Authors: Jean Loi , Ngwe Lin Myat Chit
From 1 April 2017, the withholding tax on interest payment to the Myanmar branches of foreign banks will no longer apply. However, foreign lessors of equipment will face a new 2.5% withholding tax. Also, companies paying royalties on trademarks and other intellectual property will need to apply new rates.
The MOPF released Notification 2/2017 (“new Notification”) on 10 January 2017, which revokes the old Withholding Tax (“WHT”) Notification 41/2010 dated 10 March 2010 and Notification 167/2011 dated 26 August 2011 of MOPF. The new Notification will be effective from 1 April 2017 (FY2017-2018). The new notification re-iterates that the payer has the legal obligation to deduct WHT from payments that are subject to WHT, regardless of whether the income recipient has agreed to the deduction or not.
Exemption of WHT
Exemption from WHT deduction is given to payments between government organizations, and payments between respective government organizations and stated-owned enterprises and interest payments to non-resident lenders who open branches locally or file corporate income tax return for income derived from the branch.
Previously, Myanmar branches of foreign banks were considered non-residents and are thus captured in Myanmar’s 15% WHT rate on interest paid to non-residents. This put these branches at a serious disadvantage compared to Myanmar banks and even to non-residents who can apply DTA reductions (branches cannot). This is a significant boost to foreign-invested borrowers in Myanmar who invariably had to assume the cost of this WHT.
WHT on interest
The previous Notification (Notification 41/2010) had very little clarity on matters related to interest payment, i.e. the type of interest that is subject to WHT. The new WHT notification, however, clarifies that interest payments on savings, loans or debts or similar matters pertaining to non-resident foreigners are subject to 15% WHT.
WHT on royalties
According to the new Notification, WHT rates for royalty payments for the use of license, trademarks, patents etc. by both resident citizens and foreigners have been reduced to 10% and non-resident foreigners to 15%.
WHT on purchase of goods and services
There is no change in the WHT rate for a payment to a resident for goods and services. The rate remains at 2%. However, the WHT rate on payments to non-residents for goods and services has been reduced to 2.5% for services and goods performed and procured within the country. It appears that services performed outside of Myanmar by non-residents and imported goods are exempted from WHT. However, the new notification is not very clear on this point and we will seek further clarifications from the Internal Revenue Department (“IRD”).
WHT on lease
A new income category is also introduced for the deduction of WHT, which includes payment for leasing within the country at the rate of 2% for resident citizens and foreigners, and 2.5% for non-resident foreigners.
If the total payment within an income year does not exceed MMK 500,000 for each supplier, WHT does not have to be deducted when making payment. It also clarifies that if the payment does not exceed the threshold at first, but exceeds the threshold in next payment(s) during an income year, WHT must be deducted. In addition, the payer needs to inform the respective IRD regarding with the list of payments that are under the threshold.
Double Taxation Agreement
If the non-resident taxpayer is a resident taxpayer of a country with which Myanmar has a tax treaty and the non-resident can provide the Certificate of Residency issued by the tax authority of their country of residence, WHT rates shall be decided according to the rates stated in the DTA.
WHT as final tax
Once the applicable WHT has been deducted, it will be considered as final tax for the non-resident taxpayer. However, if the non-resident taxpayer has a local branch and the local branch files corporate income tax return, WHT can be used to offset against the payable Corporate Income Tax (“CIT”). The WHT can be used as a credit to offset CIT for both resident citizens and foreigners.