Despite media reports about Myanmar considering an entirely new draft law for foreign investment, existing practice set out in the Myanmar Foreign Investment Law of 1988 (the “Foreign Investment Law”), the Procedural Regulation for the Myanmar Foreign Investment Law of 1988, and even older statutory authority will continue to be the main framework for foreign investors seeking to establish a business presence in Myanmar.
The Foreign Investment Law provides for a three step process for foreign investment projects. These three steps consist of (a) obtaining a permit issued by the Myanmar Investment Commission (“MIC”) for the foreign investment project, (b) obtaining a “trading permit”, and (c) completing formalities with the Companies Registration Office4. These procedures are essential requirements for a foreign investment project to qualify for preferential tax treatment in Myanmar.
The MIC is the agency established under the Ministry of National Planning and Economic Development (the “NPED Ministry”), which is authorized to review both foreign and domestic investment application proposals and issue permissions for such applications. An MIC permit authorizes a foreign company engaged in the production of goods or the provision of services to qualify for an exemption from income taxes from the year of commencement of operations for a period of three years. Other preferential tax treatment for the reinvestment of profits or deduction for taxable income are available to foreign companies holding an MIC permit.
A “trading permit” is issued by the Directorate of Investment and Company Administration of the NPED Ministry pursuant to the Myanmar Companies Act of 1913 (the “Myanmar Companies Act”). The trading permit functions as the equivalent of a business license.
Upon obtaining an MIC permit and a trading permit, a foreign company obtains a certificate of incorporation from the Companies Registration Office, which evidences the formal commencement of the corporate existence of the enterprise in compliance with the Foreign Investment Law. Alternatively, a foreign company in the form of a branch commences its existence upon the issuance of a certificate of registration from the Companies Registration Office.
While these general approval procedures will continue to remain in place, the National Assembly is presently considering revisions to the Foreign Investment Law (the “Revised Foreign Investment Law”) in order to update the terms of the statute and to address concerns expressed by the investor community.
There are three areas that are of special interest to foreign investors.
First, the National Assembly is expected to extend the exemption from income tax available to a foreign company with an MIC permit from three to five years.
Second, the Revised Foreign Investment Law will include a separate chapter addressing a previous uncertain area of land rights for foreigners and foreign companies. In prior years, foreigners and foreign companies could not lawfully hold land rights in fee simple or enter into a leasehold for more than one year. Because of these restrictions, real property speculators relying upon “connections” with their Myanmar counterparts often found themselves defrauded of their investments without any legal recourse, especially as the Contracts Act of 1872 holds that any agreement entered into effect for an unlawful purpose is void ab initio.
The Revised Foreign Investment Law will purportedly allow foreigners and foreign companies to obtain a leasehold of real property for thirty years, with two extensions of fifteen years each, depending upon the size of the investment. As the lessor must have acquired lawful rights to the land for such leases, procurement of the requisite supporting documents to such rights will predictably become an essential element of any due diligence exercise. The procedures for reviewing registration of deeds of title are well established in Myanmar law and practice.
Third, foreign companies will be obliged to increase their local work force on the basis of an increase of percentages over time. Within five years, 25% of the employees of a foreign company must be Myanmar citizens. These percentages increase to 50% after 10 years and 75% after 15 years.
Our lawyers learned of unofficial reports while in Yangon that the there are some technical issues related to the drafting of the chapter of the Revised Foreign Investment Law with respect to land rights. It appears that these do not relate to a disagreement at the National Assembly regarding land right reforms but relate to a minor issue. Nevertheless, we understand that, because of this problem, the Revised Myanmar Foreign Investment Law will not be enacted until the May-June sessions of Parliament.