Investment Opportunities and Challenges in Vietnam and Myanmar

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Investment Opportunities and Challenges
in Vietnam and Myanmar
Hong Kong, September 2017
DR. OLIVER MASSMANN
Partner - General Director of Duane Morris Vietnam LLC
This outline should not be construed as legal advice or as pertaining to specific factual situations.

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AGENDA
• Why and how to invest in Vietnam & Myanmar –
Upcoming key opportunities and sectors to lookout
for
• New Investment Law and Enterprise Law – changes
to the investment environment in Vietnam
• Economic integration: Trans-Pacific Partnership and
the EU- Vietnam Free Trade Agreement; Vietnam
and the ASEAN Economic Community

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INVESTING AND DOING BUSINESS IN VIETNAM

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Welcome to the most dynamic country on this
planet : Vietnam!
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Growing middle-class
(doubled by 2020 to
33 million people
according to Boston
Consulting Group)
90 million people

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Vietnam’s super rich population is growing
faster than anywhere else….
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… and is on track to continue leading
the growth in the next decade

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Communist Vietnam Has More Millionaires
Than Capitalist Philippines
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Political background
• The Communist Party leads the people. Its highest representation
is the Politburo and the Party Secretary General.
• The National Assembly is the legislative body and determines both
domestic and foreign policy.
• The President, Vice-President, Chairman of the National
Assembly, Vice-chairman of National Assembly, members of the
Standing Committee of the National Assembly, the Prime Minister,
the Chief Justice of the Supreme People's Court and the Head of
the Supreme People's Procuracy are elected by the National
Assembly.
• Head of the country: President
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Vietnam – New Government since April 2016
• New Prime Minister
Nguyen Xuan Phuc
• New President
Tran Dai Quang
• New Ministers

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Political stability
• Vietnam is one of the most ideal locations to expand businesses
thanks to its political stability and rising middle class, according to
the United Overseas Bank (UOB)’s Asian Enterprise Survey 2016
• Vietnam is considered the second most attractive location to open
and expand business after Singapore.
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VIETNAM’S INTEGRATION TO
REGIONAL AND INTERNATIONAL
ECONOMY
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Without TPP – What’s next?
• TPP-11? How to implement it? (implement
it as it is, remove the part related to the US or
re-negotiate the whole agreement? Not yet decided!)
• Trade Facilitation Agreement
• ASEAN Economic Community (covering 620 million people
of 10 ASEAN countries)
• EU – Vietnam Free Trade Agreement
• Regional Comprehensive Economic Partnership (RCEP)
(covering 3 billion people in 16 countries and 28% of global
trade)
• Bilateral trade agreement with the United States?
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Key characteristics of AEC
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Legal certainty in new generation of FTAs
• As a result of global integration, Vietnam has to develop legal
certainty to be member of international trade organizations.
• Once the EU-Vietnam Free Trade Agreement (EVFTA) are
ratified, Vietnam will have more legal certainty than even Germany.
• EVFTA implements investor-to-state dispute settlement (ISDS)
mechanisms – investors can claim in case that an investor
protection obligation has been breached
• Domestic courts cannot question the legal validity of the decisions
EVFTA secures a modern reformed investment dispute
resolution standard
1
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Investing in Vietnam
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WTO ANALYSIS OF LIBERALIZATION
OF MARKET ACCESS
Vietnam ties in first place with Singapore
*Typical restrictions: number of opened sectors, JV
requirement, limits on foreign-owned shares, permission
requirement
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Country Limitation of market
access*
Country Limitation of
market access*
Malaysia medium Myanmar high
Indonesia medium Cambodia medium
Philippines medium Laos medium
Singapore low India high
Thailand medium China medium
Brunei high Vietnam low

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Investment environment in Vietnam
• Main governing laws: Investment Law, Enterprise Law and their
implementing documents
• Forms of doing investment in Vietnam:
– Economic entity establishment;
– Business cooperation contract: a contractual arrangement
between two or more investors without creating a legal entity
– Public-Private Partnership; a contractual agreement
between competent state authorities and investors, an
enterprise project in order to implement an investment
project;
– purchase of shares or capital contribution.
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Investment environment in Vietnam
• Forms of enterprises in Vietnam
– Limited liability company: members are liable to the extent of their
capital contributed
– Shareholding Company: charter capital (authorized share capital) is
divided into shares and members are liable to the extent of their capital
contributed
– Partnership: established between two or more partners;
– Business Cooperation Contract: an agreement without constituting a
legal entity and each party is individually responsible for paying taxes.
– Branch: a branch of a foreign company permitted to conduct
commercial activities
– Representative Office: represents the parent company, no actual
business operations. A suitable tool for market research
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New Investment Law - New Negative List!
• All non-prohibited business activities are permitted
“Investors are entitled to conduct business investment activities in industries
trades which are notprohibited by this Law.” (Art. 5.1, new Investment
Law)
• Removal of many baby permits
• Reduction of conditional and prohibited activities
–Old Law
conditional activities: 386・prohibited activities: 51
–New Law
conditional activities: 267・prohibited activities: 6
1
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INVESTMENT PROCEDURE
• 2 steps: Application for Investment Registration Certificate (“IRC”) and
Application for Enterprise Registration Certificate (“ERC”)
• Step 1: IRC
– IRCs for projects required to obtain preliminary approval of the National
Assembly/ People’s Committee are issued within 05 working days upon
issuance of such approval
– For other projects, IRCs are issued within 15 days (instead of 35 days as in
the old law) upon receipt of the application dossier
• Step 2: ERC
– Submit an application dossier to the licensing authority upon issuance of the
IRC
– ERCs are issued within 03 working days upon receipt of the application
dossier
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M&A procedures for foreign investors under new 2014
Investment Law
• Appears to be simple!!! Only registration required, no more
IRC
§ Satisfying the requirements for investment
§ Submitting application dossier
§ Assessment by the licensing authority and decision making after 15
days
 Save up to 4-6 months
2
1

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State-owned enterprises open up to foreign investors
(Decision No. 58/2016/QD-TTg)
Sectors in which the state will retain ownership of over 65% (there are 4
companies in total) include:
• Operation management of airports; operating flight area services;
• Navigation information services, surveillance, aviation meteorological
services;
• Mineral mining of large scale according to current regulations on
classification of mine scale;
• Exploration, development and exploitation of oil and gas mines; and
• Finance and Banking (excluding insurance, securities and fund
management companies, finance companies and financial leasing
companies).
2
2

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INVESTMENT INCENTIVES
Items 2017
Inside SEZ Outside SEZ
Tax rates 10% for first 15 years 20%
CIT Holidays 04 years 2 years
CIT reduction 50% for subsequent
09 years
50% for subsequent
04 years
2
3
• Carrying forward losses
• Reduction or exemption of land rental, land use fee
• Incentives for enterprises employing female workers

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Personal Income Tax
– Subjects:
Ø Vietnam residents: those individuals residing in
Vietnam for 183 days or more in a calendar year, or in
12 consecutive months from the first date of arrival
Ø Non-residents: an individual staying in Vietnam from
90 to183 days in a tax year
– Tax rates: varied for employment and non-employment
income (employment income: graduated tax rates from 5-
35%; non-employment income: depending on each type
of income)
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Taxation in Vietnam
• Value-added Tax (“VAT”)
– Tax applied to goods and services used for
production, trading and consumption in Vietnam
(including goods and services purchased from abroad)
– Tax rate: 0-10% depending on types of goods and
services
• Other taxes: special sales tax (applied to luxury goods or
amusement places), natural resources tax, land and
housing tax, etc.
2
5

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Labor and Employment
• Minimum regional wages: ranging from US$113 –
US$165/month
• Social security:
– both employer and employee have to contribute to social fund (social
insurance, health insurance, unemployment insurance)
– The Fund covers the employees’ benefits during sick leave, maternity leave,
retirement, allowances for work related accidents and occupational diseases,
and survivors’ benefits
• Pension: Monthly pensions are provided from the Social
Insurance Fund where an individual has contributed social
insurance for more than 20 years and when they reach 60 years
of age for men, or 55 years of age for women.
2
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INVESTING AND DOING BUSINESS IN MYANMAR

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First impressions from Myanmar
Confucius never arrived!

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Lifting of U.S. sanctions
• On 7 October 2016 President Barack Obama issued an
executive order terminating the national emergency
relating to Myanmar (the Burma related executive orders).

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Myanmar – New Government since 01st April 2016
• The new Government of Myanmar is led by the National League
for Democracy (“NLD”). The NLD is led by Daw Aung San Suu
Kyi, however, she is constitutionally barred from holding the office
of the President, since her children are British Citizens.
• The Presidency is held by U Htin Kyaw, a close confident of Daw
Aung San Suu Kyi, and she herself is holding the newly created
position of State Counsellor.

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MYANMAR: Challenges
• The challenges of Myanmar:
§ US$1,500 : Average productivity of a worker in Myanmar
today, about 70% below that of benchmark Asian countries
§ 4 years of average schooling in Myanmar
§ 10 million additional people to absorb in Myanmar large
cities by 2030
§ US$650 billion: Total investment needed by 2030 to support
growth potential, US$320 billion in infrastructure alone
Source: McKinsey&Company

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MYANMAR: Opportunities
§ Potential to achieve US$ 200 billion+ GDP in 2020, over four times
as high as today
§ With spending potentially tripling from US$ 35 billion to US$100
billion, an estimated 10 million member of the consuming in 2030
from 2.5 million in 2010
§ Potential to create more than 10 million additional non-agricultural
jobs by 2030
§ 500 million people living in countries bordering Myanmar and the
closest parts of China and India, a huge potential market
Source: McKinsey&Company

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INVESTMENT IN MYANMAR

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INVESTMENT IN MYANMAR - Introduction
§ With its natural and human resources and cultural and national
heritage Myanmar represents excellent potential for business
investment.
§ Myanmar welcomes foreign investments in all forms. The Government is
intending to maintain good and strong economic relationship with all
countries, all foreign organizations and individuals.
§ An untapped market- rich in natural resources with a young population
and a high number of English speakers.
§ A fertile and resource-rich country strategically located in the heart of
Asia, one of the world’s largest growing economic regions.
§ Firms involved in precious stone, agricultural products or other industries
may find Myanmar a fascinating place to begin developing longer term
interests.
§ Significant legal reforms aiming to improve investment climate:

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STRATEGIC INVESTMENTS: Most promising sectors

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New Myanmar Investment Law 2017
• The Myanmar Investment Commission (“MIC”) is the
regulator for foreign investment.
• An MIC Permit is not mandatory for operating a business
in Myanmar, but companies with MIC permits are subject
to the MIL entitled to incentives.

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Investment Guarantee
• A company operating with an MIC Permit under the MIL
will not be nationalized during the permitted period
• Investments with an MIC Permit will not be terminated
before the expiry of the term of the MIC permit without
sufficient cause.

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Tax incentives / exemptions
• Income tax holiday: three, five or seven depending on the location
of the enterprise and counts from the date of operation
• Exemption from internal taxes on imported raw materials within
the first three years to seven years of commercial production.
• Exemption or relief from income tax on profits of the business
kept in a reserve fund and reinvested in the business within one
year after the reserve is made.
• Relief from tax on up to 50 percent of the profits accrued from the
export of goods produced in Myanmar.
• Right to pay foreign employees’ income tax at the rates applicable
to citizens residing within the country….

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Tax incentives / exemptions (cont.)
• Right to Transfer Foreign Currencies.
• Foreign currency entitlement of the person who brought in the foreign capital.
• Net profit after deducting all taxes and reserve funds from the person who
brought in the foreign capital.
• Foreign currency permitted for withdrawal by MIC, which may include the
value of assets on the winding-up of business. Furthermore, a foreign employee
can transfer his salary and lawful income after deducting taxes and other living
expenses incurred domestically.
• Right to Enter into a Long-Term Lease. A foreign-owned company without
an MIC Permit is only allowed to enter into a lease agreement not exceeding one
year. With an MIC Permit, subject to MIC approval, a foreign investor may be
permitted to lease or use land for an initial period of up to 50 years, which may
be extended for two further periods of 10 years each.

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General Types of Companies
• Private Limited Liability Company
• Public Limited Liability Company
• Sole Proprietorship
• Company Limited by Guarantee with Share Capital
• Company Limited by Guarantee without Share Capital
• General Partnership
• Branch of a Foreign Company

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Minimum capital requirements
The capital structure requirements are:
• Shares to be issued with par value in local currency (Kyat) or United
States Dollar (USD).
• The issued and paid-up share capital is USD50,000 (or local equivalency
in Kyat) for a services company and USD150,000 (or local equivalency in
Kyat) for a manufacturing company.
Note: Fifty percent (50%) of the prescribed capital must be brought in as
foreign currency before the Permit to Tradeis issued and the balance 50% must
be remitted within five years (prior to the date of renewal of Permit to Trade)
• The issued capital brought in is the same as paid-up capital, 50 percent of
which is to be brought into Myanmar before the commencement of
business operation and the rest into the country within five years.

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Restriction
• Activities only to be carried out by the Union Government of
Myanmar
q Security and defense
q Arms and ammunition
q National postage stamps
q Air traffic services
q Pilotage services
q Natural forest and forest area
q Radioactive metals
q Control of electric power system
q Inspection of electrical business

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Restriction (Cont.)
Activities which are prohibited by foreign investors
q Publishing and distribution of periodicals in ethnic languages
q Fresh water fisheries
q Establishment of quarantine station for export and import of animals
q Pet care services
q Forest products
q Prospecting, exploration, feasibility study and production of mineral for
small and medium scale tour-guide service
q Mini-market
q Convenience Store

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Restriction (Cont.)
Activities allowed only in the form of joint venture with Myanmar
citizens.
q Research activities related with fisheries
q Manufacturing and domestic distribution of all kind of confectionary
including those of sweet, cocoa and chocolate
q Development, sale and lease of residential apartments and condominiums
q Local tour services etc.

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Restriction (Cont.)
FDI in the following sectors can only be done with the grant of
approval from the relevant Ministry:
q Publishing of periodical newspaper in foreign languages
q Cable TV
q Laboratory services for animal diseases diagnosis
q Aircraft repair and maintenance
q Wood based industries
q Private hospital services
q 100 Acres and above urban development projects.

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New Competition Law
• Adopted on 24 February 2015 as a result of more
than 2-year negotiations and integration into ASEAN
• Implementing rules and regulations are not in place
yet
• Prohibited acts:
– Anti-competitive acts
– Monopolization of markets
– Collaboration among businesses
– Unfair trade practice

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Draft New Myanmar Companies Law 2017
• For the first time, foreign investors are allowed to
own up to 35% of the shares in a “local” Myanmar
company.
• Foreigners will also be allowed to buy and sell shares
in Myanmar companies listed on the Yangon Stock
Exchange.

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Challenges: Diminishing FDI
• FDI has significantly slowed down since the heights of 2014, at 8.5%.
• With its currency falling, Myanmar posted its slowest real-term economic
growth in five years in 2016 at 6.5%, down 1.3 percentage points from
the previous estimate in June last year.
• There was an initial excitement amongst foreign investors about
Myanmar. However, for the most part, projects and deals are still very
much, “wait and see.”
• The Government has so far proposed few economic policies. Foreign
businesses still see the country as a promising place for infrastructure
investment and as a production base, but many are waiting to launch new
projects because of uncertainty over economic policies.
*Source: The Financial Times Limited 2017.

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WHY CHOOSE MYANMAR?

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WTO ANALYSIS OF LIBERALIZATION
OF MARKET ACCESS: MYANMAR IS AT SAME
LEVEL WITH INDIA – NOT TOO BAD?
• *Typical restrictions: number of opened sectors, JV requirement, limits on
foreign-owned shares, permission requirement
Country Limitation of market
access*
Country Limitation of
market access*
Malaysia medium Myanmar high
Indonesia medium Cambodia medium
Philippines medium Laos medium
Singapore low India high
Thailand medium China medium
Brunei high Vietnam low

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WHY CHOOSE MYANMAR?
• Myanmar: Last untapped market in Asia with
full of potential to become new FDI hub
• BUT it depends on commitments on
institutional reforms!!!!
• OPEN OR ISOLATED?
• MODERN OR CONSERVATIVE?

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WHY CHOOSE MYANMAR?
• Myanmar is the founding member of WTO that means WTO
service sector commitment : Unbound
• HOWEVER: Myanmar is a member of the ASEAN Economic
Community (AEC).
• Myanmar has made substantial commitments on additional sectors
in accordance with the AEC. Major sectors include:
ü Professional Services
ü Computer and Related Services
ü Research and Development Services
ü Rental/Leasing Services without
Operator
ü Distribution services
ü Education services
ü Communication services
ü Telecommunication services
ü Audiovisual services
ü Construction and engineering-
related services
ü Environmental services
ü Healthcare services

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Questions & Answers

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Thank you very much!
DR. OLIVER MASSMANN
Partner – Duane Morris Vietnam LLC
Member of the Supervisory Board of PetroVietnam Corporation
Duane Morris Vietnam Duane Morris Myanmar
Pacific Place, Unit V1307/08, 13th Floor, No. 10 Phoyazar Street, 15 Ward,
83B Ly Thuong Kiet, Hoan Kiem Dist Baukhtaw Yankin Township
Hanoi, Vietnam Yangon Suite, Myanmar
Contact email:
omassmann@duanemorris.com