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Myanmar
Chavalit Group
May 26, 2012
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GENERAL
INVESTMENT
- Statistics
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CERTAIN
ISSUES
FACEDTITLE
BY INVESTORS
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
Purpose of specifics I will give—to give a feel for the economy.

FOREX issues (The Central Bank of Myanmar adopted Managed Floating Exchange
Rate Regime on April 2, 2012). Exchange rate set at auction weekly at Central
Bank.

Buying shares from a Myanmar shareholder currently not permitted

Structuring through other ASEAN countries 2009 Comprehensive Investment
Agreement (AICA consolidated law, not fully ratified,--a. free transfers of income,
b. reaffirmation of existing benefits such as MFN and equal treatment of ASEAN
investors, c. enforcement of foreign ASEAN arbitration.)

Trading restricted to Myanmar nationals.

Enforcement of judgments and arbitration awards.

12 economic activities are restricted by the State-owned Economic Enterprises
Law of 1989 (the SOE Law).
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Special
Economic
ZonesTITLE STYLE
 The Special Economic Zone Laws of 2011—

Sets up SEZs. Two now operating, Thilawah and Kyaukphu. Application through
Central body.

Service enterprises—commercial tax relief from year of operation.

Income tax holiday. First 5 yrs. 100%, second 5 yrs 50%, third reinvested profits
exempted. Thereafter, additional benefits.

Export processing zones. Exemption from customs duties and other internal taxes on
raw materials, factory machinery and equipment . Free import of other machinery
and motor vehicles for five years. Thereafter, reduced treatment.

Special zones other than export processing zones will be established and have
similar benefits.
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MFIL
 The Myanmar Foreign Investment Law of 1988 (MFIL)
–
–
MIC
100 % Foreign ownership allowed in selected industries

MFIL Minimum foreign capital
– manufacturing = USD 500,000
– service = USD 300,000

Leasing: 30 years + 15 + 15 (negotiable under special circumstances);

Tax (three years; accelerated depreciation) and customs exemption (construction phase and raw
materials following completion);

Guarantee against nationalization; and
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Foreign exchange benefits (profits; exiting the investment)

Law is being reviewed the last session of parliament [not yet passed]
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‒
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Myanmar content of work force;
Five years tax holiday; and
market compensation if nationalized.
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CORPORATE
FORMS
 Business organization wholly-owned by foreign investor
 Joint venture with a Myanmar individual, a private
company, a cooperative society, or a State-owned economic
enterprise
 Branch Office, rep office (currently banks and foreign insurance
companies )
 For JV, investor must contribute foreign capital of at least
35% of the total capital
 Limited company is the most common form of investment
for projects
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TAX

Corporate Income Tax
25% (Subsidiary and MFIL Branch)
35% (Non- MFIL Branch)


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Personal Income Tax
At a progressive rate of 1% to 20% for resident foreigners
35% for non-resident foreigners
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
Commercial Tax
levied on locally produced and on imported goods.
As to imported goods, commercial tax is imposed on landed cost.
Rates varies from 5 to 100% on goods.


A few services are also subject to the commercial tax at the rate of
5%. For example: Income derived from the transport business,
hotel and tourism, consultancy services.
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TAX continued
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
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Myanmar has signed double taxation agreements with 9
countries.
Among them, only 7 of these are currently in effet. They are
UK, Malaysia, Singapore, Vietnam, Republic of Korea, India
and Thailand.
Myanmar tax authorities have only started to apply
applications for relief under DTAs from the release of the
notifications in August 2011.
Thus, there are not many cases of taxpayers using treaties
for relief in Myanmar.
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INVESTMENT
OPPORTUNITY
continued
 Financial Services
 Real Estate
 Construction
 Oil and Gas
 Mining
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MINING
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Under the SOE Law, the Myanmar government has the sole right to do
exploration and extraction of metals and export the same.
Section 4 of the SOE Law empowers the government to grant exemption to
foreign entities to operate a mining project.
By virtue of section 7 of the Mines Law of 1994, a Mining Permit is also required.
Prospecting, exploration and production of minerals may not be undertaken
without a Mining Permit. Depending on the nature and scale of the
proposed mining activities, applications for permits must either be
submitted to the Ministry of Mines itself, the Mines Department or one of
the relevant mining enterprises.
The Ministry of Mines or relevant enterprise must submit to the MIC, and the
project must be MIC approved.
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FINANCIAL
SERVICES
Banks

Four State-Owned Banks (MFTB, MICB, MADB, MEB)

19 Domestic Private Banks
15 Representative Offices of Foreign Banks(explain about branch
situation)
The banks are heavily regulated by the Central Bank.
Bank interest rates, both borrowing and lending, are determined by the
Central Bank of Myanmar. Interest rate on deposits must not be lower
than 8 per cent and must not be more than 10 per cent in various kinds
of deposits. Interest rate on bank loan must not be more than 13 per
cent in various kinds of loans.
Private Banks are only allowed to make short-term collateralized loans.
Maximum one-year loan.
All Domestic Private Banks in Myanmar can accept only immovable
property as collateral.
Banks can make loans up to 50 per cent of the value of collateral.

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MASTERcontinued
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FINANCIAL
SERVICES
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Licenses to operate banking business: Only Domestic
Private Banks
Conducting domestic commercial banking services
(accepting demand and saving deposits and making
loans) [.45—understanding Myanmar ]
Money Changer License: 17 private banks : September,
2011—locally changing to and from foreign currency.
Now implemented.
Foreign Authorized Dealer license: Eleven banks: Nov,
2011. Inward remittance. Implemented as to certain
countries.
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FINANCIAL
MARKETS
 Myanmar Securities Exchange Centre Co., Ltd (MSEC)
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Established in 1996
50:50 joint venture between a state-owned bank Myanma
Bank and Daiwa Institute of Research Ltd. of Japan
Economic
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At present, only shares of two companies – Forest Products
Joint Venture Corporation and Myanmar Citizens Bank – have been
traded
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Sells Government Treasury Bonds as an agent

Under the current policy of the Government, foreigners or
foreign companies cannot buy such shares and bonds
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FINANCIAL
MARKETS
 No Securities Exchange Law yet
 At present, not more than twenty public companies exist in Myanmar
 Road Map for the development of capital market
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Drafted in accordance with the time frame for the development of
ASEAN integrated Capital Market
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Three phases
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As the first phase, two-year Treasury Bond was issued in addition
to existing three-year and five-year Treasury Bonds and Kyat 10million Treasury, in addition to Kyat 10,000, Kyat 100,000, and
Kyat 1 million Treasury Bonds since 1 January, 2010;
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FINANCIAL
MARKETS
•
As the second phase, Securities Exchange Law (draft),
which was drafted by officials of the Central Bank of
Myanmar, local and foreign experts, and officials at
Attorney General’s Office under the supervision of the
Ministry of Finance and Revenue, was sent to the
Union Attorney General’s Office on 13 May, 2011;
•
As the third phase, after enacting the Securities
Exchange Law and the formation of the State level
Securities and Exchange Committee, Stock Exchanges
will be continued to be established by 2015.
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REALTO
ESTATE

Legal background: 1987 Transfer of Immovable Prop. Act

Foreign company can be a developer
residence / commercial / industrial
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Previously only state land was available to foreign developer. Now, pursuant to
notification last year—private parties, too
Under MFIL 30 years, renewable twice (15 years)
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Lease or Sublease [may receive right to sublease to tenants]
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Subject to approvals of other ministries
- For example Construction Permit, Electricity Permit, Electricity license
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CONSTRUCTION
 Open to foreign investors—tax discussed later.
 May form a service company (general construction,
contractor, design work , consultancy services)
- MFIL service company
-Non-MFIL service company
 For one project (got a bid from the government or EPC
contract with foreign or local companies )
- In practice, it is not necessarily required to have a presence.
- In theory, a foreign company doing business in Myanmar must have
a permit issued under the Myanmar Companies Act.
- To have a permit, it must set up a subsidiary or branch.
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LEGAL
BASICS
OIL &TITLE
GAS DEAL
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 State-owned Economic Enterprises Law of 1989 (SOE Law)
 Grant exemption in the form of notification issued under the
SOE Law
 In practice, allow joint ventures on a production sharing basis
with MOGE
 Must operate under the Myanmar Foreign Investment Law of
1988 (MFIL)
– MIC, MIC permit
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LEGAL
BASICS
OIL &TITLE
GAS DEAL
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PSC
 Royalty paid equal to 12.5% of the value of available
petroleum
 Available petroleum means all production minus petroleum
used by the operator free of charge for production
operations.
 Cost petroleum: 1) costs and expenses of exploration operations, (2) costs
and expenses of development and production operations in development
and production areas.
 Not included in cost petroleum: outside of the production area, costs
attributable to logistics, administration and design.
 Maximum percentage of fixed available petroleum to be applied to cost
petroleum from the contract area: 40% to 50% of production.
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OIL &TITLE
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DEAL continued
 Signature bonus: a flat amount determined on a case-by-case base, based
on MOGE's data on the particular block.
 Data Fee
 Production bonus-sliding scale
 Available Natural Gas for water depths of 600 feet or less:
MOGE’s Share: 65%
Contractor’s Share: 35%
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CONTRACTORS
 EPC with MOGE and foreign oil and gas companies
 Foreign Contractor, without having a legal presence in
Myanmar.
 Withholding tax 2% (branch or company) or 3.5% (non
resident)
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Predictions:
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 Foreign exchange regime: enabling free flow of foreign
capital and structured lending; IMF participation
 Removal of restrictions on locally owned private equity
 Enacting new Myanmar Foreign Investment Law
 Opening the banking sector to foreign participation
 Acceding to New York Convention on foreign arbitral
awards
 [Ne Win—understanding Myanmar. ]
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