Myanmar’s new investment law presents risks and opportunities for foreign investors

Myanmar’s new investment law, replacing the existing Foreign Investment Law and Myanmar Citizens Investment Law, was approved on October 5. While the law is in effect, the rules and actions to implement the law have yet to be developed.

Practitioners have told Asialaw the new legislation has been drafted better than the previous investment laws and includes more streamlined processes are for foreign investors. Measures include the creation of approval orders, bringing the law in line with international investment rules which extend protection to investors, and employment rules and tax changes. However, there are still concerns for foreign companies about the leasing of land.

Creation of approval orders

Edwin Vanderbruggen

A welcome change is the creation of approval orders, a simpler version of a Myanmar Investment Commission (MIC) permit. “The approval of a MIC permit has been abridged and shortened through the approval order and it is a more streamlined process,” says Edwin Vanderbruggen, senior partner at VDB Loi. “It takes around 90 days to get a permit if nothing goes wrong, but sometimes it takes too long. For example, if farm land is needed for manufacturing, a MIC permit is needed and the investor can’t just lease it without approvals.” A MIC permit is needed only for projects with an environmental or social impact or when the MIC indicates, such as for more strategic projects such as hydropower, infrastructure and ones of national priority. “The MIC is using resources more efficiently because projects that had to go for MIC approval had to go through extensive screening and that clogged up the system,” says Vanderbruggen.

International investment rules protection

The new law has been brought into line with international investment rules. For example, it allows for compensation for expropriation as long as the conditions needed for compensation are fulfilled:  that the measure is in the public interest, non-discriminatory, a due process followed, and prompt, fair, adequate and effective compensation is paid to the investor. “International rules didn’t used to exist, such as rules on fair and equitable treatment and most favoured nation treatment,” says Vanderbruggen. “They used to be in investment treaties and now are also in the law. The most dramatic difference is that before, a MIC permit is needed for an investor to receive protection, so only the bigger projects got it, meaning only a small minority, but now everybody is an investor, so the rules on expropriation for example are applied automatically.”

Tax incentives

William Greenlee

The tax incentives in the new law are a mixed blessing for businesses. A corporate income tax exemption may be granted for up to seven years, whereas before there was an income tax holiday lasted for five years. The law also abolishes the reduction of income tax to 50% for exports, and a new tax refund and duty for exports is now in place. “The new law clarifies when companies receive incentives and they are more clearly laid out,” says William Greenlee, partner at DFDL. “There is more clarity in when incentives such as import duty exemptions are given out.”

Employer obligations

Whereas there were thresholds in the number of foreign employees hired, the new law does not impose any restriction. However, the law introduces new provisions on employer obligations to compensate workers before closing a business and workers’ compensation for workplace injury. The rule on equal salary for foreign and local staff with the same qualifications that was previously in place no longer appears in the new law.

Land lease

Companies investing in less economically developed and remote regions can apply for longer land lease periods but the process for extensions is cumbersome. “The fundamental issue is that foreigners can’t own land, so there’s still a clear distinction,” says Greenlee. “The land lease period of 50 years with two 10-year extensions does not make sense,” says Vanderbruggen. “A business can’t invest for 10 years. If it needs to rehabilitate or renovate, it can’t make the money back, so it is just not logical.”

As Myanmar opens its doors to the world, businesses are flooding in to take advantage of the wealth of opportunities available. Investors should be aware, however, of the legal risks of doing business in Myanmar. The new investment law’s rules and actions will give a clearer picture of how the law will operate, so investors are awaiting their publication with no little interest.