Myanmar remains an attractive investment destination in South-east Asia largely due to its strategic location, favourable demographics and natural resources. The country has implemented significant reforms to foster foreign investment since 2011. For example, the Foreign Investment Law of 2012 was subsequently replaced by the Myanmar Investment Law (MIL) of 2016 to further promote foreign investment while broadening the tax base. The colonial-era Myanmar Companies Act of 1914 was replaced by the Myanmar Companies Law (MCL) of 2016, drafted with the support of the Asian Development Bank.

As one of Asia’s last frontier markets, multinational corporations (MNCs) have identified a number of opportunities in underdeveloped areas within the framework of Myanmar’s economy. Each wave of market liberalisation has led MNCs to target the country for its mergers and acquisitions (M&A) opportunities.

In 2019 liberalisation in the insurance market allowed prominent foreign insurance providers from the US and Japan to enter the market through wholly foreign-owned subsidiaries or via joint ventures with local insurance providers. In most cases MNCs have invested in Myanmar by a shareholding or an asset in a Myanmar company.

Myanmar currently does not have any scheme or legislation that specifically covers M&A. However, M&A in Myanmar is governed by the MIL and the MCL. The former stipulates conditions and regulations, as well as protections, guarantees and benefits for investments in Myanmar. The MCL administers the establishment, governance and dissolution of companies, and other corporate entities in the country.

There are also separate laws for the establishment of operations in special economic zones (SEZs) and sector-specific laws, such as the Telecommunications Law of 2013, the Financial Institutions Law of 2016 and the Regulation for Mobile Financial Services that was issued in March 2016.

Principal government agencies for investment include the Myanmar Investment Commission (MIC), which is responsible for screening investment proposals and granting tax incentives or exemptions and land use rights under the MIL, and the Directorate of Investment and Company Administration, which acts as the MIC’s secretariat and regulates companies’ administration. Furthermore, some investments in restricted business sectors may require further approval from the relevant government ministries.

Share Acquisition

A purchase of shares of a Myanmar company may give rise to capital gains tax (CGT) and stamp duty (SD) implications for the seller and buyer. For tax purposes the transfer value of the share should be based on the open market value or fair market value of the net assets.

Asset Acquisition

Foreign investors considering entering the manufacturing or heavy industry sectors in Myanmar may look to acquire existing assets of a Myanmar company. Generally, the assets would be transferred into a newly established company, whereby the foreign investor would have an equity shareholding with its Myanmar partner.

Such asset transfers may also give rise to CGT and SD implications for both the transferor and transferee. Other taxes may also be applicable depending on the types of assets that are to be transferred.

Acquisition Vehicle

It can be advantageous taxwise for foreign investors to establish an overseas holding company in a country that has concluded a tax treaty with Myanmar.Currently, Myanmar has a tax treaty network with eight countries: the UK, Malaysia, Singapore, Vietnam, Thailand, South Korea, India and Laos. The tax treaties with Indonesia and Bangladesh have yet to be ratified. Depending on the respective tax treaty, there may be tax treaty benefits or exemptions available for foreign investors.

Acquisition Funding 

A transaction can be financed through equity injection, loan notes or a combination of different types of consideration. Currently, there is no withholding tax (WHT) on the dividends paid by a Myanmar company. Meanwhile, interest payments made to non-residents (except a registered branch of a foreign company in Myanmar) are subject to WHT, currently at a rate of 15%, which may be reduced under the relevant tax treaty.

Tax Structure & System

Myanmar has a onetier corporate taxation system stipulated under the Myanmar Income Tax Law (MITL) of 1914. Other major taxes include commercial tax (CT), which is similar to value-added tax (VAT) or goods and services tax, and specific goods tax (SGT), akin to an excise tax in Myanmar. The MITL does not include any provisions for consolidated treatment under which companies within a group may be treated as one tax entity. Each individual company must file its own income tax return and pay its taxes. The new MITL is currently being drafted and may be effective in late 2020.

Direct Taxes

The direct taxes are listed below: Corporate income tax: Generally, companies set up under the MCL or any other existing law in Myanmar are regarded as resident companies and subject to corporate income tax (CIT) on a worldwide basis. In any other case, overseas corporations (including branch offices) will be regarded as non-residents and taxed only on income derived in Myanmar. Both resident and non-resident companies are subject to CIT, currently at 25%, on the net taxable profit (revenue less tax-deductible expenses).

Income and expenses are recognised on an accrual basis. Under the MITL, heads of income may be defined as salaries, professions, business income, property rental income, capital gains, income that has been escaped from assessment and other sources of income.

Deductible expenses may be generally defined as any expenses incurred for the purpose of generating income and depreciation rates prescribed by the Myanmar Internal Revenue Department (MIRD). Key non-deductible expenses include capital expenditures, personal expenditures, expenditure not commensurate with the volume of business, irrelevant expenses and expenses incurred not for generating the income, payments made to any member of an association of persons (except for professional fees), and penalties and donations more than 25% of total taxable income.

In addition, any unrealised exchange gains and losses on investments before operating the business are treated as non-taxable/non-deductible gains and losses. Under the MITL, operating losses can be carried forward for up to three consecutive years subject to MIRD approval.

CGT: Any gains derived from the sale, exchange or transfer of capital assets is assessed separately from business income and subject to CGT at the rate of 10% for both resident and non-resident companies. However, companies operating in the Myanmar oil and gas exploration, extraction and production sector are subject to CGT at progressive tax rates ranging from 40% to 50%. Under the MITL, capital assets are defined as any land, building or asset connected with a company including a company’s shares, bonds and securities. CGT returns are to be filed and paid with the MIRD within 30 days of the transaction if the value of assets disposed in a fiscal year exceeds MMK10m ($6520). Any capital losses incurred cannot be carried forward or offset against income from other sources.

WHT: undefined Certain payments are subject to WHT at the prescribed rates depending on the payer and payee, and the rates may be reduced under the relevant tax treaties if certain conditions are met:

• Dividend payments are exempt from WHT;

• Interest payments are 0% for residents and registered branch of a foreign company in Myanmar, while non-residents are subject to 15%;

• Royalty payments are 10% for residents while non-residents are subject to 15%;

• Payments by union-level organisations, union ministries, Naypyidaw Council, regional or state government, state-owned enterprises and municipal organisations for the purchase of goods, work performed or the supply of services within the country under a tender, auction, quotation or contractor agreement, or any other modes are 2% for resident companies. WHT shall not be deducted if the amount of total payment is not more than MMK1m ($652) within the fiscal year; while the rate is 2.5% for non-resident companies; and

• Payments by the businesses that are submitted in the form of a joint venture with the government, the partnership, joint venture, company, association of individuals, organisation or association which are registered and formed under any existing law, cooperative society and foreign companies, foreigner-owned enterprises for purchase of goods, work performed, or the supply of services within the country under a contract or agreement or any other modes are exempt for resident and 2.5% for non-resident companies. WHT on payments to residents can be creditable against year-end CIT liability, while WHT on payments to non-residents (except branch offices set up under Myanmar laws) are generally treated as a final tax unless it is reduced/exempted under the relevant tax treaties that Myanmar has implemented.

Indirect Taxes

The indirect taxes are below:

CT: In Myanmar, at a rate of 5% CT is applicable on trading activities, the importation of goods, the export of certain goods, the sale of goods produced in Myanmar and the provision of services in Myanmar unless specific exemptions are applicable. Currently, 42 items of goods (generally agricultural and essential goods) and 32 types of services, such as life insurance and education services, are exempted from CT. CT is zero-rated on exports – except for electricity and crude oil, which were at 8% and 5%, respectively, as of November 2019. Businesses carrying on activities that are subject to CT are required to register for CT one month before starting the business and renew their licence on an annual basis. However, CT will not be assessed if the threshold of MMK50m ($32,600) is not exceeded within a year from the commencement of business, including the month when the commencement of business takes place. CT is not a VAT with full credits system – only partial offset is available with conditions. Generally, CT is creditable on the sale of goods (for trading/ manufacturing businesses) against CT paid to local suppliers or for imported goods and service fees. In addition, CT is creditable on the provision of services (for services businesses) against the CT paid for expenses used to provide services, paid to local suppliers and paid on imported goods.

CT paid on the purchase of capital assets cannot be offset and will be capitalised in the cost of assets. Any excess input CT can be treated as tax-deductible expenses for year-end CIT computation purposes for the relevant fiscal year.

SGT: Items listed below are currently regarded as “specific goods” and subject to SGT in Myanmar:

• Cigarettes and tobacco products – various rates;

• Alcohol products – various rates;

• Wood logs and wood cuttings – 5% or 10% upon export;

• Vehicles – 10% to 50%;

• Kerosene, petrol, diesel, jet fuel – 5%; and

• Natural gas – 8% or exempt if for export. SGT is liable on the import, export and manufacturing within the country. However, SGT will not be assessed on the local production of tobacco, cheroots and cigars if the threshold of MMK20m ($13,000) is not exceeded in the relevant fiscal year.

SD: undefined Under the SD Act, various instruments are subject to SD at the prescribed rates. Common instruments include:

• Service agreement – 1% and capped at MMK150,000 ($97.78);

• Loan agreement – 0.5%; and

• Lease agreement – 0.5% to 2% based on the lease period, and 2% on the lease premium and deposit amount (if any). SD compliance: Generally, SD obligations are as follows:

• In the case of a joint-venture agreement, production or profit-sharing contract, construction agreement, or other similar agreement or contract: as agreed by both parties;

• In the case of loan agreement: by the person drawing, making or executing the instrument;

• In the case of share transfer: by the person drawing, making or executing the instrument;

• In the case of a lease or agreement to lease: by the lessee; or

• In the case of a conveyance: by the transferee/ buyer. SD penalties: The penalty for late stamping or failure to affix the stamp is three times the value of SD due. (which has been reduced from 10 times with effect from 26 November 2019).

Individual Tax

The individual taxes are listed below. Personal income tax: Myanmar nationals and resident foreigners are taxed on all income derived from sources within and outside of Myanmar (worldwide basis). Otherwise, non-resident foreigners are taxed only on Myanmar-sourced income. Resident & non-resident foreigners: Foreigners are considered to be resident foreigners when they reside in Myanmar for at least 183 days within the fiscal year; if staying in Myanmar for less than 183 days within the fiscal year, foreigners will be regarded as non-resident. Myanmar nationals, resident foreigners and non-resident foreigners are subject to personal income tax (PIT) at progressive rates ranging from 0% to 25%.

For PIT computation purposes Myanmar nationals and resident foreigners are allowed to be able to claim deductions, such as personal and family allowances, while non-resident foreigners are taxed without any deductions.

Under the MITL individuals may be taxed on employment and non-employment income:

• Employment income includes salaries, wages, annuity, bonus, award and any fees, commissions received in lieu of or in addition to any salary and wages; or

• Non-employment income includes business income, income from a profession and other income from investments. Any gains derived from the disposal of capital assets by individuals and the rental income of individuals are subject to tax at a rate of 10%. Partnership Tax: Partnerships are not treated as separate taxable entities. Partners are taxed on their share of net partnership income at progressive rates ranging from 0% to 25%. Other taxes & duties: Importation of goods into Myanmar is subject to Customs duty at rates ranging from 0% to 40%. Land and buildings are subject to property tax by the respective City Development Committee. The royalties on minerals are taxed at the prescribed rates and are payable on the extraction of natural resources to the relevant government ministry.

The summary of tax compliance requirements in Myanmar are as follows:

TAX ADMINISTRATION: There are two kinds of tax assessment systems in Myanmar: the Official Assessment System (OAS) and the Self-Assessment System (SAS). Under the SAS the taxpayer is responsible for calculating the tax liability and submitting the tax returns together with the relevant information. Under the OAS the taxpayer is only required to submit the relevant information such as the audited financial statement and await the tax officer’s assessment of the tax liability. Companies under the SAS are subject to tax audit at least once every five years.

There are currently five tax departments for corporate taxpayers in Myanmar, i.e., the Large Taxpayers’ Office (LTO) and Medium Taxpayers’ Office (MTO) 1, MTO 2, MTO 3 and MTO 4.

As of November 2019 the LTO and MTO 1 adopt the SAS of taxation while the other tax departments are under the OAS.

Previously, the tax year ran from April 1 to March 31. Starting October 1, 2019 all taxpayers in Myanmar must adopt a new fiscal year from October 1 to September 30 after the transition period from April 2019 to September 2019. No alternative fiscal year is allowed.

TAX ADMINISTRATION LAW: Effective from October 1, 2019 the Tax Administration Law (TAL) provides taxpayers with a guide for tax payment and administrative procedures.

ASSESSMENT & RE-ASSESSMENT PERIOD: Under the TAL, the three-year statute of limitations is increased to six years. For cases of fraud, incomplete information or intentional negligence, the statute of limitations will be limited to 12 years in lieu of an infinite period.

MAINTENANCE OF RECORDS: Taxpayers are required to maintain records such as original transaction documents, bank statements, sales and purchase agreements, invoices and other supporting documents for a period of seven years from the date of original transaction.

INSPECTION OF RECORDS: Under the TAL tax officers are authorised to enter the relevant business premises during business hours or at a time approved by a judge without prior notice. The inspection of records at a taxpayer’s residence is also allowed with the taxpayer’s consent or judge’s approval.

REFUND: Any taxes paid in excess of the assessed and liable amount are required to be refunded within six years from the end of the relevant fiscal year. The refund will be offset against applicable taxes, interest or penalties. Advance tax payable for the next 12 months will also be deducted from the refund amount.

PENALTIES: The TAL prescribes a comprehensive penalty regime for each failure to comply with Myanmar tax obligations. Penalties will be based on fixed amounts or percentages (ranging from 5% to 100%) and/or imprisonment of one to seven years depending on each default.

INTEREST: Under the TAL, interest shall be applicable on the underpayment of taxes from the date the tax is due to the date that the specific tax is paid. Interest payable is levied in addition to any applicable penalties. The applicable interest rate has yet to be announced as of November 2019.

AGENT/REPRESENTATIVE: Every taxpayer is required to appoint a resident agent or representative to carry out the taxpayer’s tax obligations on their behalf.

The agent or representative is responsible for ensuring tax compliance under the Myanmar tax laws and is also required to maintain all the necessary accounts and supporting documents of the taxpayer. Companies may designate an employee to be its representative.

PUBLIC RULINGS: Under the TAL, the MIRD may issue public rulings to ensure consistent tax administration and serve as a guide on the practical interpretation of Myanmar tax laws.

ADVANCE RULINGS: Upon request, the MIRD may issue a legally binding ruling for the correct tax treatment on a specific issue.

INVESTMENT INCENTIVES: Currently, Myanmar has the MIL and the SEZ Law (SEZL), which allows foreign investors to conduct business in Myanmar in various business sectors with or without local partners. These laws also grant tax incentives, as well as non-tax incentives such as land use rights, and guarantees that foreign investments will not be nationalised.

INCENTIVES UNDER THE MIL: The MIL provides the following tax incentives for foreign entities engaging in promoted sectors in Myanmar:

• Exemption from CIT for the period of three to seven consecutive years, including the year of business commencement, depending on the region where the investment is located: a. Zone 1 (less-developed region): seven consecutive years; b. Zone 2 (moderately developed region): five consecutive years; or c. Zone 3 (adequately developed region): three consecutive years.

• Exemptions or reliefs from Customs duty and CT on: a. Imported machinery, machinery components, equipment, instruments, spare parts and construction materials that are locally unavailable but are required during the construction period or the extended period; and b. Imported raw materials and semi-finished goods conducted by an export-oriented investment business for the purposes of the manufacture of products for export.

• Reimbursement of Customs duty and CT imposed on imported raw materials and semi-finished goods that are used to manufacture products for export;

• Exemption or relief from CIT on profit reinvested in the business that obtained the MIC permit/ endorsement or in any similar business within one year;

• Accelerated depreciation allowance in respect of machinery, equipment, building or other capital assets; and

• Deduction for expenses incurred in respect of research and development of the business carried out in Myanmar.

INCENTIVES UNDER THE SEZL: Special incentives under the SEZL are currently available to companies located in industrial estates run by the Republic of the Union of Myanmar. Currently, there are three SEZs in the country, namely:

• Dawei SEZ: located in the southern part of the country, in the Tanintharyi region;

• Kyaukphyu SEZ: located in the western part of the country, in Rakhine State; and

• Thilawa SEZ: located approximately 20 km southeast of Yangon. The SEZL offers the following special tax incentives to investors:

• CIT tax exemption for the first five years in the promoted zone;

• Seven-year CIT exemption in the free zone;

• Eight-year CIT exemption for the SEZ developer;

• 50% CIT reduction for five years after the CIT exemption period (“relief period”);

• 50% CIT reduction on profits reinvested within one year, for five years after the end of the 50% CIT reduction period;

• Import duty exemption on raw materials, machinery and equipment in the free zone;

• Import duty exemption on machinery and equipment for construction within free zones;

• Five-year import duty exemption on machinery and equipment imported for construction in the promoted zone followed by a 50% reduction for another five years;

• CT exemption on products manufactured for export; and

• Permission to carry forward losses for a length of five years.