Summary: Welcome to the tenth edition of BLP's monthly Myanmar update in 2017. We have distilled the top news items into this summary 'speed read'.
Guides on the draft Myanmar Companies Law and the Myanmar Investment Law
The draft Myanmar Companies Law 2017 (the “New Companies Law”) is currently passing through parliament and is expected to be approved before the end of this year. It will be one of the key pieces of legislation providing the foundations for an attractive investment climate in Myanmar. Members of the BLP team were responsible for drafting of the New Companies Law and were involved in the public consultation and revision of the drafts over the past three years or so. We have produced a Myanmar Company Law guide to provide clarification on some of the key changes and possibilities arising from the implementation of the New Companies Law and to recommend steps investors can take to maximise the benefits brought about by the new law. In addition, the passing of the Myanmar Investment Law 2016 (“MIL”) has brought about significant changes to Myanmar’s investment framework affecting both Myanmar and foreign investors. BLP were engaged by the International Finance Corporation to assist the Directorate of Investment and Company Administration (“DICA”) in drafting the Myanmar Investment Rules which were prepared to implement the MIL. We have produced a Myanmar Investment Law guide to highlight key points investors should note under the new law and to elucidate key changes from the old regime.
Myanmar recognised for investment climate reforms
At the recent Global Investment Competitiveness Forum held in Vienna the World Bank Group recommended Myanmar as one of two “star reformers” for its successful implementation of the new Investment Law and Rules over the past 12 months. These reforms have been a huge step forwards in the liberalisation of Myanmar’s economy and provide a comprehensive set of investor protections with universal application. Uniquely they also enshrine responsible and sustainable investment principles and other mechanisms to ensure that the benefits of investment are shared. In addition to receiving this award Myanmar was invited to join a new Investment Reformers Network alongside more than 15 other developing nations engaged in reform processes. Through the network reform ideas and experiences can be shared. BLP joined the Myanmar delegation at this inaugural meeting as a private sector representative and we are very proud to have advised the Government of Myanmar on its successful investment reforms. Please feel free to contact us for more information on how these reforms can assist you with your investment plans for Myanmar.
Impact of conflict in northern Rakhine State
The ethnic conflict and humanitarian crisis that has unfolded over recent months in the northern Rakhine State has been tragic to witness. While the Government has received significant criticism in international media for its handling of the crisis, the situation on the ground is very complex and deep seated. There are no easy answers but concrete steps are seemingly being taken to provide the basis for improved safety and living conditions for all those affected. Many of these initiatives will take time and significant resources. While there have been calls, and some small actions, to sanction Myanmar, the prevailing view remains that engagement and effective support for the new Government to respond to this situation is the better alternative. This has included support from business as well, and the private sector has responded to the Government’s requests for assistance. Economic development in accordance with Myanmar’s responsible and sustainable investment policies has great potential to improve the lives of those in this area, one of the poorest in the country. This investment is continuing and the reform that the Government is implementing will help accelerate this.
Presidential proposal to change Myanmar’s fiscal year
The Myanmar government is proposing the adoption of a 1 October to 30 September national fiscal year (the “Proposed New Fiscal Year”), commencing from the 2018-19 fiscal year. Currently, the national fiscal year runs from 1 April to 31 March. One key intention behind the proposed change is to avoid delays to the start of key infrastructure projects that arise from the onset of the rainy season subsequent to the fiscal year ending 31 March. U Maun Maung Win, the director general of the Planning Department, said that the current fiscal year duration is not convenient because the rainy season starts once the budget has been approved. This means that once developers have won government construction tenders, they must wait a number of months before beginning work. The proposed change in fiscal year is also expected to improve tax efficiency, as businesses in key sectors of the Myanmar economy that are being promoted by the government (such as agriculture, infrastructure development and and other seasonal businesses) generally receive higher revenues towards the end of the Proposed New Fiscal Year. Although broadly seen as a positive step that will assist companies in some sectors (including construction), some commentators have noted that it will not address the lack of flexibility caused by Myanmar’s annual budgeting. It has been suggested that implementing multi-year budgeting would be more effective than changing the fiscal year and would drive more efficient public spending. The proposal does however indicate a willingness on the part of the Myanmar government to listen to and to attempt to accommodate the needs of business. Companies operating in Myanmar should follow developments as this may affect the deadlines they need to submit their audited financial statements to the Inland Revenue Department in the coming financial year.
Relaxation of collateral requirements by the Central Bank of Myanmar (“CBM”)
The CBM is reportedly relaxing loan collateral requirements by allowing local banks to provide loans without the need for collateral, according to U Set Aung, Deputy Minister at the Ministry of Planning and Finance. This is subject to the relevant banks implementing suitable risk management policies, upon which the loan process will become complete. While this has been informally announced, the CBM has yet to issue any formal notification in relation to this development. Currently, loans granted to businesses are generally approved based on collateral such as property or land. This purported relaxation of collateral requirements for loans provided by local banks is expected to have a positive impact on local businesses. In particular, small and medium enterprises (“SMEs”) which are typically unable to provide collateral would enjoy easier access to funding due to the relaxation. While this is a welcome development, the Myanmar business community has also been advocating other reforms, such as relaxing the criteria for taking out a second loan (as currently only businesses which have repaid existing loan principal and interest may apply for a second loan) and lowering the interest rates offered to SMEs. For now, it is anticipated that this purported relaxation of collateral requirements should alleviate the funding obstacles faced by local SMEs to some extent.
DICA announces procedure for getting foreign employees approved
The DICA has announced new procedures relating to the applications of stay permits and visa extensions by certain classes of foreigners (the “Stay Permit and Visa Extension Announcement”), as well as the appointment of foreign experts (the “Foreign Expert Announcement”). The announcements came into effect on 21 October 2017. The MIL introduced a new requirement that all investors (which includes Myanmar owned companies) obtain approval from MIC if they intend to employ expatriates. This applies to all investors regardless of whether they have any investment permits or incentives. Previously this was an optional requirement where MIC or DICA would issue the necessary recommendations if an expatriate wanted to obtain a long term stay permit. The new procedures under the Stay Permit and Visa Extension Announcement are intended to provide guidance on what is required to comply with the new requirements under the MIL and improve effectiveness and efficiency in the application of stay permits and visa extensions. The procedures apply to: (a) any director of a foreign company incorporated in Myanmar (and their family members); and (b) foreign technicians employed by foreign and local companies (as well as their family members).
The DICA has provided a list of documents and information that companies are required to provide, which include, amongst others: (a) copies of the Company Registration Certificate Form of permit, Form 26 or Form 18; (b) an undertaking letter signed by the company’s managing director; and (c) a list of all foreign and local employees of the company which is signed by the Managing Director or a Director.
Trading Companies must apply to Ministry of Commerce for visa extension. In addition, visa extension applications must be submitted to the DICA at least three weeks before the expiry date of the relevant visa. Under the Foreign Expert Announcement, the DICA has announced that if investors wish to appoint foreigners in senior management, technical expert or consultant roles, the investors are required to request for approval of the appointment from the MIC. Investors would be required to submit a specified list of documents, which include, amongst others: (a) the Application Form 12-A (i.e. application form for the permission of work); (b) a copy of the latest quarterly performance report of the company, and (c) a service fee of 5,000 Kyats per foreigner to be appointed.
Investors may apply for this approval either prior to the foreigner arriving in Myanmar, or within seven working days of his/her arrival. Upon the foreign expert’s resignation, the company is required to submit a copy of his/her resignation letter and air ticket for the MIC’s approval of the resignation.
Proposed new minimum wage
The National Minimum Wage Committee has tentatively proposed a revised minimum wage of between 4,000 and 4,800 Kyats (US$2.93 to $3.53) for an eight-hour working day. This will be an increase from the current minimum wage of 3,600 Kyats a day, which has been in place since September 2015. The proposed new national rate is currently being quite hotly contested between employee and employer representatives. The new proposed rate was purportedly derived from the average rate proposed by the region and state level minimum wage committees, however investors should note that this may still change before being finalised. The National Minimum Wage Committee is looking to agree on a final rate in December after receiving feedback from employers and employees in the different regions, and will then put the new rate forward to parliament for approval (according to the Ministry of Labor, Immigration and Population).