Summary: Welcome to the fourth edition of BLP's monthly Myanmar update in 2017. We have distilled the top news items into this first summary 'speed read' of the year.
1. Update: Myanmar Investment Rules
The Myanmar Investment Rules ("MIR") came into effect on 30 March 2017. The unofficial translation has been posted on the website of the Directorate of Investment and Company Administration ("DICA"),Notification No. 35 / 2017.
The MIR, together with the Myanmar Investment Law that was enacted in October 2016, provide greater clarity on the role of the Myanmar Investment Commission ("MIC") and also streamline and categorise the various processes and requisite approvals applicable to foreign investments in a more efficient manner. Key aspects of the MIR include the following:
- The introduction of an investor assistance mechanism, under which the MIC is required to help investors experiencing difficulties. This includes more responsibility in liaising with government ministries.
- It clarifies when a submission of a MIC Permit is required by providing specific criteria to help Investors determine the relevant application and what criteria will be applied in the approval process.
- In awarding MIC Permits, the MIC must consider, amongst other criteria, business experience and financial commitment of the investor. The MIR is designed to give the MIC the tools to determine the suitability and reputation of the investor.
- Investors who are uncertain on whether they can engage in a certain business, what type of application needs to be made or if they are eligible for incentives may submit Screening Application. The MIC should provide non-binding advice within 10 working days.
- The MIR also sets out certain timelines within which the MIC is supposed to reject, accept and/or complete its review of applications for MIC Permits and Endorsements, as well as Screening Applications.
BLP supported DICA and the International Finance Corporation in drafting the MIR.
2. List of restricted investment activities and promoted sectors released
The MIC released the lists of promoted sectors (Promoted Sectors List) on 1 April 2017 (Notification 13/2017) and restricted investment activities (Negative List) on 10 April 2017 (Notification 15/2017).
The new Negative List is more detailed and specifically defined than the previous list of restricted investments issued in March 2016. While some investors may be disappointed that it appears to be longer than the previous list, this needs to be seen in the context of the new regulatory regime. Previously whether on the Negative List or not all investment needed to be approved, meaning that in practice certain investments were not permitted, even though not on the list. With many investments no longer needing to be reviewed, the MIC has attempted to come up with a definitive list, providing investors greater certainty that they can confidently forge ahead if their investment is not restricted.
Retail and distribution was one of the major areas of interest. Investors wanting to engage in retail require Ministry of Commerce approval and are subject to certain conditions.
Under the MIR, in order for an investor to enjoy income tax exemptions, its investment must be in a Promoted Sector, in addition to obtaining an MIC Permit or Endorsement. The Promoted Sectors prescribed by the MIC include:
- a range of agricultural and farming activities, such as cultivation of crops, variety of beans and oil-bearing crops except paddy
- a range of manufacturing services
- establishment of industrial zones and new urban areas
- infrastructure-related activities, such as construction of roads, bridges, railway lines and ports
- supply and transport businesses
- production of renewable energy
- telecommunications businesses
- education services
- hotel and tourism services
3. Development of a credit rating system
Myanmar currently does not have a developed credit rating system leaving creditors in the dark as to the credit worthiness of their customers. This has been a significant contributing factor to the difficulties faced by all but the largest corporations in accessing capital.
Central Bank of Myanmar Notification No. 5/2017, puts in place a regulatory framework under which credit rating agencies can be established and clarifies how they are regulated.
While this notification is only a first step, it is an important one in developing an inclusive financial system where access to capital is improved and counterparties can better understand the risks when entering into transactions.
4. Myanmar withholding tax
The payment of withholding tax has proven quite a challenge for many businesses in Myanmar, being a time consuming and cumbersome procedure.
Notification 2/2017, issued by the Ministry of Finance and Planning on 10 January 2017 has taken effect as of 1 April, it replaces the current withholding Notification 41/2010. The two main changes include increasing the threshold under which withholding does not need to be applied and adjustments to the withholding tax rates.
- Withholding tax rates
Since 1 April 2017 a number of the withholding tax rates have been amended:
Payments for goods, services,
work performed in the country
to a non-resident
Note that some of these rates may be different under bilateral tax treaties.
- Withholding tax threshold
Previously payments in excess of MMK300,000 in one fiscal year to one recipient were subject to withholding tax, this has now been increased to MMK500,000 for companies registered at the small and medium company tax payer office and MMK1,500,000 for companies registered at the large tax payer office. This does ease some of the administrative burden.
5. Regional bill approved by Parliament
Yangon’s parliament has approved a regional planning bill at a meeting on 28 March 2017.
The regional planning bill includes plans for “satellite town” projects and will involve the development of 33 townships in the Yangon municipality area and 12 other townships and development of 29 industrial zone to deal with the growing population and investment influx.
It also aims to improve infrastructure and transportation networks between urban and rural areas.
6. MMK722 million funding for Yangon Electricity Supply Corporation and Mandalay Electricity Supply Corporation
K529 million will be allocated to the Yangon Electricity Supply Corporation ("YESC") and K243 million to the Mandalay Electricity Supply Corporation ("MESC"). The funding comes from a mixture of foreign loans and loans from Asian Development Bank, World Bank and Japan International Cooperation Agency.
The funds will be used to build power distribution stations and upgrade current power stations to meet ever increasing consumption.
Both the YESC and the MESC are state-owned and they buy electricity from Electricity Generation Enterprise at a government-set fixed price and distribute it to the public.
7. Agriculture sector set for development with Japanese loan
The Ministry of Agriculture, Livestock and Irrigation, is proposing to use a 93.970 billion yen loan from Japanese financers to promote and develop the agriculture sector in Myanmar.
Although the two sides are still in discussions, it is suggested that an estimated 15.135 billion yen will be offered as loans to farmers through the Myanmar Agricultural Development Bank while the remaining loan package will focus on providing finance for value-added agricultural products including electricity distribution, rural roads development and bridges construction and upgrading Yangon-Mandalay railway.
The Japanese loan package was approved in November 2016 by the Pyidaungsu Hluttaw, based on a proposal that the project will be from June 2017 until September 2020 with a loan period of 40 years (10 years grace period and 30 years pay-back period).
8. Capital funding requirements relaxed for foreign insurers
Following its announcement to allow international insurance firms into the market at the end of 2016, the government has relaxed the capital funding requirements for foreign insurance firms to operate in Myanmar.
Under the Ministry of Planning and Finance, international insurance firms will need to demonstrate a global operating capital of $1 billion, rather than demonstrate a capital investment value of the same amount purely in respect of their Myanmar activities.
Although international firms are still only allowed to operate within Special Economic Zones, the change is expected to encourage foreign investment and competition.
9.Update: Myanmar Companies Law
The director general of the DICA, U Aung Naing Oo, has stated that the new Myanmar Companies Law is envisaged to be enacted into law before the end of this year. According to U Aung Naing Oo, Parliament is expected to handle the draft Companies Law this June, as mentioned in our March 2017 postcard.
The enactment of the new Myanmar Companies Law is expected to supplement the new Myanmar Investment Law and MIR by creating a more sophisticated regime that foreign investors can navigate. Notably, the new Myanmar Companies Law is expected to allow foreign investors to hold up to 35% of a local company’s equity before it is classified as foreign-owned.
Members of the BLP team were engaged to undertake the drafting of the Myanmar Companies Law and to lead the consultation process. See our review of the Myanmar Companies Law (in English and Burmese) explaining its effects on companies operating in Myanmar.
10. Private insurers to broaden their range of policies
U Kyaw Win, Minister of Planning and Finance announced that the Ministry has submitted a proposal to Government to allow private insurance companies to significantly increase the types of policies they are permitted to offer. Out of the 40 policies currently available in the market, private insurers have only been permitted to grant 12 types of insurance, it is expected that private insurers will be able to issue any of the 40 policies.
For the time being only local insurers have been granted operating licences, foreign insurers are still waiting for the market to open up.