Investment in Myanmar - Investment Regulatory Background and Current Impediments in Investment Enviroment

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INVESTMENT IN MYANMAR:
Investment Regulatory Background and Current
Impediments in Investment Environment
This outline should not be construed as legal advice or as pertaining to specific factual situations.
OLIVER MASSMANN
Partner - Duane Morris Selvam Myanmar

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Agenda:
• INVESTMENT IN MYANMAR
• INVESTMENT REGULATORY BACKGROUND
• CURRENT IMPEDIMENTS IN INVESTMENT
ENVIRONMENT

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INVESTMENT IN MYANMAR

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INVESTMENT IN MYANMAR - Introduction
• With its natural and human resources and cultural and national heritage
Myanmar represents excellent potential for business investment.
• Myanmar welcomes foreign investments in all forms. The Government is
intending to maintain good and strong economic relationship with all countries,
all foreign organizations and individuals.
• An untapped market- rich in natural resources with a young population and a
high number of English speakers.
• A fertile and resource-rich country strategically located in the heart of Asia, one
of the world’s largest growing economic regions.
• Firms involved in precious stone, agricultural products or other industries may
find Myanmar a fascinating place to begin developing longer term interests.
• Significant legal reforms aiming to improve investment climate

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STRATEGIC INVESTMENTS: Most promising sectors
• Construction and infrastructure: knowing that poor infrastructure may hold the
country back, Myanmar’s Government has accorded high priority to infrastructure
development projects - such as transportation facilities, irrigation networks, communication
systems, private hospitals, etc.
• Electricity/Energy: only about 15% to 20% of the total population are accessible to the
electric power supply, and the rest have to rely on conventional natural resources…
ELECTRICITY IS CRITICAL TO THE COUNTRY‘S DEVELOPMENT!
• Oil and gas: rich of oil and gas reserves, mostly unexploited, offering great opportunity
for international bidders. World’s largest hydrocarbons companies such as Chevron, BP,
Woodside, Shell, ConocoPhillips, ExxonMobil all expressed interest in entering Myanmar .
• Telecommunication: with population of over 60 million peoples, telecommunication is
one of the most promising and lucrative industry.
• Mining: Myanmar is rich in mineral resources: copper, gold, lead, zinc, silver, tin and
tungsten, antimony, chromium and nickel. In terms of mineral potential, Myanmar ranks
high among Asian countries, but mineral resources are very much under-utilized
• Other: forestry, agricultural, tourism.

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INVESTING IN AGRICULTURAL SECTOR
• Myanmar was once the world’s largest rice exporter from 1961 to 1963 (Source:
Bloomberg)
• Myanmar’s current agricultural sector: An image of Vietnam 25 years ago
• Current role of Myanmar’s Agricultural sector (Source: Ministry of
Agriculture and Irrigation of Myanmar - 2012):
§ 36% of GDP (crops (27%), livestock & fisheries (8%) and forestry (1%))
§ 61% of Labor Force
§ 28.1% of Export Earnings crops (16.6%), livestock & fisheries (4.9%) and
forestry (6.8%))
• As of July 2013, foreign investment in Myanmar's agricultural sector totaled USD
185.351 millions in 10 projects, accounting for only 0.43 percent of the total since t
he country opened to such investment in late 1988 (Source: Xinhuanet)
• Myanmar will potentially become an major food supplier of the region in the
near future

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INVESTMENT REGULATORY
BACKGROUND

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Investment Regulatory Background
• Myanmar Foreign Investment Law (“MFIL”) 2012
§ New MFIL 2012 (Law No. 21/2012)
§ Replaces previous MFIL 1988
§ New improved investment incentives offered to foreign investors
§ Restrictions on foreign investment on certain business activities
§ Regulatory authority: Myanmar Investment Commission (“MIC”)
• Myanmar Foreign Investment Rules (Jan 2013)
§ Myanmar Foreign Investment Rules (Notification No. 11 of 2013) released in
January 2013
§ Foreign ownership in restricted business activities now allowed up to 80%
§ MIC given more authority as government body
§ Directorate of Investment and Company Administration (“DICA”) given
more power over foreign investments

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Investment Regulatory Background
• MYANMAR COMPANIES ACT
1914
• 100% foreign-owned
or JV with Myanmar
entity
• Minimum of 2
shareholders
• Minimum capital
requirements
• MYANMAR FOREIGN
INVESTMENT LAW 2012
• 100% foreign-owned
or JV with Myanmar
entity
• Minimum capital
requirements may be
determined by
Myanmar
Investment
Commission

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Investment Regulatory Background
• General Types of Companies:
§ Private Limited Liability Company
§ Public Limited Liability Company
§ Sole Proprietorship
§ Company Limited by Guarantee with Share Capital
§ Company Limited by Guarantee without Share Capital
§ General Partnership
§ Branch of a Foreign Company
• Capital requirement: Minimum capital required to register for a Permit to
Trade:
§ About USD 138,199 for an industrial company
§ About USD 69,000 for a trading company
§ About USD 41,460 for a service company
Note: Fifty percent (50%) of the prescribed capital must be brought in as foreign currency
before the Permit to Trade is issued and the balance 50% must be remitted within 30 days
prior to the date of renewal of Permit to Trade

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Investment Regulatory Background (cont.)
• Form of Foreign Investment:
§ A foreign investor may incorporate in Myanmar a 100% foreign owned
company permitted by the Myanmar Investment Commission!
§ A foreign company may establish a place of business or carry on business in
Myanmar as a branch of a foreign incorporated company: by first apply for a
Permit to Trade from the Ministry of National Planning and Economic
Development.
§ A foreign investor can join with any individual, firm, company, co-
operative or state-owned enterprise from Myanmar to establish a joint
venture either as a partnership firm or a limited company on the basis of a
joint venture contract (ratio of foreign capital is now decided by the JV
parties)
§ Under the recent Foreign Investment Law 2012, foreigners are now allowed to
set up companies fully owned by them (whether this company was
incorporated in Myanmar or abroad), or go into joint venture with any
Myanmar citizen or the government of Myanmar!

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Investment Regulatory Background (cont.)
• Form of Foreign Investment (cont.) :
§ Any company with one or more foreign shareholders is classified as a Foreign
Company, thus subject to Foreign Investment Law rather than Myanmar
Companies Act (1914)
§ Possibility of establishing a Special Company created under the Special
Company Act of 1950 (where part of the equity belongs to the State)
§ Foreign companies with business relations or investment projects in
Myanmar may apply to set up representative offices in Myanmar (this being a
common practice for banks)
§ In contrast with a branch, a Representative Office of a company
incorporated outside Myanmar is not allowed to perform direct
commercial or revenue generating activities in Myanmar
§ However, it is permitted to liaise with its head office and collect data useful
for the head office

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Investment Regulatory Background (cont.)
• Activities prohibited by Myanmar Foreign Investment Law:
§ Business which can affect the traditional culture and customs of the national races within
Myanmar
§ Business which can affect public health
§ Business which can affect the environment and eco-system
§ Importation of hazardous or poisonous wastes into the country
§ Business which produce or use hazardous chemicals under international agreements
§ Production or manufacturing work or services which are activities reserved for citizens
§ The importation of technologies, medicines or utensils/paraphernalia without
relevant permits, or not designated for use
§ Agricultural investment and plantation and cultivation for long and short terms which
can be performed by citizens
§ Livestock breeding which can be performed by citizens
§ Marine fishing which can be performed by citizens
§ Foreign investment activities within 10 miles from boundary/borders between
neighboring nations of Myanmar, except in State economic zones approved by the
Myanmar Government

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Investment Regulatory Background (cont.)
• Investment Guarantee:
§ Enterprises operating under the Foreign Investment Law have the State
guarantee against nationalization and expropriation.
§ Guarantee is subject to an exception if the nationalization or expropriation is
in the natural interest, in which case the investor is to be compensated for the
market value of the investment.
§ Government also guarantees that investment will not be terminated during
the permitted term, and foreign capital will be transferred to investors upon
the expiration of the term of the investment contract.
§ Myanmar has investment protection agreements with China, India, Kuwait,
Laos, the Philippines, Thailand and Vietnam.

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CURRENT IMPEDIMENTS ON
INVESTMENT ENVIRONMENT

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Current Impediments in Investment
Environment
• Key challenges faced by the investors in Myanmar:
§ Lengthy bureaucratic licensing process and high start-up costs
Ø Especially for lease rentals for offices and establishing manufacturing
facilities
§ Impractical and very time-consuming procedures for import license
approval
Ø Having line ministries to approve import licenses for every consignment
is impractical and very time-consuming
§ Lack of land protection: one year lease limits are not commercially
tenable
Ø Legally only allowed to sign one year leases (unless Foreigners and
foreign owned companies go through the MIC process)

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Current Impediments in Investment
Environment (cont.)
• Key challenges faced by the investors in Myanmar:
§ High restrictions on Myanmar transfers, particularly US domiciled ones,
and unreasonable interest rates
Ø Self-imposed high restrictions on Myanmar transfers
Ø Unreasonable interest rates adversely affect businesses that face
relatively high financing costs as a result
§ Only country in the ASEAN that has two main laws addressing
investment matters
Ø In terms of arbitration, the Foreign Investment Law allows investors to
settle disputes outside Myanmar but there’s no such provision in the
Myanmar Citizens Investment Law

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Current Impediments in Investment
Environment (cont.)
• Key challenges faced by the investors in Myanmar:
§ Myriad issues and uncertainty around land auctions, tender processes
Ø Still myriad questions around land auctions, tender processes
Ø Nobody knows what tenders are ongoing through which
ministries and what stage they are at
§ Ambiguous tax system
Ø Investors face difficulties complying with the tax system in
Myanmar because of problems understanding the rules and
procedures
Ø Very little clarity on taxation and too much case-to-case decision-
making power

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Questions & Answers

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Thank you very much!
OLIVER MASSMANN
Contact email:
omassmann@duanemorris.com
Partner – Duane Morris Selvam Myanmar
No. 10 Phoyazar Street, 15 Ward,
Baukhtaw Yankin Township Yangon
Myanmar