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Taxation in the Construction and Real Estate
Sector in MyanmarSebastian Pawlita
Partner
5 March 2013
Table of Contents
• Income Taxation of Companies
• Tax Incentives
• Commercial Tax
• Income Tax on Salaries; Obligation of Employers in this
RegardRegard
• Taxation of Capital Gains
• Municipal Property Taxes
• Stamp Duty
• Double Taxation Agreements
Income Taxation of Companies
• Sources of law: Income Tax Act 1974 as amended;
Income Tax Regulations, Income Tax Rules, Income Tax
Notifications
• Tax rate: 25% (companies incorporated in Myanmar;• Tax rate: 25% (companies incorporated in Myanmar;
theoretically also: Myanmar branch of a foreign company
operating under an investment permit issued by the
Myanmar investment Commission); 35% (non-resident
foreign companies)
Income Taxation of Companies
• Tax base: Profit/loss according to the annual audited
financial statements (prepared according to the
Myanmar Accounting Standards - similar to IFRS)
• Financial year: 1 April - 31 March• Financial year: 1 April - 31 March
• Expenses are deductible if there is a nexus between the
business of the company and the expenses and the
expenses do not appear to be out of proportion in view of
the size of the business
Income Taxation of Companies
• Losses can be carried forward for 3 years
• Capital gains/losses do not form part of the taxable
income (taxed separately at the rate of 10% for residents
and 40% for non-residents; at the rate of 40-50% forand 40% for non-residents; at the rate of 40-50% for
both residents and non-residents if shares of an oil or
gas project are sold)
Income Taxation of Companies
• Thin cap rules: No thin cap rules in tax law, but the
“conditions under which a permit to trade is granted”
stipulate a maximum debt equity ratio of 1:2
• No transfer pricing rules• No transfer pricing rules
Income Taxation of Companies
• Withholding tax rates (according to national tax law):
Payment to a
resident
Payment to a
non-resident
Dividends/distribution of
branch profits
n/a n/a
Interest n/a 15% (final tax)
Royalties, license fees 15% 20% (final tax)
Fees for services bought
within the country or
abroad (includes rental
fees)
2% 3.5% (final tax)
Purchase of goods within
the country
2% 3.5% (final tax)
Income Taxation of Companies
• Income taxation of a branch: Foreign-owned branch
classified as a non-resident, tax rate therefore 35% and
not 25% (with the theoretical exception of a branch
operating under an investment permit issued by the
Myanmar Investment Commission)Myanmar Investment Commission)
• In practice, branches usually serve as representative
offices, i.e. they do not make profits and should therefore
have no income tax exposure. Still, obligation to file
income tax returns.
Income Taxation of Companies
• Quarterly advance payments, annual income tax
returns until 30 June
• Payment of withholding tax within 7 days after the
deductiondeduction
• Declaration of a capital gain (if any) within 1 month
after the alienation of the capital asset
Tax Incentives
• Sources of law: Chapter 12 Foreign Investment Law
2012; chapter 14 Foreign Investment Rules 2013
• Non-discretionary income tax exemption for a period of
5 years starting at the end of the construction period5 years starting at the end of the construction period
Tax Incentives
• Some incentives at the discretion of the MyanmarInvestment Commission:
– Income tax exemption for more than 5 years
– 50% reduction of income tax on profits derived from the export ofmanufactured goodsmanufactured goods
– Exemption from, or reduction of, customs duties and “otherinternal taxes” on the import of machines, etc. during theconstruction period
– Exemption from, or reduction of, customs duties and “otherinternal taxes” on the import of raw materials within 3 yearsafter the start of production
– Exemption from, or reduction of, commercialtax on the export of manufactured goods
Commercial Tax
• Sources of law: Commercial Tax Law 1990 as
amended, Commercial Tax Regulations, Commercial Tax
Notifications
• Similar to VAT, but input tax not always available• Similar to VAT, but input tax not always available
• Applicable to the production and domestic sale of goods,
the import of goods, the export (of a very limited number)
of goods and to specific services
Commercial Tax
• Tax rates:
Production
and sale
Import Export
Certain essential
goods
n/a 5% n/a
Most goods 5% 5% n/a
Cigarettes 100% 100% n/a
Tobacco, pipes, cigars,
betel chewing
preparations, liquor,
beer, wine
50% 50% n/a
Commercial Tax
• Tax rates:
Production
and sale
Import Export
Teak logs and teak
cuttings, hardwood
logs and hardwood
50% 50% 50%
logs and hardwood
cuttings
Jade and other
precious stones
30% 30% 30%
Certain vehicles 25% 25% n/a
Gasoline, diesel oil,
jet fuel
10% 10% n/a
Commercial Tax
• Tax rates:
Production
and sale
Import Export
Natural gas 8% 8% 8%
Oil 5% 5% 5%Oil 5% 5% 5%
Commercial Tax
• Tax rates: 5% for the following services performed in
Myanmar:
Trade (domestic sale of
purchased goods)
Tourism business
(including tour guides)purchased goods) (including tour guides)
Sale of food and drinks Hotels
Transport by rail, air, road,
water
Cleaning, oiling, repair and
decoration of motor
vehicles
Entertainment business Beauty parlours, fitness
studios, hairdressers and
similar businesses
Commercial Tax
• Tax rates: 5% for the following services performed in
Myanmar:
Keying-in of data (on a
computer), computer
Insurance business
(except life insurance)computer), computer
graphic design (excluding
reproduction of copies
using a photocopier)
(except life insurance)
Brokerage services Marketing, taking and
developing photos, edition
and distribution of motion
pictures and videos
“Drawing designs”,
decoration and repair of
land; building and
construction
Agents, lawyers, certified
accountants, auditors
Commercial Tax
• Tax base: Turnover; in case of import: 1.05 x CIF price
plus import duty
• No commercial tax to be paid by small enterprises
(annual turnover up to Kyats 10,000,000, equivalent to(annual turnover up to Kyats 10,000,000, equivalent to
approx. USD 12,000)
• Monthly payments within 10 days after the end of the
month; quarterly (within 1 month after each quarter) and
annual filing (until 30 June) of tax returns
Income Tax on Salary; Obligations of Employers in this
Regard
• Sources of law: Income Tax Act 1974 as amended;
Income Tax Regulations, Income Tax Rules, Income Tax
Notifications
• Tax rate residents: Progressive rate from 1% - 20%• Tax rate residents: Progressive rate from 1% - 20%
(20% applicable to taxable salary income of more than
Kyats 20,000,000 - approx. USD 23,000); non-
residents: 35%
Income Tax on Salary; Obligations of Employers in this
Regard
• Resident: Any person who resides in Myanmar for 183
days or more during a financial year (1 April - 31 March)
or who is employed at a company operating under a
permit from the Myanmar Investment Commission
• Tax base: Salary after deduction of personal and family
allowances (most importantly: personal allowance
equivalent to 20% of the salary, maximum Kyats
10,000,000 - approx. USD 11,500)
Income Tax on Salary; Obligations of Employers in this
Regard
• No general concept that employees may deduct
business expenses (e.g. costs for books, a computer at
home used for work) for income tax purposes
• Employer has to withhold income tax from salary paid to• Employer has to withhold income tax from salary paid to
the employee and pay the corresponding amount to the
tax authorities within 7 days after payment of the salary;
obligation to annually (until 30 June) report salaries paid
Income Tax on Salary; Obligations of Employers in this
Regard
• Social security contributions are extremely low
• According to the homepage of the Ministry of Labour,
Employment and Social Security: Maximum Kyats 775 or
USD 5 monthly contributions by the employer and max.USD 5 monthly contributions by the employer and max.
Kyats 465 or USD 3 monthly contributions by the
employee
Taxation of Capital Gains
• Income tax on capital gain of a “capital asset” (= “land,building, shares, bonds, any capital asset connected with theenterprise”) if seller is a resident individual or company: 10%
• Income tax on capital gain if seller is a non-resident individualor company: 40%or company: 40%
• Income tax on capital gain if shares in an oil or gas project aresold (irrespective of the residence status of the seller): 40%(capital gain up to USD 100 million), 45% (capital gain morethan USD 100 millionand less than USD 150 million), 50% (capitalgain more than USD 150 million)
Taxation of Capital Gains
• Vodafone scenario?
• Advantageous double taxation agreement with
Singapore (simplified description)
– Myanmar must not tax if seller (Singapore resident) held less– Myanmar must not tax if seller (Singapore resident) held less
than 35% of the shares of a company whose assets do not
principally consist in immovable property
– Myanmar capital gains tax must not exceed 10% if seller
(Singapore resident) sold shares in a company whose assets
principally consist in immovable property, or if seller (Singapore
resident) held 35% or more of the shares
Taxation of Capital Gains
• Note:
– In addition to capital gains tax: stamp duty (0.3% in case of the
sale of shares, 5% - in Yangon (area of the Yangon City
Development Committee) 7% - in case of the sale of land and
buildings)
– No commercial tax on the transfer of shares, or the transfer of
land and buildings
– A buyer has to pay up to 30% of the purchase price as “income
tax on undisclosed sources of income” if the buyer is unable to
reveal the source of the money
Municipal Property Taxes
• There are municipal property taxes (e.g. according to the
City of Yangon Municipal Act 1922 as amended)
• As such, municipal property taxes are often no direct
concern to foreign-invested enterprises as they can only
lease and not own immovable propertylease and not own immovable property
• However, the rent charged by the lessor would usually
reflect costs incurred by the lessor due to municipal
property taxes
• The thus increased rent can be deducted
as business expenses by the lessee
Stamp Duty
• Sources of law: Stamp Act of 1899 as amended
• Tax rates:
Transaction Tax rate
Sale or transfer or immovable
property
5% (in Yangon: 7%) of the
consideration
Sale or transfer of shares 0.3% of the consideration
Lease of immovable property
(less than 1 year)
1.5% of entire rent
Lease of immovable property (1-
3 years)
1.5% of annual average rent
Lease of immovable property
(more than 3 years)
5% of annual average rent
Double Taxation Agreements
• The homepage of the Ministry of Finance and Revenue
lists double taxation agreements with the following
countries: India, South Korea, Malaysia, Thailand, United
Kingdom, Vietnam, Singapore, Laos
Double Taxation Agreements
• Section 31 Income Tax Law: “When the UnionGovernment enters into an agreement with any foreignstate M relating to income tax and if the agreement isnotified, the terms of the said agreement shall befollowed, notwithstanding anything contained in anyother provision of the law. Such agreement may beother provision of the law. Such agreement may bepublished in the Union of Myanmar Gazettenotwithstanding anything contained in any otherprovisions of the law.”
• Prior consultation with the revenue officein charge!!
Thank you!Thank you!
