Doing business in Myanmar - Retail, Fashion and F&B

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Myanmar Business Climate

With Myanmar’s recent political and economic liberalisation, it is timely for foreign businesses to look for business opportunities in Myanmar. Previously known as Burma, Myanmar has an estimated population of 55.5 million. Yangon (previously known as Rangoon) is Myanmar’s largest metropolis and its commercial and intellectual hub.

According to a report by The Economist, Myanmar’s has a significantly large youthful population. Fifty five percent are under the age of 30, and the median age is 27. This presents an excellent opportunity for sustainable economic growth.

Despite being the fastest growing economy in Southeast Asia in the last two years, foreign brands are still under-represented in Myanmar.

At present, the majority of foreign retail brands are in the food and beverage (F&B) sector. F&B brands with significant presence in Myanmar include, Gloria Jeans Coffee, KFC, Café Amazon, Coffee Bean & Tea Leaf, Burger King and Swensens. In recent years, Paradise Group of Restaurants and BreadTalk from Singapore, Bulgogi brothers from Korea, Ippudo Ramen from Japan and Miami Grill from the United States have also entered the country.

Myanmar is increasingly becoming an attractive destination for foreign brands in light of the recent relaxation of foreign investment restrictions and the growing middle class. The main driving force behind the improvement in foreign investment climate is the new Companies Law 2017 (which was enacted in December 2017 and implemented in August 2018).

Doing Business in Myanmar

Myanmar Companies Law 2017

It is possible to set up a wholly foreign owned company in Myanmar. In some industries, there may be a cap on the foreign ownership allowed. There is no cap for businesses engaging in retail, fashion or food and beverage.

A company in which foreign ownership does not exceed 35% is considered a “Myanmar company” under the Companies Law. A Myanmar company is permitted (subject to compliance with applicable regulations) to:

  • be engaged in sectors which are currently closed to foreign investors under paragraph 1(b) of the MIC Notification no. 15/2017 as well as banking and insurance sectors;
  • be listed on the Yangon Stock Exchange;
  • engage in a wide range of import, export and trading activities, which were, until recently, largely restricted to Myanmar citizens and entities; and
    own land.

Shareholders and directors

A private company can be incorporated with one shareholder. This paves the way for foreign companies to incorporate wholly owned subsidiaries.

A private company is required to have at least one director, whether a Myanmar or foreign citizen, who shall be ordinarily resident in Myanmar. Public companies must have at least three directors, one of whom shall be a Myanmar citizen ordinarily resident in Myanmar.

Overseas corporation

Foreign companies that carry on business in Myanmar may have to be registered as an overseas corporation with the Directorate of Investment and Company Administration (DICA).

While the law does not define the activities which constitute carrying on a business in Myanmar, it states that a foreign company is not deemed to be carrying on business in Myanmar merely because it maintains a bank account, conducts an isolated transaction that is completed within a period of 30 days (not being one of a number of similar transactions repeated from time to time), holds property, becomes a party to legal proceedings, or lends money.

Accordingly, a foreign company should consider registering with DICA as an overseas corporation if it:

  • intends to conduct an isolated transaction (for example, conducting training) that is not completed within a period of 30 days; or
  • intends to conduct a series of transaction (for example periodic training for franchisees).

Overseas corporations registered with DICA must (among other things) comply with a number of obligations, including:

  • appointing an ordinarily resident authorised officer who is authorised to accept the service of documents in Myanmar on behalf of the overseas corporation;
  • notifying DICA of any changes relating to the overseas corporation; and
  • file financial statements annually.

Corporate tax

The corporate tax rate in Myanmar is 25% for:

  • companies incorporated under the Myanmar Companies Law;
  • foreign companies registered with DICA as overseas corporations.

Wholesale and Retail Trading

Registration and permits

Pursuant to Myanmar Ministry of Commerce Notification No. 25/2018 dated 9 May 2018, wholly foreign-owned companies and joint ventures with foreign shareholdings are permitted to engage in retail and wholesale trading (of domestically produced and/or imported goods) in Myanmar, subject to compliance with certain requirements and investment criteria.

All wholly foreign-owned companies and joint ventures with foreign shareholdings are required to register with the Ministry of Commerce, and obtain a permit before they can engage in trading activities. The following documents and information must be submitted to the Ministry of Commerce for purposes of registration:

  • certification of incorporation;
  • copy of Myanmar Investment Commission (MIC) permit or MIC endorsement (where applicable);
  • recommendation letter from the relevant City Development Committee or Township Development Committee in each region or state in which the company proposes to trade;
    list of goods proposed to be traded; and
  • detailed business plan (including the initial investment amount, the proposed trading location(s), area of land use and proposed trade volumes).

Minimum investment amount

Companies wishing to engage in trading activities must comply with the minimum investment requirements set out below:

The initial investment amounts in the above table do not include money paid towards land lease.

Land use requirements

Companies (wholly foreign-owned companies and joint ventures with foreign shareholdings) engaging in wholesale trading must occupy the appropriate floor space for doing wholesale business. At present, the law has not specified what the appropriate floor space is (the new laws permitting wholesale trading have just been passed). It is expected that the appropriate land use or floor space requirement for wholesale business will depend on the type of products traded.

Companies (wholly foreign-owned companies and joint ventures with foreign shareholdings) engaging in retail trading must occupy a floor area of at least 929 square meters.

F&B Operations

Wholly foreign-owned companies and joint ventures with foreign shareholdings can carry out food and beverage operations in Myanmar.

Licensing, Franchising and Distribution

Overview

Because of the initial investment amount required under the laws and the land use requirements, foreign businesses should consider using licensing, franchising and/or distribution arrangements to enter the Myanmar market There are no specific laws regulating distribution, licensing or franchising agreements. These agreements are to general commercial laws. These include: 

  • Contracts Act 1872;
  • Sale of Goods Act 1930;
  • Competition Law 2015;
  • Consumer Protection Law 2014;
  • Companies Law 2017;
  • Income Tax Law 1974; and
  • Union Tax Law 2018.

Registration or disclosure requirements

As there is no specific legislation regulating distribution, licensing or franchising agreements, there are no specific disclosure or registration requirements. There is also no requirement to seek governmental approval for such arrangements.

This makes it easy and relatively cost effective for foreign brands to enter into the Myanmar market via distribution, licensing or franchising.

Although there are no specific rules requiring a franchisor to disclose all facts material to a prospective franchisee, the franchisee may rely upon the Consumer Protection Law 2014 in the event that there is any misrepresentation.

Protection of Intellectual Property (IP) Rights

Overview

To date, Myanmar relies on outdated colonial-era laws to protect IP rights. These laws include the Registration Act 1908, Copyright Act 1914 and the Merchandise Marks Act 1889. Myanmar’s Merchandise Marks Act was taken from India’s law. India has repealed the Merchandise Marks Act by the Trade and Merchandise Marks Act 1958, which was in turn replaced by The Trademarks Act 1999.

As Myanmar does not have modern IP laws up till now, there is no proper system for the registration of IP rights which confers protection for the IP registered.

Protection of trade marks

Under the existing laws, a trade mark is protected only if it has been used (commonly known as the “first to use system”). As there is no system of IP registration, a practice has developed where a trademark owner makes a Declaration of Ownership and registers it with the Office of Registration of Deeds under the Registration Act 1908 (now repealed). After the declaration is registered, it is customary for the trademark owner to publish a Cautionary Notice in local newspapers informing the public that the mark belongs to the trademark owner. 

There has been no reported court decision on whether the registration of a Declaration of Ownership confers rights on a trademark owner where the trademark has not been used in Myanmar. However, the practice continues to date as there is no other way of recording a brand owner’s right in a trademark.

Upcoming reforms

Myanmar has embarked on modernising its IP laws. Draft laws for the protection of trademarks, copyrights, industrial designs and patents have been presented to the Legislative Committee since 2014.

The long awaited Trade Marks Law has finally received the President’s assent at the end of January 2019. The Trade Marks Law is intended to harmonise Myanmar’s trade mark laws and trade mark registration process with the rest of the world. The current first-to-use system will be replaced with a first-to-file system. Under the first-to-file system, where more than one person applies to register an identical or a similar mark, the Registrar will only allow the registration of the trade mark application which was (i) filed the earliest; or (ii) has the earliest priority right.

The practice of registering a Declaration of Ownership will soon give way to a formal trade mark registration process. Owners of marks registered under the Registration Act 1908 must file a fresh application to register their marks under the new Trade Marks Law once it takes effect.

Myanmar’s Industrial Designs Act was also recently passed. As with the Trade Marks Law, it has yet to come into effect and no implementing regulations are currently available.

It is expected that the new IP laws will only come into force in a few years’ time, as a regulatory body has yet to be set up for the registration of the IP, and to oversee the enforcement of IP rights.

In the meantime, foreign businesses wishing to do business in Myanmar are advised to continue to register Declarations of Ownership in respect of their trademarks under the current practice.

Exchange Control

The primary legislation governing foreign exchange matters is the Foreign Exchange Management Law 2012 (FEML 2012). Foreign currencies currently permitted to be sold and purchased by authorised dealers in Myanmar are:

  • US Dollars (USD);
  • Euros (EUR);
  • Singapore Dollars (SGD);
  • Thai Baht (THB); and
  • Malaysian Ringgit (MYR).

The USD is the most commonly used foreign currency in domestic and international transactions in Myanmar, widely complementing the use of the national currency, Myanmar Kyat (MMK), in domestic transactions. Domestic transactions between government entities in Myanmar are restricted to MMK. Locally incorporated entities and Myanmar residents are allowed to open both MMK and foreign currency accounts with Myanmar banks.

  More than 80% foreign shareholding  Up to 80% foreign shareholding
Wholesale trading Minimum initial investment of US$5 million Minimum initial investment of US$2 million
Retail trading Minimum initial investment of US$3 million Minimum initial investment of US$700,000
 

Under the FEML 2012, capital transactions require approval from the Central Bank of Myanmar.

As for other types of payments from a Myanmar payor to a foreign recipient (for example, franchise fees, training fees, and advertising and marketing fees), the Myanmar payor must first obtain approval from the Foreign Exchange Management Board and the Central Bank of Myanmar. The Myanmar payor must provide clear reasons for the remittance request, supported by documentation and evidence that explains the purpose of the remittance. Hence, it is necessary for the parties to enter into written contracts.

The bank will scrutinise the details of the remittance application and obtain approval from the respective regulatory bodies before remitting the funds to the foreign recipient.

Withholding Taxes

Withholding taxes for payments made to non-resident persons or entities are:

  • 2.5% for goods and services; and
  • 15% for interest and royalty payments.

The payor is required to deduct the applicable withholding tax from the amount payable to the payee, whether or not agreed to by the latter, and remit the tax to the Internal Revenue Department.

Myanmar has entered into Double Taxation Avoidance Agreements (DTAs) with India, Malaysia, Singapore, South Korea, Thailand, the UK, Vietnam, and Laos. These DTAs are particularly relevant for royalty payments, as the withholding tax rates are reduced or exempted, as applicable. The Myanmar government is considering abolishing withholding taxes, but the decision has yet to be formalised.

General Issues Relating to Contracts

Governing law

Myanmar laws allow parties freedom in the choice of the governing law of their contracts, which is welcomed by many foreign contracting parties.

Language

Generally, the parties are free to enter in contracts in any language. Generally, there is no requirement for contracts to be in the Myanmar language, or to be translated into the Myanmar language, to be enforceable between the parties.

However, if the parties submit to the jurisdiction of the Myanmar courts, it is necessary to have a translation of the contract into the Myanmar language.

Generally, it is common for dual-language contracts to be executed to ensure that both parties understand the contents of the contract when one of the parties involved is a Myanmar entity or individual.

Formalities for contracts

There is no general rule requiring the execution of contracts to be witnessed or notarised. There are however, specific regulations requiring specific contracts to be witnessed, such section 16 of the Deed Registration Law which requires 2 witnesses to every mortgage deed.

If a contract is to be registered with any government office in accordance with the Deed Registration Law, the execution of the contract should be notarised.

Where parties to the contract submit to the jurisdiction of the Myanmar courts, the execution of the contract should also be notarised.

Employment contracts need not be notarised, but must be translated to Myanmar language and registered with the labour office of the relevant townships.

Registration of contracts

The Deed Registration Law came into effect on 1 October 2018, replacing the Registration Act 1908.

  • Section 16 of the new law provides that registration is compulsory for the following documents:
  • Instrument of gift of immovable property;
  • Non-testamentary instruments for disposal of immovable property of value not less than Kyats one lakh, for consolidation of the declaration, assignment, limitation or extinguishing of any title or interest in immovable property of value not less than Kyats one lakh; or decrees orders or awards issued by a court in respect of rights related to such instruments;
  • Mortgage deeds and deeds cancelling mortgages, certified as true by at least two witnesses in addition to the mortgagor, in mortgages of value not less than Kyats one lakh, other than with depositing of title deeds;
  • Leases of immoveable property from year to year, or for any term exceeding one (1) year, or reserving a yearly rent;
  • Instruments which operate for collateral security, providing or otherwise assigning by companies/associations to a trustee, all or any part of rights over immovable property or interest thereupon;
    Certificates of adoption; and
  • Instruments prescribed from time to time by the Union Government.

If documents are not registered, they will be rendered ineffective, and will not be admitted as evidence.

Exclusion of liability

Generally, exclusion of liability clauses are enforceable unless they are prohibited by specific local laws.

Restrictive covenants

Section 27 of the Contracts Act 1872 provides that any contract in restraint of trade may be considered void. Contracts which restrain a person from exercising a lawful profession, trade, or business of any kind are also void under the Contracts Act 1872.

Certain post-term restrictive covenants may also contravene various provisions of the Competition Law 2015. For example, any act which unfairly prevents the entry of new competitors into the market is punishable with imprisonment for up to two years, a fine of up to MMK10 million (about USD7,700), or both, while making agreements which restrain competition in the market or any conduct which restrains competition is punishable with imprisonment of up to three years, a fine of up to MMK15 million about USD11,550), or both.

In practice, parties regularly insert restrictive covenants in their contracts, upon careful consideration on the duration, scope and territorial application, in a bid to ensure that the restrictive covenants will be considered reasonable, and thus, enforceable.

Concluding Remarks

With the liberalisation of Myanmar’s economy, foreign companies should seize the opportunity to be one of the early movers into Myanmar.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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