The tower companies, in turn, outsource the site design and the building of the towers to construction companies. These construction companies sometimes also sell the equipment.
Tower companies and construction companies, if incorporated in Myanmar, are subject to 25 percent income tax on their profits. The tax base is the profit as shown in the annual audited financial statements drawn up according to the Myanmar Accounting Standard (which is the same as IFRS).
The present policy of the tax authorities seems to be to allow the tower companies to depreciate the towers, thus reducing their income tax burden. This is not a matter of course. As such, the leasing of land and buildings does not entitle the taxpayer to a depreciation allowance. However, the tax authorities seem to consider the business of the tower companies to consist in the provision of services rather than the leasing of real estate.
Recipients of a service provided by a company incorporated in Myanmar have to withhold 2pc from the service fee and pay it to the tax authorities. The service provider can credit the withheld amount toward his income tax liability after the end of the financial year. The network operators therefore have to withhold 2pc from the amounts invoiced by the tower companies. The tax authorities seem to require this withholding also during tax holidays in which the tower companies are exempt from income tax. The tower companies should be able to obtain a refund of the withheld amounts after the end of the financial year.
In contrast, the tower companies should not be obliged to withhold 2pc from the rental fees paid by them to the landowners as a pure lease which is not linked to the provision of services by the lessor, and should not trigger withholding tax.
The Myanmar Investment Commission (MIC) has discretion to grant several tax benefits. The most important ones for tower companies are an exemption from income tax for five years and an exemption from customs duties and commercial tax on the import of equipment.
The exemption from customs duties and commercial tax is available for equipment that is imported during the construction period. The five-year exemption from income tax starts with the beginning of commercial operations, as soon as the construction period is over.
The question is: If a tower company builds 500 towers and leases them to a network operator in 2014, and builds another 1500 towers and leases them in 2015, when does the construction period end and commercial operations start?
The tower company should discuss this matter with the MIC. It appears that present policy is to let the tax holiday start in 2014, no matter if more towers are built thereafter. An exemption from customs duty and commercial tax on the import of equipment may, however, be granted in both 2014 and 2015, provided that the total investment amount is broken down and brought into the country in instalments.
Sebastian Pawlita and Yi Yi Mon are consultants with Polastri Wint & Partners Legal & Tax Advisors.
source: The Myanmar Times