Jurisdiction - Myanmar
Reports and Analysis
Doing Business In Myanmar.

14 March, 2014

 

Legal News & Analysis – Asia Pacific – Myanmar – Corporate/M&A

 

Since the change in government in 2011, Myanmar’s economic and investment landscape has seen remarkable change. Despite being slated as one of the worst places to do business in the world, Myanmar has also been tipped by industry experts as one of the top 5 nations in the world with the greatest improvements to its business environment over the last 5 years.

 

Apart from passing the Foreign Investment Law in 2011 which permits the setting up of 100% foreign owned companies in specific sectors, a revamp of the foreign exchange management regime in 2012, and key reforms to the regulation of land rights also in 2012, the following reforms took place in 2013 alone:

 

Areas Developments
Stock Market – Yangon Stock Exchange (YSE) Securities Exchange Law 2013The joint venture between the Central Bank of Myanmar, Japan’s Daiwa Securities Group and the Tokyo Stock Exchange now have a framework to develop the Yangon Stock Exchange – targeted for launch in 2015. The 3 parties signed a Memorandum of Understanding in relation to the establishment of the YSE in 2012.

 

Proper implementation and operation will require the passing of rules to supplement the 2013 Law. These are expected to be passed in 2014.

 

The new Law – tipped to enhance corporate governance, transparency and even reduce real estate prices – creates an infrastructure by;

 

  • Establishing a securities and exchange commission to supervise the securities market;
  • Providing for various licenses available to conduct securities businesses;
  • Establishing an over-the-counter market;
  • Addressing insider trading, investor and public interests; and
  • Providing for the establishment of a securities depository and clearing business.

 

Cross-border Dispute Resolution New York ConventionMyanmar in 2013 became the 149th country to accede to the New York Convention, on the Recognition and Enforcement of Arbitral Awards – drawing in investors and increasing investor confidence in Myanmar as an investment destination. Myanmar however is yet to enact legislation to implement the provisions of the New York Convention into local law. The new draft arbitration law which now sits in Parliament will replace the Arbitration Act 1944, which currently regulates arbitration in Myanmar.

 

The  Arbitration Act 1944  only provides for arbitrations where the seat of arbitration is in Myanmar and gives wide powers and discretion to the courts to intervene.

 

There are concerns that Myanmar judges and Myanmar’s  judicial system may not fully and automatically recognize and enforce international arbitration awards; this has been the case in Cambodia and Vietnam despite early ascension to the New York Convention.

 

Pressure is also mounting for a proper mechanism to recognize and enforce foreign awards in light of an on-going dispute between a Singaporean entity and a military-controlled Myanmar entity over a shareholders’ dispute, where the dispute has been referred to arbitration in Singapore.

 

Questions remain as to the enforceability of an award made in Singapore, as Myanmar is yet to implement the New York Convention through the enactment of a domestic arbitration law to guide Myanmar courts through enforcement.

 

Telecommunications Telecommunications LawThe Telecommunications Law sets the stage for a mobile penetration rate of 75% by 2015, aimed at enhancing mobile and internet service in Myanmar which currently leaves much room for development. At present, 2 major foreign telecommunications providers (Telenor and Ooredoo) have been granted licences under the Telecommunication Laws and given the green light to launch their services in developing this sector and achieving the desired penetration rate of 75%.

 

With the passing of the Telecommunications Law, the authorities are poised to issue rules and regulations which will permit the issuance of other telecoms licenses available in the telecoms market, including licenses for foreign investors to provide internet services and telecom tower operations.

 

The Telecommunications Law as it stands provides for license application procedures for conducting network facilities services, network services, and application services. The Law also provides for obtaining licenses to possess and use telecoms equipment and prohibits anti-competitive behavior. 

 

Another feature of the Telecommunication Law is the establishment of the universal service fund which is aimed at enhancing telecommunication infrastructure in under-serviced areas in the interests of the people.

 

The industry has already seen negotiations for sub-contracting works, services and equipment from Telenor and Ooredoo, and the construction of telecom towers for sale or lease to operators. Local businesses also have opportunities to contribute to the sector as Telenor and Ooredoo would require local partners as distributors and franchisees for their products. It is also expected that 2 more integrated national mobile licenses will be awarded to two local operators.

 

Banking and Finance The Central Bank of Myanmar Law2013 saw Myanmar achieve an independent Central Bank, a 3-stage liberalization plan to allow foreign banks to operate and provide services in Myanmar, as well as the development of payment systems with the entry of VISA and Western Union – signs that Myanmar’s banking sector is ripe for further reform this 2014.

 

There have been hints that foreign institutions with representative offices currently established in Myanmar will be given preferential treatment once the sector experiences its first wave of opening in the near future.

 

This comes as welcome news for local banks and foreign institutions who stand to gain from cooperation; the local banks gaining technical know-how and expertise, while the foreign institutions gain from domestic market share.

 

Sanctions

 

The U.S Office of Foreign Assets Control (OFAC) in February issued a general license to authorize additional U.S. economic activity in Myanmar, including opening and maintaining accounts and conducting a range of other financial services with four Myanmar banks (Asia Green Development Bank, Ayeyarwady Bank, Myanma Economic Bank, and Myanma Investment & Commercial Bank). For the first time in decades these 4 banks are allowed access to the U.S. financial system as well as doing business with U.S. companies.

 

These 4 banks however still remain on the SDN List (Specially Designated Nationals) – The SDN List prohibits U.S. companies from transacting with anyone that appears on the list, or any entity, 50% or more owned by an SDN or if the said entity is controlled by an SDN. These banks remain on the list in case the Myanmar Government shows signs that it may turn back on its promises for reform.

 

Employment and Human Resources Minimum Wage Law & RulesThe Law and Rules create an administrative system to determine and prescribe the national minimum wage for various sectors, taking into account the interests of the workers at length.

 

The Rules were published in July 2013, providing for the formation of relevant committees at various levels of administration in charge of implementing the Law. The Rules also outline each committee’s duties and responsibilities, and fundamental facts relating to the fixing of the National Minimum Wage and procedures in submitting advice to the National Committee for the fixing of the National Minimum Wage.

 

The Government is now carrying out research and consultations to determine specific levels of national minimum wage for various sectors.

 

Employment and Skill Development Law (ESDL)

 

The ESDL not only protects workers’ rights by providing for a development fund and essential terms to be included in every employment contract, but also substantially provides for training and personal development of workers.

 

The ESDL creates a Skills Development Association as well as Myanmar’s National Skill Standard Authority. It provides for post-training bond periods to further encourage loyalty and worker commitment, as well as the establishment of training schools by foreigners.

 

The ESDL also sets up a Skills Development Fund, requiring certain employers to contribute at least 0.5% of the sum of salaries to said Fund.

 

It is hoped that the ESDL will create employment opportunities for the unemployed to efficiently utilize Myanmar’s vast labour force.

 

Corruption Anti-Corruption LawMyanmar is taking positive steps to curtail concerns of corruption, causing Myanmar to be one of the least desirable places to do business. The new law will require officials in the executive, judicial and legislative branches of government to declare their assets, including anti-corruption commissioners.

 

The Law will establish an Anti-Corruption Commission responsible to the President, and where no member of the Commission shall serve for more than 2 terms. The Law stipulates the powers and duties of the Commission, sets up a framework for lodging complaints of corruption, as well as regulates the mechanism for confiscating money and property obtained through bribery.

 

The Law punishes bribery – “the giving, accepting, receiving, attempting to receive, offering, promising or discussing by any means, directly or indirectly, a bribe from the respective person, for himself or another person or organization in order that the competent authority will act or refrain from acting or to grant someone’s legal right or to falsely prohibit someone’s legal rights by abusing official duty” – by imprisonment of up to 7 years for persons (including persons representing banks and financial institutions), up to 10 years for public authorities, and up to 15 years for political position holders.

 

Local and Foreign Investment Abolishment of minimum capital for local companiesThe Union Government in October 2013 removed the requirement of having a prescribed minimum share capital and a minimum investment amount when incorporating a 100% locally owned company in order to develop the private sector by assisting small and mid-sized economic businesses, create opportunities for locals, promote competition between local and foreign businesses, and to systematically improve private economic businesses. Previously, the minimum capital requirement was between 5 billion and 50 billion Kyats (depending on the type of business activity)

 

Import/Export Regulations

 

The Ministry of Commerce in February 2013 eased restrictions in relation to the import and export of certain goods. Prior to this Notification from the Ministry, importers and exporters were to obtain an import/export license for every transaction. While restrictions still remain, Notification 16/2013 allows for the import of 166 commodities and export of 152 commodities without the need to obtain an import or export license. These include agricultural products, forest products, and many more.

 

Myanmar Citizen Investment Law

 

The Law contemplates the interests of locals in competing with foreign investors and accords similar rights and benefits to locals as accorded to foreigners under the foreign investment law.

 

Previously prohibited under Myanmar laws, S16(e) of the MCIL now permits investors to transfer and sell some or all of its shares in a local company to any foreigner in accordance with the Foreign Investment Law.

 

2014 anticipates the enactment of rules and regulations under the MCIL to properly define the mechanism of transferring shares from locals to foreigners, as well as the mechanism of converting local companies into foreign companies to be governed by the Foreign Investment Law and come under the purview of the Myanmar Investment Commission.

 

Special Economic Zone The Special Economic Zone Law (“SEZ”)The Special Economic Zone Law enacted in 2011 has already been revised this 2014 on 23rd of January, focusing on 3 main zones, sets to offer greater benefits to foreign investors. The revised law repeals the 2011 Law and the Dawei Special Economic Zone Law.

 

The new law distinguishes between “free zones”, “business promotion zones” and other zones where investors would be eligible for fiscal and non-fiscal benefits/exemptions at varying degrees.  The new law clarifies procedures and rules in forming the central authority of Special Economic Zones, the management committees as well as considerations and procedures involved in establishing new economic zones in the future.

 

Free Zones are designated areas which promote export oriented business activities as well as other Free Zones Business (export oriented activities) as may be designated by SEZ Management Committee. 

 

Business Promotion Zones are designated areas which promote businesses which are based on the domestic market or the market inside the SEZ, such as manufacturing business based on the domestic market, housing, departmental store, banking business, insurance business, schools, hospitals and recreation centers.

 

 

If the momentum continues, we may also see development in the following areas in 2014:

 

Areas Potential Developments
Electricity Draft electricity lawMyanmar now mulls a law to develop a framework to resolve the nation’s power shortage. The draft electricity law provides opportunities and incentives for foreign and local investors to participate in increasing Myanmar’s power output in anticipation of greater inclusion in the ASEAN and global economies.

 

The draft law, aimed at enhancing the framework for improving Myanmar’s power infrastructure distinguishes between large projects (those generating over 30 MW), mid-sized projects (10-30 MW) and small scale projects (up to 10 MW).

 

Any person or organization may engage in large scale projects which are reserved to be managed by the Union if consent is obtained from the Union Government. Other electricity-related investments will be administered by states, regions, self-administered zones, and self-administered divisions with prior approval from the relevant Union Ministries.

 

The draft law provides 2 separate mechanisms for obtaining a license to carry out electricity business; one for large scale projects, and another for small to mid-sized projects. Foreign participation is only permissible for large scale projects.

 

The draft law stipulates that tariff rates for electric power will be set by the Union Ministry with the consent of the Union Government.

 

The new law will establish the Electricity Regulatory Commission – comprising non-government employees – which will formulate policy, prepare tariffs, advise the Ministry of Electric Power (MOEP), set standards and form inspection bodies in implementing the law when in force.

 

Real Estate/Property Draft Condominium LawDue to ownership restrictions against foreigners, only locals are allowed to own any kind of immovable property in Myanmar. This is set to change once the Condominium Law is enforced which will allow foreigners to own condominiums. Currently in draft form, it is expected to come into force this year.

 

The draft law allows foreigners to own up to 40% of a condominium that is at least 6 stories tall, or higher. These condos will be permitted for use as collateral when taking loans from banks.

 

The draft law also allows foreigners to construct condominiums, with relevant approvals, by setting out the relevant procedures required to obtain such approvals.

 

Companies Amendment to the Myanmar Companies ActA meeting was held in December 2013 between among others, members of the Directorate of Investment and Company Administration, Asian Development Bank, the Attorney General’s Office, Directorate of Trade, Internal Revenue Department to discuss possible amendments to be made to the Myanmar Companies Act 1914 – now a century old.

 

Consumer protection Draft Customer Protection LawThough Myanmar does not boast a specific piece of legislation aimed at protecting consumers, Myanmar has a number of laws and governmental departments charged with protecting the interests of consumers of certain sectors. Parliament now contemplates a draft law to streamline the protection of all consumers of locally manufactured products.

 

Intellectual Property Draft Trademark LawMyanmar aims to normalize the protection of intellectual property in line with global norms through the passing of the draft trademark law that now sits in Parliament. The draft creates a framework for the registration and protection of trademarks, as well as establishes a specific court to resolve intellectual property disputes.

 

Tax Reform of Taxation LawsConcerns were raised during 2013 that Myanmar’s taxation regime lags behind its ASEAN neighbors, and that the system allows the biggest corporations and conglomerates (mostly crony-owned or government/military linked) to evade taxes. The concern is that Myanmar will not be ready by 2015 for the ASEAN Economic Community’s free trade zone. In light of this short time line, we may see measures being taken to reform the taxation regime this 2014.

 

 

Taking Advantage Of Reforms – Setting Up An Investment Vehicle

 

As required by the Companies Act, all foreign investors must obtain a Permit to Trade, and register their investment vehicle with the Directorate of Investment and Company Administration (“DICA”) under the Ministry of National Planning and Economic Development.

 

A foreign investor may incorporate a limited liability company, a registered branch, a representative office (reserved for foreign banks and insurance companies), sole proprietorship or partnership. In practice, foreigners only ever incorporate limited liability companies or registered branches.

 

A short comparison table on a private limited liability company and a branch office is as follows;

 

  Private Limited Liability Company Branch office
Registration Fee with CRO Kyat 1,000,000 Kyat 1,000,000
Permitted foreign shareholding 100%1
Not applicable
Minimum shareholders 2  Not applicable
Minimum directors 2  Not applicable
Corporate Tax 25% 35%

 

The MIC Permit

 

Non-services companies and branches (manufacturing, trading, importing/exporting, packaging, distributing, real estate, oil and gas, power, etc) must also (in addition to obtaining a Permit to Trade and registering with DICA) apply for and obtain an MIC Permit from the Myanmar Investment Commission (“MIC”). Applying for an MIC Permit brings the foreign investor’s vehicle under the purview of the Foreign Investment Law, and under the supervision of the MIC who plays a pivotal role in allowing, and regulating foreign investment vehicles in Myanmar as well as administering all economic activities except those reserved solely for the State.

 

The Foreign Investment Law allows the establishment of 100% foreign-owned entities, joint ventures and production sharing partnerships depending on the type of economic activity. Proposals to the MIC must include (among others);

 

  • Feasibility studies in relation to the investment;
  • Breakdown of local and foreign capital;
  • Income and expenses related to the investment;
  • Loan particulars;
  • Land particulars;
  • Employment requirements;
  • Social and environmental impact assessments; and
  • Details in relation to machinery and equipment required.

 

MIC Companies v Non-MIC Companies – What Are The Differences?

 

Minimum Capital Requirements 

 

 

Non-MIC companies are subject to a minimum paid up capital of USD 50,000 while MIC Companies are subject to the discretion of the MIC as far as minimum capital requirements are concerned – usually larger investments are required.

 

Incentives And Benefits

 

MIC Companies are entitled to all the benefits, exemptions and guarantees that are provided by the Foreign Investment Law. Non-MIC Companies however are not entitled to similar benefits.

 

Ease Of Incorporation

 

MIC Companies generally carry out larger investments, which are scrutinized by the MIC upon application for an MIC Permit. This scrutiny process is more complex, time consuming, and more expensive compared to the process of incorporating a Non-MIC Company.


 

Land Use

 

Non-MIC Companies at present may only lease immovable for a period of 1 year. MIC Companies however are entitled by the Foreign Investment Law to lease land for periods of up to 50 years, with extensions of up to 2 additional terms of 10 years each.

 

Types Of Business Activities

 

Non-MIC Companies are only limited to conducting services in Myanmar.

 

End Notes:

 

1 Subject to the type of business activity carried out, and any permitted shareholding ratio as may be required by the MIC.

 

Zicolaw Logo-Pantone

 

 

For further information, please contact:

 

Cheah Ching Gaik, Partner, ZICOlaw

ching.gaik.cheah@zicolaw.com

Comments are closed.