navigating myanmar’s legal and regulatory environment...

ASEANINSIDERSbyoriginandpassion

NavigatingMyanmar’sLegalandRegulatoryEnvironment:IntroductiontotheLegalFrameworkinMyanmarandupdateonthenewCompaniesLaw

GeraldineOh,ResidentPartnerZICOlawMyanmarLimited

10January2018

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Introduction

The legal and regulatory framework in Myanmar can often times be challenging, inan environment that is opaque and with limited accessibility to information. In thispart of the seminar, Geraldine Oh from ZICO Law Myanmar delivers localknowledge and insight into Myanmar’s legal framework, and an update on a pivotalpiece of legislation, the new Companies Law that will reform and modernize howcompanies are regulated in Myanmar.

We believe in ASEAN. We believe ASEAN is a major economic force and a driverof global development.

ZICO Law is managed by a multi-jurisdictional team of senior local lawyers in theregion with in-depth local knowledge and business insights on doing business in theASEAN region.

TheZICOLawnetwork

CambodiaOffices:1Partners:3

Feeearners:24

LaosOffices: 1

Partners: 1Fee earners: 3

ThailandOffices:1Partners:7

Feeearners:23

VietnamOffices: 2


MyanmarOffices: 1


IndonesiaOffices:1Partners:6

Feeearners:32

MalaysiaOffices: 7


SingaporeOffices:1Partners:2

Feeearners:7

BruneiOffices:1Partners:1

Feeearners:2

PhilippinesOffices:1Partners:1

Feeearners:2

17 offices 80 partners 300+ feeearners10Countries

ZICOLawinMyanmar• Since2012,ZICOLawhasadvisedclientsontransactionsandprojectsinMyanmar,

andhasdevelopedastronglocalgroundingandexpertiseinthelocalmarket,legalsystemsandbusinesspractices.

• TheYangonofficeissupportedbyateamoflocalMyanmarlawyersandlawyerssecondedfromtheZICOLawnetwork.BeingpartoftheZICOLawnetwork,ZICOLawMyanmarestablishesitselfasaleadinglocalfirminMyanmar,supportedbyanetworkoffirmsprovidinglegalservicesintheASEANregion.

• communicationsandtechnology• competition• compliance• humancapital• jointventuresandshareholders’

arrangements

• mergers&acquisitions• realestate• restructuringandinsolvency• tax

Corporate & CommercialUnderourcorporate&commercialumbrella,weprovidearangeofservicestosupportanybusiness.Fromestablishingandorganisinginanewcountry,tosupportingtheadministrativeandcorporatefunctions.Ourofferingsinclude:

• powerandrenewableenergy• waterandwastewater• Highways• airports,ports,andrailways

Projects, Infrastructure & UtilitiesAnintegralpartofourpracticeisourinvolvementinMyanmar’sdevelopinginfrastructure.Ourteamhasexperienceworkingonsomeofthemostcomplexprojectsinvarioussectorsincluding:

KeyFacts• JoinedZICOLaw:2012

• Offices:Yangon

• Partners:2

• Associates: 6

• RecentRecognition:

Tier2:Corporate/M&A,Legal500,2017

Tier2:ProjectsandEnergy,Legal500,2016-2017

NotableFirm:Financial&Corporate,IFLR1000,2017-18

1. ForeignDirectInvestmentFramework

2. LegalUpdate– NewCompaniesLaw

3. OperationalConsiderations

4. Do’sandDon’ts– CommonPitfalls

5. KeySuccessFactors

TopicsforDiscussion

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Ataglance…Malaysia&Myanmar

CountrycapitalKualaLumpur

Malaysia

Population31.2million

GDPUSD296.4billion

CurrencyMalaysianRinggitUSD1=MYR4.02

CountrycapitalNaypyidaw

Myanmar

Population52.9million

GDPUSD67.43billion

CurrencyMyanmarKyatUSD1=MMK1,357

InformationasatDecember2017

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Ataglance…Malaysia&MyanmarLegalSystem

MYANMAR

Commonlaw– similarly,AIR(Rangoonseries),BurmaLawReports,SupremeCourtoftheUnionCourtRulings(Myanmarlanguage)

LegislativeSystemBicameralParliament(Pyidaungsu Hluttaw)–dividedintothePyithu Hlutta (HouseofRepresentatives)andAmyotha Hlutta (Senate)

Similarities• CriminalProcedureCode• ContractsAct• EvidenceAct• CompaniesLaw• CourtSystem(hierarchy)– SupremeCourt,

HighCourtsDistrictCourts,TownshipCourts

DifferencesLandSystem(Registration)– registrationsystemispoorlyharmonizedandantiquated

MALAYSIA

Commonlaw– judicialprecedentanddevelopmentoflegalinterpretation(MLJ/CLJ)

LegislativeSystemBicameralParliament– DewanRakyat&DewanNegara

Similarities• CriminalProcedureCode/CodeofCivil

Procedure• ContractsAct• EvidenceAct• CompaniesLaw• Courtsystem(hierarchy)– FederalCourt,

CourtofAppeal,HighCourt,SessionsCourt,MagistratesCourt

DifferencesLandSystem(Torrens)– Indefeasibilityoftitle

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Myanmar– ForeignDirectInvestmentFramework

Myanmar• Exemption from customs duty on raw materials imported for

production and commercial tax on goods produced for export.

• Non-fiscal incentives such as long-term lease, right to transfer foreign currency abroad and investment protection are available subject to conditions

• Foreign ownership considerations – ‘nominee’ structure may be against public policy

• Scope of business activities – trading (wholesale / retail distribution prohibited) except in the following “relaxed” products:(i) Construction materials(ii) Fertilizer, seeds, pesticide(iii) Hospital equipment

• Forms of legal entity – private limited company approved by Directorate of Investment and Company Administration (DICA)

• Certain sectors in “Notification 15/2017” is subject to governmental approval and foreign investors may also apply for an investment permit or optional endorsement granted by the Myanmar Investment Commission (MIC)

• The MIC Permit and MIC Endorsement grants certain benefits

• Income tax exemptions based on the region where the business is set up, i.e. Zone 1, 2 or 3 - More incentives will be given to investments in less developed regions.

Practical Considerations – Do you need an MIC Permit or MIC Endorsement?

• Application for MIC Permit or MIC Endorsements involve higher costs, longer time periods, preparation of more documents, commitments to foreign capital, more stringent processes

• Update: New Companies Law passed on 6 December 2017, foreignownership in a Myanmar incorporated company allowed up to 35% where thecompany is categorized as a local company and do not have restrictions interms of the scope of business activities / land lease / land ownership rights.

MyanmarCompaniesLaw– Keychangesaffectingbusinesses

• Stringent“local”vs“foreign”companydefinitionwhereevenif1shareisownedbyaforeigner,thecompanyisclassifiedasa“foreign”company.

• MinimumsharecapitalofUSD50,000forforeigncompanies(investedin2tranches,USD25,000withinthefirst6monthsandUSD25,000within5yearsofincorporation

• Requiredtoobtaina“PermittoTrade”andincorporationvalidfor5yearsbeforearenewalisrequired.

• Nodefinitionof“SmallCompany”

• 35%foreignownershipallowed(trading,distribution,enlargedscopeofbusinessactivities(subjectto‘negativelist’inNotification15/2017andfurtherupdatesanticipated)

• Removalofsuch‘minimumcapitalrequirements’

• Removalofsuchrequirementtoobtaina“PermittoTrade”.Acertificateofincorporationissufficientconclusiveofthecompany’sincorporationstatus(novalidityperiod)

• Definitionof“SmallCompany”- exemptionsfromgeneralmeeting/financialreportingrequirements.EasierforSME’stoenterthemarketandmaintainanentity.

Old New

MyanmarCompaniesLaw– Keychangesaffectingbusinesses

• NoDirectorresidencyrequirement.

• Minimum2Shareholdersand2Directors

• Parvaluetoshares

• MemorandumandArticlesofAssociation

• ObjectClause

• NoDirectorDuties

• Noexpressprovisionsonthedifferentclassesofshares

• Directorresidencyrequirementof183daysinMyanmarineach12monthperiod(fromcommencementofthelaw)orforanewcompany,fromthedateofregistration)

• 1Shareholderand1Directorpossible

• Noparvalue

• Constitution

• Nomoreobjectclauses.

• ListofDirectorDuties(Dutytoactwithcareanddiligence,dutyofgoodfaith)

• Differentclassesofsharesallowed

Old New

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HowdothenewMCLchangesaffectyou?

New definition of local companyThis pivotal change allowing 35% foreign ownership is expected to drive renewed interest and investment, particularly in sectors which the law will help liberalize, such as wholesale and retail trading / distribution, allow land lease / land ownership

Objects Clause Under the new Myanmar Companies Law (“MCL”), companies may decide whether or not to adopt an objects clause in their respective Constitutions. The objects will continue to have effect on existing companies within the transition period (12 months). At the end of the 12 months, the objects clause will automatically cease. Key considerations:• What type of company do you have?• What does your company want to be able to do?• Are there reasons to restrict the company to specific business activities?• Consider interaction with Notification 15/2017 and other prohibitions on

foreign ownership

Implications of no-par value regime:• par value is not necessarily indicative of the share’s real value, hence it

may have been misleading to investors;• removal of par value will simplify a company’s accounts and financial

statements; and• under a no-par value regime, a company will have more flexibility in

pricing its shares

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HowdothenewMCLchangesaffectyou?

Capital Requirements No requirement for USD 50,000 minimum capital for foreign companies. Business-friendly measures.

Different Classes of Shares Under the MCL [Section 62(a) MCL]:§ shares of different classes;§ shares which may be redeemable;§ shares which have preferential or restricted rights to distribution of capital

or income§ shares which have special, limited or conditional voting rights; and§ shares which do not have voting rights.

This new development allows potential investors to explore different types of investment options. Additionally, companies that wish to distinguish between shareholders’ rights may benefit from this change. The ability to issue preference shares for instance may help open up financing opportunities.

Implementation of E-RegistryCurrently being implemented by DICA with ADB’s assistance. To create an online system of searches much like Malaysia’s “CCM” e-info database.

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Notification15/2017– M&AOpportunities?

ActivitiesrestrictedtotheUnionofMyanmargovernmentonly

1. Defenseandsecurity2. Armsandammunitiontrading3. Nationalpostagestamps4. Airtrafficservices5. Pilotageservices6. Nationalforestandforestareacultivationandextraction7. Radioactivemetalstrading8. Controlandinspectionofelectronicpowersystems

ActivitiesrestrictedtoonlyMyanmarnationals—noforeigninvestorsallowed

1. Ethniclanguageperiodicalspublishinganddistribution2. Freshwaterfisheries3. Quarantinestationsforanimalimports/exports4. Petcareservices5. Forestproducttrading6. Mineralprospecting,exploration,feasibilitystudiesand

production—smallandmediumscale7. Tour-guideservices8. Minimarketconvenienceshops

Activitiesnotallowedfor100%foreignownership,butallowedasaforeign-localjointventureownership

1. Fisheryrelatedresearchactivities2. Confectionarymanufacturinganddistributionincluding:sweet,

cocoaandchocolate3. Residentialapartment/condodevelopment,salesandleasing4. Localtourservices

Ministry Approval Not-Required—processing by MIC and regional/state governments only

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Notification15/2017– M&AOpportunities

Activitieswhichrequireoneormorerelevantministries’approval

1. Periodicalnewspaperpublicationinforeignlanguages

2. CableTVbusiness

3. Laboratoryservicesfordiagnosinganimaldiseases

4. Aircraftrepairandmaintenance

5. Wood-basedindustries

6. Privatehospitalservices

7. Urbandevelopment—properties100acresorabove

Ministry Approval Required—expect delayed processing times

What Next? – DICA expects to release guidelines to sectors that requireMinistry Approvals to streamline and have transparent processes. DICA is inconsultation with various ministries and expect these announcements to bemade in the coming weeks

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RecentMICAnnouncement– December2017

The MIC has released an announcement being an invitation for foreign investment intoImport Substitute Commodities – MIC will provide enhanced assistance (to obtain land,electricity) and expedited approvals

§ Manufacturing of vehicles, vehicle related fixtures and parts of machine§ Manufacturing of tractors and trailers§ Manufacturing of telephone and telecommunication equipment§ Production of machine and machinery equipment§ Manufacturing of electricity distributing and control apparatus§ Production of iron and steel§ Production of fertilizer§ Manufacturing of plastics raw material§ Manufacturing of paper§ Production of§ Production of edible oil§ Production of medicine§ Manufacturing of cosmetic products

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TheMIChasreleasedanannouncementbeinganinvitationforforeigninvestmentintoLogisticServices– MICwillprovideenhancedassistance(toobtainland,electricity)andexpeditedapprovals

§ DryPortServices§ BondedWarehouseServices§ HighwayBusandFreightTerminals§ WarehousesandWholesaleClearance

RecentMICAnnouncement– December2017

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Operationalconsiderations

Myanmar• Businessvisassufficientforundertakingemployment.Foreignerswhohave2-3singleentrybusinessvisamayapplyforamultiplejourneybusinessvisa(3months,6monthsor1yearMJEV– allowingstayfortheduration.Ifstayiscontinuousformorethan90days,aForeignerRegistrationCertificate(FRD)isrequired)

• AmanufacturingcompanycanonlyemployMyanmarcitizenstoperformunskilledworkbutcanemployforeignnationalsforskilledwork.

• Presently,employmentissubjecttoastandardformofemploymentcontract bytheMinistryofLabor,ImmigrationandPopulation

• IntellectualPropertyRights– currentlyinarudimentaryformofregistrationofaDeclarationofOwnershipattheOfficeofRegistrationofDeeds(ORD)andpublicationofacautionarynoticeinthenewspapers.ThisissettochangewiththeenactmentofIPLawsandaregistrywillbesetup.

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Myanmar

FastFacts• Emergingmarketwithhighgrowthpotential• Highpopulation• Lowlabour cost&strategicgeographiclocation- Thecountry’sstrategiclocationanditsproximitytoadynamicEastandSoutheastAsiashouldserveitwellasmanufacturersseekstrategiclocations- over-landOneBeltOneRoad,MaritimeSilkRoad– BayofBengal

• Richnaturalresources• Strategicgeographiclocation• ActiveM&Aandinvestmentactivity• Hugelyunder-banked&underinsuredpopulation

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ASEAN- MyanmarOutlook

*Source:AMCHAMASEANOutlookBusinessSurvey2018

• Themostcommonreasonscitedforexpansionarethegrowthofthedomesticmarket(54%),economicgrowth(51%)andtheriseofthemiddle/consumerclause(35%)

• Myanmariscitedforstronggrowthinconsumergoods– HowdoMalaysianproductsfare?

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Do’sandDon’ts- CommonPitfallsToAvoid

Myanmar

• Human Resources: lack of trained staff. Costs considerations in employing expatriates /repatriates.

• Legislative Environment: unpredictable legislative environment. Mature Jurisdiction(Malaysia) vs Frontier Market (Myanmar).v Hard Law vs Soft Law: Hard Law i.e, requires license, Soft Law goes to conditions of licensing which may be negotiated / engage

with regulatory authoritiesv Limitations on legal due diligencev Land – Malaysia (Torrens System) vs Myanmar (Registration System). Myanmar system is based on “registration”v Lack of Judicial Precedent – Common law systems rely on judicial interpretation.

• Enforcement: Practicalities – if you have a very detailed contract – is it enforceable? IScontract sanctity upheld? Would it be easy or difficult? Myanmar Court System? ArbitrationLaw - the law will bring further legal security and stability for investors in the future. The Lawgives effect to Myanmar’s ratification of the 1958 New York Convention on the Recognitionand Enforcement of Foreign Arbitral Awards (the New York Convention)

• Infrastructure : The Myanmar government, with the help of the World Bank and UN,developed a National Electrification Plan that calls for full electrification by 2030. Consider thelocation of your business.

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Do’sandDon’ts- CommonPitfalls

• Business Environment: Adopt realistic expectations. A good local partner isessential and strong on-ground experience to guide you through the maze of hardlaw / soft law

• Corporate Governance & Compliance: Local partners may have poor corporategovernance and may also lack regulatory compliance in certain areas (tax)

• Access to Financing: Legal framework in its infancy stages in so far as the taking ofcollateral and security in Myanmar is concerned. Strong local knowledge required tonavigate on what is possible based on on-ground practices

• Legal Due Diligence: Currently may not be comprehensive. Lack of public searchrecord databases, no current e-registry

Myanmar

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BusinessSectors?

• ConstructionandRealEstate(Catalyst:CondominiumLaw2016andRules2017)-Foreign investors will welcome that the Rules which apply to a foreigner or foreignentity state that a foreigner or foreign entity can be a joint developer of acondominium (obtain some relevant approvals)- 40% of the apartments in a condominium may be sold to foreigners. The foreignercan have ownership right of the apartment in the condominium and the ownershipright will last as long as the condominium term is in validity

• Energy(Catalyst: Current electrification rate is only 33%. The Myanmar NationalElectrification Plan (100% by 2030). To draw a comparison, Peninsula Malaysia has100% electrification, Sabah 77% and Sarawak 67%)

• Telco(Catalyst: Mobile penetration rate is a phenomenon. Before the country embarkedon the liberalisation of the telecom sector, in 2013 mobile penetration was around7% Within a short two year time-span, mobile penetration has now reached morethan 50% and now it stands at around 90% This represents one of the fastest-evermobile penetration spikes, according to analysis by an international consulting firm)

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BusinessSectors?

• Agriculture(Catalyst:AgricultureisthebackboneoftheMyanmareconomy:thesectoraccountsforabout30%ofGDP,over50%oftotalemploymentandapproximately20%ofexports BUTthereislowproductivity.Averageyieldandlabour productivityisstilloneofthelowestinAsia,butatthesametime,labour costsarelow.-Opportunitiesarisingfromthis,furthersupportedbyMyanmar’sfavourablegeographicalconditions.MyanmarhasfertilesoilsandabundantwatersourcearelegendaryinSoutheastAsia.ItisevensaidthatMyanmarhasthemostfavorableagriculturalconditionsinallofAsia).-Oneofthefirst‘relaxation’offeredtoforeigninvestors,isthetradingof“pesticides,seedsandfertilizer”.

• Healthcare(Catalyst:gradualprogresshasbeenmadeintheoverhaulofMyanmar’smedicalandhealthcaresector,foreignentitiescanhavemajorityshareholding.Early“relaxation”oftradingrulesincludehospitalequipment)- Health insurance first came to Myanmar in July 2015. Issued by local insurancecompanies, the long-awaited product marked a milestone in the evolution of thecountry’s insurance services.

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navigating myanmar’s legal and regulatory environment...

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