On 2 November 2012 the Republic of the Union of Myanmar (also known as Burma) (“Burma”) enacted its long-awaited new Foreign Investment Law (“FIL”). Its legislative history reflects a philosophical conflict between those who favoured gradual change and those who wanted to move quickly towards liberalisation. Those in favour of liberalisation prevailed and the FIL represents a clear move to encourage foreign investment and market reform. However, with many of the details and key decisions to come in enabling legislation and executive discretion left in the hands of the Foreign Investment Commission (“FIC”), there remains much to be clarified. Orrick lawyers are advising key decision makers in Burma and have prepared draft Foreign Investment Regulations to give effect to the FIL.

Foreign investment liberalisation and the role of the FIC

While the FIL sets the tone for opening up, it is broad brush in approach and leaves considerable discretion with the FIC. For example, it has a wide discretion in determining foreign investment levels in “restricted” or sensitive sectors. A business could be restricted or prohibited because of a general harmful effect (e.g. because it damages public health or deals with harmful chemicals) or because of a specific policy objective. Some sectors are protected; these include farming and fisheries, animal husbandry and certain types of manufacturing or services that are run by Burmese nationals.

Notwithstanding a basic prohibition, the FIC may then further specify which of these restricted or prohibited industries are open to investment if the Government approves it. There is therefore a risk of decisions being made on a case-by-case basis with no certainty and predictability.

As the draft FIL evolved, previous versions included a provision stipulating the proportion of foreign capital allowed or required in a foreign-Burma joint venture (at one point it was 51% local to 49% foreign and later it was 50% to 50%). However, the final FIL provides that the FIC shall determine this and do so on a sector-wide basis. Foreign investors will generally prefer to have a controlling interest and it remains to be seen whether this will be possible.  

Land use rights

There is no liberalisation on the ownership of land: foreign investors are not able to purchase real estate but they can acquire land use rights. The initial permitted lease term has been extended from 30 to 50 years and it can be extended for two further ten-year terms. For greenfield investors, having a 50-year term at the outset gives a better sense of security of tenure. An investor should of course seek to clarify the terms and price upon which such extensions can be made.

In a sense, such long-term land use rights resemble a long leasehold interest in a common law jurisdiction while the exercise of certain rights, such as selling or mortgaging land, will be subject to government approval.

When obtaining the grant of land use rights, the investor will need to negotiate the right to alter or shape the land to fit its intended use. Quite often, this will mean removing existing fixtures, doing an environmental baseline survey (and apportioning any liabilities) and possibly resettling existing dwellers on the land. The obligation to reinstate the land to its original condition should obviously be clarified at the time of grant.

The right to mine resources in the land is separate from the right to use the land and must be independently negotiated.

Investment incentives

The FIL has extended the initial tax holiday for a new foreign-invested enterprise from three to five years. A key point to note is that the holiday runs from the year operations begin and not from the first profit-making year. Therefore as the first year or two of operations may not necessarily result in a profit, the period may not be as long as it appears.

The tax holiday is available to both production-oriented businesses as well as service businesses. This means that foreign investors in the services sector such as hotels and franchised fast food chains can all benefit from the tax holiday. Giving equal importance to service industries is wise as this is where much know-how and value will be created.

The tax holiday period can be further extended or part of the tax relieved for a further period if the government believes it is beneficial. Other tax incentives are also available - for instance tax relief on re-invested profits, depreciation of assets and profits from exported goods.

The FIL provides that an investor may apply for certain unspecified benefits where the investment brings about certain improvements such as new technology or the reduction of environmental pollution.  

Investment protection

The FIL confirms that an enterprise formed under the FIL cannot be nationalised. However, it provides that the term of an enterprise can be terminated prior to its scheduled term with reasonable cause. What is “reasonable cause” is not defined. In any event, such assurances need to be enforced against the State in its own courts which is not ideal for a foreign investor. Better would be to rely on the protection afforded by a bilateral investment treaty (BIT) where disputes can be arbitrated outside of Burma. However, Burma's BIT network is currently not very extensive.  

Employment of Burmese nationals

Compared to the foreign investment laws of other host countries, the FIL is not overtly protective or extractive in its demands. For example, there are no provisions that compel technology transfer or that impose onerous contractual provisions between private parties. We are yet to see further enabling legislation.

However, with respect to employment, the FIL is prescriptive requiring a business to employ at least 25% Burmese nationals for skilled positions within the first two years, 50% within the subsequent two years and 75% after a further two years. For knowledge-based businesses, an application can be made to extend the time to comply. In the case of non-skilled positions, only Burmese nationals can be employed.  

Exits from an investment

A key concern of any investor is the ability to exit an investment in an orderly manner at a time and in circumstances of its own choice. The FIL provides that an investor may dispose of its investment to a Burmese national or a foreign investor with FIC approval. It also provides that an exit may be made by selling part of an investment to another foreign investor, but the original investment needs re-approval. In the case of a joint venture, the FIC does not provide for a statutory right of first refusal, so the terms of the joint venture contract would apply.

The FIL provides an investor with the right to repatriate its investment in the foreign currency in which it was made. It remains to be seen how straightforward this will be in practice. Prior to the enactment of the FIL, it was relatively easy to obtain approval for the repayment of loans but less so for the repatriation of profits. It is not clear whether the position will change under the FIL.  

Resolution of disputes

The FIL gives parties to a contract the autonomy to choose how they wish disputes to be resolved. If the contract does not contain a dispute resolution provision, disputes are to be resolved in accordance with Burma’s laws.

In terms of enforcement of an arbitral award, Burma is currently not a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (“New York Convention”) so the enforcement of an award made in Burma could be more problematic. Burma is, however, a signatory to the Geneva Convention on the Execution of Foreign Arbitral Awards 1927 (“Geneva Convention”). Most states that are a signatory to the Geneva Convention are also signatories to the New York Convention. In practice Burma’s ratification of the Geneva Convention is likely to be of limited benefit as the Geneva Convention is rarely used and is less effective than the New York Convention.  

Recent relaxation of U.S. sanctions against Burma

Until recently, the U.S. maintained a far-reaching body of economic sanctions designed to restrict trade and investment transactions involving Burma. Key elements of these sanctions included general bans on financial transactions involving Burma; new investment in Burma; imports from Burma into the United States; and transactions involving property and interests in property of designated Burmese individuals and entities (Burmese “specially designated nationals” or “SDNs”).

As with most other U.S. economic sanctions, U.S. sanctions against Burma are administered by the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury.

In recent months, the U.S. government has largely suspended its Burma-related sanctions. Those sanctions are, by and large, now limited to the general prohibition on transactions involving property and interests in property of Burmese SDNs. Many other countries likewise have SDNs but are not the subject of broader U.S. sanctions (e.g., Lebanon, Libya).

Those considering business with or relating to Burma should still carefully consider the potential relevance of U.S. sanctions. But with 2012 relaxation of U.S. sanctions, the United States no longer maintains unusual restraints on U.S. persons’ ability to engage in business transactions with Burma or persons in Burma.


The enactment of the FIL follows the suspension of European Union sanctions and the relaxation of U.S. sanctions against Burma. It is a clear message that Burma is opening up to economic reform and foreign investment. Of course much remains to be done and Daw Aung San Suu Kyi said recently: “We would like potential investors to think for [Burma] as well as for themselves”.