The Myanmar Investment Law 2016 And Rules 2017.
10 July, 2017
New investment laws, rules and
procedures in Myanmar have sparked widespread interest as they introduce
reforms to boost investor confidence, increase efficiency, ease the
doing of business and attract more foreign investments into the country.
The Myanmar Investment Law 2016 (“MIL”)
came into effect on 18 October 2016 and consolidates and replaces the
previous Foreign Investment Law 2012 and the Citizens Investment Law
2013. The MIL, which provides the overall legal framework, was followed
by the more detailed Myanmar Investment Rules 2017 (“Rules”) which came
into effect on 30 March 2017 as well as two notifications: Notification
13/2017 dated 1 April 2017 (Classification of Promoted Sector)
(“Notification 13”) and Notification 15/2017 dated 10 April 2017 (List
of Restricted Investment Activities) (“Notification 15”). Together,
these represent the body of the current Myanmar foreign investment laws.
Here are some of the key highlights introduced under the MIL, Rules and notifications:
1. Scope of law and treatment of investors
The MIL, from its start date, applies to
existing or new investments in Myanmar except for matters coming under
the old Foreign Investment Law 2012 such as investment disputes or prior
permit investments previously suspended from business operations before
the start date or investment projects suspended by governmental
measures under general and national security exemptions.
With the merging and consolidation of
the Foreign Investment Law 2012 and the Citizens Investment Law 2013
into the new MIL, the Government will now treat foreign and local
investment projects equally in terms of expansion, management, operation
and sale of direct investments.
2. New or streamlined procedures for investment approval
There are now two types of processes to
obtain approval from the Myanmar Investment Commission (“MIC”), that is,
the permit application process and the endorsement application process.
Proposal submission for permits
A proposed investor must submit a proposal to MIC for a permit which relates to the following types of businesses:
Endorsement applications
The endorsement process speeds up the
approval process for investments in non-restricted business activities
(that is, activities that do not require a permit). Endorsements
entitle investors to enjoy land use rights and other exemptions and
reliefs such as customs free duty and income tax exemptions.
According to Notification 13, if the
business is in one of the “Promoted Sectors”, it may be possible to be a
100% foreign-owned business qualifying for endorsement by MIC or the
relevant state or regional committee. Investors can better understand
what activities qualify for 100% foreign-owned treatment by reading
Notification 13 together with Notification 15 (discussed below).
Endorsement applications can be submitted to either the MIC or the
relevant state or regional committee.
3. Prohibited investment activities
Prohibited investment activities include
those which may (a) bring or cause hazardous or poisonous wastes into
Myanmar, (b) bring technologies, medicines, flora and fauna and
instruments which are still being tested abroad, except for investments
made for research and development, (c) affect Myanmar’s ethnic groups’
traditional culture and customs, (d) adversely affect the public, (e)
cause an enormous impact on the natural environment and ecosystem, and
(f) manufacture goods or provide services that are prohibited by law.
4. Restricted investment activities
According to the MIL, Rules and
Notification 15, the list of restricted investment activities are
divided into the following categories:
- investment businesses allowed to be carried out only by the Republic of the Union of Myanmar
- investment businesses not allowed to be carried out by foreign investors
- investment businesses only allowed in the form of a joint venture with a Myanmar citizen or citizen owned entity (a Myanmar local minimum direct shareholding interest of at least 20% however is required with approval from the relevant Ministries).
- investment businesses requiring approval of the relevant ministries.
5. Investment screening application and guidance from MIC
For investors who are uncertain as to
what type of investment they can engage in, MIC can pre-screen their
investment applications for a nominal fee. The project’s nature and all
material information will need to be fully disclosed to allow MIC to
assess what type of application needs to be made. MIC can offer
non-binding guidance within 10 working days from the date of
application.
6. Tax incentives
Tax exemptions or incentives may apply depending on a number of factors, including the following:
The zone in which the investment takes
place: MIC may with the approval of the Government grant income tax
exemptions in Zone (1) (less developed regions) for 7 years; in Zone (2)
(moderate developed regions) for 5 years; in Zone (3) (adequate
developed regions) for 3 years.
Whether the business is in a promoted sector: Notification 13 sets out a list of promoted sectors
Other factors such as the value of
investment (must exceed USD300,000); whether the investment creates new
employment opportunities in Myanmar and develops a skilled labour force,
brings new or enhanced technology or business skills, leads to market
competition, greater efficiency or productivity, or provision of
enhanced infrastructure or services in Myanmar.
Applications for tax incentives may be
submitted together with or subsequent to a proposal for a permit or
application for endorsement, and must specify the precise tax incentives
applied for.
7. Land use rights
Investors who obtain permits or
endorsements are entitled to obtain long-term lease rights (on land or
building) for up to an initial 50 year period and two consecutive
10-year extensions. Such investors may apply to the MIC for a land
rights authorization, which will be assessed by the MIC or relevant
state or regional committee.
8. Transfers of funds
Foreign investors may transfer abroad
funds relating to investments made under the MIL. Any transfers of funds
shall be allowed only after paying all tax obligations imposed on such
amount in accordance with the relevant tax laws. Foreign experts with
legal work permits may make remittances abroad without any further
deduction from the amount paid under income tax law.
Transfers of loan proceeds or taking a loan is subject to the approval of the Central Bank of Myanmar.
The approval of MIC is also required in
relation to the transfer of proceeds from a total or partial sale or
liquidation, payments resulting from any settlement of investment
disputes, compensation under investment or expropriation, or where the
investor has any outstanding tax obligations, or any contingent or
disputed obligations within Myanmar.
9. Insurance
Investors holding a permit or
endorsement are required to take out relevant insurance based on the
following types of insurance: property and business interruption
insurance; engineering insurance; professional liability insurance;
professional accident insurance; marine insurance; and workmen
compensation insurance.
10. Transitional and miscellaneous provisions
Under the Rules, any permit issued to an
investor under the previous investment law shall remain effective until
the permit expires. If the investor wishes to take advantage of any
additional or discretionary incentives available under the new law, the
investor may apply to enjoy the new benefits. An investor who has
commenced operation prior to the Rules coming into effect and who
intends to change its original investment activities will have to apply
for a permit if such change requires a proposal to be submitted.
However, for ownership structural changes (Myanmar local investment to
foreign investment or vice versa) a proposal or endorsement application
is not required to be submitted to MIC.
Foreign Investment Law in Myanmar~ 2012
An Introduction to the 2012 Myanmar Foreign Investment Law
In 2012 the Government of Myanmar introduced a new Foreign Investment Law (FIL). The FIL replaced the 1988 Foreign Investment Law (1988 FIL). The FIL provides a framework for investing in Myanmar. The Government separately introduced implementing rules (Investment Rules)
on 31 January 2013. The Investment Rules provided significant
additional detail in relation to the operation of the FIL and the
business activities in which foreigners are permitted to engage, the
restrictions that apply, application procedures, the use of land, the
transfer of shares, foreign currency remittance, and the taking of
security on land and buildings and labour relations. The FIL and the
Investment Rules are key pieces of legislation underpinning the
Government’s efforts to attract foreign investment and kick-start
Myanmar’s economy.
Pursuant
to the FIL, when doing business in Myanmar, foreign investors can
benefit from significant tax exemptions and other benefits. To be
eligible, the foreign company will need to apply for a permit from the
Myanmar Investment Commission (MIC Permit). Foreign investors operating in certain sectors are obliged to incorporate a business under the FIL.
Foreign Investment Law – Forms of Investment
Pursuant to Article 9 of the FIL, investments may be made in the form of:-
- a 100% foreign-owned enterprise (other than for restricted activities),
- a joint venture with Myanmar citizens or enterprises; or
- a permitted form of business contract.
Foreign
investors must form a Myanmar company in order to be entitled to the
benefits of the new FIL. If a joint-venture is formed, the ratio of
foreign to local capital can be mutually agreed by both parties.
Tax Exemptions and Reliefs
Pursuant to Article 27 of the FIL, foreign investors are granted a number of tax emptions and relief. These include:-
- a 5-year tax holiday that may be extended
- tax exemption for re-invested profits
- accelerated depreciation on capital assets
- tax relief on income tax up to 50% on profits from exports
- tax deductions for research and development
- exemptions from customs duties on capital assets to be used in the business imported during construction period
- exemption from customs duties on raw materials imported during first 3 years of production
- a deduction for expat salaries at normal rates
- relief on customs duties on imports for expansion of the business
- exemption from commercial tax for exports
Foreign companies wishing to benefit from incentives under the FIL must apply for an MIC permit.
Duties and Rights of Investors
Article
17 of the FIL sets out the duties owed by investors investing in
Myanmar. Investors must, among other things, operate within and
generally respect the laws of Myanmar, utilise land only as permitted by
the MIC, obtain MIC approval before transferring land or buildings,
avoid polluting or degrading the environment, register share transfers
and comply with rules regarding knowledge transfer.
Article
18 set out investors’ rights. In addition to tax exemptions and reliefs
investors have the right to sell and exchange or transfer assets in
accordance with the laws of Myanmar, the right to transfer and sell all
shares in the investment company, the right to promote the proposed
investment, the right to additional benefits for developing new
technologies promoting the quality of goods, improving production
capacity and reducing pollution or for investing in underdeveloped
regions of the country.
Foreign Ownership Restrictions
Certain
restrictions apply when investing in Myanmar. Restricted activities are
set out in Article 4 of the FIL. Restricted activities are broadly
identified as being those contrary to the interests of Myanmar and its
people or activities reserved exclusively for Myanmar citizens.
Investment in restricted activities can only be undertaken if approved
by the Government, and must be undertaken via joint ventures with local
citizens or enterprises.
Land usage and Ownership
Pursuant
to the FIL, foreign investors are permitted to lease land for an initial
term of up to 50 years. Depending on the nature of the investment,
two 10-year extensions can be applied for.
The MIC can grant longer leases to investors investing in Myanmar in less developed or more inaccessible parts of the country.
The MIC shall set the leasing price of Government owned properties after consultations with the Government.
Leases are not granted for:-
- religious land;
- land restricted for state security;
- land under litigation; and
- land restricted by the state.
Guarantee Against Nationalisation
The FIL
provides an explicit guarantee that an economic enterprise granted an
MIC permit cannot be nationalised during the term of the contract or
during any extended term. Article 28 states that businesses approved by
the MIC shall not be nationalised during the term of the contract or
during an extended term whereas Article 29 states that businesses
approved by the MIC shall not be forced to cease operations. Investors
are also provided with a guarantee that they will be able to repatriate
capital at the expiry of the term of contract (Article 30).Transfer of Shares
The FIL
provides that the foreign investors investing in Myanmar has the
right to sell all or some of its shares to
any foreigners/citizen/foreign company/citizen company. Transfers of
shares must be registered in accordance with the laws of Myanmar and
with the prior permission of the MIC.
Foreign Currency Issues
The FIL
provides guarantees for the remittance in foreign currency of imported
foreign capital and profits. Such remittance may be made through any
bank authorised to perform international banking, at the prescribed
exchange rate.
Dispute Resolution
The FIL
contains provisions allowing for the incorporation of dispute-resolution
mechanisms into investment contracts. Disputes that cannot be settled
amicably are to be resolved in accordance with the contracts’ dispute
resolution provisions. If there no such provisions are provided then
Myanmar laws regarding dispute resolution shall apply.
Insurance
Pursuant to Article 23 of the FIL foreign investors are required to obtain insurance from state approved insurance companies.
Appointment of Employees
The FIL
contains provisions intended to increase the use and skills of local
Myanmar employees. All unskilled positions should be filed by Myanmar
citizens.
In
relation to skilled positions, Myanmar nationals must account for the
following percentages of an FIL incorporated company’s workforce:-
- At least 25% during the first two years
- At least 50% during the second two years
- At least 75% during the third two years
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