Hot Tax and Investment Issues when Structuring Investment into Myanmar

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Contents Forms of Entity for Foreign Investment / Residency Holding Structures for Investments in Myanmar: Labuan vs. Singapore Investment Licensing Example: Tax Efficient Holding Structure Tax Incentives (MIC Permit) Corporate Income Tax Features Financing Structures: Case Study Withholding Taxes Profit Extraction Commercial Tax Alternative Structures to Repatriate Income Personal Income Tax Income Derived from Myanmar: No presence in Myanmar Treaties and Agreements Withholding Tax and Capital Gains Permanent Establishment Capital Gains on Myanmar Shares and Oil & Gas Interests Withholding Tax Taxing right under the DTAs?

Forms of Entity for Foreign Investment / Residency The forms of business for foreign investment in Myanmar are: 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

Investment Licensing DICA Directorate of Investment & Company Administration Company set up for locally owned or foreign-owned companies and branches MIC Myanmar Investment Commission List: Agriculture Livestock and Fishery Forestry Mining Industry Construction Transport Road transport and repair services Hotels and tourist industries

Tax Incentives (MIC Permit) 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

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

Withholding Taxes Payment type Paid to Residents Paid to Non-Residents Dividends 0% Interest 15% Royalties 20% Procurement of goods (excluding imported goods) 2% 3.5%  Services (performed in Myanmar or abroad) 3.5% Notes: 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 non-residents is a final tax

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

Commercial Tax Threshold for operators to apply CT was introduced this year Credit system 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

Personal Income Tax Foreigners who reside in Myanmar for 182 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 Non-Residents 1%-20% 35% Progressive rate, allowances Flat rate

Treaties and Agreements Double Taxation Agreements Bangladesh (signed, but not in force) India (in force) Indonesia (signed, but not in force) Korea (in force) Malaysia (in force) Singapore (in force) Thailand (in force) United Kingdom (in force) Vietnam (in force) Laos (signed, but not yet in force) Note: negotiations in process with 4 more countries Bilateral Investment Treaties concluded China Philippines Laos Thailand India Kuwait ASEAN Comprehensive Investment Agreement (ACIA) Member states: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam

Withholding Tax and Capital Gains Myanmar Tax Rates Non-residents Dividends 0% Gains 40% (oil/gas 40-45-50%) Interest 15% Royalties 20% Services/ goods 3.5% DTA with Thailand Dividends 10% Gains on shares: Myanmar may tax if (1) participation is at least 35% or (2) company consists principally of immovable property Interest Royalties 5-10-15% Service 10% (deemed as royalty) DTA with Singapore Dividends 5-10% 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 Rate reduced to 10% Interest 8% - banks; 10% -others Royalties 10-15% Service PE if > 6 months, no general WHT DTA with Korea Dividends 10% Gains on shares: Myanmar may tax if (1) participation is at least 35% or (2) company consists principally of immovable property Interest Royalties Service PE if > 6 months DTAs in force at 1 August 2012

Withholding Tax and Capital Gains Myanmar Tax Rates Non-residents Dividends 0% Gains 40% (oil/gas 40-45-50%) Interest 15% Royalties 20% Services/ goods 3.5% DTA with UK Dividends 0% No article on capital gains Interest No DTA article Royalties Service DTA with Vietnam Dividends 10% Gains on shares: Myanmar may tax Interest Royalties Service DTA with India Dividends 5% Gains on shares: Myanmar may tax Interest 10% Royalties Service 10% (deemed as royalty) DTA with Malaysia Dividends 10% Gains on shares: Myanmar may tax if (1) participation is at least 35% or (2) company consists principally of immovable property Interest Royalties Service DTAs in force at 1 August 2012

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  Land Shares Compliance: tax return is due within 1 month following execution of the transfer or the date of delivery of the asset, whichever is earlier.

Capital Gains on Myanmar Shares and Oil & Gas Interests Taxing right under the DTAs? Myanmar-Singapore DTA Article 13: Capital Gains 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. 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. 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.

Capital Gains on Myanmar Shares and Oil & Gas Interests Taxing right under the DTAs? 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. 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: 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 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.

Capital Gains on Myanmar Shares and Oil & Gas Interests Taxing right under the DTAs? 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. 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. 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.

Capital Gains on Myanmar Shares and Oil & Gas Interests Myanmar-Singapore DTA Article 13(6): 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. MOGE Singapore Holding Co PSC Singapore SPV 100% Interest in PSC

Capital Gains on Myanmar Shares and Oil & Gas Interests Cap. gain 40/45/50% Includes non-residents Oil & Gas Myanmar Income Tax Law MOGE Oil Companies Shareholders of SPV SPV PSC BLOCK Tax rate? Refers to Myanmar Income tax law Calculation of gain? Impact of recovery petroleum? Oil & Gas PSC & Side letter Myanmar DTAs Article 6 & 13(1) Article 5 Article 13(4) Article 13(5) Is a block “immovable property”? 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”?

Holding Structures for Investment in Myanmar: Labuan vs. Singapore Malaysia (Labuan) DTA with Myanmar: cap gains taxed at 0-40% 0%: alienated shares > 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 Singapore DTA with Myanmar: cap gains taxed at 0-10% 0%: alienated shares > 20% and participation held > 35% and not principally holding immovable property 10%: others Singapore does not tax capital gains (but some short term gains may be deemed profit)

Example: Tax Efficient Holding Structure Key points of attention: 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 Cayman Co 100% Singapore Holding Co Myanmar Foreign Invested Company In case of divesting Singapore Holding Co: no tax in Singapore Dividend No WHT PROJECT In case of divesting Myanmar Co: cap. gain at 10%

Financing Structures: Case Study Financing Structure A: SPV lends directly to Project Co Myanmar WHT = 15% on interest Fund LLP Cayman Cayman SPV Project Co, LLC Myanmar 100% HOSPITALITY PROJECT Loan Capital 100%

Financing Structures: Case Study Financing Structure B: 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? Fund LLP Cayman Pledge Cayman SPV Project Co, LLC Myanmar Loan 100% HOSPITALITY PROJECT Singapore Bank Capital 100%

Myanmar Project Co (foreign invested LLC) Profit Extraction Corporate Income Tax 25% tax rate (35% for branch) 3/5 year tax holiday Reinvestment reserve 50% reduction on export profits Accelerated depreciation possible Shareholders Holding Company Myanmar Project Co (foreign invested LLC) Dividend Dividend Distribution No withholding tax Approvals for dividend needed Foreign exchange issues

Alternative Structures to Repatriate Income Corporate Income Tax 25% tax rate (35% for branch) 3/5 year tax holiday Reinvestment reserve 50% reduction on export profits Accelerated depreciation possible Shareholders Holding and Procurement Company Myanmar Project Co (foreign invested LLC) Purchase price for supplier and dividend 100% Supplier Dividend Distribution No withholding tax Approvals for dividend needed Foreign exchange issues

Income Derived from Myanmar No presence in Myanmar Malaysia Singapore Thailand 3 Questions? Permanent Establishment Withholding Tax Personal Income Tax Myanmar WHT on Payments to Non-Resident Foreign Companies Services performed in Myanmar 3.5% Services performed outside Myanmar Goods (excluding imports)

Permanent Establishment   Malaysia Singapore Thailand From Art. 5 (2) “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.”

Malaysia [Art. 13 on Technical Fees] Thailand [In royalty article] Withholding Tax Malaysia [Art. 13 on Technical Fees] Singapore Thailand [In royalty article] “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.“ - “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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