Client briefing note | 8 October 2016
The 2012 Foreign Investment Law and the
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2013 Myanmar Citizens Investment Law
have been merged and upgraded into one
combined Investment Law. Now soon
to be in force, we outline what changes in
practice.
What Changes in Practice under the
New Investment Law?
As most of you will be aware, Myanmar
has been working on a new investment Highlights of this note
law which would combine the Foreign
Investment Law of 2012 (2012 FIL) and Is the Investment Law an improvement
the Myanmar Citizens Investment Law of for investors?
2013 (2013 MCIL). Finally, on 5 October
both houses of the National Assembly Are there any disappointments?
voted to approve the 2016 Investment
Investment law also applies to already
Law and the President is expected to
sign it shortly. existing companies, branches even
In this note we will focus on what changes without MIC Permit
in reality now that the Investment Law
Two MIC processes: Permit and
replaces the 2012 FIL and the 2013 MCIL.
Before we do that, our assessment of Approval
what the Investment Law set out to do,
and what was really achieved. Foreign exchange remittances: nice
drafting but no additional rights for
Is the New Investment Law an
improvement for investors? investors
Yes, definitely. Not so much because Tax incentives curtailed or improved?
the foreign and Myanmar investors are
The Investment Law adopts international
now covered in one and the same law.
Whether one or two acts apply does not standards to protect investors
change anything. The real improvements
and key achievements of the Investment Compensation for expropriation
Law (2016 IL) are the following:
Employment
1. The quality of drafting of the
Investment Law is much better than
2. The processes have been
that of the 2012 FIL and the 2013
simplified. As is explained in more
MCIL. A number of meaningless or
detail below, a lighter version of
poorly phrased provisions have been
an MIC Permit called an Approval
deleted (such as the superfluous and
Order, is available for smaller
confusing rule on loss carry forward,
projects which are not considered
and the unnecessary previous rule
strategic or as having a major
on depreciations of (s. 27 c) of the
environmental or social impact (list
2012 FIL , now a simple accelerated
is forthcoming). Also, leases and
depreciation) or written more clearly
charges just need a notification, no
(such as the entire forex section, on
approval is necessary from the MIC.
which more below).
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3. Some largely meaningless rules
have been dropped, such as the
staggered maximum on foreign
employees and the land price
setting by the MIC. The exclusion of
MIC Permits for branches has been
eliminated as well, on which you will
find more below.
4. Myanmar investment law has
been brought in sync with
international investment rules
already binding upon Myanmar
(such as no expropriation without
compensation, which is a rule of
customary international law and
thus already binding Myanmar)
or investment treaties binding
Myanmar (all Myanmars Bilateral
Investment Treaties have, for
example, rules on fair and equitable
treatment, national treatment,
most-favoured nation treatment
and transfer of funds see below
our comments whether it is in fact
wise to make these obligations
which Myanmar has to investors of
a few countries part of Myanmars
domestic law, which can be invoked
by all foreigners).
Are there any disappointments?
On the whole, the picture is very positive
but there are a few missed opportunities
and some rules which we believe go in
the wrong direction. Here are a few:
1. Moving away from One Stop?
Except for large and strategic
projects, which continue to need
an MIC Permit, and depending on
how the MIC implements the new
law, the 2016 IL might end the One
Stop concept. S. 39 spells out that
for projects which do not require
MIC process
a Permit, but merely an Approval
has been
Order, the applicant must first
secure the permission or license
simplified
from the relevant Government
agency. This may sound sensible,
and it is, but it will empower the
line Ministries to the detriment of
the MIC. It will be harder for the
MIC to play its role as facilitator and
promoter of foreign investment if
an investor cannot even get to the
MIC without first securing his line
Ministry approvals. We prefer as it
is now, an investor applies to the
MIC and the MIC invites the line year extensions as far as we can see.
ministry. This may bring to bear the In fact, a 10 year extension period
power of persuasion of the MIC on is not enough for most businesses
the line Ministry when it comes to to achieve a return, so at the end
real or imaginary restrictions on of the 50 year additional capital
expenditure certainly needed
foreign ownership, delays in replies
after a 50 year term- is pretty much
and general transparency of the
impossible. We think it is a pity that
process. As mentioned, we are not
yet certain if this will be a major this legacy of the past, an unhelpful
problem in reality. The MIC might continuation of the 30+5+5+5
implement measures to prevent concept under earlier land use rules,
this from happening and the list of has not been removed.
projects that continue to need an
actual Permit might be massive. 3. Amicable resolution of disputes as
a bar to legal proceedings should
2. The unpractical 10-year extensions have been removed: S. 86 of the
for leasing land are still there. We 2016 IL is more or less similar to S.
have always felt that the concept 43 of the 2012 FIL which requires
of leasing land for 50 year plus two that parties first make reasonable
extensions of 10 year should be efforts to resolve a dispute amicably
replaced with a straightforward 70 before filing a court or arbitration
year period. There is no economic or proceeding. Such a rule sounds like
social purpose served by the two 10 a good idea, but it actually isnt. That
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 is, amicable efforts should not be a
bar to starting a legal proceeding,
because it is too vague and it allows
the defaulting party to cause even
more delays. In many disputes it is
actually quite clear who is at fault,
and it is just a matter of getting
paid. Rules like this may allow a
defendant, who knows very well
he will lose, to argue that a court
or a tribunal may not hear the case
yet, as amicable discussions are still
underway. It is possible for one to
protract those discussions. The start
of a proceeding never precludes
parties from having settlement
discussions anyway, so it should be
a bar to starting a case. In our view,
this is a lost opportunity.
4. Some new uncertainties have been
introduced. (s. 68 j) of the 2016
IL for example, provides an
obligation to pay workers even in
case of temporary closure, leaving
lots of unanswered questions. The
MIC may also refer some projects
to the National Assembly via the
Cabinet if the project, in the opinion
of the MIC, may have considerable
effects on the security, economy,
environment and social interests of
the State and its people (S. 49) of
the 2016 IL.
Investment Law also applies
to already existing companies,
branches even without MIC Permit
In the 2012 FIL, an investor is a foreign
person who received an MIC Permit.
All the benefits and protections of the
2012 FIL are only available to those who
received an MIC Permit. The countless
foreign invested businesses in Myanmar
which never asked for or received an MIC
Permit, cannot invoke its provisions.
No more in the 2016 IL. All the protections and rights are granted to investors, or
foreign investors, defined as a foreign or Myanmar citizen or a business entity
incorporated or registered in accordance with applicable laws (s. 2 p) of the 2016 IL.
Foreign investor includes foreign companies, branches, and other entities (actually a
branch is not a legal entity) incorporated in accordance with the Myanmar Companies
Act or any other applicable laws, and entities incorporated in accordance with the laws
of a foreign country (s. 2 o) of the 2016 IL.
In other words, everyone who invests in Myanmar is an investor under the 2016 IL,
whether one has an MIC Permit or not. The 2016 IL leaves investing undefined,
but investment is defined (in line with BITs) as a business entity, property, shares,
IP, contracts and rights under contracts. So, service companies, branches and other
investments which never received an MIC Permit in the past, are now presumably
investors under the 2016 IL. That also goes for foreign owned companies and
branches (without MIC Permit) which were already in existence before the 2016 IL was
issued. The 2016 IL provides that this law shall apply to any existing or new enterprises
in the territory of Myanmar at the time that this law takes effect (s. 4) of the 2016
IL. There is thus little doubt that with the stroke of a pen, all foreign owned business
entities, regardless of MIC Permit, can invoke the protection of the 2016 IL as soon as
it comes into force.
This would also mean that various obligations upon investors will apply to, well, pretty
much any foreign owned company, branch or sole proprietorship in Myanmar, also
those without an MIC Permit. As most of these obligations found in the 2016 IL are
just restatements of existing obligations who bind everyone enterprise anyway (such
as preparing financial statements, compliance with laws, etc.), this is not a reason for
concern. That everyone investor, even those without any MIC Permit or approval must
notify the MIC of a sublease, mortgage or transfer of enterprise (s. 75) of the 2016 IL
does not make much sense from that perspective but this rule may be implemented
differently in practice.
Two MIC processes: Permit and Approval
One of the, in our view, more insightful changes introduced by the 2016 IL is the
triage of proposals into two tracks: one for the full MIC Permit, and one approval
for permission to use land and a request to obtain tax, which is supposedly a faster
process.
You will only need an actual MIC Permit, with a proposal, for strategic, large or
environmentally or socially impactful projects, or when the MIC says you do.
MIC Permit Approval order
Strategic businesses (yet to be defined)
Businesses requiring
Business with large capital (yet to be determined)
approval to use land
Business with large impact on environment and
Investors seeking tax
local inhabitants
incentives
Business which require an MIC Permit as
determined by MIC
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This approach resolves one of the
glaring inconsistencies of the 2012 FIL.
Only projects which the Government
wants to promote are supposed to get
an MIC Permit, but every project that
needs land could only do so with an
MIC Permit. As a result, the MIC found
itself having to grant Permits to projects
which they actually were not interested
in promoting, but just to confirm the
land use. Now, these two issues have
been de-coupled, which makes much
more sense.
Will the MIC Permit become a rarity? That
depends on how extensive the lists will
be of the strategic projects, how it will
be determined what is environmentally
impactful, and what capital is deemed
large.
Foreign exchange remittances: nice
drafting but no additional rights for
investors
The new chapter on transfer of funds
starts out very encouraging. It lists the
payments that foreign investors are
allowed to transfer without forgetting
some of the important types of payment
as the 2012 FIL did: capital, profits, gains,
royalties, technical and management
fees, awards, compensation, payment
under a loan are all mentioned:
a. Capital that complies with the
regulations in relation to capital
accounts as may be specified by the
Central Bank of Myanmar;
b. Profits, capital gains, dividends,
royalties, license fees, technical
Two MIC processes:
Permit
and
Approval
assistance and management fees,
shares and other current income
in connection with any enterprises
under this law;
c. Profits from the total or partial
sale or liquidation of a business or
property thereof in connection with
an Investment;
d. Payments made under a contract,
including a loan agreement;
e. Awards resulting from any
settlement of disputes in respect of
an enterprise;
f. Compensation or other payments
made in respect of expropriation or
nationalization; and
g. Earnings and other remuneration
of expatriate personnel legally
employed in Myanmar.
This list was not invented by the drafters.
An almost identical list can be found in
many bilateral investment treaties (BIT),
particularly with the US and Canada (a
nearly identical provision on the transfer
of funds can be found in both the US
and the Canada Model BIT) but also in
other BITs such as the Japan-Korea BIT.
Myanmar has adopted a free transfer
article in a number of its BITs as well such
as with China, Japan and Thailand.
Unfortunately, the subsequent sections
s. 60 and 64 of the 2016 IL point out
that actually, the foreign investor is only
allowed to transfer them insofar as these
are current account payments under
the Foreign Exchange Management
Law (FEML), or, as far as loans are
concerned, insofar as the CBM has
approved the transfer or receipt. As
s. 64 of the 2016 IL provides, Investors
may transfer funds under s. 59 that fall
within the classification of a current
account payment under the FEML.
The 2016 IL does attempt to ensure that
compensation under a court judgement
or an arbitration award owed by a
Myanmar national to a foreign investor
can be transferred freely. (s. 61 c) of the
2016 IL provides that Myanmar citizen
investors may, without delay and freely,
remit from Myanmar awards resulting
from the settlement of a dispute
including a court decree, arbitral award,
. Is CBM permission needed for this?
Under the FEML it seems so, as this is
not a current account payment. Likewise
Tax incentive:
a mixed bag!
under the 2016 IL, as s. 64 on CBM
approval refers to s. 59 payments, and
the compensation is mentioned as well
in (s. 59 e) of the 2016 IL.
So, the 2016 IL just refers to the FEMLs
categories, which are less than entirely
clear. The default position of the FEML is
that each payment is a capital account
payment, if it is not a current account
payment. And very few things (such as
payment for goods and services under a
contract) are current account payments
under Myanmar law. This is by the
way in and of itself not in line with the
IMFs Article 30(d)) as per the Proposed
second amendment to the Articles
of Agreement of the International
Monetary Fund (International Legal
Materials, vol. 15, pp. 546-590). From
the perspective of Myanmars IMF
obligations, payments arising from
current transactions include not only
payments relating to trade and services
but also a number of investment-related
payments. Specifically, they include:
all income arising from investments,
including interest on loans and other
debt instruments, net of any income
tax that may be levied by the country
from which the payment is to be made
(UNCTAD, Transfer of Funds, 2000, p. 12).
Despite the hopeful list made in s. 59
of the 2016 IL, and mention of awards
for compensation, the 2016 IL does
not seem to add any actual additional
protection for foreign or Myanmar
investors seeking to transfer foreign
currency beyond what the FEML itself
already provides.
Tax incentives curtailed or improved?
Its a mixed bag. You could say improved
because under the 2016 IL one could
now obtain a 7 year income tax holiday,
whereas 5 year was the maximum under
the 2012 FIL. But, under the 2012 FIL
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every investor who receives a Permit would have to be given a 5 year income tax holiday. No discretion for the MIC. That compulsory
5 year is now gone. The MIC could grant an income tax holiday as per zones of establishment, or not, up to its discretion.

We think that eliminating the compulsory 5 years was unavoidable. It is unpractical for regulators. Some projects must receive a
Permit because they lease land or they manufacture, but it makes no sense from a policy perspective to hand out a tax holiday to
every single project.

Here are some of the other tax incentive changes:

2012 FIL 2016 IL Notes

The MIC may or may not grant an

The MIC had no choice
Corporate income tax holiday. The holiday Myanmar citizen investors may receive
but to give every foreign
1 income tax period can be 3, 5 or 7 years more favourable incentives than
investor a 5 year tax
holiday depending on location. Myanmar is foreign ones, the 2016 IL states.
holiday
divided in 3 zones for that purpose.
Rreinvestment of profit is allowed
for other similar type of business
Profit which is reinvested within one year is exempt from income
2 Reinvestment under 2016 IL whereas reinvestment
tax
is allowed only in the same business
under 2012 FIL
Accelerated depreciation can be
allowed. (Accelerated depreciation
Right to depreciate at a
3 Depreciation is allowed to start from the date of Clarified.
rate set by the state.
commercial operation under 2016
IL)
Export
Reduction of income tax
4 income tax No such rule. Abolished.
to 50% of rate for export
rate
Law states that income tax on
Equal income Right to pay tax at rate for Clarified, made into a general rule
5 foreigners shall be the same as on
tax rate Myanmar citizens. rather than a right.
citizens.
R&D Right to deduct from
6 No change.
deduction assessable income
Up to three consecutive
The 2012 FIL, following the 1987 FIL on
years from the year the
this matter, contained this confusing
loss is sustained in respect
Loss carry rule on losses, which actually is less
7 of such loss sustained No such rule.
forward advantageous than the general
within two years
income tax law rule which applies to
immediately following the
everyone.
exemption
Imported Exemption from customs
machinery, duty and Commercial Tax
8 No change.
equipment, during the construction
materials period of the project.
Exempt from customs and Same, but only if used enterprises Incentive restricted. Semi-finished
9 Raw materials
tax for first three year. who export their entire production. goods added to scope by 2016 IL
When goods are exported, duty
Refund of tax and tax paid on the import of the
10 and duty in No such rule. raw materials materials and semi- New incentive.
case of export finished goods of those goods can
be refunded.
Expansion of Exempt from customs and
11 No change.
the project tax.
Deleted. Apart from electricity (CT @
Commercial
12 Exemption. No such rule. 8%) and crude oil (CT @ 5%), CT is zero
tax for export
rated for other export goods.
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The 2016 Investment Law adopts international standards to protect investors

The 2016 IL has reproduced the common international standards of protection found in BITs, notably National Treatment (NT),
Most Favoured Nation (MFN) and Fair and Equitable Treatment (FET). These standards are a hallmark of international investment
law.

What is the practical effect under the Investment

Standard What does this mean in international law?
Law in Myanmar?

Myanmar may not treat foreign investors less

favourable than Myanmar nationals in the same
A host state promises to treat his foreign investors
National situation, except if there is a law, rule or notification
1. not less favourable than its own citizens in the
Treatment permitting so. The Government can still provide
same circumstances.
subsidies, grants or other benefits to Myanmar
investors which are not available to foreigners.
Myanmar may not discriminate based on one or more
A host state promises to treat foreign investors
foreign nationalities. Strangely, this seems to be the
Most Favoured from one state not less favourable than foreign
2. case even if the difference in treatment stems from a
Nation investors from another state in the same
BIT (BIT is not mentioned, as it probably should have
circumstances.
been, in (s. 50 c) of the 2016 IL.
Basic minimum standard of treatment of foreign
property, often interpreted broadly to include
Fair and Unclear how Myanmar courts would interpret fair
3. various requirements including a host state
Equitable and equitable.
obligation to transparently and reasonably, to
respect the legitimate expectations of investors

Compensation for expropriation
The 2012 FIL contained the
internationally unusual (but from
Myanmar perspective understandable)
provision that expropriation of property
of investors is not allowed. This is not
sustainable. There may very well be
perfectly reasonable and legitimate
circumstances for a state to take the
property of a foreign investor. Pretty
much every country in the world
has rules permitting this, subject to
conditions.
That is now recognized in the 2016 IL,
which allows expropriation or measures
tantamount to expropriation in case the
measure meets four internationally fairly
well established conditions which are
taken from BITs:
1. The measure is in the public
interest; This means that there
is some public welfare motive
to the expropriation rather
than an individual interest. In
international investment law, the
concept has more recently been
interpreted strictly. In ADC v.
Hungary , the Hungarian Ministry
of Transportation took over the
works which a private company was
carrying out at the airports under
a contract with the state-owned
transport company. It was deemed
not sufficient to merely refer to
public interest, but an actual public
interest must be present. That is
however international law, and
this rule in the 2016 IL will have to
be applied and read in accordance
with Myanmar law.
2. It is non-discriminatory; The
expropriation may not target
specific investors or groups of
investors without a justified ground,
i.e. an expropriation of investors
from a specific country.
3. Due process was followed;
This refers to process of law and
administration being followed.
There are international standards
of due process found in BITs and
applied by international tribunals,
such as right to a fair hearing and
impartial adjudicator, review and
appeal, duty to inform and notify
investors, provide reasons for
decisions and transparency.
4. A prompt, fair, adequate and
effective compensation is paid
to the investor. Again, this
rule reproduces a standard in
international investment law,
the so-called Hull Formula.
Compensation is deemed
prompt if it is paid without delay;
adequate, if it has a reasonable
relationship with the market value
of the investment concerned; and
effective, if the price was paid in
money that can be converted and
remitted. There is a long standing
debate in international law on how
compensation for expropriated
property should be calculated.
Should the investor be paid the
market price (see art. 14 ASEAN
Comprehensive Investment
Agreement), and the future profits
they will miss? Or just the cost price
of their investment? A balanced
approach is now often favoured
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 in international law, allowing for Related vDB LOI Publications
something less than the market
value if the public interest so 2016 IL in Client Alert: All Foreigner
justifies. That is also the approach Registration Certificates
chosen in the IL as s. 56 of the 2016 IL line with expire on 30 November
mitigates the Hull Formula in
Client Alert: MOHT suspends
(s. 55 d) of the 2016 IL. international the issuance of hotel licenses
The above rules are in line with investment in 5 Myanmar cities
Myanmars international obligations Myanmar Government seeks
in some of its BITs such as the BIT with rules partner for Thaton tire and
Japan. The Myanmar BITs with The
Philippines, China and India (referring to rubber factory
just and equitable compensation, but Tax Notes: Myanmar: How to
adding a definition referring to market get a Demand Note?
value) do not explicitly refer to the Hull
Formula, but they have largely the same Myanmar Government Seeks
substance. LNG Partnership: Key Things
To Know for Your Expression
Furthermore, s. 57 of the 2016 IL provides of Interest
that regulatory measures, if they are of The rule in the 2012 FIL which states
general application, cannot be deemed that foreign staff and Myanmar staff
A Beautiful Spectrum
an expropriation which requires must have the same salary for the same Auction? Game Theory
compensation. It is internationally well qualifications (s. 24 f) of the 2012 IL, no Comes to Myanmar as the
recognized that regulatory measures longer appears in the 2016 IL. PTD Dishes out Frequency
(police powers) should not normally
require compensation if they meet A set of employer obligations is Our offices in Myanmar
certain conditions. mentioned in Chapter 16 which were
not mentioned in the 2012 FIL:
Employment
1. Investors can only cease or close
The 2016 IL does away with the arbitrary
their business after compensating
thresholds of 75%, 50% and 25% foreign
workers (s. 68 i) of the 2016 IL;
employees. Instead, investors may
2. Workers need to be paid during a
appoint qualified personnel regardless
temporary closure of an enterprise
of nationality.
(s. 68 j) of the 2016 IL; and
3. Investors must pay compensation
There is no mention of the need for work
owed for workplace injury, sickness,
permits in Chapter 13, although s. 63 of
death or loss of limbs (s. 68 k) of the
the 2016 IL does mention it. YANGON
2016 IL.
Level 8, Centrepoint Towers
No. 65 Sule Pagoda Road & Merchant
Street, Kyauktada Township
T: +95 137 1902 / +95 137 1635
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Contact
Edwin Vanderbruggen is the senior partner of VDB
Loi in Myanmar. He and his team assist the Myanmar
Government with transactions and privatizations in
the energy, transport and communications areas.
He has advised 4 of the supermajors on their oil and
gas interests, worked on several farm-ins in recent
years and is acting on the proposed purchase of a
producing gas and pipeline interest.
Edwin Vanderbruggen Edwin is highly praised by peers and clients alike
Partner, VDB Loi NAY PYI TAW
as a seasoned and informed professional (Asia
edwin@vdb-loi.com
T: +95 137 1902 Law) with very high standards (Legal 500) while No. S-204, Tha Pyay Kone Ward
the firm is widely considered a power house (Asia Zabu Thiri Township
+95 137 1635
T: +95 678 108 091
www.vdb-loi.com Law).
F: +95 678 108 092

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