Myanmar – Tax opportunities and pitfalls in a time of ... The Myanmar government has recently introduced a major tax reform in January 2015, particularly: • Notification no. 180/2015

Myanmar –Tax opportunities and pitfalls in a time of growth and change

Paul CorneliusPartner, PwC Singapore

Lim Hwee SengPartner, PwC Singapore

PwC

Tax reforms 2015

2Global Tax Symposium – Asia 2015

PwC

The Myanmar government has recently introduced a major tax reform in January 2015, particularly:

• Notification no. 180/2015- amending the Commercial Tax Regulations - issued on 21 January 2015 - effective retrospectively from 1 April 2014

• Notification no. 181/2015- amending the Income Tax Regulations - issued on 21 January 2015 - effective retrospectively from 1 April 2014

Introduction – tax reform 2015 (1/2)

Global Tax Symposium – Asia 20153

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• Notification no. 182/2015- amending the Income Tax Rules - issued on 21 January 2015 - effective retrospectively from 1 April 2014; and

• Union Taxation Law 2015 - had been passed at the Parliament on 31 March 2015 - effective from 1 April 2015

We have outlined the significant changes that may impact most of the foreign investors doing business in Myanmar.

Introduction – tax reform 2015 (2/2)


Union Taxation Law 2015 – effective from 1 April 2015

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• Prior to 1 April 2015, different tax rates apply to resident and non-resident corporate entities

Changes to corporate income tax rates

Corporate income tax Capital gains tax

Resident company 25% 10%*

Non-resident foreigner(e.g. branch) 35% 40%*

Corporate income tax Capital gains tax

Resident company 25% 10%*

Non-resident foreigner(e.g. branch) 25% 10%*


• With effect from 1 April 2015, the tax rates for non-resident foreigner and resident corporate entities are now aligned

* Except oil and gas sectors where capital gains tax ranging from 40% to 50% will apply

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Changes to personal income tax rates

Personal income tax Capital gains tax

Resident national and foreigner

Progressive rates from 0% to 25% with personal reliefs

10% *

Non-resident foreigner Flat rate at 35% without any personal reliefs

40%*

Personal income tax Capital gains tax

Resident national and foreigner

Progressive rates from 0% to 25% with personal reliefs

10% *

Non-resident foreigner Progressive rates from 0% to 25% without any personal reliefs

40%*


• Prior to 1 April 2015, different tax rates apply to resident and non-resident individuals

• With effect from 1 April 2015, the tax rates for non-resident foreigner and resident individuals are now aligned

* Except oil and gas sectors where capital gains tax ranging from 40% to 50% will apply

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• There are changes to certain personal reliefs as follows

Changes to personal reliefs

Prior to 1 April 2015 With effect from 1 April 2015

Basic allowance 20% on total income, capped at MMK10 million

Remains unchanged

Spouse allowance MMK500k Increased to MMK 1 million

Child allowance MMK300k Increased to MMK500k

Parent allowance None MMK1 million for each parentstaying together with the taxpayer

Premium for life insurance

Premium paid by the taxpayer for the taxpayer and his/her spouse (no limit set)

Remains unchanged

Donation Donation made to approved charitable organisation or approved government sponsored event, capped at 25% of income

Remains unchanged

Social security contribution made by employees

Social security contribution made by the taxpayers

Remains unchanged


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Changes to commercial tax (CT) (1/2)

• With effect from 1 April 2015, the CT exemption threshold increased to MMK20 million from the previous threshold of MMK15 million

• Increase the CT rates for the 16 special goods from the current range of 8%-100% to the range of 5%-120%

• Introduce a new list of goods and services (78 items) that shall not be subject to CT


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Changes to CT (2/2)

• Remove the provision relating to ‘goods produced and sold by Myanmar owned company subjecting to 2% CT’

• Add a provision stating jet fuel imported by the Ministry of Energy and resold within the country is subject t0 CT of 5% at the point of importation and sale

• Add a provision stating that sale of buildings constructed within the State is subject to CT at the rate of 3% on receipts


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• Prior to 1 April 2014, services such as transport, entertainment, insurance, printing etc. are subject to CT at 5% of the total receipts

• With effect from 1 April 2014, all services rendered within the country were subject to 5% CT except 26 types of exempted services, e.g. - information and technology services- home rental services- life insurance- banking services- public transportation, etc.

Changes to CT exempted services (1/2)


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• With effect from 1 April 2015, the list of exempted services is changed as follows:– Four exempted services are removed, namely

▪ slaughterhouse▪ container logistic services▪ information and technology services▪ technical and management consulting services

– Licence fee payable to the government organisations is added • Please refer to the new list of exempted services overleaf

Changes to CT exempted services (2/2)


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1. House rental

2. Car parking lot rental

3. Life insurance

4. Micro-finance

5. Healthcare services, excluding aesthetic and cosmetic surgery

6. Education

7. Freight and transportation

8. Employment

9. Banking services

10. Custom brokering services (i.e. custom and port clearance)

11. Hiring accessories/utensils for reception

12. Contract manufacturing business

13. Funeral assistance services

List of exempt services for commercial tax with effect from 1 April 2015

14. Childcare

15. Myanmar traditional massage/blind massage

16. Moving services

17. Toll fees collection

18. Animal healthcare and maintenance service

19. Public convenience fee collection

20. International airline transport

21. Cultural and artistic services

22. Public transportation (bus, railway, waterway)

23. Licence fees payable to government organisations


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Prior to 1 April 2015• The export sales (except natural gas, crude oil, jade, gem and teak log and

wood) are not subject to commercial tax (i.e. exempted).

With effect from 1 April 2015• The export sales (except the special goods above) are subject to commercial

tax at the rate of 0% (i.e. zero rated).

Changes to CT on export sales (1/3)


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Prior to 1 April 2015• The export sales of natural gas, crude oil, jade, gem and teak log and wood

are subject to CT ranging from 5% to 50%.

With effect from 1 April 2015• The CT rates on export sales are changed as follows:

– Decrease in CT rate on export sales of the processed precious stones from the current 10% to 5%; and

– Increase in CT rate on the export sale of the raw precious stones from the current 10% to 15%

– The export sale of electricity is at the rate of 8%



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Prior to 1 April 2015• The commercial input tax to be offset shall not exceed the commercial

output tax on sale under Section 42 of the Commercial Tax Regulations.

With effect from 1 April 2015• The CT incurred on purchase of goods and production is creditable against

the commercial tax due on the export sales and any excess is refundable.



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Notification no. 180/2015, amending the commercial tax regulations – effective from 1 April 2014


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Commercial tax (1/2)Key changes under the Amended Commercial Tax Regulations


1. Input tax offsetting is now allowed for a service provider – with effect from 1 April 2014

To clarify the following with the Myanmar tax authorities:• On what expenses can commercial input tax be claimed, what about

expenses incurred on capital equipment• What are the procedures relating to the claim of input tax• Is a refund available on any excess commercial tax paid after claiming

input tax, it appears the answer is no other than for exports• What are the offsetting rules in the case where an entity is

undertaking both manufacturing/trading and services activities, it is an area of real concern.

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Commercial tax (2/2)Key changes under the Amended Commercial Tax Regulations


2. The appointed representatives of the non-resident foreigners not registered in Myanmar are required to register for commercial tax

• To consider commercial tax implications that may arise from the onshore sale and services provided by the non-resident foreigners not residing in the country.

• To clarify if offsetting rule will be applicable to the non-resident foreigners and to what extent

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Notification no. 181/2015, amending the Income Tax Regulations– effective from 1 April 2014


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Income tax (1/2)


Prior to 1 April 2014Under Section 13 of the Income Tax Regulations, a taxpayer entity is allowed to claim tax depreciation on the qualifying assets used for its business purposes based on rates prescribed under the Myanmar Income Tax Law as shown below:

• Initial depreciation allowance on new building and equipment:

15% of original cost of building

20% of original cost of equipment

• Tax depreciation rates prescribed under Section 13(f):

– Buildings: 1.5% - 10%

– Furniture and fittings installed in buildings: 5% -10%

– Machinery and plant: 5% (generally) to 6.25% (items such as electrical appliances)

– Machinery equipment: 2.5% - 20%

– Road transport vehicles: 12.5% - 20%

– Miscellaneous: 10% - 20%

– Other miscellaneous: 2.5%- 20%

– Other fixed assets that are not prescribed: 5%

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Income tax (2/2)

With effect from 1 April 2014Paragraph 6 of the Notification 181/2015 has amended the tax depreciation rates prescribed under Section 13(f) of the Income Tax Regulations as follows:

• Buildings: 5% - 15%

• Furniture and fittings installed in buildings: 10%

• Machinery and plant: 10%

• Various kinds of vehicles : 5% - 20%

• Other fixed assets that are not prescribed: 5%

The initial depreciation rates on new building and equipment remain unchanged as follows:

• 15% of original cost of building

• 20% of original cost of equipment


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Notification no. 182/2015, amending the Income Tax Rules– effective from 1 April 2014


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Prior to 1 April 2014• Under Section 3 of the Income Tax

Rules, a taxpayer entity is allowed to claim relief of MMK300,000 for each child, subject to certain conditions.

• Section 3 of the Income Tax Rules did not specifically mention whether the spouse of a taxpayer will not be allowed to claim relief on the same child whom the taxpayer has claimed relief.

Income tax

With effect from 1 April 2014• Paragraph 3 of the Notification

182/2015 has added a provision stipulating that the relief on the same child can only be claimed by either taxpayer or his/her spouse.


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Other common key tax issues


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Withholding tax (1/3)Common pitfalls and mitigating ways

• Failure to file and withhold – will be regarded as ‘defaulter’ under the Myanmar Income Tax Act Examine the nature of payments to be made and determine

withholding tax implications To consider obtaining written confirmation from the IRD if it is

not clear and the amount involved is substantial

• Withholding tax requirement during the construction period and income tax holiday period Adverse impact on cash flow; difficult to obtain refund at the end

of the tax year To consider obtaining waiver from the IRD


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Withholding tax (2/3) Common pitfalls and mitigating ways

• One contract includes both supply of goods and services (for non-resident foreigners) Both payments are subject to withholding tax given one contract

includes both elements Segregate contracts for the sale of goods and provision of services

• Claim of tax treaty rates/ exemption The application of tax treaty rates is subject to agreement by

Ministry of Finance at its discretion To consider obtaining written approval from Ministry of Finance

by submitting supporting documents e.g. COR


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Withholding tax (3/3)Common pitfalls and mitigating ways

• Other recommendations To include the withholding tax cost of 3.5% when pricing for

projects or future contracts can be negotiated on a net of withholding tax basis.

To support its claim for foreign tax credits in home countries, we should keep and prepare various documentary evidences, e.g. withholding tax receipts.


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Advance income tax

• With effect from July 2013, the import and/or export of goods or equipment will be subject to advance income tax of 2% in Myanmar

• Pursuant to the notification, such withholding tax requirement is not applicable during the construction period of the MIC project

• Even though the advance income tax is refundable (upon the finalisation of tax assessment each year), it is advisable to seek waiver from the Myanmar IRD, covering the period from income tax holiday period

• Refundable ?


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Structuring into Myanmar


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Your entry into Myanmar

Holding Structures. Direct investment vs. investment through holding company; wholly owned vs. joint venture (JV)

Investment through acquisition. Asset vs. share deal

Financing of investment. Equity vs. debt financing; tax implications; foreign exchange rules

Cash repatriation. Dividend, interest, royalty, management fees etc.; tax implications; foreign exchange rules

Exit strategies. Sale of shares (indirect or direct), liquidation

Key Structuring

Considerations

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Key Structuring

Considerations

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Holding structures

Option 1 – Direct investment (wholly foreign owned)

Offshore

Myanmar

Foreign investors

Foreign company

Option 1a – Direct investment (JV with local partners)

Offshore

Myanmar

Foreign investors

Foreign company

Localpartners


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Holding structures

Option 2 – Investment through a holding company

Offshore

Myanmar

Foreign investors

Foreign company

Option 2a – Investment through a holding company (JV with local partners)

Offshore

Myanmar

Foreign investors

Foreign company

HoldCo(e.g. Singapore)

HoldCo(e.g. Singapore)

Local partners


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Key Structuring

Considerations

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2

3

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Acquisition of Myanmar company

Transfer of shares in a Myanmar company is not allowed• Is asset deal required? What

are the tax implications?• Will foreign company

inherit tax liability of Myanmar company?

• Is an approval from the Myanmar Investment Commission (MIC) required?

• Timeline

Myanmar company

Transfer of business

Foreign investors

Foreign company

Local shareholders/

partners

Business assets


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Acquisition of Myanmar company (1/2)

Section 24 of the Myanmar Income Tax Act states:

When a business is discontinued, every person who has a share in that business at the time of discontinuance shall in respect of the income of that business be jointly and severally liable to assessment of income-tax and for the amount of tax payable.


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Acquisition of Myanmar company (2/2)

Section 25 of the Myanmar Income Tax Act states:

When a business is succeed by a person from the owner of that business an in case if there is difficulty in communication with that owner the successor shall be treated as the agent of the previous owner and income-tax shall be assessed for the following periods:

1. The period in the income year of succession within which the previous owner carried on the business;

2. The income year preceding the income year of succession


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Acquisition of foreign company

Transfer of shares in a foreign company may be allowed• Two options available –

share transfer either at the level of offshore holding company or foreign company

• Which option is preferred?• Capital gains tax and stamp

duty implications?• What are the registration

and approval requirements? Is an approval from MIC required?

Foreign company

Foreign investors

or through BidCo

Foreign Shareholder

(seller)

Offshore holding

company

1

2


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Key Structuring

Considerations

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Financing of investment: debt vs. equity

1. No specified debt to equity ratio in general (MIC/ relevant ministries may impose certain ratio on investment in certain industries)

2. Flexibility of returning capital/ loan repayment

3. Tax implications e.g. withholding taxes, deductibility of interest expenses

4. Strict foreign exchange rules

Holding Company

Foreign Company

Foreign investors

Debt/Equity

Debt/Equity


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Key Structuring

Considerations

1

2

3

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Repatriation of profits

1. Various means to consider, e.g. dividend, interest, royalty, service fees

2. Tax implications e.g. withholding taxes, deductibility of payments

3. Consider moving certain functions to holding company

4. Strict foreign exchange rules

Singapore Holding

Company

Foreign Company

Foreign investors

Dividend/ interest

Dividend, interest, royalty,service fees etc.


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Key Structuring

Considerations

1

2

3

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Exit strategies

1. Indirect equity transfer vs. direct equity transfer – which option is preferred?

2. Capital gains tax and stamp duty implications

3. Is tax exemption available under the relevant tax treaty?

4. What are the registration and approval requirements? Is an approval from MIC required?

Holding Company

Foreign Company

Foreign investors

1

2


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Conclusion and Q&A


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Contact us


Paul Cornelius

Partner – Corporate and International TaxPwC SingaporeTel: +65 6236 [email protected]

Lim Hwee Seng

Partner – M&A Tax PwC Singapore Tel: +65 6236 [email protected]

Thank you.

The information contained in this presentation is of a general nature only. It is not meant to be comprehensive and does not constitute the rendering of legal, tax or other professional advice or service by PricewaterhouseCoopers Ltd. ("PwC"). PwC has no obligation to update the information as law and practices change. The application and impact of laws can vary widely based on the specific facts involved. Before taking any action, please ensure that you obtain advice specific to your circumstances from your usual PwC client service team or your other advisers.

The materials contained in this presentation were assembled in May 2015 and were based on the law enforceable and information available at that time.

© 2015 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

Documents

Myanmar – Tax opportunities and pitfalls in a time of ... The Myanmar government has recently introduced a major tax reform in January 2015, particularly: • Notification no. 180/2015