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

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

2. At a Glance
Myanmar
Laos
6 countries
Cambodia
Vietnam More than 50
Singapore professional staff
Indonesia
Our 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.
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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
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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
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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
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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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7. 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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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
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9. Investment Licensing
Foreign Ownership Restrictions
Electric Power Generation
Distribution, Retail,
Wholesale
Transportation and
Logistics
Foreign Ownership
Construction
100% foreign-owned
Joint Venture Required
(min 35% foreign ownership)
Manufacturing
No Foreign Ownership Allowed
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10. Investment Licensing
Foreign Ownership Restrictions
Real Estate Development
Purchase and reselling of
Agriculture land
By developing new Hospitality projects
agricultural land
Development of
Contract farming
commercial and residential
Fishing, fish and prawn urban property
farming
Livestock
Value added production for
livestock and fish farming
Forest plantations
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11. Investment Licensing
Comparison 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 plus
or 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
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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 in
Foreign Ownership 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
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 the
Discretionary 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 first
Labor 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 year
Land Lease
renewals (Government or private)
Based on draft approved by Upper House – Subject to change
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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-residents
is a final tax
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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
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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 least
DTAs in force at 1 August 2012. 35%
Various exceptions and conditions
apply 15

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 if
participation 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. 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
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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
CORPORATE
Issues will a rise re: li censing/approvals , but ea ch Speci fic a pprovals may be required, e.g. assignment of
inves tment will ha ve different recei ving cri teria and ri ghts i n oil and gas PSC require a pproval from MOGE
di fferent lead and coordina ting minis tries, depending on
the 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)
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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?
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20. Production Plant Case Study
Capitalization 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
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21. Production Plant Case Study
Construction 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
Procurement
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
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22. Production Plant Case Study
Operation 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
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23. Production Plant Case Study
Profit 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)
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24. Import of Goods
No presence in Myanmar
Singapore
Myanmar
Who can import goods?
Customs Duties and Commercial Tax
Income Tax Withholding
Register as Obtain Tax Clearance
Importer/ Import and Open
Exporter License for Letter of
Goods Credit
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25. Import of Goods
Customs 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
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26. Are You on My Mailing List?
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27. Cambodia Indonesia Laos Myanmar (Front Office)
Level 6, Phnom Penh Tower The Cityloft Sudirman, Suite 5th Floor Alounmai Tower # 1704 Sakura Tower
445 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, 10220
Myanmar (Back Office) Singapore Vietnam
7B Nilar Condo # 1704 Sakura Tower Level 20, Unit 4
No. 204 Bo Myat Htun Street Myanmar (Liaison Office) 339 Bogyoke Aung San Road, Bitexco Financial Tower
Botahtaung 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
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