Burma’s Union Parliament has finally passed a much awaited foreign investment law, which has now been signed into law by President Thein Sein (the “MFI Law”) and published in local newspapers on November 3, 2012. The review of the MFI Law by parliament has drawn to the fore a number of issues in particular in respect of the share in a venture that can be held by foreigners.
Resolution of this issue has not been set in the MFI Law, and the relevant percentage to be held by foreigners will now be decided in Foreign Investment Rules (“FI Rules”) that will be issued by the Ministry of National Planning and Economic Development within 90 days of the bill being signed into law. We will provide an update at that time.
Cap on foreign ownership
In certain sectors foreigners will be prevented from holding 100% of a venture. These sectors will include, amongst others, the following activities:
- Matters that can affect public health, natural resources and the environment;
- Activities related to manufacturing and services that can be done by Myanmar citizens that will be specified in the FI Rules; and
- Matters that involve agriculture, livestock farming or fisheries (as will also be specified in the FI Rules).
Please note that the long existent provisions requiring that the foreign party contribute at least 35% to the venture have now been removed from the law. Minimum capital requirements will be set in the new FI Rules, provided that the current rules, regulations and procedures will continue to be effective until then. The minimum investment of USD 500,000 for industrial projects and USD 300,000 for services related projects will thus continue to apply for the time being.
Other key provisions of the law are as follows:
For skilled positions, the MFI Law provides an obligation to increase the use of local Myanmar staff over time.The investor is to achieve:
- At least 25 % of its workforce to be Myanmar nationals during the first two years,
- At least 50% during the second two years; and
- At least 75% during the third two years.
Note that the initial draft provided for increments of five years. Knowledge based industries will be subject to review (presumably to give more favorable treatment). In respect of unskilled positions the investor is to employ only Myanmar citizens from the start of the venture.
Land Use Rights
As expected, land use rights are being changed under the MFI Law with investors having the ability to lease land for 50 years initially (vs. 30 years under notification 39/2011 adopted pursuant to the 1988 Foreign Investment Law that is being replaced by the MFI Law) which can thereafter be extended for two 10-year terms (vs. two 15 years extensions under notification 39/2011).
In respect of tax, the corporate income tax exemption period will now be extended to five years (vs. three years under the 1988 Foreign Investment Law). Other discretionary tax benefits that could be granted under the 1988 Foreign Investment Law have been retained. Please note that additional incentives that relate to possible exemptions from customs duty and commercial tax in respect of products made for export have been added.
Note that the provision initially included in the bill that provided that an economic enterprise could be nationalized has not been retained, and foreign investors will continue to enjoy a guarantee against nationalization.
The law formalizes the requirement that certain State and Regional approvals, in addition to that of the Myanmar Investment Commission (“MIC”) which administers the foreign investment regime (as well as a regime that is applicable to Myanmar citizens under the Myanmar Citizens Investment Law), are also required in respect of a given project.
Key activities eligible for an MIC Permit
As with the 1988 Foreign Investment Law, the MFI Law identifies certain key activities which may secure from the MIC an investment permit. These include a number of new activities, including as relate to “import substitution” and the “development of a modern industry”. Please consult with us to determine whether a given activity is susceptible to secure a permit under the MFI Law.
The makeup of the MIC is set to be broadened as experts from non-government organizations and presumably economic entrepreneurs will be added to the public servants already serving thereon.
The powers of the MIC are reaffirmed but certain changes have now been formalized, as the MIC will now by law review and approve the conditions pursuant to which the ratio in respect of a given project between foreign investor and local investor may fluctuate (including through resale to Myanmar citizens).
The MFI Law introduces new rules relating to timing as the MIC is required to evaluate proposals for completeness and accept/reject these within 15 days of submission of the application, and will thereafter issue (or deny) an investment permit within 90 days.
Investor’s rights and duties
The MFI Law sets out for the first time an investor’s duties and rights. These provisions have been derived from the provisions of the Myanmar Citizens Investment law.
After securing the investment permit
As was previously the case under the 1988 regime, after having obtained an MIC permit, an investor will prepare an application for a “permit to trade” (in essence a business license), whilst proceeding at the same time with an application for incorporation of a local company (or registration of a local branch of a foreign company), with the Directorate for Investments and Companies Administration and the Companies Registrar’s Office under the Ministry for National Planning & Economic Development.
For further advice, please contact:
Partner; Head of Office Myanmar
Regional Director, Tax & Customs Practice Group
8 November 2012