Explanation of the investment in Myanmar.

Foreign Investor have to apply to set up the company in Myanmar under the either Myanmar Company Act (MCA) or Foreign Investment Law (FIL) of Myanmar or Special Economic Zone Law (SEZL).


Types of Myanmar Company


Myanmar offers two options to foreign investors registering a business entity in Myanmar. Such business activities that need substantial investments as manufacturing, construction, mining, hotels & resorts, agriculture and transportation have to be registered under the Foreign Investment Law (FIL) through the Myanmar Investment Commission (MIC). The Myanmar Companies Act (MCA) only allows Foreign Service providers to register the companies for other services.


Investment which is to encourage the export-oriented investment, shall set up and invest under the Special Economic Zone Law (SEZL), approved by Management Committee of SEZ.

Registration under the Myanmar Companies Act (MCA)

Foreign Ownership Company (under MCA)


            The registration of foreign company incorporation or registration for the Investment shall be applied according to the existing Company Law to the Directorate of the investment and Company Administration (DICA) when the application of investment proposal has been made.


            DICA shall issue the registration of foreign company incorporation in parallel with the approval the investment proposal issued with the acceptance by the Myanmar Investment Commission.


It is fully possible to own 100% of an MCA (as well as an MIC) company even if investor is a foreigner. The implication of this is that investor will not be able to operate certain kinds of businesses like trading or manufacturing. However, it is important to note that any Myanmar Company with one or more foreign shareholders is automatically considered foreign except in rare cases that involve joint ventures with the government.

At present, no registration certification or DICA permit for a foreign trading company (distributing/ selling / production) are issued or renewed. The government did not announce any notification of such prohibition.

 

Minimum Capital Requirements or Capital brought in


The minimum capital, as specified in the Conditions, must be brought into Myanmar in two installments: the initial half before issuance of the permit, and the remaining half have to be invested (remitted) at the end of the 4th year when the certificate of incorporation is due for renewal.

The initial capital should be remitted either to the Myanmar Investment & Commercial Bank or to the Myanmar Foreign Trade Bank. Initial half of amount needs to be invested (remitted) in the company upon approval of the incorporation application.

The foreign investor want to setup 100% foreign own Services Company under the MAC, the investors have to support the following documents;


(A).A copy of the passports of the shareholders, if all shareholders are  

  foreigner.

(B).A copy of banks statements of shareholders which are notarized by

  embassy, showing that you have sufficient fund to meet the minimum capital

  requirements which is USD 50,000 for service company or branch office.

(C).business activities or companys objectives which Even though, for the

  moment, DICA do not allow ( may be confused the question of inquiry) to setup the

  manufacturing company which is 100% owned by foreigner, in generally, for foreign

  companies and branches, the minimum capital to be brought in is as follows;

  (a). Industrial, Hotel and Construction company-USD 150,000;

  (b). Services, Travel and Tour company, Bank representative office and

       Insurance Representative office-USD50,000;


The registration process under this act involves the two steps (applying for Permit to Trade and Incorporation) of (the same as) the FIL company incorporation process which are mentioned below. Under the MCA, the Permit to Trade and Incorporation is valid for five years.

The incorporation process under the MCA takes 2-3 months. However, at the moment there is an option available to get a temporary incorporation certificate within a few days of lodging the application to incorporate.

Registration under the Foreign Investment Law (FIL)

One hundred percent foreign-owned companies and joint ventures with the Myanmar government or Myanmar nationals can be registered under the FIL. For joint ventures, the minimum foreign stake of the companys share capital is based on the approval of respective Ministry.

The MIC prescribes no minimum amount of foreign capital required the FIL for the business activity. Under the old FIL, minimum of foreign capital require was USD 500,000 for an Industrial Company and USD300,000 for Services Company.

Despite the minimum specified capital requirement of US$ 500,000, in practice business entities usually invest between US$ 1,000,000 to US$ 2,000,000, totally depending on the size and nature of the investment project.

However, under the new FIL, the MIC considers whether the proposed capital investment is sufficient to justify the incentive under the FIL.

Forms of investment are mentioned in Foreign Investment Law as follow:-

(a)Investment made by a foreigner to the extent of one hundred percent foreign capital in the enterprise granted by the Commission; ( investing by the foreigner, the commission shall, the minimum amount of investment according to the sector, prescribed with approval of the Union Government depending on the nature of business.)

(b) Joint-venture made between a foreigner and a citizen or relevant

     government department, organization; (the ratio of foreign capital and    

     citizen capital may be prescribed in accordance the approval of both

     foreigner and citizen who made JV.  The foreigner may, if a JV is curried

     out with citizen in prohibited and restricted business, propose the ratio of

     foreign capital as prescribed by the rule.)

(c) Carried out by any method which has been stipulated in the Contract which

     has been mutually agreed;

(d). Any foreign investment want to invest which are prohibited businesses,

     however MIC may allow investment which is considered to be in the interest

     of the state. Some foreign investment is required only the permitted on the

     recommendation of the relevant ministry. It means that the relevant

     ministry can stipulate the terms and level of investment in respective

     sectors.

Applying for Myanmar Investment Commission’s (MIC’s) Permit

Companies under FIL need to apply for a permit from the Myanmar Investment Commission (MIC) before they are able to enjoy a three-year tax holiday (which is the period of construction or the first three years of business).

 

Essential documents required for this process are:

    (a) Proposal to the Foreign Investment Commission in the prescribed form Form I

    (b) Draft contract or contracts, as the case may be (e.g. JV Agreement)

    (c) Draft Memorandum of Association and Articles of Association

    (d) Feasibility Study and Profitability Projection Statement for the project period or

         first ten years, including a Cash Flow Statement

    (e) Bank updated balance statement reference regarding financial status

    (f) Lease of Land or Properties with maps etc.

    (g) For a company, (i) last two years Annual Reports and (ii) Performance

         guarantee

Applying for ‘Permit to Trade’

Apart from joint ventures with the government, which are regarded as local companies, every business entity needs a Permit to Trade, which is issued by the Directorate of Investment and Company Registration (DICA).

The following documents are required for Permit to Tradeapplications:

        1. A summary of intended business or economic activities

        2. Statement of estimated expenditure during the first year of operation

        3. Bank updated balance statement references that provide evidence of the financial status of the subscribers to the Memorandum & Articles of Association

        4. Power of Attorney in favor of the individual who signs the applications, if he or she is not a subscriber to the proposed companys Memorandum and Articles of Association or one of its proposed directors

         5. If any of the parties is a company, a Board of Directors Resolution to incorporate a Company in Myanmar

        6. If the Company will be incorporated as a subsidiary of an overseas company, signed accounts of the parent company for last two years, authenticated and legalized. (If the accounts are published and bound properly, notarization is not required)

Certificate of Incorporation

The application for certificate of incorporation should be submitted together with a photocopy of the Permit to Trade.

The following documents are required:

        1. A list of authorized people who can accept official notices

        2. Particulars of each Director including their address, occupation and nationality

        3. Passport copies of directors

        4. List of the shareholders and their shareholdings

        5. Particulars of each shareholder including their address, occupation and nationality

Advantages or Tax Exemption 

Companies investing under the Foreign Investment Law can be granted a number of incentives and tax exemption or tax reliefs, which might include as follow;

i.           Exemption from income tax for up to five consecutive years including the year of commencement of commercial scale, which can be extend further if considered appropriate by the MIC depending upon the success of the business.

ii.          Exemption from income tax on profits made if they are maintained in a reserve fund and reinvested therein within one year.

iii.        If goods produced are exported, relief from income tax up to 50% of the profits accrued from said export.

iv.         Exemption or relief from custom duty or other internal taxes or both on machineries, equipment, instruments, spare parts and materials which are imported to be actually used during the period of construction of business.

v.          Right to carry and set-off the loss actually sustained within consecutive years after the enjoyment of exemption contained in (a) for each business up to three consecutive years the loss is sustained.

vi.         Exemption or relief from custom duty or other internal tax or both on raw materials imported for production for the first three years after completion of construction.

vii.       Exemption or relief from commercial tax on goods produced for export.

Investors have the right to apply for tax and duty exemption based on case by case method upon their volume of investment. 

Right to Use Land 

Foreign investors can lease land from private individuals as well as from the state. This has to be approved by the MIC.

Land leases are for 50 years depending upon category of business, industry and volume of investment and its extendable by two periods of 10 years after expiry of said period subject to the MICs approval that also depending upon the volume investment and category.

Business Guarantee

The Government guarantees that an economic enterprise formed up under the permit shall not be nationalized during the term of the Contract or during an extended term if such is extended.

Right to Transfer FE 

According to the FIL, the investors are allowed to transfer their profits abroad.

Registration under the Special Economic Zone Law (SEZ)

          The person or investor intending to invest in the SEZ shall apply to the Office of Management Committee (of SEZ) to obtain the investment permission in accordance with the rules and regulations stipulated under the SEZ law.

  According to the Special Economic Zone Law, SEZ which is to encourage the export-oriented investment, the investment companies shall grant as mention below;

1.    The investor is entitled to following income tax exemption and reliefs;

a.   For investment business in the Free Zone or the Free Zone business, there shall be income tax exemption for the first seven years from the commencement of the commercial operation, 

b.   For investment business in the Promotion Zone or other business in the boundary of the Special Economic Zone, there shall be income tax exemption for the first five years from the commencement of the commercial operation, 

c.   For investment business within the Free Zone and the Promotion Zone, there shall be fifty percent relief on income tax rate stipulated under the existing law for the second five years,

d.   For investment business within the Free Zone and the Promotion Zone, there shall be fifty percent relief on income tax rate stipulated by the existing law for the third five years on the profit which is obtain from the business if it is reinvested within one year in the business as a reserve fund.

e.   For the investor of the Free Zone, the exemption of customs duties and other relevant taxation on the import of raw materials for production, machinery instrument and necessary spare parts for production; construction materials and motor vehicles for building factory, warehouse and own office,

f.    For the investor of the Promotion Zone, the exemptions of customs duties and other relevant taxation for five years from the business commencement on the import of equipment and instrument not for sales and their required spare parts, the construction materials for factory, warehouse and own office, the motor vehicles and other materials which are essential for the business, and fifty percent relief of the custom duties and other taxation for consecutive five years.

 

2.   The developer is entitled to following income tax exemption and reliefs;

a.   Income tax exemption for the first eight years from the commencement of business operation,

b.   Fifty percentage relief of the income tax rate stipulated by the existing law for the second five years ,

c.   Fifty percentage relief of the income tax rate stipulated by the existing law for the third five years on the profit which is obtain from the business if it is reinvested within one year in the business as a reserve fund,

d.   Exemption of customs duties and other relevant taxation on the import of the construction materials for the infrastructures and own offices; machine instruments; machinery; motor vehicles for work and work materials.

 

3.   The developer and investors of the Special Economic Zone shall be permitted to manage to retrieve the losses for five years after the year of losses incurred.

 

4.   In relating to commercial tax or value-added tax, the investor may apply for the exemption of commercial tax or value-added tax for manufactured goods which will be exported.

 

5.   The investor of the Free Zone may apply the exemption for import tax or value-added tax for the goods imported from the local or Promotion Zone to Free Zone.

Right to Land Use

The Management Committee may permit for 50 years, after causing payment of fees to be made by the developer or the investor for the right to land lease or land use. If investor is desirous of continuing to operate after the expiry of the permitted term, it may renew for 25 years.

Business Guarantee

The Government guarantees that investment business in Special Economic Zone shall not be nationalized during the permitted period.

Possible ways to sell the products in Myanmar

    If investor wouldnt invest in manufacturing sector, he can choose couples of ways to sell his products in Myanmar which mention as below;

i.           Appoint local agent

ii.          Appoint local dealer

iii.        Appoint local distributor

An agent is a companys direct representative in a market and is paid commission, whereas distributor buys products from the manufacturer and sells them on to customers.

Entering a market by working with an agent or distributor can have several advantages like as; it can reduce the time and costs, and companies gain the local knowledge and networks of agent or distributor.

If you decide to sell your products by agent or distributor, you should choice with cautionary one local business partner, one important to carry out the appropriate due diligence on any of them and sign a contract which protects your business appropriate. Few of bigger companies may continue to be subject to US sanctions.

The best places to start looking for a partner are at JETRO and UMFCCI who can able to provide you with a list of business operating in your sector.