FDI regulation and setting up a subsidiary company in Myanmar

Foreign Direct Investment Regulations

Although investments are coming in, most companies are still hesitant due to the political situation. Since the elections in 2015 and the new government will be installed soon, more companies are expected to enter. Myanmar is currently processing its new Investment Law which will replace the Foreign Investment Rules (2013).  It is now expected to come in place in 2016 after the installation of the new government. The new law should clarify many areas of uncertainty and doubt among specialists and investors including rules and regulations with regard to Joint Venture companies. In 2016 the government published a law notification (26/2016) which, in the meanwhile, should clarify some doubts in existing regulations. Although the notification does not impact fisheries and aquaculture directly, it does stipulate that if an investment proposal relates to a sector which needs ministerial approval (such as aquaculture, see below), the Myanmar Investment Committee (MIC) can decide to disallow 100% foreign ownership. Currently, according to CBI (2014), FDI is allowed in the following activities in the seafood industry:
  1. Fisheries:

According to Section 4 of the Foreign Investment Rules (2013), the Fishing Business in Myanmar’s Territorial Waters with the following conditions, can be carried out by Myanmar citizens or companies only: I. Far distance fishing of marine fish, prawn and other aquatic creatures in Myanmar’s territorial waters; II. Fishing at ponds, lakes and other close distance/onshore fishing. Under certain circumstances, with backing of the Department of Fisheries (DoF), investments in fisheries may be approved.

  1. Aquaculture:

There is no maximum foreign investment ratio in aquaculture. However, aquaculture investment projects need the recommendation from the Ministry of Livestock, Fisheries and Rural Development. Aquaculture production of freshwater and marine fish that affects local biodiversity is not allowed. An environmental and social impact assessment is required for foreign investments in large scale freshwater, marine fish and prawns breeding activities.

  1. Local processing:

A foreign company can set up a local food processing business in Myanmar, according to Section 20 of Foreign Investment Rules (2013). However preserving, manufacturing, canning and marketing of fish products is only allowed in the form of a Joint Venture with Myanmar citizens. The MIC formally allows foreign shareholding up to a share of 85% of the total equity of the to-be-established company. However, this ratio is judged on a case-to-case basis. In practice the MIC allows foreign ownership between 50-70%.

The current minimum of foreign capital to be brought in, has been stipulated at US$ 500,000. Subject to consideration of the MIC, this company may obtain some privileges under Foreign Investment Law such as a tax holiday of five years, permissible long term lease up to fifty years with two extensible terms of ten years and exemption of commercial tax for export products.

Applying for approval from the Myanmar Investment Committee (MIC)

DICA clearly describes the process of applying for MIC approval on its website. Foreign investors always require a permit from the Myanmar Investment Committee. Myanmar citizens are only required to apply for a MIC permit for specific types of investment. Foreign companies only providing services within Myanmar do not require a MIC permit and can start operating their business after incorporating a company, according to the Myanmar Companies Act. Registration with MIC his has several advantages, including:
  • permission to lease land on a long term basis
  • access to tax incentives (such as relief of income tax and custom duties)
  • access to stay permits, foreign experts and technicians can be appointed
  • no nationalisation of businesses during the term of investment
  • no business suspension before the expiration of the permitted duration
When submitted to the MIC, the commission will investigate the proposal and accept or reject it for formal review within fifteen days. Once accepted, the commission will review the proposal and either refuse it or issue a MIC permit within ninety days. Investment proposals submitted to the MIC are usually approved on a case by case basis. MIC focuses on three criteria: 1) compatibility with the policies set out in the Foreign Investment Law, 2) financial trustworthiness and 3) economic solidity of the company and conformity with existing laws. To increase the chances of success, it is strongly recommended to engage with the relevant ministries and with MIC/DICA before submitting a proposal.

Setting up a subsidiary company

Just like the Investment Law, also the Companies Act will be renewed. The new Companies Act is already drafted and will most likely be approved by the new government late 2016. According to the MIC and DICA, companies can be either 100% foreign owned or established as a joint venture company. If a joint venture is formed, the ratio of foreign and local capital may be specified and agreed by both the foreign and local parties entering the joint venture. MIC shall prescribe the required minimum amount of investment. This depends on the sector and nature of the business. Important to note is that even in case of 1% of foreign shares, the company is already considered under the Foreign Investment Regulations. Most commonly, companies that want to invest in Myanmar set up a private limited liability company. A private limited liability company is required to have at least two but no more than fifty shareholders. The transfer of shares in a wholly Myanmar owned company to a foreigner may be restricted and subject to approval from the relevant authorities. For a service company the minimal capital requirement is USD 50,000 and for a manufacturing company USD 150,000. Although it is also possible to set up a public limited company, this is not common yet. Currently there are only two companies registered at the Myanmar Stock Exchange. Limited liability companies need to have at least seven shareholders. When decided what company type and what ownership structure is required, the company(s) can apply for company registration with DICA.