Legal Aspects of doing Business and Investing in Myanmar Lisa Theng Managing Partner
Topics Key aspects of new foreign investment law (FIL) Obtaining a foreign investment permit Common forms of business structure Key developments Future developments More about CNP Our services & involvement in Myanmar
Key aspects of Myanmar s new FIL Came into force on 2 November 2012 Supplemented by Notifications 1/2013 and 11/2013, both issued on 31 January 2013 Administered by the Myanmar Investment Commission (MIC) Covers the following key areas: o o o o o Foreign corporate ownership Capital Investment Employment Tax exemptions and reliefs Land use
Foreign corporate ownership % of foreign ownership permitted in a Myanmar company Dependent on type of business activity Vast majority of business activities 100% foreign ownership permitted Business activities falling into one of these three categories: (Notification 1/2013 issued by MIC) 1. Prohibited business activities No foreign ownership is allowed 2. Restricted business activities 3. Business activities permitted with specific condition Limits imposed on % of foreign ownership, and foreign investor must enter into a joint venture with a Myanmar citizen or entity Foreign ownership permitted only if specific condition(s) is satisfied
Foreign corporate ownership Construction Industry
Foreign corporate ownership 1. Prohibited business activities No foreign ownership is allowed Manufacturing and marketing of construction materials which composition includes asbestos
Foreign corporate ownership 2. Restricted business activities Limits imposed on % of foreign ownership, and foreign investor must enter into a joint venture with a Myanmar citizen or entity Construction related to developing rail or road links such as bridges, highways, bypass, subways etc. Development of international standard resort facilities and golf course Development, sale and lease of residential apartments and condominiums Development and sale of commercial and office buildings Development of general public housing Establishment of factories to manufacture structural metal framework for buildings and girders, and prefect and precast concrete Inland Port services through construction of Inland Container Depot (I.C.D) and warehouse services
Foreign corporate ownership 3. Business activities permitted with specific condition Foreign ownership permitted only if specific condition(s) is satisfied Business Activity Construction of factories Building design and construction and other related consultancy services Production of high technology prefabricated building materials Construction and lease of office buildings and commercial buildings Construction of large scale housing Airport Construction Investment & Terminal Operation Services Condition To be implemented according to specifications of the ASEAN Mutual Recognition Arrangement (MRA) and Myanmar National Building Codes, Rules and Regulations. 100% foreign investment can be accepted only on BOT (Build, Operate, Transfer) contracts For joint ventures, local Myanmar partner shall contribute the land lease title as capital in kind Approval will depend on an assessment of the environmental and social impact arising from the construction Requires approval from the Union Government and recommendation of Transport Ministry
Capital Investment No prescribed minimum amount of foreign capital that must be invested into a foreign investment project However, the MIC will consider the proposed amount of foreign capital to be invested when assessing the feasibility of the foreign investment application Foreign investment projects in capital intensive industries Higher amount of foreign capital may be required for MIC approval
Employment 1. Unskilled Occupations Only Myanmar nationals may be employed 2. Skilled Occupations A minimum proportion of Myanmar nationals have to be employed o Within the 1 st and 2 nd year following commencement of business = 25% o Within the 3 rd and 4 th year following commencement of business = 50% o Within the 5 th and 6 th year following commencement of business = 75% In order to achieve this minimum proportion, foreign investors are required to provide training to increase the proficiency and skills of Myanmar nationals
Tax exemptions and reliefs Highlights Income tax exemption for five years from the commencement of production or service activities *(may be extended if MIC perceives it to be beneficial to Myanmar) Income tax exemption for profits reinvested within one year 50% tax relief on profits made from exported goods Exemption from customs duty or other internal taxes on the: o Import of machineries, equipment and materials etc required for use during the period of construction o Import of raw materials within the first three years of commercial production
Land use Foreign investors are prohibited from owning land in Myanmar Foreign investors may however lease land from private persons or the Myanmar government for a term of up to 50 years o Extendable for two further terms of 10 years each subject to MIC s approval o Actual lease term will nevertheless be limited to the expected lifespan of the business
Obtaining a foreign investment permit To be eligible for the benefits and incentives afforded by the new FIL regime New FIL regime confers on MIC discretionary powers to accept proposals which are considered beneficial to the interests of Myanmar and which are not contrary to any existing law Notification 11/2013 issued by the Ministry of National Planning and Economic Development sets out the application process and requirements
Common forms of business structure 1. Private limited companies 2. Branch or representative offices 3. Partnerships
1. Private limited companies May take the form of: a) a foreign company registered in Myanmar b) a joint venture company Maximum shareholding of foreign investor: 80% c) a local company May be established under the: a) Myanmar Companies Act Steps 1.Applying for a permit to trade from the Directorate of Investment and Company Administration (DICA) 2.Applying for registration with the Companies Registration Office (CRO) b) FIL (eligible for tax incentives) Steps 1.Obtaining a permit from the MIC 2.Applying for a permit to trade from DICA 3.Applying for registration with the CRO
2. Branch or representative offices of foreign company May be established under the: a) Myanmar Companies Act b) FIL (eligible for tax incentives) Steps 1.Applying for a permit to trade from DICA 2.Applying for registration with the CRO Steps 1.Obtaining a permit from the MIC 2.Applying for a permit to trade from DICA 3.Applying for registration with the CRO Main difference between branch and representative office o Branch office allowed to conduct commercial activities o Representative office restricted to conducting non income generating activities such as market research and feasibility studies
3. Partnerships Each partner s rights and obligations would be governed by: o Agreements entered into between the partners o Partnership Act of 1932 Partnership may consist of a maximum of 20 partners Registration of the partnership is not compulsory
Key developments 1. Accession to New York Convention (15 July 2013) New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards Convention obliges Myanmar s Courts to: o Give effect to contractual provisions which provide for disputes to be resolved through agreed arbitration mechanisms o Recognize and enforce foreign arbitral awards Allows foreign investors to choose a neutral offshore forum for the resolution of disputes in preference to the local courts, if the parties have contractually agreed to arbitration
But Myanmar has yet to introduce domestic legislation to give effect to its obligations under the New York Convention Myanmar courts are hence not currently obliged to recognize and enforce foreign arbitral awards or give effect to contractual provisions providing for disputes to be resolved through arbitration Current Arbitration Act of 1944 remains applicable Nevertheless Myanmar s new Arbitration Act is currently in the works and is expected to be passed in 2014 New arbitration law will likely be based on the UNCITRAL Model Law on International Commercial Arbitration, in line with international best practice
Key developments 2. Myanmar s membership in MIGA (17 December 2013) MIGA = Multilateral Investment Guarantee Agency o Political risk insurance and credit enhancement arm of the World Bank Group Provides foreign investors with protection against the risks of transfer restriction, expropriation, breach of contract, nonhonouring of financial obligations, war and civil disturbance
Key developments 3. IFC signs MOU with Myanmar government (20 December 2013) IFC = International Finance Corporation o A member of the World Bank Group IFCto support Myanmar s Ministry of National Planning and Economic Development s efforts to improve the country s investment policy and regulation framework o o Currently two sets of investment laws (one for local investors and one for foreign investors) Aim is to create a level playing field for both local and foreign investors
Future developments 1. New company law Expected to be passed by the end of 2014 Current act has been in existence since 1914 New Company Act aims to improve transparency and provide new rules to govern the operation of companies in Myanmar
Future developments 2. Myanmar Stock Exchange Scheduled to be opened in 2015, following enactment of the Securities and Exchange Law ( SEL ) in 2013 Securities and Exchange Commission Further rules and regulations under the SEL
Future developments 3. Online application for construction permits in Yangon Construction permits are currently applied for in person at the YCDC offices Online application expected to be available in early 2014 o To begin with a few townships in Yangon, and to gradually expand Aim is to ease and quicken the process of application, and make it more cost effective
(CNP) Our Services Full service regional law firm established in 1988 More than 50 lawyers Core areas o Corporate & Commercial o M&A o Capital markets o Banking & Finance o Funds o Real estate o Construction o Litigation & Arbitration CNP Compliance Pte Ltd o Intellectual property o Employment o Telecommunication, media and technology o Admiralty & Shipping o Private clients o Regulatory and compliance
CNP s involvement in Myanmar Significant transactions Advising on a joint venture to set up a brewery in Myanmar Advising on a joint venture to establish a company in Myanmar to provide aftersales care and services for telecommunication Advising on a joint venture to develop commercial office buildings in Myanmar Strategic association FAME Myanmar o Leading full service law firm based in Yangon To leverage on the relevant capabilities and resources of both law firms To better cater to the needs of clients with respect to a whole range of cross border transactions
Thank you