MYANMAR What You Need to Know Before Investing

By: Kelvin Chia Yangon Ltd

Copyright: Kelvin Chia Yangon Ltd This document is intended only for IE Singapore and should not be distributed to any other person or entity.

Introduction: Kelvin Chia Yangon Ltd

Part of the network of law firms of Kelvin Chia Partnership (KCP), a regional law firm headquartered in Singapore with offices and transactional experience throughout Southeast Asia Established in 1995: the oldest foreign legal consultancy firm based in Yangon Full range of corporate and commercial services Substantive experience in transactional work, particularly in crossborder issues and in Myanmars key industry sectors Assists and advises clients on investment structures and the setting up of investment vehicles, including provision of corporate secretarial services Seamless combination of international and local legal expertise with local Myanmar team working in conjunction with foreign/international lawyers from the KCP network

Todays Agenda
1. Current Myanmar Investment Framework 2. Key Steps in Investing in Myanmar 3. Significant Issues/Aspects 4. Q & A Session

Has the new Foreign Investment Law been enacted? Should I wait for it to be passed before investing? Is there an existing legal framework for investing now?

General Legal Framework for Investing in Myanmar

Key mainframe laws to consider:
State-Owned Economic Enterprises Law (SOEEL) Foreign Investment Law (note: MIC permit) Companies Act (note: permit to trade and registration) Note:

Relevant rules, regulations, notifications and internal directions/policies, as well as industry/sector-specific laws, should also be considered.

General Legal Framework for Investing in Myanmar

IS THE INDUSTRY/SECTOR CONCERNED RESERVED TO STATE-OWNED ENTERPRISES?
Reserved industries/sectors are listed in the SOEEL. 12 industries/sectors are listed in the SOEEL. If a reserved industry/sector, then foreign investment may still be

possible with the approval of the Myanmar Government.

Joint venture between state organization/enterprise; citizen

and/or foreigner Any person or economic organization subject to prescribed conditions Other forms of collaboration, e.g., production sharing

 Postal and telecommunications Extraction and sale of teak services Forest plantations Air and railway transport services Exploration, extraction and Banking and insurance services sale of petroleum and Broadcasting and television natural gas, and services production of the products Exploration, extraction or export of the same of metals Exploration, extraction and Electricity generation services export of pearls, jade and Manufacture of products relating precious stones to security and defense Certain kinds of breeding and production of fish and prawn Note: There may be additional reserved sectors which are not otherwise on the list (e.g., education, trading).

Reserved industries/sectors under the SOEEL

General Legal Framework for Investing in Myanmar

SOME KEY POINTS TO CONSIDER UNDER CERTAIN CURRENT INTERNAL POLICIES/DIRECTIONS
General classification of business activities into the following: Industrial (manufacturing) Services/Construction Trading Currently, trading activities are reserved to Myanmar nationals and

companies wholly owned by Myanmar nationals.

Investing under the Foreign Investment Law (FIL) main criteria for investment:
Support the national economic development plan Opening up of more employment opportunities Increase exports Production for import substitution Production of products which require heavy investment To develop high-skill technology and develop advance technology for production Development of the manufacturing and services sector requiring heavy capital Businesses which would save energy consumption Exploration/Production of new energy and renewable energy Development of modern industries Conservation of the environment

General Legal Framework for Investing in Myanmar

The Myanmar Investment Commission Formed under the Foreign Investment Law Reviews investment proposals Issues MIC Permit and Decision

Incentives under the Foreign Investment Law (1988)

Tax Holiday 3 years from commencement of commercial production* Exemption of Tax on Profits which are Reinvested If they are maintained in a reserve fund and re-invested therein within 1 year after the reserve is made Reduction of Tax on Profits from Export up to 50 percent on the profits accrued from exported goods

Incentives under the Foreign Investment Law (1988)

Accelerate Depreciation at the rate fixed by the MIC* Payment of taxes for Expat Employees At rates applicable to citizens Deductible from assessable income R&D expenses Deductible from assessable income

Incentives under the Foreign Investment Law (1988)

Carry forward losses Carry forward losses for 3 consecutive years If losses are sustained within two years after the initial tax holiday Tax exemption on Imports Imported Equipment and Materials used in business for the period of construction and for the first 3 years of commercial production*

Given the existing investment framework, what are the key steps/procedures for investing? Do I have to go to the MIC or not?

Key Steps in Investing in Myanmar

1. Define your intended business activity in Myanmar 2. Identify the relevant ministries/authorities in charge of the business sector/activity 3. Establish contact with the relevant ministries/authorities (need for endorsement/no objection for the investment applications) 4. Determine the appropriate entity to be established in Myanmar Note: Sourcing for local partners and land ahead, where applicable, is also critical.

Key Steps in Investing in Myanmar

DEPENDING ON THE NATURE AND REQUIREMENTS OF THE PROPOSED BUSINESS ACTIVITY/INVESTMENT, AN INVESTOR MAY TAKE EITHER OF TWO ROUTES IN GENERAL:
MIC route (with MIC Permit) Industrial (manufacturing) Reserved sectors Services Companies Registration Office (CRO) route (without MIC Permit) Only for services company and branch/representatives offices Note on branch/representative offices in Myanmar

Key Steps in Investing in Myanmar

Under the Foreign Investment Law Reserved sectors/industrial Long-term lease Import licence Tax incentives/ guarantees Minimum capital requirement

Under the Companies Act Service companies/branches One-year lease No import licence No tax incentives/guarantee s Minimum capital requirement

MIC and Incorporation

Myanmar Investment Commission Approval

Regulated by the Foreign Investment Law which is administered by the MIC

Establishing a Company

Establishing a Branch Office

Cabinet Committee

Executive Committee

Applying for a Permit to Trade With the CRO (Business License)

Registering Company or Branch Office with the CRO

Regulated by the Myanmar Companies Act and Administered by the Directorate of Investment and Company Administration under the Ministry of National Planning and Economic Development

Is the MIC a one-stop shop? Ministerial support/Ministerial submission How long is the MIC application process? What are the documents to be submitted to the MIC? Economic Justification/Draft Contracts Is there any situation where I do not have to go to the MIC?

Corporate Vehicles
Type of vehicles Activities Is an MIC Permit required What is the minimum capitalization Are tax Incentives available Tax Status

Private Company

Industry

Yes

US$500,000 US$300,000 with an MIC Permit US$50,000 without an MIC Permit

Yes

Resident foreigner Resident foreigner Resident foreigner

Private Company

Services

Depending on the needs of the business land lease and import of goods

Yes

No

Branch office

Representative office/ Services

No

US$50,000

No

Non-resident foreigner

Is a wholly foreign owned entity allowed for investments? Can I enter into joint ventures? Minimum 35% foreign shareholding requirement Joint ventures may be preferred/encouraged in certain sectors

Key Challenges for Joint Ventures

Sourcing for appropriate local partners Conducting due diligence Structuring the joint venture

Current restriction on direct acquisition of shares in wholly Myanmar-owned local companies) Onshore versus offshore

Dispute resolution

Significant Issues/Aspects
Land Employment Foreign Exchange Dispute resolution

Dealings in Land
Foreigners may not purchase/own land Foreign-owned companies with an MIC permit may obtain long-term leases (up to 60 years in total; longer period is possible in SEZ) Under Notification 39/2011, foreigners may lease land from private entities (with government approval) Foreigners and foreign-owned companies without an MIC permit may lease residential and commercial units for not more than a year at a time.

Employment (under the new draft FIL)

Local hiring requirements Unskilled labour: 100% Skilled labour: 25% during the first 5 years, 50% during the next 5 years, 75% in the third 5 year period Training Provide training for citizens for skilled positions Applicable regulations Overtime wages, leaves and holidays, workmen compensation, social security, etc. Note on proposed minimum wage law

Termination and Retrenchment

Length of Employment Less than 3 months 3 months to 1 year 1 to 3 years More than 3 years One months salary Notice Pay Severance payment One months salary Two months salary Four months salary

Notice: No legal requirement Customary to give one months notice

Foreign Exchange Restrictions

Taking currency out of Myanmar Receiving payments outside of Myanmar and then using them outside of Myanmar

Transacting in foreign exchange in Myanmar

Remitting money out of Myanmar

Repatriation with MIC Approval

What may be remitted Conditions for remittance

Net profits after taxes

Remaining funds after taxes Capital where the company is liquidated Damages

By permission from the MIC Annual Audit /Report submitted to MIC

Application to remit must be based on the audit report MIC will specify approved amount

Dispute Resolution
Myanmar Arbitration Act Myanmar not a party to the New York Convention implications Note on developments re: potential entry of Myanmar into the New York Convention

New Developments

Myanmar Arbitration Act

New York Convention

For more information on investing in Myanmar, please contact: Marlon Wui, Partner, Kelvin Chia Partnership marlon.wui@kcpartnership.com +65-6408-7921 U Than Maung, Senior Associate/Advocate, Kelvin Chia Yangon Ltd. utm@kcyangon.com +951-255-399

We also invite you to learn more about Kelvin Chia Partnership and its regional capabilities by visiting our website at: www.kcpartnership.com Singapore Tokyo Shanghai Bangkok Hanoi Ho Chi Minh City Yangon Phnom Penh Pyongyang

Thank you for listening!

We look forward to assisting you in Myanmar soon.