Transcript Capital Gains

Hot Tax and Investment Issues when
Structuring Investment into Myanmar
At a Glance
Myanmar
6 countries
Laos
Cambodia
Vietnam
Singapore
50
More than
professional staff
Indonesia
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Our Practice Areas
Tax Advisory
Legal Advisory
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Corporate tax planning strategies
Tax-efficient market entry advisory services
Real estate tax structuring
Oil, gas and mining tax services
Customs and excise advisory
Mergers & acquisitions and tax due diligence
International and regional tax optimization
Transfer pricing advisory and benchmarking
Taxation of banks, insurance & financial services
Controversy and litigation in tax matters
Mergers & acquisitions (cross-border and single market)
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compliance)
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 Infrastructure, mining and energy (including project
financing)
 Intellectual property
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In a region where regulations and legal precedents are
not always clear, local knowledge and relationships are
the key to getting results. Our advisers’ excellent and
long-standing working relationships with government
authorities throughout the region enable us to advise
you on relationships with government agencies and
provide strategic guidance on maneuvering the
intricacies of a country’s regulatory and legislative
framework.
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Payroll administration
Corporate tax compliance
Accounting services
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Contents
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Forms of Entity for Foreign
Investment / Residency
Investment Licensing
Tax Incentives (MIC Permit)
Corporate Income Tax Features
Withholding Taxes
Commercial Tax
Personal Income Tax
Treaties and Agreements
Withholding Tax and Capital Gains
Capital Gains on Myanmar Shares
and Oil & Gas Interests
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Holding Structures for Investments
in Myanmar: Labuan vs. Singapore
Example: Tax Efficient Holding
Structure
Financing Structures: Case Study
Profit Extraction
Alternative Structures to
Repatriate Income
Income Derived from Myanmar:
No presence in Myanmar
Permanent Establishment
Withholding Tax
Taxing right under the DTAs?
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Forms of Entity for Foreign Investment / Residency
 The forms of business for foreign investment in Myanmar are:
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Foreign-owned company (in the form of an LLC, sole proprietorship,
partnership)
Joint venture
Branch
 The most common forms for foreign investors are an LLC or branch
 A resident company is a company as defined and formed under
the Myanmar Companies Act of 1913 or any other existing law of
Myanmar (i.e. the Myanmar Foreign Investment Law)
 A branch is a non-resident
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Investment Licensing
DICA
Directorate of Investment &
Company Administration
MIC
Myanmar Investment Commission
 List:
 Company set up for locally owned or
foreign-owned companies and
branches
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Agriculture
Livestock and Fishery
Forestry
Mining
Industry
Construction
Transport
Road transport and repair
services
Hotels and tourist industries
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Tax Incentives (MIC Permit)
Incentive
Mandatory:
3 Year Income Tax Exemption
Discretionary:
Extension of Income Tax Exemption
Income Tax Exemption for Reinvested Funds
Accelerated Depreciation
Export Income Tax Relief
Right to Pay Foreign Employee Income Tax
Deduction for R&D Expenses
Loss Carry forward
Customs Duty Exemption
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Corporate Income Tax Features
 25% CIT for Myanmar companies, foreign-owned resident
companies, joint ventures and non-resident foreign companies
engaged in special State sponsored projects
 35% CIT for branches, except if granted an Investment Permit by
the Myanmar Investment Commission (25% CIT)
 Tax exemption under the Foreign Investment Law (FIL): 3 years;
expected to be extended to 5 years under the new FIL (not 8 years,
as was incorrectly reported)
 Losses may be carried forward for 3 consecutive years following
the end of the exemption period
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Withholding Taxes
Dividends
0%
Paid to NonResidents
0%
Interest
0%
15%
Royalties
15%
20%
Procurement of goods
2%
3.5%
2%
3.5%
Payment type
Paid to Residents
(excluding imported goods)
Services
(performed in Myanmar or abroad)
Notes:
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Rates amended effective 26 August 2011 (Notification 167/2011)
Tax is triggered by receipt of payment or accrual
WHT on payments to residents in not a final tax, but tax on payments to nonresidents is a final tax
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Commercial Tax
 Was significantly amended in 2012
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Old: 6 rates (exempt, 5%, 10%, 20%, 25% and 30%-200%)
New: exempt, 5% or 8%-100%
 Schedule 1: 70 types of goods
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Domestic production or domestic sales are exempt
Importation subject to CT at 5%
 Schedule 6: Specific goods
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Including alcohol, fuel and cigarettes
CT applies for both importation and domestic sales
 Schedules 2, 3, 4, 5 and 7 now at 5% including 14 types of services
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Including hotel, restaurant, transport, entertainment, trading services,
tourism, insurance (except life), broker, advertising/movie distribution
and agent/accounting/legal services
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Commercial Tax
 Threshold for operators to apply CT was introduced this year
 Credit system
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Yes, but not for all operators (depends on activity)
Recent update: credit possible for downstream petroleum products
(Notification 323/2012)
 Exemptions for agriculture sector (Notification 288/2012)
 Special Economic Zones
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Personal Income Tax
• Foreigners who reside in Myanmar for 182
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days or more during the financial year are
considered as resident foreigners.
Previously, resident foreigners were taxed at
a flat rate of 15%.
From 1 April 2012, progressive rates of 1%
to 20% now apply to both resident
foreigners and resident Myanmar citizens.
In addition, an expatriate working for a
foreign-owned company incorporated under
the FIL is deemed to be a tax resident of
Myanmar, regardless of period.
Non-residents are taxed at a flat rate of
35%, except under certain circumstances.
Myanmar Income Tax
Rates on Salary
Residents
and Citizens
NonResidents
1%-20%
35%
Progressive
rate,
allowances
Flat rate
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Treaties and Agreements
 Bilateral Investment Treaties
concluded
‐ Bangladesh (signed, but not in
‐ China
force)
‐ Philippines
‐ India (in force)
‐ Laos
‐ Indonesia (signed, but not in
‐ Thailand
force)
‐ China
‐ Korea (in force)
‐ India
‐ Malaysia (in force)
‐ Kuwait
‐ Singapore (in force)
 ASEAN Comprehensive
‐ Thailand (in force)
Investment Agreement (ACIA)
‐ United Kingdom (in force)
‐ Member
states:
Brunei,
Cambodia,
Indonesia,
Laos,
‐ Vietnam (in force)
Malaysia, Myanmar, Philippines,
‐ Laos (signed, but not yet in force)
Singapore, Thailand and Vietnam
 Note: negotiations in process with 4
more countries
 Double Taxation Agreements
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Withholding Tax and Capital Gains
Myanmar Tax Rates
Non-residents
Dividends
0%
Interest
15%
Royalties
20%
Services/
goods
3.5%
Gains
40%
(oil/gas
40-45-50%)
DTA with Thailand
Dividends
10%
Interest
10%
Royalties
5-10-15%
Service
10%
(deemed
as royalty)
DTA with Singapore
Dividends
Interest
Royalties
Service
5-10%
8% - banks;
10% -others
10-15%
PE if > 6
months, no
general WHT
Gains on
shares:
Myanmar may
tax if (1)
participation is
at least 35%
and the
alienated
shares amount
to at least 20%
of the holding
or (2) company
consists
principally of
immovable
property
Gains on
shares:
Myanmar may
tax if (1)
participation is
at least 35% or
(2) company
consists
principally of
immovable
property
DTA with Korea
Dividends
10%
Interest
10%
Royalties
10%
Service
PE if > 6
months
Gains on
shares:
Myanmar may
tax if (1)
participation is
at least 35% or
(2) company
consists
principally of
immovable
property
Rate reduced
to 10%
DTAs in force at 1 August 2012
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Withholding Tax and Capital Gains
DTA with UK
Myanmar Tax Rates
Non-residents
Dividends
Dividends
0%
Interest
15%
Royalties
20%
Services/
goods
3.5%
Gains
40%
(oil/gas
40-45-50%)
0%
Interest
No DTA
article
Royalties
0%
Service
No article
on capital
gains
No DTA
article
DTA with Vietnam
DTA with India
Dividends
5%
Interest
10%
Royalties
10%
Service
10%
(deemed
as
royalty)
Dividends
10%
Interest
10%
Royalties
10%
Service
10%
DTA with Malaysia
Gains on
shares:
Myanmar
may tax
DTAs in force at 1 August 2012
Dividends
10%
Interest
10%
Royalties
10%
Service
10%
Gains on
shares:
Myanmar
may tax if (1)
participation
is at least 35%
or (2)
company
consists
principally of
immovable
property
Gains on
shares:
Myanmar may
tax
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Capital Gains on Myanmar Shares and Oil & Gas Interests
Tax on Capital Gains
Residents
10%
Non-residents
40%
Oil & gas sector
‐ 40% for gains up
to US$100M;
‐ 45% for gains
between
US$100M and
US$150M; and
‐ 50% for gains
above US$150M
Income Tax Law
Capital assets include
Assets of an
enterprise
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Land
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Shares
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Compliance: tax return is due within 1 month following execution of the
transfer or the date of delivery of the asset, whichever is earlier.
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Capital Gains on Myanmar Shares and Oil & Gas Interests
Taxing right under the DTAs?
Myanmar-Singapore DTA Article 13: Capital Gains
1. Gains derived by a resident of a Contracting State from the alienation of
immovable property referred to in Article 6 and situated in the other
Contracting State may be taxed in that other State.
2. Gains from the alienation of movable property forming part of the business
property of a permanent establishment which an enterprise of a Contracting
State has in the other Contracting State or of movable property pertaining to a
fixed base available to a resident of a Contracting State in the other
Contracting State for the purpose of performing independent personal
services including such gains from the alienation of such a permanent
establishment (alone or with the whole enterprise) or of such fixed base, may
be taxed in that other State.
3. Gains from the alienation of ships or aircraft operated in international traffic,
boats engaged in inland, waterways transport of movable property pertaining
to the operation of such ships, aircraft or boats shall be taxable only in the
Contracting State in which the place of effective management of the
enterprise is situated.
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Capital Gains on Myanmar Shares and Oil & Gas Interests
Taxing right under the DTAs?
4. Gains from the alienation of shares of the capital stock of a company the
property of which consists directly or indirectly principally of immovable
property situated in a Contracting State may be taxed in that State.
5. Gains from the alienation of shares of a company other than those
mentioned in paragraph 4 may be taxed in the Contracting State of which
the company is a resident but only if:
a) The shares held or owned, directly of indirectly, by the alienator amount to at
least 35 percent of the entire share capital of such company at any time during
the fiscal year in which alienation takes places: and
b) The total of the shares alienated by the alienator during the fiscal year in which
the alienation takes places amounts to at least 20 percent of the aggregate of
his holding in the share capital of such company at the beginning of such fiscal
year and any acquisition of the shares in that year.
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Capital Gains on Myanmar Shares and Oil & Gas Interests
Taxing right under the DTAs?
6. The tax on the gains from the alienation of property referred to in
paragraphs 1,2,4 and 5 shall not exceed 10 percent of such gains.
7. Gains from the alienation of any property other than that referred to in
paragraphs 1,2,3,4 and 5 shall be taxable only in the Contracting State of
which the alienator is a resident.
8. Notwithstanding the provisions of the preceding paragraphs, gains
derived by the government of a Contracting State from the alienation of
property referred to in paragraphs 1,2,4 and 5 shall be exempt from tax in
the other Contracting State. The term “Government” shall have the same
meaning as provided in paragraphs 4 of Article 11.
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Capital Gains on Myanmar Shares and Oil & Gas Interests
Myanmar-Singapore DTA Article
13(6):
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Singapore
Holding Co
MOGE
The tax on the gains from the
alienation of property referred
to in paragraphs 1,2,4 and 5 shall
not exceed 10 % of such gains.
100%
PSC
Singapore SPV
Interest in PSC
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Capital Gains on Myanmar Shares and Oil & Gas Interests
Oil & Gas
Myanmar Income
Tax Law
Oil Companies
Shareholders
of SPV
MOGE
PSC
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Cap. gain 40/45/50%
Includes non-residents
Oil & Gas
PSC & Side letter
SPV
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Tax rate?
Refers to Myanmar Income tax law
Calculation of gain?
Impact of recovery petroleum?
Myanmar DTAs
BLOCK
Article 6 & 13(1)
Is a block
“immovable
property”?
Article 5
Article 13(4)
Article 13(5)
Does holding rights
to a block trigger a
PE?
Is disposal of an
interest in a block
equivalent to
disposal of a PE?
Is a company that
holds an interest in
a block principally
holding
“immovable
property”?
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Holding Structures for Investment in Myanmar:
Labuan vs. Singapore
Malaysia (Labuan)
Singapore
‐ DTA with Myanmar: cap gains
taxed at 0-40%
‐ DTA with Myanmar: cap gains
taxed at 0-10%
‐ 0%: alienated shares > 35%
and not principally holding
immovable property
‐ 0%: alienated shares > 20%
and participation held > 35%
and not principally holding
immovable property
‐ 40%: others
‐ Malaysia does not tax capital
gains
‐ Labuan taxes by means of a
fixed fee or at 3% rate
‐ 10%: others
‐ Singapore does not tax capital
gains (but some short term
gains may be deemed profit)
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Example: Tax Efficient Holding Structure
Key points of attention:
Cayman Co
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In case of divesting
Singapore Holding 100%
Co: no tax in
Singapore
Singapore
Holding Co
In case of divesting
Myanmar Co: cap.
gain at 10%
100%
Myanmar
Foreign Invested
Company
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Dividend
No WHT
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Obtain a “Certificate of
Residence” from Singapore IRAS,
which may depend on substance
and shareholding
Myanmar dividends not taxed in
hands of Singapore Co (“tax
sparing”)
Stamp duty
Obtain approval from Myanmar
IRD (CCTO) for application of DTA
PROJECT
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Financing Structures: Case Study
Financing Structure A:
Fund LLP
Cayman
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100%
SPV lends directly to Project Co
Myanmar WHT = 15% on
interest
Cayman
SPV
Capital
100%
Loan
Project Co, LLC
Myanmar
HOSPITALITY
PROJECT
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Financing Structures: Case Study
Financing Structure B:
Fund LLP
Cayman
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100%
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Cayman
SPV
Capital
100%
Pledge
Loan
Singapore
Bank
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SPV provides cash pledge to
Singapore Bank
Bank provides back-to-back loan
to Project Co
Myanmar WHT = 8% on interest
Acceptable to Myanmar tax
authorities?
Loan
Project Co, LLC
Myanmar
HOSPITALITY
PROJECT
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Profit Extraction
Corporate Income Tax
Shareholders
Holding
Company
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25% tax rate (35% for branch)
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3/5 year tax holiday
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Reinvestment reserve
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50% reduction on export profits
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Accelerated depreciation possible
Dividend
Myanmar Project
Co (foreign
invested LLC)
Dividend Distribution
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No withholding tax
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Approvals for dividend needed
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Foreign exchange issues
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Alternative Structures to Repatriate Income
Corporate Income Tax
Shareholders
Holding and
Procurement
Company
Supplier
100%
Myanmar Project
Co (foreign
invested LLC)
Purchase
price for
supplier
and
dividend
‐
25% tax rate (35% for branch)
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3/5 year tax holiday
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Reinvestment reserve
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50% reduction on export profits
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Accelerated depreciation possible
Dividend Distribution
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No withholding tax
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Approvals for dividend needed
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Foreign exchange issues
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Income Derived from Myanmar
No presence in Myanmar
3 Questions?
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Permanent Establishment
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Withholding Tax
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Personal Income Tax
Myanmar WHT on Payments to
Non-Resident Foreign Companies
Malaysia
Singapore
Thailand
Services performed in
Myanmar
3.5%
Services performed outside
Myanmar
3.5%
Goods (excluding imports)
3.5%
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Permanent Establishment
From Art. 5 (2)
Malaysia
Singapore
Thailand
“A PE shall include especially […]
a drilling rig, ship or aircraft used
for exploration or exploitation of
natural resources”
“A PE shall include especially […]
an installation, structure, drilling
rig or ship used for the
exploration or exploitation of
natural resources but only if such
exploration or exploitation is not
preliminary or preparatory in
nature”
“A PE shall include especially […]
drilling rig, ship or aircraft used
solely for exploration or
exploitation of natural resources
(and not specifically for the
purposes of international traffic
as referred to in Article 8)”
Art. 5 (3) (b)
Myanmar-Singapore
“The term "permanent
establishment" likewise
encompasses: […] (b) the
furnishing of services, including
consultancy services, by an
enterprise through employees or
other personnel engaged by the
enterprise for such purpose, but
only where activities of that
nature continue (for the same or
a connected project) within the
country for a period or periods
aggregating more than six
months within any 12-month
period.”
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Withholding Tax
Malaysia
[Art. 13 on Technical Fees]
“Technical fees derived from one of
the Contracting States by a resident
of the other Contracting State who is
the beneficial owner thereof and is
subject to tax in that other State in
respect thereof may be taxed in the
first-mentioned Contracting State at
a rate not exceeding 10 per cent of
the gross amount of the technical
fees. The term "technical fees" as
used in this Article means payments
of any kind to any person, other than
to an employee of the person
making the payments, in
consideration for any services of a
technical, managerial or consultancy
nature.“
Singapore
Thailand
[In royalty article]
“10 per cent of the gross amount of
the royalties for the consideration
for any service of a managerial or
consultancy nature”
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Thought Leadership
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