Doing Business In Myanmar For Indian Companies.

Legal News & Analysis - Asia Pacific - Myanmar - India - FDI

Asia Pacific Legal Updates

 

7 February, 2017

 

Doing Business In Myanmar For Indian Companies.

 

India is the ninth most active investor in Myanmar, with 23 approved projects totalling USD 732 million. India investments have increased lately, including the opening of a Yangon branch by the State Bank of India. Trade is also expected to increase in 2017 with the completion of transport and infrastructure projects that will enhance the movement of goods between India and Myanmar. 

 

There are many opportunities for Indian investors in Myanmar, particularly in sectors such as power and renewable energy, agriculture, IT and engineering, automotive, construction, textiles, healthcare and banking and finance. This quick guide to Doing Business in Myanmar for Indian Companies addresses issues that concern corporations planning to tap this emerging market, such as land ownership, the lifting of US sanctions and anti-money laundering and anti-corruption.

 

Myanmar has undergone a political and economic transformation with incredible speed and success. Myanmar’s economic isolation has reduced considerably, as it seeks to fully integrate into the global economy.

In 2015, Myanmar held its first national election in 25 years, which ushered in a new era of democracy and economic prosperity. Investor expectations were so high that Myanmar experienced GDP growth of 7.2 percent, in a historic election year.

 

THE POLITICAL AND ECONOMIC SITUATIONS IN MYANMAR ARE ONLY BECOMING MORE STABLE.

 

With this increasingly stable political situation, the Asian Development Bank has estimated that Myanmar will experience GDP growth of:

 

MYANMAR

8.4% (2016)

8.3% (2017)

 

INDIA

7.4% (2016)

7.8% (2017)

 

GDP Growth

 

In the last four years, significant reforms have built investor confidence in Myanmar, including the passing of the Arbitration Law and the Myanmar Investment Law. Important new laws in their late drafts are the Companies Law and several intellectual property laws.

 

MAJOR INDIAN INVESTMENT IN MYANMAR

 

Indian companies have invested in Myanmar for many years. Recently there has been an increase in this investment, including the opening of a branch in Yangon by the State Bank of India. Trade between the countries is expected to increase in 2017, due, in part, to the expected completion of the Kaladan Multi-modal Transit Transport Project in December 2016. This USD 480 million project is designed to enhance trade between the countries by reducing the shipping distance from Calcutta to a deep-sea port built by India in Sittwe (in Myanmar).

 

India is the 9th most active investor in Myanmar with 23 approved projects totaling USD 732 million. This, however, only makes up 1.15% of the total foreign investment into Myanmar. (source: Directorate of Investment and Company Administration)

 

There are many opportunities for Indian investors in sectors such as power and renewable energy, agriculture, IT and engineering, automotive, construction, textiles, healthcare and banking
and finance.

 

MARKET ENTRY

 

Business in Myanmar must be conducted through an entity registered in Myanmar. That is, an Indian company cannot “carry on a business” in Myanmar without having a locally registered entity. The concept of carrying on a business is widely interpreted and will catch if employees fly into Myanmar and make sales calls and hand out business cards and brochures. 

 

 

Subsidiary

Branch

Liability

Limited liability

Full liability

Reporting Requirement

Heightened reporting requirement

Lower reporting requirement

Withholding Tax

2%

3.5% but ultimately withholding tax is a pre- payment on income tax so overall this does not have a huge effect except on cashflow

 

Foreign investors may establish either a wholly owned subsidiary or a branch office in Myanmar. The application processes to establish a subsidiary or register a branch in Myanmar are largely identical. In either case, a complete application is lodged with the Directorate of Investment and Company Administration (DICA). Within a few days, the DICA will issue a temporary Certificate of Incorporation or Registration, and a Form 1 (commonly referred to as a Permit to Trade).

 

At this point, the company or branch is legally set up in Myanmar, but must inject
its capital and perform various administrative actions before receiving the final Certificate of Incorporation or Registration.

 

The whole process takes approximately three months.

 

BILATERAL INVESTMENT TREATY BETWEEN INDIA AND MYANMAR

 

Myanmar entered into a Reciprocal Promotion and Protection Investment Agreement with India (RPPIAI) on 24 June 2008 which came into effect on 8 February 2009. The agreement is valid for 10 years and will automatically be extended until Myanmar or India give a written notice to the other party to terminate and the agreement, and even then it will still be valid for one year starting from the date of receipt of such notice.

 

In general, the RPPIAI covers the promotion and protection of investment, repatriation, and provides a dispute settlement mechanism. Basically, investment shall be treated fairly and equitably and shall not be expropriated except under specific conditions. In case of expropriation, compensation payments would be required. Indian investors have the right to be treated just as if they were Burmese investors, or investors from other countries.

 

In addition, Myanmar and India are members of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). The Framework Agreement of BIMSTEC also provides for the promotion and protection
of investments.

 

Furthermore, in accordance with the Framework Agreement on Comprehensive Economic Cooperation between the Republic of India and the Association of Southeast Asian Nations, investment shall be treated fairly and equitably and offered full protection and security. The agreement also guarantees that investments will not be expropriated or nationalized except under certain conditions. 

 

INVESTMENT PROMOTION

 

There are two investment promotion regimes in Myanmar aimed at attracting large scale foreign investment: Myanmar Investment Commission (MIC) promotion under the Myanmar Investment Law 2016 (MIL), and Special Economic Zones under the Special Economic Zone Law 2014 (SEZL).

 

Under MIL, depending on the respective zone, corporate income tax can be exempted, however, it will only be granted with the approval of MIC based on their discretionary power. 

 

Zone

Period of Corporate Income Tax Exemption

Zone 1 (most developed areas)

3 years

Zone 2 (moderate developed areas)

5 years

Zone 3 (least developed areas)

7 years

 

Under the SEZL, a company can get a corporate income tax exemption for 5 years. There are other benefits available under these two regimes: 

 

 

MIL

SEZL

Long Term Lease

(a foreign company without MIC or SEZL can only lease land for 12 months)

Yes

Yes

Import Duty Relief

Yes

Yes

Protection Against Expropriation

Yes

Yes

 

THE YANGON STOCK EXCHANGE

 

After several years of planning, the YSX opened on the 9th December 2015. There are currently 4 companies listed on the YSX, with Myanmar’s First Private Bank being the most recent listing on 20 January, 2017.

 

LIBERALIZATION OF TRADING ACTIVITIES IN MYANMAR

 

Trading is another area that has seen a significant liberalization in the past year. Previously, foreign companies were strictly prohibited from engaging in retail or wholesale activities, under the Ministry of Commerce policy prohibiting foreign companies from engaging in “trading” activities. However, in the past year the Ministry of Commerce has announced that foreign companies may enter into a joint venture with local companies to retail or wholesale five types of products in Myanmar. Overall, the Ministry of Commerce appears to be moving towards liberalization of this restriction, which is a welcome sign for investors.

 

EMPLOYMENT

 

Myanmar has reasonably strict labour laws governed by a complex patchwork of old and new legislation, many of which are in the process of being reviewed and updated by the Ministry of Labour and Immigration. The current minimum wage is set at 3,600 Myanmar Kyat (approximately US$3) per day. The Ministry of Labour has been quite strict about implementing their template employment contract for all foreign and local employees. Any deviation from the template must grant the employee more generous terms those provided for in the template.

 

LAND OWNERSHIP

 

Foreigners or the subsidiaries or branches of foreign companies may not own land in Myanmar, although as we indicate, under certain conditions long term leases are available for investors. Under the new Condominium Law foreigners and foreign entities are allowed to purchase a condominium, provided it meets certain requirements.

 

ANTI-CORRUPTION AND ANTI-MONEY LAUNDERING

 

Myanmar has implemented the Anti-Corruption Law 2013, which clearly sets out what activities are punishable.

 

Furthermore, the local government authorities have made a concerted effort to educate government employees regarding what is acceptable gift giving, and what is prohibited under the law.

 

Similarly, Myanmar implemented the Anti-Money Laundering Law 2014, and made a push to prevent money laundering. In 2016, less than two years after the Anti- Money Laundering Law was implemented, the Financial Action Task Force removed Myanmar from its list of states deemed weak in combating money laundering and terrorist financing.

 

DISPUTE RESOLUTION

 

Myanmar ratified the New York Convention in 2013, and passed the Arbitration Law in 2016, fully implementing the New York Convention. Under the Arbitration Law, foreign arbitral awards are enforceable under the Code of Civil Procedure
as though they were a decree of the court. This has been a boon for investor confidence, as previously the enforcement of foreign arbitral awards was uncertain. Similarly, foreign court judgments are enforceable under the Code of Civil Procedure, but the courts of Myanmar have broad discretion to retry the case.

 

IMPLICATIONS OF THE LIFTING OF US SANCTIONS FOR INDIAN COMPANIES

 

On 7 October 2016 President Barack Obama issued an executive order terminating the national emergency relating to Myanmar (the Burma related executive orders). This has the effect that:

 

  • All individuals and entities listed on the Specially Designated National and Blocked Persons List (SDN List) for Myanmar related reasons will be removed from the List;
  • All Office of Foreign Asset Control (OFAC) administered restrictions relating to banking and financial transactions with Myanmar are removed; and
  • The Responsible Investment Reporting Requirements will be removed (that is, US entities will no longer need to report any agreement with the Myanma Oil and Gas Enterprise or any investment which exceeds $5,000,000).

 

On the same day, the Financial Crimes Enforcement Network (FinCEN) issued an administrative exception which suspends the prohibition on US financial institutions providing correspondent services to Myanmar banks. This will make it easier for US financial institutions, including banks, to wire transfers to and from Myanmar banks, conduct business transactions and make and accept deposits from Myanmar banks.

 

Together these measures will enable Indian companies to more easily invest in Myanmar using US dollars.

 

For the pdf of the full report, please click here.

 

Baker McKenzie

 

For further information, please contact:

 

Jo Daniels, Principal, Baker & McKenzie

jo.daniels@bakermckenzie.com