Following two years of consultation, Myanmar’s highly anticipated new investment law (the Investment Law) was approved by the Amyotha Hluttaw on 5 October 2016, having been approved by the Pyithu Hluttaw on 28 September 2016. It was signed by the President on 18 October 2016.

The aim of the law is to rationalise the investment framework by combining the Myanmar Citizen’s Investment Law with the Foreign Investment Law and make the regime more policy based rather than transaction based. While the former has clearly been met, whether or not the latter is achieved will depend on the rules and regulations to be issued under the Investment Law and their application by the Myanmar Investment Commission (MIC). In the same week as the Investment Law completed its passage through Parliament, U.S. President Barack Obama issued an executive order on 7 October 2016 terminating the national emergency relating to Myanmar and therefore removing the basis for many of the sanctions that remained (including the Myanmar specific SDN list). For further details, see our bulletin here. 

To whom and what does the Investment Law apply?

The Investment Law applies to Investors (either Myanmar citizens or foreign investors) and investments (any assets that an investor owns or controls (including those specified in the Investment Law)). The Investment Law applies to all investments which are being made at the date it came into force or after its enactment but not to any disputes or suspension of an MIC Permit prior to the Investment Law coming into force. While there is a distinction between a ‘Foreign Investor’ and a ‘Citizen Investor’ this is only used to distinguish certain rights that are not applicable to one or the other, for example, the restrictions on Foreign Investors undertaking certain businesses and the rights of Foreign Investors to lease land (which Citizen Investors already have as the restrictions on leasing or owning real property only apply to foreigners).

How does this change the foreign investment framework?

The aims of the Investment Law are similar to those of the Foreign Investment Law 2012: to develop investments that do not cause environmental and social harm, to create employment, to develop human resources, high performance production, service and trade sectors, technology, agriculture, livestock and industry and professional fields including infrastructure across Myanmar; to protect investors and their investments in accordance with the law, for citizens to be able to work alongside the international community and to bring about investments that are in line with international standards.

For a review of the previous foreign investment regime under the Foreign Investment Law 2012 please see our bulletins issued in February 2013 as updated in September 2014 and April 2016 (Myanmar’s Scope of Prohibited and Restricted Activities for Foreign Investment – A New Revision). Under the Foreign Investment Law 2012 and the rules, regulations and notifications (the FIL 2012) any investor wishing to conduct business that was either required to be conducted in a joint venture with a citizen or under other requirements imposed by relevant ministries under the FIL 2012 had to apply to the MIC for a permit to carry out such business (an MIC Permit) and obtained privileges specified in the FIL 2012. The processes of applying were set out in the Foreign Investment Rules and the categorisation of businesses was set out in MIC Notifications (most recently in Notification 26/2016 in March 2016).

Under the Investment Law the categorisation of businesses remains as (i) those that are prohibited outright¹; (ii) those that are restricted as reserved for the state²; (iii) those which a foreign investor is not permitted to undertake³; (iv) those where foreign investment is only permitted as a joint venture with a citizen owned entity or citizen⁴; and (v) those that require approval or recommendation from relevant ministries⁵. However, key changes are implemented for the application process and the investment privileges available which depend on the type of business and the privileges being sought by the foreign investor. The Investment Law envisages two types of application: (i) a proposal for an MIC Permit to engage in certain business (Proposal), and (ii) an application for an Endorsement.

Proposal for an MIC Permit

Investors wishing to conduct businesses that are strategic to government, capital intensive, may have significant impact on the environment or local community; that utilise state owned land or property; or those designated by the Government will need to submit a Proposal to the MIC for an MIC Permit⁶. The Investment Law in addition to this list anticipates further rules that will prescribe in more detail the businesses that fall under these categories although there is no clarity on this at the date of this bulletin.

Application for Endorsement

For businesses not within the categories for which a Proposal is required, if they wish to benefit from the right to take a long lease of 50 years plus two 10 year renewals, or tax privileges under section 75 (income tax exemption), section 77 (import duties) or section 78 (income tax relief on reinvested profits, special depreciation or income relief on R&D expenses) an application for an Endorsement must be made to the MIC. This is a key change in that any investor that wishes to obtain privileges can do so even if the business is not within the remit of restricted activities (a slight change from the previous regime).

In the absence of detailed rules it is not clear how a Proposal and an Endorsement will differ (if at all) as both need to be reviewed and approved by the MIC⁷. The duty of the MIC is to review and, if beneficial to the interests of the government and not contrary to existing laws, approve a Proposal whereas the MIC duty for an application for Endorsement is merely to review and, if not contrary to existing laws, issue the Endorsement. There appears to be no or little discretion for the MIC not to approve an application for Endorsement provided it is not contrary to existing laws whereas under the FIL 2012 the MIC had a large discretionary power over approving (or not) applications for MIC Permits.

In theory this would allow any investment to benefit from the rights to take a long lease and tax exemptions, however, the wording of sections 75, 77 and 78 is permissive (‘the MIC may scrutinise and grant’⁸) and the expectation is that the rules will either give MIC specific discretion or specify criteria for investment to meet before obtaining tax privileges.

Earlier drafts of the Investment Law suggested that the right to take a long lease would be given to all Foreign Investors regardless of the business or whether any other privileges were given. This is less clear in the Investment Law and which approach is taken by the MIC will be a key determinant of whether the Investment Law does in fact make the significant change in the role of the MIC to setting policy and only being concerned with significant investments rather than maintaining the existing approach.

Are the rights and obligations of investors the same as under the old FIL 2012?

The key rights and investment privileges of investors granted under the FIL 2012 were (i) the right to lease land for 50 years plus two 10 year renewals, (ii) certain tax exemptions relating to income tax, reinvested profits and import duty and (iii) the right to repatriate profits. Other benefits included a guarantee against expropriation. The categories of rights and investment privileges for investors under the Investment Law are very similar to those under the FIL 2012 but the extent of the rights does differ somewhat as follows:

• the period of income tax exemptions will now depend on whether the investment is in zone 1 (seven years⁹), zone 2 (five years¹⁰) or zone 3 (three years¹¹) as opposed 5 years regardless of location or sector. The demarcation of the zones has not yet been announced and although the Investment Law, section 37 specifically states that in order to benefit from the exemptions and reliefs under sections 75, 77 and 78 an Endorsement application must be submitted in the stipulated from to the MIC, we expect that tax exemptions and reliefs will not be automatic but policy driven and reserved only for certain investments;

• exemption or relief from customs duties or other domestic taxes or both is available on the importation of raw material and partially manufactured goods conducted by a fully export orientated investment business for the purposes of the manufacture of products for export;¹²

• reimbursement of customs duties or other domestic taxes or of both is available, if they were imposed on imported raw materials or partially manufactured goods which are then used to manufacture products locally for export;¹³

• if the investment is increased with the approval of the MIC, exemptions from customs duties or other domestic taxes on imported machinery, instruments, components, spare parts, construction materials (not available locally) and materials used in the business which are necessary for the expansion are available;¹⁴

• for the purposes of income tax assessment, the right to depreciate assets in a shorter time period than the life of the assets;¹⁵

• no less favourable treatment than Myanmar citizens with respect to the expansion, management, operations and the sale of other disposition of direct investments in accordance with the Investment Law;¹⁶

• subject to certain exceptions in trade zones or under international treaties or agreements, provide, in like circumstances, to a country’s investors and their direct investments, treatment no less favourable that that accorded to another country’s investors and their direct investments with respect to the establishment, acquisition, expansion, management, operations and the sale or other disposition of direct investments;¹⁷

• guaranteed fair and equitable treatment in respect of the right to obtain relevant information on any decisions or measures which cause a significant damage to the investor or their direct investors; and the right to due process and the right to appeal on matters concerning other similar undertakings including changes to the terms and conditions under any licences or permit or endorsement granted to an investor;¹⁸ and

• guarantee against nationalisation and guarantee against expropriation unless in the interest of the Union and its citizens; in a non-discriminatory manner; in accordance with existing laws; and upon prompt, fair and adequate compensation for the expropriated investment.^{19 20}

Protection against nationalisation, expropriation and most favoured nation and fair and equitable treatment

While these concepts may be familiar in the context of international investment treaties, their inclusion in the Investment Law was, at times, controversial during the consultation period with certain commentators suggesting this could lead to ‘regulation freeze’. Without entering into that debate it should be noted that these rights for investors are limited. The right to fair and equitable treatment in section 48 is only in relation to decisions and the right to appeal under the Investment Law, not to investments generally.

In addition to the limitations within the sections themselves, sections 47 and 48 are explicitly subject to section 76 which contains the right of the Government to provide subsidies, funding, capacity building and training to Myanmar citizen investors or citizen owned SMEs and to allow special or more favourable exemptions and reliefs for measures related to location operated or economic activities by citizen owned business and should be read in conjunction with the reminder of the Investment Law. Limitations on these rights elsewhere in the Investment Law include, for example:

• section 89 that contains the right of Government to maintain reasonable non-discriminatory measures for prudent reasons such as to protect citizens morals or maintain public interest;

• section 90 that provides an exemption for anything necessary for national security; and

• section 91 that provides for any inconsistency between the Investment Law and any international treaties, the international treaties shall prevail.

These caveats and inconsistencies leave foreign investors with a great deal of uncertainty relating to these potentially very powerful rights. Further detail may be provided in the new rules and regulations expected to be issued under the Investment Law but it remains to be seen to what extent foreign investors are able to rely on these rights and utilise them to force change or protect their investments.

Are the key obligations on investors the same as under the FIL 2012?

The obligations or duties of investors under the Investment Law are both general for example, section 65 includes a list of obligations relating to compliance with laws and regulations where they are specific to a sector or require a specific permit or licence, whereas sections 51(d) to 51(f ) specifically require adherence to labour laws (which is also repeated in section 65(m)). These obligations however are largely the same as those under the FIL 2012, with the key new obligations limited to certain changes around employment of citizens; respect for, and compliance with, customs, traditions and culture of national races in the Union; and repayment of import duty exemptions and reliefs if existing an investment earlier than planned.

Key new or amended obligations under the Investment Law:

• To appoint qualified persons of any nationality as senior management, technical know-how or operational expert or adviser in accordance with the law and to undertake capacity building to replace and appoint Myanmar citizens to positions of senior management, technical know-how and operational experts at all levels;²¹

• To respect and comply with customs, traditions and culture of national races in the Union;²² and

• If the investor ceases its business before the expiry of the permitted period, to repay any tax exemption or relief or both enjoyed on any items imported with tax exemption or relief of both²³

Settlement of disputes and penalties

The penalties under the Investment Law for non-compliance are the same as those under the FIL 2012, namely censure, suspension of business, suspension of tax exemptions or reliefs, revocation of the MIC Permit or Endorsement (including being blacklisted against future MIC Permits or Endorsements). However, the Investment Law contains a specific right of the investor to receive notice of any proposed penalty and to make enquiries and seek justification and, if not satisfied, appeal to the Government within 60 days from the date of the decision to impose penalties.

The provisions in the Investment Law regarding the settlement of disputes are likewise very similar to those in the FIL 2012 – amicable negotiation failing which, if no dispute resolution mechanism is stated in the relevant agreement, in a court or arbitral tribunal in accordance with existing laws and if the dispute resolution mechanism is stated in an agreement, in accordance with that mechanism.

This perhaps is a missed opportunity. Earlier drafts of the Investment Law had included recourse to international arbitration for Foreign Investors and although there are many good arguments both for and against this, it could potentially have opened the door to a path the Government did not want to follow. There could have been, however, a specialist tribunal or court nominated or set up to deal with investment disputes or a court specifically nominated (for example, the Yangon High Court or the Supreme Court or Constitutional Tribunal if the action was against a decision of a Ministry or government agency). These courts could then have established expertise and processes for dealing with investor disputes under the Investment Law which could have provided greater certainty and clarity for both Foreign Investors and Citizen Investors.

Interaction with other laws and treaties

As mentioned above, the Investment Law specifically notes that to the extent there is an inconsistency with an international treaty the terms of the treaty will prevail. Section 94 contains a provision that, notwithstanding anything contained in any other laws, matters relating to any provisions covered by the Investment Law shall be carried out in accordance with the Investment Law. This is potentially confusing for investors and the MIC and inconsistent with the Investment Law itself which in many places refers to other laws, rules, regulations or stipulations that investors must follow (for example, labour laws and environmental laws). While this may have been an attempt to provide clarity it would seem, for example, to cut directly across the State Owned Economic Enterprise Law 1989 which reserves certain activities for the state, a joint venture with the state or with notification from government permitting the relevant business. This may be clarified in the rules and notifications to be issued under the Investment Law specifying prohibited and restricted businesses but these are yet to be issued.

Rules, regulations, notification and transitional provisions

While the Investment Law anticipates rules or regulations to be issued under it, these have not yet been put in place. As such, pursuant to section 92, until such as new rules and regulations are put in place, those issued under the FIL 2012 shall continue to apply to the extent they are not contrary to the Investment Law. The MIC formed under the FIL 2012 and Citizens Investment Law 2013 will also continue and have authority to perform its functions until all its duties and responsibilities have been passed on to the MIC that will succeed it under the Investment Law²⁴. Similarly, any MIC Permit granted or other approval given under the Foreign Investment Law 1988, the FIL 2012 or the Myanmar Investment Law 2013 shall continue to be effective until the prescribed expiry of the relevant investment²⁵.

However, all investors should note that the obligations of investors under section 65 (for examples, see ‘Are the key obligations on investors the same as under the FIL 2012?’ above) are mandatory from the date the Investment Law comes into effect²⁶.

Conclusion

Drafts of the Investment Law were widely circulated and consulted upon during a two year period and the end result shows themes that have been at the forefront of civil society activism in private sector investment and are emerging within the new administration – environmental and social protection, rule of law/adherence to existing laws and labour protection. There is also a significant reluctance on the part of Government to relinquish discretion as evidenced in the rejection of specified dispute resolution mechanisms or adoption of a truly level playing field among investors or adoption of a mere notification for unrestricted investments. The result is a lack of clarity in many areas and a resulting lack of certainty for investors, so while the stated objectives are admirable whether or not they are achieved only time will tell.

Particular areas of uncertainty for investors include the relatively weak investor protection provisions around the most favoured nation, fair and equitable treatment and dispute resolution sections and references to other laws purportedly restricting provisions of the Investment Law. This combined with the discretion for the MIC in its policy setting and classification of businesses into categories could leave some investors not yet in Myanmar with significant questions and others already here not knowing exactly whether or how much they will be impacted.

However, once there is clarity over which businesses are classified as ‘not restricted’ under the Investment Law, this should facilitate foreign investment in those unrestricted businesses by removing the discretion of the MIC to approve these investments and permitting any investor to benefit from the right to take a long lease²⁷. This in itself is a great step forward in giving investors the security of tenure to commit capital to facilities, such as training and servicing, as well as offices, particularly for those investors that would not have qualified for an MIC Permit under the FIL 2012.

Similar issues were identified with the FIL 2012 in that under the FIL 2012 the MIC also had great discretion to approve investments and issue notifications of restricted business yet the MIC has been seen as a facilitator of investment during the last four years, not a hindrance. There are many themes to be positive about in the Investment Law such as the continuity in the provisions compared to the FIL 2012 relating to rights and obligations of investors and the continued classification of business into prohibited and restricted businesses.

If this continuity is combined with rules and regulations issued under the Investment Law that are clear, concise and do not restrict business more than under the current notification (which includes that any business not listed in the notification can be 100% foreign owned) this could be a great opportunity for Myanmar to boost its attractiveness as an investment destination. Hot on the heels of the termination of U.S. sanctions (U.S. Department of the Treasury, Office of Foreign Assets Control Ends Its ‘Burma Sanctions Program), Myanmar has the potential to attract significant additional foreign investment. 

1_Investment Law, section 41
2_Investment Law, section 42(a)
3_Investment Law, section 42(b)
4_Investment Law, section 42(c)
5_Investment Law, section 42(d)
6_Investment Law, section 36
7_Investment Law, section 25(c) and section 25(d)
8_Investment Law, section 75, 77 and 78, emphasis added
9_Investment Law, section 75(a)
10_Investment Law, section 75(a)
11_Investment Law, section 75(a)
12_Investment Law, section 77(b)
13_Investment Law, section 77(c)
14_Investment Law, section 77(d)
15_Investment Law, section 78(b)
16_Investment Law, section 47(a)
17_Investment Law, sections 47(b) and 47(c)
18_Investment Law, section 48
19^_Investment Law, section 52
20_ Under the FIL 2012 there was a guarantee against nationalization and a guarantee not to suspend a business without sufficient cause
21_Investment Law section 51(a) and (b)
22_Investment Law, section 65(a)
23_Investment Law, section 68
24_Investment Law, section 101
25_Investment Law, section 93
26_Investment Law, section 67
27_MIC Notification 26/2016