KPMG in Myanmar

Foreign Investment Law and Investment Procedures in Myanmar

July 12, 2013

Ⅰ New Foreign Investment Law and Its Guidelines

1. Revision of Myanmar Foreign Investment Law 2011 • The government announced to make revisions in the foreign investment law (FIL) which was originally issued in 1988。 August, 2012 • The amended bill (New FIL) was approved by the House of Representatives (the lower house of the Assembly of the Union) September,2012 •The new FIL was approved by the Assembly of the Union and sent to the president. •President Thein Sein returned the proposed law back to the Assembly of the Union with 16 further amendments. November, 2012 •After a careful deliberation of the Assembly of the Union and after the president signed the proposal, the new FIL was made effective on the 2nd of November, 2012. January, 2013 •The Ministry of National Planning and Economic Development (MPED) and Myanmar Investment Commission (MIC) issued detailed regulations of the new FIL. (Notification of MPDE No.11/2013 and Notification of MIC No.1/2013 )

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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2. Comparison of FIL - Old and New The major changes in the New Foreign Investment Law are summarized below ; Old FIL

New FIL

(1) Timeframe of MIC approval

Not mentioned

• MIC shall notify their acceptance of the application documents within 15 days from the submission. • Within 90 days from their acceptance , MIC shall conclude their review.

(2) Term for land lease

Land lease can be done only from the government. Lease term was not mentioned.

• Possible to lease lands both from private entity/person as well as the government . • Lease term can be 50 years and apply extension of the next 10 years twice (70 years in total).

(3) Foreign Capital Ratio

Not mentioned Prohibited business for foreign capital was described

• Business allowable only for JV with Myanmar partners ⇒Equity ratio by foreign capital should be less than 80%（60% for some business) • Other than the restricted business ⇒Foreign capital can own 100% equity

(4) Tax incentives

Corporate tax exemption for 3 years

Corporate tax exemption for 5 years

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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2-1. Summary of the Investment Incentive Old FIL

Corporate income Tax

Tax holiday for the first 3 years from the commencement of business

Import Duty

•Duty exemption for ; - imported machinery and equipment during the construction period - imported building material • Duty exemption for - imported raw materials and parts for manufacturing for the first 3 years from the commencement of business

Special Privilege on Land Lease

•Foreign capital company shall lease land only from the government. •By the Notification No. 39 in 2011, land lease of privateowned land became available

New FIL

Tax holiday for the first 5 years from the commencement of business

Same as left

•Leasing of private owned land as well as government owned land •Possible to sublease it and pledge it as collateral •Lease term can be 50 years with extension of 10 years + 10 years

Special Economic Zone Act (Draft) • Tax holiday for the first 5 years in the Promotion Zone, and 7 years in the Export Processing Zone. • Half tax-rate reduction for the next 5 years after the end of tax holiday • For another 5 more years、if the profits are reinvested in the business within a year, half tax-rate reduction is available for the earning from the re-invested business •Duty exemption for all materials/parts, machinery and equipment imported by the companies in the Export processing Zone. •Duty exemption for imported machinery/equipment and motor vehicle for the first 5 years in the other zones. After the period, half tax-rate reduction shall be applied for the next 5 years.

• Lease term for the land in SEZ can be 50 years with extension of another 25 years.

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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3. Promoted Businesses by FIL 【Investment-promoting Business】（Old FIL）

【Investment-promoting Business】（New FIL）

1) promotion and expansion of exports; 2) development of natural resources that require heavy machinery 3) manufacturing and production with advanced technology 4) supporting the business of production and services involving large capital 5) development of employment opportunities 6) bringing out of business which would save energy consumption 7) regional development

1) Supporting the main objectives of the economic development plan, business which cannot be affordable and which are financially and technologically insufficiency by the Union and its citizen; 2) Development of employment opportunities 3) Promotion and expansion of exports; 4) Production of import substituted goods; 5) Production of products which require mass investment; 6) Acquisition of high technology and development of manufacturing business by high technology; 7) Supporting the business of production and services involving large capital; 8) Bringing out of business which would save energy consumption; 9) Regional development; 10) Exploration and extraction of new energy and the emergence of renewable energy sources such as bio‐basic new energy; 11) Development of modern industry; 12) Protection and conservation of environment; 13) Causing to support for enabling to exchange the information and technology; 14) Not affecting the sovereign power and the public security; 15) Intellectual enhancement of citizens; 16) Development of bank and banking in accordance with the international standards; 17) Emergence of the modern services required for the Union and citizens; 18) Causing to be sufficient the local consumption of the energy and resources of the Union in terms of short term and long term period;

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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4. Prohibited and Restricted Business for Foreign Capital

＜All Business Areas＞ MIC Notification Foreign Investment Law

No.1/2013

(Cap. 2 Article 4)

ListⅡ. Economic activities to be allowed in the form of joint venture

Prohibited Business areas MIC Notification

MIC Notification

No.1/2013 ListⅠ. Prohibited Business Areas

No.1/2013 List Ⅲ. Economic activities to be approved on special conditions

Business areas considered to be available for 100% foreign capital Banking and Financial services, Wholesale and Retail Trading

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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4-1. Economic Activities Prohibited for Foreign Investment (f)Manufacturing services that Myanmar citizens are able to conduct according to the enforced regulations Foreign Investment Law

Chapter 2 Article 4 (a) Business which can affect the traditional cultures and customs of the national races within the Union (b) Business which can affect the public health (c) Business which can cause damages to he natural environment and ecosystem (d) Business which can bring hazardous or poisonous wastes into the Union (e) The factory which produce or the business which use hazardous chemicals under international agreements (f) Manufacturing business and services which can be carried out by the citizens by issuing laws (g) Business which can bring the technologies, medicines, instruments which is being tested abroad or not approved (h) Business of farming agricultures, short-term and long term agriculture which can be carried out by citizens by issuing rules (i) Business of breeding which can be carried by the citizens by issuing rules (j) Business of the Myanmar Marine Fisheries which can be carried out by the citizens by issuing rules (k) Business of foreign investment to be carried out within 10 miles from border line connection the Union territory and other countries except the areas stipulated as economic zones under the permission of the Union

(A) Manufacturing 1. Conservation and management of forests 2. Production of traditional medicine in Myanmar 3. Oil drilling up to 1,000 feet 4.Small and medium-sized mining 5. Cultivation of medicinal plants to be used in Myanmar traditional medicine 6. Manufacture and sale of iron scrap and parts 7.Production of traditional food 8. Manufacturing of religious antiquities 9. Manufacturing of materials related to traditional culture 10.Production of handicrafts

(B) Services 1. Private traditional clinic 2. Sale of traditional medicine 3. Development of traditional medicine 4. Ambulance service 5. Aged care facility 6. Cafeteria, transportation, laundry, management of railway services 7. Agency services 8. Electricity supply of 10MW or less 9.Publication in Myanmar language or other ethnic minority language, newspaper and other media

(h) Short-term and long-term agricultural plantations Myanmar citizens can conduct according to the enforced regulations 1. Small-scale agriculture firm 2. Cultivation in agriculture firms that does not use modern facilities or technology (i) Livestock industry that Myanmar citizens can conduct 1. Small-scale livestock industry 2. Traditional livestock industry that does not use advanced technology (j) Myanmar fishing in inshore fishing waters that Myanmar citizens can conduct according to the enforced regulations

1. Deep off shore fisheries for saltwater fish, shrimps and other marine products in Myanmar territory inofcoasts and International”), a Swiss entity. Member firms of 2. the Fishing KPMG network independent firmsrivers are affiliated with 7

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5-1. Manufacturing Industry (1) Ⅰ．Prohibited Economic Activities

 Manufacturing and related services of Arms and ammunition for the national defense.  Agriculture and Manufacturing which are not compliance with Fertilizer Law, Seed Law and Agricultural Laws promulgated from time to time.  Production of Ozone-depleting substances  Production of organic matter that are prohibited by Stockholm Agreement  Production or use of hazardous substances which are prohibited by environmental and conservation Law, Rules and Procedures promulgated from time to time.  Manufacturing and marketing of construction materials whose composition includes asbestos Ⅱ. Economic Activities to be Allowed only in the Form of Joint Venture with Myanmar Citizens

Manufacture and sale of the following products:  Hybrid seeds  High-yield seeds and local seeds  Grain products (biscuits, various noodles, etc)  Confectionary  Preserving, manufacturing, canning and marketing of other food products except milk and dairy products  Malt, malt liquors and non-aerated products  All kinds of spirits beverages and non-beverages  All kinds of ice  Purified drinking water  Cordage, rope, twine of textile fibers  Enamelware, cutlery, crockery of all kinds  Plastic wares  Rubber and plastic

 Hides, skins and leathers of all kinds (foot wears, handbags, etc) except synthetic leather  Various paper products  Paper, paperboard including carbon paper, waxed paper, toilet paper, etc.  Chemical products using domestic natural resources  Flammable materials, liquid, gas, aerosol  Oxidants (Oxygen, Hydrogen, Peroxide) and compressed gas (Acetone, Argon, Hydrogen, Nitrogen, Acetylene)  Corrosive chemicals (Sulfuric acid, Nitric acid)  Industrial chemical gases, including compressed, liquefied and solid forms  Pharmaceutical raw materials  High-tech vaccine  Structural metal framework for buildings, girders, prefect and precast concrete  Locomotive wagon, coaches and locomotive engine

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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5-1. Manufacturing Indsutry (2) Ⅲ．Economic Activities Allowed on Certain Conditions

Type of Economic Activities

Condition

 Production of oil and fats from vegetables, animals and other substances

 Local raw materials must be used at least 80%

 Production of soft beverages, aerated and non-aerated products

 Local raw materials must be used at least 20%  Local cropping raw materials must be used at least 60% after 3 years factory completion

 Production of seasoning powder

 Local raw materials must be used 100% within first 3 years

 Production of cigarette

 Local raw materials must be used at least 50% which is bought by the income earned after exporting local Virginia  Export 90% of products  The list of local raw materials to be used and exporting program must be attached in the investment proposal

 Production of perfume and cosmetics

 Local raw materials must be used at least 50% within 5 years after the completion of factory

 Manufacturing and marketing of chemical products such as paint, varnish, polish, dye, thinner and lacquer ware paint

 Up to 70% of foreign capital is allowed

※Business areas which are required to comply the various regulations and to obtain approvals of specific government ministries are omitted from the above list. ©。 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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5-2. Real Estate Development and Infrastructure Project (1) Ⅰ．Prohibited Economic Activities

    

Management of electricity distribution network Trading of electric power Inspection services of electrical equipment Air navigation services Sea navigation services

Ⅱ. Economic Activities Allowed only in the Form of Joint Venture

 Construction of road network and railway such pier, highway, subway, etc.  Development of international standard resort facilities and golf course  Development or sale or lease of residential apartment condominium  Development or sale of commercial building and office building  Development , sale and lease of residential apartments in the residential areas connected to the industrial zone  Development of general public housing  Development of New Town  Building new ships and repairing services at docks

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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5-2. Real Estate Development and Infrastructure Project (2)

Ⅲ．Economic Activities Approved under Certain Conditions

Economic Activities

Condition

 Hydropower and coal-fired thermal power plants

 Only in the form of joint venture with Myanmar government and on BOT contract

 Construction and lease of office buildings and commercial buildings

 100% foreign investment can be accepted only on BOT contract  In the case of joint venture with Myanmar、Myanmar partner shall contribute the land lease title as capital in kind

※ Business areas which are required to comply the various regulations and to obtain approvals of specific government ministries are omitted from the above list.

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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5-3. Trading and Service Business (1)

Ⅰ．Prohibited Economic Activities

 Integrated management of media and publishing business  Printing and publishing in Burmese and in other minority ethnic languages 【Financial services and Wholesale and Retail trading is not covered by the Foreign Investment Law. In principal these business are prohibited for foreign capital investments】

Ⅱ. Economic Activities Approved only in the Form of Joint Venture

 Ship transport services of passengers and freight  Warehousing and port services by container depot  Traditional medicine clinics and private hospitals  Tourism and travel industry

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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5-3. Trading and Service Business (2)

Ⅲ．Economic Activities Approved under Certain Conditions (1)

Economic Activities

Conditions

 Marine and water way transport and related services

 Only in the form of joint venture with Myanmar government

 The hospitals and clinics by foreign capital

 Only in the form of joint venture with Myanmar government

 Health Spa services

 Operate only in 3-Star and above hotels, or in 5-Star Boutique hotels

 Casino business for foreigners only

 Approval by Myanmar government  Operate only in hotels in restricted areas  Myanmar citizens are not allowed to play

 Hotel Business

 100% foreign capital shall be allowed only for 3-Star and above hotels

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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5-3. Trading and Service Business(3)

Ⅲ．Economic Activities Approved under Certain Conditions (2)

Economic Activities  Large-scale retail trading

Condition  Only large-scale retail businesses such as supermarkets, department stores, shopping center, etc Floor Area ・Department hypermarket⇒50,000 square feet or more ・Supermarket ⇒12,000～20,000 square feet or more  Should not be located near to the existing local stores  Priority in trading of domestic products  In the case of joint venture, Myanmar capital shall hold at least 40% interests

 Small and medium-sized retail trading

 Government may approve after 2015  Minimum investment of USD 3 million or more  Trading of motorcycle and automobile will be excluded

 Franchise Business

 Foreign capital may become only franchisor （Franchisees shall be local capital only）

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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5-3. Trading and Service Business (4)

Ⅲ．Economic Activities Approved under Certain Conditions (3)

Economic Activity

Condition

 Wholesale trading

 Require the recommendation from Ministry of Commerce （It may require large amount of investment, high technology involvement ）

 Warehouse Business

 Only large-scale warehouses  In the case of joint venture, Myanmar capital shall hold at least 40% interests

 Restaurant, beverage shop in large-scale retail facility

 Require area of 2,000-4,000 square feet in supermarket, 5,000 and above square feet in department store

 Publishing in foreign languages

 In the case of joint venture, Myanmar capital shall hold at least 51% interests  At least 2/3 of officers and other key staff must be Myanmar citizen

※ Business areas which are required to comply the various regulations and to obtain approvals of specific government ministries are omitted from the above list.

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Ⅱ Procedures for Foreign Investment in Myanmar

1. Types of Foreign Investment

Corporation of 100% Foreign Capital

Corporation in the Form of Joint Venture with Local Capital

Branch of Foreign Corporation  Business activities can be carried out in the same manner as corporation of 100% foreign capital  Representative offices can also be registered as “ Branch of a Foreign Company” under Companies Act

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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2. Registration and Approval Procedure Branch of a foreign corporation Service Company （excluding prohibited or restricted business)

 Restricted Business by FIL  Businesses eligible for incentives by FIL

 Business required approval of the relevant ministries

Inquiry

DICA

Registration of company and the business permit

DICA

Registration of company and the business permit

MIC

Approval of MIC

DICA

Registration of company and the business permit

MIC

Approval of MIC Approval and Conditions

Relevant ministries © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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3. Company Registration and Business Permit Submission of the application form (Form A) Payment of Registration Fee Review by DICA

Business Service

Minimum Capital

Company Registration / Proposed Conditions for Business Permit

2 months

USD 50,000 Temporary Permit

Manufacturing

Acceptance of the conditions by the investor

USD 150,000

Payment of 50% of the minimum capital

5 years

Completion of the Procedures © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Payment of the full capital

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4. Myanmar Investment Commission (MIC) Approval

Draft land lease agreement

Review by Union Attorney General office

Preparation of Application Form （Form1） and the Business Plan and other attachments

Prior explanation to relevant Ministries and Agencies

※ 【Minimum Capital】 In previous FIL, the minimum capital for Manufacturing - USD500,000 、 Service Business － USD 300,000 In the new FIL, the minimum capital is not explicitly Mentioned. It is assumed to differ on case-by-case basis。

Submission to MIC

Referral to relevant Ministries and Agencies

90 days

Review of the application documents

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Issuance of MIC Certificate

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Yasuhide Fujii, CPA Japan Managing Director KPMG Advisory (Myanmar) Ltd. [email protected] +95-1-527-103 / +95-1-514-862

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.