www.pwc.com/sg

Supplement to Doing Business Guide in Myanmar Myanmar’s New Draft Foreign Investment Law

October 2012

1

New Foreign Investment Law in Myanmar Any foreign investment in Myanmar is governed under the Foreign Investment Law (FIL) 1988. A revised draft FIL has already been approved by Union Parliament and was submitted for approval of the President in September 2012. The new FIL is expected to be finalised and gazetted within 2012. The draft FIL sets out land-use terms, legal structures and incentives for foreign companies such as a five-year tax holiday from the start of commercial operations, demonstrating the government’s commitment to attract long term foreign investors. Some proposals in the draft FIL are set out below:

Foreign Investment restrictions The following businesses are restricted to foreign investment: 1.

Businesses that can affect the culture and traditions of the ethnics.

2. Businesses that can be harmful to people’s health. 3. Businesses that can be harmful to the environment and the eco-system. 4. Businesses that will import harmful or toxic waste into the country. 5.

Businesses that will produce or use harmful chemicals in the view of international standards.

6. Manufacturing and services that can be undertaken by Myanmar citizens, as prescribed by the Myanmar Investment Commission (MIC). 7.

Import of technologies, medicines and utilities from overseas that are still at the trial period and has yet to be approved for the use by public.

8. Agriculture and short or long term plantations that can be undertaken by Myanmar citizens. 9. Livestock breeding businesses that can be undertaken by Myanmar citizens. 10. Offshore fishing businesses that can be undertaken by Myanmar citizens. 11. If the investment site is not located in the economic zones set up by the Union Government, the investor is not allowed to set up a business within 10 miles from the border lines. The Myanmar government and MIC may permit, in the interest of the State and its citizens, these activities to be carried out by foreign investors on a case-by-case basis, with the approval of the Union Government.

Investment formation Under the draft FIL, foreign investment may take place in one of the following forms: 1. A foreign entity may invest 100 percent in the businesses that are open to foreign investment as prescribed by the MIC. 2. A foreign entity may form a joint venture with citizens or governmental departments or organisations. In all joint ventures, the minimum shareholding of the foreign party is 35% of the total equity capital. For sectors that are not allowed for 100% foreign investment, the investment ratio for foreign investor and local investor is 50%:50%. 3. A foreign entity may also form certain business arrangement or contract.

2

The new draft FIL does not stipulate any minimum share capital requirements. Under the existing FIL, the minimum foreign share capital is USD500k and USD300k for manufacturing company and service company respectively.

Investment incentives Under the new draft FIL, companies registered under the Myanmar Foreign Investment Law (MFIL) which have obtained permits from the MIC are entitled to the following special benefits and tax incentives. The benefits and incentives are granted by the MIC at its discretion. 1.

Exemption from income tax for up to five consecutive years for an enterprise. The exemption may be extended by the MIC for a further reasonable period, depending on the success of the enterprise.

2. Exemption or relief from income tax on profits of the business that are maintained in a reserve fund and subsequently re-invested after the reserve fund is made. 3. Accelerated depreciation of machinery, equipment, building or other capital assets used in the business at the rates as prescribed by the MIC. 4. Relief from income tax of up to 50% of the profits accrued from export of manufactured goods. 5.

The right to pay income tax on the income of the foreign employees at the rates applicable to citizens residing within the country.

6. The right to deduct from taxable income the research and development cost which are necessary for the country. 7.

The right to carry forward and set-off up to 3-consecutive years from the year the loss is sustained in respect of such loss sustained within 2 years immediately following the enjoyment of exemption or relief from income-tax as contained in sub-section (1), for each individual enterprise.

8. Exemption or relief from customs duty or other internal taxes on imported raw materials for the first three years of commercial production following the completion of construction. 9. If the investor increases the amount of investment and expands the business within the approved timeframe, it may enjoy exemption or/and relief from customs duty or other internal taxes on machinery equipment, instruments, machinery components, spare parts and materials that are imported for the expansion of business. 10. Exemption from commercial tax on goods that are manufactured for export1 Note 1: Except for sub-section (1), the other exemptions and reliefs are subject to discretionary of MIC.

Land use term Under the Transfer of Immoveable Property restriction Law 1987, foreign ownership of land and immovable property is expressly prohibited. Under the draft new FIL, foreigners are allowed to lease land from the government or the person who has the right to lease for up to 50 years as well as two continuous extensions of 10 years if approved by the MIC. In addition, the MIC may allow a land use period longer than those mentioned in the Law with the approval of Union Government, for the investments to be made in remote and less developed areas of the country.

3



Get in touch Contact us If you would like to discuss any of the issues considered in this bulletin, please speak to your usual PwC contact or contact our team: PwC Myanmar Desk Ong Chao Choon

[email protected]

+65 6236 3018

Chris Woo

[email protected]

+65 6236 3688

Jovi Seet

[email protected]

+65 6236 3168

Lim Hwee Seng

[email protected]

+65 6236 3118

Our service offerings PwC offers a full suite of business services to assist you in investing and doing business in Myanmar including: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Mergers and acquisitions advisory Capital projects and infrastructure advisory Market entry advisory and market studies Taxation, customs and excise duties advisory Audit and other assurance services Human resources advisory and international assignment services Accounting, incorporation and corporate secretarial services Anti-corruption and corporate restructuring Business consulting services. PwC Myanmar Thought Leadership PwC’s inaugural edition of the Myanmar Business Guide provides a comprehensive summary of the various key developments, as well as practical guidance and considerations for doing business in Myanmar.

About PricewaterhouseCoopers Services LLP PricewaterhouseCoopers LLP helps organisations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com/sg

www.pwc.com/sg

© 2012 PricewaterhouseCoopers Services LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Services LLP, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. These notes are designed to keep clients up to date with tax developments and do not constitute professional advice. They are of a general nature only and are not intended to be comprehensive. Readers are therefore advised that before acting on any matter arising from these notes, they should discuss their particular situation with the Firm. No liability can be accepted for any action taken as result of reading the notes without prior consultation with regard to all relevant factors.