Doing Business in Myanmar: An Introduction Minn Naing Oo Managing Director Allen & Gledhill (Myanmar) Co., Ltd 4 November 2015
Introduction to Allen & Gledhill Singapore 1 Established in 1902 One of the largest full-service law firms in Singapore Over 300 lawyers (142 partners) organized into 22 practices Our reputation for delivering exceptional legal service in Singapore and South-east Asia is regularly affirmed by the strong rankings from leading publications:
Our network of associated firms 2 Associate firms in the region Malaysia: Rahmat Lim & Partners Laos: Allen & Gledhill (Laos) Co., Ltd Myanmar: Allen & Gledhill (Myanmar) Co., Ltd.
Introduction 3 Allen and Gledhill (Myanmar) Co., Ltd officially opened on 4 February 2014 Team of Myanmar-qualified and foreign-qualified lawyers
Introduction to Myanmar 4
Country Facts 5 Burma the Golden Land Largest country on mainland Southeast Asia Borders 5 countries (incl. China and India), with a 1,900 km coastline 60 million population, with per capita GDP of US$1,300 Rich in natural resources
Country Facts 6 Gained independence in 1948 Military rule from 1962 to 2010 Current government is a democratic government with two legislative houses and an executive President Seven states (with large ethnic populations) and seven regions/divisions (largely Myanma populations) Longest running civil conflict
Investment Statistics (September 2015) 7 Origin China South Korea Hong Kong Singapore UK Others 17% 31% 7% 22% 7% 15% Sector Oil and Gas Power Manufacturing Transport & Communication Mining Others 5% 10% 7% 40% 10% 28%
Legal System Legal system is based on the English common law, with Myanmar customary law Much dead letter law now revived Highest Court is Union Supreme Court, with High Courts of States and Regions and lower Courts in Districts, Townships etc. Constitutional Tribunal rules on interpretation of the 2008 Constitution and disputes between Union and State/Region 8
Myanmar Elections 2015 9 D-Day 08 November 2015 What lies in the future? What will be the approach Reformist or Socialist? Pessimism vs. Optimism
Doing Business in Myanmar 10
Investing in Myanmar 11 Carrying on business in Myanmar: Business Permit required for foreign companies pursuant to Section 27A of the Myanmar Companies Act Vehicles Companies Private and Public Limited and Unlimited Special Companies Branch Offices/ Representative Offices Other forms (partnerships, sole proprietorship) Foreign Investment Law (2012) Approval from the Myanmar Investment Commission ( MIC )
12 Investment Vehicle
Establishing an Entity (Companies Act) 13 Private Company Separate legal entity Taxed at 25% on worldwide income May be 100% foreign owned (minimum 2 shareholders) No requirement for local directors (minimum 2 directors) Special Company Under the Special Company Act Joint ventures with the government Branch Office Not a separate legal entity Taxed at 25% on Myanmar sourced income Authorized person to accept service required (must be resident in Myanmar) Representative Office No distinct concept in Myanmar Exception: Financial institutions under the Financial Institutions of Myanmar Law
Required Documents (non-exhaustive) 14 Standard Forms Form A and Form B (general information including capitalization, registered office etc.) Memorandum and Articles of Association Business Objects Profile of subscribers/head office Details of directors/officers Director s resolutions for the establishment of the entity Bank statements/reference letters demonstrating financial capability Audited financial statements for two years (for branch office)
Process 15 Collation of documentation Objects must be specified Submission of 2 applications to the Companies Registration Office ( CRO ) For the Incorporation of Company For a Business Permit (section 27A of Myanmar Companies Act) CRO will obtain no-objection letter from the relevant ministry in respect of the proposed objects Timeframe: 3-6 months
Temporary Registration 16 May obtain a Temporary Certificate of Incorporation and Business Permit Allows entity to carry on business while application is pending at the CRO Valid for 6 months May be obtained within one month from submission Does not mean that application has been approved If application is rejected, business must cease upon expiry of six months.
17 Foreign Investment Law
Foreign Investment Law 2012 18 Objective is for the development of the country expansion of exports, increase in employment, acquisition of technology and know-how Investment Permits issued by the MIC Generally for substantial investments and not required for, or available to, all investors Permitted Structures: 100% foreign owned company Established under the Myanmar Companies Act / Special Companies Act Joint venture With a citizen or relevant government department or organization Capital ratios may be mutually set Any system contained in the contract (incl. BTO and BOT)
MIC Permits 19 By law - Application to be submitted concurrently with application to incorporate entity Required documents: Form 1 Draft land lease and joint venture agreement Business Plan, audited accounts, evidence of financial standing etc MIC may require in-person interviews at Nay Pyi Taw and follow-up documentation Timeframe: approximately 1-3 months from complete submission
Operating with an MIC Permit 20 Environmental and Social Impact Studies All other permits and licenses must be obtained Reports (Form (3)) must be submitted to the MIC once every three months Any subsequent increase of capital, mortgage, transfer of shares or expansion of the business must be approved by the MIC Insurance must be obtained Myanma insurance Private insurance
Structuring 21
100% Foreign Owned or a Joint Venture 22 Are joint ventures necessary? New Foreign Investment Law Government Policies Should I enter into a joint venture? Selection of a joint venture partner The Due Diligence process Documentation Searches Companies and Individuals
Structuring your Joint Venture 23 Minimum shareholding requirements MIC Notification 49/2014 On-shore or off-shore joint venture Carrying on business in Myanmar Capital Contribution Cash or in Kind Acquisition of existing businesses Shares (Citizen Investment Law) Assets Alternative arrangements
Operational Issues 24
Operational Issues 25 Restrictions Land Finance Labour Tax Dispute Resolution
Restrictions 26
Restricted Activities State-Owned Economic Enterprises Law 27 12 Sectors may be permitted by the MIC Foreign Investment Law Activities detrimental to the environment and society Minimum local shareholding requirement in joint venture companies Government Policy Industrial activities (may be permitted by the MIC) Trading and distribution (may be permitted by the MIC after 2015)
Other Restrictions 28 Acquisition of Shares in Myanmar Company Section 34A of Companies Act CRO must be notified when shares in a Myanmar company are transferred to a foreigner However, restricted by government Policy Exception: Citizen Investment Law Rules have yet to be promulgated Transfer of Immovable Property Restriction Law Sale, purchase, gift, lease, mortgage Import of goods Not permitted to be a registered importer unless: Myanmar companies MIC Companies (and their sub-contractors)
Land 29
Land 30 Transfer of Immovable Property Restriction Law Restriction on transfer of immovable property to Foreigners Exception for leases of less than 1 years. Foreign Investment Law (2012) Leases of 50+10+10 years permitted Longer term leases may be permitted for remote regions For joint ventures, land leases may be injected by the local partner in exchange for shares Leased land must be suitable for intended investment Non-agricultural/non-farmland/religious land
Land 31 Types of land tenure Freehold (ancestral land) Grant land (varying terms: 30 / 60 / 90 years) : renewable Agricultural/Farm Land La Na 39 / Section 30 of the Farm Land Law Cultivable, Fallow and Waste Land Due Diligence Title documents (land map, land records) Powers of Attorney Official Searches / unofficial searches
Transfer of Land 32 Sale and purchase (only to citizens) Publication of Cautionary Notices Registration Special Power of Attorney Lease Registration (for leases in excess of a year) Taxes Mortgages MIC approval required Registration
Finance 33
Banking 34 Myanmar Banks Government owned (4) and Private banks (19) Weak financial capabilities Generally take immovable property or gold as security Foreign Banks 9 foreign bank licenses awarded Loans from off-shore foreign banks still require approval from central bank
Transfer of Funds 35 Previously restricted by the Foreign Exchange Regulation Act (1947) Foreign Exchange Management Act (2012) Ordinary transactions may be made freely Payments to be made in connection with foreign trade, other ongoing business including services, ordinary short-term banking and credit facilities; Payments to be made as interest on loans and as net income from other investments; Payments in a reasonable amount to amortize loans and depreciate direct investment; Reasonable remittance for family expenses Old rules to the Foreign Exchange Regulation Act apply so long as they do not conflict In practice, Central Bank still approves loans obtained from off-shore institutions
Transfer of Funds 36 Under the Foreign Investment Law (2012) - Foreign Investor has the right to repatriate the following funds: foreign capital that he is entitled to; foreign currency permitted for withdrawal by the MIC; net profit after deducting all taxes and the relevant funds from the annual profit legitimate balance, after causing payment to be made in respect of taxes and after deducting in the manner prescribed, living expenses incurred for himself and his family, out of the salary and lawful income obtained by the foreign staff during performance of service in the Union; Amount remitted must be approved by MIC based on reports
Labour 37
Local Hiring Requirements (FIL) 38 First two years At least 25% of the workforce Next two years At least 50% of the workforce Third two year term At least 75% of the workforce Citizens must be employed for unskilled positions. Training must be provided Recruitment must be done through the local labour office
Main Labour Laws 39 Employment and Skills Development Law (2013) Minimum Wage Law (2013) Social Security Law (2012) Labour Organization Law (2012) Settlement of Labour Disputes Law (2012) Shops and Establishments Act (1951) Leave and Holiday Act (1952) Payment of Wages Act (1936)
Tax 40
Tax Overview 41 Corporate Income Tax 25% on worldwide income for companies (resident foreigners) 25% on Myanmar sourced income for branches (non-resident foreigners) Both are computed on net basis Personal Income Tax Residents: On salaries: progressive rates, with the highest rate being 25% On rental income: flat rate of 10% Non-residents: On salaries: progressive rates, with the highest rate being 25% Other types of income: flat rate of 25% Capital gains tax Oil & gas sector Up to an amount equivalent to MMK100 trillion: 40% From MMK 100.001 trillion to MMK 150 trillion: 45% Above MMK: 150.001 trillion: 50% All are flat rates instead of progressive rates Other sectors: 10% on net gains for residents and non-residents No withholding taxes on dividends
Other Taxes Commercial Tax Generally 5% on manufacturing and trading most goods and the provision of services Customs Duties Amount varies, subject to applicable treaties Stamp duties For most agreements Amount varies Withholding Tax Interest 0% - resident foreigners 15% - non-resident foreigners Royalties 15% - resident foreigners 20% - non-resident foreigners Services/goods 2% - resident foreigners 3.5% - non-resident foreigners 42
Tax Benefits Foreign Investment Law 43 Automatic tax incentive: Income tax exemption (5 years) Discretionary tax incentives: Imported equipment and raw materials are exempt from commercial tax and customs duties, if imported during construction periods Imported raw materials are exempt from commercial tax and customs duties, if imported in the first 3 years of commercial production Tax relief on profits if re-invested Further income tax relief on exported goods after the 5 years income tax holiday R&D expenses are tax-deductible
Tax Treaties Singapore Malaysia Thailand United Kingdom Vietnam Laos Korea India The Myanmar-Korea DTA (2003) provides tax reliefs on varies types of income sourced from either country Interest: capped at 10% Royalties: capped at 10% (copyright, use of equipment; or15% (others) Service fee and business profits: exempted if the taxpayer has no permanent establishment (PE) in the source state Personal income tax: exempt in the source state if certain conditions are satisfied 44
45 Dispute Resolution
Dispute Resolution 46 Section 43 of the Foreign Investment Law: If any dispute arises in respect of the investment business: (a) dispute arisen between the disputed persons shall be settled amicably; (b) if such dispute cannot be settled under sub section (a): (i) it shall be complied and carried out in accord with the existing laws of the Union if the dispute settlement mechanism is not stipulated in the relevant agreement; (ii) it shall be complied and carried out in accord with the dispute settlement mechanism if it is stipulated in the relevant agreement.
Dispute Resolution 47 Courts Disputes rarely brought to Myanmar courts Familiar with criminal cases; less so with corporate commercial cases Time-consuming Enforcement of foreign judgements in Myanmar Arbitration Arbitration Act 1944 Recently ratified New York Convention for the Enforcement of Foreign Arbitral Awards Have yet to pass implementing legislation
Questions? 48
Thank You 49 Minn Naing Oo T +95 1 860 3381 E minn.naingoo@allenandgledhill.com.mm Allen & Gledhill (Myanmar) Co., Ltd. Suite No. 05-02 / 03, Union Business Centre (UBC), Nat Mauk Road, Bo Cho Quarter, Bahan Township, Yangon, Myanmar www.allenandgledhill.com.mm
Notes: This presentation is intended to provide general information and is not meant to be exhaustive, comprehensive or authoritative. Allen & Gledhill LLP does not warrant its accuracy or completeness or accept any liability for any loss or damage arising from any reliance thereon. The information in this presentation should not be treated as a substitute for specific legal advice concerning particular situations. 50