Regime Change Progressing
Changes in Myanmar’s tax regime continued to make progress in FY 2015/16 and 2016/17. Of all these changes, the new Special Goods Tax Law (SGTL), which was promulgated on January 18, 2016, is the most remarkable. Now the SGTL will regulate taxation on 16 items termed “special goods” previously placed under the jurisdiction of the Commercial Tax Law (CTL), and thus eliminate the complexities that arose due to inclusion of these goods in the SGTL. Other recent significant changes include extending the timing of advance tax payments, enhancing the penalty for concealment of income or particulars, and prescribing advance payment of capital gain taxes through the Law Amending Income tax Law, issued on August 31, 2016.
Further, under the Union Taxation Law (UTL) of 2016, the number of goods exempt from the commercial tax (CT) were extended from 79 to 86, whereas the number of services exempt from CT was extended from 23 to 29 and introduced 3% CT on domestic flights. A threshold for salary income at MMK4.8m ($3899) was introduced; progressive rates were charged on purchasing, constructing and acquiring capital assets, and establishing new domestic business have been changed from 3-30% to 15-30%. The above changes have been in effect since April 1, 2016.
In addition to the above changes, under Notification No. 146 of 2016, dated September 30, 2016, the Ministry of Planning and Finance announced that stamp duty rates were reduced in respect of bonds (1.5% to 0.5%), conveyance (3% to 2%), leases up to three years (1.5% to 0.5%), leases above three years (3% to 2%), and transfer of shares or debentures (0.3% to 0.1%), effective October 1, 2016.
Taxation In Myanmar
The principle taxes levied in Myanmar are the corporate income tax (CIT), withholding tax (WHT) and the personal income tax (PIT) under the Myanmar Income Tax Law (MITL), and Special Goods Tax (SGT) under SGTL of 2016, and CT under CTL.
Income is computed under the categories salaries, profession, business income, property, capital gains, income escaped from assessment and other sources. Corporate income is assessed under business, meaning any trading, commercial or production business including services.
For taxation purposes, corporations are classified as resident and non-resident. A resident is a corporation incorporated in Myanmar; a non-resident is a corporation incorporated overseas and registered locally as a branch. Resident companies are taxed on its worldwide income, that is, on income accruing or arising within and outside Myanmar.
However, foreign branches (non-resident) and companies or branches operating under the Myanmar Investment Law (MIL) 2016 are only taxed on income earned within Myanmar. The uniform tax rate of 25% on net profit is applied to both resident and non-resident companies.
In arriving at taxable income, all expenditures incurred exclusively for the purpose of earning income are deductible except for expenditures deemed to be capital or personal or inappropriate or not commensurate with volume of business or not incurred for the purpose of earning income. Any payment, other than for professional service, to a member of an association excepting a company or a co-operative society is also not deductible according to the law.
The taxable income of foreign branches is computed according to: (i) Branch profits, if accounts are complete or acceptable; (ii) A proportion of worldwide profits adjusted in accordance with the Myanmar income tax law or deemed profit, that is a reasonable percentage of gross income ranging from 5% to 10%; or (iii) Any other basis deemed reasonable, if income cannot be ascertained accurately.
Dividends received from an association of persons (i.e., partnerships, joint ventures, companies, etc) are exempt from income tax.
Depreciation is allowed on capital assets at varying rates prescribed under Income Tax Rules on the straight-line method for the income year irrespective of the actual period of use. However, no depreciation is allowed in the year of disposal.
Capital Gains Tax
CGT is levied on gains from the sale, exchange or transfer of any capital asset (including shares, bonds and securities) of the business in Myanmar kyat or foreign currency, if the sale value of all assets disposed in an income year exceeds MMK10m ($8123). CGT at the uniform rate of 10% is applied to both residents and non-residents. However, for businesses in the oil and gas sector, progressive rates, ranging from 40% to 50%, are applicable on the capital gains. Tax returns in respect of capital gain must be filed within 30 days from the date of transaction, and tax payment in the currency in which such gain arose shall also be made within this period with effect from the 2016-17 income year.
Off-Set & Carry Forward Of Loss
Business losses from any source may be off-set against income from any other source of income accruing in the income year. Capital losses cannot be used to offset future capital gains or taxable profits.
Unabsorbed losses of a year can be carried forward and off-set against profits in the next three consecutive years.
The WHT is applicable to both payments to residents and non-residents. A payer is required to withhold income tax at the rates shown below in respect of the following payments at the time of disbursement:
• Interest payments rate for residents are 0% and 15% for non-residents.
• Royalty payments for the use of all licences, trademarks and patent rights are 15% and 20% for residents and non-residents, respectively.
• 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 are 2% for residents and 3.5% for non-residents.
• Payments made under contracts or agreements by foreign entrepreneurs or foreign companies for procurement and services rendered within Myanmar are taxed at 2% for residents and 3.5% for non-residents. An advance income tax of 2% is imposed by the income tax authority, Internal Revenue Department (IRD), on imports and exports. The WHT is not applicable on dividends as those are exempt from tax. The tax withheld at the time of payment shall be deposited in the name of recipient to the IRD within seven days from the date of withholding. Payments made within seven days after the end of a fiscal year will be deemed as payments within the relevant fiscal year. Tax withheld from payments to residents will be set-off against the tax due under final assessments, whereas tax withheld from payment to non-resident foreigners is a final tax.
The standard tax year in Myanmar ends on March 31.
The taxpayer estimates the income of the fiscal year and pays the estimated tax in advance, in four quarterly instalments within 10 days after each quarter ending on June 30, September 30, December 31 and March 31.
The advance tax paid within 10 days following the last quarter will be deemed a payment within the income year. If the liability exceeds the total tax amount paid in instalments, a penalty of 10% is imposed on the amount falling short of the actual assessment. ADMINISTRATION & COMPLIANCE OF THE DUAL TAX ASSESSMENT SYSTEM: As a measure of tax reform, the IRD introduced Self-assessment System (SAS), starting from FY 2015/16, in order to encourage voluntary tax payments and modernise assessment processes in line with international best practice in tax administration that will suit the needs of Myanmar.
Implementation of SAS was started by first focusing on all large taxpayers upon establishing a Large Taxpayers’ Office (LTO) for administering the SAS system. SAS coverage will be extended phase by phase, and ultimately the Official Assessment System will be completely replaced by SAS.
To this end, Companies Circle Tax Office has been currently restructured by establishing three Medium Taxpayers’ Offices (MTOs): MTO 1, MTO 2 and MTO 3. MTO 1 will also apply SAS to assessees deemed high taxpayers next to the largest taxpayers beginning from FY 2016/17. Meanwhile, MTO 2 and MTO 3 will continue to conduct according to OAS. Thus during this transition period SAS and OAS will be simultaneously in place regarding tax assessment. Gradually, MTO 2 and MTO 3 will follow suit according to the implementation schedule set by IRD.
Under SAS, taxpayers are required to assess their own tax liabilities and complete their tax returns by furnishing the necessary financial and other relevant data truthfully. Taxpayers within the jurisdictions of LTO and MTO 1 must file the tax returns especially designed for the purpose of SAS on or before June 30, 2017 with the relevant LTO or MTO 1. A signed declaration confirming the correctness and completeness of the information given on the tax return shall be made by the taxpayer or its representative. It is not necessary to submit financial statements.
Tax Analysis & Audit Process
The tax offices conduct tax audits according to the Tax Audit Manual, adopted by IRD in the following six sequential steps. 1) Selecting: Tax returns requiring tax audit are selected on the basis of risk analysis procedures applied on all tax returns received. 2) Serving notice: The tax office serves notices attached with a specimen of representative authorisation letter for appointing a person to represent the taxpayer in audit matters. The notice also includes a list of prime documents and records to be examined and an audit programme, including the tentative time schedule for visiting the taxpayers’ business premises.
Within 10 days from the date of receipt of notice, the taxpayer must appoint the representative by an authorisation letter prepared in the company’s letterhead, and also inform whether it can collaborate according to the suggested schedule or agree upon a mutually agreed upon date for the preliminary meeting. 3) Preliminary meeting: The audit team visits the taxpayer’s business premises, holds discussion with the appointed representative and responsible persons in order to understand the nature of business, reviews accounts books and records to familiarise themselves with the accounting method adopted, and inspects the business premises to gather other necessary information. 4) Performing audit: An in-depth audit is carried out for a period deemed necessary through verification of documents and physical inspection of assets, and inquires in accordance with the Tax Audit Manual for a period deemed necessary. 5) Final meeting: Audit findings are communicated verbally. If business profit as per returns are accepted, demand notice specifying nil tax liability is issued. In cases where adjustments in respect of profit resulted in additional tax liability, the taxpayer is asked to sign signifying concurrence to the adjustment. The taxpayer has the right to decline and lodge an appeal. 6) Issuing audit report: The report generally covers weaknesses identified, suggestions on improving maintenance of accounts and justifications regarding adjustments needed in respect of profit reported in returns submitted and other issues deemed to be important.
Taxpayers, who are subject to SAS, must maintain a large number of documents and records broadly classified as prime records, summary records, corporate records, contracts and financial statements.
Income records, expenditure records, inventory records, asset records (fixed-assets register) and other relevant records must also be maintained. These records may be paper based and/or electronic, and can be either written in English or the Myanmar language.
Records must be kept for a minimum of five years. Failure to keep and maintain proper records or failure to preserve them for the necessary five years will be considered as an offence and therefore will be subject to penalty.
Income tax returns must be filed with MTO 2 and MTO 3 within three months of the end of the income year, together with financial statements audited by certified public accountants (CPAs). However, tentative unaudited financial statements may be filed with the prior approval of the IRD on specified reasonable grounds. Revised tax returns may be filed before or at the time of hearing for assessment.
MTO 2 and MTO 3 will review the income tax and commercial tax returns simultaneously and issue a summons to the taxpayer in question for submission of supporting documents for tax hearing. Statements given in response to queries raised during the hearing are also officially recorded.
After computing final tax liability, the notice of demand is issued specifying the tax amount payable and the due date of payment. Excess tax may be refunded or carried forward as advance for the subsequent year’s tax payment.
If there is suspicion of concealment or fraud tax an audit will be conducted according to the Audit Manual of IRD. There is no time limit for tax audit.
The dissatisfied taxpayers may lodge first appeal to Union Region Revenue Officer or Region/State Revenue Officer or Head of Office of relevant LTO or MTO provided that the tax amount exceeds MMK30,000 ($24.37). The Memorandum of Appeal must be submitted within 30 days from the date of receipt of Notice of Demand or Assessment Order after paying the demanded tax amount in full or fulfilling conditions set by the revenue authorities if the tax amount is not paid in full. A second appeal to Revenue Tribunal lies within 60 days from the date of receiving appeal order passed by tax offices in which the first appeal was lodged if the tax amount exceeds MMK100,000 ($81.23). Final appeal to the Supreme Court can be lodged only on question of law. PAYROLL TAXES & SOCIAL SECURITY
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 must be filed with the relevant Township Revenue Office before paying tax. An Annual Salary Statement must also be filed on or before June 30.
According to Social Security Law 2012, employers having five and more staff under their employment must register with the relevant Township Social Security Office. Both employers and employees are required to contribute to 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 ($7.31) by employer and MMK6000 ($4.87) by employee. Contributions must be paid within 15 days of the following month. The employees’ contribution is deducted by the employer from wages.
Personal Income Tax
Myanmar citizens and resident foreigners are taxed on their world-wide income. A foreigner is a resident if he/she stays in Myanmar for 183 days or more in a fiscal year. Non-resident foreigners are taxed only on income accrued in or earned from Myanmar. Foreigners working in companies operating under the Myanmar Investment Law (MIL) are permitted to pay income tax on their income received within Myanmar only. Personal allowances (basic, parents, spouse and children, insurance premiums and social security contributions) can be deducted from residents’ assessable salary income. Tax rates on income of residents after deducting legitimate allowances are set at progressive slab rates ranging from 0% to 25%. The rate applicable to the taxable income of residents amounting up to MMK2M ($1624.40) after deducting legitimate allowances is 0%. Annual salary income not exceeding MMK4.8M ($3899.04) is not assessable. Non-resident foreigners are required to pay tax in the denominated currency in which income is earned. Total income comprises salary, profession, property, business and other sources.
Non-residents cannot enjoy such allowances. Tax rates applicable on the income of a non-resident are also at progressive slab rates ranging from 0% to 25%. The rate applicable to the taxable income of non-residents amounting up to MMK2m ($1624) is 0%.
Special Goods Tax
The SGT is applicable to 16 items of goods termed “special goods” with effect from April 1, 2016. Previously, they were subject to CT only under CTL. Some of these items are subject to SGT on both local and export sales. These items and relevant SGT rates are as follows: Cigarettes are taxed at MMK3 ($0.0024) to MMK15 ($0.1) per stick based on four criteria determined on the basis of market price per packet. For imports, 120% on landed costs. Tobacco, Virginia tobacco, cured, cheroot, cigars, pipe tobacco and Betel chewing preparations are at 60%. Liquor taxes range from MMK56 ($0.05) to MMK3375 ($2.74) per litre based on 15 criteria determined on the basis of market price per litre ranging from up to MMK500 ($0.41) to MMK20,000 ($16.25) per litre, 60% on one litre value if the one-litre price exceeds MMK20,000 ($16.25). For imports, 60% on landed cost, with beer at 60%. Wine can be taxed up to MMK50 ($0.04) to MMK3000 ($2.40) per litre based on layers and ranges similar to liquor, 50% on the one-litre value if one litre price exceeds MMK20,000 ($16.25) for imports, 50% on landed cost. For Teak-logs and hardwood logs, 10 sq-inch and above of teak and hardwood conversion: 25% on local sales, 50% on export sales. Raw jade, ruby, sapphire, emerald, diamond and other precious gemstones and jewellery at 20% (local and export sales). Finished goods of jade, ruby, sapphire, emerald, diamond and other precious gemstones, and jewellery at 5% (local and export sales). Light vans, saloons, sedans, light wagons, estate wagons and coupes exceeding 1800 cc are at 25%. Kerosene, gasoline, diesel oil, jet fuel at 5% and natural gas at 8% for local and export sales.
Charge Of Tax
The SGT is charged on importation, manufacturing within the country and exportation of special goods (SG) (luxury and natural resources) at the prescribed rates: first, in case of importation, on the date of Custom clearance of duty; second, in case of manufacturing within country on the date of manufacturing; and third, in case of SG owned but not paid on the date of finding.
Timing For Payment
The SGT is payable prior to clearance of goods in case of importation. In case of manufacturing; tax must be paid within 10 days after the end of the month of sales, and in case of finding SG but SGT not paid; within seven days from the date of finding or scrutinising.
The manufacturer is entitled to off-set SGT paid while importing or purchasing raw materials and semi-finished goods from other manufacturers against SGT payable on sales. In case of exportation, SGT paid for buying, importing and manufacturing can be off-set when exported. Manufacturers, importers and exporters of SGs need to register with the relevant township revenue offices annually and file a return within 10 days after the end of the month of sales.
The threshold for the selling of manufactured tobacco, cheroot and cigar in Myanmar is currently MMK20M ($16,246) per year.
A SGT assessment may be made monthly based on tax returns filed by the assessee if it is deemed correct and complete with all relevant details. However, if it is deemed to be unreliable, the SGT assessment will be made by scrutinising the necessary evidences.
Commercial Tax (Ct)
There is no value-added tax (VAT) in Myanmar. Instead, CT on turnovers is levied on goods locally produced or imported, and exports of certain goods. CT is also levied on services rendered within Myanmar. However, exemptions are granted to certain goods and services considered basic and essential. Exemptions: 86 items of goods and 29 types of services are listed as exempted. Commercial tax threshold is MMK20m ($16,246) per year.
A flat rate of 5% is levied on non-exempted goods and services. It should be noted that 16 items of special goods are now subject to SGT as well as CT, which is calculated on the total sum of sales price plus SGT.
CT (input tax) can be off-set (within the relevant financial year) only to the businesses registered under CTL if necessary conditions are satisfied. A manufacturer or trader or service provider (as applicable) may off-set the CT already paid on: landed cost of goods imported, purchase of goods from another manufacturer or trader or importer, domestic purchase of goods and service charges for service procured; in connection with manufacturing or trading or service enterprises. No off-set is permitted on CT paid relating to acquisition of capital and fixed assets.
Timing For Payment & Filing
CT must be paid within 10 days of the following month, and returns must be filed quarterly within one month after each quarter ending on June 30, September 30, December 31 and March 31. Annual return also need to be filed within three months of the end of the fiscal year. OTHER TAXES/DUTIES: Customs duty is payable according to the Custom Tariff of Myanmar at rates of between 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 rates are payable on the extraction of Myanmar’s natural resources. The stamp duty is payable on various instruments at different rates prescribed by the Myanmar Stamp Act. The duty is payable in Myanmar kyat prior to or on the date that the instruments in question are executed.
Liability For Non-Compliance
Myanmar is ranked as the least tax collecting country in the region. In order to deter non-compliance the penalties in the form of fines and/or imprisonment depending on the gravity of offences prescribed under the Myanmar Tax Laws are as follows:
ITL: A fine at 10% on tax dues for default or failure on: payment of quarterly advance tax, filing tax returns and annual salary statements, submitting accounts and supporting evidence. A fine of 100% for failure to disclose concealed income and accounts within the given time can be applied, imprisonment ranging from one to 10 years is applicable for concealing or not disclosing income.
Punishment for failure to register MMK5m ($4061), failure to provide particulars for determination of selling price equal to MMK5m ($4061), and acquiring and possession of SG on which no tax was paid is taxation of 100% of value and also those goods shall be seized. Failure to pay tax within the prescribed time will incur a penalty of 10% of tax due. If there is a failure to furnish a return in time then a penalty of 10% of the tax will be due, while failure to affix a tax label shall be taxed at 50% of value. Evasion of tax or concealment of particulars:
• If a taxpayer discloses in full within the specified time: tax due plus penalty equivalent to the amount of additional tax payable;
• Failure to disclose within the specified time or disclose complete particulars - tax due plus penalty equivalent to the amount of additional tax payable and also imprisonment for a term not more than three years or a fine not more than MMK1m ($812.30) or both.
• Deliberately furnishing a false return and false evidence will lead to a penalty of three times the tax due and also imprisonment for a term not exceeding three years or a fine not exceeding MMK3m ($2436) or both.
A fine of 10% or 100% of additional tax due depending on the type of default, not more than one year’s imprisonment and/or a fine of MMK100,000 ($81.23) for not disclosing or for concealing income. Failure to issue an invoice or receipt to a purchaser or service provider leads to a fine at 100% of tax due on the value of such an invoice or receipt in addition to a fine of MMK200,000 ($162.46), MMK500,000 ($406.15), MMK700,000 ($568.61) and MMK1m ($812.30) for the first time, second time, third time and every time thereafter, respectively, for each type of default made within a financial year.
Fine is levied at 10 times the prescribed duty or deficient portion for not duly stamping on or before executing the instrument.
Double Taxation Agreement (DTA)
Myanmar has signed DTAs with the UK, Malaysia, Singapore, Vietnam, Thailand, South Korea, India, Laos, Indonesia and Bangladesh. DTAs with all but Indonesia and Bangladesh are in effect.
The Myanmar Accountancy Council (MAC) is the regulatory body for issuing rules and regulations relating to training, licensing and monitoring of certified public accountants (CPAs) in Myanmar.
The council is also the sole authority to set standards for auditing and accounting in Myanmar. On October 14, 2010 the MAC issued the Myanmar Standards on Auditing (MSA 200-800), Myanmar Standards on Auditing relating to Myanmar Auditing Practice Statement (MAPS 1000 to 1014), Myanmar Standard on Review Engagements (MSRE 2400, 2410), Myanmar Standard on Assurance Engagements (MSAE 3000 and MSAE 3400) and Myanmar Standards on Related Services (MSRS 4400 & 4410), based on International Standards, which shall be complied by Myanmar CPAs, while rendering professional services depending on the type and scope of audit and other related engagements.
The MAC also issued Myanmar Accounting Standards (MAS 1-MAS 12) on March 5, 2003 and (MAS 9–MAS 34) January 7, 2004 to be applied in preparing financial statements of entities operating in Myanmar.
Subsequently, MAC through its notifications issued Myanmar Financial Reporting Standards of Small and Medium-sized Entities (MFRS for SMEs) on November 4, 2009 and Myanmar Financial Reporting Standards (MFRS) (MFRS 1 to 8 and MAS 1 to 41) on May 6, 2010, which replaced previously adopted MAS. These standards are based on IFRS for SMEs and full IFRS.
Myanmar Investment Law 2016
The new Myanmar Investment Law 2016 (MIL), which combines local and foreign investment regulations into a single law by repealing and replacing the Foreign Investment Law 2012 (FIL) and the Myanmar Citizen Investment Law 2013, was promulgated on October 18, 2016. The rules relating to MIL are still in the drafting stage and planned to be completed and approved by the government by the end of March 2017.
However, according to the MIC’s Notification No. 123 of 2016 dated November 16, 2016, proposals to the MIC for investment must be made in accordance with the new law. The MIL is mainly aimed at providing a level playing field for both foreign and local investors, promoting proportional growth across the country and reducing the work-load of the Myanmar Investment Commission (MIC).
Applications To Mic
Two applications, one for an MIC Permit and the other for an MIC endorsement, are to be submitted to the MIC.
Investors must apply for the MIC Permit if their proposed business/investment in Myanmar is strategic for Myanmar, capital intensive, has a large impact on the environment and local community, uses state-owned land and buildings and involves activities that are determined by the government to require the submission of proposal for investment to the MIC. All investors are required to apply to the MIC for endorsements, together with approval or licence or similar documents issued by the relevant authority, for granting right to use land for long terms (initially up to 50 years) and enjoyment of tax exemptions and relief. Approval of the MIC is also needed for an extension of the lease period for 10 consecutive years and a further 10 consecutive years after the expiry of the initial 50-year term.
Notice To The Mic
In the event of any sub-lease, mortgage and transfer of shares and/or businesses during the investment period such event must be notified to MIC.
Classification Of Investment Activities
Undefined Investment activities are classified into three categories: promoted, restricted and prohibited. An investment activity is deemed to be restricted if such activity is reserved for the government; not allowed to foreign investors; permitted only if undertaken in the form of local and foreign joint venture enterprise or subject to the approval of the relevant ministry.
According to media reports, promoted sectors are likely to include high value agricultural goods production, food processing, boosting technology transfer, local manufacturing industries and developing SMEs. The types of investment activities designated as prohibited are activities that may affect the environment and biodiversity of the country and the traditional culture and customs, and health of Myanmar people. Also included are activities involving the manufacture of goods or services that are prohibited in accordance with applicable laws of Myanmar.
The MIC is required to obtain the approval of the Myanmar Parliament where an investment activity may significantly impact the security, economic condition and/or national interests of Myanmar.
Employing Qualified Personnel
The new law removes a compulsory quota on employing local skilled personnel prescribed under the previous law and permits employment of foreigners in positions requiring managerial and operational expertise at the discretion of the investor.
The law guarantees there will be no expropriation in addition to nationalisation, and also addresses the issue of indirect expropriation.
Under the new law, a blanket five-year tax holiday to investors is no longer available. The availability of tax holidays and incentives will now depend on the geographical location and business in sectors that the Myanmar government intends to promote.
There are seven regions and seven states demarcated under the constitution of Myanmar. Within these territories three types of zones will be designated according to the level of development of each zone, designated as Zone 1 (least developed), Zone 2 (moderately developed) and Zone 3 ( adequately developed). Investments in Zone 1, Zone 2 and Zone 3 may be granted for a period of seven consecutive years, five consecutive years and three consecutive years, respectively, including the year of business commencement. The MIC may also grant the exemptions and relief from Custom duties and internal taxes on capital goods and construction materials not available locally during the construction and preparation periods of the investment activity.
Raw materials and scrutinised goods imported for manufacturing goods to be exported and reimbursement of Custom duties and internal taxes paid on imported raw materials and semi-finished goods used for the goods manufactured and exported also qualify for exemptions. Other income tax exemptions and relief that the MIC may grant include income tax on profits that are in the same business or a similar type of business within a period of one year, the right to charge depreciation at an accelerated rate based on shorter life span than the actual life of the capital asset and the right to deduct research and development expenses from assessable income.
Established Industrial Zones (IZ)
In Myanmar there are a total of 42 IZs, with 25 in the Yangon Region and the other 17 in other regions and states, including in the capital, Naypyidaw. Interested foreign investors may establish their businesses in these IZs for investments under MIL.
Special Economic Zones (SEZ)
At present there are three SEZs — Kyaukphyu SEZ in Rakine State, Dawei SEZ in Taninthayi State and Thilawa SEZ in Yangon Region — regulated under SEZ Law 2014 and SEZ Rule 2015. The MIL is not applicable in these SEZs.
Investment In Thilawa SEZ
According to media reports, about 68 foreign companies from 14 counties have invested a total of $900m in the Thilawa SEZ project as of July 2016.
The main reasons for Thilawa SEZ’s attraction for foreign investors include its advantageous location, 23 km south-east from the Yangon urban area and adjacent to Thilawa port, along with less consuming paperwork, reduced administrative barriers, speedier and smoother processes for obtaining permits and licences due to the availability of one-stop service facilities.
An MIC permit takes a minimum of three months to obtain, while the Thilawa SEZ Management Committee issues the permit to investors within about one month. Furthermore, the committee has recently introduced a vendor managed inventory (VMI) scheme to be implemented in Thilawa SEZ. Warehouse operators in Thilawa SEZ will be issued a SEZ warehouse certificate on application if the criteria set by the committee are met. The scheme will allow non-resident foreign companies (not registered in Myanmar) to stock their goods in transit for storage in a free zone relating to the temporary storage of cargoes from sellers without paying duties and other taxes until these cargoes are withdrawn from consumption in Myanmar or shipped outside of Myanmar.
Following the enactment of the new MIL, under which automatic enjoyment of tax holidays and other tax exemptions are no longer available, the Thilawa SEZ is predicted to attract larger foreign investments since lucrative tax holidays and other tax incentives, upon applications, are easily available under the SEZ laws. This is in addition to the advantageous facilities stated above.
Tax holidays and other tax incentives granted under SEZ Laws are explained below.
Cit Exemptions & Relief
For developers: • A 100% exemption for eight years from the commencement of commercial operations; 50% relief for the following five years and 50% relief for the following five years on the profit of the previous year, if the profit is reserved and reinvested within one year. For investors:
• In a free zone (FZ) or FZ business there is a 100% exemption for seven years from the commencement of commercial operations;
• In the promotion zone (PZ) or other business within the SEZ boundary there is a 100% exemption for five years from the commencement of commercial operations;
• In the FZ or PZ there is a 50% exemption for the following five years; 50% relief for the next five years on the business’s profit, if reinvested within one year and maintained as a reserve fund; and
• In the FZ deducting business research and development expenses associated with training workers in management is allowed.
Developers & Investors
Investors and developers can carry forward and offset losses for five years from the year incurred and then apply for exemption from income tax for dividends distributed to the shareholders. They can lease land for 75 years. Initially the lease will last for 50 years with a further extension for another 25 years.
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