Key points to note
The new Myanmar Investment Law 2016 (MIL) came into force on 18 October 2016, when it was signed by the President, having previously been approved by the Pyithu Hluttaw on September 28 2016 and the Amyotha Hluttaw on 5 October 2016. The MIL was drafted by the Myanmar Investment Commission (MIC) in consultation with the International Finance Corporation (IFC) and combines local and foreign investment regulations, by replacing the now repealed Foreign Investment Law of 2012 (FIL) and the Myanmar Citizens Investment Law of 2013.
Investors should note however that while the FIL has been repealed, the rules required to implement various provision of the MIL have not yet been issued. This means that various provisions (including relating to the new MIC licensing process and tax incentive scheme) cannot yet be implemented in practice under the MIL. In situations where it is not yet possible to apply provisions of the MIL because of a lack of implementing rules, the common and reasonable view is that the rules issued under the FIL will continue to apply to the extent that they do not directly conflict with the provisions of the new law. However, until implementing regulations or official guidance is issued, investors should expect delays and uncertainty in the MIC licensing process.
Representatives of the Directorate of Investment and Company Administration (DICA) have informally indicated that a complete set of MIL implementing laws is expected to be issued by 1 April 2017.
A brief summary of some of the key changes introduced under the MIL follows below.
1. MIC Approval Process
The MIL introduces a new type of MIC approval in the form of an "MIC Endorsement". Consequently, there are now two forms of MIC 'approval' recognised under the MIL, depending on the nature of the investment: the existing MIC Permit, and the new MIC Endorsement.
Investors must apply for an MIC Permit if their proposed business is 'strategic' for the country (not defined in the law), is capital intensive, potentially has a large impact on the environment and local community, uses state-owned land and buildings, or involves activities which are designated by the Government to require the submission of a proposal to the Commission.
The MIC may also refer some projects to the National Assembly if, in the MIC's view, the project "may have a significant impact on the security, economic condition, environment, and national interest of the Union and its citizens". It is currently unclear under precisely what circumstances this additional approval requirement may be required.
The grant of an MIC Permit under the new MIL is not guaranteed and applications are approved on a case by case basis, as was also the case under the FIL. Time will tell how long the list of projects requiring an MIC Permit will be when further guidance is issued in the form of the MIL implementing rules.
For investments which do not require an MIC Permit, an MIC Endorsement can now be applied for by investors seeking certain land use rights including long term leases, as well as tax exemptions and other incentives.
The process for obtaining non-MIC government approvals is now not clear. Government approvals will need to be in place before seeking an MIC Endorsement, but historically any such other government approvals were sought with the assistance of MIC as part of the MIC Permit application process.
2. Long Term Leases
The general prohibition against foreigners or foreign companies leasing immoveable property such as land, apartments, offices or factories for more than one year still applies under the MIL. The MIL also provides that longer leases can also be granted in 'less developed and remote regions' although what this means is yet to be clarified.
The requirement on the MIC to set land prices has also been removed under the MIL.
3. Tax Incentives
Broadly speaking, the same types of tax exemptions are available under the MIL; however the availability of tax holidays and incentives now depend on the geographic location and sector of the relevant investment and, remain subject to the discretion of the MIC. The MIL provides that the MIC may grant one or more exemption or relief.
A new zoning system is being introduced, pursuant to which investments in certain regions or zones (locations to be confirmed) may be granted different corporate income tax exemptions.
Under the new zoning system, there is no longer a flat income tax holiday of 5 years. Instead:
- Zone 1 (least developed areas of Myanmar), attracts the greatest potential income tax holiday of up to 7 years;
- Zone 2 attracts income tax holiday of up to 5 years; and
- Zone 3 (the most developed areas of Myanmar) attracts the shortest potential income tax holiday of up to 3 years.
4. Employment & Local Employee Requirements
Under the MIL, foreign investors now appear to have more flexibility in their approach to employees as the required local employee ratios under the FIL (25% within the first two years, 50% within the second two years and 75% within the third two years) have been revoked.
The MIL no longer contains any provisions requiring foreign staff and local Myanmar staff to receive the same salary for the same qualifications. However, certain provisions on the recruitment and capacity building of local employees still apply.
5. Foreign Exchange Remittance
If a company wants to remit funds offshore it must still: (i) obtain Central Bank of Myanmar (CBM) approval; (ii) prove that the remittance falls under the permitted circumstances in the law (see list below); and (iii) prove that all Myanmar taxes have been paid before the remittance can be made.
The Government can, at its discretion, prevent or delay a transfer of funds under certain circumstances including insolvency, criminal or penal offences, financial reporting, ensuring compliance with orders or judgments, taxation, social security and severance entitlements of employees.
The permitted categories of funds that may be remitted offshore, provided that the company remitting the funds has complied with all tax obligations in respect of the funds transfer, are now clarified as follows:
- Capital, subject to CBM capital account rules
- Profits, capital gains, dividends, royalties, copyright fees, license fees, technical assistance and management fees, shares and other current income in connection with any investment under the MIL
- Proceeds from the total or partial sale or liquidation of an investment or property owned in connection with an investment
- Payments made under a contract, including a loan agreement
- Awards resulting from any settlement of investment disputes
- Compensation or other payments made pursuant to investment or expropriation or nationalization
- Earnings and other remuneration of expatriate personnel legally employed in Myanmar
6. Guarantee against Expropriation
The MIL now expressly contains a guarantee against expropriation, as well as against nationalization.
The Myanmar Government guarantees that it will not nationalize or impose any measures which effectively result in any expropriation, except:
- where necessary for the public interest ('public interest' is not defined but should require some public welfare motive)
- in a non-discriminating manner (in other words the expropriation should not target specific investors or groups without reasonable grounds)
- upon payment of prompt, fair and adequate compensation
- in accordance with applicable laws (i.e. the process of law and administration should be followed)
Non-discriminatory measures of general application which governments normally take for the purposes of regulating economic or social activity are exempted from the above protections. These include reasonable measures to protect "citizens' morals" or maintain public interest and anything necessary for national security.
Under the MIL, as with the FIL, the MIC can apply a number of penalties against an investor who violates any of the rules, regulations or conditions of an MIC Permit or MIC Endorsement, including:
- Temporary suspension of business
- Temporary suspension of tax exemption and reliefs
- Revocation of the Permit or Endorsement
The MIL retains the criminal sanctions of the FIL relating to dishonestly submitting false information or concealment of any information when submitting any proposal, accounts, evidence of contracts, financial information and evidence of employment to the MIC, the relevant Ministry, or any government body or organization. However, a new criminal sanction has been added in the MIL for failure to comply with any provision of the MIL or violating any of the prohibitions against investment (e.g. bringing hazardous waste into Myanmar, affecting culture, affecting public health etc.)
Without further guidance, it is not yet clear how this new provision will be implemented in practice, so investors should continue to be careful to comply with obligations and undertakings under MIC approvals and applications.
Previously granted MIC permits
Under the MIL, investment approvals granted under the Foreign Investment Law 1988 or the FIL will continue to be effective until the expiration of the permit.
Current or new applications will be dealt with under the MIL as soon as the implementing regulations are issued.