Home MMBIZ News Your Myanmar Taxes (Part IV) – Corporate Tax

Your Myanmar Taxes (Part IV) – Corporate Tax

We’re sometimes contacted by entrepreneurs who want to start a business in Myanmar. Often the plan is to fly into Yangon, and without any contact with the Myanmar government, get a hotel room and start operating a business out of it. The reality is much different.

In fact, the Myanmar authorities don’t allow you to start a business in Myanmar without a corporate presence. Your options for this are quite simple:

• A Myanmar company owned by its shareholders and operated by its board of directors.

• A branch of a foreign company, which is just a locally registered address of a foreign company.

• A representative office, which is similar to a branch but is not expected to produce a profit. At present foreign banks and insurance companies are limited to representative offices.

The procedures for registering all of the above are similar. For foreign investors they take several months to create, but are allowed to operate on a temporary basis pending final approval, making the delay easier to work with.

Let’s assume your objective is having profits, so you don’t want a representative office. How do you choose between a branch and a company?

This decision is largely based on the tax rate. For companies, net profits are taxed at 25 percent while branches are taxed at 35 percent.

Given the higher tax rate, why would you ever want a branch? Branches are easier and cheaper to operate. With a branch you don’t have to have an annual general meeting.

If you want to enter the market and have a presence in the country without the expectation of profits, it might be appropriate to register as a representative office. For example let’s say you want to maintain a presence in Yangon and hire a sales team. If your sales team meets with customers but those customers are buying direct from an offshore office rather than the Yangon office, the branch registration can be used to facilitate this by allowing you to hire local staff, open an office, and get your expat sales staff stay permits.

Keeping in mind the 10 percent lower tax rate for companies, if you want to have real profits you’ll want to register as a company and not a branch. Also, for any kind of a big operation –manufacturing, infrastructure or telecoms operation, for example – the Myanmar government may require you to have a company rather than a branch.

There is another consideration. You’ve probably heard of the Foreign Investment Law of 2012 (FIL). Under this law there is a five-year tax holiday, which means that if you register under this law your business doesn’t pay taxes for the first five years of its operation – if it’s the kind of investment that qualifies. 

The FIL doesn’t explicitly mention branches or representative offices, but the rules to the FIL mention that all registrants must have companies. In practice the Myanmar Investment Commission “MIC” allows some industries such as oil and gas to operate under the FIL as branches. The taxes after the five-year tax holiday are the same for other companies under the FIL – 25 percent of net profits.

Not every industry is allowed to take tax benefits like the tax holiday. The MIC has just issued a notification that there are business activities which won’t be allowed to claim the exemptions or relief from commercial tax and customs duty. Here’s a sample of the barred industries: any company that is involved with the production or selling of alcohol and cigarettes; companies that sell gasoline, diesel oil and fuel; natural resource extraction (excludes oil and gas exploration and drilling); and building construction for resale.

Doing business in Myanmar is not a simple process, and you should carefully consider your options before entering the Myanmar market.

  

James Finch is a partner at DFDL Myanmar Limited, resident in Yangon. Kyaw Swa Myint is an advisor at DFDL Myanmar Limited’s Yangon Tax Business Unit.

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