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Client Alert

New Foreign Investment Regulations in Myanmar

Part 2

April 2013
In this Part 2 of our analysis of the Myanmar Foreign Investment Law
2012 (FIL) rules, we focus on Notification 11/2013 issued by the Ministry
of National Planning and Economic Development (the Rules) as it
impacts: (i) the ongoing rights and obligations of investors in key areas
during the life of an investment, (ii) the continuing reporting obligations
with which foreign investors must comply, and (iii) the penalties and other
actions that can be taken by the Myanmar Investment Commission (MIC)
if an investor does not comply with its obligations.
In Part 1 of our analysis, we focused on the investment approval process
for foreign investors seeking to invest in Myanmar through means of an
MIC approved investment (FIL Company) and on the permitted and nonpermitted investment activities and sectors described in the MIC
Notification.

For more information please contact

Pornapa L. Thaicharoen
Tel No.: +66 2636-2000 Ext. 4556
pornapa.thaicharoen@bakermckenzie.com
Clive Cook
Tel No.: +66 2636-2000 Ext. 4998
clive.cook@bakermckenzie.com

Since Part 1 was circulated, the Myanmar Parliament (Union Assembly)

has considered the percentage holding a foreign investor can take in a
restricted or prohibited business, as defined in the FIL. In a recent vote,
the Union Assembly upheld the original provision in the Rules, which
states that a foreign investor can take no more than an 80% stake in such
a joint venture.
In addition to this alert, we have included a diagram showing the various
bodies involved in foreign investment in Myanmar.

Key Observations on the Rules

MIC Discretion: Under the Rules, significant powers and

discretion are vested in the MIC, including the ability to impose
strict sanctions on investors, stipulate areas of the country as
Economic Zones, and prescribe construction and life-of-theinvestment terms. Whether the Rules facilitate foreign investment
will largely depend on how the MIC exercises these wide powers
and discretion, including with respect to the issuance of new
Notifications. This creates uncertainty.
Investment Period: Investors are committed to the investment
period specified in their MIC approval. An earlier exit from the
investment could prove problematic, as discussed below.
Investors must commence business within a fixed period after
completing construction.
Land: The rules governing land and foreign exchange are fairly
clear but the rules concerning land in particular require careful
navigation.

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Scrutiny and ongoing obligations: The Rules provide the MIC with
a framework to scrutinize and monitor investments.
Unfortunately, they also lay down vague but significant ongoing
obligations that will be challenging to interpret and apply.
DICA Consultation: Investors should secure a preliminary opinion
from the Directorate of Investment and Company Administration
as to whether the investment proposition is likely to be deemed a
restricted or prohibited business. This determination is often as
much about the impact the business may have (e.g. on the
environment) as the type of business it is.
Consultation of other stakeholders: For many projects, a wide
body of stakeholders must be consulted before MIC approval is
granted, including opinions sought from local residents who
stand to be impacted by the business, as well as relevant social
organizations.
Equity Limit: A foreign investor's stake in a restricted or prohibited
business will be capped at 80% of the equity.

Key Investor Rights and Obligations

Life of the Investment
Generally, an investor's MIC approval will lay down a period during which
the investment must be undertaken in Myanmar. MIC permission is
required to extend the life of an investment. The specified life of the
investment period should be coterminous with the length of the land lease
granted to the FIL Company. At the end of the period, the investor may
make an application to the MIC to extend the life of the investment.
Construction Periods
If some form of construction is at the heart of the investment project, it
must be completed within the period specified in the MIC approval. The
MIC has discretion to extend the construction period on a one off basis
only, unless a force majeure event has occurred, in which case a further
extension may be granted. If construction is not completed within the
extended period, the approval may be revoked by the MIC without
payment of compensation to the investor.
Commencement of Business
The tax benefits and exemptions provided under the FIL take effect upon
commencement of the FIL company's business. There is a formal
process for establishing the commencement of business date, which
involves an MIC filing and approval. Certain additional requirements exist,
e.g. to begin exporting within 180 days after completion of construction;
to begin local sale within 90 days after completion of construction. If
engaging in an export business, the date will be stipulated in the
investor's first bill of lading; if local sale, the date of receipt of first income.
Generally, the Rules provide that commencement of business must occur
within a fixed period after completion of the construction period, which is
specified in the MIC approval.

Client Alert April 2013

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Issues with respect to Land

Land issues can be problematic and complex in Myanmar. Some issues
to note in addition to those highlighted in Part 1 of our Alert are:

Permission of the Union Government and comments from the

Nay Pyi Taw Council or State/Regional Government are required
to lease land but the MIC will seek such comments on behalf of
the investor. An additional permission may be required from the
"Central Management Committee of Vacant, Fallow and Virgin
Land" to lease vacant, fallow, and virgin land. Such land will be
leased for an initial period of 30 years, with MIC discretion to
extend in accordance with the Vacant, Fallow, and Virgin Land
Management Law.
Annual rents for leased land must be approved by the MIC and
the State may require a premium for the grant of a lease.
Any alteration or repair to the natural surface or elevation of the
land requires permission of the relevant landlord.
If necessary to clear the land (i.e. removes dwellings, farms etc.),
the investor is permitted to reach arrangements with local
residents on compensation independent of the State.
All or a part of an investor's leased land will be taken back if
natural resources are discovered or it is required for
infrastructure or other special projects deemed in the interest of
the State. The investor will be paid compensation in such a
scenario but it is not clear if such compensation would include
lost profit or opportunity costs associated with the broader
business, or merely the value of the land.
Lease agreements must be carefully drafted, examined, and
negotiated to ensure an investor can realize some value in
respect to buildings and facilities constructed on the land during
the life of the Lease.

Foreign Capital and Foreign Exchange

An investor must commit to bringing into Myanmar a minimum

level of foreign investment in convertible currency, both in initial
capital and subsequent appropriations. Investors must report to
the MIC when bringing foreign currency into Myanmar to satisfy
these subsequent appropriations.
The MIC must be notified and grant approval to an investor if
bringing foreign capital into Myanmar above or below the amount
contemplated in the investment proposal or to a different
timescale.
Upon the liquidation of the investment, an investor may take out
the original capital in foreign currency, plus net profit.
An FIL Company/investor must set up a foreign exchange
account in Myanmar for the purpose of making foreign currency
payments in connection with the business locally.

Exiting the Investment

Client Alert April 2013

Whilst exiting an investment is normally achieved by a sale of

shares, there is nothing in the Rules to suggest that an investor
could not also exit by selling the business. An investor may sell
shares to another foreign investor or to a Myanmar-based
investor, in either case only with approval of the MIC. In exiting,
the existing MIC approval must be surrendered. If the transferee
is a Myanmar Citizen he must obtain a permit under the
Myanmar Citizens Investment Law; if a foreign investor, he must

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re-apply to the MIC for a new approval but may conduct the
business through the existing or a new entity. The new investor
benefits from the existing tax exemptions but does not enjoy the
benefit of new tax holidays. The MIC may grant permission for a
partial exit only.
There has been some speculation that the FIL reflects or even
brings about a change in the policy of the Myanmar government
that prevents Myanmar Citizens from selling shares to
foreigners. We do not believe that is the case and there is
nothing in the Law to support such an assumption, although the
Governments policy may change in future.
In order to wind up a business, apart from having to liquidate
under an antiquated piece of legislation (the Companies Act of
1913), investors will need the permission of the MIC. If that
permission is granted, the leased land must revert to whomever
has rights over it and all rent for future years under the lease
must be paid up in full. Winding up a venture before the end of its
specified life is likely to prove time-consuming and expensive.

Investor Obligations, Scrutiny and Penalties

General Investor Obligations
Rule 54 lays out broad-based requirements that an investor could easily
infringe, which is of particular concern given the sanctions for noncompliance can be severe. Apart from complying with environmental
conservation matters, an investor must implement the business in a
manner that is undertaken for the benefit of the State and the citizens
and take care that its products do not cause "damage to customers"
through lack of quality or by failing to comply with standard norms. As
the drafting of such provisions is vague, there is the potential for abuse.
In addition, there exists a further obligation to comply with Ministry
regulations and norms.

Scrutiny

Scrutiny is achieved in part by reporting requirements, which take

various forms, but principally involve submission to the MIC of a
quarterly business report, proof of payment of social security
arrears every six months, and annual staff training plans. FIL
Companies are also required to conduct an annual audit and
submit to inspections when required.
The Departmental Coordination Body, which consists of officers
from various ministries including Labor, Customs, Trade, Internal
Revenue, and the Central Bank of Myanmar, is given the primary
mission of monitoring FIL Companies and scrutinizing their
conduct and performance.

Investigations and Penalties

The MIC may form a body to investigate any situation where the investor
has failed to comply with the FIL or the many requirements of the Rules,
or where an investor has obtained a permit in breach of laws or
regulations.

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Although it reports to the MIC, the Investigating Body has sole discretion
to apply any one of the four administrative penalties set out in the FIL: (i)
a warning, (ii) a temporary suspension of tax exemptions and reliefs, (iii)
a revocation of the MIC permit, or (iv) putting of the investor on a blacklist
that would prevent it from being granted a permit in the future.

Conclusion
The Rules are comprehensive but offer the MIC broad discretion in many
areas. In addition, there are ambiguities, difficulties of interpretation, and
potentially severe penalties for non-compliance. Still, in considering the
piece of legislation as whole, it has the potential to be very effective in
attracting investment if the bureaucracy that facilitates it is run effectively
and transparently.

Clive Cook
Tel No.: 0 2636-2000 ext. 4998
clive.cook@bakermckenzie.com
Dr. Saw Yu Win
Tel No.: 0 2636-2000 ext. 4556
sawyu.win@bakermckenzie.com

Client Alert April 2013