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Press Release: VDB Loi assists with first Commercial Tax registration by a non-resident

November 10, 2014

VDB Loi, a leading legal and tax advisory firm in Myanmar, was this week able to register an unnamed non-resident foreign company without a branch in Myanmar for Commercial Tax (CT) purposes. According to Myanmar’s tax laws, 5% CT is due on, among other things, all services rendered in the country. This includes services that are performed in Myanmar by foreign or non-resident companies such as engineering, installation, drilling or consulting. Until recently, however, there was confusion about the implementation by foreign companies, many of which were under the impression that the CT did not apply to them, unless they formally opened a branch in the country. That confusion has now been lifted as the Internal Revenue Department (IRD) has issued the first CT registration for a foreign service provider who has no presence or branch in Myanmar.

VDB Loi partner Jean Loi, who worked with the IRD to secure this new type of tax registration said that “Our clients need and want to be compliant with the law. It is quite clear under the law that a foreign service provider must pay the CT for rendering services in Myanmar, even when they have no branch or presence here. The IRD was very constructive to find a workable solution for our clients. Together were able to devise an administrative process for registration and tax payment in such cases. The authorities confirmed this was the first CT registration for a non-resident without a branch. It’s an entirely new implementation. This template will now be used for all similar cases, we understand”.

In Myanmar, CT applies to importation of goods, manufacturing of goods and the rendering of (most) services. The common rate is 5%. For example, when a technical services company which is based in Myanmar performs a service for a customer within the country, that company has to pay 5% CT on its fee to the IRD. In case the company performs the service in Myanmar from its overseas affiliate, often the 5% CT was not paid. Some companies even mistakenly believed that they did not even have the duty to pay that 5% CT.

With the IRD offering to register foreign service providers, there is no longer any doubt that the Commercial Tax Law can and should be implemented in full, even by foreign service providers without a commercial presence in Myanmar. Most ASEAN countries impose an indirect tax, such as a VAT or GST, when services are performed within the country. Often it is in fact the payer of the service fee who is held liable for declaring and paying the tax, but such a system of “reverse charge” does not yet exist under the Myanmar Commercial Tax regulations. Until it does, it is the service provider who needs to register, declare and pay the CT in these cases.