Protecting Minority Investors in Myanmar
Below is a detailed summary of the strength of minority shareholder protections against misuse of corporate assets by directors for their personal gain.
This information was collected as part of the Doing Business project, which measures and compares regulations relevant to the life cycle of a small- to medium-sized domestic business in 189 economies. The most recent round of data collection was completed in June 2014.
Below is a detailed summary of the strength of minority shareholder protections against misuse of corporate assets by directors for their personal gain.
This information was collected as part of the Doing Business project, which measures and compares regulations relevant to the life cycle of a small- to medium-sized domestic business in 189 economies. The most recent round of data collection was completed in June 2014.
Myanmar: Legal Update on FAQs
Myanmar today is a highly promising prospect for businesses and investors. In conjunction with the opening of JTJB’s Myanmar Office, here are answers to some frequently asked questions about opening a business in Myanmar.
1) What types of business structures are available?
An investor has the option to:
1) Incorporate a local company limited by shares
2) Set up a branch office
3) Set up a representative office
4) Form a sole proprietorship
5) Form a partnership
2) Can a foreign individual or a foreign company be 100% shareholder of a company incorporated in Myanmar, limited by shares?
A company can be registered under the Myanmar Companies Act.
(“MCA”) or the Myanmar Foreign Investment Law (“MFIL”) depending on the nature of business activity and the amount of share capital commitment.
A company can be 100% foreign owned, although involvement in a restricted activity may require joint investment with a local partner.
3) Is there a minimum and/or maximum foreign shareholding for joint venture companies?
For certain activities which are restricted and requires involvement of a local partner, the minimum foreign investment capital ratio shall not be less than 35%, but not more than 80% of the total investment amount.
4) Are permits required?
For companies incorporated under MCA, a permit from the Directorate of Investment and Company Administration (“DICA”) is required.
For companies with larger share capital involvement in certain restricted business activities, a permit from Myanmar Investment Commission (“MIC”) is required.
5) What is the minimum share capital for different types of company?
| Company registered under MCA | Company registered under MFIL | |
| Minimum Share Capital |
US$150,000 for manufacturing company
US$50,000for service company
|
US$500,000 for manufacturing company
US$300,000 for service company
|
6) Who can be a director?
Whilst there is no requirement for the director to be a local resident, he must be a natural person, at least 18 years of age and is not an undischarged bankrupt.
7) What is the minimum number of directors permitted?
Two.
8) What is the minimum and maximum number of shareholders?
Minimum two, maximum fifty.
9) Can a corporate body be a Shareholder?
Yes, Shareholders can be a natural person or body corporate.
10) How long does it take to incorporate a Myanmar Company?
The incorporation process is estimated to be around 2 to 3 months, subject to issuance of permit from DICE (for companies incorporated under MCA).
The approval process may take longer, if MIC permit is required for companies incorporated under MFIL.
- See more at: http://www.advoc.com/view-news/Myanmar'3A+Legal+Update+on+FAQs/#sthash.osuNqKvM.dpuf
INVESTING IN MYANMAR, CORPORATE STRUCTURING, AND BUSINESS IN BURMA
Frontier investment is not for the meek or mild. There are real threats of police, military or government corruption – banking issues, corporate governance issues, and local resistance to foreign development. If you do find success, you may have your business taken from you forcefully. If you decide to place a market flag in a frontier economy, real power rules.
However difficult frontier investing may be, the upsides can be tremendous. There are unmet needs that entrepreneurs can fulfill. Any emerging economy has problems that need solving – and businesses that can solve those problems can see enormous growth in these markets.
One of the last frontiers in Asia is the large and plentiful country of Myanmar, which has recently opened up to foreign investment in new ways. This article aims to detail:
- Why Myanmar is attractive
- How to start a company in Myanmar
- Tips for investment
- interview with an entrepreneur living in Yangon.
Why Myanmar?
For decades the country of Burma has been essentially closed off to foreign investment, from much of the west anyways. Make no mistake, Burma does have some wealth generated from exporting oil and natural gas to china, as well as illegal gem trades and other types of smuggling and trafficking activity.
However, 2012 marks the first time when Burma will become ‘open’ to foreigners due to the country showing willingness to modernize and ease off the military dictatorship which has rocked the country for decades.
Myanmar has incredible mineral, gas and gem deposits, cheap labor, and is located in a key strategic position in South East Asia.
Myanmar is highly attractive option for private equity funds, and funds of funds who are attracted by the proposition of high growth potential. While putting your money in Singapore or Hong Kong might be safer, starting a company in Burma represents a chance to ride the wave of growth.
The country is strategically located directly south of China, sandwiched between India and Bangladesh to the west and Thailand to the East. Certainly the country is poised for growth, but does that mean you too should jump in on the game?
Too early to tell.
Most research reports (here and here) point out that the country still maintains a rather restrictive foreign investment policy – and the revised law has been continually stalled. There are also questions as to whether the military will again seize control, or the country will continue its progress towards a capitalist democracy.
5 Tips for Investing in Myanmar
#1 Start the Myanmar Company through an offshore shell
See how to form a Company in Myanmar – Covered later in this report. If you are going into Myanmar, you need to invest through a company (owned by 2 persons, with at least 50,000) However, due to incomplete and almost non-existent banking in Myanmar, the money can be held in a foreign account. The main shareholder in the Myanmar company could be a Singapore or Hong Kong legal entity – which would provide the company with a chance to potentially lower taxes, maintain a great legal address, and trade more easily with affiliates and suppliers, because any disputes could be solved in a more established court system. If your main concern is cost – go with a Hong Kong holding company. If your main concern is reputation, accountability or arbitration – go with a Singapore holding company.
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How To Form a Company in Myanmar
There are a few things required for foreigners who want to start a company in Burma.
Firstly, there must be at least 2 persons who are involved in the venture. Both must have their passports endorsed by the Myanmar Embassy.
Each person must show an account balance for 50,000 USD (for service based companies) and 250,000 USD or Industrial Companies). This should be certified by the Myanmar Embassy. The Bank account doesn’t need to be in Myanmar (it could be in Singapore, for instance) and the bank account can be a corporate account.
If the shareholders of the Burmese company will be a foreign corporation, you must also submit:
- Memorandum and Articles of Association or of Charter
- Annual Report for the last two financial years Profit and Loss Accounts for the last two financial years
- Appointed letter/ power of attorney for the Authorized Person
- Board of Directors resolution to open a company in Myanmar
All duly notarized and certified by the Myanmar Embassy in the country where the company is incorporated.
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It won’t be easy for investors going into myanmar to find success. However, those who do see profit from the region will most likely be rewarded from going for an
#2 Easy Win and Keep it simple
The best industries for development are ones that can capitalize on the extremely cheap labor available. Labor in neighboring Thailand is normally at least 40-500% higher, and this is considering many of the unskilled labor in Thailand is comprised of Burmese workers.
Investment reports I have read have repeatedly stated the need to keep industry simple – as anything that requires a supply chain would be much more difficult to implement. The first planned private equity investments have involved: hotels (in yangon, where there is a shortage of high quality short and long term stays) special trade zone property, ports, power plants (bad electricity and this is an easy win business) fisheries, mining, gas and mineral extraction.
According to the CIA, only 10-20% of the roads are paved, and getting around is not easy, thus, those projects located near ports will be the initial choice. Other ideas for investment include helicopter or seaplane flights.
Find a niche where you are a domain expert, where the business can be profitable early. Finding funding for Myanmar has proved difficult for many funds to this point – and although this may change in the future, it is important that the business be profitable from day 1.
#2 Rip, Pivot and jam
A popular strategy for any emerging market investor is to attempt to repeat a process where a past success in another country can be repeated. Thus, if we see that cheap manufacturing in China led to expansive growth when the country began to open in the 80’s, we could rip the cheap manufacturing, pivot to Myanmar, and jam all the way to the bank.
The key is to replicate prior success that would be pedantic in developed markets but is an obvious easy win in a new country that is underdeveloped. Again, look for a business that has a proven concept elsewhere. Being the first mover to the market is a definite possibility, and if you are fast, you can be up and running quicker than multinational coglomerates which are by nature slower moving entities.
#3 Don’t Count on Transparency
If you put that money in the bank, and when you keep the all important books – try not to hold money in (Myanmar dollars) as trade won’t be facilitated as easily. Better currencies to trade with affiliates are the USD, CHY, SGN and THB. The tax rate in Myanmar is officially about 25% – but they ranked dead last in the world on governm
ent income from taxes. That says something: Myanmar it is an emerging market that doesn’t have the rules, regulations and transparency of the west. This can be either a hindrance, or an advantage to your business, depending on how you play your cards. What is important, however, is not what you know, but who you know.
#4 Know the right people – Be Flexible
Myanmar, like quite frankly many countries in South East Asia, is a country where real power rules. It won’t matter if you hold title to a business if an army general decides it would be better if he owned the business rather than you. Although courts have recently passed laws providing for ‘equal compensation’ if a business is ever commandeered by the government. However, who knows how long, or if you would ever be compensated for the larceny. Its best to only get involved in a project after you know the players - or if it is large enough that it couldn’t be easily stolen by an unscrupulous general.
#5 Pick the Right Horse
Conventional Wisdom not always right, and most people will try to look for raw materials or labor indust
ries, and for them, this might be the right move. However, you are likely to attract more attention with a mining operation, than a smaller business in the consumer market that flies under the radar, and won’t attract the attention of generals. See this interview below with a current entrepreneur living in the capital of Yangon.
The military controlled most of the industry to this point, with state run enterprises making up most of the economy. There are, however, some entrepreneurs. See this interview from Dawai Capital Markets…Myanmar inside perspective from a Singaporean expat who has lived in Myanmar for 9 years. He owns and runs a Yangon executive residence – Grand Mee Ya HtaHe figures the best investment opportunities in Myanmar maynot be in labour-intensive industries or raw-material exports, but in domestic consumption, at least whentargeted at the right demographic, which is where his activities are focused. Below, we explain why.Poverty appears endemic, and for the majority of the population this is likely to remain true for many years to come. However, there is a segment of society that is not a part of the military, nor of Myanmar’s commercial elite, but which has nevertheless accumulated significant wealth over the decades of military rule and isolation from the global economy.The success of this segment is borne out of natural-resources wealth, although due to the closure of the economy to the rest of the world and the totalitarian grasp of the governing regime, this wealth has been kept hidden for decades. As the CIA World Factbook notes, ‘official export figures are grossly underestimated due to the value of timber, gems, narcotics, rice and other products smuggled to Thailand, China and Bangladesh.Now, as a result of Myanmar’s dramatic change in direction, this wealth is starting to emerge. The most obvious manifestation of this reintroduction of wealth into the economy is the rapid increase in Yangon land values, which would have also been heavily influenced by military and related parties seeking tolegitimise their own wealth. According to a Myanmar Times article on 28 February 2012, land prices in the most sought-after commercial locations of Yangon have increased by 300% over the past three years to about US$1,750 psf, and this has been driven entirely by local demand, as foreigners are not currently allowed to own property in Myanmar.
Of course, for this land investment to benefit the economy and not just be a better store of value than a pad-locked closet, Myanmar’s banking system needs to be rejuvenated to help finance development of these sites… banks have been mismanaged for years, which has been exacerbated by poor and unpredictable regulation, as well as international sanctions on financial transactions.Financial reform, however, is happening in Myanmar, including the recent floating of the currency, the legalisation of mortgages and auto financing, the introduction of ATMs, and the planned opening of a stock exchange. The US, meanwhile, did in May ease financial sanctions.According to Mr. Koh, a major destination for this hidden wealth besides property will be any business that supports infrastructure development, and the more mundane the better, such as power cabling for rebuilding the country’s decrepit electricity network, or the basic materials needed to renovate countless dilapidated buildings. What will be avoided are businesses that require skilled labour, due to the collapse in education standards as a result of the closure of schools and universities following the 1988 student-led popular uprising. Aung San Suu Kyi made a related point in her recent trip to Thailand, when she called on foreign companies to invest in training in Myanmar.The dark side to this story is that the prior necessity to keep wealth hidden has produced an ambivalent attitude toward financial transparency. Whether Myanmar entrepreneurs will be able or even want to change decades of secretive habits for the benefit of foreign investors will have to be proven. Since auditing skills are as absent in Myanmar as any other talent that must be learned in an institution of education, a sign of how rapidly financial transparency is being accepted in the country will be the frequency that foreign accountants are hired.
Can foreigners own Land in Myanmar?
- Foreigners can rent land in Myanmar – the laws have recently made this slightly more attractive. Similar to Thai law in that foreigners can rent land but can’t buy it per se. A proxy or nominee could buy the land for you.
- Foreigners can’t directly own land, and they also can’t directly invest or buy out another business, they have to start from scratch.
Myanmar might be a risky place to put your money – but it is one of the few true emerging economies left in Asia, the others (east timor, Bhutan, Sri Lanka, Maldives) do not have the natural resources that Myanmar does. Burma is a huge country with a shadowed past, and huge potential. Time will tell if placing money in the country pays dividends.
If you are interested in Starting a Company in Burma, or investing in the region, drop me a line and we can discuss your goals during a consultation.
Ref:http://flagtheory.com/frontier-investing-corporate-structuring-and-business-in-burma/
Foreign Ownership Restrictions on Land in Myanmar
The answer is straightforward as the Transfer of Immoveable Property Restriction Act 1987 strictly prohibits foreigners from owning land in Myanmar. Foreigners can, however, own a building, lease land and participate in real estate development in a JV with a local partner. Alternatively, the new Condominium Law will allow foreigners to own a condominium unit when certain conditions are met.
- Restriction on Foreign Ownership of Land
The Transfer of Immoveable Property Restriction Act 1987 (TIPR) prohibits foreigners from buying or owning land in Myanmar[1]. Under Section 2 of the TIPR, a foreigner is defined as:
- According to the Burmese Citizen Act, any person who is not a citizen of the Union of Myanmar; any person who is not a guest citizen or any person who is not allowed to be a citizen;
- According to the Burmese Citizen Act, any person whose citizenship has ceased or any person who has withdrawn their citizenship, guest citizenship or their allowance to be a citizen;
- “Foreigner owned company” means a company or partnership organization whose administration and control is not vested in the hands of the citizens of the Union of Myanmar or whose major interest or shares are not held by citizens of the Union of Myanmar.
It should be noted that the definition of a foreign company under the TIPR is less restrictive than the one in the Myanmar Companies Act 1914 (MCA). Under the MCA a company is deemed to be a foreign company when at least one share is hold by a foreigner while the ratio of foreign ownership can go up to 49 % under the TIPR.
The question that inevitably springs to mind is to know whether or not a foreigner can use a company to own land on his behalf?
The use of a corporate vehicle to buy land on behalf of foreigners is common in South East Asia as most of the countries restrict foreign land ownership. Basically, the process consists of the creation of a company where a local nominee is the majority shareholder and foreign shareholders keep the control of the company through different means such as preference shares or loan and pledge agreements.
This kind of set up is strongly discouraged in Myanmar. Indeed, the definition of a foreign company under the TIPR includes the control of the company by a foreigner. In case of trouble with the local shareholder, the foreign shareholder does not have any legal right. Moreover, if caught, the TIPR provides a minimum of three years jail and the confiscation of the land[2].
- Lease of Land
As a general rule, a lease taken by a foreign national or a foreign entity cannot exceed a term of one year[3]. The lease can be extented with the approval of the government for diplomatic missions or United Nations organizations as well as certain organizations of individuals[4].
One major exception concerns companies investing under the Foreign Investment Law (2012). Such companies may be allowed to lease land for a term up to 50 years plus two renewable of 10 years each with the approval of the Myanmar Investment Commission[5].
- Condominium
The condominium law which is expected to be passed soon will allow foreigners to own a condominium unit when certain conditions are met. According to Section 15 (c) of the draft, foreigners can own a maximum of 40% of the condominium units above the 6th floor of the condominium.
Vincent BIROT
[1] Sections 3 and 4 of the Transfer of Immoveable Restriction Act 1987
[2] Section 11 of the Transfer of Immoveable Restriction Act 1987
[3] Section 5 of the Transfer of Immoveable Restriction Act 1987
[4] Section 14 of the Transfer of Immoveable Restriction Act 1987
[5] Section 31 and 32 of the Foreign Investment Law 2012
Ref:http://www.legavox.fr/blog/vincent-birot/foreign-ownership-restrictions-land-myanmar-13278.htm#.VHWj54s7NO5
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