On Friday 2 November 2012, President Thein Sein of the Union of Myanmar (“Myanmar”) finally approved a new foreign investment law (the “Foreign Investment Law”) bringing an end to more than ten months of parliamentary and legislative debate. The enactment of the Foreign Investment Law coincides with the announcement by the World Bank that it is to resume providing aid to Myanmar and President Thein Sein's attendance this week at a summit of EU and Southeast Asian leaders in Laos.
It is believed that the Foreign Investment Law entirely supersedes the Union of Myanmar Foreign Investment Law of 1988 and will have retrospective effect, such that foreign investors who previously set up businesses in Myanmar under the remit of the old law will now be subject to the new legislation.
Foreign ownership thresholds
Specific details of the Foreign Investment Law remain unclear as access to the final statute has not been widely granted by the Myanmar authorities. Some copies of the Myanmar language version of the new legislation have been made available and it is believed from these copies and reports emanating from Myanmar state-owned newspapers that the Foreign Investment Law permits foreigners to own 100 percent of businesses without the need for a local partner. Where foreign investment is made in joint venture with a local partner, no minimum or maximum foreign ownership restrictions will be applied, with parties free to agree the nature and size of their respective interests.
If reports are accurate, the Foreign Investment Law has moved on considerably from the version passed by the Union Parliament on 7 September 2012 which was subsequently rejected by President Thein Sein as being protectionist and contrary to the spirit of foreign investment.
It is understood that the Myanmar Investment Commission (the “MIC”) (the body that will oversee the implementation of the Foreign Investment Law) has been awarded discretionary powers to require foreign ownership limits in certain 'restricted sectors'. It remains to be seen what sectors will be restricted, what the extent of these restrictions will be in practice and when they may come into effect although it is reported that the MIC has set itself a ninety day deadline in this respect. Further details are expected to be forthcoming in due course from Naypyitaw, the administrative capital of Myanmar.
It is believed that the Foreign Investment Law will permit foreign investors to lease land from the Government, or from authorised private owners, for up to fifty years. The length of time will depend upon the type and size of the investment and such lease can be extended twice for ten years each time. The old law did not previously define the concept of land lease periods, but in practice leases tended to cover a thirty year term, extendable for two periods of five years.
Tax, other benefits and additional amendments
Reports indicate that foreign investors may be entitled to a tax holiday for the first five years of operation and other forms of tax relief may be available depending on the investment, if deemed of national interest. The old law previously allowed for a three year tax holiday.
Similarly, it is believed that foreign manufacturing companies may be entitled to tax relief of up to 50 percent on profits made from exports. Tax exemption or relief may be granted providing it is reinvested in the business within one year. It is believed that the Foreign Investment Law also includes provisions guaranteeing against nationalisation and permitting the repatriation of profits though there is no indication as to how these rights can be enforced except by action against the Government in the Myanmar courts. It is also understood that the requirement for a US$5 million minimum foreign investment set out in previous drafts of the new legislation has been dropped. Reports suggest that the Union Parliament has rejected a proposed amendment to enable Myanmar businesses to pay more to skilled foreign workers.
The Foreign Investment Law is likely to go a significant way towards clarifying the broad regulatory framework for foreign investment and may ease some of the concerns about Myanmar held by overseas investors. Of course, with certain US sanctions still being in force, and no guarantee that EU and UK sanctions will continue to be suspended after April 2013, investors would do well to continue to exercise caution and take appropriate legal advice when assessing their options in Myanmar. In particular, the legal and judicial procedures for enforcing contracts and protecting rights remain complex and uncertain. Careful investment structuring will be of paramount importance.