VDB | Loi

Foreign Ownership Restrictions, Tax Structuring and Importation

Issues for Investment Projects in Myanmar

17 October 2012

2

At a Glance

Half Law, Half Tax:

Southeast Asia’s first regional law firm with a major specialization in taxation

Our Vision

We sell results, not time.

We believe that you don’t want our time.

We believe you want results.

That’s our value. That’s how we bill.

Our Commitment

More than 50professional staff

Laos

Cambodia

Singapore

Vietnam

Indonesia

6 countriesMyanmar

3

Key People on the Ground in MyanmarMyo Nyunt is an advocate to the Supreme Court of

Myanmar and is one of Myanmar’s most

distinguished senior lawyers. A former Director of

the Supreme Court and Appellate Judge, he is a

member of the Ba r Council and a member of the

board of editors of the Myanmar Law Review.

Raj is a US attorney admitted to the New York ba r.

He has five years of experience, which includes

extensive project finance work with New York law

firm Dewey & LeBoeuf. He has also dealt with

contracts and commercial transactions. Raj holds a

J.D. and an LL.M. from New York University.

Cynthia is a Chartered Accountant and holds a

master’s degree in Mechanical Engineering with

Business Finance (University College London, UK).

During her time at Ernst & Young, London, she

worked in audit specializing in the mining, oil & gas

and utilities industries.

Jean Loi

Managing Partner

Jean Loi is widely recognized as one of the region’s

most experienced tax specialists, formerly a tax

partner with PricewaterhouseCoopers in Southeast

Asia and with DFDL for more than 10 years. Jean is

a highly successful tax adviser with a CPA

background.

Edwin Vanderbruggen

Partner, Yangon

Edwin was formerly with Loyens & Loeff and a

partner at DFDL. Edwin is a tax lawyer and

government adviser. He has worked in Southeast

Asia for 15 years and has 5 years of experience on

Myanmar tax and investment issues. Edwin has

advised oil companies, distributors, property

funds, and private equity funds on making

investments in Myanmar.

May May Kyi

Director, Yangon

May holds a bachelor’s degree in Commerce from

the Institute of Economics, University of Yangon.

She is highly experienced in importation and

corporate compliance. Her practice areas include

customs duty calculation, advice on importation

licensing and tax compliance.

Thida Cho Win

Director, Yangon

Thida is a qualified CPA with 25 years of experience

with a specialized audit and tax f irm in Myanmar,

which joined VDB Loi in 2012. She advises clients

on corporate taxa tion, controversy, withholding

taxes, commercial tax, compliance and investment

issues.

Me Me is a qualified CPA with over 20 years of

experience in accounting and audit. Her audit

clients span a range of industries, including oil &

gas, manufacturing and agriculture.

U Myo Nyunt

Senior Counsel, Yangon

Preetraj Grewal

Senior Associate, Yangon

Cynthia Herman

Tax Manager, Yangon

Me Me Than

Senior Consultant, Yangon

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: [email protected]

Tel. No.: +95 942 112 9769

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� 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

At a Glance

6

Press

“New Firm Fast Becoming a Player in Indochina, Indonesia and

Myanmar” - Asia Legal Business (15 September)

“Myanmar's 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 (3

July)

“Myanmar Latest Footprint in VDB Loi Expansion” - Lawyer Monthly

(2 July)

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Contents

1. Foreign Ownership Restrictions

2. Comparison of Tax Incentives Old v New FIL

3. 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 subsidiary

6. Practical primer: how to import goods into Myanmar

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MIC

�1988 FIL List

-Agriculture

-Livestock and Fishery

-Forestry

-Mining

-Industry

-Construction

-Transport

-Road transport and repair services

-Hotels

MIC

�2012 FIL Restricted Activity

-Agriculture

-Livestock and Fishery

-Certain small and medium sized

production

-Certain service activities

(draft approved by Upper House; so may

be subject to change; to be specified by

Notifications)

DICA

Directorate of Investment &

Company Administration

Investment Licensing

Foreign Ownership Restrictions

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Electric Power Generation

Manufacturing

Transportation and

Logistics

Construction



Foreign Ownership

100% foreign-owned

Joint Venture Required

(min 35% foreign ownership)

No Foreign Ownership Allowed

Distribution, Retail,

Wholesale

10

Real Estate Development

Purchase and reselling of

land

Hospitality projects

Development of

commercial and residential

urban property

Agriculture

By developing new

agricultural land

Contract farming

Fishing, fish and prawn

farming

Livestock

Value added production for

livestock and fish farming

Forest plantations



11

EXISTING PROJECTS

�Tax holiday - 3 years or 5 years?

�Customs duty exemption - 3 years only

or also during approved expansion?

NEW PROJECTS

�Tax holiday - 5 years from production

�Customs duty exemption - 3 years plus

any approved expansion

Art. 44 FIL 2012 (draft)Persons that have invested under the 1988 FIL are deemed

to have invested under this [new] law

Art. 51 FIL 2012 (draft)Persons with existing investment contracts will continue to

receive the benefits as provided under those contracts


Comparison of Tax Incentives Old v New FIL

12

1988 Foreign

Investment Law

2012 Foreign

Investment Law

Foreign Ownership

100% foreign ownership allowed 100% foreign ownership allowed, except in

restricted activities, which have 50% foreign

ownership limit

Minimum Capital US$500K for manufacturing, US$300K for services To be specified by regulations

Tax Benefits 3-year tax holiday 5-year tax holiday

Discretionary Tax Benefits

Customs duty free importation of machinery and

equipment during construction period plus raw

materials for 3 years

Same

Exemption from income tax profit that is reinvested

within one year

Same

Right to pay income tax at Myanmar citizen rates on

behalf of foreign employees and to deduct the

same from income of enterprise

Same

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

Labor Restrictions

None 25% of workforce must be Myanmar citizens in first

2 years, 50% in second two years, and 75% in third

two years

Land Lease30-year land lease (Government only) 50-year land lease with two consecutive 10 year

renewals (Government or private)

Based on draft approved by Upper House – Subject to change


Comparison of Tax Incentives Old v New FIL

13

�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-residents

is a final tax

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(exclusions apply)

2% 3.5%

Services(performed in Myanmar or abroad)

2% 3.5%

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� 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

Commercial Tax

15

Myanmar Tax Rates

Non-residents

Gains 40%Oil/gas 40-45-50%

DTA with Vietnam

Gains on shares:

Myanmar may tax

DTA with Malaysia

Gains on shares:

Myanmar may tax if

participation is at least

35%

DTA with UK

No article on

capital gains

DTA with India

Gains on shares:

Myanmar may tax

Suitable International Holding Structure?

DTA Reductions

DTAs in force at 1 August 2012.

Various exceptions and conditions

apply

16

Myanmar Tax Rates

Non-residents

Gains 40%Oil/gas 40-45-50%

DTA with Thailand

Gains on shares:

Myanmar may tax if

participation is at

least 35%

DTA with Korea

Gains on shares:

Myanmar may tax if


35%

DTA with Singapore

Gains on shares:

Myanmar may tax if


35% and the alienated

shares amount to at

least 20% of the

holding

Rate reduced to 10%DTAs in force at 1 August 2012.

Various exceptions and conditions

apply


DTA Reductions

17

Shareholders

Holding Co

Singapore

Project Co

Myanmar

No dividend withholding tax on

payments to non-resident

shareholders

No Income Tax on dividends

received from Project Co (conditions)

No Capital Gains Tax

0-10% Myanmar tax on capital

gains instead of 40% or more(conditions)

No dividend withholding tax

under Myanmar tax law


DTA Reductions

18

Myanmar Acquisition Structures

Share Deal or Asset Deal?

SHARE PURCHASE ASSET PURCHASE

CORPORATE

Issues will arise re: li censing/approvals , but each

investment will have different receiving cri teria and

di fferent lead and coordinating minis tries, depending on

the investment.

Speci fic approvals may be required, e.g. assignment of

rights in oil and gas PSC require approval from MOGE

TAX

- Capital gains: 40% for non-resident; 10% resident

- Stamp duty: 0.3% of transaction value

- Successor will inherit tax liabilities

- 3-year s tatute of limitations

- Tax clearance necessary for company registration

extension once every 3 years

- Capital gains: 10% for residents;

- Stamp duty: 5% on the amount/value of the transfer

- Commercial tax

- In a transfer of business, buyer becomes an agent of

seller and i s responsible for tax l iabilities of the

previous year (Section 25 of Income Tax Law)

OFFSHORE

SPV

NEW CO

INVESTOR

PURCHASE OF

MYANMAR CO

A

PURCHASE OF

MYANMAR

ASSET/BUSINESS

B

SELLER

MYANMAR

ONSHORE

COMPANY

19

Production Plant Case Study

Operation

and sales

Shareholders

(non-resident)

Project Co

Myanmar

Lenders

(non-resident)

Project Finance

Government/

Private Sector

Myanmar

Construction, Procurement

1

Contractor

(Myanmar Branch)

2

3

Capital, Shareholder LoanProfit

repatriation

Contractor

(non-resident) 4

Key Structuring Considerations?

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Capitalization and financing

� 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

Shareholders

(non-resident)

Project Co

Myanmar

Lenders

(non-resident)

Project Finance

Government/

Private Sector

Myanmar


1

Contractor

(Myanmar Branch)

Operation

and sales

2

3

Capital, Shareholder loanProfit

repatriation

Contractor

(non-resident) 4

21


Construction Phase

� Exemption from customs duties (temporary!)

� Exemption from Commercial Tax on importation from MIC

� Withholding 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 importer

� License for importation of all goods, materials, equipment

Shareholders

(non-resident)

Project Co

Myanmar

Lenders

(non-resident)

Project Finance

Government/

Private Sector

Myanmar


1

Contractor

(Myanmar Branch)

Operation

and sales

2

3

Capital, shareholder loanProfit

repatriation

Contractor

(non-resident) 4

22


Operation and sales

� 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

Shareholders

(non-resident)

Project Co

Myanmar

Lenders

(non-resident)

Project Finance

Government/

Private Sector

Myanmar


1

Contractor

(Myanmar Branch)

Operation

and sales

2

3


repatriation

Contractor

(non-resident) 4

23


Profit repatriation

� No dividend withholding tax

� Approval procedure National Bank

� Reinvestment reserve (1 year, if MIC approved)

Shareholders

(non-resident)

Project Co

Myanmar

Lenders

(non-resident)

Project Finance

Government/

Private Sector

Myanmar


1

Contractor

(Myanmar Branch)

Operation

and sales

2

3


repatriation

Contractor

(non-resident) 4

24

Import of Goods

No presence in Myanmar

Myanmar

Singapore

Who can import goods?

Customs Duties and Commercial Tax

Income Tax Withholding

Register as

Importer/

Exporter

Obtain

Import

License for

Goods

Tax Clearance

and Open

Letter of

Credit

25

Import of Goods

Customs Duties and Commercial Tax

Myanmar

Singapore

Item Customs MFN Commercial Tax

Laptop 1.5% 5%

Important Note:

ATIGA rates

vs.

MFN !

- Valuation of imported goods

- Commercial Tax credit system

- Temporary import

- Special Economic Zones

Key Points of

Attention

26

Are You on My Mailing List?

27

www.VDB-Loi.com [email protected]

CambodiaLevel 6, Phnom Penh Tower

445 Monivong Boulevard

Phnom Penh

Myanmar (Back Office)

7B Nilar Condo

No. 204 Bo Myat Htun Street

Botahtaung Township, Yangon

Laos5th Floor Alounmai Tower

23 Singha Road

Saysetha District, Vientiane

Singapore# 1704 Sakura Tower


Kyauktada Township, Yangon

IndonesiaThe Cityloft Sudirman, Suite

1119

Jalan K. H. Mas Mansyur Kav.

121

Jakarta, 10220

Myanmar (Liaison Office)

No. 2, Thittsar (2) Street,

Pobathiri Township

Naypyitaw

Myanmar (Front Office)

# 1704 Sakura Tower


Kyauktada Township, Yangon

VietnamLevel 20, Unit 4

Bitexco Financial Tower

2 Hai Trieu Street, District 1

Ho Chi Minh City

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