Foreign Investment Law

How does the New Foreign Investment Law affect existing foreign investors?

The New Foreign Investment Law revokes the 1988 Foreign Investment Law. Foreign investors who have invested under a permit issued by the Myanmar Investment Commission (MIC) (MIC Permit) under the 1988 Foreign Investment Law are deemed to be investors under (and therefore subject to the provisions of) the New Foreign Investment Law. Existing foreign investors will continue to operate under and receive the benefits of their existing MIC Permits and contractual arrangements until the expiration of the permitted term of investment. It is not clear whether existing foreign investors will be entitled to receive all incentives offered under the New Foreign Investment Law. For example, it is uncertain whether an investor part way through its three year income tax exemption under the 1988 Foreign Investment Law will be entitled to have the exemption period extended to five years in accordance with the New Foreign Investment Law.

The New Foreign Investment Law (as with the 1988 Foreign Investment Law) applies only to foreign investors wishing to benefit from the incentives available under the New Foreign Investment Law by obtaining an MIC Permit. Investments outside the framework of the 1988 Foreign Investment Law and the New Foreign Investment Law do not require an MIC Permit. Foreign investors who do not wish to apply for an MIC Permit are entitled to incorporate a foreign company (being a company incorporated in Myanmar that is not wholly Myanmar owned) or establish a branch or representative office of a non-Myanmar company without MIC approval by registering the company, branch or representative office with, and obtaining a permit to trade (Permit to Trade) from, the Directorate of Investment and Company Administration (DICA) under the Myanmar Companies Act 1914. Non-Myanmar companies establishing a presence in Myanmar by way of a branch or representative office are not able to invest under the New Foreign Investment Law (as with the 1988 Foreign Investment Law). Foreign banks establishing a representative office must obtain approval from the Central Bank of Myanmar in addition to registering the representative office with, and obtaining a Permit to Trade from, DICA.

When will the implementing regulations be issued?

The MIC has 90 days after the commencement of the New Foreign Investment Law (i.e. until 31 January 2012) to issue the implementing regulations (Regulations). In the meantime, the regulations issued under the 1988 Foreign Investment law will continue to apply to the extent that they are consistent with the New Foreign Investment Law. Details of the Regulations have not been released publicly. We will monitor the progress of the Regulations and will update clients as further details are released. Clients should note, however, that all new MIC Permit applications must be made under the New Foreign Investment Law. We understand that MIC Permit applications that were submitted before 2 November and are currently before the MIC for approval will come within the operation of the 1988 Foreign Investment Law, although we understand from the MIC that applicants may be able to request that they be brought within the operation of the New Foreign Investment Law. It remains to be seen whether any applicant will do so given the uncertainty surrounding the restricted sectors which we understand will be clarified in the Regulations. It is unclear whether the MIC will delay processing new MIC Permit applications until the Regulations are issued.

How does the New Foreign Investment Law restrict foreign investment in Myanmar?

The New Foreign Investment Law introduces a number of restrictions on foreign investment. The following restrictions are of particular importance to clients considering whether to invest and how to structure their investments in Myanmar:

  • Restricted activities: The New Foreign Investment Law prescribes 11 sectors in relation to which foreign investment is restricted, including investment in activities that are detrimental to public health or to the environment, and manufacturing, services, agricultural livestock and fisheries activities that can only be undertaken by Myanmar citizens “as prescribed by law”. It is expected that the Regulations will prescribe the activities which are to be undertaken by Myanmar citizens only, and provide greater clarity regarding the nature and extent of the restricted sectors. Foreign investment in a restricted sector is subject to the approval of the MIC and the government, and must be by way of a joint venture with the state or a local partner. Although a previous version of the draft foreign investment bill limited foreign investment in restricted sectors to 50%, the New Foreign Investment Law permits the parties to propose the foreign to domestic investment ratio, which in practice will be subject to MIC approval as part of the MIC Permit application process.
  • Minimum foreign ownership requirement: The New Foreign Investment Law removes the former 35% minimum foreign ownership requirement for joint ventures and provides that the foreign to domestic ownership ratio shall be as agreed between the parties. However, the MIC has the power to prescribe the minimum foreign ownership requirement on a case-by-case basis depending on the nature of the proposed investment.
  • Domestic employment requirements: Myanmar citizens must now comprise at least 25% of the skilled workforce of an enterprise within two years of the initial investment, increasing to at least 50% within four years and at least 75% within six years, although the MIC may amend these time limits for “knowledge-based” enterprises. Myanmar citizens are entitled to the same benefits and salary as foreign staff, commensurate with the level of expertise.

See below for further information on these and other restrictions imposed by the New Foreign Investment Law.

What incentives are offered to foreign investors under the New Foreign Investment Law?

The New Foreign Investment Law improves certain investment incentives offered to foreign investors under the provisions of the 1988 Foreign Investment Law:

  • Extension of land lease and usage terms: The MIC may permit a foreign investor to lease or use land for an initial period of up to 50 years which may be extended for two 10-year terms depending on the nature and the size of the investment. The MIC may also permit longer land leasing or usage terms for investors who invest in less developed regions facing communications and transportation difficulties, subject to the approval of the government. Clients should note that the New Foreign Investment Law does not alter the prohibition on foreign ownership of land.
  • Additional tax incentives: Foreign investors are entitled to an income tax holiday of five consecutive years from the commencement of commercial operations, which may be extended for a further “reasonable” period if beneficial for the state. The MIC may grant other forms of tax relief, including an exemption on customs duty for imported machinery and equipment required for the expansion of an existing project, and relief from commercial tax on goods manufactured for export.

See below for further information on these and other incentives available to foreign investors under the New Foreign Investment Law.

What are the key differences between the New Foreign Investment Law and the 1988 Foreign Investment Law?

The key differences between the New Foreign Investment Law and the 1998 Foreign Investment Law:

Issue 1988 Foreign Investment Law New Foreign Investment Law
Definition of “Investment” No specific definition of “investment”The 1988 Foreign Investment Law refers to “investing in Myanmar”, but does not specify the activities that fall within that concept. Although the notification that accompanies the 1988 Foreign Investment Law, The Government of the Union of Myanmar Notification No. 11/88 (the 1988 Notification), provides that the MIC will specify the types of economic activities in which foreign investment may be made, it was still uncertain what constituted “investment”.The 1988 Foreign Investment Law defines “investor” as a person or economic organisation making an investment under an MIC Permit. Specific definition of “investment”The New Foreign Investment Law defines investment to mean various kinds of property owned and controlled by the investor in Myanmar in accordance with the New Foreign Investment Law, including:

  • rights to moveable and immoveable property and mortgageable rights over property;
  • company shares, stocks and debentures;
  • contractual monetary rights or activities with a designated financial value;
  • intellectual property rights in accordance with existing Myanmar law; and
  • rights of the business granted under law or a contract including rights in connection with the exploration or production of natural resources.

The New Foreign Investment Law does not alter the 1988 Foreign Investment Law definition of “investor”.

Land use rights No concept of “land use”The 1988 Foreign Investment Law does not address land use rights and does not specifically provide for the leasing of land by foreign investors.Prior to September 2011, foreign investors could not lease land for periods in excess of one year.  On 30 September 2011, the government issued Notification No. 39/2011 (Notification on Right to Use of Land Relating to the Republic of the Union of Myanmar Foreign Investment Law), which permits a foreign investor investing under an MIC Permit to lease land from the government and private owners for an initial period of 30 years, extendable for two 15-year terms with the permission of the MIC.Foreigners are not permitted to own land in Myanmar. Concept of “land use rights” introducedThe New Foreign Investment Law defines a “land lessee” or “land user” as a person who is entitled to lease or use land for a stipulated period after paying the prescribed leasing fee to the state.The MIC may permit a foreign investor to lease or use land for an initial period of up to 50 years, which may be extended for two 10-year terms depending on the nature and the size of the investment.The MIC may, with the approval of the government, permit longer land leasing or usage terms for investors who invest in less developed regions facing communications and transportation difficulties.

An investor wishing to operate an agricultural or livestock business on land permitted to be used by a Myanmar citizen must do so by way of a joint venture with a local partner under a contract.

The New Foreign Investment Law does not alter the prohibition on foreign ownership of land.

Investment principles  Export promotion The 1988 Foreign Investment Law provides that one of the basic principles of foreign investment will be the “promotion and expansion of exports”.Energy sourcesAnother basic principle of foreign investment under the 1988 Foreign Investment Law is the development of works which would “save energy consumption”. Export promotion and import substitutionThe New Foreign Investment Law introduces import substitution (a policy which promotes developing products domestically in substitution for products which are currently imported) to the basic principles of foreign investment, providing a wider basis for permissible foreign investment.National developmentThe New Foreign Investment Law provides that foreign investment should support the primary objective of Myanmar’s national development plan by supporting activities which the state and Myanmar citizens are unable to undertake due to financial and technological restrictions.

Energy sources

The New Foreign Investment Law expands upon the concept of limiting energy consumption and provides that the basic principles of foreign investment should be to explore and extract new energy sources, to develop renewable energy sources such as bio-based energy, and to ensure that there are sufficient energy and resources for domestic use.  While this may provide a wider basis for permissible foreign investment, it may also restrict the export of energy sources such as oil and gas from Myanmar.

The New Foreign Investment Law introduces environmental conservation as a basic principle of foreign investment.

Capacity building

The New Foreign Investment Law introduces the following as basic principles of foreign investment:

  • to promote the exchange of information and technology;
  • to develop the knowledge and education of Myanmar citizens; and
  • to develop Myanmar’s banking industry in line with international standards.
Restricted activities No restricted activities specifiedThe 1988 Foreign Investment Law does not specify any activity in relation to which foreign investment is restricted or prohibited.The 1988 Notification provides that the MIC may specify activities which may be carried out but does not mention activities which are restricted or subject to specific regulation by the government.Cabinet approval (as part of the MIC approval process) is required for foreign investment under the 1988 Foreign Investment Law.

The SOEE Law also sets out a list of activities reserved for the state which can only be undertaken in conjunction with the state or with special permission of a ministry or regulator (for example, banking).

Restricted and prohibited activities specifiedThe New Foreign Investment Law prescribes the following investment activities as restricted or prohibited activities:

  • activities that are prejudicial to the traditional cultures and customs of Myanmar’s ethnic groups;
  • activities that are detrimental to public health;
  • activities that are detrimental to the environment and biodiversity;
  • activities that import hazardous or toxic waste into the country;
  • manufacturing activities which produce chemicals considered hazardous under international treaties;
  • manufacturing and service activities that can only be undertaken by Myanmar citizens as prescribed by law;
  • activities involving the importation of technologies, pharmaceuticals and equipment that are still subject to testing or have not been approved for use in foreign countries;
  • agricultural activities that can only be undertaken by Myanmar citizens as prescribed by law;
  • livestock activities that can only be undertaken by Myanmar citizens as prescribed by law;
  • fishery activities in Myanmar territorial waters that can only be undertaken by Myanmar citizens as prescribed by law; and
  • activities that are undertaken within 10 miles of the border with neighbouring countries, except in designated economic zones, as prescribed by the government.

The New Foreign Investment Law does not identify which of the prescribed activities will be restricted and which will be prohibited.  It is also unclear what manufacturing and service activities, agricultural, fishing and livestock activities will be prescribed as being permitted to be undertaken by Myanmar citizens only.  We expect that these activities will be described in the Regulations.

The MIC may, with the approval of the government, permit foreign investment in the abovementioned restricted or prohibited sectors where that investment will benefit the state and Myanmar citizens, particularly Myanmar’s ethnic groups, with the approval of the government.  Foreign investment in a restricted sector must be by way of a joint venture with the state or a Myanmar citizen (see ‘Foreign ownership requirements‘ below).

In determining whether to permit foreign investment in a restricted or prohibited sector, the MIC must consider whether the investment will prejudice the interests of the state and Myanmar citizens, and the MIC must notify Parliament of any investment proposal that may be prejudicial.  The New Foreign Investment Law does not specify whether Parliamentary approval is required for foreign investment that the MIC determines is or is likely to be prejudicial and it is unclear at the time of writing whether Parliamentary approval will be required in practice.

The MIC is required to submit to Parliament any proposal for large scale foreign investment that may provide substantial security, economic, environmental and socioeconomic benefits to the state and Myanmar citizens.

Parliamentary approval is not required for such investment. The New Foreign Investment Law does not define or otherwise describe what may constitute large scale or beneficial investment.

The precise nature of Parliament’s role in the approval process is unclear.

The New Foreign Investment Law does not alter the position under the SOEE Law in respect of activities that are reserved to the state.

Public sector investment Foreign investment in public sector not expressly permittedThe 1988 Foreign Investment Law provides that a foreign investor may enter into a joint venture with “a citizen” – it does not expressly permit a foreign investor to enter into a joint venture with a government department or organisation.  In practice, however, it is common for foreign investors to enter into joint ventures with state-owned enterprises, particularly in the oil and gas and mining sectors. Foreign investment in public sector permittedThe New Foreign Investment Law expressly allows a joint venture between a foreign investor and a citizen or a relevant government department or organisation.
Foreign ownership requirements 100% foreign ownership permissible, 35% minimum foreign ownership The 1988 Foreign Investment Law provides for two types of foreign investment:

  • a sole proprietorship wholly owned by a foreign investor supplying 100% foreign capital; and
  • a joint venture in the form of either a partnership or limited company in which the foreign capital invested must be a minimum of 35% of the total equity capital.
100% foreign ownership permissible in non-restricted sectors, foreign to domestic ownership ratio to be agreed  The New Foreign Investment Law permits 100% foreign ownership in non-restricted sectors.Foreign investment in restricted sectors must be by way of a joint venture with the state or Myanmar citizens.  Although a previous version of the foreign investment bill limited foreign investment in restricted sectors to 50%, the New Foreign Investment Law permits the parties to propose the foreign to domestic investment ratio (which may or may not be accepted by MIC).The New Foreign Investment Law removes the 35% minimum foreign ownership requirement for joint ventures, and provides that the foreign to domestic ownership ratio shall be as agreed between the parties.
Minimum investment requirements Minimum foreign capital requirementImmediately prior to the enactment of the New Foreign Investment Law, the minimum amount of ‘foreign capital’ required to be eligible for an MIC Permit was USD500,000 for an industrial company and USD300,000 for a service company.Definition of foreign capitalThe 1988 Foreign Investment Law contains a broad definition of “foreign capital”, which refers to the amount and type of investment rather than the share capital of a company.  “Foreign capital” is defined to include:

  • foreign currency;
  • property actually required for the enterprise and which is not available within the state such as machinery, equipment, components, spare parts and instruments;
  • rights which can be evaluated such as licences, trademarks and patent rights;
  • technical know-how; and
  • reinvestment of profits or other benefits.
MIC to prescribe minimum foreign capital requirementAlthough a previous version of the draft foreign investment bill contained a minimum foreign capital requirement of US$5 million for new investment, the New Foreign Investment Law does not contain this requirement, but empowers the MIC to prescribe a minimum foreign capital requirement on a case-by-case basis depending on the nature of the proposed investment.Definition of foreign capitalThe definition of “foreign capital” under the New Foreign Investment Law is extended to include copyright and industrial designs.
MIC Duties and powers of the MIC not subdividedUnder the 1988 Foreign Investment Law, the duties and powers of the MIC are laid out each as a separate paragraph under a single chapter and are in no particular order. Duties and powers of the MIC subdivided and re-orderedThe New Foreign Investment Law lists the duties of the MIC and a separate group of powers, providing greater clarity. The powers and duties of the MIC have also been expanded. For example, the MIC has the power under the New Foreign Investment Law to suspend an investment project where that project does not comply with the proposal submitted for the purpose of obtaining an MIC Permit.  Where an investor or promoter proposes to use a particular bank for conducting financial transactions, the MIC has the power to approve or reject the use of the bank and to prescribe another.
Rights and duties of investors No description of rights and dutiesThe 1988 Foreign Investment Law provides for certain rights and duties of foreign investors in relation to specific areas such as employment, tax and foreign currency, however it does not provide a comprehensive list or description of rights and obligations generally. Introduction of chapter describing rights and duties of investorsThe New Foreign Investment Law includes a chapter specifically addressing the rights and duties of foreign investors.A foreign investor has a duty to, among other things:

  • comply with the laws of Myanmar;
  • comply with the terms and the conditions of the MIC Permit;
  • take measures to prevent environmental pollution and degradation; and
  • inform the MIC immediately when any natural resources unrelated to the MIC Permit are discovered on or under the land that the investor leases or otherwise uses in accordance with its MIC Permit.

A foreign investor has the right to, among other things:

  • expand its investment activities beyond those permitted by the MIC Permit;
  • increase the authorised capital in an investment, if required; and
  • take action in the event that the foreign investor’s rights have been infringed.

The exercise of these rights is subject to the approval of the MIC.

Restrictions on share and asset transfers MIC approval required in practiceThe 1988 Foreign Investment Law does not expressly require MIC approval for the transfer of shares in a foreign company, however, MIC approval is required in practice.Note that “foreign company” refers to a company incorporated and registered under the Myanmar Companies Act 1914 which is not 100% Myanmar owned. Share transfers – MIC approval requiredMIC approval is required for the transfer of all of the issued share capital in a foreign company to either a foreigner or to a Myanmar citizen, and the MIC Permit must be surrendered.MIC approval is also required for the transfer of part of the issued share capital of a foreign company to either a foreigner or to a Myanmar citizen.Asset transfers – MIC approval required

MIC approval is required for the sale, transfer or exchange of the assets of a foreign company.

MIC approval is also required to sublet or mortgage any land or building to which an MIC Permit relates.

Applying for an MIC Permit No prescribed timeframe for considering MIC ProposalThe 1988 Foreign Investment Law does not prescribe a timeframe within which the MIC is to consider and decide upon a proposal for an MIC Permit (MIC Proposal).In practice, it generally takes between four to six weeks for the MIC to make a decision on an MIC Proposal, depending on the nature of the intended business activity. Prescribed timeframe for considering MIC ProposalThe New Foreign Investment Law provides that the MIC may accept or reject for scrutiny an MIC Proposal within 15 days of submission.  If the MIC Proposal is accepted for scrutiny, the MIC may approve or reject the MIC Proposal within 90 days of accepting the MIC Proposal for scrutiny (i.e. 105 days from the date of submission).  These timeframes are discretionary and it remains to be seen what effect (if any) the New Foreign Investment Law will have on the timeframe for receiving MIC approval.
Insurance Insurance limited to state insurerThe 1988 Notification prescribes certain types of insurance which foreign companies must have in place, all of which must be purchased from state-owned Myanma Insurance.Moves have been made recently to partially open up the Myanmar insurance industry to allow domestic private insurance companies to provide certain types of insurance. Previously, only Myanma Insurance had been permitted to provide insurance. Insurance allowed with insurance companies to be prescribed The New Foreign Investment Law permits foreign companies to take out the prescribed insurance with any insurer that is allowed to operate in Myanmar.It is expected that the Regulations will prescribe the types of insurance a foreign company will be required to obtain.
Employment Employment rules vague The 1988 Foreign Investment Law states that when employing personnel “preference shall be given to citizens” while experts or technicians may, if necessary, be brought in from abroad. This language is vague and does not provide any specific guidance for foreign companies. Employment rules spelled out in detail The New Foreign Investment Law specifies that the unskilled labour force must always be made up of Myanmar citizens, however a phased approach is taken to employing the quota of skilled workers such that after two years in operation at least 25% of the workforce must be Myanmar citizens, increasing to 50% after four years and 75% after six years.  The MIC may extend these periods for certain “knowledge-based” activities, although the New Foreign Investment Law does not provide any guidance as to what may constitute a “knowledge-based” activity.In order to facilitate this timeline, the New Foreign Investment Law states that training must be provided to Myanmar citizens to provide them with the skills necessary for the relevant roles.The New Foreign Investment Law also provides that Myanmar citizens shall have the same salary and benefits as foreign employees, commensurate with the level of expertise.
Tax incentives Three year tax holidayThe 1988 Foreign Investment Law provides for an exemption from income tax for a period of three consecutive years from the date of commencement of production which may be extended for a further reasonable period if beneficial for the state.Other tax incentivesThe 1988 Foreign Investment Law provides further tax relief including an exemption on profits which are reinvested within one year, the right to accelerate depreciation in respect of certain capital equipment, relief on profits accrued from the export of goods, a three year exemption from customs duty on machinery, equipment and materials required for the initial construction period, and an exemption from customs duty for raw materials imported for commercial production for the first three years following completion of the initial construction period. Five year tax holidayThe New Foreign Investment Law extends the fixed period of income tax exemption to five consecutive years, extendable as before.Other tax incentivesThe New Foreign Investment Law provides the same additional tax incentives as are available under the 1998 Foreign Investment Law and goes further by introducing the following exemptions / relief:

  • an extension to the exemption from customs duty for imported machinery, equipment and materials required for the expansion of an existing project, subject to MIC approval (the New Foreign Investment Law does not specify the duration of any such extension);
  • exemption or relief from commercial tax on goods manufactured for export; and
  • additional incentives, including extended income tax exemptions, for investors who invest in remote and undeveloped regions of Myanmar, with MIC and government approval.
Guarantee against nationalisation Guarantee against nationalisation The provision guaranteeing against nationalisation in the 1988 Foreign Investment Law is vague. It provides simply that the Myanmar government guarantees “than an economic enterprise formed under [an MIC Permit] shall not be nationalised during the term of the contract or during an extended term”, and that “[o]n expiry of the term of the contract, the government guarantees an investor of foreign capital, the rights he is entitled to, in the foreign currency in which such investment was made”. Guarantee against nationalisation without sufficient cause The guarantee against nationalisation in the New Foreign Investment Law is similarly worded.  Although a previous version of the foreign investment bill provided for compensation at market rates in the event that the government deemed nationalisation to be “in the interests of the people”, this provision has been removed and the New Foreign Investment Law contains a guarantee that the government will not terminate the activities of an investor operating under an MIC Permit before the expiry of that permit without “sufficient cause”.  The New Foreign Investment Law does not define or otherwise describe what may constitute “sufficient cause”.Myanmar is a party to the ASEAN Investment Protection Agreement (1987) and its successor, the ASEAN Comprehensive Investment Agreement (2009), as well as a number of bilateral investment treaties (China, India, Lao PDR, Philippines, Thailand and Vietnam), which provide some level of protection to investors from the signatory states.  These treaties do not provide for an obligation on signatory states to recognise foreign arbitral awards independently of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1959) (New York Convention) and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) (ICSID Convention).   Myanmar is not a signatory to either the New York Convention or the ICSID Convention, although it is anticipated that it will soon become a signatory to the New York Convention.  See our client bulletins ‘Myanmar: Foreign Direct Investment‘ dated 31 July 2012 and ‘Myanmar: Investing in the Oil and Gas Sector’ dated 23 August 2012 for further information in relation to structuring investments in Myanmar.
Foreign exchange Foreign exchange permitted at prevailing “official” exchange rateThe 1988 Foreign Investment Law permits foreign companies to remit foreign currency abroad through a bank prescribed by the MIC at the “prevailing official rate of exchange”.Until 1 April 2012, the “official” exchange rate for the Kyat was six Kyat to one US Dollar, however this fixed rate was considered an overvaluation of the Kyat which was trading on the black market at around 820 Kyat to one US Dollar. On 1 April 2012, a managed market exchange rate was adopted and the Kyat floated at close to its black market rate. Foreign exchange permitted at “prescribed” exchange rateThe New Foreign Investment Law permits foreign companies to remit foreign currency abroad from any local bank authorised to deal in foreign currency (see “Banking” below) at the “prescribed rate of exchange”.  “Prescribed rate of exchange” is not defined in the New Foreign Investment Law but we understand that this will be the rate of exchange set by the Central Bank of Myanmar.As of 12 November 2012, the exchange rate published on the website of the Central Bank of Myanmar is 850 Kyats to one US Dollar.
Banking Banking limited to Myanmar Foreign Trade Bank (MFTB) and Myanmar Investment and Commercial Bank (MICB)The 1988 Foreign Investment Law prevents foreign companies from banking or engaging in foreign exchange with banks other than the MFTB and MICB. Banking allowed with banks permitted to engage in foreign exchangeThe New Foreign Investment Law permits foreign companies to open a foreign currency account and a Kyat account with any bank permitted to engage in foreign exchange.In July 2012, 11 domestic private banks [2] were granted permission to engage in foreign exchange transactions, including opening foreign exchange counters and operating foreign exchange accounts. At present, foreign currency accounts dealing in US Dollars, Singapore Dollars, Euros and Foreign Exchange Certificates may only be opened at five[3] of the 11 domestic private banks, and these banks may also remit funds abroad (although several do not currently have the capacity to do so).
Penalties No description of “administrative penalties”It is not clear what powers are available to the MIC in the event of a breach of the 1988 Foreign Investment Law. Introduction of chapter describing “administrative penalties”The New Foreign Investment Law provides that the powers of the MIC in enforcing the New Foreign Investment Law include:

  • issuing a warning;
  • terminating an MIC Permit;
  • temporarily suspending tax exemptions and reliefs; and
  • blacklisting the investor against receiving any kind of permit for any business activity in the future.
Disputes No mechanism for dispute settlement The 1988 Foreign Investment Law does not provide for a system of dispute settlement. Contractual dispute resolution clauses enforceable The New Foreign Investment Law provides that any disputes that arise from the activities undertaken by a foreign investor are to be settled amicably between the parties in the first instance or, importantly, if amicable settlement cannot be reached, disputes are to be resolved according to the dispute resolution clause in the relevant contract. Failing the inclusion of dispute resolution procedures in the contract, disputes are to be resolved according to the existing laws of Myanmar.Contracts entered into with the state or Myanmar citizens typically require arbitration in Myanmar in accordance with the Arbitration Act 1944, which is outdated and largely ineffective.  Since Myanmar is not a signatory to the New York or ICSID Conventions, the effective enforcement of foreign arbitral awards in Myanmar is difficult in practice. See ‘Guarantee against nationalisation‘ above and our client bulletins ‘Myanmar: Foreign Direct Investment‘ dated 31 July 2012 and ‘Myanmar: Investing in the Oil and Gas Sector’ dated 23 August 2012 for further information in relation to arbitration and the enforcement of foreign arbitral awards in Myanmar.

Conclusion

While the enactment of the New Foreign Investment Law is widely regarded as a positive step in the development of Myanmar’s foreign investment framework, the devil will be in the details.

Aside from the enhanced leasing and taxation incentives, the New Foreign Investment law permits foreign investors to use private banks and insurance companies, provides that contractual dispute resolution clauses will be enforceable and, subject to the Regulations, enables foreign investors to contract freely with their local partners.

Many uncertainties remain, however. It is unclear what manufacturing, services and agricultural activities the MIC will deem to be restricted, and the types of investments the MIC will determine to be “large scale” or “beneficial” requiring the notification of Parliament. The role of the government and Parliament in considering investment applications submitted to it by the MIC is also unclear, as is whether the MIC’s duty to submit quarterly reports to the government on the “transactions and progress” of permitted investors will lead to onerous reporting requirements for investors. The MIC’s discretion to prescribe the minimum foreign capital requirement in non-restricted sectors on a case-by-case basis leaves considerable room for protectionism. The domestic employment requirements and the need for MIC approval to transfer assets could further bureaucratise the foreign investment process.

The extent to which the New Foreign Investment Law will enhance or restrict foreign investment will not be known until the Regulations are issued and the MIC starts to implement the new framework.

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