One of the most significant legal reforms undertaken to improve the investment climate in Myanmar has been the promulgation of the 2017 Myanmar Companies Law (MCL), which sets new criteria for company classification and is expected to help boost foreign direct investment inflows, which have slumped in recent years. After a lengthy delay, the new law came into effect in August 2018, marking an important step forward for investor-friendly reforms for foreign companies to register and commence operations.
The MCL was drafted in collaboration with the Asian Development Bank, with the aim of reducing red tape and delays for companies looking to do business in Myanmar. It is expected to allow foreign investors to trade shares on the Yangon Stock Exchange, although regulations permitting this have not yet been released (see Capital Markets overview).
Under the previous Companies Law, companies were classified as either Myanmar – meaning they must be 100% owned by citizens of Myanmar – or foreign, with companies almost totally prohibited from changing their classification. Foreign companies are restricted from many business activities in the country, meaning they often could do little more than establish a representative office.
While the new law maintains a distinction between Myanmar and foreign companies, a company may now avoid the “foreign” classification provided foreign individuals or entities do not hold more than a 35% stake. Additionally, the law removes a requirement that foreigners obtain regulatory approval prior to purchasing a stake in a Myanmar company, instead mandating that the regulator is notified only when a company exceeds the 35% threshold. Law firm Berwin Leighton Paisner further reported that shares in a company may be exchanged freely between foreign and local investors. Another major positive of the law is the establishment of a new electronic registry for companies, Myanmar Companies Online (MyCO), which began accepting company filings in September 2018. Under the MCL, a company must register and file using MyCO.
The new platform accepts filings, including notices of alteration of company constitutions, name changes, address changes, particulars of directors and company prospectuses, among others. Beginning in October 2018, the platform also began accepting filings related to changes in share capital or member registers, as well as mortgages and property acquisition. From November 2018 the system also began to accept filings related to name changes, financial statements and notice of cessation of business by foreign companies.
Some difficulties with the new system have been identified, however. “One of the biggest problems is that if a company makes a mistake when filing online, it is not possible to immediately correct the mistake,” U Moe Kyaw, a managing partner at local accounting firm Win Thin & Associates, told OBG.
Another challenge for potential investors has been Section 464 of the MCL, which stipulates that companies must abide by the Transfer of Immovable Property Restrictions Law of 1987. This prohibits foreign property ownership and restricts foreign property leases to one year.
As highlighted by the American Chamber of Commerce, stakeholders initially anticipated that a company with up to 35% foreign ownership would be permitted to own real estate. Article 464 stipulates that the provisions of the MCL would not affect any element of the 1987 legislation, meaning it “could be interpreted to restrict local companies with 35% of less foreign shareholding from owning real estate”.
Despite the challenges, the MCL offers a new avenue for foreign investment in the country and marks an important next step in economic liberalisation. Legal and regulatory reforms will further support improvements to the country’s investment climate.
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