Taxation in the Construction and Real Estate Sector in Myanmar Sebastian Pawlita Partner 5 March 2013

Transcription

1 Taxation in the Construction and Real Estate Sector in Myanmar Sebastian Pawlita Partner 5 March 2013

2 Table of Contents Income Taxation of Companies Tax Incentives Commercial Tax Income Tax on Salaries; Obligation of Employers in this Regard Taxation of Capital Gains Municipal Property Taxes Stamp Duty Double Taxation Agreements

3 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)

4 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) Financialyear: 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

5 Income Taxation of Companies Losses can becarriedforward 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% for both residents and non-residents if shares of an oil or gas project are sold)

6 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

7 Income Taxation of Companies Withholding tax rates (according to national tax law): Dividends/distribution of branch profits Payment toa resident n/a Payment toa non-resident 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) Purchase of goods within the country 2% 3.5% (final tax) 2% 3.5% (final tax)

8 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) 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.

9 Income Taxation of Companies Quarterly advance payments, annual income tax returns until 30 June Payment of withholding tax within 7 days after the deduction Declaration of a capital gain (if any) within 1 month after the alienation of the capital asset

10 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 5years starting at the end of the construction period

11 Tax Incentives Some incentives at the discretion of the Myanmar Investment Commission: Income tax exemption for more than 5 years 50% reduction of income tax on profits derived from the export of manufactured goods Exemption from, or reduction of, customs duties and other internal taxes on the import of machines, etc. during the construction period Exemption from, or reduction of, customs duties and other internal taxes on the import of raw materials within 3 years after the start of production Exemption from, or reduction of, commercial tax on the export of manufactured goods

12 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 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

13 Commercial Tax Tax rates: Certain essential goods Production and sale Import Export 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

14 Commercial Tax Tax rates: Teak logs and teak cuttings, hardwood logs and hardwood cuttings Jade and other precious stones Production and sale Import Export 50% 50% 50% 30% 30% 30% Certain vehicles 25% 25% n/a Gasoline, diesel oil, jet fuel 10% 10% n/a

15 Commercial Tax Tax rates: Production and sale Import Export Natural gas 8% 8% 8% Oil 5% 5% 5%

16 Commercial Tax Tax rates: 5% for the following services performed in Myanmar: Trade (domestic sale of purchased goods) Sale of food and drinks Transport by rail, air, road, water Entertainment business Tourism business (including tour guides) Hotels Cleaning, oiling, repair and decoration of motor vehicles Beauty parlours, fitness studios, hairdressers and similar businesses

17 Commercial Tax Tax rates: 5% for the following services performed in Myanmar: Keying-in of data (on a computer), computer graphic design (excluding reproduction of copies using a photocopier) Brokerage services Drawing designs, decoration and repair of land; building and construction Insurance business (except life insurance) Marketing, taking and developing photos, edition and distribution of motion pictures and videos Agents, lawyers, certified accountants, auditors

18 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 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

19 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); nonresidents: 35%

20 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)

21 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

22 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. Kyats 465 or USD 3 monthly contributions by the employee

23 Taxation of Capital Gains Income tax on capital gain of a capital asset (= land, building, shares, bonds, any capital asset connected with the enterprise ) if seller is a resident individual or company: 10% Income tax on capital gain if seller is a non-resident individual or company: 40% Income tax on capital gain if shares in an oil or gas project are sold (irrespective of the residence status of the seller): 40% (capital gain up to USD 100 million), 45% (capital gain more than USD 100 million and less than USD 150 million), 50% (capital gain more than USD 150 million)

24 Taxation of Capital Gains Vodafone scenario? Advantageous double taxation agreement with Singapore(simplified description) 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

25 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

26 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 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

27 Stamp Duty Sourcesoflaw: Stamp Act of 1899 as amended Tax rates: Transaction Sale or transfer or immovable property Sale or transfer of shares Lease of immovable property (less than 1 year) Lease of immovable property (1-3 years) Lease of immovable property (more than 3 years) Tax rate 5% (in Yangon: 7%) of the consideration 0.3% of the consideration 1.5% of entire rent 1.5% of annual average rent 5% of annual average rent

28 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

29 Double Taxation Agreements Section 31 Income Tax Law: When the Union Government enters into an agreement with any foreign state M relating to income tax and if the agreement is notified, the terms of the said agreement shall be followed, notwithstanding anything contained in any other provision of the law. Such agreement may be published in the Union of Myanmar Gazette notwithstanding anything contained in any other provisions of the law. Prior consultation with the revenue office in charge!!

30 Thank you!

31 Myanmar +95 (09)