The years 2012 and especially 2014 witnessed several constructive changes through amendments to the Income Tax Law (ITL), the Commercial Tax Law (CTL), the Stamp Duty Act and the Court Fee Stamp Act. These were aimed at meeting the tax reform agenda that was set by the parliamentary government installed in 2011, in order to eradicate the provisions of laws detrimental to the progress of the national economy. In order to accelerate the reform process the most remarkable step was the introduction of the Union Taxation Law (UTL) 2014 (effective for 2014/15 fiscal year).
The tax reform process continued unabated as the Parliament of April 2, 2015 passed UTL 2015, effective for the 2015/16 fiscal year, prescribing several significant changes including: aligning the higher corporate income tax rate of 35% and capital gain tax (CGT) rate of 40% for non-resident foreigners with the resident company rates of 25% and 10%, respectively ( excepting CGT for the oil and gas sectors); reducing higher personal income tax rates for non-resident foreigners (flat 35%) to progressive rates from 0% to 25% which applies to resident nationals and foreigners; enhancing spouse and child allowances; introducing parent allowances; reducing tax on property income for individuals from progressive rates (0% to 25%) to 10% flat; increasing the commercial tax (CT) threshold; removing the 2% CT relating to goods produced and sold by Myanmar-owned companies; and reducing the CT on sale of buildings constructed within the country from 5% to 3%.
Five Principal Laws
The ITL, the CTL, the UTL (subject to yearly revision), the Foreign Investment Law (FIL) 2012, and the Special Economic Zone Law (SEZL) 2014 provide the basis for taxation.
Corporate Income Tax (Cit)
For the purpose of taxation, a company incorporated in Myanmar is treated as a resident, while a company incorporated overseas and registered locally as a branch is treated as a non-resident. Resident companies are subject to income tax on income accruing or arising within and outside Myanmar, that is, on worldwide income. However, foreign branches (non-resident) and companies or branches operating under the FIL are only taxed on income accruing or arising within Myanmar. The uniform CIT rate of 25% applies to both the CIT of a resident company and a non-resident foreigner (branch). Income is computed as: “salaries”, “profession”, “business income”, “property”, “capital gains”, “income escaped assessment” and “other sources”. Corporate income is assessed under “business”, meaning any trading, commercial or production business including services. Taxable income is computed by deducting expenditures incurred for the purpose of earning income and depreciation allowances at the rates prescribed by the IT regulations from the total income, which includes interest earned from investment in security instruments and income from buying and transferring instruments as a business. Non-deductible expenditures comprise capital expenditure, personal expenditure, expenditure not commensurate with the volume of business, and any payment made to a member of an association with the exception of a company or a cooperative society.
However, payments made for professional service are deductible. A full year’s depreciation can be claimed the year a capital asset is acquired, but no depreciation is allowed the year the asset is dis-
Capital Gains Tax
CGT is levied on gains from the sale, exchange or transfer of any capital asset of the business in Myanmar kyats (MMK) or foreign currency, if the proceeds of all assets disposed in an income year exceed MMK10m ($9000). CGT is 10% and applies to both residents and non-residents. In the case of the oil and gas sector, progressive income tax rates, ranging from 40% to 50%, are applicable on the capital gains received from the sales, exchange or transfer of shares and capital assets.
Offset & Carry Forward Of Loss
Losses from any source may be offset against income from any other source of income accruing in a year, except where the loss is incurred from capital assets. Capital losses cannot be carried forward and offset against future capital gains or taxable profits.
If a company suffers business losses that are not fully deducted in a year, it can carry forward unabsorbed losses and set them off against profits in the next three consecutive years. However, in the case of a company covered under the FIL, losses incurred during the income-tax holiday period cannot be carried forward or set off against future taxable profits.
Dividends received from an association of persons (i.e. partnerships, joint ventures, companies, etc.) are exempt from tax.
WHT is applicable to both payments to residents (R) and non-residents (NR). A payer is required to withhold income tax at the rates shown below in respect to the following payments at the time of disbursement:
- Interest payments rates: R-0%, NR-15%;
- Royalty payments for the use of all licenses, trade marks and patent rights; rates: R-15%, NR-20%;
- 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: R-2%, NR-3.5%; and
- Payments made under contracts or agreements by foreign entrepreneurs or foreign companies for procurement and services rendered within Myanmar: R-2%, NR-3.5%.
An advance income tax of 2% is imposed by the Internal Revenue Department (IRD) on imports and exports. The WHT is not applicable on dividends, as it is exempted from tax. The tax withheld shall be paid on behalf of the payer to the IRD within seven days from the date of withholding. Tax withheld from payments to residents will be set against the tax due under final assessments, whereas tax withheld from payment to non-resident foreigners is a final tax.
The standard tax year ends on March 31.
A projection for the year’s income is made by the taxpayer, and the tax for the year shall be paid in advance, in quarterly installments before the end of each quarter. If the liability exceeds the tax installment, a penalty at 10% is imposed on the amount falling short of the actual assessment.
Transforming The Official Assessment System (OAS) To A Self-Assessment System (SAS)
The Myanmar tax authorities have had a long-term plan to gradually adopt a SAS in place of the OAS, so as to encourage voluntary compliance by taxpayers regarding tax payments. Accordingly, the IRD has established a Large Taxpayers’ Office (LTO) and began implementing SAS for FY 2014/15 by selecting some large taxpayers – comprising mostly extractive industries, telecommunications, airlines, groups of companies, public companies and financial institutions, among others – that are deemed to be large based on the past three years’ tax payment records maintained by the IRD. Taxpayers’ voluntary submissions for the SAS are also welcome by the IRD based on financial information such as authorised capital, paid-up capital and gross turnover. One Medium Taxpayers’ Office was also established in order to include selected medium-sized taxpayers to the SAS starting from the 2016/17 assessment year.
Administration & Compliance
Large tax payers are required to file the tax return especially designed for the purpose of the SAS on or before June 30. Taxpayers need to assess their own tax obligation and complete their tax returns by furnishing the required financial and other relevant data truthfully. A signed declaration regarding the correctness and completeness of the information given on the tax return shall be made by the taxpayer or its representative. Audited financial statements do not need to be submitted. The LTO will conduct rigorous tax analysis on submitted tax return in order to determine whether to accept as declared or apply an in-depth audit if deemed to be not acceptable.
In the latter case the LTO will notify the taxpayer and proceed with an audit in accordance with its audit manual at the business premises of the taxpayer. Audit findings will be communicated and a demand notice will be issued for payment of deficient tax. Payments must be within 21 days. If not satisfied with the tax adjustment, the tax payer can appeal.
Income tax returns must be filed within three months of the end of the income year, together with financial statements audited by certified public accountants. However, tentative unaudited financial statements may be filed with the prior approval of the IRD on reasonable grounds. Tax returns for capital gains must be filed within one month from the date of disposal of the capital assets.
The IRD will generally review the tax return and raise any queries before finalising the assessment. The advance payments and any taxes withheld are credited against the final tax liability. The date for paying the final tax liability is specified in the notice of demand issued by the IRD. Excess tax may be refunded or carried forward as advance for the subsequent year’s tax payment. If there is a suspicion of concealment or fraud, a tax audit will be conducted by the IRD. In the case of concealment, the tax payer is asked to fully disclose the facts within a specified time frame. There is no time limit for a tax audit.
Payroll Taxes & Social Security Contributions
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 the tax is deposited. An annual salary statement must also be filed by June 30. According to the social security law 2012, employers having five and more staff under their employ must register with the relevant township social security office. Both employers and employees are also required to contribute towards 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 ($8) by employer and MMK6000 ($5) by employee. Contributions must be paid within 15 days of the following month. The employees’ contribution is deducted by the employer from wages.
Taxation On Individuals
Myanmar citizens and resident foreigners are taxed on their world-wide income. A foreigner is a resident if he or 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 FIL 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’ taxed salary income. Tax rates on income of residents after deducting legitimate allowances are at progressive slab rates ranging from 0% to 25%. The rate applicable to the taxable income of residents amounting up to MMK2m ($1800) after deducting legitimate allowances is 0%.
Non-resident foreigners are required to pay tax in the denominated currency in which income is earned under the UTL. Total income comprises salary, profession, property, business and other sources. Non-resident foreigners cannot enjoy allowances. Tax rates on the income of a non-resident without deducting legitimate allowances 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 ($1800) is 0%.
Myanmar does not levy value-added tax (VAT). Instead, CT based on turnover is levied either on goods locally produced or imported, and exports of certain goods under the CTL. CT is also levied on certain services rendered within Myanmar.
The UTL categorises goods in order to apply different CT rates, which are as follows:
- Special goods – 16 items (imported or manufactured and sold): 8% to 120%;
- Basic and essential goods – 79 items: 0% (for those goods produced and sold or services rendered locally relating to those items);
- Other goods not included in the above categories: taxed at 5%;
- Exports of goods: 0% (except crude oil, natural gas, jade and jewellery, and teak logs and wood).
- There are 23 types of services exempted from CT, and other types of services that are not included in the CT exemption list are subject to CT at a uniform rate of 5%.
The threshold for levying CT is MMK20m ($18,000). In order to be compliant with CT regulations, all companies must complete the following steps:
- Register with the IRD as a CT payer one month before commencement of business;
- File quarterly CT returns within one month after the end of each quarter;
- File annual CT returns within three months after the end of the fiscal year;
- Inform the IRD within 10 days of officially commencing business;
- Pay monthly assessable CT within 10 days of the following month;
- Appear for examination upon receiving notice served by the IRD;
- Pay the assessed tax within the stipulated or extended time;
- Maintain prescribed invoices or receipts as evidence, according to the CT regulation; and
- Issue invoices or receipts to the purchaser or the service recipients.
Customs duty is payable according to the Custom Tariff of Myanmar at rates of 0 % to 40%. Excise duty as license 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 scheduled rates are payable on the extraction of natural resources.
Stamp duty is payable on various instruments at different rates prescribed by the Stamp Duty Act. The duty is payable in kyats prior to or on the date which the instruments are executed.
Liability For Non-Compliance
Investors should be aware of the following penalties imposed in the form of fines and/or imprisonment depending on the gravity of the offences prescribed under the Myanmar tax laws, defined as follows:
A fine at 10% on tax dues for default or failure to pay advance tax, filing tax returns and annual salary statements, submitting accounts and supporting evidence. A fine at 50% for failure of disclosing concealed income within the given time, imprisonment from one to 10 years for concealing or not disclosing income.
A fine at 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 ($90) for not disclosing or for concealing income. For failure to issue an invoice or receipt to a purchaser or service provider: a fine at 100% of tax due on the value of such an invoice or receipt and in addition a fine at MMK200,000 ($180), MMK500,000 ($450), MMK700,000 ($630) and MMK1m ($900) for the first time, second time, third time and every time above the third time, respectively, for each type of default made within a financial year.
Stamp Duty Act
Fine 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, the Republic of Korea, India, Laos, Indonesia and Bangladesh. DTAs with all but Indonesia and Bangladesh are currently in effect.
Developments In Special Economic Zones (SEZS)
The parliamentary government felt the urgent need to take effective measures to promote industrial sector of the country and thus help improve its economic condition. To this end, three SEZs were established under the current SEZL.
Incentives For FDI
Foreign investors intending to conduct long-term business in Myanmar can do so either within the SEZs under the SEZL 2014 or outside the SEZs under the FIL 2012. Both the laws provide attractive incentives to potential investors. For the purpose of incentives, the SEZL distinguishes developers from investors. However, no such distinction is prescribed under the FIL. Incentives provided under SEZL and the FIL are detailed below.
SEZL For Developers
- An income tax holiday for the first eight years from commencement of business operations;
- A 50% relief from the income tax rate stipulated by the existing law for the second five years; and
- A 50% relief from the income tax rate stipulated by the existing law for the subsequent five year period on the business’s profit, provided it is reinvested within one year in the business as a reserve fund.
SEZL For Investors
- In a free zone (FZ) or FZ business, the income tax holiday is for the first seven years from commencement of commercial operations;
- In a promotion zone (PZ) or other business within the SEZ boundary, the income tax holiday is the first five years from the commencement of operations;
- In a FZ or PZ, a 50% relief on the income tax rate stipulated under the existing law for the second five-year period;
- In the FZ and PZ, a 50% relief of the income tax rate is stipulated by the existing law for the third five year period on the business’s profit, if reinvested within one year and maintained as a reserve fund.
- In the FZ, deducting business research and development expenses associated with training workers in management is allowed.
For Developers & Investors
They can carry forward and offset losses for five years from the year incurred and apply for exemption from income tax for dividends distributed to the shareholders. They can lease land for 75 years (initially for 50 years with the further extension of 25 years).
Foreign insurance and banking companies can operate their agency offices and conduct business within the various SEZs if this is approved by the relevant authorities.
Foreign Investment Law
An income tax holiday of up to five consecutive years is provided for an enterprise engaged in the production of goods or services. The income tax holiday period is extendable at the discretion of the Myanmar Investment Commission for a further reasonable period, depending on the success of the enterprise;
- Exemptions or relief from income tax are available for business profits that are maintained in a reserve fund and re-invested within one year;
- Relief from income tax of up to 50% of profits accrued on any exported manufactured goods;
- The right to pay income tax on the income of foreign employees at the rates applicable to citizens residing within the country;
- If the investor increases the amount of investment and expands the business within the approved timeframe, it may enjoy exemption and/or relief from Customs duties or other internal taxes on machinery, equipment, instruments, machinery components, spare parts and materials that are imported for the expansion of the business;
- Exemption or relief from Customs duties 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 duties or other internal taxes on imported raw materials for the first three years of commercial production following the completion of construction;
- Right to carry forward and set off losses up to three consecutive years from the year the loss is sustained within two years after the tax holiday;
- Right to deduct expenses in respect of research and development relating to the business from assessable income, which are actually required and are carried out within the country;
- Right to deduct depreciation of machinery, equipment, building or other capital assets used in the business at the rates stipulated by the Union;
- Right to repatriate net profits, after deducting all taxes and relevant funds from annual profit.
Land lease for investors that qualify is allowed for up to 70 years.
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