Foreigners (namely whomever is not a Burmese national) who wish to conduct business activities in Myanmar should be made aware of several key prohibitive restrictions prior to considering commencement of their business, however, this is not meant as a discouragement of doing business in Myanmar, and indeed, Myanmar has taken some substantive strides economically and politically to open its doors for business.
There is categorization of different classes of business activities in Myanmar and their prohibitive restrictions and requirements relating to foreigners which can be divided into 3 main categories (originating from various different legislative regimes):
(a) Totally prohibited activities which foreigners cannot engage in:
To name but a few: banking and insurance, telecommunications, air and railway transport services, all scale agriculture, production of products relating to security and defense, small scale mineral production, exploration, extraction or export of metals, jade and gemstones, certain publishing activities and more, unless the government grants its approval for a joint venture between the foreigner and one of its designated authorities for these restricted sector activities.
(b) Activities that a foreigner can engage in only via joint venture with a local Myanmar partner
To list but a few: tourism, private healthcare, air transport services, manufacturing activities, production and distribution of most food products and some household items, distillation and distribution of alcohol products, rubber and plastic products, large scale mining, transport infrastructure, development of commercial and residential real-estate and travel services, etc. The Myanmar Investment Commission (MIC) may determine the foreign to local holding ratio but the general rule of thumb is that a foreign party in a JV must not hold more than 80% of total JV’s investment.
(c) Activities that a foreigner can engage in under specific Ministerial conditions.
In essence, this category relates to all business sectors and the relevant ministry responsible for that particular sector can specify the terms and conditions applicable to that sector (to name a few: mineral production, electricity, airport services, communications, beverages, cigarettes, commercial real-estate, coal, hotels, retail and wholesaling, etc.). This category can be sub-divided into: (i) activities permitted with ministerial recommendation (for example, importation and distribution of petroleum can only be made with the Ministry of Energy recommendation); (ii) activities with specific conditions (for example, 100% foreign ownership is permitted for hotel projects rated 3 stars and above but projects rated below 3 stars must be made via a JV with a local Myanmar partner); and (iii) activities that must have an environmental impact assessment which require input from the Ministry of Environmental Conservation and Forestry (for example, electricity generation projects).
A Myanmar company with a foreign shareholder (even the holding of one share) cannot engage in trading, which includes the sale of goods or any sort of importation activities.
For all of the above restrictive activities, the government of Myanmar may decide on a case-to-case basis that it is in the national interests to allow the project, and therefore provide an exemption for any of the above prohibitive restrictions and impose relevant conditions as it deems necessary.
Sector Specific Legislation
In addition, for each particular industry sector there may be sector specific legislation, but such legislation usually relates more to technical and administrative elements rather than to the approval and permission process of foreigners’ participation in a certain business activities (for example: the Telecommunications Law, the Mines Law & Rules, the Petroleum Act & Rules, etc.).
Permits, Licenses and Local Approvals and Consents
Depending on where the project is located, local/regional townships authorities’ consents are also usually required as part of the process and specific industry permits and licenses will also need to be obtained. Myanmar has made great strides in stream-lining this process and centralizing it as a ‘one-stop shop’ process where the MIC and its administrative branch DICA, handles most aspects of the approval, licenses, permits and consents required for the approved project from all relevant authorities.
A foreigner wishing to conduct business activities in Myanmar can either: (i) incorporate a foreign company; (ii) a branch of a foreign company; or (iii) a representative office. When deciding on the form of incorporation, it seems under the current environment that a limited foreign company will be the best option as a branch will be liable for higher tax (35% CIT instead of 25% CIT on a limited company) and a representative office is somewhat limited in its capacity to conduct business activities (it cannot earn revenues, it may only conduct limited activities such as customer support or market research, inability to obtain an MIC Permit and the lucrative incentives thereunder and inability to obtain long term lease of land (i.e. only 1 year term with an yearly renewal)). The process of setting-up an MIC company may take between 4-6 months.
A foreign company can operate as a service or a manufacturing company (subject to the above stated restrictions and requirements) and it can take the form of: (i) wholly foreign-owned company; or (ii) joint venture with a local Myanmar partner or a governmental agency; or (iii) on contractual basis with no local set up (usually made directly with governmental agencies but can also be made to provide services to a private Myanmar company).
In addition, a few basics to note about a Myanmar company:
- Shareholding – minimum of 2 shareholders/founders and maximum of 50. To the extent that the company wishes to conduct business activities which are prescribed to be made with a local Myanmar partner, the ratio of foreign to local will have to be maintained as prescribed in the relevant regulation/notification for that particular business activity). Shareholders and the directors may be the same persons and appointment of local shareholders or directors is not a requirement.
- Directors – Minimum of 2 Directors, one of which is required to be appointed as a managing director (if foreign director, it must have obtain a Work Permit, see further read for Work Permit under ‘Want to work in Myanmar- these are a few of the things you must consider and be aware of…’).
- Minimum Capital Requirements – For a service company a minimum of USD 50,000 and for a manufacturing company a minimum of USD 150,000 (although the MIC may increase the amount depending on the particular business activity to be conducted). 50% of the minimum capital requirement must be brought into Myanmar in order to set up the company, and the remaining 50% is to be brought within 1 year from the date of commencement of its operations. This is made by depositing the funds in the company’s pre-opened bank accounts at an authorized Myanmar bank and receipt of funds is to be presented to the relevant authority for confirmation.
- MIC Permit – The MIC (established under the Foreign Investment Law (FIL) regime which was implemented to promote and encourage investments) requires all foreigners who wish to conduct business in Myanmar to obtain a permit from the MIC, and without such permit, foreigners are prohibited from conducting business activities in Myanmar. Although it may be possible to establish a business outside the MIC route under the Myanmar Company Act (MCA) regime (for service activities) or under other regimes for particular industry sectors (such as direct contracts with locals or JV with government entities), most companies must obtain MIC Permit, and indeed, most opt for this option in order to receive the lucrative investment promoted incentives thereunder. Similarly, additional incentives may also be obtained for businesses that set up operations in one of the designated Special Economic Zones.
- Permit to Trade – Each company must receive a general permit to trade amongst other specific industry sector related licenses and local/regional townships authorities’ consents (the name may be misleading as it does not permit the company to conduct trading but simply acts as a business registration license, without which, no business activity is allowed to be conducted in Myanmar). This permit is valid for five years and an application for its renewal should be made 6 months prior to its expiration.
- Minimum Employment Requirement – Foreign workers can be employed directly by a local Myanmar company and there are no specific laws that prohibit it from doing so. Foreign company with an MIC Permit will need to adhere to the prescribed foreign/local employee ratio set for the particular business activity the company wishes to conduct. In relation to skilled labor, FIL stipulates that local Myanmar labor must make up 25%, 50% and 75% of the company’s employees within two, four and six years respectively from commencement of operations (period of which may be further extended by the MIC for knowledge-based ventures). However, it worth noting that for positions which do not require special skills, local labor must be employed.
- Land Ownership Restrictions – land issues in Myanmar are a separate complex subject in itself, but foreigners wishing to conduct business in Myanmar should be aware that although they are prohibited from owning land (i.e. as freehold) they may have long term leases from private individuals as well as from the government. Leases for none MIC incorporated company can only be made for short term (i.e. 1 year) which does not give the level of comfort foreigners seek, however, for an MIC incorporated company, leases can be made for an initial 50 years period, and can be extended by two periods of 10 years subject to the MIC’s approval. Although Foreigners may not yet purchase land or condominiums in Myanmar they may still have a long term lease for their business and also participate and develop residential or commercial buildings projects with 100% foreign ownership via the Build, Operate & Transfer (BOT) scheme of the MIC.
There are obviously other matters which require consideration with regards to setting up a company in Myanmar such as: contracts and relationships, land, tax, employment, etc., however, such matters are beyond the scope of this article. Although entering into Myanmar may not seem as an easy task at first, as long as you get good and knowledgeable advisers to assist you overcoming the maze of Myanmar bureaucracy and environment, you should be able to slide in with relative ease and get your foot in the door first.