The maximum percentage of goods which may be sold locally, meanwhile, will be laid down in implementing guidelines, while goods manufactured in a promotion zone must primarily be produced with local content and directly transported and sold to businesses in an exempted zone.
Exempted zones are regarded as if they were located outside the country. An investor in an exempted zone therefore does not have to pay import duty on construction materials, raw materials, machines and other goods used in the construction of the factory or the production process.
Usually, an importer has to pay 5 percent commercial tax in addition to import duties, though the new law does not state clearly whether this tax will be waived in an exempted zone.
However, an investor in an exempted zone does not have to pay income tax in the first seven years of operation and pays only 50pc income tax during the following five years. If, during a subsequent five-year period, profits are reinvested within a short period of time, the income tax rate for profits derived from such reinvestment is also reduced by 50pc.
The developer of an SEZ and investors in a promotion zone are entitled to the same income tax benefits with the exception that the tax holiday period (complete exemption from income tax) is not seven but eight years in case of the developer and five years in case of an investor in a promotion zone.
Interestingly, businesses outside an exempted or promotion zone do not have to pay income tax during the first five years of operation, while the SEZ management committee may grant further exemptions.
A business outside an exempted zone producing for export may be designated as an “exempted zone business” and sealed off with a fence. Such a business should – but the law is not entirely clear in this respect – enjoy the same benefits as a business located inside an exempted zone.
A developer and every investor in an SEZ may carry forward losses for up to five years. Currently, the carry-forward period is three years maximum.
The new SEZ Law aims to bring customs procedures in line with international standards and to accelerate customs clearance in exempted zones. It requires the customs department to reduce controls to a level that is absolutely necessary.
As is the case under the Foreign Investment Law, investors should take care to stick to their timelines submitted as part of the investment proposal. If deadlines for constructing the factory and starting operations are not met without sufficient cause, the management committee may withdraw the investment permit.
The SEZ Law states that businesses in an SEZ may “receive and make payments in a foreign currency” and that the developer and investors are “entitled to exchange and transfer foreign currency within the SEZ or overseas”, but it is to be hoped that future implementing guidelines will contain more explicit guarantees on the repatriation of profits.
Like the Foreign Investment Law, the SEZ Law prohibits the employment of unskilled foreigners, stipulating that 25pc of the skilled employees must be locals within the first two years of operation. This threshold increases to 50pc in the third and fourth, and to 75pc in the fifth and sixth years.
Sebastian and Kyaw are consultants with Polastri Wint & Partners Legal & Tax Advisors.
source: The Myanmar Times
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