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BurmaNet News - Special Business Is
- Subject: BurmaNet News - Special Business Is
- From: strider@xxxxxxxxxxx
- Date: Sun, 03 Nov 1996 07:09:00
Subject: BurmaNet News - Special Business Issue
"Appropriate Information Technologies, Practical Strategies"
The BurmaNet News: November 3, 1996
Issue #559 SPECIAL ISSUE: BUSINESS IN BURMA
BUSINESS NEWS INDOCHINA: THE GOOD NEWS AND THE BAD NEWS
BUSINESS NEWS INDOCHINA: IS SLORC ON A SLIDE?
BUSINESS NEWS INDOCHINA: SETTING UP SHOP IN BURMA
BUSINESS NEWS INDOCHINA: CORPORATE TAX RATES IN BURMA
BURMANET: SUBSCRIPTION INFO/OTHER RESOURCES
BurmaNet Editor's Note: The first two articles explain, in simple language,
some of the economic problems in Burma today. The second article makes
clear the connection between political instability and economic instability.
The final two articles give more details about the logistics of doing business
BUSINESS NEWS INDOCHINA: THE GOOD NEWS AND THE BAD NEWS
Stephen Huen, executive director of the UE Myanmar Group, briefly comments here
on the good news and the bad news of doing business in Myanmar.
FIRST, THE GOOD NEWS...
1.Myanmar is safe.
2.Business can be conducted in English.
3.Foreigners can incorporate wholly owned companies and engage in distribution &
4.There is a well established legal infrastructure.
5.Myanmar businessmen are generally honest.
6.Myanmar has an educated workforce and labour rates are still very low.
NEXT THE BAD NEWS...
1.Foreign exchange controls your funds cannot flow freely.
2.The kyat is inconvertible to hard currency.
3.You have to export local produce to earn hard currency and avoid tax problems.
4.Priority goods must constitute a proportion of your imports.
5.The port is utterly congested.
6.The banking system is not as efficient or developed as you are accustomed to.
7.Infrastructure is lacking.
8.Difficult to find experienced Myanmar business managers.
9.Cost of doing business in Myanmar is rising rapidly.
10.Business is getting increasingly competitive, margins are falling
BUSINESS NEWS INDOCHINA: IS SLORC ON A SLIDE?
November 1996 Rangoon
In a country that is chronically short of telephones Burma's SLORC is selling
its citizens mobile phones 4000 of them at $ 4000 each. But as the phones have
to be purchased in dollars, the $ 16m generated from the sale drained the local
black market of dollars and seriously undermined the value of the kyat. The local
currency lost a quarter of its value in this odd attempt to boost government coffers.
The attempted solution to one problem led to potentially more serious problems
But mobile phones are only part of the story. They are not the sole reason for
the fall in the kyat, and nor is the exchange rate the only difficulty confronting SLORC.
Newspaper headlines have been dominated by talk of rising political tensions,
increasing dissent among opposition groups and international criticism of
Rangoon's human rights record, and SLORC faces a whole range of worsening
economic problems. Its attempts to tackle these problems threaten to make
matters worse before they get better. And the economic woes have great
potential to add to the discontent.
Inflation is rising, a trend that can only worsen as the currency depreciates.
Dollars are becoming harder to find because they are needed for imports, while
dollarearning exports face numerous obstacles. The trade balance is in deficit.
Investment, which ought to offer a major means of escape from this vicious
cycle, is also looking grim, with a growing number of foreign firms deferring
projects or withdrawing from the country because of political controversy.
SLORC's hopes of raising foreign exchange through its Visit Burma Year campaign
have been largely dashed because of the dissidents' campaign against the
promotion, and because some tourists are afraid of trouble.
"SLORC is tying itself up with economic problems," said one Asian diplomat.
Most businessmen expect the kyat to hover around 180 kyat to the dollar until
the end of the year. This compares to its movement last year between 100 and
110 kyat on the unofficial market. The official exchange rate is 5.6 kyat to
One of the reasons for the economic concerns is the deteriorating political
situation. Confrontations between SLORC and opposition leader Aung San
Suu Kyi and the arrests in May of 262 of Mrs Suu Kyi's National League for
Democracy members for "questioning" are the most visible troubles.
This incident, together with the death of James Leander Nichol, the former
honorary counsel for Denmark, Finland, Norway and Switzerland, has prompted
some Scandinavian countries and the United States to seriously consider
economic sanctions against Rangoon.
Also contributing to the worries are rumours of the deteriorating health of the
country's main strongman, Ne Win, according to analysts in Rangoon.
Suu Kyi has been outspoken in calling for the suspension of overseas aid and for
a boycott of the government's Visit Myanmar Year 1996 campaign. This has been
"psychologically effective" among international communications and is
frustrating SLORC, said one Burmese businessmen.
"The investment climate is now looking grim," said another observer.
"People are made to feel insecure by such political confrontation," said a
Their dissatisfaction could increase as the cost of living increases. Inflation
has almost doubled, from 24 percent last year to 40 percent at present.
As the kyat sinks, the cost of imports rises. About 80 percent of Burma's
consumer products and construction materials are imported, while exports include
beans, pulses, low quality rice and raw materials.
To generate more revenue for the government, SLORC has quietly informed
businessmen it has changed the formula for calculating the tax it charges on
imports and exports.
It has created a new official exchange rate to be used exclusively for
calculating import and export duties. The price of imports and exports is now
calculated at 10 kyat per dollar instead of the 5.6 kyat official rate it sets
for actual transactions.
This could have meant a 20fold leap in tax payments, but SLORC at the same
time slashed the duties payable on imports and exports from 100 percent to 10
percent. The result is that the duty rate has doubled, with SLORC hoping its
revenues will increase by approximately 50 percent.
The new formula has increased the price of imported consumer products by 20-30
percent, according to Sriwat Suwarn, the Thai Minister Counsellor for Commercial
Affairs in Rangoon.
"Poor people and low ranking civil servants are suffering most," he said.
The salaries of government officials range from 1,000 kyat per month to 2,500
kyat for those at the director general level.
Many local businessmen disagree with the new plan but say there is no one to
turn to with their complaints.
Mr Sriwat predicted SLORC would be forced to scrap the new formula because it is
unworkable and will cause widespread discontent.
The military government is aware of the rising cost of products and early this
year opened a new Government Employees Bank to help civil servants. The bank
grants interest-free loans equal to 10 times monthly salaries so officials can
keep pace with the rising cost of living.
SLORC knows the public servants will have difficulties repaying the loans, whose
first repayments are due next month, so a 60 percent salary increase is expected
to be announced in the new few weeks, according to one Burmese source.
"The 60 percent increase is to help them repay the money they borrow," he said.
Unfortunately, traders have already raised their prices as they know civil
servants have more money to spend as a result of the loans. Rumours of a new
salary hike will only add to the escalating prices, said the source.
Thein Tun, the chairman of PepsiCola Products Myanmar Co, places the economic
blame elsewhere. He said export problems are caused by port congestion, but
this should ease in two years time when new facilities are in place.
"There are 47 ships waiting to berth but we cannot export our commodities," he
To ease the port congestion, the government has recently signed an agreement
with three Singaporean companies C & P Holding, Sinmardev International and
Myanmar Integrated Port Service to build wharves and other facilities at a new
port in Thilawa, about 30 kilometres from the capital.
Construction is expected to be completed in two years.
But Mr Sriwat of the Thai Embassy said this would not be enough. The
government should seriously consider measures to attract foreign investment
in manufacturing industries as the valueadded production would help reduce
imports and boost exports.
Added investment would break the vicious cycle of devaluation and inflation,
but foreign confidence in Burma is at a new low. The recent withdrawal of European
brewers Heineken and Carlsberg, and cancellations by a group of Japanese tourists
planning to visit Burma are just some examples of the multinational pressure mounting
on the junta.
Threats from the US to sanction Burma would not have a major impact on the
country because it is not a major trade partner of SLORC, said one Burmese trader.
But it would cost the jobs of 40,000 Burmese who work in textile factories
serving the American market, he added.
BUSINESS NEWS INDOCHINA: SETTING UP SHOP IN BURMA
November 1996 Rangoon
Angus B. Mitchell of international law firm Russin & Vecchi,
summarizes here in a percent Asian Initiates seminar in Rangoon the sections of
the economy open to foreign investment and the methods by which a foreign
investor may establish a presence in Myanmar. For detailed information
regarding any of the issues discussed below, please contact the author at Russin
& Vecchi in Rangoon
ESTABLISHING A PRESENCE IN MYANMAR
In 1988 the State Law and Order Restoration Council (the "SLORC") passed the
Myanmar Foreign Investment Law (the "MFIL"), which signalled a new era in
Myanmar's economic development. The MFIL offers attractive incentives and
guarantees competitive with those of the neighbouring nations. Though most
sectors of the economy are open to foreign investors, there are certain
Permitted Areas for Investment
Some sector of economic activity are reserved to the State by virtue of the
State Economic Enterprises Law s. 3. There are:
extraction and sale of teak;
exploration, extraction and sale of petroleum, natural gas and production of
exploration, extraction and export of pearls, jade and precious stones;
breeding and production of fish and prawns in fisheries;
postal and telecommunications;
air and railway transport;
banking and insurance services;
broadcasting and television services;
exploration and extraction of metals and export of same;
electricity generating services; and
manufacture of products relating to security and defence which the Government
has prescribed by notification.
However, even in these sectors Myanmar citizens and foreign investors alike may
apply under s. 4 for a certificate allowing them to undertake these activities.
In practice such permission will often only be forthcoming where the proposed
activity is to be undertaken in a joint venture with the relevant State
entity. Entry Vehicles for Doing Business in Myanmar
There are three primary methods for investors to establish a presence in
1.Appoint a Business Representative;
2.Obtain a Permit to Trade and incorporate a company/register a branch office;
3.Apply to invest pursuant to the Myanmar Foreign Investment Law (the "MFIL"),
and then, if doing so as a company, obtain a Permit to Trade and incorporate a
company or register a branch office in Myanmar.
Given the size and sector restrictions applying to MFIL investments, most
foreign investors utilize #2. It is worth noting immediately that 100% foreign
ownership and control of companies incorporated in Myanmar is permissible, and
that where the State is to have any form of equity interest in company it must
be formed pursuant to the Special Company Act 1950.
Finally, where a joint venture is to be through a corporate vehicle, the
provisions of Myanmar's Partnership Act will obtain. 1.
Registration of a Business Representative
Though there are no provisions for "Representative Offices" as the term may be
understood in other countries, there is a procedure under which a Myanmar
citizen, or a branch office or company in Myanmar, can be registered as the
official Business Representative of a foreign entity.
Who may be a "Business Representative"
The appointment of business representatives in Myanmar is governed by the
Ministry of Trade's Registration of Business Representatives
Order order No. 2/89, or the "Business Representatives
Order. The Representatives Order defines a "Business Representative" as:
1."an agent engaged in accepting indents and placing orders for goods from the
supplier abroad on a commission basis or any business representative employed to
do any business transaction for any individual or organization abroad or to
represent another person in dealings with third person."
It also includes:
1.(1)technical assistants and business consultants employed by a foreign
manufacturer or exporter;
1.(2)products specialists, buying agents, technicians and business consultants
employed by foreign buyers who purchase Myanmar products;
1.(3)individuals who represent a foreigner in foreign trade and who render
services for the benefit of such foreigner; and
1.(4)individuals having an established office in the Union of Myanmar and
representing a foreign company or organization or an entrepreneur to act as
business representative or to engage in consultancy services or employee
recruitment but not registered as they are not governed by any existing law.
Section 3 stipulates that a person appointed a Business Representative must be:
(a)a citizen of Myanmar;
(b)at least 18 years of age;
(c)not a service personnel of any State owned entity; and
(d)must possess appropriate qualifications.
It is also possible to appoint companies incorporated in Myanmar, or branch
offices registered in Myanmar, as a Business Representative, even if these
companies are foreign owned.
Powers of a Business Representative
As between the Business Representative and the Principal, the scope of the
permitted powers must be clearly delineated in the Appointment Letter, which
will be registered at the Ministry of Trade. Any liability for the acts of a
Business Representative will be determined with reference to the terms of the
appointment letter and will be governed by common law agency principles as
codified and modified by the Contract Act 1872.
An application is filed for a certificate of registration, which certificate
will be valid for one year. With 30 days notice prior to the expiry of the
certificate an application may be made to extend the registration for a further
year. The appointment letter must be certified as authentic by the Myanmar
embassy in the foreign principal's country.
The registration fee is based on the proposed remuneration of the
representative. This remuneration must fall within defined parameters. A
Business Representative may earn agency commission in foreign exchange, in which
case the registration fee is kyat 10,000 payable in foreign exchange (which
would be approx. $ 1800.00 at the official exchange rate of 5.75 kyat/ 1$ ).
Alternatively the Business Representative may earn a salary, in which case
registration fees are payable in local currency as follows:
Category Registration Fee Extension Fee
(1)monthly salary of US$ 1,000kyats 10,000kyats 5,000 and above
(2)monthly salary of US$ 501kyats 5,000kyats 2,500 to US$ 1,000
(3)monthly salary of US$ 100kyats 2,500kyats 1,000 to US$ 500
For reference the official exchange rate is pegged to the Special Drawing Right
(SDR) and the rate is currently approximately kyat 5.75 = $ 1US. However, the
market exchange rate, which can now be legally obtained at a recognized new
Exchange Centre, is about kyat 130 = $ 1US, so that for example the registration
fee of kyat 2500 would cost only $ 20.
When is a more formal corporate presence in Myanmar necessary ?
Though the definition of "business representative" noted above gives some
indication of the scope of activities contemplated for Business Representatives,
the point at which a company must establish a more formal corporate presence in
Myanmar remains illdefined. The trigger appears to be when a company is "doing
business" in country.2.
Obtaining a Permit to Trade only
Section 27A of the Myanmar Companies Act requires that requires that foreign
companies obtain a Permit to Trade. Formerly such Permits were issued by the
Ministry of Trade, whereas now they are issued by the Ministry of National
Planning and Economic Development.
An application for a Permit must be in the prescribed form and will require
certain information regarding the investor and the investment. The Capital
Structure Committee will consider applications, and will stipulate a minimum
capitalization amount. There are certain prescribed minimum amounts, which are
outlined below for the 5 categories of Permits to Trade, but in some cases the
CSC may stipulate a higher amount in part based on consideration of the
company's expected expenditures during the first year of operations. One half
of the stipulated amount must be brought into the country before the Permit will
be issued, and the balance must follow within one year.
Following are the categories:
i.Manufacturing kyat 1,000,000
ii.Trading kyat 500,000
iii.Services kyat 300,000
iv.Hotel/Tourism kyat 300,000
v.Banking/Finance/Insurance kyat 300,000
As the official exchange rate is approximately kyat 5.75 US$ 1 the effect is
that, for example, a requirement to import 300,000 will actually require that
the investor bring in roughly $ 53,000. These funds will be transferred into
the investors foreign currency account, and can be withdrawn in foreign currency
equivalent Foreign Exchange Certificates ("FEC's") to meet local expenses. Up
to 75% can then be used to open an LC and thus in effect to bring capital :in
It is important to note that the company will be restricted to activities which
fall within the purview of its Permit to Trade category, and that this Permit to
Trade category must gybe with stated objects of incorporation of the company.
Whereas formerly companies would adopt "kitchen sink" objects clauses which
contemplated every conceivable manner of activity, now companies are restricted
to a list of objects issued by the Registrar of Companies for companies in the
relevant category of Permit to Trade. Companies must choose a limited number of
the objects clauses on this official list.
Additionally, whereas previously the categories of Permit to Trade were tiered
and inclusive, such that a manufacturing company could engage in trading and
services, and a trading company could engage in services, now each category of
Permit to Trade is distinct. For example, a manufacturing company may not
engage in trading or services, but must instead incorporate a distinct company
and obtain a distinct Permit to Trade for that purpose. However, companies may
engage in what might be termed "downstream or upstream" operations directly
related to the activities contemplated in their Permit. Thus a manufacturing
company could engage in the retail sale of its own products and could import the
raw materials necessary for production. That company could not, however,
participate in trading of unrelated goods.Please note that in many sectors the
economy the investor will need to submit a licence fro the relevant Ministry as
part of the Permit to Trade application.
Once the Permit to Trade has been issued the investor can proceed with the
incorporation of a company or registration of a branch office. These
application must again be in the prescribed form, and require information on the
shareholders, directors etc.3. The MFIL Investment under the MFIL always
merits consideration because of the generous tax and export/import incentives,
and the explicit guarantees regarding repatriation and nationalization, for which
MFIL investors are eligible.
However, there are certain listed areas of permitted investment, certain minimum
thresholds for MEIL investors and MFIL has certain objectives to be considered
when assessing an application, including:
promotion and expansion of exports
exploitation of natural resources which require heavy investment
acquisition of high technology
supporting and assisting production and services requiring high capital
opening up of more employment opportunities
development of works which would save energy consumption
In the results trading companies, for example, will not generally be eligible
for MFIL incentives. By law it is never mandatory to invest under the MFIL, but
as a matter of policy companies investing in certain sector of the economy might
be asked to submit the comprehensive MFIL proposals even if they do not want the
incentives that the MFIL offers. It would be a rare case however where an
eligible company did not want to avail itself of the MFIL's benefits.
Under the MFIL, foreign investment can occur in the form of 100% foreignowned
venture, or in a joint venture with a Burmese entity or individual. If wholly
foreign owner the investment can occur in the form of a sole proprietorship, a
partnership, or a limited company; if a joint venture, at least 35% of the joint
venture equity capital must be foreign capital.
MFIL applications require detailed information which must be complied and
submitted in a prescribed form. Information required includes information as to
the investment participants (including bank references and other information as
to financial standing), the investment structure, the magnitude, nature,
division and timing of capital contributions, the input requirements (foreign
exchange, personnel, power, etc.) and output projections for the business, and
any draft agreements (such as leases, contracts with relevant Ministries, etc.)
relating to the project.
MFIL applications will be vetted and forwarded to the Myanmar Investment
Commission (the MIC") for review. The MIC's members include all Ministers whose
portfolio's could be said to related to commerce, industry to commerce, industry
or finance. When the MIC has issued its recommendation regarding the
application it will forward it to the Cabinet for final consideration. This
requirement that the powerful Cabinet explicitly consider and issue its approval
for issuance of an MFIL Permit is an important distinction from certain other
regional nations lacking such a unitary central authority. Such a "seal of
approval" can greatly expedite future dealings with government officials,
provided always that the matter at issue was explicitly contemplated in the MFIL
When an MFIL Permit is granted the investor may then establish a corporate
presence in Myanmar pursuant to the steps noted above in #2 if this is the
chosen investment vehicle.
BUSINESS NEWS INDOCHINA: CORPORATE TAX RATES IN BURMA
(incorporated in Myanmar)30%
(branches) 35% or at the graduated rates from 5% to 40% whichever is greater
CAPITAL GAINS TAX
Gains derived from the disposal of immovable property, fixed assets and motor
vehicles in excess of Ks 50,000 are subject to capital gains tax at the rate of 10%.
The tax rate applicable to nonresident foreigners is 40% of capital gains.
DOUBLE TAXATION AGREEMENT-
Myanmar has signed a Double Taxation Agreement with the United Kingdom
onlyINDIVIDUAL TAX RATES
Flat rate at 35% or progressive rates ranging from 5% to 40% whichever is
RESIDENT FOREIGNERS AND LOCALS
Progressive rates ranging from 3% to 30%
Myanmar has not set up its own accounting standards but does recognise
international accounting standards.
The Government of Myanmar guarantees the repatriation of net profit after
payment of all Myanmar Taxes. The government will approve repatriation of the
net profit so long as the investor has sufficient foreign exchange in his bank
account. If the investor has insufficient foreign exchange, he may, with his
kyats accumulation, buy local goods in kyats, obtain an export licence and
repatriate his profits in kind.
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