A Closer Look at Myanmar’s New Foreign Investment Law Draft

The Myanmar Investment Commission (MIC) released a draft of the new foreign investment laws, to media on Friday. Deputy Railways minister Lwin Thaung announced the revision of the law in January, claiming that the government would seek advice from foreign consultants to make investment in Myanmar more attractive than investing in neighbouring countries. The previous investment law was promulgated in 1988 and has not been revised until now.

According to Reuters, the new draft includes the following details:

1. Foreigners can make investments in Myanmar and own up to 100% of businesses, without the need for a local partner.
2. Joint ventures are allowed with the government or citizens, but 35% of total capital must be foreign. This repeats what is already provided under the existing law. Joint venture can be made between a foreigner and a citizen, although the government is not mentioned as a potential partner for a joint venture, and investment can also be made up with 100% foreign capital. Same requirements apply for the ratio of foreign capital to total capital in a joint venture; at least 35% of total capital has to be foreign.
3. Foreign firms may be entitled to a tax holiday for the first five years upon start-up. Other forms of tax relief may be available depending on the investment and if deemed in the national interest.This is an improvement from the previous law although the period is not as long as some might have hoped after the government announced that the tax exemption period would last up to eight years. Under the existing law, foreign investors of any enterprise are exempt from income-tax for only three years, which is extendable in case it is beneficial for the state.
4. Foreign manufacturing companies may be entitled to tax relief of up to 50 per cent on profits made from exports. Under the existing foreign investment law, profits made from export sales are also entitled to income tax relief up to 50%.
5. Tax exemption or relief on profits can be granted providing it is re-invested in the business within one year. This is similar to the existing law, where it states that income-tax exemptions can be made if profits are maintained in a reserve fund and re-invested within one year after the reserve is made.
6. Foreigners can lease land for business purposes from the state, or from private citizens renting from the state who are authorized to lease that land.
7. Foreigners will be entitled to lease land for an initial period of up to 30 years, then extend it for up to 15 years, then another 15 years upon expiry of the second contract. This is a big improvement from the existing investment law, in which there were no clauses on foreign investors’ rights to lease land. According to the draft, foreign investors can rent land for up to 60 years, which is lower than the 75 years allowed in Special Economic Zones.
8. All unskilled workers in foreign firms must be Burmese. After five years, 25 per cent of the skilled workforce in foreign firms must be Burmese, increasing to 50 per cent after the next five years, then 75 per cent by 15 years.
9. Hiring of workers must be made through state-run labour offices or local employment agencies. Firms must make arrangements to train and develop the skills of workers. This is also an improvement in the draft of the new foreign investment law. The old law implicitly suggests that all workers should be local. It states that when appointing personnel, preference should be given to citizens but the appointment of experts and technicians from abroad is allowed if necessary. The Foreign Investment Commission would prescribe the type, number and term of the required foreign experts according to individual business organisations. Firms were also made to arrange training to ensure the development of their staff.
10. Investments by foreigners can be private, or as a limited company. Under the existing law, investments made can be in the form of a sole proprietorship, a partnership, and a limited company. In a vaguely worded article, the draft states that the government guarantees no foreign business will be nationalized during the contract period. However, it also states that if that did occur, in the public interest, compensation would be provided based on the market price at that time.

This guarantee was also in the previous legislation. It stated that an enterprise formed under a permit shall not be nationalised during the term of the contract or during an extended term. At the end of the contract, the government guaranteed the investor the rights he is entitled to in the foreign currency in which the investment was made.

For this preliminary comparison of the two laws, the new draft appears to be very similar to the 1988 foreign investment law. The main difference is mainly the removal of the requirements of the types of foreign investments, which was focused on export-oriented industries, natural resource extraction, high technology, and other large capital investments. Myanmar is now open to investments for production of goods for the local market, which will decrease Myanmar´s dependency on imports. Other differences are the clarification of land lease, and the relaxation and clarification of skilled labour requirements.

---