investment in myanmar
TRANSCRIPT
Investment in Myanmar
OLIVER MASSMANN
DUANE MORRIS
Two Avenues for Investment in Myanmar The Myanmar Companies Act 1914 (the
“MCA”)
The New Foreign Investment Law (the “New FIL”) was promulgated on 2 November 2012;
The Ministry of National Planning and
Economic Development Published the Foreign
Investment Rules (the “FIL Rules”) on 31
January 2013;
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Investing Under the MCA
100% Foreign Ownership allowed for Service Companies;
Minimum of 2 Shareholders;
Minimum Registered Capital- US$50,000 (US$25,000 paid in initially; balance of US$25,000 over
initial license period of 3-5 years);
Corporate Profit Tax of 25%;
No special exemptions on customs duties for importing equipment and materials; and
No Long Term Land Use Rights
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Investment Capital Under New FIL
The New FIL does not set out specific capital requirements, however pursuant to current practice, the capital investment requirements of US$300,000 for service industries and US$500,000 for manufacturing and
infrastructure industries remain as the minimum amounts
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MIC may require higher capital investments depending on the project. •
Three Categories of Investment-New FIL The New FIL sets out three categories of investment which
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Businesses which Businesses which shareholders and
are restricted for foreign investment; require a Joint Venture between foreign Myanmar Companies, individuals or
Governmental Entities; and Businesses which may be 100% Foreign Owned with the Approval of the Myanmar Investment Commission (the “MIC”).
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Joint Venture Businesses- New FIL More flexible shareholding ratios for Joint Ventures; and share transfers between local and foreign shareholders. Previous requirement that at least 35% of the shares must be held by foreigners has been removed; however minimum foreign investor shareholding may be set by the MIC with respect to various different sectors/projects. Any subsequent transfer of part or all of the shares of a foreign investor must have pre-approval of the MIC and if all of the foreign investor shares are transferred, the Investment Permit must be returned to the MIC
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Tax Incentives- New FIL Investors may be granted up to 5 years tax holiday exemption period from the commencement of operations; A longer tax exemption period may be granted for projects which are deemed to be in the National Interest; Exemption on Customs Duties for importation of equipment and machinery;
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• • Depreciation and Reinvestment of Profits from first year;
Foreign employee income tax exemptiion
Land Use Rights New FIL The New FIL allows for Long Term Lease of Land for MIC Approved Projects of up to 50 years with two 10 year renewal terms;
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• Foreign Ownership of Land Myanmar.
is Prohibited in
The State-Owned Economic Enterprises Law It is important to note that the New FIL has not repealed the State-Owned Economic Enterprises Law (the “State Enterprises Law”) and it therefore remains in effect. The State Enterprises Law restricts private sector investment in key sectors of the economy of Myanmar such as oil and gas exploration and production, certain electricity generation and transmission projects, telecommunications services, banking and insurance services. Foreign Investment in such sectors may still be permitted under the New FIL, but a specific exemption must be granted by the Government of Myanmar.
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Electricity Generation Sector Hydropower and Coal Fired Power Generation Projects are open to foreign investment through a Joint Venture with the Ministry of Electric Power and on a Build-Operate Transfer BOT status; The duration of the BOT concession is not set out in the FIL Rules and thus should be determined by the Joint Venture Agreement with the approval of the MIC; Management of the electricity system such as transmission lines, distribution, trading of electricity and other regulatory aspects are restricted businesses for foreign investors, although a Joint Venture is possible with 80% of the shares held by Myanmar shareholders and 20% of the shares held by foreigners. Such Joint Venture would require the approval of the MIC and the Union Government.
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Oil and Gas Sector All businesses related to Oil and Gas exploration, extraction and processing are open to foreign investors, however only through a joint venture with the Ministry of Energy or another State Agency there under; This sector is still subject to the State Enterprises Law; EIAs are necessary as part of the Joint Venture Application process in addition to waivers under the State Enterprises Law;
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• Exploration • Drilling • Production • On Land Oil and Gas Pipeline Network
• CNG
• Marketing • Distribution
• Technical Arm • Coordination • Management • Policy Formulation
• Refineries & Process • Fertilizer Plants •Methanol Plant • CO2 and LPG Plants • Waxing & Tar
(MPPE)
(Ministry of Energy) Organizations and Respective Responsibilities
Energy Planning
Department (EPD)
Myanma Oil and Gas
Enterprise (MOGE)
Myanma Petrochemical
Enterprise (MPE)
Myanma Petroleum Products
Enterprise
MIC Application Process Investments under the New FIL must be approved by the MIC.
Required documentation includes, but is not limited to: • • • • • •
Project Investment Proposal, Detailed Business Proposal; Development Schedule and Projected Costs and Profits Draft Lease Agreement where project involves land; Draft Joint Venture Agreement where project is a Joint Venture; Environmental Impact Assessment Report for certain types of projects; Contractors need to show that they have a contract for a project within the country to obtain their initial MIC Investment License and amendments offering additional benefits for later projects is possible; Detailed equipment list for import customs duty exemption necessary. •
MIC Application Process (Con’t) The MIC shall, within 15 days, accept or refuse the proposal and if it is accepted, shall Issue Approval or Rejection of the Proposed Business within ninety (90) days of the application being submitted to the MIC; The MIC will coordinate required governmental approvals based on the project concerned; Investors must complete the development of their projects within the timeframe approved by the MIC; although an extension of up to 50% of the original timeframe is possible with approval of the MIC; Relevant Insurance Policies Must be Acquired and Maintained.
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MIC Application Process (Con’t) If the contractor will be importing its own equipment and machinery it must become a member of the Union of Myanmar Federation of Chambers of Commerce & Industry (“UMFCCI”); prior to submitting MIC application; Large construction/contracting companies need to become members of the Myanmar Engineering Association prior to submitting MIC application.
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Importing Equipment and Machinery If the contractor is going to be an MIC company, all equipment and machinery which is brought in without paying customs duty on the importation can be exported without customs duty at the end of the project life; However, if equipment which is imported duty free is sold in Myanmar, the duty which would have been paid on the importation needs to be paid;
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Importing Equipment and Machinery (con’t) Contractors could theoretically have the equipment and machinery they would need to use on the project imported by the MIC approved developer of the project. However, the developer’s original request for duty exemptions would have to include this equipment and machinery or an addendum would be required; The Customs Department has, within the last year, created a list of 250 items (mostly equipment and machinery for infrastructure development purposes) which can be imported duty free even by non-MIC approved companies. Importation of these exempted items does not require an import/export license and therefore doesn’t require membership in the UMFCCI; Customs duties for importing most equipment and machinery for infrastructure projects currently ranges between 0%-5%.
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Labor Jobs requiring unskilled for Myanmar citizens.
Issues labor must be reserved •
• If a particular enterprise requires skilled labor, investors must employ at least 25% Myanmar citizens during the first 2 years of operation; 50% Myanmar citizens during the following 2 years; and 75% Myanmar citizens in the following 2 years. All existing labor laws and regulations otherwise remain unchanged and are in full force and effect.
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Foreign Exchange and Repatriation of Profits • Investors must open foreign currency bank
accounts in Myanmar and report funds brought into the country; Funds brought into the country, dividend payments to foreign shareholders, profit after tax and foreign salary may be repatriated at the official exchange rate then in effect.
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Arbitration and Non-Nationalization The New FIL states that the Government of Myanmar assures investors that it shall not nationalize projects approved under the New FIL during the term or extended term of the investment project. However, there is an additional provision which states that projects which have MIC permission shall not be terminated without “sufficient cause” although no guidelines as to what would constitute sufficient cause have been issued to date. The New FIL also allows for resolution of disputes as per the agreement of the parties, thereby allowing for the possibility of arbitration and other alternative dispute resolution practices. However, enforcement of arbitral awards in Myanmar is still questionable as Myanmar just acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in July 2013 and this is still awaiting ratification which is expected soon.
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