Foreign investment overview for Myanmar
Considered
by many to be one of the last economic frontiers, Myanmar has been the
object of investor interest for the past three years. As of November 30,
2015, data from the Directorate of Investment and Company
Administration (DICA) shows that the total amount of foreign direct
investment (FDI) for the period from 1988 to November 2015 has reached
$58.2bn, consisting mainly of manufacturing enterprises, with oil and
gas companies bringing in one-third of total investment, at $19.6bn.
Since the country opened up in 2012, the influx of FDI reached its peak
in 2014 with a total of over $8bn in approved investment for the year.
In comparison, FDI in 2015 was at $3.9bn, a significant drop from the
previous year.
Changing Tides
This decrease in the level
of foreign investment may be attributed to investor caution ahead of the
first free general election in Myanmar in over 50 years. In November
2015, the international community awaited and monitored these elections,
with the results expected to affect existing policies, including the
government’s attitude towards economic development and foreign
investment. With the outcome of these elections generally considered
fair and the present government conceding victory to Daw Aung San Suu
Kyi’s opposition party, the National League of Democracy, and promising a
peaceful transfer of power, the investor outlook is expected to shift
from a wait-and-see attitude to FDI returning to or even exceeding
pre-election levels.
While the latter half of 2015 was
focused on the national elections, Myanmar’s initial objective of
providing a legal framework in line with international standards and
best practices remains at the forefront of the government’s concerns.
New policies have been enacted that relax the previously strict trading
rules by opening certain sectors up to foreign participation. Investment
permits with corresponding incentives and benefits continue to be
issued under the 2012 Myanmar Foreign Investment Law, as well as
investment permits issued under the 2014 Special Economic Zone (SEZ)
Law.
New laws and regulations have also
been enacted to strengthen the labour market and enhance regulatory
oversight of foreign currency transactions, including the ability to
register inward capital remittances with the Central Bank of Myanmar
(CBM). Regulations have been in place since 2014 providing an effective
legal framework against money laundering activities, as well as putting
into place rules for the enforcement of foreign arbi-tral awards. In
addition, the government has also taken steps to update and streamline
its foreign and citizens investment laws into a single Myanmar
Investment Law, and to overhaul the century-old Myanmar Companies Act.
The drafts of these laws have been
submitted to Parliament for consideration and it is likely that the
discussion on the proposed laws will continue once Parliament
reconvenes. The government has since been active in fostering an
environment conducive to FDI. What follows is a discussion of the
present regulatory framework that underpins the foreign investment
system as a whole.
The Legal System
Myanmar’s legal system
draws from a combination of colonial era English common law, traditional
Myanmar customary law and modern Myanmar legislation. The result is a
collection of rules and regulations, spanning from the late 19th century
through to the present day, that overlap and, at times, offer
contradictory or incomplete guidance. As the country continues down the
path of modernisation, so does its legal system, as more comprehensive
legislation is brought forward to supplant, supplement and clarify the
existing legal regime. In 2010 the Union Judiciary Law was adopted to
set out the structure and operating guidelines for the nation’s court
system. The hierarchy of courts begins with the Supreme Court at the
top, followed by the High Courts of the Regions and States, the District
Courts and Courts of Self-Administered Divisions and Zones, and at the
bottom, the Township Courts and other courts specially constituted by
law. A separate system of Courts-Martial has exclusive jurisdiction with
regard to matters involving military personnel. The Supreme Court holds
jurisdiction of cases involving treaties, regional disputes, piracy and
other matters as determined by law, while a separate Constitutional
Tribunal is responsible for constitutional disputes and vetting laws
passed by Parliament. Two classes of attorneys make up the legal
practice in Myanmar: advocates who may practice in any court, and
attorneys who are restricted from practicing in the Supreme Court but
may handle matters in any subordinate courts.
The past 60 years have seen several
shifts in Myanmar lawmaking. Until 1954, the Burma Code was the primary
source of law throughout Myanmar, though after the 1962 coup drafting of
new legislation was stalled. From 1962, when the military regime took
power, until the enactment of a new constitution in 2008, only a handful
of laws related to economic affairs were passed. Since the enactment of
the new constitution, a burst of legislative activity has occurred as
the new government works at a rapid pace to bring Myanmar up to
international standards. Among these laws, two that had the most
immediate effect on the economy was the 2012 Myanmar Foreign Investment
Law and the 2014 SEZ Law.
Vehicles For FDI
Foreign
investors who wish to undertake specific business activities in Myanmar
may rely on the foreign investment framework available under the
Myanmar Companies Act, the 2012 Myanmar Foreign Investment Law and the
2014 SEZ Law. Through these laws, foreign investors may choose to
establish a foreign branch office in Myanmar; incorporate a private
limited company; apply for and secure an investment permit from the
Myanmar Investment Commission (MIC), which is also known as an MIC
Permit; or apply for and secure an investment permit from the relevant
Myanmar SEZ Management Committee, which is also known as an SEZ Permit.
Myanmar Companies Act
A branch office is
considered an extension of its foreign parent company and is a
non-resident entity for the purposes of taxation in Myanmar. It is
authorised to engage in revenue-generating activities in Myanmar that
are related to the primary business of its foreign parent company. The
registration of a branch office is also necessary for foreign investors
that wish to establish a representative office in Myanmar, as there is
no separate concept of a representative office under existing Myanmar
law, except for foreign banks that are permitted by the DICA to
establish a representative office. The scope of business for these
branch offices is thereby limited to non-revenue generating activities
such as marketing, liaison services and market research.
However, unlike a branch office, a
private limited company has a juridical personality separate from its
shareholders and is considered a resident entity for purposes of
taxation. This private limited company may be incorporated as a wholly
owned subsidiary of a foreign parent, or may be partly held by a Myanmar
partner. Moreover, this private limited company may engage in and
provide a myriad of activities and services, although care must be taken
to ensure that the scope of business thus applied for and undertaken
are not among those that require an MIC Permit.
Permit Rules
Both branch offices and
private limited companies are required to secure a Form of Permit,
previously known as a Permit to Trade, as a pre-condition for carrying
out business. This permit enumerates the scope of activities that the
branch or company is permitted to conduct in Myanmar and is considered
to be the general business licence of the branch or company. The minimum
investment capital for both a branch office and a private limited
company is $50,000.
Applicants seeking the registration
of a branch or private limited company may also seek the issuance of a
temporary registration certificate, which, once issued by the Companies
Registration Office, will permit the applicant to operate the business
entity while its corresponding application is pending evaluation and
approval. The issuance of a temporary registration certificate, however,
does not guarantee the eventual approval of the application for
registration, and should the application be subsequently rejected, the
applicant will thereby be unable to continue business operations.
In any event, any such branch or
private limited company allowed to operate in Myanmar does not generally
enjoy the concessions and benefits extended to foreign investors under
the 2012 Myanmar Foreign Investment Law and the 2014 SEZ Law. For this,
the foreign investor must secure an MIC Permit from the MIC or an SEZ
Permit.
MIC Permit
While foreign investors
establishing a private limited company in Myanmar are generally free to
apply for an MIC Permit, the MIC has issued Notification No. 49/2014
which, updating and replacing the earlier Notification No. 1/2013,
provides a list of activities for which an investment permit is required
before a foreigner may engage in economic activities. This notification
enumerates specific economic activities that are generally prohibited
to foreign investment, those that must be undertaken through a joint
venture with Myanmar nationals, and those that require compliance with
certain conditions by the applying foreign investor.
Compared to Notification No. 1/2013,
Notification No. 49/2014 streamlined the list of economic activities
and removed the following from the list of prohibited activities:
- Economic activities that are deemed to deteriorate the watershed or catchment protection of national forests, religious locations and/or traditional beliefs, pasture lands, shifting cultivation farms and water resources;
- Agriculture and manufacturing activities that are not compliant with the Fertiliser Law, Seed Law and Agricultural Law;
- Installation of a factory utilising imported wastes;
- Manufacturing chemicals that can contribute to ozone depletion;
- Manufacturing of 21 types of organic compounds prohibited by the Stockholm Convention on Persistent Organic Pollutants;
- Manufacturing of hazardous chemicals;
- Manufacturing and marketing of construction materials that include asbestos;
- Trading of electric power;
- Utilisation and importation of methyl tert-butyl ether and tetraethyl lead;
- Activities that may emit hazardous chemicals. It may therefore be interpreted to mean that foreigners may engage in these activities under the Myanmar Companies Act and the Myanmar Foreign Investment Law. Due to the nature of the activities, however, these are still subject to the rules and regulations of the relevant ministry, which may or may not consent to the planned activity.
In addition, certain activities
that were previously permitted only under a joint venture with Myanmar
citizens under Notification No. 1/2013 have been removed from the list
under Notification No. 49/2014. Therefore, these activities may be
conducted by 100% foreign-owned companies. These activities now include:
- Manufacturing of certain vaccines;
- Prospecting, exploration and production of industrial minerals and metallic minerals;
- Large-scale production of minerals;
- Establishing factories to manufacture structural metal frameworks for buildings and girders; and
- Engaging in tourism. Among the prohibited activities that were carried over from Notification No. 1/2013 to Notification No. 49/2014 is the production of minerals on medium scale or small scale.
The establishment and sale of
office/ commercial buildings must be undertaken through a joint venture
with a Myanmar partner. Meanwhile, the importation and distribution of
petroleum products and the exploration and production of petroleum and
its products require a joint venture with the Ministry of Energy.
In addition to Notification No.
49/2014, the MIC has also issued Notification No. 50/2014, which
enumerates business activities that require environmental impact
assessments. In addition, Notification No. 51/2014 excludes certain
business activities from exemption from Customs duties and taxes. Among
the business activities enumerated under MIC Notification No. 51/2014
are: restaurants, food and beverage businesses; rental of vehicles,
machinery and equipment; and the construction and sale of buildings.
Key Factors
These latest notifications
further refine and clarify previously ambiguous areas of foreign
investment and demonstrate the MIC’s desire to create a more stable and
investment-friendly environment under the Myanmar Foreign Investment
Law.
At the same time, as mandated by the
Myanmar Foreign Investment Law, the MIC will also evaluate all
investment permit applications according to certain key factors, which
include whether the investment will result in a significant level of
domestic employment; whether the economic activity will involve the
import and use of heavy equipment or advanced technology; the value that
the economic activity will add to the domestic economy; and the degree
to which an economic activity will uplift the living standards of
Myanmar citizens.
MIC Permit applications that do not
sufficiently meet these factors will not be granted; however, a foreign
investor whose application for an MIC Permit has been denied may still
attempt to establish a private limited company with the Companies
Registration Office. The Companies Registration Office may similarly
deny such an application if it deems the applicant’s intended activities
may only be carried out with the approval of the MIC.
Legal Benefits
Foreign investors granted
an MIC Permit are generally permitted to enjoy certain benefits and
guarantees under the Myanmar Foreign Investment Law that are not
otherwise available to foreign investors registering business entities
without an MIC Permit. These include:
- Exemption from income tax for five consecutive years from the commencement of commercial operations;
- Opportunity to lease and develop land for a period not exceeding 50 years, but renewable for two terms of 10 years each;
- Ability to engage in import-export activities; and
- A legal mechanism for repatriation of capital and profits.
The
Myanmar Foreign Investment Law also expressly provides that recipients
of an MIC Permit will not be nationalised during the term of their
investment. While there is no specific rule on the minimum investment
threshold for the grant of an MIC Permit under the Myanmar Foreign
Investment Law, the MIC has generally expected a minimum investment
amount of $500,000.
The DICA regularly provides
information on investment permit applications that have been granted by
the MIC. As of November 2015, 1024 enterprises have been permitted to
conduct business under the Myanmar Foreign Investment Law.
SEZ Permits
Foreign investors may also
wish to locate in an SEZ and for this they will need to apply for an SEZ
Permit. Foreign investors granted an SEZ Permit are generally permitted
to enjoy certain benefits and guarantees under the SEZ Law that are not
otherwise available to foreign investors registering business entities
without such permit or an MIC permit. The benefits or guarantees
available will depend on whether the foreign investor is located in a
free zone area, categorised as a free zone business, located in a
promotion zone area or categorised as a promotion zone business, which
are defined under the SEZ Law.
For free zone businesses, the
benefits include an exemption from income tax for the first seven years
from the commencement of commercial operations, the opportunity to lease
and develop land for a period not exceeding 50 years (renewable for 25
years), the ability to engage in import-export activities, and a
mechanism for repatriation of capital and profits. Promotion zone
business on the other hand are granted exemption from income tax for the
first five years from commencement of commercial operations, the same
period for lease of land located within an SEZ, limited exemption from
Customs duties and other taxes, and a mechanism for the repatriation of
capital and profits.
Eligible Activities
Among the activities that
may be established in an SEZ are manufacturing, real estate development,
warehousing and logistics services, financial services, and long- and
short-term rental/leasing services, among other things. The minimum
investment threshold for the grant of an SEZ Permit depends on the type
of business to be established.
An export-oriented manufacturing
business in a free zone or a free zone business exporting at least 75%
of the gross sales of its products to a foreign country is required to
have a minimum paid-in capital of $750,000. However, supporting
industries in a free zone that supply at least 80% of the gross sales of
its products to export-oriented manufacturing businesses have a minimum
paid-in capital equivalent of $300,000. Eligible businesses, as well as
the minimum capital requirements, are provided in the Myanmar SEZ Rules
approved on August 27, 2015. There are three SEZs in Myanmar to date,
namely:
- Thilawa SEZ, located north-east of Yangon;
- Dawei SEZ, located in the southern region of Myanmar; and
- Kyaukphyu SEZ, located in the western part of Myanmar in Rakhine State.
Among
the three zones, only the Thilawa SEZ has commenced operations, with
its respective management committee granting SEZ permits to 49 investors
as of early January 2016. The firms that have been granted permits are
principally engaged in export-oriented manufacturing businesses.
Trading Restrictions
Even after registering a
private limited company or receiving an MIC Permit under the Myanmar
Foreign Investment Law, foreigners are nonetheless and, as a general
rule, restricted from engaging in any kind of trading activities. There
is currently no specific legal definition of what constitutes “trading
activities” for the purposes of this restriction, although it is
generally understood that these include the import of goods for purposes
of resale and the procurement of local goods for purposes of resale.
Nonetheless, Myanmar authorities
have routinely applied policy exceptions, thereby permitting foreigners
to engage in trading activities. The policies have been issued by the
following: the MIC, the Thilawa SEZ Management Committee, and the
Ministry of Commerce (MoC). The MIC for its part has permitted, on a
case-by-case basis, foreign companies operating through an MIC Permit to
sell and distribute products that a foreign investor has manufactured,
in whole or in part, in Myanmar.
The Thilawa SEZ Management Committee
has issued Instruction No. 2/2015 providing for guidelines by which
firms may engage in trading activities. Under this rule, businesses in
the promotion zone may engage in retail trading activities inside the
Thilawa SEZ, as well as wholesale trading activities both inside and
outside the SEZ. Businesses in the free zone, on the other hand, are not
allowed to engage in any retail trading activities, but may similarly
engage in wholesale trading activities inside and outside of the Thilawa
SEZ, provided that the aggregate value of these wholesale trading
activities will constitute no more than 25% of the total value of the
free zone businesses’ annual sales.
At the same time, and
notwithstanding the ability of such businesses to engage in the
foregoing trading activities, the Thilawa SEZ Management Committee has
also defined a certain class of “specified products” that may not be
sold, whether in retail or wholesale. Instruction No. 2/2015 does not
yet provide a definitive list of these specified products, although it
does mention “four-wheel vehicles or motorcycles”.
Participating In Trade
In order to engage in these
limited trading activities, Instruction No. 2/2015 prescribes certain
pre-qualifying requirements. Free zone and promotion zone businesses,
for example, must construct or establish a warehouse for the goods to be
sold, with promotion zone firms also required to meet a minimum
investment of $2m and adopt certain value-added activities (such as
repacking and quality-control services) to supplement the production,
manufacture or import of goods designated for sale.
The MoC also issued Notification No.
19 and 20 in March 2015, and Notification No. 96/2015 in November 2015
that pertains to trading motor vehicles and specific goods. Notification
No. 19 and 20 set out the regulations under which foreigners may enter
into a joint venture with a Myanmar national and open a car showroom for
the purpose of direct distribution of motor vehicles.
The MoC, through Notification No.
96, has relaxed its trading restrictions on the sale of certain
agricultural products and medical equipment. Under the notification,
foreign companies are permitted to establish a private limited company
under a joint venture with Myanmar nationals, for the specific purpose
of importing and on-selling fertilisers, insemination seeds, pesticides
or hospital equipment, in the Myanmar market. The percentage of
foreign-local ownership allowed in joint ventures is still under
consideration.
Alternative Structures
If the foreigner’s proposed
business activity is not among those covered by the exemptions
previously discussed, foreigners may participate in the retail market in
Myanmar by entering into contractual structures such as licensing and
distributorship arrangements with qualified Myanmar entities that are
100% Myanmar owned.
Under the alternative structure, a
qualified Myanmar entity will be responsible for importing goods for its
own account and shall have full control over the distribution of the
foreigner partner’s goods. The participation of the foreigner will thus
be limited to entering into the contractual arrangement for licensing or
distribution.
The foreigner partner may also
consider entering into service arrangements with the qualified Myanmar
entity to assist in marketing activities to promote the sale of goods.
However, the terms and conditions of the proposed arrangement must be
negotiated at arm’s length in order to avoid any impression that the
foreign investor is indirectly engaging in trading activities in
Myanmar.
Dealings With Land
There is, at present, no
single piece of legislation that governs land ownership and land use in
Myanmar. Instead, there exists a patchwork of laws that mainly relate to
the type of land regulated, from forest, farmland, fallow land and
industrial land, to name only a few. Myanmar law does recognise freehold
rights, which are reserved exclusively for Myanmar nationals.
“Ancestral lands” were granted during the time when Myanmar was under
British colonial rule. The Myanmar government, however, no longer grants
such freehold interests, and as a result much of the land held by
private individuals in Myanmar is in the form of grants from the state
or from other private persons. Grant land exists mostly in large cities
and towns, including Yangon and Mandalay, and the grant holder is
permitted to use the land for a stipulated period of time, the majority
of which usually have a term of 60-90 years. Grant land is transferable
and persons with leasehold interests may carve out and divest lesser
interests.
Foreign Land Ownership
An important limitation on
land use relevant to foreign investment is found in the Transfer of
Immoveable Property Restriction Act of 1987, which generally prohibits
any sale, transfer or exchange of land to any foreigner or foreign
company. Non-Myanmar nationals and companies are only allowed to lease
land for a term of less than one year. Fortunately, the act allows
exemptions from these prohibitions if granted by relevant government
ministries when extended to foreign governments, diplomatic missions or
other organisations. For the purpose of foreign investment, such
exemptions are secured through an MIC Permit under the Myanmar Foreign
Investment Law or through an SEZ Permit under the SEZ Law, both of which
allow foreign investors to lease land for at least 50 years.
Another challenge for foreign
investors dealing with land ownership in Myanmar is securing the right
to long-term leases, as approved by the MIC under Myanmar law. Until
very recently, the Office of the Register of Deeds did not accept
long-term foreign leases for registration. However, there appears to
have been a recent positive change in policy as the Office of the
Register of Deeds is now receptive to the registration of foreign
long-term leases. This does not only provide additional comforts for
foreign investors seeking to secure their rights to land, but is also a
welcome development that hopefully progresses into a wider range of
registrable instruments, including mortgages.
Government-Reserved Sectors
While most economic
activities are generally open to investment under Myanmar’s liberalised
FDI regime, there are specific sectors that have been traditionally
reserved for the government and its state-owned enterprises. These
include, among others, the exploration, extraction and sale of petroleum
and natural gas; postal and telecommunication services; pilotage and
air navigation services; power generation and distribution; and the
cultivation and conservation of forest plantations.
However, under relevant Myanmar law,
including Notification No. 49/2014, the government has the right to
allow non-government persons, including foreigners, to participate in
some of these otherwise reserved sectors, either through a joint venture
with the government or under specified requirements and conditions.
Approval for foreign engagement in these reserved sectors usually
proceeds from a recommendation from the relevant ministry or
government-owned entity granted jurisdiction over the reserved sector.
For example, for investments relating to the exploration, extraction and
sale of petroleum and natural gas, a joint venture with the Ministry of
Energy is necessary in order to secure MIC Permit approval. The
government of Myanmar exercised this discretion when it awarded foreign
firms telecommunications licences, as well as oil and gas blocks.
The willingness by the Myanmar
government to open these otherwise reserved sectors of the economy is an
acknowledgment of the limitations of existing government resources in
developing crucial industries and recognition of the indispensable role
that foreign investors can play in the overall development of Myanmar’s
economy. Thus, other foreign investors wishing to enter into such
government-reserved sectors do have an open avenue through specific
government approval, which involves applying for permit from the MIC.
IP Protection Schemes
Current intellectual
property (IP) protections in Myanmar are relatively weak, with a
Copyright Act first promulgated in 1914, but no subsequent formal laws
with respect to the protection of trademarks and patents. The currently
applicable Copyright Act is limited in scope and only provides
protections for original literary, dramatic and artistic works if they
are either first published in Myanmar, or if unpublished, are the work
of a citizen or person otherwise inside of Myanmar at the time of
creation. Copyrighted works from other nations are afforded no
protection in Myanmar under this system, although a practice of
registering aspects of a foreign work through a trademark, where
possible, has developed to provide some semblance of protection.
Registering IP
While Myanmar does not have
any law specifically regulating trademarks and their registration, a de
facto registration regime has developed. Through the combined
regulations of Section 18(F) of the Myanmar Registration Act (1908) and
Direction 13 issued by the Inspector General of Registration, parties
may assert trademark ownership by filing a Declaration of Ownership with
the Yangon Registration Office of the Settlement and Land Records
Department (SLRD). Trademark owners may also publish a cautionary notice
in an English-language newspaper of general circulation, for the
purposes of:
- Notifying the public of trademark ownership;
- Warning the public against infringement; and
- Enhancing a trademark owner’s claim of ownership in case of court litigation.
The publication of the notice
is usually repeated every three years. The registration of trademarks
with the SLRD and the publication of cautionary notices are not
compulsory, though they may be presented as prima facie
evidence of trademark ownership. Registration, therefore, is merely for
evidentiary purposes. It does not, by itself, confer any proprietary
rights in the mark. Instead, and as recognised by extant rulings of the
Supreme Court, prior use of the trademark is the prevailing and
definitive standard for ownership. Thus, to establish a valid claim to a
trademark, the claimant must show the use of the trademark in Myanmar.
There was at one time a Burma
Patents and Designs Act, but it was repealed in 1993 and has not, as of
yet, been replaced with any legislation to protect either patents or
industrial designs. Despite the lack of a proper patent protection
scheme, patent or invention ownership may still be registered with the
Register of Deeds. Through this system a patent holder theoretically may
apply for a perpetual injunction under Section 54 of the Specific
Relief Act against anyone who would violate their patent property
rights. Notwithstanding the practice as outlined in theory, the lack of
actual IP protection in law and uncertainty regarding the outcome of any
request for injunctive relief from the courts results in an unreliable
IP scheme.
Updating The Law
The current system could be
politely described as inadequate for the purpose of protecting the
valuable IP of major foreign investors. However, a new IP regime
presently being drafted is expected to result in redesigned laws for
copyrights, trademarks, patents and industrial designs. Based on the
present draft of the Trademarks Bill, there will be a definitive shift
from the ad-hoc system of trademark registration under a first-to-market
principle to a first-to-file system. The proposed shift is geared
towards aligning Myanmar’s legal framework on IP laws with international
standards. The Copyright Bill is also being enhanced to align software,
electronic rights management and technological protections with modern
standards. Most importantly, the proposed law intends to establish a
Myanmar IP Office that shall be the central regulatory agency tasked
with administering new IP laws. The draft laws have been submitted to
Parliament for deliberation and have been designated as among the bills
that will be given priority once Parliament reconvenes.
Anti-Corruption Law
Myanmar’s Anti-Corruption
Law came into effect in August 2013, replacing the outdated and
underutilised Suppression of Corruption Act. Targeting in particular the
bribery of public officials, the new law establishes the Commission for
the Eradication of Bribery, which has the power to require asset
reporting by certain officials on an annual basis. Members of the
commission and public officials ordered by the commission are now
required to prepare an inventory of assets and liabilities listed in
their names and their family members’ names to be submitted to the
President’s Office. Other powers granted to the commission include: the
ability to seize evidence and freeze properties; investigate accounts at
financial institutions; and confiscate money and property as part of an
investigation. Public officials found guilty under the new law face
imprisonment of up to 15 years and the confiscation of properties earned
through corruption. The Anti-Corruption Law also applies to non-public
officials who have assisted other public officials in corrupt dealings.
Anti-Money Laundering Law
Myanmar’s Anti-Money
Laundering Law, which came into effect in 2014, provides for the
obligations of reporting entities – namely, banks, financial
institutions and non-financial businesses and professions – in order to
curb money laundering activities. Reporting entities are bound by law to
issue policies and procedures regarding:
- Implementing regulations regarding the conduct of ongoing customer due diligence and evaluation of transactions;
- Employment supervision proceduress to raise employees’ integrity; and
- Training programmes to enable employees to assist in know-your-customer requirements, among other things.
In connection with the general
obligation on reporting entities imposed by the Anti-Money Laundering
Law, the CBM recognised the country’s need to comply with global
standards for banking regulation, supervision and practices under the
Basel Core Principles and observe the recommendations of the Financial
Action Task Force 40. As a result, the bank published the AML/CFT
Risk-Based Management Guidance Note on January 27, 2015, which requires
banks and financial institutions to develop effective frameworks to
manage money laundering or terrorism-related financing risks, which
shall include having a risk management process and framework in place.
Subsequent to this, the CBM also issued Directive No. 21/2015, which
provides general guidance on know-your-customer procedures, which is
deemed part of developing an effective framework to manage risk related
to money laundering activities.
Competition Law
Myanmar’s Competition Law,
enacted on February 24, 2015, aims to protect the public from trade
monopolies, market control and unfair competition by businesses –
activities that are deemed to be inconsistent with the policy of the
state of promoting a free and fair competitive commercial environment.
The law also enumerates acts that are considered to restrain
competition, including but not limited to:
- Controlling the market;
- Negotiating and setting the purchase price by business entities;
- Entering into agreements that restrain competition in the market;
- Taking advantage of a business entity’s dominant status in the market;
- Restraining or controlling manufacturing market share, technology and technical development and investment; and
- Negotiating prices in an auction.
Improving Competition
The Competition Law
authorises the establishment of the Myanmar Competition Commission,
which shall be responsible for implementing rules and regulations
promoting fair competition. The law also envisions the creation of an
investigation committee that shall be responsible for investigating and
imposing penalties and fines on businesses that are found to be in
violation of the law. Prohibited acts include:
- Disclosing business secrets;
- Discrediting another business;
- Conducting advertising and sales promotions that lead to unfair competition;
- Selling goods in the market with prices below production cost and landed cost; and
- Abusing one’s own business influence and persuading or inducing another person/entity to breach agreements made with other businesses, among others things.
While the law was issued in
early 2015, it expressly provides that it will go into effect based on a
date set by the president by notification. Based on Notification No.
69, the president has designated the law’s effective date to be February
24, 2017.
Bilateral Investment Agreements
Apart from a
fast-developing foreign investment framework, and to further bolster
investor confidence in the domestic market, Myanmar has also entered
into bilateral investment agreements with Japan, South Korea, the
Philippines, China, Laos, Vietnam, Thailand, Israel and India. As a
member of ASEAN, Myanmar is also a party to various multilateral
agreements that aim to develop and enhance cross-border trade and
investment among ASEAN-member states. This includes the ASEAN
Comprehensive Investment Agreement and the agreement on the ASEAN
Economic Community.
Myanmar law also recognises various
dispute resolution mechanisms, including domestic and international
arbitration, to resolve investment-related disputes. Myanmar has, in
fact, recently acceded to the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, which would allow Myanmar’s
courts to recognise arbitral awards made in jurisdictions party to the
same convention. The ratification of the New York convention is expected
to give foreign investors an added measure of security in protecting
their investments. The country’s government also recently enacted the
2016 Arbitration Law that is intended to provide a framework capable of
supporting the recognition and enforcement of foreign arbitral awards by
Myanmar courts.
Labour & Employment Law
While there is no
overarching labour legislation or employment code in Myanmar, various
labour laws are in place that provide the minimum standards for
employment in Myanmar. The Shops and Establishments Act of 1951 outlines
the maximum hours of work for employees engaged at shops, commercial
establishments, establishments for public entertainment and industrial
establishments. The Leaves and Holidays Act of 1952 mandates the
provision of earned, casual and medical leave days, and the manner by
which they may be used by employees. The Myanmar Social Security Law of
2012 requires the remittance of monthly contributions. The Labour
Disputes Settlement Law of 2012, as amended in 2014, provides the
framework for employer-employee disputes, and the Employment and Skill
Development Law (ESDL) sets out the particular matters to be included in
an employment contract, as well as requiring an employer to execute an
employment contract with the employee within 30 days from the
appointment of the employee.
Labour Updates
In addition to these laws,
the Ministry of Labour, Employment and Social Security (MLES) has issued
a series of notifications for 2015 to strengthen the enforcement of
existing labour legislation or update existing policies to address the
needs of the present time. These notifications, which cover matters
pertaining to separation pay, minimum wage and procedures for employment
contract registration, are discussed below.
The MLES, through Notification No.
84/2015 dated July 3, 2015, has prescribed a schedule of termination
payment rates that may be expected by employees. These termination
payment rates are based on the employee’s last drawn salary (without
overtime payment) and the employee’s tenure with the employer. Minimum
wage rates were also set in 2015. The National Committee for Minimum
Wage, under Notification No. 1/2015, set the minimum wage in Myanmar at
MMK450 ($0.41) per hour and MMK3600 ($3.24) for eight working hours. The
minimum wage requirement, effective as of September 1, 2015, applies to
all types of businesses and locations, except for small enterprises
with 15 workers or less and small-scale family businesses.
Finally, the MLES issued
Notification No. 1/2015, implementing the contract execution provisions
of the ESDL. The notification, effective as of September 1, 2015,
specifically mandates:
- Execution of employment contracts within 30 days from the date of appointment of an employee, mirroring Section 5(a) of the ESDL;
- Mandatory use of a template employment contract; and
- Use of a salary record book in the format provided by the MLES.
While the imposition of terms
in a prescribed employment contract is not specially provided in the
ESDL, as it only enumerates the general subjects that are required to be
covered in employment contracts, Notification No. 1/2015 supplements
the ESDL by prescribing an actual template agreement, the terms of which
are to be reflected in employment contracts to be signed between all
employers and employees. The prescribed template is currently only
available in Myanmar. Although the prescribed employment contract
attempts to comprehensively cover all terms required in an
employer-employee relationship, deviations from the prescribed
employment contract may still be necessary to conform to peculiarities
to a specific profession and to satisfy the requirements of other
applicable laws. Notification No. 1/2015, however, does not clearly
state if such deviations will be allowed.
The MLES, with the issuance of
Notification No. 1/2015, intends to strictly enforce the ESDL’s contract
execution provisions and will monitor compliance with both the 30-day
execution requirement and the content requirement as set forth in the
prescribed employment contract through the mandatory presentation and
approval of all contracts to the relevant township labour office.
Failure to satisfy the 30-day execution period is punishable with a
penalty of imprisonment for a maximum period of six months or a fine, or
both. Meanwhile, a failure to comply with the terms and conditions of
an employment contract, which may include a failure to include the terms
and conditions in the MLES’ prescribed employment contract, is subject
to a penalty of imprisonment for a maximum of three months, or a fine,
or both.
Dealings With Foreign Currency
The promulgation of the
Foreign Exchange Management Law in 2012 has significantly liberalised
the ability of both locals and foreigners to deal with foreign currency
in Myanmar. The law requires all foreign exchange transactions to occur
through banks that have been authorised by the CBM to deal in foreign
exchange. As such, foreign investors may now open foreign currency
accounts at authorised banks within Myanmar and maintain foreign
currency accounts abroad, as well as remit foreign exchange abroad,
subject to the approval of the relevant government authorities.
For foreign investors operating
under an MIC Permit, upon approval from the MIC and the CBM, they may
transfer or remit foreign currency initially brought into Myanmar for
purposes of the investment. These amounts include net profits, dividends
received by shareholders who brought foreign capital into Myanmar, and
amounts receivable upon liquidation of the enterprise.
Ordinary Transactions
Apart from the remittance
of foreign currency by foreign investors operating under an MIC Permit,
the Foreign Exchange Management Law also enumerates foreign currency
transactions known as ordinary transferred payments, and which,
according to the law, cannot be restricted, whether or not one is
operating through an investment permit. Ordinary transferred payments
include:
- Trading and services, and payments for short-term bank loans;
- Interest payable on loans, and net profit accrued from investments;
- Repayments of loans in instalments, or depreciations for direct investments; and/or
- Local remittances or those from abroad for an individual’s family.
Notwithstanding such language,
Myanmar’s banks still generally require the approval of the CBM for any
loan repayments of any shareholders’ or offshore loans, even for those
companies that may not be operating under an MIC Permit. The practical
effect is that foreign investors, whether operating under an MIC Permit
or not, will be required to obtain the prior approval of the CBM for any
intended inward remittance of shareholders’ or offshore loans, as well
as intended outward remittance of principal, interest and profits.
Obtaining Approval
The CBM, in its
Notification No. 7/2014, otherwise known as the 2014 Foreign Exchange
Management Regulations (FEMR), affirms its role in approving any inward
or outward remittances of foreign currency. Under the FEMR, foreign
investors remitting funds into Myanmar are required to present documents
to the CBM reflecting that the remittance was made to a foreign
exchange licensee. This requirement applies to all investors, including
those that have obtained an MIC Permit or an SEZ Permit.
In addition, internal residents
obtaining offshore loans will need to request prior permission from the
CBM. The FEMR expressly provides that when obtaining offshore loans
internal residents, which includes companies or branch offices
established under Myanmar law, shall request prior permission from the
CBM and shall therefore present the loan agreement together with such
other documents as may be required by the CBM. Among the information to
be provided in the application are the objectives of the loan, the terms
and conditions for its repayment, and the interest rate. This rule
affects all foreign entities including those with an MIC Permit or SEZ
Permit.
The Foreign Exchange Management Law
was amended in 2015 to strengthen regulatory oversight on foreign
exchange flows. The proposed amendment covers issues involving export
earnings, offshore loans, capital payments on foreign investments
undertaken by internal residents, and the transfer of gold and other
jewellery.
Related Amendments
Regarding existing
requirements on foreign currency export earnings already found in the
FEMR, the proposed amendment reiterates the obligation to deposit such
export earnings at an authorised bank within a prescribed period of
time. Foreign currency loans contracted by Myanmar residents must also
be obtained with prior approval from the CBM, a requirement already set
out in the FEMR.
Customs regulations found in the
FEMR on dealings with gold, foreign currency and jewellery are also
reiterated in the proposed amendment, which confirms the need to obtain
Customs approval at the port of entry or exit for the import or export
of gold and other jewellery, and foreign currency exceeding $10,000.
Finally, the proposed amendment also seeks to regulate dividends earned
by Myanmar residents from overseas investments by requiring that such
dividends be remitted into Myanmar only through authorised banks, as
opposed to, for example, more informal and thereby unregulated foreign
exchange channels.
Penalties range from imprisonment of
up to one year, a fine or both for non-compliance in reporting export
earnings, obtaining offshore loans and transacting capital payments on
foreign investments, and imprisonment of up to three years or a fine or
both for unlawful transfer of gold, foreign currency and other
jewellery.
Liberalisation Of Banking
2015 was also a significant
year for Myanmar’s banking industry with the issuance of CBM licences
to nine foreign banks that are now permitted to engage in commercial
banking activities, but are limited to opening of accounts for and
granting of loans to foreign companies or domestic banks. Foreign
companies are defined as a foreign entity in Myanmar with 100% foreign
ownership, a joint venture company between foreigners and Myanmar
citizens, and an authorised branch or representative office of a foreign
company in Myanmar. Presently, the scope of permitted activities for
licensed foreign banks is limited and they are still not permitted under
their licence to engage in retail banking activities.
The nine foreign banks that obtained
CBM licences in 2015 include: Bank of Tokyo-Mitsubishi UFJ,
Oversea-Chinese Banking Corporation, Sumitomo Mitsui Banking
Corporation, United Overseas Bank, Bangkok Bank Public Company,
Industrial and Commercial Bank of China, Maybank, Mizuho Bank, and
Australia and New Zealand Banking Group.
On December 14, 2015, the CBM
announced its intention to conduct a second round of foreign bank
licence approvals that is intended to entice investment from banking
institutions from other countries. Accordingly, countries whose banks
have already been granted a licence during the first round of approvals
(Australia, Japan, China, Malaysia, Singapore and Thailand) are no
longer permitted to participate in the second round.
Stock Exchange
With the launch of the
Yangon Stock Exchange (YSX) in December 9, 2015, the country’s public
companies are preparing to shift from over-the-counter trading to
trading shares in a centralised exchange. While the YSX was launched in
December 2015, trading has not yet commenced and the companies that have
expressed their interest to be listed on the YSX will still need to
undergo evaluation.
The firms that have expressed their
intention to list on the YSX include: First Myanmar Investment Company,
First Private Bank, Great Hor Kham Public Company, Myanmar Agribusiness
Public Corporation, Myanmar Citizens Bank and Myanmar Thilawa SEZ
Holdings.
The listing criteria for the
companies proposing to list on the YSX were issued by the YSX on August
14, 2015 and broadly covers requirements relating to corporate
existence, level of paid-up capital, shareholder composition and profit
levels, as well as corporate governance and management compliance
requirements, including corporate policies on auditing, tax, insider
trading and reporting. Presently, however, the existing rules only
permit Myanmar citizens to invest in companies listed in OBG would like
to thank Kelvin Chia Yangon for its contribution
to THE REPORT Myanmar 2016 the stock exchange. It is anticipated,
however, that additional legal mechanisms will be put in place once the
draft Myanmar Companies Law is passed. The first stock trading date will
be announced at a later time once the YSX determines that all matters
necessary for trading are available.
Conclusion
Myanmar has continued to
modernise its legal framework despite a shift in focus at the end of
2015 on the conduct of the elections. Notably in the second half of
2015, several notifications were issued that enhanced existing labour
regulations, foreign exchange legislation and anti-money laundering
requirements.
Hence, Myanmar’s government appears
steadfast in providing a legal framework consistent with international
standards. During this transition period, the modernisation of the
country’s legal framework continues with the issuance of the 2016
Arbitration Law at the beginning of the year. Significant laws such as
the Foreign Investment Law, Myanmar Companies Act and the IP regulations
are still in the pipeline and are to be considered once the country’s
Parliament reconvenes.
The peaceful conduct of the November
2015 elections and the acceptance by the present ruling party of the
result in favour of Daw Aung San Suu Kyii’s opposition National League
for Democracy sparked ever-increasing interest in Myanmar and its
opportunities for economic growth.
However, the pace and extent of this
interest in Myanmar is still to be determined. Considering the
country’s ongoing efforts to modernise its legal framework in recent
years, it seems very likely that this trend will continue going forward.
The outlook for foreign investors seeking to expand into Myanmar is
therefore promising.
Ref:https://tradingeconomics.com/myanmar
Myanmar | Economic Forecasts | 2017-2020 Outlook by Than Han on Scribd
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