Doing Business in Myanmar. Alessio Polastri Sebastian Pawlita Karina Peng
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- Joella Monica Rich
- 6 years ago
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1 Alessio Polastri Sebastian Pawlita Karina Peng
2 Summary Myanmar nowadays Updates on key-laws including foreign investment law, banking law and employment law. Securing land development rights and other land lease issues in Myanmar. Finding the right local partner. Structuring a joint venture/operating transaction in Myanmar. Risk/potential barriers in relation to doing business in Myanmar. Reasons for doing business in Myanmar. Q&A session.
3 Part I
4 Map of Myanmar
5 General Information Name of the Country: Republic of the Union of Myanmar (Please avoid reference to Burma ). Capital: Nay Pyi Taw. Largest city: Yangon (Please avoid reference to Rangoon ). Language: Myanmar language (Please avoid reference to Burmese ). Population of about 63 million (Male 49.7%, Female 50.3%). Literacy rate: 92% (in line with Malaysia 92.8% and Vietnam 92.4%) higher than most emerging markets. Form of Government: Presidential constitutional republic. Current President: U Thein Sein (U stands for Mr. ; Daw stands for Ms. or Mrs. ). Total area: 676,578 sq. km. Currency: Kyat. One lakh is equal to 100,000 Kyats. Total GDP: USD82,679 billion. GDP per capita: USD1,324.
6 Sanctions on Myanmar
7 Sanctions on Myanmar Japan, South Korea, China, India, Thailand, Singapore, etc. never had a sanction regime in place, although Japan and South Korea cut development aid (now resumed). The first country to relax the sanctions on Myanmar has been the European Union. After the election of Daw Aung San Suu Kyi as member of Parliament and the evidence that the elections have been carried out in a democratic manner, the EU decided to suspend all the sanctions on Myanmar for one year until 30 April On 22 April 2013, EU lifted sanctions permanently (exception: arms embargo). Australia has been the first country to completely remove any restrictions on Myanmar.
8 Sanctions on Myanmar US sanctions originally: prohibition of (i) investment in Myanmar by U.S. persons and U.S. persons' facilitation of foreign investment in Myanmar, (ii) () all imports from Myanmar, (iii) exportation and re-exportation of financial services to Myanmar from the U.S. or by U.S. persons; furthermore asset freeze. Most sanctions now lifted. General licenses No. 16 and 17 dated 11 July 2012 allow new U.S. investment in Myanmar and the exportation and re-exportation of financial services (exception: dealings with the military and its affiliates and armed groups). General license No. 18 dated 16 November 2012 allows all imports from Myanmar (exception: jadeite, rubies, jewelry containing jadeite or rubies). There has never been a general ban on exports from the U.S. to Myanmar (with the exception of the exportation of financial services). U.S. persons still prohibited from having business dealings with individuals and companies on SDN list (which is reviewed regularly).
9 Story of a lie: Corruption in Myanmar.
10 Story of a Lie: Corruption in Myanmar According to the Perceived Corruption Index 2012, Myanmar is listed as the fifth last country just after Somalia, North Korea, Afghanistan, Sudan. Based on my experience and the experience of other lawyers operative in Myanmar and other countries, Myanmar not only does not deserve at all that position in the world but, most likely, is not also the most corrupted country in South-East Asia. Overall, after the new anti-corruption policy undertaken by the President s Cabinet, any corruption activity shall be effectively investigated and repressed. Several Government officials have been removed from their positions because of investigations of facts happened in the past.
11 Updates on the Four Pillars: Telecommunications, Banking, Energy and Major Infrastructures.
12 Updates on the Four Pillars: Telecommunications. The Government of Myanmar has identified 4 specific pillars to be developed in order to support the growth of Myanmar over the next years: Telecommunications, Banking, Energy and Major Infrastructure. The Ministry of Posts and Telecommunications has invited telecoms to express interest in obtaining a telecom license. This represents the first step toward the full liberalization of the telecom market in Myanmar which shall have mobile operators be active within the end of Recently, 12 bidders have been shortlisted and the licenses should be awarded by 3Q 2013.
13 Updates on the Four Pillars: Banking. The banking industry is currently under-regulated and several laws are out-dated. However, the Government has already proposed and announced reforms. The use of foreign currencies is now allowed. Foreigners are not allowed as yet to carry on any banking or financial services business. According to the rumors, joint ventures between foreign and local banks are expected to be allowed from October 2013 at the earliest. Currently, the Central Bank Bill is in legislative process.
14 Updates on the Four Pillars: Banking. In , 2002 although h the economy of Myanmar was expanding, the rumors of a potential collapse of the Myanmar banks, and so the endangered security of the savings accounts, started to be spread in the country; In 2003, the confidence of local people towards local banks was extremely low and several of them started to massively withdraw their savings; During 2003, the whole banking system of Myanmar collapsed, including solid banks with high lend/equity ratio because they could not withstand the huge mass withdrawing; For around 6 months, the Government struggled to contain the protest;
15 Updates on the Four Pillars: Banking. The reaction of the Government was to investigate each bank; Since now, banks are not allowed market or advertise their services; Nowadays, the trust of Myanmar citizens towards local banks is slightly increasing but still extremely low: Low and medium classes prefer to keep the money under the mattress, companies and businessmen are more keen on using bank accounts overseas. Don t bank in, roll the money! attitude still largely used; After the banking crisis in 2003, the banking industry is considered an extremely sensitive industry in Myanmar under the direct supervision of the President s cabinet.
16 Central Bank of Myanmar The new Central Bank of Myanmar has been established in 1990 by the Central Bank of Myanmar Law ( CBML ), subsequently amended in 1995 and The Central Bank of Myanmar is headquartered in Nay Pyi Taw, capital city. According to the CBML, the purposes of the Central Bank of Myanmar are as follows: to preserve the internal and external value of the Myanmar currency (i.e. Kyat); to promote efficient payments mechanisms, and the liquidity, solvency, and proper functioning of the soundly based financial system; to foster monetary, credit and financial conditions conceive to the orderly, balanced and sustained economic development.
17 Existing Players In 1962, when the military regime took power, all the banks, including the Union Bank of Burma (now the Central Bank of Myanmar) have been nationalized. In 1992, the Central Bank of Myanmar has been authorized by the Government to issue banking licenses to private local banks. In 1993, the Government authorized the Central Bank of Myanmar to issue nonoperative banking licenses to foreign banks in order to let them open representative offices. As of today, the following banks have been authorized in Myanmar: 4 State owned banks; 19 private local banks; Approximately 20 foreign banks (representative offices only), more to come.
18 Updates on the Four Pillars: Energy. Nowadays, Myanmar can barely cope with the electricity demand of the private sector and black-out or the use of generators are still frequent. Over the next years, the demand of electricity is expected to grow a lot in relation to the expansion of the economy of Myanmar. This potentially represents a bottle-neck for the development of infrastructure and several industries in Myanmar particularly in those factory which cannot run on generators (i.e. automobile, cement plants, large mining projects, etc.). Several projects have been announced and the interest of power plant developer is increasing. At the moment, several projects are in the feasibility study and the electricity situation is expected to improve comparatively fast.
19 Updates on the Four Pillars: Major Infrastructures. Given the strategic position of Myanmar, several countries have shown interest in assisting Myanmar in developing major infrastructure. Primarily, the focus is on ports along the vast coastline of Myanmar on the Andaman Sea. Apparently, there are at least 3 major projects under consideration/execution. Another challenge regards the transportation network and the expressways/railways. It will be crucial to interconnect the main roads of Myanmar to China, Thailand and India since, as of today, transportation costs in Myanmar are very high. Amongst others, the Government of Myanmar has already opened three tenders for the expansion/construction of three airports in Myanmar which are about to enter into a crucial stage. According to strong rumors, the Government of the United States may be involved in the construction of the main expressway which shall connect Yangon to Mandalay (via Naw Pyi Taw). In addition several Japanese companies have already announced major plans for the In addition, several Japanese companies have already announced major plans for the development of infrastructure in Myanmar.
20 Updates on Key Laws.
21 Foreign Direct Investment t Possible in some sectors (services, tourism) to invest without an investment permit from the Myanmar Investment Commission, but benefits under the Foreign Investment Law not available in this case. Investment permit under the new Foreign Investment Law of 2 November 2012: Myanmar Investment Commission conducts a due diligence on the investor(s), their experience and their financial standing, and on the project.
22 Incentives under the Foreign Investment t Law Long-term lease of land for up to 50 years, renewable twice for 10 years each; tax incentives; procedure to repatriate profits; right to obtain a stay permit for foreign employees; guarantee against nationalization; certainprotection against adverse policy changes.
23 Market taccess Foreign Investment Law: Any foreign direct investment permitted if it is beneficial to the Country.
24 Market taccess Implementing guidelines to the Foreign Investment Law (Foreign Investment Rules, Notification 1/2013 of the Myanmar Investment Commission) of 31 January 2013 contain a list of businesses that foreign investors (i) are not allowed to invest in, (ii) are allowed to invest in through a joint venture with a local partner, (iii) are allowed to invest in if certain conditions are fulfilled. Prohibited business activities may be allowed on a case-by-case basis in a joint venture if beneficial to the country.
25 Company (Subsidiary) Vs. Branch Company = separate legal entity. Income tax rate company: 25%; branch: 35%. An individual cannot set up a branch. Joint ventures require a company. Branch cannot obtain an investment permit from the Myanmar Investment Commission. From a Myanmar perspective a branch makes only sense if it should From a Myanmar perspective, a branch makes only sense if it should act as a representative office.
26 Yangon Stock Exchange Historically Yangon has never had a busy Stock Exchange Market. Both before the Second World War and before the military regime, the Stock Exchange Market of Yangon had a very little number of companies listed on it. In 1962, the Stock Exchange Market of Yangon has been shut down by the military junta. In 1996, the Government of Myanmar has set up the Myanmar Securities Exchange Center, a joint venture entity between Myanma Economic Bank and Daiwa Institute of Research.
27 Competition Law There is no competition law at the moment in Myanmar. However, a law on competition is expected to be enacted by 2015, in compliance with guidelines agreed amongst ASEAN countries. Article 36 of the Constitution states that: the Union shall prevent acts that injure public interests through monopolization and manipulation of prices by any individual or group with intent to endanger fair competition in economic activities.
28 Trademarks No intellectual property law yet, but trademarks can as a matter of practice be registered with the Registration of Deeds Office on the basis of the Registration Act of Remedies against infringements: Civil (temporary or perpetual p injunction; damages); Criminal (sections Penal Code).
29 Labour More practical than legal issues: Lack of skilled staff (e.g. marketing staff); Job-hopping; Wildcat strikes (more in the manufacturing sector than in the services sector). Countermeasures: Adequate salary; Training i within the country and abroad; Career prospects; Expression of the employer's esteem of the employee's services; Flexibility concerning working hours to suit the needs of mothers.
30 Labour Position. Monthly wage USD. Monthly wage kyats. Production company: Factory worker 68 50,437 Engineer (mid-level experience) ,544 Middle-management executive ,977 Services company: Ordinary staff ,319 Middle-management executive ,851 Shop assistant (clothes) ,000-70,000 Restaurant t staff 80 64, Note: average salaries (JETRO survey published in January 2012).
31 Labour Recruitment process: Through the township labour office or private search; new employees must be registered with the township labour office. Regular working hours: 8 hours per day/44 (shifts: 48) hours per week (factory workers), 8 hours per day/48 hours per week (h (shop assistants, office workers). Permitted overtime per day: Factories - 2 hours, shops/offices - 3 hours; weekly regular working hours must not be exceeded. Pay for overtime/work during holidays: twice the normal salary; alternatively: time off in replacement for hours worked overtime.
32 Labour Paid leave: Public holidays: 21 days/year; Annual leave: in practice 10 days/year (can be carried forward for 3 years); Casual leave: 6 days/year; Medical leave: 30 days/year; Maternity leave: 6 weeks before and 8 weeks after giving birth; Paternity leave: 15 days. New Social Security Law (31 August 2012): Sickness benefits, maternity and paternity benefits should be paid by social security carrier; in practice probably: employer advances first and claims back from the social security carrier later.
33 Labour Probation period: 3 months Termination: 30 days notice/3-5 months basic salary as compensation; no notice period/compensation p if breach of contract; no notice period/compensation if the term of a definite term labour contract expires.
34 Labour Social security contributions (source: MoL homepage): Maximum monthly contribution employer: 775 kyats (monthly salary above 30,000 kyats); USD 5 (monthly salary above USD 190). Maximum monthly contribution employee: 465 kyats (monthly salary above 30, kyats); USD 3 (monthly salary above USD 190). Income tax: Resident employee (residing in Myanmar for 183 days or more during period from 1 April to 31 March or working for an MIC company): progressive rate from 1% to 20% (20% applicable to taxable salary income of more than 20 million kyats - approx. USD 23,000); Non-resident employee: 35%; Monthly withholding.
35 Labour Foreign employees Foreigners employed at an MIC company may legally apply for a stay permit (valid for up to 9 months, fee USD 270 including special multiple re-entry visa that is in practice usually also required); Other foreigners usually enter and stay in the country on the basis of business trips with business visas (maximum stay period: 70 days per stay); No work permit system implemented yet; No foreigners may be employed for jobs requiring ii no or low skills; 25% / 50% / 75% of an MIC company's skilled employees must be Myanmar citizens in the first and second / third and fourth / fifth and sixth year of operation; Obligation to annually submit a training plan.
36 Securing land development rights and other land lease issues in Myanmar.
37 Securing land development rights in Myanmar How foreigners can secure land development rights Foreigners cannot own immovable property in Myanmar. Restriction is entrenched in Section 37 of the Constitution and the Transfer of Immoveable Property Restriction Act 1987: Section 37 of the Constitution: The Union: (a) is the ultimate owner of all lands and all natural resources above and below the ground, above and beneath the water and in the atmosphere in the Union; (b) (c) shall permit citizens the right of private property, right of inheritance
38 Securing land development rights in Myanmar How foreigners can secure land development rights The Transfer of Immoveable Property Restriction Act 1987: Section 3: No person shall sell, buy, give away, pawn, exchange or transfer by any means immoveable property to a foreigner. Section 4: No foreigner shall acquire immoveable property by way of purchase, gift, pawn, exchange or transfer. Section 11: Whoever contravenes the provisions of sections 3 and 4 shall be sentenced to a minimum of three years and a maximum of five years imprisonment and the relevant property shall be confiscated as public property.
39 Securing land development rights in Myanmar How foreigners can secure land development rights As foreigners are not permitted to own land, they can secure land development rights by entering into long term land leases with the land owner, subject to the approval of the MIC. Foreign investors right to enter into a long term lease agreement is provided in Chapter XIV, Foreign Investment Law (2 Nov 2012) - Initial term of up to 50 years + two 10 year term extensions. - Longer term permitted by MIC, with Government approval where the land to be developed is located at less developed and/or less accessible regions. Without the approval of the MIC foreigners are allowed to enter into leases Without the approval of the MIC, foreigners are allowed to enter into leases of immoveable property for no more than one year - Section 5 of The Transfer of Immoveable Property Restriction Act 1987.
40 Securing land development rights in Myanmar How foreigners can secure land development rights Manner in which long term land leases may be procured: (a) (b) (c) (d) For land owned by the Government or Government Departments: through submission of tender bids For land owned by the Government or Government Departments: through direct negotiations For land owned by private citizens: through direct negotiations Acquisition of shares of a foreign company incorporated under the FIL: possible subject to approval of the lessor, Region Government and MIC Regardless of the identity of the land owner the procurement of land development Regardless of the identity of the land owner, the procurement of land development rights will be subject to MIC approval.
41 Securing land development rights in Myanmar How foreigners can secure land development rights Common features of Myanmar public tenders In view of Govt s efforts to enhance transparency in dealings across all sectors in Myanmar, foreigners can now participate in the submission of tender bids for land/infrastructure development. High level of flexibility; sometimes in the hands of investors to propose plot ratio; land allocation within the project itself. Documentary requirements: Corporate documents (company registration certificate, M&AA, company profile); Financial background (bank referral letter; audited financial statements); Expertise (past track record); Availability of capital to fund investments (recent bank statements). Refundable deposit. Development of project infrastructure on BOT basis.
42 Securing land development rights in Myanmar Common features of Myanmar public tenders Economic proposal Land Lease Premium; Annual Rent; Percentage of turnover. Technical proposal p Development master plan; Plans and drawings; Environmental and social impact assessment report; Commitment to the proposed time-frame.
43 Securing land development rights in Myanmar Profile of a successful applicant Attractive technical proposal; Government is not only focused on maximizing economic returns but is keen to ensure: - development of employment opportunities (during/postconstruction) - development of infrastructure; - transfer of technology and technical skills to local sub-contractors. Credibility of joint-venture partners, particularly the international partners when it relates to technical proposal. - Technical - past track record in the industry; - Financial.
44 Securing land development rights in Myanmar Direct negotiations with the Government Although the new policy of transparency of the Government accords priority to land development throughh tender bids, it seems thatt the Government is also willing to be approached directly by investors so as to expedite much needed infrastructure development in certain industries. In such a case, once the investor has a clear idea of the location, nature (design, concept, etc.) and scope of infrastructure to be developed, it may be useful to arrange a meeting with the relevant Union Minister to understand (among others) whether: the proposed project has already been ear-marked for public tenders; how the Government can be of assistance in procuring the land; the expectations of the Government in relation to rent, investment scale, etc.
45 Securing land development rights in Myanmar Securing land use rights from private citizens Over the past months, numerous investors were disappointed by the unreasonable rental rates requested by private citizens. Wehaveseenafewproposed p transactions being aborted due to this reason. Notwithstanding your proposed transaction can be structured such Notwithstanding, your proposed transaction can be structured such as to allow the local partner to provide land use rights as in-kind contribution.
46 Securing land development rights in Myanmar Land due diligence Which government departments issue land grants? - YCDC (Yangon City Development Committee) - DHSHD (Department of Human Settlement of Housing Development of the Union Ministry of Construction) - MCDC (Mandalay City Development Committee) - NCDC (Nay Pyi Taw City Development Committee) - Administration Department of the Union Ministry of Home Affairs Apart from the 3 city development committees (YCDC, MCDC, NCDC), the land grant would be issued by the local Administration Department of the relevant area to be developed. Apart from the 3 city development committees, the land map would be issued by the local Land Records Department of the Union Ministry of Agriculture and Irrigation at the relevant area to be developed.
47 Securing land development rights in Myanmar Land due diligence Due diligence should be conducted before entering into a lease agreement: (a) Title checks can be conducted with either of YCDC / MCDC / NCDC / / DHSHD / Admin Department of the Union Ministry of Home Affairs / Land Department of the Union Ministry of Agriculture and Irrigation (the Relevant Govt Departments ): (i) (ii) Procure a copy of recently certified land map of the leased area from the Relevant Govt Departments. It takes approximately one month for issuance of certified land map; and Procure copies of all documents relating to the plot of land proposed to be leased + authorization letter from the land owner for submission to the Relevant Govt Departments to apply to have sight of the land records.
48 Securing land development rights in Myanmar Land due diligence (b) Site investigation Occupiers entitled to remain on the land by prescription; p re-settlement of occupiers being the obligation of the Lessor (as Lessor is supposed to hand over vacant possession of the land unencumbered). Lands not allowed to be leased pursuant to Notification No. 39/2011 include: - religious lands; - lands restricted for State defense and security; - lands under litigation; and - lands restricted by the State from time to time.
49 Securing land development rights in Myanmar Key clauses in a long term land lease Save for leases obtained through Government tenders, it is usually possible to negotiate the terms and conditions of the lease: Term of Lease: Term to commence from the date of issuance of the MIC Permit. Rent: Rent-free period during agreed construction period or extensions thereof. Sub-leasing rights: Right to rent out infrastructure vs. Right to sub-lease land. Termination: Mutual written agreement/material breach un-remedied after notice. Natural resources: Shall not be explored (unless permitted under the MIC Permit). Environmental protection: Non-negotiable statutory obligation (Notification No. 39/2001).
50 Tax Aspects in Myanmar.
51 Income Taxation of Companies Sources of law: Income Tax Act 1974 as amended; Income Tax Regulations, Income Tax Rules, Income Tax Notifications. Tax rate: 25% (companies incorporated in Myanmar; theoretically ( p p y ; y also: Myanmar branch of a foreign company operating under an investment permit issued by the Myanmar investment Commission); 35% (non-resident foreign companies).
52 Income Taxation of Companies Tax base: Profit/loss according to the annual audited financial statements (prepared according to the Myanmar Accounting Standards - similar to IFRS). Financial year: 1 April - 31 March. Expenses are deductible if there is a nexus between the business Expenses are deductible if there is a nexus between the business of the company and the expenses and the expenses do not appear to be out of proportion in view of the size of the business.
53 Income Taxation of Companies Losses can be carried forward for 3 years. Capital gains/losses do not form part of the taxable income (taxed separately at the rate of 10% for residents and 40% for non- residents; at the rate of 40-50% for both residents and non-residents if shares of an oil or gas project are sold).
54 Income Taxation of Companies Thin cap rules: No thin cap rules in the Income Tax Law. No transfer pricing rules.
55 Income Taxation of Companies Withholding tax rates (according to national tax law): Payment to a resident Payment to a nonresident Dividends/distribution of branch profits n/a n/a Interest n/a 15% (final tax) Royalties, license fees 15% 20% (final tax) Fees for services bought within the country or abroad (includes rental fees) 2% 3.5% (final tax) Purchase of goods within the country 2% 3.5% (final tax)
56 Income Taxation of Companies Income taxation of a branch: Foreign-owned branch classified as a non-resident, tax rate therefore 35% and not 25% (with the theoretical exception of a branch operating under an investment permit issued by the Myanmar Investment Commission). In practice, branches usually serve as representative offices, i.e. they do not make profits and should therefore have no income tax exposure. Still, obligation to file income tax returns.
57 Income Taxation of Companies Quarterly advance payments, annual income tax returns until 30 June. Payment of withholding tax within 7 days after the deduction. Declaration of a capital gain (if any) within 1 month after the alienation of the capital asset.
58 Tax Incentives Sources of law: Chapter 12 Foreign Investment Law 2012; chapter 14 Foreign Investment Rules Non-discretionary income tax exemption for a period of 5 years y p p y starting at the end of the construction period.
59 Tax Incentives Some incentives at the discretion of the Myanmar Investment Commission: Income tax exemption for more than 5 years; 50% reduction of income tax on profits derived from the export of manufactured goods; exemption from, or reduction of, customs duties and other internal taxes on the import of machines, etc. during the construction period; exemption from, or reduction of, customs duties and other internal taxes on the import of raw materials within 3 years after the start of production; exemption from, or reduction of, commercial tax on the export of manufactured goods.
60 Commercial Tax Sources of law: Commercial Tax Law 1990 as amended, Commercial Tax Regulations, Commercial Tax Notifications. Similar to VAT,, but input tax not always available. Applicable to the production and domestic sale of goods, the import of goods, the export (of a very limited number) of goods and to specific services.
61 Commercial Tax Tax rates: Production and sale Import Certain essential goods n/a 5% n/a Most goods 5% 5% n/a Cigarettes 100% 100% n/a Tobacco, pipes, cigars, betel chewing preparations, liquor, beer, wine 50% 50% n/a Export
62 Commercial Tax Tax rates: Production and sale Import Export Teak logs and teak cuttings, 50% 50% 50% hardwood logs and hardwood cuttings Jade and other precious 30% 30% 30% stones Certain cars 25% 25% n/a Gasoline, diesel oil, jet fuel 10% 10% n/a
63 Commercial Tax Tax rates: Production and sale Import Natural gas 8% 8% 8% Oil 5% 5% 5% Export
64 Commercial Tax Tax rates: 5% for the following services performed in Myanmar: Trade (domestic sale of purchased goods) Sale of food and drinks Transport by rail, air, road, water Entertainment business Tourism business (including tour guides) Hotels Cleaning, oiling, repair and decoration of motor vehicles Beauty parlours, fitness studios, hairdressers and similar businesses
65 Commercial Tax Tax rates: 5% for the following services performed in Myanmar: Keying-in of data (on a computer), computer graphic design (excluding reproduction of copies using a photocopier) Brokerage services Drawing designs, decoration and repair of land; building and construction Insurance business (except life insurance) Marketing, taking and developing photos, edition and distribution of motion pictures and videos Agents, lawyers, certified accountants, auditors
66 Commercial Tax Tax base: Turnover; in case of import: 1.05 x CIF price plus import duty. No commercial tax to be paid by small enterprises (annual turnover up to Kyats 10,000,000, equivalent to approx. USD 12,000). Monthly payments within 10 days after the end of the month; Monthly payments within 10 days after the end of the month; quarterly (within 1 month after each quarter) and annual filing (until 30 June) of tax returns.
67 Taxation of Capital Gains Income tax on capital gain of a capital asset (= land, building, shares, bonds, any capital asset connected with the enterprise ) if seller is a resident individual or company: 10%. Income tax on capital gain if seller is a non-resident individual or company: 40%. Income tax on capital gain if shares in an oil or gas project are sold (irrespective of the residence status of the seller): 40% (capital gain up to USD 100 million), 45% (capital gain more than USD 100 million and less than USD 150 million), 50% (capital gain more than USD 150 million).
68 Taxation of Capital Gains Vodafone scenario? Advantageous double taxation agreement with Singapore (simplified description): Myanmar must not tax if seller (Singapore resident) held less than 35% of the shares of a company whose assets do not principally consist in immovable property. Myanmar capital gains tax must not exceed if seller (Singapore resident) sold shares in a company whose assets principally consist in immovable property, or if seller (Singapore resident) held 35% or more of the shares.
69 Taxation of Capital Gains Note: In addition to capital gains tax: stamp duty (0.3% in case of the sale of shares, 5% - in Yangon (area of the Yangon City Development Committee) 7% - in case of the sale of land and buildings). No commercial tax on the transfer of shares, or the transfer of land and buildings. A buyer of real estate has to pay up to 30% of the purchase price as income tax on undisclosed sources of income if the buyer is unable to reveal the source of the money.
70 Municipal i Property Taxes There are municipal property taxes (e.g. according to the City of Yangon Municipal Act 1922 as amended). As such, municipal property p taxes are often no direct concern to foreign-invested enterprises as they can only lease and not own immovable property. However, the rent charged by the lessor would usually reflect costs incurred by the lessor due to municipal property taxes. The thus increased rent can be deducted as business expenses by the lessee.
71 Stamp Duty Sources of law: Stamp Act of 1899 as amended. Tax rates: Transaction Tax rate Sale or transfer or immovable property 5% (in Yangon: 7%) of the consideration Sale or transfer of shares Lease of immovable property (less than 1 year) Lease of immovable property (1-3 years) Lease of immovable property (more than 3 years) 0.3% of the consideration 1.5% of entire rent 1.5% of annual average rent 5% of annual average rent
72 Double Taxation Agreements The homepage of the Ministry of Finance and Revenue lists double taxation agreements with the following countries: India, South Korea, Malaysia, Thailand, United Kingdom, Vietnam, Singapore, Laos.
73 Double Taxation Agreements Section 31 Income Tax Law: When the Union Government enters into an agreement with any foreign state relating to income tax and if the agreement is notified, the terms of the said agreement shall be followed, notwithstanding anything contained in any other provision of the law. Such agreement may be published in the Union of Myanmar Gazette notwithstanding anything contained in any other provisions of the law. Prior consultation with the revenue office in charge!!
74 Import/Export t Importer/exporter must: Be registered as importer / exporter with the Ministry of Commerce (Export Import Registration Office under the Directorate of Trade; be a member of the Myanmar Federation of Chambers of Commerce and Industry (UMFCCI); for each individual shipment, apply for an import or export license in advance (note: requirement abolished with effect from 1 March 2013 for certain goods listed in Ministry of Commerce Notification 16/2013 dated 28 February 2013); conduct customs proceedings.
75 Import/Export t Requirement to have "export earnings" in order to be able to import abolished. Export requires a letter of credit from a Myanmar bank or proof of p q y p payment (without these documents, customs clearance is not possible the idea behind is that goods shouldn't leave Myanmar without corresponding value flowing into the country).
76 Import/Export t Classification of goods to be imported: Essential goods; non-essential goods; restricted goods; prohibited goods.
77 Import/Export t Customs duties and commercial tax: Customs duties and commercial tax on imports. No customs duties on exports. Commercial tax on exports only for a few goods. HS classification. Publicly available customs duties not continuously updated; last compilation of duty rates published on 1 January 2012 by the Customs Department ("Customs Tariff of Myanmar 2012").
78 Import/Export t Customs duties for goods from WTO countries can be researched at Goods from ASEAN: 80% of tariff lines reduced to 0% by 2012; 93% of tariff lines to be reduced to 0% by 2015; import duties for all goods from ASEAN to be abolished by Tax base for customs duties: 1.05 times the CIF value of the imported goods.
79 Import/Export t Commercial tax on import (to be paid together with customs duties): Most goods: 5%; cigarettes: 100%; tobacco, pipes, cigars; betel chewing preparations; liquor, beer, wine; teak/hardwood logs and cuttings: 50%; jade and other precious stones: 30%; gasoline, diesel oil, jet fuel: 10%; natural gas: 8%. Tax base for commercial tax: tax base for customs duty plus the Tax base for commercial tax: tax base for customs duty plus the amount of customs duty.
80 Finding the Right Local Partner
81 Definition of Joint Venture: Doing Business in Myanmar Definition iti of Joint Venture A joint venture is a business understanding in which two or more parties agree to establish a mutual co-operation by contributing tangible and/or intangible assets and having equity participation. Th j i t t ti j i tl i t l th The joint venture parties jointly exercise control over the entity and consequently share profits, risks, costs/expenses and assets.
82 Developments in the use of JVs JVs have been used as a corporate vehicle as early as the 19th century in the United Statest toundertake the construction ti and development of major infrastructure projects. In 1960s-1970s, many companies invested in Japan by establishing joint ventures with local companies. Over the last 20 years, foreign investors also used JV vehicles for the purpose of investing in China. Currently the JV is commonly used by foreign investors looking to penetrate emerging markets.
83 Who should a Joint Venture be set up with? Is the potential JV partner financially sound? Does the potential JV partner have any credit or debt issues? Does the potential JV partner have existing joint venture/mutual collaboration arrangements? What is the market type and volume for the potential JV partner s products and/or services? What do the customers and suppliers say about the potential JV partner s trustworthiness and integrity? How did the potential JV partner perform over the last two years in terms of growth, capability, marketing and workforce? What form of contribution and how much can the potential joint venture partner bring to the table? Local or foreigner? International experience or exposure? Past track record?
84 Choosing gyour JV partner The choice of the JV partner is one of the most critical decisions in setting up a joint venture: An otherwise potentially successful venture can fail for lack of trust between JV partners. Run a check on the company and the individuals id (i.e. CEO, majority shareholders, etc). Consider how you and your JV partner can mutually benefit each other. Research past track record; be aware and be respectful of the potential JV partner s culture. Be emotional and be intellectual!
85 The most suitable JV partner Save for a few exceptions, companies about to enter into a joint venture agreement should complement each other. - Little or no overlap in business activities, clients or assets. In-depth knowledge of the local market and politically well-connected. Good past track record. Fair, trustworthy and financially sound/independent. Good understanding of the transaction, common view-point and perspective. Able to write and communicate/articulate thoughts in a language common to all JV parties. Chemistry is another important factor.
86 Advantages and Disadvantages
87 Advantages Choice of a suitable joint venture can substantially increase productivity, generation of profits and hasten company growth. A successful joint venture offers several benefits and advantages: access to local natural resources (for foreigners); access to skilled human resources and high technology (for locals); increased productivity in terms of quality and quantity (for locals); costs sharing between partners (for locals and foreigners).
88 Advantages (continued) Joint venture arrangements are well suited for many industries. Joint ventures do not necessarily require third party financing. Company A can contribute know-how and technology while company B can provide land, human resources and distribution network. Flexibility and versatility: a joint venture is a temporary entity which may be dissolved after its business objective is achieved. Companies of all sizes can enter into a joint venture.
89 Disadvantages Establishing new commercial arrangements/relationships takes time and effort. Constant improvements on the corporate governance structure and the management of project (of limited application in Myanmar). Relocation of key-personnel from the holding company to the joint venture company: Most joint venture shareholders allocate their trusted key personnel on the ground to participate i t in the management/operations ti of the joint venture. Establishment of common objectives may only be achieved after lengthy negotiations. Cultural differences amongst partners may lead to poor integration and co-operation.
90 Reasons of Failure
91 Common reasons for failure Local partners want to be independent. Ill-conceived commercial strategies: Foreigners tend to implement a project or business strategies in the same way as they would do back in their home countries; Be humble, listen to your local partner when it comes to the local market. Incompatibility amongst partners: Issues arise if the business of the joint venture company does not or is slow in gaining momentum; Legal advisors can act as intermediaries to avoid mounting tension between parties. Financial difficulties. Lack of management skills. Unfair or one-sided terms and conditions in the joint venture agreement.
92 Joint Venture in Myanmar The true reason The Joint Venture has been wrongly planned or implemented since the early stage because the parties did not commit enough to the Joint Venture Company in terms of human resources, cash, assets, attention and/or time. Academic studies and researches have demonstrated that the reason why a party does not commit too much in a joint venture company is because of the lack of trust in the other party(ies): Let him do it first syndrome can cause more losses than the Let me do it first syndrome.
93 The Challenges
94 The challenges Creation of a strategic alignment amongst partners Goals, objectives, expectations, etc. Market segments. Dividend policy (re-invest the profit or distribute dividends?) Maintaining the strategic alignment. Cultivating good corporate governance in a multinational and multicultural environment.
95 Part II
96 Potential Barriers to Investing in Myanmar
97 Potential ti Barriers to Investing in Myanmar Political stability and unresolved local conflicts. Lack of a Master Plan for national development (e.g. power generation facilities). Lack of infrastructure. Uncertainty in the enforcement of foreign arbitral awards. Lack of financing and access to banking facilities. Lack of skilled labour, supplies and technology.
98 Political l instability and unresolved local l conflicts Democratic process still on-going; Constitution to be amended: Potential for the occurrence of social and political tensions during this transitional period. Opening up of various industries may affect local business interests. Certain areas of Myanmar are still conflict-ridden (temporary cease-fire only).
99 Lack of a Master Plan There is concern over the lack of transparency in the Government s plan for development in various sectors including infrastructure: Areas accorded priority in terms of power generation, road/port accessibility, special economic zones (despite having promulgated the Special Economic Zone Law early last year). Agenda and timeframe. Foreign investors fear the risk of expropriation of land by the Government after having entered into a long term lease (e.g. China and, more recently, Cambodia).
100 Lack of infrastructure t Lack of Government financing for infrastructure development. Uncertainty in the completion of on-going infrastructure projects (e.g. Dawei Deep Sea Port), which in turn triggers: Increase in cost of transportation both on-shore and off-shore; and Increase in the risk of delays for delivery of equipment, building supplies and ultimately, project completion. Still for some months, under-developed telecommunications network. Low power supply despite massive demand; Frequent power disruptions; Lack of electricity disadvantages, among others, heavy industries (including car manufacturers).
101 Uncertainty t in the enforcement of foreign arbitral awards On 16 April 2013, Myanmar deposited an instrument to accede to the New York Convention with the UN Secretary-General; accession with effect as from 15 July Reservations? Domestic implementation? Enforceability of foreign arbitral presently depends on the application of earlier conventions required to be implemented by the Myanmar Arbitration Implementation Act of 1937 (i.e. the Geneva Protocol and the Geneva Convention).
102 Lack of financing i and access to banking facilities Banking and financial services law reform: Even if the economy of Myanmar is dollarized, ATMs and credit card facilities are very hard to be used. Just recently, some banks started to propose these services. As economic sanctions on Myanmar have only recently been suspended or lifted: The banking system of Myanmar is still in a state of development; money transfers still problematic. Foreign lenders are still assessing the viability of financing projects in Myanmar.
103 Lack of skilled labour, supplies and technology The New York Times, 12 April 2012: Myanmar s education system was decimated during what the Asian Development Bank calls 50 years of stagnation under military rule. Universities, once centres of political dissent, were particularly hard hit and strapped for cash.... During the years of military rule, there was an exodus of Burmese talent, primarily to Malaysia, aysa,singapore, Thailand a and the Gulf Countries. Government control over crucial sectors (such as banking, insurance and telecommunications) together with economic sanctions over the past decades severely restricted the influx of foreign investment and technology: Current development: Local companies are sending hundreds of employees to train in Singapore companies. Due to strict control on imports (including electrical and mechanical products) now somewhat relaxed, components to complete final products in anassembly line are scarce or difficult to obtain.
104 Why Do Business in Myanmar?
105 Low cost of labour Population of about 63 million (Male 49.7%, Female 50.3%). Literacy rate: 92% (in line with Malaysia 92.8% and Vietnam 92.4%) higher than most emerging markets. Relatively higher level of English language proficiency compared to its Mekong neighbors. One of the lowest cost of labour amongst ASEAN countries (For instance, US$80 per month for workers, US$250 per month for university professors and US$350 per month for chief accountant). Majority of the Myanmar population live peacefully and earn an honest living. i
106 Positive political l outlook Up to the 1960 s, Myanmar was the richest country in the Mekong region. Since 1962, Myanmar has been governed by a military regime which resulted in years of political deadlock and international isolation. In May 2008, the Union of Myanmar became a Republic (of the Union Of Myanmar). In March 2011, the current President Thein Sein took office. In April 2012, Daw Aung San Suu Kyi was elected as a Member of Parliament. In the first half of 2012, several countries suspended or lifted sanctions on Myanmar. New FIL, Mr. Obama s visit and continuous reforms have convinced investors that Myanmar is truly changing.
107 Positive economic outlook About 63 million potential consumers for all types of goods and services. Currently, only a handful of multinational companies operate in Myanmar Low level of competition. Recent opening up of industries including insurance; telecommunications, banking and financial services sectors planned to follow. First-mover advantage. Economy expected to boom over the next 5-7 years. Myanmar expected to be one of the most attractive countries for FDIs over the next 3-5 years. Yangon Stock Exchange Market expected to be re vitalised over the next Yangon Stock Exchange Market expected to be re-vitalised over the next months.
108 Strategic t geographic position Myanmar shares borders with 5 other countries: Bangladesh, India, China, Laos and Thailand: Direct access to China and India. Myanmar s vast coast line on the Indian Ocean: Faster connections by sea to Europe and the US East Coast; and No need to ship through the Strait of Malacca, avoiding congestion. About 2,300 kilometers of coast and the construction of 4 ports, currently being considered by the Government. Potentially, new infrastructure and connections over the next 8 years (including Dawei Deep Sea Port, Mekong area rail link): Latest technology and know-how by investors.
109 Natural resources and Tourism Manufacturing industries may find cheaper raw materials. Breathtaking landscapes, islands, historical and cultural sites. Site Natural resources including: Oil and natural gas; Coal; Iron, copper, tungsten; Gold; Gemstones & semi-precious stones; and Teak. s.
110 Coming together is a beginning; keeping together is progress; working together is success. Henry Ford
111 Thank You!
112 Alessio Polastri - Managing Partner alessio@pwplegal.com +95 (09) p
113 Sebastian Pawlita - Partner sebastian@pwplegal.com +95 (09)
114 Karina Peng - Partner Karina@pwplegal.com +95 (09)
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