Myanmar Investment Update · discussion on certain aspects of investing in Myanmar. A more detailed...

Baker & McKenzie (currently named BM Myanmar Legal Services Ltd), a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organisations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm.© 2016 Baker & McKenzie

Myanmar Investment Update

Ola Nicolai BorgePartner

May 2016

© 2016 Baker & McKenzie 2

DISCLAIMER‒ This presentation is only intended to facilitate a

discussion on certain aspects of investing in Myanmar. A more detailed assessment is required in order to confirm any potential tax or legal effects of any potential investment structures.

Ola BorgePartner, Yangon+95 1 255 [email protected]

About Ola Ola has more than sixteen years of experience as a legal, tax and financial advisor - specializing in cross-border transactions and corporate structuring. Over the last six years he has advised a wide range of clients on legal and tax issues related to investments in Myanmar. Ola has previously held senior positions in Big4 and international law firms in Europe, the US and Southeast Asia.

Finally, Ola is the president of the Myanmar-Norway Business Council.

Quick facts

Established in 2014

No. of lawyers and legal staff: 15

A full spectrum of legal service – This includes integrated advice on foreign investment including M&A and joint ventures, coordinated tax planning, project development, project finance and regulatory and commercial affairs

Working together with Norwegian Businesses in Myanmar

Unrivalled domestic presence – Our unique selling point is the ability to have Myanmar-qualified lawyers on-the-ground with local knowledge and a network of contacts (unlike other law firms that staff only expat lawyers)

Strong history of investing in Myanmar –Even prior to the Yangon office opening we were at the forefront of handling Myanmar legal issues through our network of Southeast Asian offices What others say about our Myanmar

presence“There is nothing easy about it, but Baker & McKenzie has more experience doing it than any other firm, and they are the archetypical multi-cultural firm with a huge presence in Asia, so they know the ropes.”

– Law360, 2014

With you today

All contracts incl. employment,

lease, distributorship, and sale and

purchase agreements

Investment under the Foreign

Investment Law and special economic zone law

Options for establishing a

presence as well as obtaining approval

for / structuring that presence

Project development,

including regulatory, financing and environmental

issues

Protection ofintellectual property

rights

Government relations

Foreign exchange and exchange control

issues

Land ownership and

land rightsTax, customs, international

sanction regimes and other trade and

commerce issues

Permissible foreign activity and foreign ownership restrictions

Our teamAbout the Yangon office

How we can help

A snapshot of our work in Myanmar

− Advising a regional infrastructure fund on its potential investment in a Myanmar-based tower company.

− Advising a regional venture fund on its potential joint venture to establish a Myanmar telecommunications tower company.

− Advising a regional development company on the potential acquisition of a portfolio of commercial developments in Myanmar.

− Advising one of Thailand's largest banks on tax structuring and market entry in Myanmar.

− Acting as the borrower’s Myanmar counsel in a senior and mezzanine secured financing of its tower roll out and operations by a syndicate of DFIs. We also advised on a bridging Murabaha financing of the project.

− Advising a regional bank as offshore lender on the offshore financing of the Kempinski Hotel redevelopment project in Myanmar. We also advised a local Myanmar bank in its role as onshore security agent.

Legal Regime for Investment4

© 2016 Baker & McKenzie

Available forms of registration:Types of Incorporation / Registration

100% owned foreign subsidiaries Joint Venture companies with Myanmar citizens Myanmar Branch of Foreign Company /

Representative Offices

All incorporation / registration of the above entities are deemed to be a Foreign company / entity. This could change with the new companies act.

Choice of registering under•Myanmar Foreign Investment Law; or•Myanmar Companies Act.

When do you need to register?


Restrictions:Myanmar Foreign Investment Law

•Prohibited activities:•Damaging to environment; or•related to certain extraction/natural resources

•Activities only allowed in Joint Venture :•including production of a wide range of consumer goods;•certain construction activities; and •certain transportation services;

•Activities under certain conditions:•activities that require approval from ministries; and •activities that require Environmental Impact Assessment

•Unrestricted activities

The Myanmar Investment Commission have wide discretionary power.


Restrictions:Land ownership

•Foreigners cannot own land in Myanmar.

Land lease

•Maximum lease for foreigner is 1 year, with some exceptions:

•Foreign Investment Law – 50+10+10 years;

•Special economic zone law – 30 years

Trading activities

•Foreigners are not allowed to import and distribute products!

•Certain exeptions have opened up

•Exepcted to open up more going forward


Restrictions:• Typical trading structure:

Manufacturing entity

Sales and marketing support

Third country

Myanmar

Distributor

Goods

TargetCo

Goods

Service fee

Payment

Payment


• Corporate Income Tax Rates:• Resident companies – 25%• Branch – 25%**Income subject to WHT is not further taxed.

• Capital Gains Tax rates:• Resident tax payers – 10%• Non-resident tax payers – 10%• Oil and gas industry – 40 to 50%

• Withholding Tax on transactions with Non-Residents:• Dividends – 0%• Interest – 15% • Royalties – 20%• Services and goods – 3.5%

•Tax incentives (discretionary):•Corporate income tax holiday for 5 year;•Import duties, •Plus others….(To be changed with new investment law)

Legal system10


Legal resourcesState of the laws and regulatory framework

Many laws are rather old Based on British Law Codes from pre-independence Subject to certain revisions

Many new laws in the pipeline New Companies Act New Investment Law

Are the old laws a big problem? Technically outdated? Well designed Well integrated Easy to apply Available case law


Comparison of Potential Changes from the “new” Companies LawOld Companies Act New Companies Law (Draft)Total section of the Act – 287 Total section of the Law - 415

Company has Articles of Association and Memorandum of Association

Company only has Constitution

Permit to Trade (Form of Permit) required No further Permit to Trade (Form of Permit)

Minimum two shareholders in private company One shareholder could be allowed in private company

Two directors are required in private company One director could be allowed in private company

Managing Agent is allowed Managing Agent is not further allowed

Share Warrant is allowed Share Warrant is not further allowed to issue

No Share Option concept Share Option concept is introduced

No different concept of small companies Introduce small companies concept • not compulsory AGM• not compulsory detailed reporting and audit requirement

Note – This changes may be different when the actual law come out.


Comparison of Potential Changes from the “new” Investment LawOld Investment Laws New Investment Law (Draft)There are two laws;(i) Foreign Investment Law and(ii) Citizen Investment Law.

There will be only one law “ Myanmar Investment Law”

Most of the company requires MIC permit MIC will issues the notification which requires the MIC permit. Other types of business only require MIC confirmation to obtain land use rights and other rights

Income Tax Exemption – 5 years MIC will annouce based the three zone depending on the development stage.(i) Zone 1 (least development stage) – up to 7 years(ii) Zone 2 (has some development) - up to 5 years(iii) Zone 3 (developing stage) - up to 3 years

Land use right – 50 + 10 + 10 Land Use right – 50 + 10 + 10 (So, not different) However, policy is expected to change – making it easier to get long term lease without formal MIC application

Employment – foreign to local employment ratio There is no further foreign & local employment ratio. As for the work which does not required proper skill or experiences, it shall only appoint local employee.

Unclear for foreign arbitral award Foreign Arbitral award shall be recognized under New York Convention 1958

Note – This changes may be different when the actual law come out.

Experiences & Observations14


Experience from AcquisitionsUncertainties regarding formalities

who owns the company? what do the company own? are the books reliable? any dispute resolution?

Can Foreigners buy shares in target?Can Foreigners buy assets of target?Discrepancy on price expectations Frequently observed structure

Form a new joint venture company Local Partner contribute assets Foreign Investor contribute capital

Nominee structures not recommended

Recommendation: Be thorough and realistic


Typical Acquisition Structure


Experience from Greenfield projectsInteracting with government

Unclear & Outdated rules Wide discretionary powers to approve activities Lack of comfort to make decisions Limited capacity for “decision makers” Things moving slow…….

Recommendation: Be patient

Interacting with partners Discrepancy between “cover of the book and content” Strategic difficulties with getting away from “agent” Legal difficulties with getting away from “agent”

Recommendation: Chose wisely

Baker & McKenzie (currently named BM Myanmar Legal Services Ltd), a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organisations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm.© 2016 Baker & McKenzie

Thank You.Ola Nicolai BorgePartner

[email protected]

Myanmar Investment Update · discussion on certain aspects of investing in Myanmar. A more detailed...

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