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The Unfolding Story of Myanmar's Economic Rise
The unfolding story of Myanmar’s economic rise from its slumber presents the country with many challenges as it plugs itself back into the mainstream international community. It was once remarked that Yangon in the early 1920s was the city of gold, dreams and blood. In the intervening years, Myanmar largely fell into obscurity at the hands of its military custodians. But now almost a century later, it would seem that the country has finally come full circle.
Official growth forecasts for the 2014/15 fiscal year stand at 9.1%, which slightly exceed the IMF and World Bank forecasts of 8.5%. Foreign direct investment is on track for a 70% year-on-year increase, an impressive jump by any standards. Indeed, Myanmar’s Foreign Investment Law (MFIL) allows foreign investment into nine different sectors (disallowing it in twelve specific sectors). A foreign investor may establish a business presence in Myanmar in various forms including by way of a limited liability company, branch or representative office and partnership or joint venture with a citizen, cooperative society or state-owned economic enterprise (SEE). Reforms announced in 2014 are due to bring significant changes to Myanmar’s fledgling financial sector, spearheaded by the opening up of the banking segment to foreign lenders.
Supportive tax framework
Resident companies are taxed on their worldwide income. The exception to this is resident companies registered under the MFIL. Non-resident companies are taxed only on income sourced within Myanmar.
A competitive corporate tax rate of 25% applies to companies incorporated under local company law, enterprises operating under the MFIL and foreign organisations that have obtained special permission to be engaged in state-sponsored projects, enterprises or undertakings. Branches of foreign corporations are taxed at a higher rate of 35% on Myanmar sourced income. Capital gains are generally taxed at the rate of 10% for resident companies and 40% for non-resident companies.
Incentives are given primarily through the MFIL and Special Economic Zone (SEZ) Law. Under the MFIL, incentives ranging from five-year income tax exemption to the right to carry forward and set off losses for up to three consecutive years, are possible. Amongst other things, the SEZ offers income tax holidays and customs duty exemptions for business operating within the exempted zones.
It is also worth noting that Myanmar does not impose withholding tax on dividend payments. Whilst interest and royalties paid to non-residents are subject to withholding tax at the domestic rates of 15% and 20% respectively, Myanmar has concluded double taxation treaties with a number of jurisdictions which potentially offer reduced rates of withholding and/or exemption.
Singapore holding companies
Singapore is one of the preferred holding company jurisdictions in Asia and many foreign investors looking to gain access to the markets in Myanmar might consider setting up a Singapore holding company.
Possible ways to maximise the use of the Singapore-Myanmar double taxation treaty
Adopting a Singapore holding company structure may present substantial tax savings for group companies. However, the Singapore tax authorities do not condone the use of a Singapore holding company with little commercial substance. In fact, it is this vigilance that has helped Singapore maintain its standing as a credible holding company jurisdiction in the international tax arena.
Singapore’s geographical proximity, political stability, advanced information, communications infrastructure, as well as a business-friendly tax system has made it a compelling choice for investors to hold their Myanmar investments
Myanmar has foreign exchange controls which investors do need to be mindful of. Citizens, foreigners and companies in Myanmar generally must obtain permission from the Foreign Exchange Management Department (FEMD) for all foreign exchange dealings. Companies registered under MFIL, however, are allowed to repatriate investments and profits in the foreign currency in which such investments were made, subject to the approval of the Myanmar Investment Commission (MIC) and the central bank.
The recent re-igniting of conflicts between the army and certain minority ethnic groups may give investors reason for pause to evaluate if the momentum for economic growth and investment is still intact, or if it is showing signs of stalling.
Myanmar holds tremendous promise as one of the last untapped investment frontiers. Endowed with bountiful natural resources and the demographic dividend of a young population, its emergence from economic obscurity to become a key destination for foreign investment in recent years is perhaps unsurprising. Whether it continues to do so will largely depend on the measures and policies that are undertaken by Myanmar’s successive future governments.
For more information on Myanmar tax matters, please contact:
Mr Edwin Leow