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Myanmar – Latest Changes To Foreign Investment Regime.

10 September, 2014

 

Legal News & Analysis – Asia Pacific – Myanmar

 

Changes to the regulations under the Myanmar Foreign Investment Law (“FIL“) were recently announced by the Myanmar Investment Commission (“MIC“). Such changes come more than a year and a half after the release of the FIL implementing rules and regulations in early 2013. These much awaited changes come in the form of:

 

(1) MIC Notification No. 49/2014 dated 14 August 2014 (“Notification No. 49/2014“);

 

(2) MIC Notification No. 50/2014 dated 14 August 2014 (“Notification No. N 50/2014“); and

 

(3) MIC Notification No. 51/2014 dated 19 August 2014 (“Notification No. N 51/2014“),

 

(collectively, the “MIC 2014 Notifications“).

 

For foreign investors who wish to invest in Myanmar, two key changes arising from the MIC 2014 Notifications are:

 

(i) further liberalisation and re-calibration of foreign investment into certain business activities; and

 

(ii) changes to investment incentives offered by MIC to to foreign investors.

 

These changes are further elaborated below.

 

Notification No. 49/2014

 

Notification No. 49/2014 prescribes the prohibitions, restrictions or conditions attached to certain types of business activities. Notification No. 49/2014 supersedes MIC Notification No. 1/2013 (“Notification No. 1/2013“) which sets out the previous categories of prohibited and restricted business activities respectively for foreign investors in Myanmar.

 

Notification No. 49/2014 lists four categories of business activities:

 

(i) business activities that foreign investors are prohibited to undertake;

 

(ii) business activities that foreign investors can undertake only through a a joint venture with a local Myanmar partner;

 

(iii) business activities that foreign investors can undertake only through a joint venture with a local Myanmar partner, subject to approval from or conditions imposed by the relevant ministry; and

 

(iv) business activities that must comply with certain prescribed conditions.

 

Save for minor differences in the list of activities under each respective category, (i) and (ii) remain largely unchanged from Notification No. 1/2013. The major difference lies in category (iii) of Notification No. 49/2014. Previously, the only requirement for most of the business activities under category (iii) (“3rd Category Activities“) was fulfilment of the specific conditions imposed by the relevant ministry. However, such activities can only be carried out at present through a joint venture with a local partner, in addition to fulfilling specific conditions imposed by the relevant ministry. In other words, whilst most of those 3rd Category Activities could previously be solely undertaken by a foreign investor under Notification No. N 1/2013, such activities will now now require a joint venture with a local partner. It is however however unclear unclear whether the foreign ownership in such such joint ventures will be capped at 80% or whether there is scope for a a foreign investor to seek a higher shareholding with with approval of the relevant ministry.

 

Finally, the business activities that are listed under category (iv) are required to comply with certain conditions such as the need to form a joint venture with the Myanmar Government for certain businesses. Other examples of conditions include the requirement to export at least 90% of its products for foreign investors who wish to undertake the business of manufacturing cigarettes in Myanmar.

 

A key omission in Notification No. 49/2014 is trading-related activities. Although Notification No. 49/2014 states that activities which are not expressly prescribed within Notification No. 49/2014 may be undertaken by a 100% foreign-owned foreign company, it is unclear whether this this is a conscious decision to permit trading to be undertaken by foreign companies given the continued resistance to such liberalisation by local businesses.

 

Notification No. 50/2014

 

Notification No. 50/2015 contains a revised list of business activities that require an environmental impact assessment. It is noted that this list relates primarily to (i) “large” projects (for example, excavation of mineral resources, production of petroleum and natural gas, as well as building of petroleum factories and gigantic dams), and (ii) projects in protected areas such as places of cultural heritage, national parks, and and places that are near sources of public drinking water. This new piece of regulation certainly brings Myanmar more in line with other countries as compared to the previous regime where a number of environmentally benign ventures are subject to the environmental impact assessment requirement.

 

Notification No. 51/2014

 

Notification No. 51/2014 contains a list of business activities that will not enjoy exemptions from commercial tax and/or customs duty such as production of alcohol, cigarettes and similar goods. Besides specific business activities, there is a broader category making reference to industries that “citizens can easily engage in, which do not require high-end technology and where the investment amount is small (with the exception of activities that involve a large number of workers)”. This category clearly illustrates the considerations that the policy-makers have in mind when removing exemptions from commercial tax and customs duty.

 

In addition, business activities that involve milk and dairy products products will no longer be exempt from commercial tax, but foreign investors in undertaking such activities can continue to enjoy exemption from customs duty.

 

Further, it is noteworthy that Notification No. 51/2014 only operates prospectively. In other words, it will neither affect nor revoke the tax exemptions that have been granted to foreign investors that have received their MIC permit and and tax exemptions prior to 19 August 2014.

 

Finally, notwithstanding Notification No. 51/2014’s exclusion of commercial tax and/or a customs duty exemptions for certain prescribed business activities, foreign investors can still enjoy the more substantial exemptions from corporate income in tax for the first five years of their operations in Myanmar. This continues to be an attractive aspect as of Myanmar’s foreign investment regime.

 

Concluding Remarks

 

Whilst the MIC 2014 Notifications are a welcome improvement to the existing regime by providing clarity to foreign investors keen on entering Myanmar, it remains to be be seen how they will be implemented in practice and in particular, the interpretation that may be applied by each ministry or governmental agency. With the move towards the ASEAN Economic Community in 2015, the MIC 2014 Notifications may be poised for further refinement next year to reflect the gradual opening up of other sectors that might still be prohibited or restricted. To a number of investors, it is perhaps disappointing that certain of the existing restrictions remain but investors will have to appreciate that change cannot happen overnight. Myanmar will need time to implement its reforms and in due course, it is conceivable that one might see further relaxation in Myanmar’s foreign investment regime.

 

Rajah & Tann

 

For further information, please contact:

 

Chester Toh, Partner, Rajah & Tann 

chester.toh@rajahtann.com

 

U Nyein Kyaw, Partner, Rajah & Tann

nyein.kyaw@rajahtann.com 

 

Jainil Bhandari, Partner, Rajah & Tann

jainil.bhandari@rajahtann.com

 

Kenneth Lim, Rajah & Tann

kenneth.lim@rajahtann.com

 

Adriana Lezcano, Rajah & Tann

adriana.lezcano@rajahtann.com

 

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