Foreign Investment in Myanmar – The Myanmar Investment Rules

On 18 October 2016 the Pyidaungsu Hluttaw enacted new Myanmar Investment Law. On 30 March 2017 Ministry of Planning and Finance has prescribed the new Myanmar Investment Rules (Notification 35/2017).

Notification 35/2017 provides details on the business activities foreigners are permitted to engage in and the restrictions that apply. Notification 35/2017 divides Types of Investment. These are:

  • Investments where a Permit is required
  • Prohibited Investment Activities
  • Restricted Investment Activities
  • Restricted Investment Notice

Myanmar Investment Rules and Prohibited Activities

The Myanmar Investment Commission ("MIC") published Notification 26/2016 dated 21 March 2016 ("Notification 26/2016") on prohibited and restricted activities for foreign investment. Notification 26/2016 repeals Notification 49/2014 dated 14 August 2014 ("Notification 49/2014").

Myanmar Investment Rules and Joint Ventures in Myanmar

  1. The following economic activities no longer require a joint venture with Myanmar citizens:
    1. production and distribution of hybrid seeds;
    2. production and propagation of high-yield seeds and local seeds;
    3. manufacturing of rubber and rubber products; and
    4. ecotourism.

    Therefore, by inference, these economic activities may now be 100% foreign-owned, without any Myanmar citizen equity participation.

  2. Ecotourism no longer requires the approval of the Ministry of Environmental Conservation and Forestry (which has recently been amalgamated to form the Ministry of Resources and Environmental Conservation).
  3. Manufacturing and distribution of vaccines now require a joint venture with the Union Government. Further, such economic activity must meet the minimum standards provided in the World Health Organisation's Good Manufacturing Practice.
  4. “Economic activities damaging or destroying watershed forests, sacred religious sites, traditional ritual sites, grazing lands, plantations and farmlands, and/or water resources” are now included in the List of Economic Activities under Prohibition [to foreign investment]. How this potentially broad prohibition will be interpreted in practice remains to be seen.
  5. In addition to the previous requirement that certain rail related economic activities could only be performed through a joint venture with the Ministry of Rail Transport (which has recently been amalgamated to form the Ministry of Transport and Communication), it is now possible to engage in some of these activities through Build Operate and Transfer or lease. Furthermore, the categories of rail related economic activities for which the permission of the Union Government is required have been significantly reduced, but it remains necessary to obtain the approval of the Ministry of Rail Transport (which has recently been amalgamated to form the Ministry of Transport and Communication) for all rail related economic activities. The approval of the Ministry for Electric Power and Energy is additionally required for any generation of electric power to be used for train operations.
  6. While the permission of the Union Government is no longer required for "vehicle inspection, driving training centre, repair and maintenance training", such economic activities may only be conducted through a joint venture company of which the share capital is 50% foreign owned and 50% owned by Myanmar citizens.
  7. While the now repealed Notification 49/2014 expressly provided that economic activities that were not listed in Notification 49/2014 could be carried out as a 100% foreign investment, Notification 26/2016 includes a general proviso that, depending on the nature of the proposed economic activity, if the MIC determines that such economic activity requires the permission of the relevant ministry, such economic activity may not be carried out as a 100% foreign investment. So the new Notification effectively grants the MIC broad discretion to prohibit wholly foreign ownership of entities conducting economic activities which the MIC considers should require ministry approval. This essentially documents what was in any event the previous prevailing practice.
  8. Notification 26/2016 also provides that service businesses "that are not suitable as an investment" may only be conducted with the permission of the relevant ministry. While this restriction only applies to a service business that has applied for an investment permit from the MIC, as there is no guidance as to what may be considered "not suitable", this gives the MIC potentially broad discretionary powers to require service providers to seek ministry approval.

Myanmar Investment Rules and Restricted Activities

Pursuant to the Myanmar Investment Rules, the list of economic activities in which foreigners can engage in under certain restrictions is wide-ranging and is sub-divided according to the Ministry responsible for the relevant restricted activity. Most activities require adherence to the terms and conditions imposed by the relevant Ministry or which normally apply in a particular sector. For example various construction and manufacturing activities must be carried out in accordance with ASEAN standards and applicable national codes and regulations and various activities involving livestock must be conducted in accordance with national and/or WHO or ASEAN standards. Interestingly Myanmar citizens are prohibited from gambling at casinos formed under the FIL and to which the Myanmar Investment Rules apply. Other restrictions include:-

  1. investment activities allowed to be carried out only by the Union;
  2. investment activities that are not allowed to be carried out by Foreign investors;
  3. investment activities allowed only in the form of a joint venture with any citizen owned entity or any Myanmar citizen; and
  4. investment activities to be carried out with the approval of the relevant ministries.

Restriction on level of foreign ownership, including:-

A limitation of between 25% and 49% placed on foreign ownership of entities engaged in various activities related to forestry and timber;

A limitation of 70% placed on foreign ownership of entities engaged in the production and distribution of paint and certain chemicals

Cap on duration of permits for:-

Large scale mining projects (15 years, with possible renewals for 4 x 5 years);

Pearl production (15 years, with possible renewal of 2 x 5 years);

Production and distribution of certain chemicals

Certain activities can now only be conducted in cooperation with the government. These include:-

Jewellery production and sales

Production and distribution of explosive chemicals, specified substances and vaccines;

Marine training, representing foreign shipping companies, operation of shipyards, domestic water transport and specified construction work related to transportation

Applications under the Myanmar Investment Rules

The Myanmar Investment Rules also contain information relevant to the;

  • Submission for Investment
  • Proposal Submission and Assessment
  • Proposal Assessment Procedure
  • Proposal Assessment Criteria
  • Endorsement Application
  • Endorsement Application Assessment Procedure
  • Endorsement Application assessment criteria
  • Submitting Tax Incentive Applications and Screening
  • Tax Incentive Application assessment procedure
  • Tax Incentive assessment criteria
  • Other matters relevant to Tax Incentive Applications and Approvals
  • Land Rights Authorisation Application
  • Criteria for Applicants who Apply for Tax Incentives
  • Use of third party service providers
  • Providing One Stop Service

The Myanmar Investment Rules also contain information relevant to the form and processes on certain aspects of foreign investment, including but not limited to the following:-The timing of company registration and/or incorporation

The information required to be included with applications for investment permits

The particulars the Directorate of Investment and Company Administration (DICA) will consider when considering applications for investment permits

The issuance of permits and post issuance formalities and obligations which generally include continued compliance with various laws of Myanmar including environmental law and health and safety law.

The construction period i.e. the prescribed period for the investor to complete construction activities, where applicable. If an investor needs to extend the construction period, an application must be presented at least 60 days in advance of the end of the original construction period. The construction period can be extended by up to 50% of the original construction period. Except in special circumstances only one extension is permitted. The investment permit can be revoked if construction is not completed within the original construction period. Investors are not entitled to any compensation if a permit is revoked.

Insurance

  1. Property and Business Interruption Insurance ;
  2. Engineering Insurance ;
  3. Professional Liability Insurance;
  4. Professional Accident Insurance;
  5. Marine Insurance; and
  6. Workmen Compensation InsuranceParticulars relating to the transfer of foreign currency. The cash component of any foreign capital remitted into Myanmar under an MIC Permit must be remitted into Myanmar and used only accordance with the terms and conditions set out in the MIC Permit. A foreign investor is permitted to remit foreign currency received by the investor under an indemnity in accordance with law, proceeds received by the investor from a share transfer, subject to MIC approval; any distribution to which the investor is entitled on liquidation of the investment, subject to MIC approval; foreign currency to which the investor is entitled on expiry of the MIC Permit, subject to MIC approval; and net profit after deducting all taxes and relevant funds in respect of a financial year.

The appointment of staff and workers

Together the FIL and the Myanmar Investment Rules regulate the current conditions for foreign investment in Myanmar. It is clear that the DICA, undertaking the activities of the MIC, will play a significant role in the investment process as will the Proposal Review Group comprised of high ranking officials including members of the DICA, and responsible for scrutinising and presenting acceptable proposals to the MIC for a final decision. While, at present it is too early to comment on the DICA’s working practices in relation to the implementation of the FIL and Investment Rules, Charltons recommends that investors approach the DICA as early as possible, so that the project can be properly coordinated, structured and timed and investment risk minimized.

On 31 January 2013, the Ministry of National Planning and Economic Development of Myanmar released new detailed regulations to augment the 2012 Myanmar Foreign Investment Law (FIL). The regulations are comprised of two separate notifications, Notification 1/2013 and Notification 11/2013 (together the Myanmar Investment Rules).

The Myanmar Investment Rules provide significant additional detail on Myanmar’s new foreign investment regime and remove some uncertainty which remained following the publication of the FIL. Notification 1/2013 provides details on the business activities foreigners are permitted to engage in and the restrictions that apply. Notification 1/2013 divides economic activities into four categories. These are:-

  1. Prohibited economic activities;
  2. Activities permitted to be conducted as joint ventures between foreigners and Myanmar nationals;
  3. Activities permitted under certain conditions or requiring approval; and
  4. Activities only allowed following an Environmental Impact Assessment.

Myanmar Investment Rules and Prohibited Activities

Myanmar investment rules

Significantly, the list of prohibited economic activities for foreigners includes:-

  • Prospecting, exploration and production of jade and gem stones
  • Small scale and medium scale production of minerals
  • Printing and distribution of newspapers, magazines and journals in Burmese and national ethnic languages.

Myanmar Investment Rules and Joint Ventures in Myanmar

Foreign participation in forty-two categories of economic activity must be conducted via joint ventures with a local partner. The list includes, but is not limited to, the prospecting and exploration of industrial minerals, the large scale exploitation and production of minerals, transport development infrastructure projects, the development and sale of residential and office buildings, the provision of domestic air services, the construction of warehouses at ports, and the provision of travel and tour services.

Pursuant to Chapter 3 Paragraph 20 of Notification 11/2013 foreign capital should not exceed 80% of the total capital of joint-venture companies engaged in economic activities which are prohibited or restricted. This provision may be amended by the Myanmar Investment Commission (MIC), by notification, from time to time, with the permission of the Government.

The foreign to domestic ownership ratio for joint ventures in activities that are not restricted or prohibited is subject to the agreement between the parties. The MIC has the power under the Foreign Investment Law to prescribe a minimum foreign ownership requirement or a case-by-case basis.

The Foreign Investment Rules do not affect the restrictions or requirements imposed on foreign investment in activities which are reserved to the state under the State Owned Enterprises Law 1989.

Myanmar Investment Rules and Restricted Activities

Pursuant to the Myanmar Investment Rules, the list of economic activities in which foreigners can engage in under certain restrictions is wide-ranging and is sub-divided according to the Ministry responsible for the relevant restricted activity. Most activities require adherence to the terms and conditions imposed by the relevant Ministry or which normally apply in a particular sector. For example various construction and manufacturing activities must be carried out in accordance with ASEAN standards and applicable national codes and regulations and various activities involving livestock must be conducted in accordance with national and/or WHO or ASEAN standards. Interestingly Myanmar citizens are prohibited from gambling at casinos formed under the FIL and to which the Myanmar Investment Rules apply. Other restrictions include:-

Restriction on level of foreign ownership, including:-

  1. A limitation of between 25% and 49% placed on foreign ownership of entities engaged in various activities related to forestry and timber;
  2. A limitation of 70% placed on foreign ownership of entities engaged in the production and distribution of paint and certain chemicals
  3. Cap on duration of permits for:-
    • Large scale mining projects (15 years, with possible renewals for 4 x 5 years);
    • Pearl production (15 years, with possible renewal of 2 x 5 years);
    • Production and distribution of certain chemicals
  4. Certain activities can now only be conducted in cooperation with the government. These include:-
    • Jewellery production and sales
    • Production and distribution of explosive chemicals, specified substances and vaccines;
    • Marine training, representing foreign shipping companies, operation of shipyards, domestic water transport and specified construction work related to transportation

Pursuant to paragraph 180 of Notification 11/2013 the Myanmar Investment Rules do not apply to companies whose principal activity is trading. In practice this means foreigners cannot establish trading companies as they will not be issued Permits to trade by the MIC.

Applications under the Myanmar Investment Rules

The Myanmar Investment Rules also contain information relevant to the form and processes on certain aspects of foreign investment, including but not limited to the following:-

  • The timing of company registration and/or incorporation
  • The information required to be included with applications for investment permits
  • The particulars the Directorate of Investment and Company Administration (DICA) will consider when considering applications for investment permits
  • The issuance of permits and post issuance formalities and obligations which generally include continued compliance with various laws of Myanmar including environmental law and health and safety law.
  • The construction period i.e. the prescribed period for the investor to complete construction activities, where applicable. If an investor needs to extend the construction period, an application must be presented at least 60 days in advance of the end of the original construction period. The construction period can be extended by up to 50% of the original construction period. Except in special circumstances only one extension is permitted. The investment permit can be revoked if construction is not completed within the original construction period. Investors are not entitled to any compensation if a permit is revoked.
  • Rules on the sub-lease, mortgage, transfer of share, transfer of business
  • Insurance – all entities formed under a permit are required to maintain insurance with an authorized local insurer in respect of machinery insurance, fire insurance, marine insurance, physical injury insurance, natural disaster insurance and life insurance.
  • Particulars relating to the transfer of foreign currency. The cash component of any foreign capital remitted into Myanmar under an MIC Permit must be remitted into Myanmar and used only accordance with the terms and conditions set out in the MIC Permit. A foreign investor is permitted to remit foreign currency received by the investor under an indemnity in accordance with law, proceeds received by the investor from a share transfer, subject to MIC approval; any distribution to which the investor is entitled on liquidation of the investment, subject to MIC approval; foreign currency to which the investor is entitled on expiry of the MIC Permit, subject to MIC approval; and net profit after deducting all taxes and relevant funds in respect of a financial year.
  • Pursuant to Chapter 21 of Notification 11/2013, if disputes cannot be settled amicably, and dispute settling provisions are not stated, then disputes shall be settled by reference to dispute resolution provisions contained in the law of Myanmar.
  • The appointment of staff and workers​

Together the FIL and the Myanmar Investment Rules regulate the current conditions for foreign investment in Myanmar. It is clear that the DICA, undertaking the activities of the MIC, will play a significant role in the investment process as will the Proposal Review Group comprised of high ranking officials including members of the DICA, and responsible for scrutinising and presenting acceptable proposals to the MIC for a final decision. While, at present it is too early to comment on the DICA’s working practices in relation to the implementation of the FIL and Investment Rules, Charltons recommends that investors approach the DICA as early as possible, so that the project can be properly coordinated, structured and timed and investment risk minimized.