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New Foreign Investment Law in Myanmar

Clarifies Some Issues for Investors
Recent developments
Myanmar's long awaited new Foreign Investment Law ("FIL") has come into
effect on 2 November with a number of amendments suggested by President
Thein Sein being incorporated in the version passed into law. The FIL clarifies
some issues for investors and creates new incentives for investment in Myanmar.
Yet, it also extends the powers and remit of the Myanmar Investment
Commission ("MIC"), whose task is to approve and oversee foreign investment.

November 2012
For more information please contact
Chirachai Okanurak
+66 2636 2000 ext. 3223
chirachai.okanurak@bakermckenzie.com
Pornapa L. Thaicharoen
+66 2636 2000 ext. 4556
pornapa.l.thaicharoen@bakermckenzie.com
Clive J. Cook
+66 2636 2000 ext. 4998
clive.cook@bakermckenzie.com

The FIL establishes the framework under which investors in Myanmar will
operate for the foreseeable future. Potential investors will have to study carefully
both new broad-based categories of restricted investments which could apply to
many businesses and extended investor duties. Still, the FIL does allow flexibility
regarding the level of participation by a foreign investor in joint ventures and is
significantly more liberal than the 1988 Foreign Investment Law with respect to
the lease of land.
Investors must also keep a close eye on further developments. The Ministry of
National Planning and Economic Development ("NPED") will issue relevant rules
and procedures within 90 days after the FIL came into effect (late January 2013).
Investors planning to make an application to the MIC before the new rules are
issued will need to consider carefully their approach. The content of these rules
and how they are applied, together with the list of businesses to which the Law
will apply, will largely determine the extent to which the FIL truly facilitates foreign
investment in Myanmar. In the meantime, existing procedural rules remain in
effect.

Scope of the FIL and Some Key Issues

Scope of the FIL- The FIL brings about a fundamental change in permissible
business activity. Previously, unless a certain business activity was specified
under the State Owned Economic Enterprises Law, investors enjoyed the choice
to invest under the old FIL regime (and so benefited from tax incentives and
concessions) or form a company or branch outside the old FIL regime without
those benefits. In practice, however, this latter choice was limited to particular
service industries. Now, the MIC will mandate that the FIL regime apply to
certain businesses.

In addition, the FIL lays out broad based categories of restricted investment that
are designed to address various issues, such as environmental conservation and
preservation of traditional customs and culture.
The FIL appears to grant the NPED authority to designate categories of business
that will be reserved for investment by Myanmar entities or citizens only, making
these categories restricted investments. However, the FIL also allows the MIC to
approve foreign investment in all restricted investment categories if the
investment is for the benefit of the nation and its citizens.
How this will be interpreted, and what additional requirements may be imposed
upon those attempting to make restricted investments, will only become clear as
the FIL is implemented.
Key benefits of FIL to investors:

all tax incentives under the old FIL continue to be available, plus a longer
income tax holiday of 5 years, with the possibility of extension by the MIC
if the business is successful

an exemption or relief from commercial tax on exported goods

scope for the MIC to grant further relief or exemptions for busineses in
remote areas or if the business has, for example, created new
technology, acheived productivity gains, or improved product quality

a grant of leasehold interests of up to 50 years (possibly longer for

investments in remote areas) with the potential to extend for two further
periods of 10 years each and the abillity to mortgage leasehold interests
with the permission of the MIC

the ability to transfer invested capital and net profits in the business at
prevailing exchange rates and hold foreign currency accounts at
designated Myanmar banks

flexibility for knowledge-based businesses regarding the FIL requirement

that businesses employ an increasing proportion of Myanmar citizens
over a 6-year period (going from to 25% to 75% in two-year intervals)

no equity requirement for the level of investment by foreign investors and

flexibility so that even for restricted investments, a business may be
100% owned by a foreign investor but where there is a joint venture
involving a restricted investment, the MIC will establish rules as to the
ratio of foreign to Myanmar holdings

freedom
to negotiate the application of foreign law and foreign
arbitration to investments, although this may not apply to contracts for
the sale and purchase of goods and may be difficult in practice to
achieve

a wider choice of Myanmar insurance providers, as investors must take

out prescribed insurance

investors may now transfer investments to foreign investors as well as

Myanmar entities/citizens but only with the approval of the MIC

What are the other key issues? the Myanmar government has a clear policy of
upskilling its workforce, which is reflected in the FIL by requirements to conduct
employee training to help acheive the Myanmar-citizen quotas mentioned above.
Additionally, foreign and Myanmar employees of comparable skill levels must be
treated equally, which may cause difficulties in recruiting skilled foreign staff to
work in Myanmar. The FIL also introduces a requirement for foreign staff in an
MIC approved venture to obtain a work permit in addition to a stay permit.
The MIC may establish minimum capital investment requirements in certain
sectors and for restricted investments. These must also be approved by the local
Parliament where the investment is located.
The FIL gives the MIC extensive powers to apply wide ranging sanctions to those
investors who violate laws, regulations, or the conditions of a permit, including
the power to "blacklist" such investors.
Helpfully, the FIL lays down a timescale for MIC response to an investment
proposal. Within 15 days after "necessary scrutiny," the MIC may make a
response to the investor, either accepting or rejecting the proposal. Thereafter,
the FIL requires the MIC to issue a permit within 90 days of acceptance of an
investment proposal.
The areas in which foreign investors will be permitted to invest without MIC
approval, remain to be determined. Notably, any increase in investment or
expansion of business activities must be approved by the MIC and investors may
not realize all or even part of their investments without MIC approval. Thus, the
FIL preserves strict MIC control over entry and exit for foreign investors and as
the FIL is implemented it may become clear that the MIC has extended its control
over foreign investment in Myanmar. Certainly the FIL grants the MIC significant
discretionary powers.

Conclusion
The FIL brings new benefits to investors and clarifies the basic investment
regime. Yet it also potentially increases the scope of investment activities that are
restricted and enhances the authority of the MIC. How effective the FIL will be in
practice depends largely on the detailed rules expected to be published by the
NPED at the end of January and how they are implemented.

Clive J. Cook
Tel No.: 0 2636-2000 ext. 4998
clive.cook@bakermckenzie.com
Dr. Saw Yu Win
Tel No.: 0 2636-2000 ext. 4556
sawyu.win@bakermckenzie.com
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