Local Withholding Tax (Royalty Income) on Software Export Payments and Foreign Tax Credits
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I am planning to supply server software programs to a Southeast Asian country (Myanmar). While reviewing tax matters to calculate the supply price, I have encountered the following uncertainties and would like to inquire:
Q1. Since software is an intangible asset and does not undergo customs clearance, is it correct that no customs duties are imposed?
Q2. If the supply is made via a Permanent License, is it classified as Royalty income in the local jurisdiction? I have heard that if it is categorized as royalty income, a withholding tax of approximately 15% is imposed and deducted from the payment. I am wondering if it is still considered royalty income even if it is a one-time supply.
Q3. If local withholding tax is unavoidable, are there any ways to minimize the tax-related losses?
Q4. After the initial supply, I must provide separate annual maintenance services. Will withholding tax also be imposed on this as royalty income? Is there also a way to minimize the tax burden in this case?
Answer 1
- 0✓When conducting transactions with Myanmar, the interpretation of tax matters is primarily based on the tax treaty concluded with Myanmar. The details of the treaty can be verified through the National Tax Law Information System. Although software royalties are not explicitly categorized under the relevant tax treaty, the consideration for software implementation is generally classified as royalty income. In the case of royalty income, a withholding tax at a preferential rate of 15% is applied at the time of payment, and the net amount after deduction is paid. Overseas royalty income must be included in the domestic revenue amount when filing domestic corporate tax (or income tax). At this time, the withholding tax paid overseas can be claimed as a foreign tax credit when paying corporate tax (or income tax). If the credit is applied, the tax burden will be reduced accordingly. To receive the credit, you must obtain documents equivalent to a domestic withholding tax receipt from the payer and retain them as supporting documentation.Machine translated
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