Doing Business in Myanmar: Part Two:
Key Features of Operating a Local Entity
Myanmar’s economy re-opened in 2011 after decades of military rule; in the intervening years, the pro-business government has made widespread reforms to economic, political and labour legislation, and has transformed the business landscape to incentivise foreign investment.
As the fastest-growing economy in South East Asia and a major future player in terms of its involvement in China’s Belt and Road initiative, Myanmar is an attractive option for business expansion and the set-up of strategic entities. Various changes to laws have simplified foreign ownership of businesses and investment, and although Myanmar remains at the bottom of the Wold Bank’s Ease of Doing Business list for ASEAN countries, it is taking the right steps to improve its business environment.
In Part Two of our Doing Business in Myanmar series, we look at some of the key features and considerations for organisations looking at opening and operating a local entity.
OPERATING A LOCAL ENTITY IN MYANMAR– KEY CONSIDERATIONS
Reforms to Labour Law and Legislation
Myanmar Companies Law (MCL): This legislation came into effect from 1 August 2018. Key elements of the law include:
- Foreign ownership of local companies is permitted up to 35% without being considered a foreign company – this offers potential for foreign direct investment in Myanmar and gives access to foreign capital, knowledge and products to local companies.
- A model form of constitution has been prepared by DICA for private companies limited by shares. However, a company may adopt its own constitution and is not required to use this model constitution.
- Higher standards of conduct for company directors to formalise and simplify how businesses should be run.
- Ownership of private companies no longer requires two shareholders for registration; one shareholder can own the company, with certain residency requirements.
- Company Registration: all existing companies must re-register with DICA’s new online company registration system MyCo. MyCo has reduced the company registration process to days and there is no longer a need to go through a lengthy manual process of re-registration when licenses expire.
Myanmar Investment Law (MIL): Originally instated in 2012, the Myanmar Investments Law (MIL) combines the regulation of foreign and domestic investments under one set of laws. Key features include:
- Definition of three categories of development zones: the less developed, moderately developed and developed regions. More incentives are given to investments in less developed regions.
- In 2017, a notification was established which details categories of businesses activities which are only permitted to be carried out by four types of entities:
- the Union
- a Myanmar citizen or entity
- by a foreign company in a joint-venture with a Myanmar citizen or entity, or
- by a foreign company upon approval by the relevant ministry
- In 2018, foreigners became allowed to carry out wholesale, retail and education-focused businesses – this is notable as it permits activity in three areas that developing economies often seek to protect.
Corporate income tax rate is 25% and capital gains tax is 10% – there are concessions for SMEs earning under a certain amount.
A company is considered a Myanmar resident company as defined under MCL, MIL and Special Economic Zone (SEZ) legislation, and are taxed on a worldwide basis. Non-resident companies are taxed only on income derived from sources within Myanmar.
As what constitutes Permanent Establishment has not yet been formally defined in Myanmar, tax authorities use a withholding tax system to collect from non-resident foreigners whether or not they have a PE in country.
Double taxation treaties are in place with India, Indonesia, Malaysia, Singapore, Korea (Rep.), Thailand, United Kingdom, Vietnam, Laos and Bangladesh, but some are yet to be ratified.
As mentioned in Part One, technical infrastructure in Myanmar is extremely limited – though significant improvements to electricity supplies, communications and transport are in process.
Following the opening of the telecom market to international tender, connections have vastly improved and sim/plan prices have reduced significantly. Mobile phone use is far more widespread.
Before the opening of the economy, office space and hotels of international standards were incredibly limited in Myanmar. This is another sector that has seen considerable domestic and foreign investment and there is now eight times the amount of office space and considerably more hotel rooms at very reasonable rates.
Legislation around human resources has also undergone change, including the re-setting of minimum wage, a reduction in public holidays and improvement of the multiple-entry business visa scheme. There is no restriction on the number of expatriate employees that can be hired by foreign companies registered under the MCL – however, the SEZ legislation prescribes a minimum percentage of employees who must be citizens.
In line with rapid economic growth, Myanmar’s banking sector is expanding. However, it is acknowledged that the sector is not developing quickly enough to meet the needs of consumers, companies and the country’s necessary infrastructure improvements.
Transferring of money between local and foreign bank accounts can be a challenge although foreign bank and credit cards are being accepted more widely. With the lifting of sanctions, international financial institutions and trade organisations are returning to Myanmar, such as the World Bank. Myanmar’s first stock exchange opened in 2015; registered companies receive taxation concessions.
Myanmar’s business culture is based on a foundation of patient relationship-building and personal connections – developing trust and friendship with a business contact goes a long way. As in much of Asia, introductions and networking connections are a key way to secure deals; the majority of which are agreed verbally and followed with a contract. Frequent visits or permanent situation in the country is a big advantage as face-to-face communications are culturally important. Gifts are often exchanged between business partners to mark the beginning of a trusted working relationship.
Mauve Group has a full employment solution in place in Myanmar, and can also assist with a range of global expansion services such as risk assessment and taxation consultancy, corporate immigration, project management and value-added services. For full details of our employment solution, you can download the Myanmar country report here. If you’re interested in discussing any of the factors raised in this two-part article, please don’t hesitate to get in touch via the Contact Form – one of our Global Experts will be in touch within 24 hours.