Business in Myanmar: What you should know about personal income tax

If you plan to invest in Myanmar or send employees there, you should have an up-to-date understanding of the income tax law, as tax laws and practices are frequently changing. Last month, new developments in the personal income tax law were enacted.

Dependent child deduction: Before April, for resident foreigners, each parent could claim a dependent child deduction of approximately US$300 (Bt10,000) for each child if certain conditions were met. Now, either one of the parents can claim the deduction.

Tax rates for foreigners:?Under the Myanmar income tax law, resident and non-resident foreigners were subject to personal income tax at certain rates.

Resident foreigners (foreigners who stay in Myanmar for 183 days or more in aggregate in the income year, which runs from April 1 to March 31) were subject to progressive tax rates ranging from zero to 25 per cent, with allowance deductions permitted.

Non-resident foreigners (that is, foreigners who stay in Myanmar for less than 183 days during the income tax year) were subject to a flat 35-per-cent rate, without any allowance deductions permitted.

Tax rates for non-residents: Non-resident foreigners are now also taxed at the same zero to 25-per-cent progressive rate as resident foreigners, but still are not allowed deductions.

This is good news for companies that plan to send short-term business travellers to Myanmar, and for the individuals themselves, because the 35-per-cent flat rate is no longer used.

Here are some important points to be aware of if you send employees on short-term assignments and want to claim exemptions in Myanmar:

1. Frequent business travellers cannot claim short-stay exemptions in Myanmar. If you go to Myanmar for business purposes, you are subject to personal income tax on your Myanmar-sourced employment income from day 1.

2. Double-taxation treaties do not apply if a Myanmar entity is considered the employer of the foreign short-stay employees. Unfortunately, the term “employer” is not defined in the Myanmar income tax law. However, according to an Organisation for Economic Cooperation and Development commentary, the Myanmar entity could be deemed the employer if it:

lreceives the benefits from the foreign employee’s work

lgives day-to-day instructions or has authority over the employee’s work, and

lreviews and appraises the employee’s work performance.

3. Myanmar has double-taxation treaties with only eight countries. Treaties are in effect with India, the UK, Malaysia, Singapore, Vietnam, Thailand, South Korea and Laos. Treaties with Bangladesh and Indonesia are awaiting ratification.

For instance, there is no treaty with the US. If American employees based in the US work in Myanmar, they are subject to Myanmar and US personal income tax.

As noted, the normal progressive rate now applies instead of the 35-pre-cent flat rate, but it would be an additional cost to the company if it pays tax on behalf of the employees. If a company agrees to pay tax on behalf of employees, it should use the tax gross-up method to calculate the tax obligation, because doing this will be treated as a taxable benefit in Myanmar.

Please also bear in mind that, under Myanmar income tax law, taxable employment income is broadly defined and includes salaries, wages, annuities, pensions, benefits in kind such as free accommodation, gratuities and any fees, commissions or perquisites received in lieu of or in addition to salaries and wages.

4. Tax-relief exemptions under tax treaty exemptions are not automatic. If you want to obtain relief under the double-taxation treaties, you need to apply administrative procedures and provide supporting documents to the Myanmar Internal Revenue Department.

To recap, even occasional business trips can trigger tax liabilities, such as personal income tax filing obligations, employer withholding tax requirements, and possibly corporate income tax liabilities on the employee’s earnings.

Conducting a tax analysis is strongly recommended to gain a better understanding of a company’s and its employees’ tax obligations.

Napaporn Saralaksana, author, is Associate Director, PWC