Investors wishing to take full advantage of emerging mega projects in Myanmar’s major cities may wish to set up a separate legal entity in the country. The combination of a growing young population, a bursting increase in job opportunities, and loosened restrictions on foreign investments has made Myanmar an accessible and strategic location for overseas lenders to jump in and expand their business activities.
Why set up a business in Myanmar?
In the last few decades, Myanmar has steadily found its footing with the right economic balance and growth to position itself as an important player in the dynamic market of Southeast Asia. Supported by rising socio-economic improvements, it is easy to understand why global businesses are continuously looking to this market for investment opportunities.
In 2020, Myanmar moved up six places to 165th on the World Bank’s Ease of Doing Business Ranking with substantial improvements in five areas: starting a business, dealing with construction permits, registering property, protecting minority investors, and enforcing contracts.
These improvements offer significant support to the country’s overall business ecosystem while giving a boost to much-needed foreign direct investments required to foster industrial and manufacturing capabilities. In addition to that, the government has ensured the process of “starting a business is easier” by using an online platform via Myanmar Companies Online (MyCO), reducing business registration fees, and streamlining the process of incorporation.
Since May 2018, the government has allowed foreign businesses and joint ventures to carry out businesses in the retail and wholesale sectors. This marked the government’s constant efforts in encouraging a wider pool of global brands and companies to easily access and invest in the domestic marketplace.
Tax and Incentives
Under the Union of Myanmar Foreign Investment Law (MFIL), companies registered under the MFIL that have obtained permits from the MIC were entitled to the following special benefits and tax incentives, which were granted at the MIC’s discretion: (i) Exemption from income tax for up to five consecutive years for an enterprise. The exemption may be extended for a further reasonable period, depending on the success of the enterprise. (ii) Exemption or relief from income tax on profits of a business that are maintained in a reserve fund and subsequently re-invested in Myanmar;…
In addition to foreign investment under the MFIL, foreign investors may invest under the Myanmar Special Economic Zone Law of 2014 (Myanmar SEZ Law). Myanmar tax policy provides foreign companies with an income tax exemption following the start of commercial operations in the country – seven years for businesses in the exempted zone and five years for businesses in a promoted zone.
It also reduces the income tax rate by 50% during the second five year-period for businesses in both an exempted zone and a promoted zone. Then, for the following three years, any profit reinvested within a year in the company as a reserve fund will also be protected. There are also attractive exemptions from customs duties and other taxes for the first five years for the importation of equipment, instruments, raw materials, machinery, and other types of imported goods that are required for the company.
Restricted investment areas
Given the numerous incentivizing policies, there still remain several constraints for foreign investors when conducting business in Myanmar. Like many other countries in Asia, 100% foreign ownership in companies is not possible in certain industries. In Myanmar, according to the restricted investment activities under Myanmar Investment Commission Notification No. 15/ 2017, investment activities that are not allowed for foreign investors include the following:
- Convenience stores and mini-markets
- Tour guide services
- Management of natural forests (forest products)
- Publishing and distribution of periodicals in ethnic languages
- Freshwater fisheries
- Establishment of the quarantine station for export and import of animals
- Pet care services
- Exploration, feasibility study and production of mineral for small and medium scale
Myanmar law regulates ownership by foreigners in these sectors and others. Some of these activities are completely prohibited for foreign investors as above while others require a local joint venture partner.
A step-by-step guide to setting up a business in Myanmar
The Myanmar Companies Law (2017) allows companies with a single shareholder and a single director to be established. It requires all companies established in Myanmar to appoint at least one director who is ‘ordinarily resident’ in Myanmar. A person will be considered to be ordinarily resident if they hold permanent residency or is resident in Myanmar for at least 183 days in each 12-month period. The period of residency will be calculated from the date of incorporation of a company (or the date of commencement of the new law for existing companies). Public companies must appoint at least 3 directors, and at least one of the directors must be a Myanmar citizen who is ordinarily resident in Myanmar. There are no minimum capital requirements for the incorporation of the company.
In Myanmar, company incorporation is under the jurisdiction of the Directorate of Investment and Company Administration (DICA), a secretariat of the Myanmar Investment Commission (MIC). Usually, the incorporation process involves 5 steps: (1) Name Request, (2) Appointment of Directors and Shareholders, (3) Registration with the MIC, (4) Registration with DICA, (5) Obtaining licenses and fulfilling compliances
(1) Name Request
The first and foremost thing that a foreign company must do is to check whether the desired name for the company is available and appropriate for registration. The entrepreneur must, therefore, submit a name check form to the Directorate of Investment and Company Administration (DICA). Once the DICA gives the go-ahead, the entrepreneur can secure the desired name for the business by registering it under the company’s name.
(2) Appointment of directors and shareholders
A Private Limited Foreign company should have at least a minimum of 2 directors and 2 shareholders. Unless otherwise specified, all the directors and shareholders can be foreigners. These Private Limited foreign companies are allowed a maximum of 50 shareholders.
(3) Registration with the Myanmar Investment Commission (MIC)
Foreign investors shall submit a project proposal to the MIC to receive a Foreign Investment Permit. The MIC communicates the acceptance or rejection of the proposal within a period of 15 days from the date of making the project proposal.
If the proposal gets accepted, it will be reviewed by the commission. The approval or denial of the project proposal by the commission is made within a period of 90 days.
Evaluation of the project proposal is done on the basis of the following criteria:
- Whether the proposal is compatible with the Foreign Investment law or not;
- Financial viability of the project; and
- Financial soundness of the company and its compliance with the existing laws.
It is recommended by the MIC that investors must first secure a land lease and consult DICA before making the proposal.
(4) Registration with DICA
Foreign entrepreneurs must register with the DICA to legally operate a company in Myanmar. Once the registration has been completed, the DICA approval is virtually an automatic process. The documents are submitted simultaneously for both MIC and DICA registration. However, the forms are different.
Upon DICA’s approval, it will issue a temporary license. It is incumbent on the applicant to confirm his registered office address within one of receiving approval from the DICA in order to obtain a permanent Registration Certificate and Permit to trade.
The applicant must also submit proof of transfer of minimum capital into a Myanmar bank account along with a signed letter of conditions to obtain a Permanent Registration Certificate and Permit to Trade.
(5) Obtaining licenses and fulfilling Compliances
The foreign company can commence business operations upon receiving the MIC permit and DICA permanent license if no further licensing is required for the intended commercial activities. The inquiries related to further licensing can be further directed to the licensing division of the DICA.
Follow-up activities after incorporation
Once the company is set up, investors need to complete the following activities:
- Inject 50% of capital into your business
- Submit a list of directors and shareholders
- Get an official company seal
- Register tax and any employees for social security
Profiting from a business-enabling environment
If you want to form an incorporation in Myanmar, we at Viettokin Consulting are ready to assist you to register your company in a way that’s ideal for your business type. Contact us, and our legal team shall help you get insights into the business ecosystem in the country and assist you in following all the legislative requirements for your business according to the latest Myanmar laws. It shall be helpful for you to get in touch with us so that we can provide you with a solution to all the queries regarding business incorporation in Myanmar mainland, SEZ, investment in Myanmar companies, and legal obligations for companies in Myanmar. Contact us now to enhance your chance of business success.