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Foreign Ownership Restrictions, Tax Structuring and Importation Issues for Investment Projects in Myanmar
17 October 2012

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VDB | Loi

  1. 1. Foreign Ownership Restrictions, Tax Structuring and Importation Issues for Investment Projects in Myanmar 17 October 2012
  2. 2. At a Glance Myanmar Laos 6 countries Cambodia Vietnam More than 50 Singapore professional staff IndonesiaOur Vision Our Commitment Half Law, Half Tax: We sell results, not time. Southeast Asia’s first regional law firm We believe that you don’t want our time. with a major specialization in taxation We believe you want results. That’s our value. That’s how we bill. 2
  3. 3. Key People on the Ground in Myanmar Jean Loi is wide ly recognized as one of the region’s Myo Nyunt is an advocate to the Supreme Court of most experienced tax specialists, formerly a tax Myanmar and is one of Myanmar’s most partner with PricewaterhouseCoopers in Southeast distinguished senior lawyers. A forme r Director of Asia and with DFDL for more than 10 years. Jean is the Supreme Court and Appe llate Judge, he is a a highly successful tax adviser with a CPA member of the Ba r Council and a mem ber of the background. board of editors of the Myanmar Law Review. Jean Loi U Myo Nyunt Managing Partner Senior Counsel, Yangon Edwin was forme rly with Loyens & Loeff and a Raj is a US attorney admitted to the Ne w York ba r. partne r at DFDL. Edwin is a tax lawyer and He has five years of experience, which includes government adviser. He has worked in Southeast extensive project finance work with New York law Asia for 15 years and has 5 years of experience on firm Dewey & Le Boeuf. He has also dealt with Myanmar tax and investment issues. Edwin has contracts and commercial transactions. Raj holds a advised oil companies, distributors, property J.D. and an LL.M. from New York University.Edwin Vanderbruggen funds, and private e quity funds on making Preetraj Grewal Partner, Yangon investments in Myanmar. Senior Associate, Yangon May holds a bachelor’s degree in Comme rce from Cynthia is a Chartered Accountant and holds a the Institute of Economics, University of Yangon. master’s degree in Mechanical Enginee ring with She is highly experie nced in importation and Business Finance (University College London, UK). corporate compliance. Her practice areas include During he r time at E rnst & Young, London, she customs duty calculation, advice on importation worked in audit spe cializing in the mining, oil & gas licensing and tax compliance. and utilities industries. May May Kyi Cynthia Herman Director, Yangon Tax Manager, Yangon Thida is a qualified CPA with 25 years of e xperience Me Me is a qualified CPA with over 20 years of with a spe cialized audit and tax firm in Myanmar, experie nce in accounting and audit. Her audit which joined VDB Loi in 2012. She advises clients clients span a range of industries, including oil & on corporate taxa tion, controversy, withholding gas, manufacturing and agriculture. taxes, commercial tax, com pliance and investment issues. Thida Cho Win Me Me Than Director, Yangon Senior Consultant, Yangon 3
  4. 4. Our Offices in Myanmar Yangon #1704 Sakura Tower 339 Bogyoke Aung San Road, Kyauktada Township (main office from 1 November 2012) 7B Nilar Condo No. 204 Bo Myat Htun Street Botahtaung Township Nay Pyi Taw No. 2, Thittsar (2) Street, Pobathiri Township Contact: edwin@vdb-loi.com Tel. No.: +95 942 112 9769 4
  5. 5. At a Glance Leading professional services firm in Southeast Asia with over 50 advisers and offices in 6 countries Team of outstanding Myanmar lawyers, CPAs and tax advisers with over 25 years of experience Leading foreign lawyers, CPAs and tax advisers on the ground in Yangon and Nay Pyi Taw with over 5 years of experience in Myanmar projects Serving a distinguished international clientele in Myanmar from a wide range of industries, including multinationals, banks, oil companies, public companies, private equity funds and medium-sized enterprises Recognized for our proven thought leadership, delivery of actual results, and transparent fee structure Delivering the highest quality integrated legal, tax and advisory services 5
  6. 6. Press“New Firm Fast Becoming a Player in Indochina, Indonesia andMyanmar” - Asia Legal Business (15 September)“Myanmars tax on non-residents on the eve of its big leap in FDI” -International Tax Review (15 August)“First Move Advantage” - Southeast Asia Globe (15 September)“VDB Loi Strengthens Myanmar Footprint” - Asia Legal Business (3July)“Myanmar Latest Footprint in VDB Loi Expansion” - Lawyer Monthly(2 July) 6
  7. 7. Contents1. Foreign Ownership Restrictions2. Comparison of Tax Incentives Old v New FIL3. Which international shareholding structure is most efficient for investment in Myanmar?4. Which taxes apply when you buy assets or shares in a company in Myanmar?5. Case study: finance, capitalization and profit extraction of your Myanmar subsidiary6. Practical primer: how to import goods into Myanmar 7
  8. 8. Investment Licensing Foreign Ownership Restrictions MIC MIC 1988 FIL List 2012 FIL Restricted Activity-Agriculture -Agriculture-Livestock and Fishery -Livestock and Fishery-Forestry -Certain small and medium sized-Mining production-Industry -Certain service activities-Construction (draft approved by Upper House; so may-Transport be subject to change; to be specified by-Road transport and repair services Notifications)-Hotels DICA Directorate of Investment & Company Administration 8
  9. 9. Investment LicensingForeign Ownership Restrictions Electric Power Generation Distribution, Retail, WholesaleTransportation and Logistics Foreign Ownership Construction 100% foreign-owned Joint Venture Required (min 35% foreign ownership) Manufacturing No Foreign Ownership Allowed 9
  10. 10. Investment LicensingForeign Ownership Restrictions Real Estate Development Purchase and reselling of Agriculture landBy developing new Hospitality projectsagricultural land Development ofContract farming commercial and residentialFishing, fish and prawn urban propertyfarmingLivestockValue added production forlivestock and fish farmingForest plantations 10
  11. 11. Investment LicensingComparison of Tax Incentives Old v New FIL EXISTING PROJECTS NEW PROJECTS Tax holiday - 3 years or 5 years? Tax holiday - 5 years from production Customs duty exemption - 3 years only Customs duty exemption - 3 years plusor also during approved expansion? any approved expansion Persons that have invested under the 1988 FIL are deemed Art. 44 FIL 2012 (draft) to have invested under this [new] law Persons with existing investment contracts will continue to Art. 51 FIL 2012 (draft) receive the benefits as provided under those contracts 11
  12. 12. Investment Licensing Comparison of Tax Incentives Old v New FIL 1988 Foreign 2012 Foreign Investment Law Investment Law 100% foreign ownership allowed 100% foreign ownership allowed, except inForeign Ownership restricted activities, which have 50% foreign ownership limitMinimum Capital US$500K for manufacturing, US$300K for services To be specified by regulationsTax Benefits 3-year tax holiday 5-year tax holiday Customs duty free importation of machinery and Same equipment during construction period plus raw materials for 3 years Exemption from income tax profit that is reinvested Same within one year Right to pay income tax at Myanmar citizen rates on Same behalf of foreign employees and to deduct theDiscretionary Tax Benefits same from income of enterprise Deduct R&D costs and accelerate depreciation Same Loss carry forward for 3 years Same Exemption from customs duties for machinery and equipment if the investment amount is increased and the original business is expanded Exemption from commercial tax on goods produced for export None 25% of workforce must be Myanmar citizens in firstLabor Restrictions 2 years, 50% in second two years, and 75% in third two years 30-year land lease (Government only) 50-year land lease with two consecutive 10 yearLand Lease renewals (Government or private)Based on draft approved by Upper House – Subject to change 12
  13. 13. Income Tax Rate Primer Payment type Residents Non-Residents Net Profit 25% 35% Dividends 0% 0% Interest 0% 10% Royalties 15% 20% Procurement of goods 2% 3.5% (exclusions apply) Services 2% 3.5% (performed in Myanmar or abroad) WHT Rates amended effective 26 August 2011 (Notification 167/2011) Deemed profit rations may apply to non-residents WHT on payments to residents in not a final tax, but tax on payments to non-residentsis a final tax 13
  14. 14. Commercial Tax Was significantly amended in 2012 - Old: 6 rates (exempt, 5%, 10%, 20%, 25% and 30%-200%) - New: exempt, 5% or 8%-100% Schedule 1: 70 types of goods - Domestic production or domestic sales are exempt - Importation subject to CT at 5% Schedule 6: Specific goods - 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 - Including hotel, restaurant, transport, entertainment, trading services, tourism, insurance (except life), broker, advertising/movie distribution and agent/accounting/legal services 14
  15. 15. Suitable International Holding Structure? DTA Reductions DTA with UK Myanmar Tax Rates Non-residents No article on capital gains Gains 40% Oil/gas 40-45-50% DTA with Vietnam Gains on shares: DTA with India Myanmar may tax Gains on shares: Myanmar may tax DTA with Malaysia Gains on shares: Myanmar may tax if participation is at leastDTAs in force at 1 August 2012. 35%Various exceptions and conditionsapply 15
  16. 16. Suitable International Holding Structure?DTA Reductions Myanmar Tax Rates DTA with Thailand Non-residents Gains on shares: Gains 40% Myanmar may tax if Oil/gas 40-45-50% participation is at least 35% DTA with Singapore Gains on shares: DTA with Korea Myanmar may tax ifparticipation is at least Gains on shares:35% and the alienated Myanmar may tax if shares amount to at participation is at least least 20% of the 35% holding DTAs in force at 1 August 2012.Rate reduced to 10% Various exceptions and conditions apply 16
  17. 17. Suitable International Holding Structure?DTA Reductions Shareholders No dividend withholding tax on payments to non-resident shareholders No Income Tax on dividends Holding Co received from Project Co Singapore (conditions) No Capital Gains Tax 0-10% Myanmar tax on capital gains instead of 40% or more Project Co (conditions) Myanmar No dividend withholding tax under Myanmar tax law 17
  18. 18. Myanmar Acquisition Structures Share Deal or Asset Deal? INVESTOR OFFSHORE A SELLER SPV PURCHASE OF MYANMAR CO B MYANMAR NEW CO PURCHASE OF ONSHORE MYANMAR COMPANY ASSET/BUSINESS SHARE PURCHASE ASSET PURCHASE CORPORATEIssues will a rise re: li censing/approvals , but ea ch Speci fic a pprovals may be required, e.g. assignment ofinves tment will ha ve different recei ving cri teria and ri ghts i n oil and gas PSC require a pproval from MOGEdi fferent lead and coordina ting minis tries, depending onthe i nvestment. TAX- Ca pi tal gains: 40% for non-resident; 10% resident - Ca pi tal gains: 10% for residents;- Sta mp duty: 0.3% of tra nsaction value - Sta mp duty: 5% on the amount/value of the transfer- Succes sor will inherit tax liabilities - Commerci al ta x- 3-yea r s tatute of limitations - In a tra nsfer of business, buyer becomes a n agent of- Ta x cl earance necessary for company registration s eller a nd i s responsible for tax l iabilities of the extension once every 3 yea rs previ ous year (Section 25 of Income Tax La w) 18
  19. 19. Production Plant Case Study Shareholders Lenders Contractor (non-resident) (non-resident) (non-resident) 4 1 Project Finance Profit repatriation Capital, Shareholder Loan Project Co Government/ Contractor Myanmar Private Sector (Myanmar Branch) 3 Myanmar 2 Operation Construction, and sales Procurement Key Structuring Considerations? 19
  20. 20. Production Plant Case StudyCapitalization and financing Shareholders Lenders Contractor (non-resident) (non-resident) (non-resident) 4 1 Project Finance Profit Capital, Shareholder loan repatriation Project Co Government/ Contractor Myanmar Private Sector (Myanmar Branch) 3 Myanmar 2 Operation Construction, and sales Procurement Obtain MIC Permit (negotiate the incentives!) Debt/equity agreed with MIC Capital contribution in kind is possible Interest on loans 15% unless reduced No thin-capitalization rules 20
  21. 21. Production Plant Case StudyConstruction Phase Shareholders Lenders Contractor (non-resident) (non-resident) (non-resident) 4 1 Project Finance Profit Capital, shareholder loan repatriation Project Co Government/ Contractor Myanmar Private Sector (Myanmar Branch) 3 Myanmar 2 Operation Construction, and sales ProcurementExemption from customs duties (temporary!)Exemption from Commercial Tax on importation from MICWithholding tax on goods might not be exempt (3.5% or 2%)Withholding tax on services might not be exempt (3.5% or 2%)Registration as importerLicense for importation of all goods, materials, equipment 21
  22. 22. Production Plant Case StudyOperation and sales Shareholders Lenders Contractor (non-resident) (non-resident) (non-resident) 4 1 Project Finance Profit Capital, shareholder loan repatriation Project Co Government/ Contractor Myanmar Private Sector(Myanmar Branch) 3 Myanmar 2 Operation Construction, and sales Procurement Exemption from Income Tax (5 years under 2012 FIL), then 25% Commercial Tax on sales (reformed in 2012!) Is there Commercial Tax on the inputs and consumables as well? (e.g. coal for power plant) Customs duty exemption on inputs? Depreciation of the plant 22
  23. 23. Production Plant Case StudyProfit repatriation Shareholders Lenders Contractor (non-resident) (non-resident) (non-resident) 4 1 Project Finance Profit repatriation Capital, shareholder loan Government/ Contractor Project Co Private Sector (Myanmar Branch) Myanmar 3 Myanmar 2 Operation Construction, and sales Procurement No dividend withholding tax Approval procedure National Bank Reinvestment reserve (1 year, if MIC approved) 23
  24. 24. Import of GoodsNo presence in Myanmar Singapore Myanmar Who can import goods? Customs Duties and Commercial Tax Income Tax WithholdingRegister as Obtain Tax ClearanceImporter/ Import and Open Exporter License for Letter of Goods Credit 24
  25. 25. Import of GoodsCustoms Duties and Commercial Tax Singapore Myanmar Item Customs MFN Commercial Tax Laptop 1.5% 5% Key Points of Attention Important Note: - Valuation of imported goods ATIGA rates - Commercial Tax credit system vs. - Temporary import MFN ! - Special Economic Zones 25
  26. 26. Are You on My Mailing List? 26
  27. 27. Cambodia Indonesia Laos Myanmar (Front Office)Level 6, Phnom Penh Tower The Cityloft Sudirman, Suite 5th Floor Alounmai Tower # 1704 Sakura Tower445 Monivong Boulevard 1119 23 Singha Road 339 Bogyoke Aung San Road,Phnom Penh Jalan K. H. Mas Mansyur Kav. Saysetha District, Vientiane Kyauktada Township, Yangon 121 Jakarta, 10220Myanmar (Back Office) Singapore Vietnam7B Nilar Condo # 1704 Sakura Tower Level 20, Unit 4No. 204 Bo Myat Htun Street Myanmar (Liaison Office) 339 Bogyoke Aung San Road, Bitexco Financial TowerBotahtaung Township, Yangon No. 2, Thittsar (2) Street, Kyauktada Township, Yangon 2 Hai Trieu Street, District 1 Pobathiri Township Ho Chi Minh City Naypyitaw www.VDB-Loi.com info@vdb-loi.com 27