employer to a penalty of 10% of the amount of tax to be deducted on annual salaries.

At present both employers and employees are also required to follow the rules and regulations under the Social Security Act 1954. Under the Social Security Act 1954, an employer with more than five workers is required to provide Social Security Scheme benefits to these workers, such as general benefit insurance and insurance against employment-related injuries. The rates of contribution by employees and employers are 1.5% and 2.5% of the total salaries and wages, respectively.

The contribution may be in kyats or in US dollars, depending on the currency in which the employee is paid. The maximum contribution is limited to MMK775 ($0.85) by the employer and MMK465 ($0.51) by the employee in the case of salaries that are earned in kyat; and $5 by the employer and $3 by the employee in the case of salaries that are earned in foreign currency. Such contributions are deductible by the employee for his/her tax purposes as provided for under clause 4(b) of the Myanmar Income Tax Rule issued per Notification No. 102/2012 dated March 15, 2012 by the IRD.

Employees’ contributions are also to be withheld by the employer from the employees’ salaries.

Myanmar has also recently introduced the Social Security Law 2012. The rate of contribution and maximum contribution as outlined above is expected to increase upon the introduction of new rules and regulations under the Social Security Law 2012.

Taxes On Personal Income

Resident national and foreigner individuals are taxed on their worldwide income, while non-resident foreigners are taxed only on income that has been derived from sources within Myanmar. Foreigners who reside in Myanmar for at least 183 days during an income year are considered resident foreigners, while foreigners who reside in Myanmar for less than 183 days during an income year are considered non-resident foreigners, unless they are working for MFIL companies, in which case they will be taxed at the income tax rates applicable to a resident national regardless of their period of stay in Myanmar.

Individual tax rates on salaries earned in Myanmar by resident nationals and foreigners (including employees of MFIL companies) are progressive ranging from 1% to 20%. Salaries earned by non-resident foreigners are subject to a flat individual tax rate of 35%. Salaries of foreigners engaged under special permission in state-sponsored projects, enterprises, received in kyats are subject to individual tax of 20%. There is no tax payable if total salaries do not exceed MMK1.44m ($1584) a year. Other income earned by individuals is also subject to individual tax rates of 2% to 30% for resident nationals and foreigners, and 35% for non-resident foreigners.

Capital gains taxes are applicable to individuals at a rate of 10% for resident nationals and 40% for foreigners and non-resident foreigners, respectively.

Commercial Tax

There is no value-added tax (VAT) in Myanmar. However, there is a commercial tax (under the Myanmar Commercial Tax Law), which is levied based on the supply of specific goods and services. The commercial tax is an additional tax upon certain commercial transactions, but it has not been expanded to the concept of a VAT. The commercial tax applies only to the specific transactions listed in the Commercial Tax Law.

Commercial tax is imposed on a wide range of goods and services produced or supplied within the country, based on the sale proceeds. In addition, the tax is also levied on imported goods, based on the total landed cost, which is the sum of the cost, insurance and freight value, and Customs duties. Collection of these taxes is made at the point of entry and the time of clearance.

Commercial tax rates range from 0% to 100%, depending on the nature of the goods and services described in the schedules appended to the Commercial Tax Law. Generally, the commercial tax rate is 5%. Commercial tax is, however, exempt on all exports of goods except for five natural resource items: natural gas, crude oil, jade, gem stones and wood. In addition, no commercial tax is imposed if the amount of sales or receipts from services for a financial year is not more than MMK10m ($11,000). The commercial tax that a business charges and collects can be regarded as output tax which has to be paid to the IRD. Commercial tax incurred on business purchases and expenses can also be regarded as input tax except in the case of 18 items of special goods as per Schedule 6 of the Commercial Tax Law. Businesses which are commercial tax registered can claim input tax if conditions for claiming are satisfied. Commercial tax paid on services cannot be claimed and only commercial tax paid on goods can be claimed if certain conditions (e.g. where the tax payer is in the business of producing goods subject to commercial taxes) are satisfied.

Companies registered under the MFIL and which have obtained permits from the MIC may also, at the discretion of the MIC, be granted exemption from commercial tax on goods that are manufactured for export. Please refer to the section on “Tax Concessions and Incentives under the Myanmar Foreign Investment Law” for additional details on the other concessions and incentives that a MFIL company may also enjoy. It is worthwhile to note that the tax authority has indicated that the current commercial tax system is likely to be replaced by a VAT/Goods and Services Tax system in the near future.

Other Taxes

Customs duty is levied under the Customs Tariff of Myanmar Law (2012) at rates up to 40%. At present, excise duty in the form of an excise license fee is levied on alcoholic drinks only, and is collected by the General Administration Department under the Ministry of Home Affairs.

Immovable property (land and buildings) situated within the city development area is subject to property tax , which is imposed by the city development committee to cover the cost incurred in maintaining each respective city. In practice, we understand that property tax imposed by the city development committee is likely to be minimal.

Stamp duty is levied on various instruments. Examples of some of the rates are:

• 5% of the amount or value of the consideration for conveyances such as for the sale or transfer of immovable property, plus an additional 2% for immovable property situated in the Yangon development area;

• 0.3% of share value for the transfer of shares;

• 2% of the amount or value secured for bonds; and

• 2% of the amount or value of the property settled for inheritances under an arrangement of settlement. The above stamp duty rates are applicable on instruments executed in Myanmar kyats. Where the instrument subject to the relevant ad-valorem duty rates are executed in any other currency other than Myanmar kyats, the applicable stamp duty rate, regardless of the nature of the instrument, would be 1%. TAX CONCESSIONS & INCENTIVES UNDER THE MYANMAR FOREIGN INVESTMENT LAW: A company incorporated under the MFIL may enjoy special benefits and tax incentives as prescribed by the MFIL. These incentives are granted by the MIC at its discretion. Tax concessions and incentives provided in the MFIL include the following:

• Exemption from income tax for up to five consecutive years for an enterprise engaged in the production of goods or services. The exemption may be extended by the MIC for a further reasonable period, depending on the success of the enterprise;

• Exemption or relief from income tax on profits of the business that are maintained in a reserve fund and subsequently re-invested within one year after the reserve fund is made;

• Right to deduct depreciation of machinery, equipment, building or other capital assets used in the business at the rates prescribed by the MIC;

• Relief from income tax of up to 50% of the profits accrued on exported goods that are produced by any manufacturing business;

• The right to pay income tax payable to the state on foreign employees at the rates applicable to the citizens residing within the country;

• The right to deduct expenses incurred in Myanmar on research and development relating to the business of the enterprise from assessable income, which are actually required and are carried out within the country;

• 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 (after the tax holiday period);

• Exemption or relief from Customs duty 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 duty or other internal taxes on imported raw materials for the first three years of commercial production following the completion of construction;

• 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 duty 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. Under the MFIL, a company registered under the MFIL is allowed to lease land from the government, or the parties who are granted the rights to lease land, for up to 50 years, as well as two continuous subsequent extensions of 10 years if approved by the Myanmar Investment Commission.

In addition to the MFIL, foreign investors also may invest under special law. This includes the Myanmar Special Economic Zone Law of 2011 (Myanmar SEZ Law) and the Dawei Special Economic Zone Law of 2011 (Dawei SEZ Law) and thus may enjoy further tax incentives and benefits. The Myanmar SEZ Law is a basic law for any SEZ within Myanmar whereas the Dawei SEZ applies only to a specified designated area, specifically the Dawei SEZ, which is located in the Tanintharyi region in the south, and is the first SEZ in Myanmar. The main regulatory body handling foreign investment under the Myanmar SEZ Law and the Dawei SEZ Law is the Central Body for the Myanmar Special Economic Zone which was formed by the president’s office in April 2011. Subordinate regulatory bodies are the Central Working Body and the Dawei SEZ Temporary Supporting Working Body, as formed by the president’s office in April 2011.

The Myanmar SEZ Law and Dawei SEZ Law contain, inter alia, provisions relating to developers and investors, exemptions and reliefs, restrictions, duties of developers or investors, land use, banks and finance management and insurance business, management and inspection of commodities by the Customs department, quarantine, labour and guarantee of non-nationalisation.

In general, the investment projects in the Dawei SEZ must be approved by the Central Body. Tax exemptions or relief may be granted under the Dawei SEZ Law upon application by the investor. Incentives under the Myanmar SEZ Law include:

• Tax holidays for the first five years;

• 50% income tax relief on revenue from products sold overseas for the next five years;

• 50% income tax relief on reinvestment obtained from export sale for the following five years; and

• Exemption on Customs duty for certain goods (e.g. machineries and vehicles) for five years. A 50% exemption applies for the next five years. Myanmar’s tax system is mainly based on the Income Tax Law and the Commercial Tax Law. As the reform agenda put in place by the Myanmar government continues to change the country’s political and economic landscape, we also expect that these tax laws will be updated through notifications issued by the Internal Revenue Department (IRD) to accommodate the rapidly changing business environment and to support the government’s aim of improving the investment climate in Myanmar. In November 2012 the new Myanmar Foreign Investment Law (MFIL) was approved by the Union Parliament and the president. Apart from establishing land use terms, legal structures and many matters important to an investor, the new MFIL also sets out tax incentives for foreign companies, demonstrating the government’s commitment to attract long-term foreign investors. Please refer to the section “Tax Concessions and Incentives under the Myanmar Foreign Investment Law” for further details. Foreign investors may now register their companies under the Myanmar Companies Act (CA) or in conjunction with the MFIL. Permits granted under the MFIL are issued by the Myanmar Investment Committee (MIC). The key differences between companies registered under the CA versus the MFIL include the eligibility for various tax incentives (not limited to corporate, individual and commercial taxes) and longer land use terms.

Corporate IncomeTax

Generally, resident companies are taxed on a worldwide basis, and as such, income from sources outside Myanmar is taxable. Non-resident companies are taxed only on income derived from sources within Myanmar. It is worthwhile to note that although companies incorporated under the MFIL are treated as tax-resident companies in Myanmar, they are taxed only on income derived from sources within Myanmar. Income received from any capital assets within Myanmar and from any source of income within the country is deemed to be income received within Myanmar. The income is generally subject to tax under the normal rules for residents, except that different tax rates apply. Companies incorporated under both the CA and MFIL are subject to corporate income tax of 25% on their total income excluding capital gains, while non-resident foreign organisations are subject to a higher corporate income tax rate of 35% on their income derived from sources within Myanmar. Income that is capital in nature is subject to a different tax rate of 10% for resident companies and 40% for non-resident companies. Generally, branches of foreign companies are deemed to be non-resident companies and hence they are subject to the higher corporate income tax rate of 35%.

Income is defined as income from a profession, business, property, capital gains, other sources and undisclosed sources. Interest income and income from movable property are treated as business income. Tax is levied on total income, after the deduction of allowable expenditure and depreciation. In respect of business income, deductions are allowed for expenditure incurred for the purpose of earning income. Non-deductible items include capital expenditure, personal expenditure, expenditure that is not commensurate with the volume of business, payments made to any member of an association of persons other than a company or a cooperative society, and inappropriate expenditure.

As income from movable property is considered business income, depreciation allowances for the cost of such movable property can be deducted. Income from immovable property is generally computed in the same way as business income, except that no depreciation allowance can be deducted.

Technically, a taxpayer entity is required to claim tax depreciation on the qualifying assets used for its business purposes based on rates prescribed under the Myanmar Income Tax Law, using a prescribed tax depreciation claim form.

A taxpayer is entitled to a full year’s tax depreciation in the year the asset is acquired. However, no tax depreciation is allowed in the year in which the asset is disposed. Losses from any source may be offset against income accruing from any other sources in that year, except where the loss is from capital assets or a share of loss from an association of persons. If a company suffers losses that are not fully deducted in a year, it can carry forward these losses and set them off against profits in the next three consecutive years. Please note that in the case of a MFIL company, losses incurred during the income tax holiday cannot be carried forward for set off against future taxable profits. Any capital losses and a shares of loss from an association of persons cannot be set off against income from other sources, or carried forward. The Ministry of Finance and Revenue, with approval of the government may, prescribe, amend and add assessable income and rates of income tax.

Dividend Income

Myanmar has a one-tier corporate tax system where dividends received from an association of persons (i.e. partnerships, joint ventures, companies, etc.) are exempt from tax.

Withholding Tax

Myanmar’s withholding tax system applies to both payments to tax residents and non-tax residents. Any person making the following payments is required to withhold income tax at the time of payment at the respective withholding rates:

• Interest payments;

• Royalty payments for the use of licences, trade marks and patent rights, etc.;

• Payments made under contracts or agreements or any other agreement made by a state organisation, local authorities, cooperatives, partnership companies, entities formed under any existing laws for procurements and for services rendered; and/or

• Payments made under contracts or agreements or any other agreement made by foreign enterprises for work performed and procurements made within the country. The withholding tax rates are as follows:

• Interest payments, resident national or foreigner: 0%; non-resident or foreigner: 15%;

• Royalties for the use of licences, trademarks, patent rights, etc: resident national or foreigner: 15%; non-resident or foreigner: 20%;

• Payments made under contracts or agreements or any other agreement made by a state organisation, local authorities, cooperatives, partnership companies, entities formed under existing laws for procurements and for services rendered within the country: resident national or foreigner: 2%; non-resident or foreigner: 3.5%; and

• Payments made under contracts or agreements by foreign entrepreneurs or foreign companies for procurements and services made within the country: resident national or foreigner: 2% and non-resident or foreigner: 3.5%. Dividends, branch profits and share of profits of an association of persons which has been taxed are exempt, and therefore no withholding tax is deductible. The tax withheld on behalf of the payer is to be paid 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 on their final assessments while tax withheld from payments to non-resident companies is a final tax. Based on a Ministry of Finance and Revenue notification dated June 14, 2013, the Myanmar tax authorities will collect advance income tax of 2% from taxpayer companies on the import and export of goods. These advance taxes may be offset with the tax due upon annual finalisation of the company’s assessments.

There is no definition of a permanent establishment (PE) under the Myanmar Income Tax Act. In current practice, the Myanmar tax authorities seek to collect taxes from a non-resident foreigner on his or her income received from Myanmar by way of a withholding tax mechanism at the above withholding tax rates, regardless of whether the foreigner has a PE in Myanmar or not.

The term “PE” may be defined in the tax treaties that Myanmar has with other countries. Subject to the relevant tax treaty and agreement of the Myanmar tax authority, a foreigner who is tax resident of the treaty country may not be subject to Myanmar taxes if it does not have a PE in Myanmar.

Double-Tax Agreements

The Myanmar Income Tax Law specifies that if the government enters into an agreement with any foreign state or international organisation relating to income tax, and if the agreement is notified, the terms of the said agreement will be followed notwithstanding anything to the contrary contained in any other provisions of the Myanmar Income Tax Law.

Myanmar has concluded tax treaties with India, Indonesia, Malaysia, Singapore, South Korea, Thailand, the UK, Vietnam, Laos and Bangladesh.

The treaties with the UK, India, South Korea, Malaysia, Singapore, Thailand, Laos and Vietnam have been notified in the Myanmar gazette. In practice, the Company Circle Tax Office (CCTO) under the IRD has suggested that enquires be made with the CCTO first to ensure that correct tax has been withheld in compliance with the respective tax treaty. Currently there is no provision for unilateral relief.

Tax Administration & Payments

The taxable period of a company is the same as its financial year (income year), which is from April 1 to March 31. Income earned during the financial year is assessed for tax in the assessment year, which is the year following the financial year. In general, income tax returns must be filed within three months from the end of the financial year, i.e. by June 30 of the financial year. However, advance payments for tax must be made either in monthly or quarterly instalments throughout the income tax year based on the estimated total income for the year. The advance payments and any taxes withheld are creditable against the final tax liability of the taxpayer. The date for settling the final tax liability will be specified in the notice of demand issued by the IRD.

Tax returns for capital gains must be filed within one month from the date of disposal of the capital assets. The corresponding payment for capital gains tax must also be made within one month from the date of disposal. If a taxpayer discontinues his business, returns must be filed within one month from the date of discontinuance of business. The failure of a taxpayer to file income tax returns, knowing that assessable income has been obtained, is deemed to be a transaction of “fraudulent intention”.

The statute of limitation for the IRD to raise an assessment is three years after the financial year end. However, this does not apply in cases of fraudulent default. Mere filing of the income return and payment of advance tax in time does not constitute a final tax assessment. In May 2013 a tax collection and scrutiny board was also formed with the objective of reviewing and ensuring that proper tax payments have been collected. The authorities have also indicated that a self assessment tax system is likely to be rolled out in the near future.

Tax Audit Process

Under the Myanmar Income Tax Law, if it is found that there is a fraudulent intention to evade tax, the assessment or reassessment of income tax can be made at any time on the income that has avoided the assessment of tax.

Failure by a taxpayer to file a return of income knowing that assessable income has been obtained, and failure to comply with the notice of the IRD to submit accounts and documents including the tax return and profit and loss accounts within the time prescribed, or submitting forged instruments and other documents, are included within the meaning of fraudulent intention. If the tax authority in the course of investigation finds that a taxpayer has concealed income or particulars relating to income, the taxpayer may be required to fully disclose the facts within the specified time. In addition, the taxpayer must pay a penalty equal to 50% of the increased tax liabilities on account of the concealment. If the taxpayer fails to disclose the particulars within the specified time or discloses less than the income concealed, the director, officer or agent of the taxpayer company will also be subject to prosecution, in addition to paying the tax and penalty. If he is found guilty, the director, officer or agent of the taxpayer company may be punishable with imprisonment for between three to 10 years.

Payroll Taxes & Social Security

An employer is responsible for deducting income tax due from salaries at the time of payment of such salaries to employees, and must pay the amount within seven days from the date of deduction. If the employer fails to deduct and pay the tax on behalf of the employees, the employer is deemed to be a defaulter and will be held responsible for making good such payment. In addition, the employer is also responsible for filing the statement of annual salary within three months after the end of the income year.

Failure to file by the stipulated deadline may subject the employer to a penalty of 10% of the amount of tax to be deducted on annual salaries.

At present both employers and employees are also required to follow the rules and regulations under the Social Security Act 1954. Under the Social Security Act 1954, an employer with more than five workers is required to provide Social Security Scheme benefits to these workers, such as general benefit insurance and insurance against employment-related injuries. The rates of contribution by employees and employers are 1.5% and 2.5% of the total salaries and wages, respectively.

The contribution may be in kyats or in US dollars, depending on the currency in which the employee is paid. The maximum contribution is limited to MMK775 ($0.85) by the employer and MMK465 ($0.51) by the employee in the case of salaries that are earned in kyat; and $5 by the employer and $3 by the employee in the case of salaries that are earned in foreign currency. Such contributions are deductible by the employee for his/her tax purposes as provided for under clause 4(b) of the Myanmar Income Tax Rule issued per Notification No. 102/2012 dated March 15, 2012 by the IRD.

Employees’ contributions are also to be withheld by the employer from the employees’ salaries.

Myanmar has also recently introduced the Social Security Law 2012. The rate of contribution and maximum contribution as outlined above is expected to increase upon the introduction of new rules and regulations under the Social Security Law 2012.

Taxes On Personal Income

Resident national and foreigner individuals are taxed on their worldwide income, while non-resident foreigners are taxed only on income that has been derived from sources within Myanmar. Foreigners who reside in Myanmar for at least 183 days during an income year are considered resident foreigners, while foreigners who reside in Myanmar for less than 183 days during an income year are considered non-resident foreigners, unless they are working for MFIL companies, in which case they will be taxed at the income tax rates applicable to a resident national regardless of their period of stay in Myanmar.

Individual tax rates on salaries earned in Myanmar by resident nationals and foreigners (including employees of MFIL companies) are progressive ranging from 1% to 20%. Salaries earned by non-resident foreigners are subject to a flat individual tax rate of 35%. Salaries of foreigners engaged under special permission in state-sponsored projects, enterprises, received in kyats are subject to individual tax of 20%. There is no tax payable if total salaries do not exceed MMK1.44m ($1584) a year. Other income earned by individuals is also subject to individual tax rates of 2% to 30% for resident nationals and foreigners, and 35% for non-resident foreigners.

Capital gains taxes are applicable to individuals at a rate of 10% for resident nationals and 40% for foreigners and non-resident foreigners, respectively.

Commercial Tax

There is no value-added tax (VAT) in Myanmar. However, there is a commercial tax (under the Myanmar Commercial Tax Law), which is levied based on the supply of specific goods and services. The commercial tax is an additional tax upon certain commercial transactions, but it has not been expanded to the concept of a VAT. The commercial tax applies only to the specific transactions listed in the Commercial Tax Law.

Commercial tax is imposed on a wide range of goods and services produced or supplied within the country, based on the sale proceeds. In addition, the tax is also levied on imported goods, based on the total landed cost, which is the sum of the cost, insurance and freight value, and Customs duties. Collection of these taxes is made at the point of entry and the time of clearance.

Commercial tax rates range from 0% to 100%, depending on the nature of the goods and services described in the schedules appended to the Commercial Tax Law. Generally, the commercial tax rate is 5%. Commercial tax is, however, exempt on all exports of goods except for five natural resource items: natural gas, crude oil, jade, gem stones and wood. In addition, no commercial tax is imposed if the amount of sales or receipts from services for a financial year is not more than MMK10m ($11,000). The commercial tax that a business charges and collects can be regarded as output tax which has to be paid to the IRD. Commercial tax incurred on business purchases and expenses can also be regarded as input tax except in the case of 18 items of special goods as per Schedule 6 of the Commercial Tax Law. Businesses which are commercial tax registered can claim input tax if conditions for claiming are satisfied. Commercial tax paid on services cannot be claimed and only commercial tax paid on goods can be claimed if certain conditions (e.g. where the tax payer is in the business of producing goods subject to commercial taxes) are satisfied.

Companies registered under the MFIL and which have obtained permits from the MIC may also, at the discretion of the MIC, be granted exemption from commercial tax on goods that are manufactured for export. Please refer to the section on “Tax Concessions and Incentives under the Myanmar Foreign Investment Law” for additional details on the other concessions and incentives that a MFIL company may also enjoy. It is worthwhile to note that the tax authority has indicated that the current commercial tax system is likely to be replaced by a VAT/Goods and Services Tax system in the near future.

Other Taxes

Customs duty is levied under the Customs Tariff of Myanmar Law (2012) at rates up to 40%. At present, excise duty in the form of an excise license fee is levied on alcoholic drinks only, and is collected by the General Administration Department under the Ministry of Home Affairs.

Immovable property (land and buildings) situated within the city development area is subject to property tax , which is imposed by the city development committee to cover the cost incurred in maintaining each respective city. In practice, we understand that property tax imposed by the city development committee is likely to be minimal.

Stamp duty is levied on various instruments. Examples of some of the rates are:

• 5% of the amount or value of the consideration for conveyances such as for the sale or transfer of immovable property, plus an additional 2% for immovable property situated in the Yangon development area;

• 0.3% of share value for the transfer of shares;

• 2% of the amount or value secured for bonds; and

• 2% of the amount or value of the property settled for inheritances under an arrangement of settlement. The above stamp duty rates are applicable on instruments executed in Myanmar kyats. Where the instrument subject to the relevant ad-valorem duty rates are executed in any other currency other than Myanmar kyats, the applicable stamp duty rate, regardless of the nature of the instrument, would be 1%. TAX CONCESSIONS & INCENTIVES UNDER THE MYANMAR FOREIGN INVESTMENT LAW: A company incorporated under the MFIL may enjoy special benefits and tax incentives as prescribed by the MFIL. These incentives are granted by the MIC at its discretion. Tax concessions and incentives provided in the MFIL include the following:

• Exemption from income tax for up to five consecutive years for an enterprise engaged in the production of goods or services. The exemption may be extended by the MIC for a further reasonable period, depending on the success of the enterprise;

• Exemption or relief from income tax on profits of the business that are maintained in a reserve fund and subsequently re-invested within one year after the reserve fund is made;

• Right to deduct depreciation of machinery, equipment, building or other capital assets used in the business at the rates prescribed by the MIC;

• Relief from income tax of up to 50% of the profits accrued on exported goods that are produced by any manufacturing business;

• The right to pay income tax payable to the state on foreign employees at the rates applicable to the citizens residing within the country;

• The right to deduct expenses incurred in Myanmar on research and development relating to the business of the enterprise from assessable income, which are actually required and are carried out within the country;

• 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 (after the tax holiday period);

• Exemption or relief from Customs duty 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 duty or other internal taxes on imported raw materials for the first three years of commercial production following the completion of construction;

• 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 duty 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. Under the MFIL, a company registered under the MFIL is allowed to lease land from the government, or the parties who are granted the rights to lease land, for up to 50 years, as well as two continuous subsequent extensions of 10 years if approved by the Myanmar Investment Commission.

In addition to the MFIL, foreign investors also may invest under special law. This includes the Myanmar Special Economic Zone Law of 2011 (Myanmar SEZ Law) and the Dawei Special Economic Zone Law of 2011 (Dawei SEZ Law) and thus may enjoy further tax incentives and benefits. The Myanmar SEZ Law is a basic law for any SEZ within Myanmar whereas the Dawei SEZ applies only to a specified designated area, specifically the Dawei SEZ, which is located in the Tanintharyi region in the south, and is the first SEZ in Myanmar. The main regulatory body handling foreign investment under the Myanmar SEZ Law and the Dawei SEZ Law is the Central Body for the Myanmar Special Economic Zone which was formed by the president’s office in April 2011. Subordinate regulatory bodies are the Central Working Body and the Dawei SEZ Temporary Supporting Working Body, as formed by the president’s office in April 2011.

The Myanmar SEZ Law and Dawei SEZ Law contain, inter alia, provisions relating to developers and investors, exemptions and reliefs, restrictions, duties of developers or investors, land use, banks and finance management and insurance business, management and inspection of commodities by the Customs department, quarantine, labour and guarantee of non-nationalisation.

In general, the investment projects in the Dawei SEZ must be approved by the Central Body. Tax exemptions or relief may be granted under the Dawei SEZ Law upon application by the investor. Incentives under the Myanmar SEZ Law include:

• Tax holidays for the first five years;

• 50% income tax relief on revenue from products sold overseas for the next five years;

• 50% income tax relief on reinvestment obtained from export sale for the following five years; and

• Exemption on Customs duty for certain goods (e.g. machineries and vehicles) for five years. A 50% exemption applies for the next five years. With respect to land use under the Dawei SEZ Law, land use may be granted under an initial lease of at least 30 years, renewable for another 30 years (plus 15 years) for large-scale business; or for another 15 years (plus 15 years) for medium-scale business; or for another five years for a small-scale business. The extra years are granted on a case-by-case basis, depending on the investment amount and success of the business in Myanmar.

Further, with the approval of the Union government and the Central Body, and pursuant to the Dawei SEZ Law and existing Myanmar law, developers and investors may rent, mortgage or sell land and buildings to another person for investment purposes within the term granted for operating in the Dawei SEZ. The authorities have indicated that the above SEZ laws will be undergoing significant reform in the near future, further increasing their attractiveness to foreign investors.

Other Areas To Note

There are currently no transfer pricing rules in Myanmar. A Myanmar corporation can claim a deduction for royalties, management service fees and interest charges paid to affiliates, provided that these payments are commensurate with the volume of business. There is also no group taxation regime in Myanmar at present. Currently there is also no specific safe harbour with respect to a debt-to-equity ratio in Myanmar.

It is worthwhile to note that the Central Bank of Myanmar or the Myanmar Investment Commission has indicated that the safe harbour rule with respect to a debt-to-equity ratio is likely to be introduced in the near future.

However, Myanmar is at the forefront of change. As the country embarks on a substantial and wide-ranging reform of its economic and political landscape, its tax system will also be subject to much scrutiny and evolvement. Indeed, more foreign investors and multinational companies continue to move into Myanmar to leverage its untapped potential.

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The Report: Myanmar 2014

Tax chapter from The Report: Myanmar 2014

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