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.