By Eric C. Rose - Thai-American
Business Magazine - Vol. 6 November 2013
Early this year, a new foreign investment framework came into
effect in Myanmar providing more specific guidelines under the
Foreign Investment Law (“FIL”) originally enacted in November,
2012. The legislative changes are discussed elsewhere in this
issue; here, from the practioners on the ground, we suggest ten
practical steps that should be considered by any American
business interested in investment in Myanmar. Specifically, we
address considerations for the investor planning to take an
ownership share in a Myanmar business, whether the share is 100%
or a lesser interest.
The FIL has specific provisions which guarantee the safety of
foreign investment from nationalization, and it also provides
for repatriation of profits and invested capital. Similar
provisions apply to investments made in the three Special
Economic Zones (“SEZs - Dawei, Thilawa and Kyauk Phyu) that are
covered by separate legislation. Although Myanmar law applies
to all foreign investment, the country has mutual investment
guarantee treaties with only seven countries: Thailand, Laos,
Vietnam, Philippines, China, Kuwait and India. Furthermore,
Myanmar has just become a member of the World Bank's
Multilateral Investment Guarantee Agency (MIGA). OPIC and the
U.S. Export-Import Bank, however, are not present in Myanmar.
Thus an investment made in Myanmar from a non-treaty country
increases the risk to the foreign investor.
Under the Myanmar Companies Act there are
numerous types of incorporation one can select to operate in
Myanmar. Without enumerating the possibilities here, we advise
our clients to look first at what they are trying to achieve
from a business standpoint, in the short and in the long term.
How will the Myanmar entity relate to your other investments?
Do you want to retain a 100% interest? Do you want a local
If you want to own 100% of the Myanmar
entity, an application to the Myanmar Investment Commission
(MIC) for a statutory exemption is necessary if the investment
does not qualify forsuch percentage under the FIL. The MIC will
consider each application on its merits, and an exemption may be
granted if the application is not opposed by the relevant
If a local partner is required, due
diligence is critical and complicated by Myanmar’s lack of
public records from which the real condition of a business can
be ascertained. If the potential investor is an American
investor, the potential Myanmar partner must be vetted through
the US Treasury Department’s Office of Foreign Asset Control’s (OFAC)
Specially Designated Nationals (SDN) process (http://www.treasury.gov/ofac/downloads/ctrylst.txt).
This is a crucial step, as there will be draconian restrictions
imposed if a US party engages with a SDN-listed party without an
OFAC license. Recently, this US approval process has been
somewhat streamlined, and we have been successful in obtaining
an OFAC license in record time (five weeks).
On July 11th, 2012, OFAC issued Burma GL-16 (http://www.treasury.gov/resource-center/sanctions/Programs/Documents/burmagl16.pdf)
authorizing financial services to Burma, with limitations (see
explanation at: http://www.treasury.gov/press-center/press-releases/Pages/tg1633.aspx).
Subsequently, OFAC issued Burma GL-19, which permits certain
financial transactions with an additional four SDN-listed banks.
Yet, many of the 10,000 or so U.S. banks seem not to be aware
of these changes, erroneously informing their clients that they
cannot offer financial services to/from Myanmar due to OFAC
regulations. As a result, before embarking on any investment
activity in Myanmar, the US investor must ensure that its
financial institution agrees to undertake transactions with
Myanmar. Furthermore, financial services to/from a Myanmar bank
currently have to be undertaken through a corresponding bank in
Thailand or Singapore. Thus, the finance department of any
American investor needs to be become keenly aware of the
intricacies of sending money to, and taking money out of
Oddly enough most businesses (27,000 and 24
trade associations), and many of your competitors in Myanmar can
be found in one place: the Union of Myanmar Federation of
Chambers of Commerce and Industry (UMFCCI). Although formed in
1919, it recently has become the place where businesses can meet
on matters of common interest. While taking care to comply with
US antitrust law, an American business should consider UMFCCI
membership simply because the association can be a source of
crucial information in a fast changing business environment.
Furthermore, many foreign companies make contact with UMFCCI
when they seek a potential domestic partner.
Once your investment exceeds $500,000, or
your company has deals with the Myanma Oil and Gas Enterprise (MOGE),
your company has an obligation to report under OFAC Burma GL-17
Although onerous on small businesses, these requirements can
easily be met if the proper reporting and internal audit system
is set into place from the outset. In our experience, proper
training of local personnel will go a long way in facilitating
the data flow required by these compliance mandates.
Reading the news, you hear of Yangon office
space rentals upward of $22/square foot. Our experience is
quite different. We have found first class office space in
luxury condominiums in upscale neighborhoods at $0.80/square
foot. The issue is logistics: choose a location along a major
road, install whole office power inverters (reliably made in
Myanmar!), secure redundant Internet systems (e.g. fiber-optics,
ADSL, WIMAX or satellite are available, with speeds up to 4
Mbps), a sophisticated phone system with hunting multi-line
service, a solid lease agreement, and a location easily
reachable by your staff. You can achieve similar results for
industrial space, especially outside of Yangon.
Myanmar does not have specific trademark,
patent or industrial design laws, and its copyright law dates
from 1911. Yet, intellectual property protection can be obtained
under the terms of the 2008 Constitution, the Penal Code (1861),
the Specific Relief Act (1877), and another dozen or so statues.
The country is expected to modernize its statutory framework by
Seeking legal, accounting and tax counsel
in Myanmar is an art form. Regarding law firms, for example, in
Myanmar there are a couple of small Western firms, one licensed
American law firm, and a few Southeast Asia-based firms. Before
engaging any firm, your internal audit and legal representatives
should ask: a) who established the firm (i.e. where are they
based, who are their principals, have they ever been imprisoned,
prosecuted for fraud, or disbarred); b) which ethical standards
are they following (e.g. do they enforce the American Bar
Association Model Rules); c) have their clients included
“cronies” or others who are SDN-listed?; d) have their
attorneys/professionals been government employees during former
military regimes, and what was the nature of their work; d) do
they have competent specialized counsel available elsewhere if
the needed local skill set is not present; etc. You will need
lawyers covering corporate, compliance, intellectual property,
real estate, litigation, labor and international law, at a
minimum. Similar considerations should cover your accounting and
Myanmar’s labor laws are in transition, and
so are the qualified workers available today. Some are
proficient in the English language, but lack other skills (e.g.
computer, Western norms of business, compliance, etc.). Others
lack a good command of English, but are superb practioners. And
some are expats returning to help their country grow. Thus, the
labor pool is both small and large, and almost always
inexpensive by Western standards, but with relatively low
productivity. The Ministry of Labour has issued standardized
labor contract guidelines. They should be used to differentiate
oneself from the competition in attracting top talent.
Despite the challenges, Myanmar is an exciting opportunity
not to be missed.
is the Lead Director of Herzfeld Rubin Meyer and Rose Law Firm
Limited, Yangon, Myanmar. He can be contacted at firstname.lastname@example.org
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