iAdvisory Seminar Series - Doing Business in Myanmar

The New Foreign Investment Law and its Implications

9 July 2012 Presentation by Andrew Ong

Background to Myanmars Investment Laws

Myanmar's foreign investment legal framework (1) (2) (3) (4) Foreign Investment Law (FIL) of the Republic of the Union of Myanmar, 1988 Myanmar Citizens Investment Law of the Republic of the Union of Myanmar Dawei Special Economic Zone (SEZ) Law Thilawa and Kyaukphyu Special Economic Zone Law of the Republic of the Union of Myanmar (to be developed) 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

Myanmars FIL a Laborious Process

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 Revised SEZ laws previously expected in early July will not emerge for another 4 5 months

Myanmars FIL a Laborious Process (contd)

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 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

Myanmars FIL a Laborious Process (Contd)

What to expect from the new FIL 5 year tax exemption period for foreign companies, up from 3 years under the 1988 FIL Exemption or relief from income-tax on profits of the business (provided reinvested in business within 1 year) 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, up from 30 years under the 1988 FIL. Lease can be renewed for 2 rounds of 10 years each

Myanmars FIL a Laborious Process (Contd)

What to expect from the new FIL (contd) All unskilled workers in foreign firms must be Burmese After the first 5 years from the commencement of business, 25% of the skilled workforce in foreign firms must be Burmese. This will be increased to 50% after 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

Myanmars FIL Other Key Aspects

Minimum Capital Requirements US$500,000 (Industry) US$300,000 (Service) Shareholding Minimum 35% to be held by foreign party in the case of joint venture with local party Process Approval from MIC before application for Permit to Trade and incorporation of company

Implications if New FIL not Passed

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 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 for the Myanmar Government

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 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

Regulatory Challenges of Doing Business in Myanmar

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) 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)