Myanmar investment law unpredictable

Few details have emerged since the new Myanmar investment law has been put into force by President Thein Sein’s signing on November 2. Observers expect more information on the law during US President Barack Obama’s visit of the country on November 19.

However, so far experts have said while the law contains a number of relaxations for foreign businesses and has a more liberal approach, its legal impact remains weak as many regulations are vague and of a generic nature. In practice, restrictions which are not explicitly defined can be read between the line and leave the Myanmar Investment Commission as the ultimate decision body a high level of discretion, making individual investment approval processes unpredictable.

Regulations of the new law include:

• No maximum foreign ownership level for particular industry sectors. Foreign investors may even own up to 100 per cent of an investment project, but this, however, has to be decided on a case-by-case basis by the Myanmar Investment Commission which leaves a lot of maneuvering room for them.
• Foreign ownership ratios in particular industries have yet to be clarified. The law says foreign investment is restricted when is threatens to damage the culture and tradition of ethnic minorities or to endanger public health, or where it relates to the handling and disposal of hazardous chemicals and toxic waste, which leaves plenty of room for interpretation.
• The new law says that an enterprise established under the new law will not be nationalised during its original or extended term. Before, enterprises could be nationalised if adequate compensation was paid. However, another provision of the new law says that an enterprise will not be suspended “without substantial cause” during its term which is contradictory.
• A 5-year tax holiday has been included in the new law. Other forms of tax relief depend on the nature of business and are not clearly defined as per the available information on the new law. Foreign-owned manufacturing businesses may be entitled to tax relief of up to 50 per cent on profits earned from exports. There is also reportedly a tax relief on profits reinvested in the business within a year.
• Foreign investment in the high-tech sector requires hiring local employees with relevant skills, whereby there is no clear definition of what businesses the high-tech sector entails. The law demands that locals must make up at least 25 per cent of the workforce in the first two years, 50 per cent in the next two years and 75 per cent in the third two-year period which could prove a big hurdle for some businesses. Companies must provide training to locals for this purpose.
• Foreign investors can lease land from the government or from authorised private owners for a period of 50 years, with two 10-year extensions granted.