In Part I of this article, we reviewed the Myanmar investment considerations of a US investor as they are impacted by US legislation and practice. This article continues the analysis by examining the “on-the-ground” investment considerations in Myanmar, including its Foreign Direct Investment Law of 2012 (FDI) and Foreign Direct Investment Rules of January 2013 (FIR), banking issues, and other aspects of investment.
The FDI has specific provisions that protect foreign investment from nationalization and guarantees repatriation of profits and security of invested capital. These protections are in addition to the guarantees an investor may find in the seven bilateral treaties Myanmar has with other countries (Thailand, Laos, Vietnam, Philippines, China, Kuwait and India). Similar investor protection provisions can be found in the newly enacted Myanmar Special Economic Zones Law, which is applicable in the three Special Economic Zones (Dawei, Thilawa and Kyauk Phyu).
Additionally, Myanmar recently became a full member of World Bank’s MICA, which makes direct foreign investment into Myanmar eligible for the agency’s investment guarantees (e.g. covered risks include expropriation, breach of contract, transfer restriction, failure to honor financial obligations, or war/civil disturbance). Furthermore, American businesses which desire to make investments in Myanmar sourced with US manufactured goods or services can also avail themselves of limited facilities extended by the US ExIm Bank, including limited short and medium term lending and investment insurance. Additionally, it is expected that OPIC will soon start a program for Myanmar-bound US investors.
Form and function
Once the issue of security of its investment is resolved, a US investor must choose the right corporate form for its investment vehicle. A number of questions need to be asked: How will the Myanmar entity (public or private limited liability company, or a branch) relate to the investor’s other investments? Is 100 percent foreign ownership the only means of investment, or is seeking a suitable local partner an option?
Legal barriers contained in the FDI and the FIR will require that the foreign investor petition the Myanmar Investment Commission (MIC) for a permit and for an exemption from the FIR limitations that prohibit, for example, the operation of foreign-controlled businesses in certain business activities reserved to either state-owned enterprises, or to Myanmar citizens. The MIC Permit will allow the newly formed Myanmar subsidiary to import duty-free foreign raw and finished materials for its project, will exempt it for up to five years of income taxes, and allow it to lease land for at least 50 years (as of today, foreign entities, or their Myanmar subsidiaries, are otherwise prohibited from owning or leasing long-term land or buildings, a very distinctive disadvantage to foreign investment). Foreign-controlled Myanmar businesses have to project what areas of business they intend to operate in at the outset, thus a clear outline of their intended activities has to be provided to the MIC as well as to the Ministry of Planning’s Department of Investments and Corporations Administration (DICA) in seeking exceptions from the FIR prohibitions, as well as petitioning for the grant of an MIC Permit and a Permit to Trade, respectively.
A local partner and a capable bank
Assuming that a Myanmar partner is required, the US investor has to do three things before starting any registration process: conduct a thorough due diligence investigation into the background of the potential Myanmar partner; submit a prospective name of the Myanmar business for preliminary approval by the Companies Registration Office (CRO); and discuss with its U.S. bank the prospective investment in Myanmar.
Doing the preliminary investigation of the Myanmar partner is a critical step in order to reduce any chance that the partner has OFAC SDN connections (see Part 1 of this article, which was published last week, for a more in-depth discussion of this aspect). Choosing the name is an important factor, as registrations of trademarks and trade-names in Myanmar are essential to protect oneself from copycats. Although the country does not yet have a comprehensive IPR legal system, it does have a procedure for registering trademarks. Talking with your banker is a prudent initial step because very few US bankers will conduct business with Myanmar or its banks or companies. The ability to repatriate profits would be of limited value without a banking relationship capable of undertaking such transactions … or without knowledge of available offshore solutions. It goes without saying that due diligence should also be performed on any local Myanmar bank to be used. The local banks may or not be on the SDN list, and/or have the sophistication and capital to be able to assist the US investor.
Eric Rose is the Lead Director of Herzfeld Rubin Meyer & Rose, the first US law firm in Myanmar. He focuses on the global aspects of business development, specifically including mergers, acquisitions, privatisations, technology transfers, compliance counselling, and international commercial transactions. His experience in Myanmar spans over twenty years.
Nina Dunn, who is an adviser to Herzfeld Rubin Meyer &Rose, has more than twenty-five years of experience in international trade and investment, securities and defence and national security matters. She has advised domestic and international corporations with respect to a wide range of corporate issues, achieving favourable results from government agencies, including the US DOS, DOD, DOJ and SEC.
The article was originally published on InsideCounsel.com and has been republished with the authors’ and publication’s permission.
Source from Myanmar First Bilingual Business Journal Jun 5-11,2014