the new foreign investment law and its implications

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iAdvisory Seminar Series - Doing Business in Myanmar

The New Foreign Investment Lawand its Implications9 July 2012

Presentation by Andrew Ong



Myanmar's foreign investment legal framework

(1) Foreign Investment Law (“FIL”) of the Republic of the Union of Myanmar, 1988

(2) Myanmar Citizens Investment Law of the Republic of the Union of Myanmar

(3) Dawei Special Economic Zone (“SEZ”) Law

(4) Thilawa and Kyaukphyu Special Economic Zone Law of the Republic of the Union

of M anmar to be develo ed

Background to Myanmar’s Investment Laws

• FIL governs foreign investments in general

• SEZ laws operate exclusively in the SEZ, to the exclusion of other laws

• SEZs are more investment friendly due to SEZ laws



• Myanmar officials recently revealed new version of FIL, initially expected in

January, could be delayed further

• Latest indications are that new FIL will be ready in the coming months

• New FIL arguably more investor friendly than current SEZ laws

Myanmar’s FIL – a Laborious Process

• Revised SEZ laws previously expected in early July – will not emerge for another

4 – 5 months



• Reasons for delay in release of new FIL:

FIL still subject to further discussions in current legislative session – approval of

President Thein Sein required

Various external entities/ ministries involved: e.g. tax aspects of the new FIL will

require involvement of the Tax Bureau, employment laws in the FIL need to be

settled in conjunction with the Ministry of Manpower

Myanmar’s FIL – a Laborious Process (cont’d)

• Reasons for delay in release of SEZ laws:

SEZ law is problematic and is being revised with the help of Japanese consultants

Basic concept has changed – three large SEZs and at least 18 smaller industrial

zones are to be created



What to expect from the new FIL

•

5 year tax exemption period for foreign companies, up from 3 years under the 1988FIL

• Exemption or relief from income-tax on profits of the business (provided re-

Myanmar’s FIL – a Laborious Process (Cont’d)

• Exemption from duties on imported raw materials for the first 3 years of

commercial production and operation

• Foreigners will be entitled to lease land for an initial period of up to 50 years, upfrom 30 years under the 1988 FIL. Lease can be renewed for 2 rounds of 10 years

each



What to expect from the new FIL (cont’d)

• All unskilled workers in foreign firms must be Burmese

• After the first 5 years from the commencement of business, 25% of the skilled

Myanmar’s FIL – a Laborious Process (Cont’d)

.

the second 5 year term, and 75% after the third 5 year term

• No nationalisation of foreign business during contract period - if this occurs,

compensation provided based on prevailing market price



Minimum Capital Requirements

• US$500,000 (Industry)

• US$300,000 (Service)

Shareholding

Myanmar’s FIL – Other Key Aspects

case of joint venture with local party

Process

• Approval from MIC before application for Permit

to Trade and incorporation of company



• For high profile projects:

New FIL will be advantageous to foreign investors

Investors should arrange for meetings with the relevant Ministry and Myanmar

Investment Commission to discuss the project

• For setting up representative offices: Not directly impacted by FIL

Implications if New FIL not Passed

• Existing protection from nationalisation: Myanmar is a party to the ASEAN Investment Protection Agreement 1987 and

its successor, the ASEAN Comprehensive Investment Agreement 2009 (not yet

in force), which prevent member states from expropriating/nationalising

covered investments

• Mandalay Brewery case



Key policies of the Myanmar government when administering foreign

investment laws:

•Desire for foreigners to bring technology/ technological improvements to Myanmar

•Job creation through foreign investment

Key Policies for the Myanmar Government

•Investments in rural areas

•Foreign investment not at expense of environmental sustainability, e.g.

– Myitsone dam project was suspended in September 2011 partly due to its

environmental impact – 400MW coal-fired power plant in Dawei suspended in January 2012



• Lack of transparent regulations

• Disconnect between written law and practice in certain instances

• Bureaucratic processes (e.g. 3 to 6 months needed to set up a company)

Regulatory Challenges of Doing Business in Myanmar

•

Necessity to approach sectoral authorities/ ministries at an early stage

• Foreign law compliance, eg. anti-bribery laws

•

Enforceability issues (Myanmar is not a signatory to the NY Convention)

• Understaffed governmental bodies (e.g. in the Central Bank)

the new foreign investment law and its implications

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