As Myanmar opens for business, global firms are joining the gold-rush to tap what is possibly the last frontier market in Asia. But the country has been relatively closed off for decades and as such, doing business in Myanmar can be very complex for foreigners. The most difficult, perhaps, is attempting to maneuver various laws, rules, and regulations applicable to foreign firms or foreign citizens investing or doing business in Myanmar.
In this inaugural issue, Legal Matters makes an introduction to the new Foreign Investment Law enacted in 2012, with the rights and responsibilities contained thereof, and details a step-by-step guideline to company registration and permit application under the new system.
Foreign Investment Law 2012
Myanmar’s new Foreign Investment Law was enacted in November 2012, replacing the old foreign investment law of 1988. This legislative overhaul in foreign investment is a key component of the incumbent administration’s economic reforms. Indeed, the new law is timely and has already encouraged scores of investors to bring in much needed FDI into the country. The amount of foreign investment in the last quarter of the 2012-2013 fiscal year alone – from January to March 2013 – was US$ 625.12 million. A total of 17,793 jobs were created in just three months, a figure which may pale in comparison with more developed ASEAN neighbors, but is nonetheless reassuring given the dire state of physical and institutional infrastructure in Myanmar and the financial and political risks involved in doing business in the country.
Some have raised concerns about the new law conferring “too much” authority to the Myanmar Investment Commission (MIC). While the law does designate the MIC as the regulatory authority on foreign investment, its perceived status as the sole arbiter on the matter is an exaggeration. Proposals for investment projects, though submitted to the MIC, also need approval from the ministries concerned. The MIC is authorized to issue orders, directives, notifications and amendments to existing rules and regulations, but only with the government’s approval. Additionally, major economic decisions such as the setting up of various investment “zones” require approval from the local population, civil society, and regional governments. From a pragmatic perspective, an efficient MIC is cutting away swathes of red tape. Notwithstanding large scale investments of considerable economic impact, which are typically carried out in joint ventures with state enterprises, assessment for the majority of investment proposals is more administrative than policy related.
That being said, the surge in foreign investment is more the result of a new, liberal foreign investment law than a more expedient company incorporation process. In addition to ending fears of arbitrary decision-making, the new law affords a number of benefits, including preferential tax treatment, to companies registering through the MIC. The investor is guaranteed the right to remittance of profits, remittance upon winding up, remittance of earnings if a foreign employee, and the transfer of some or all of their shares to a local or foreign investor with approval from the MIC. Remittance can be made at any bank authorized to deal in foreign currency exchange.
The most enticing benefits lie in the law’s taxation clauses. Any company registered through the MIC – tax benefits do not apply to companies registered otherwise – can enjoy an initial 5-year tax holiday that may be extended. Tax exemptions also apply to re-invested profits, customs duties on capital assets imported during the designated construction period, and commercial tax for exports. Deductions are also available for industry related research and development, along with relief on customs duties on material imported for business expansion and up to 50% relief on profits gained from exports.
The first step tp gaining access to the benefits of the foreign investment law, of course, is to have the investment proposal approved by the MIC. The process for company registration takes no more than a few days. The process to have an investment proposal approved, however, takes roughly 1-2 months.
First, the proposal made is in effect information filled out in a document known as Form-1, which can be obtained online or in person at a one-stop service center located in Yangon and in Naypyidaw. Along with Form-1, the investor must submit a draft of the lease agreement for land or buildings and a draft of the joint-venture or partnership if there is any involved. Any investment defined as a large scale investment will also require an environmental and social impact assessment report. Any investment proposal involving natural resources and stated owned industries must be submitted to the MIC through the relevant ministry instead of being filed directly with the MIC.
Once the MIC has received Form-1 and any required supplementary documents, it will notify the investor of the proposal’s completion. The Commission is required by regulation to inform the investor of any missing material. A complete proposal will then be reviewed by a weekly committee meeting of senior level officials from various ministries led by the Director General of the Directorate of Investment and Company Administration of the Ministry of National Planning and Economic Development. If deemed necessary, experts may be invited to assist the committee in assessing the proposal. More importantly, the investor, the person submitting the proposal, or the person granted the power of attorney on behalf of the investor must attend the committee meeting. A proposal thoroughly reviewed and approved by the committee will then be passed on to the MIC, which will inform the investor of its approval or explain the withholding of approval.
Next, the MIC will seek approval from the relevant state or division government and, if it is an investment of environmental or social concern, seek further approval from the Ministry of Environmental Conservation and Forestry. To expedite matters, the state or division authorities and the Ministry of Environmental Conservation and Forestry are both required to respond to the MIC’s inquiry within 7 days. Other ministries are required to do likewise when their approval is sought by the MIC, and are in fact mandated to form committees dedicated to responding to such inquiries.
Finally, the MIC will perform financial credibility assessments – they will request financial and bank statements – and after further assessments on socio-economic development impact, environmental impact, and technological standards and quality. The Commission will then finalize the approval process and will issue its permit in a document known as Form-2 within 90 days of its approval.
The process may appear a long, complicated one but the majority of the procedures are actually carried out by the MIC and relevant authorities. The entire affair is essentially a waiting game. Registering a company or a branch office is a much quicker, less complex course.
Before continuing on to the company registration process, it is worth noting that the new Foreign Investment Law of 2012 replaced only the Foreign Investment Law of 1988. Several other laws, some almost a century old, still apply to doing business in Myanmar. Important examples are the Myanmar Companies Act 1914, Myanmar Company Rules 1940, Myanmar Companies Regulations 1957, and the Special Company Act 1950, which apply to foreign investment in joint ventures with companies with state owned equity.