Authors: Jean Loi , Ngwe Lin Myat Chit
The income categories are as follows.
|Type of income||Residents||Non-Residents|
|Interest payment for a loan or indebtedness or a transaction of similar nature or savings||0%||15%|
|Royalties for the use of licenses, trademarks, patent rights etc.||10%||15%|
|Goods (locally purchased goods & not imported goods)||2%||2.5%|
|Services (locally rendered services)||2%||2.5%|
|Lease (within the country)||2%||2.5%|
As the term “payer” is not defined, the WHT regime covers payments under the above income categories by resident and non-resident payers. Under Notification 51/2017, leasing income has been added. Under the previous notification, leasing income was not subject to WHT. The WHT rates range from 2% for domestic goods and services to 15% for interest. These rates may be reduced or even exempted under a double taxation agreement (“DTA”) with Myanmar. There are currently eight DTA in force – Thailand, Singapore, South Korea, Malaysia, Vietnam, the United Kingdom, Laos and India.
Despite these seemingly uncomplicated rules, a common issue faced by the taxpayer is the interpretation of the rules by the IRD; in particular whether WHT applies to services performed in Myanmar only or it applies to services performed in or outside of Myanmar.
Issues with current Notification
Based on a literal strict reading of the Notification 51/2017, one can reasonably deduce that WHT only applies to non-resident for services performed in Myanmar. However, the Myanmar Internal Revenue Department (“IRD”) took a very broad interpretation of what constituted services performed in Myanmar by determining that any services performed in connection with Myanmar (even if performed offshore) were services performed in Myanmar from a WHT perspective, and hence, the income derived from such services were subject to WHT. For example, if a design for a project in Myanmar was done overseas by an architecture firm, such income would still be subject to WHT in Myanmar because, under the IRD’s interpretation, the design was for a project in Myanmar and a presence in Myanmar is required to perform such service.
Another issue arising from this broad interpretation is that the payer (both residents and non-residents) must deduct WHT on services performed in Myanmar. With such a broad interpretation on what constitutes “services performed in Myanmar”, there will be situations especially in a subcontracting arrangement, which could lead to a situation of “double taxation” on the “same” income. For example, a project owner engages a non-resident for a project in Myanmar where the non-resident main contractor subcontracts a portion of the work to another non-resident contractor. In this case, the WHT will apply on the payment from the project owner to the main contractor and the WHT will apply again on the payments from the main contractor to the subcontractor where a non-resident making a payment to another non-resident for services performed in connection with Myanmar would be subject to Myanmar WHT. This WHT issue can be minimized if there is a double tax agreement in place. However, such exemption is not automatic and an approval is required to be obtained from the Myanmar IRD in advance.
A Bi-weekly Newsletter issued by the Large Taxpayer Office (“LTO”) dated 28 Nov 2016, stated that there was a mistake in Notification 41/2010, and that the IRD only intends to tax non-residents on services physically performed in Myanmar. In other words, services performed offshore would not be subject to WHT. This created quite a confusion, as it is in contradiction to the IRD’s interpretation. No additional explanation was provided by the IRD until the issuance of Notification 2/2017 and Notification 51/2017, which states that WHT only applies to services performed in Myanmar by a non-resident. The actual text is “Payment by State organizations, State enterprises, Development Committees, co-operative societies, foreign companies, foreign enterprises and organizations, local companies and under and existing law for purchase of goods, work performed or supply of services and hiring within the country under a tender, contract, quotation or other modes (other than the services mentioned in above items of this table)”.
With the LTO Newsletter and Notification 51/2017, many taxpayers saw a glimmer of hope that there was finally clarity on this issue. Such hope was quashed with the issuance of the Announcement 1/2017 on WHT issued by the IRD published on the official webpage of the IRD (“the Announcement”) and the notice from LTO, which state that taxpayers will need to obtain confirmation from the IRD as to whether a service would be considered as performed overseas and hence not subject to WHT. The Announcement also states that any exemption/benefit under the DTA requires an approval from the IRD before a taxpayer can utilize the reduced rate or exemption. The applicant must submit a Certificate of Residence as part of the application, and provide evidence that it does not have a permanent establishment (“PE”) in Myanmar.
The good news is the IRD has metioned in the Guideline that a Certificate of Residency is required in the DTA application. Indirectly, it indicates that benefits under the DTA needs to be applied (it does not apply automatically) and secondly, there is a formal process in place now.
However, under the new Notification 51/2017, the payer is now responsible for the WHT. If such WHT is not deducted and remitted to the IRD, there are penalties for failure to deduct WHT. Coupled with the requirement to obtain confirmation from the IRD regarding whether WHT is applicable on a particular service performed overseas, the payer of such income does not have much choice but to deduct the relevant WHT until the income recipient can provide a confirmation letter from the IRD stating that such income is not subject to WHT, or an approval to access benefits under a DTA.
The current requirement to obtain a confirmation from the IRD for each services “performed overseas” is untenable. In practice, the IRD takes time to issue such a confirmation and for short term assignment, it would mean that WHT will apply regardless whether such services are performed onshore or offshore.