Foreign Investment Law in Myanmar
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.
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.
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