Legal and tax framework for setting up pharma and healthcare projects in Myanmar Sebastian Pawlita 20 February 2015

Transcription

1 Legal and tax framework for setting up pharma and healthcare projects in Myanmar Sebastian Pawlita 20 February 2015

2 Sources of law: Companies Act 1914 as amended State-Owned Economic Enterprises Law, 31 March 1989 Foreign Investment Law, 2 November 2012 Foreign Investment Rules, 31 January 2013 Notification 49/2014 (14 August 2014) of the Myanmar Investment t Commission i defining i businesses restricted ti t dto foreign investment

3 Three alternative methods to invest: Without investment permit from the Myanmar Investment Commission (MIC) With MIC permit Business in a special economic zone (presently, Thilawa SEZ)

4 Investment without MIC permit Available for businesses that do not involve the long-term lease of land (usually, services companies) Minimum capital: USD 50, Advantages: Fast procedure, not many reporting requirements, low minimum capital Disadvantages: Max. 1 year leases, no tax benefits, no protection against adverse changes of the law/administrative practice in the future

5 Investment with MIC permit Available for businesses that involve the long-term lease of land (e.g. factories, hotels, real estate development, mining, oil and gas, production of electricity) Minimum capital: At the discretion of the MIC Advantages: Leases up to 50 years (renewal 2 x 10 years possible); tax benefits; certain protection against adverse changes of the law/administrative practice in the future Disadvantages: Complicated and lengthy procedure; reporting requirements; higher investment amount

6 Investment in a special economic zone Presently, only the Thilawa SEZ has started operations Minimum capital: At the discretion of the SEZ management committee Advantages: Leases up to 50 years (renewal 1 x 25 years possible); tax benefits; certain protection against adverse changes of the law/administrative practice in the future; procedure easier than MIC procedure; one-stop service Disadvantages: Presently, probably only available for production businesses; reporting requirements; higher investment amount

7 Market access Foreign Investment Rules and notification 49/2014 of the MIC contain restrictions Ultimately at the discretion of the ministry in charge of the sector in which h the investment t is to be made Foreigners and foreign-invested companies presently cannot engage in trade

8 Market access Joint venture required (MIC Notification 49/2014): Manufacturing and marketing of chemicals based on natural resources that are available domestically (excluding oil and gas, lubricants); Manufacturing of raw materials for drugs

9 Market access Other restrictions (MIC Notification 49/2014): Type of business Private hospitals, clinics, diagnostic services Private pharmaceutical and equipment production Research on preventive vaccines, diagnostic, screening and testing kits Opening private universities of medicine and medical education related universities and training schools Restriction Requires recommendation from Ministry of Health Requires recommendation from the Ministry of Health Requires recommendation from the Ministry of Health. Requires recommendation from the Ministry of Health.

10 Investment with an MIC permit: market access in the health sector Other restrictions (MIC Notification 1/2013): Type of business Trading of raw materials for traditional medicine Cultivation and production of traditional herbs Research and laboratory analyses concerning traditional medicine Manufacturing of traditional medicine Traditional hospital business Restriction Requires a recommendation from the Ministry of Health Requires a recommendation from the Ministry of Health Requires a recommendation from the Ministry of Health Requires a recommendation from the Ministry of Health Requires a recommendation from he Ministry of Health

11 M&A Locals cannot sell shares to foreigners (exceptions: local target company operates under an MIC permit and the MIC approves the share transfer; shares in a local/foreign joint venture company on a case-by-case basis) Foreigners can sell shares to foreigners and locals If the target company operates under an MIC permit, the MIC has to approve the share transfer Acquisition of a local business usually through an asset deal Alternative: local company can increase its capital and allow foreigners to subscribe to the new shares

12 Exit Problem: 40% capital gains tax for non-resident seller Solution: Holding company in Singapore and/or holding company in Myanmar

13 Taxation (Corporate) income tax: 25% of the income Tax benefits if investment is done with an MIC permit, in particular 5 years exemption from (corporate) income tax Tax benefits if investment is done in an SEZ, in particular 5 years exemption from (corporate) income tax (7 years for export- oriented businesses), subsequent reduction of the (corporate) income tax rate Commercial tax (similar to VAT, but offsetting input tax with output tax often not possible): usually, 5% of the turnover (Personal) income tax: 0-25% of the income (resident), 35% (non-resident) Stamp duty

14 Land issues Land laws and administrative practice concerning land are complicated With few exceptions, no private ownership of land Locals can obtain a "land grant" for (usually) up to 60 years which resembles ownership Foreigners and foreign-investedinvested companies can only lease land No established system for a local joint venture partner to contribute land to a joint venture company Land due diligence essential

15 Joint ventures Important aspects: Due diligence of the local partner recommended, but often not done Local counsel has to review the joint venture agreement as: customizing the articles of association of the joint venture company is often not possible; it is necessary to reconcile the joint venture agreement with the Myanmar Companies Act, but the Act is completely outdated; the directors of the joint venture company have, by default, a very strong position.

16 Labour law Important aspects: Labour law is usually not a problem for investors as legal protection of employees is weak Explicit obligation to employ skilled local workforce if investment is done under an MIC permit or in a special economic zone Social security contributions: Presently max. Ks. 9,000/month for the employer and Ks. 6,000/month for the employee (if monthly salary is Ks. 300,000 or more)

17 Myanmar +95 (9)