Details

  • Type: Business and industry issue, Press release
  • Date: 2/6/2013

New Regulations under the Foreign Investment Law released 

Updated February 12, 2013 

 

 

On January 31, 2013 the Ministry of National Planning and Economic Development released the new detailed regulations under the 2012 Myanmar Foreign Investment Law.  The much awaited regulations are provided under two separate notifications, Notification 1/2013 and Notification 11/2013, spread over a total of 67 pages. No formal translation has yet to be published.


The release of the notifications answers the question everybody has asked themselves – will the new regulations provide a higher level of detail than before? The answer is yes – the new notifications do provide significant more details in many areas. Thus, the positive trend continues – where the government is strengthening Myanmar’s position as an attractive jurisdiction for foreign investments.

 

Notification 1/2013

 

The first notification – Notification 1/2013 – provides details on what business activities that will be allowed for foreigners. This area is probably the most exciting for many foreign investors.  The notification is separated into four sections:

 

  1. Activities that are to be restricted for foreigners;
  2. Activities that are only allowed for foreigners in Joint Venture with Myanmar nationals;
  3. Activities that are to be allowed under certain conditions (requiring approval from relevant governmental bodies or subject to other condition); and
  4. Activities that are only to be allowed after an Environmental Impact Assessment.

 

Of the first section – the activities that are restricted for foreigners – the most noticeable ones are:

 
  • Restriction for foreigners to carry out “small and medium size” mining projects. Restrictions for foreigners to import disposed products from other countries to be used in manufacturing in Myanmar.; and
  • Restrictions for foreigners to engage in printing and broadcasting activities.  

 

The next section covers activities that foreigners can only do in a joint venture with Myanmar citizens. According to Notification 11/2013 such joint ventures cannot give the foreign participants more than 80% of the equity. Thus, the Myanmar nationals need to hold a minimum of 20% of the investment. The notification presents a wide range of activities that require joint venture with Myanmar nationals. In brief the list can be summarized as follows:

 
  • Production and distribution of a wide range of consumer products within the food and beverages segment;
  • Production and distribution of a wide range of materials, chemicals, pharmaceuticals and equipments;
  • Production of plastic and rubber;
  • Large size mining projects;
  • Construction of buildings, iron frames and manufacturing of concrete;
  • Development and construction of infrastructure projects, such a large bridges, highways, , subways, etc;
  • Development of international standard golf courses and recreational parks;
  • Development, sale and rental of residential apartments, office and commercial buildings and residential apartments in industrial zones;
  • Development of new cities;
  • Domestic and International airlines;
  • Transport of goods and passengers by ship;
  • Construction and maintenance of ships at shipyard;
  • Construction of trains;
  • Private hospitals and clinics; and
  • Travel business.

 

The third section covers a wide range of activities that can be allowed under certain restrictions. The most noticeable ones are:

 
  • Restriction on level of foreign ownership, including
     
    • Limitation of between 25% and 49% foreign ownership for various activities related to forestry and timber;
    • Limitation of 70% foreign ownership for production and distribution of paint and certain chemicals
  • Limitation on duration of permit for
     
    • Large scale mining projects (15 years, with possible renewals for 4 x 5 years);
    • Pearl production (15 years, with possible renewal of 2 x 5 years);
    • Production and distribution of certain chemicals;
  • Certain activities can now only be done in a joint venture with the government, such as:
     
    • Jewelry production and selling
    • Production and distribution of explosive chemicals, specified substances and vaccines;
    • Marine training, representing foreign shipping companies, operation of shipyards, domestic water transport and specified construction work related to transportation;
    • Exploration of coal;

  • Requirement on a certain portion of locally sourced raw materials in production and distribution of a wide range of products, including vegetable and animal oil, beverages, MSG, cigarettes, perfume and cosmetics;
  • Requirement to carry out projects under Build-Operate-Transfer arrangements, covering:
     
    • Construction of power plant and production of electricity;
    • Construction and renting of office and commercial building – when based 100% on foreign investment ;
  • If construction and renting of office and commercial building is based on joint venture with local partner, the local partner must provide the land for long term lease.
  • Wellness Spa is only to be allowed in hotels with 3 stars or above, and for smaller hotels only if the hotel is high standard (like 5 star); and
  • Casinos will only be allowed to entertain foreign guests;
  • Hotels that are structured with 100% foreign investment will only be allowed for 3 star and above;
  • Production and distribution of fruits and vegetables is only allowed for value added products. If such activities are carried out as a JV, the Myanmar citizens need to hold minimum of 40% of the investment;
  • Foreigners are not allowed to carry out small retail businesses – only supermarket, department stores and shopping centers are allowed. The classification of the retail business will be determined based on physical size of operations. The regulation contain restrictions on location of business and level of imported goods. If such activities are carried out as a JV, the Myanmar citizens need to hold minimum of 40% of the investment;
  • Retail trading business will only be allowed after 2015, with minimum investment of USD 3 million. Such business activities will not qualify for tax exemption;
  • For franchise arrangements, the foreigner is only allowed the role as franchisor;
  • Foreigners are not allowed to carry out warehousing with small warehouses. If such activities are carried out as a JV, the Myanmar citizens need to hold minimum of 40% of the investment;
  • Agencies and rep offices must appoint only Myanmar nationals; and
  • Foreign language journals and magazines need at least two thirds of the directors and the main staff to be Myanmar citizens. In case of a joint venture the Myanmar nationals must own 51%.


Finally, the notification presents a list of activities that can be allowed after an Environmental Impact Assessment has been completed. In brief this applies to:

 
  •  Extraction of metals and minerals;
  • Exploration of oil and gas;
  • Larger construction and infrastructure projects; and
  • Certain manufacturing activities.

 

Notification 11/2013

The second notification – Notification 11/2013 – provides details on other aspects of foreign investment, including more details on the various procedures under the law.


One of the most important developments in this notification is the clear legal grounds for transferring shares between foreigners and Myanmar citizens. Such transfers have been challenging, if not to say impossible, previously. Such transfers would still be under the discretion of the Myanmar Investment Commission.


The regulations do not contain any threshold for minimum investment capital, unless for mining activities.


For joint ventures, the regulation now opens up for more flexibility – enabling the participation ratio to be agreed by the parties, unless otherwise specified. For investments in restricted businesses, the minimum local participation needs to be 20%.


For the construction portion of projects, the notification provides some new and rather strict requirements.  If the investor needs an extension, as application must be presented at least 60 days in advance. The construction period can be extended up to 50% of the original construction period. Extension shall not be allowed more than one time, except in special circumstances. The permit can be revoked if construction is not completed within the original construction period, with the possible extensions. The investor is not entitled to any compensation in event the permit is revoked.

 

Finally, Notification 11/2013 also contains a list of economic activities that are only to be performed by Myanmar citizens. The most noticeable ones are:

 

 
  • Forest conservation and production;
  • Exploration and production of oil up to 1,000 feet (it can appear as if the limitation only applies to operations utilizing limited technology) ;
  • Small and medium size mining operations;
  • Agency activities;
  • Electricity production under 10 mega watt;
  • Agricultural and livestock projects with limited investments, or without use of modern techniques; and
  • A wide range of fishery activities.

 

 


 

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.


Please contact us at myanmar@kpmg.com should you have any questions.