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Law opens Myanmar to foreign investments

Myanmar President Thein Sein signed a much anticipated Foreign Investment Law on 2 November, after the bill was passed by Parliament a day earlier.

At his first domestic press conference last month, President Sein said that Myanmar needed foreign investments to create jobs.

The country reportedly attracted USD660m in foreign investments in the first seven months of 2012.

Global and regional multinationals are eyeing opportunities in Myanmar, and clarity in legal environment will allow them to commit long-term investments. The law is set to create new legal framework for foreign investments. It effectively opens the country to foreign strategic and portfolio investors. Foreign investments will be one of the key drivers of country’s economic growth, reconstruction and modernisation in the coming years.

The new law was welcomed by the investment community as foreign companies and investors have been keenly awaiting "ups and downs" in the lengthy 10-month drafting and deliberation process. Ten out of 11 of the President’s recommended changes were approved, except the proposal that Myanmar workers with the same qualification and experience level as foreign workers must be awarded equal wage rights. The most significant changes are the removal of a proposal requiring foreign investors to hold at least 35 per cent stake in joint ventures in non-restricted sectors and 50 per cent cap for 13 restricted sectors, including manufacturing, services, agriculture, fisheries and livestock, and the region of 10 miles radius from national borders other than economic zones.

The new law suggests that foreign investments can take place as sole ownership (100 per cent stake), or joint venture with local citizens, government, or organisations. Foreign firms are required to operate in joint ventures with local investors in restricted sectors. Equity ratios are negotiable between investors and their local counterparts, although award selection and dispute settlement remain under the authority of the Myanmar Investment Commission (MIC). Foreign companies will be able to sell 100 per cent of its stake to either international or local individuals or companies although it needs prior approval of MIC.

Leasing or collateralising of land and building during the contract must also be approved by MIC. Lease period of land is extended from 30 years to 50 years, with twice extendable ten years. The law also contains provisions mandating 25 per cent of local employment in the first year of company’s establishment, to increase to 50 per cent in the subsequent second year and 75 per cent in the third year.

Manufacturing and service sectors will receive five consecutive years of tax holiday. Tax exemption and reduction will be awarded to the profit retained as general reserve for immediate reinvestment for a subsequent year. Profit gained from manufactured export products will be exempted 50 per cent of tax.

Investment banking advisory firm, Mandalay Capital – a specialist in investment in Myanmar – has welcomed the new law.

“We view the approval of the law by Parliament and signing it by President very positive for Myanmar and Myanmar-focused publicly listed companies,” says a company statement. “This new breakthrough legislation is expected to be the key for laying a solid foundation for attracting significant foreign investments in coming months and years. Foreign investments will underpin Myanmar's economic transformation by creating jobs, facilitating industrialisation, transfer of know-how and wealth creation.

“In our view, the new law will provide certainty of legal framework and pave the way for creation of enabling business environment in Myanmar. As a result, we expect international and Asian companies and investors to commence their investments into Myanmar’s various industries and asset classes.  Therefore, we reiterate the central theme of our recommendations for international investors to seek early exposure to Myanmar, a new frontier market that represents one of the most attractive investment opportunities in Asia in this decade.”

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