Brief Guide to M&A in Southeast Asia (Myanmar)

1. The legal system

As the legal system of Myanmar has its roots in the English common law system, laws in Myanmar are similar to English law.

2. Are there restrictions on foreign investment ownership?

1. The Myanmar Investment Commission (MIC) from time to time issues notifications and regulation covering investment by foreign investors in various businesses sectors in Myanmar. Notification no. 15/2017 of April 10, 2017 by the MIC (“MIC Notification No. 15/2017”) contains a list of restricted investment activities. Such activities may be reserved for the Union Government, reserved for Myanmar citizens, permitted to foreigners only in a joint venture with Myanmar citizens, or permitted subject to approval by the competent ministry.
2. Activities not mentioned in the notification may, in principle, be conducted without restrictions. There are, however, exceptions to this rule in practice. Other laws may also impose restrictions on investment activities. We also note that Myanmar authorities have imposed joint ventures on a case to case basis where it is not required by the law.
3. Investment projects in Myanmar can be implemented in one of three ways: (i) with an MIC Permit, which is required if the project meets certain conditions or exceeds certain thresholds (such as investment amount, environmental impact, etc.) (ii) with an Endorsement (also translated as “Approval Order”, kind of a mini-MIC Permit, only available in case the investor needs to use land under a contract exceeding 1 year or in case the project features on the “Promoted Sector List” which is granted tax incentives; or (iii) without either one, just by setting up a company and obtaining operating permits and licenses, if any.
4. Companies with foreign shareholding are barred from trading in Myanmar. This includes purchase and import, and subsequent resale of goods.

3. What are the options available for an overseas investor in terms of the purchasing entity?

Subject to appropriate and necessary approvals and consents from the Directorate of Investment and Company Administration (“DICA”) and / or the relevant ministry, based on the nature of the business activity and sector of investment, a foreign investor may directly or indirectly invest in a Myanmar entity in any of the following manners:

1. For investment in a branch office – invest directly or purchase shares in the foreign company.
2. For investment in a limited liability company (Ltd.) – Subscribe to shares or purchase shares of the limited company. A joint venture company is typically a limited liability company with one or more foreign and local shareholders.
3. For investment in public companies.– They are not permitted for foreigners at this time.
4. For investment in a Not for profit association – Foreign entities may become members but an association cannot be 100% foreign owned. It requires Myanmar persons and entities to be members jointly.

4. Key corporate governance considerations for a local incorporated entity

1. All companies are required to be registered with the DICA
2. The majority of the companies in Myanmar are private limited companies.
3. For a Private Company the following are key
   • minimum 2 and maximum 50 shareholders;
   • minimum 2 directors;
4. All directors should be individuals;
5. A general meeting shall be held within eighteen months from the date of its incorporation and thereafter once at least in every year at such time (not being more then fifteen months after the holding of the last preceding general meeting)
6. Every company shall at each annual general meeting appoint an auditor or auditors to hold office until the next annual general meeting.

5. Brief overview of structure, documentation and execution

1. Both share deals and asset deals are more common.
2. The contents of a sale and purchase agreement (SPA) in Myanmar are broadly similar to a SPA for acquiring a company under a common law jurisdiction. It is common for:
   • completion to be subject to conditions precedent (see below)
   • a tax indemnity to be provided by the sellers
   • warranties to be qualified by disclosures in a disclosure letter
   • liability to be capped, with a de minimis threshold
   • no general material adverse change condition precedent
   • data room to be set up for the purpose of buyer’s due diligence
   • reserved matters requiring affirmative vote of selective shareholders or directors
3. Non compete provisions are void under Myanmar Laws and may be difficult to enforce in Myanmar if agreed to under the laws of another country;
4. For a share deal, at completion, an instrument of transfer is delivered, a share certificate issued and the share transfer takes legal effect when the physical share transfer form (with appropriate stamp duty paid) is filled and received by the DICA. The effective date of update of the register is the date of filing with DICA.

6. What conditions precedent typically need to be satisfied before closing?

1. Permission of DICA and relevant ministry if post investment / transfer a Myanmar company becomes a foreign company;
2. No insolvency event and no force majeure event
3. No Material adverse change
4. In case of asset / business transfer deals:
   • Payment of severance compensation in accordance with labour laws and consent of employees who are being transferred as part of the deal;
   • Assignment of contracts, liabilities etc.
   • Third party consents if required under third party contracts.

7. What are the options available to the foreign investor in terms of financing the transaction?

1. Offshore to offshore: An offshore bank lends to an offshore parent of a Myanmar project company. The parent can on-lend or can use the proceeds of the loan to capitalize the Myanmar subsidiary. The offshore-to-offshore lending itself does not require Central Bank of Myanmar (“CBM”) approval, but bringing the cash into Myanmar needs permission from the MIC (in case it is brought in as capital) or the CBM (as a group internal loan). 
2. Offshore to onshore: The offshore bank lends to a Myanmar company, such as a Myanmar subsidiary. If there is a foreign parent, the parent can be the guarantor. This requires CBM approval.
3. Onshore to onshore: One of the foreign banks licensed in Myanmar lends to an onshore borrower (which must be a foreign company or a joint venture). This requires no CBM approval. If the borrower has an MIC Permit, the MIC approval is however required.

8. What are the key tax considerations for the foreign investor?

1. Corporate Income Tax
   The current corporate income tax (“CIT”) rate is 25% for Myanmar companies, branches registered under the Myanmar Companies Act 1914 (“MCPA”), and companies operating under permission from the Myanmar Investment Commission (“MIC”) (i.e. foreign-owned resident companies with an investment license from the MIC granted under the Foreign Investment Law and Myanmar Investment Law 2016).
    
2. Withholding tax (“WHT”)
   With effect from 1 April 2017 the payer has the legal obligation to deduct WHT from payments that are subject to WHT, regardless of whether the income recipient has agreed to the deduction or not. Please note payer has to pay WHT if not deducted. Please refer to below table for summary of WHT rates changes.

   Type of Income	Residents	Non-Residents
   Interests	0%	15%
   Royalties	10%	15%
   Goods (Locally purchased goods & not imported goods)	2%	2.5%
   Services	2%	2.5%
   Lease	2%	2.5%

3. Capital gains tax
   • Capital assets include land, buildings and their rooms, vehicles, and work-related capital assets. The expression also includes shares, bonds, securities and similar instruments. Capital gains tax (“CGT”) is applicable to both resident and non-resident taxpayers deriving a profit from the sale, exchange, or transfer of capital assets in Myanmar. CGT is payable by the person deriving the profit. A CGT return must be lodged by any person who sells, exchanges or transfers capital assets, even if there is a loss.
   • If the total value of the capital asset; which was sold, exchanged or transferred, does not exceed MMK 10 million, CGT will not be applicable.
   • The CGT rate for all taxpayers (with the exception of those deriving a gain from an oil and gas asset or a company holding an oil and gas asset) is 10%, and is imposed in either MMK or a foreign currency.
4. Share transfer tax
   • 10% CGT will be applied on the gain from transfer of shares of a Myanmar company unless exempted under the DTA
   • Stamp duty is payable on any written document that relates to a transfer of shares of a Myanmar-incorporated company, such as a sale and purchase agreement, transfer document for shares and mortgage for shares.
   • The document must be stamped either before the signing or within 30 days after signing the document.
5. Property transfer tax
   • The fundamental legislation for property tax (“PT”) is the City of Rangoon Municipal Act 1922 (“CRMA”), City of Yangon Development Law 1990 (“CYDL”) and the Yangon City Development Law 2013 (“YCDL”). Accordingly, the Yangon City Development Committee (“YCDC”) was created to administer these laws and collect PT. PT only applies to certain land, buildings or land and buildings (“premises”) located within the territory of Yangon. In other areas of Myanmar, for instance Mandalay or Nay Pyi Taw, PT is administered in accordance with relevant local regulations.
   • Section 2(4) of YCDL regulates that PT includes four categories of taxes: miscellaneous tax, lighting tax, water tax and sanitation tax. The rate for each category is as below:
     • Miscellaneous tax: maximum of 20% of annual value of premises
     • Lighting tax: maximum of 5% of annual value of premises
     • Water tax: maximum of 12% of annual value of premises
     • Sanitation tax: maximum of 15% of annual value of premises
   • PT will be levied on the annual value of the land or premises. Different rate and calculation will be applied depending on the use of the premises. PT is paid once per year. The annual value of the property will be determined by YCDC or local authorities where the premises are located.
6. Dividend income
   Under the current Myanmar income tax law, there is no tax applied on dividend.

9. Is arbitration a common option for dispute resolution?

Yes. Although Myanmar courts as a rule would respect international law as the law governing the Agreement, and the choice of foreign arbitration, however, given the lack of experience of Myanmar courts in international commercial matters, it cannot be excluded that the courts would have difficulties regarding enforcement of a judgment or an award in Myanmar.

10. Is there a requirement that the agreement be executed in the local language?

No, there are no language requirements.