HERBERT SMITH FREEHILLS MYANMAR INVESTMENT GUIDE MYANMAR INVESTMENT GUIDE LEGAL GUIDE THIRD EDITION

Transcription

1 HERBERT SMITH FREEHILLS MYANMAR INVESTMENT GUIDE MYANMAR INVESTMENT GUIDE LEGAL GUIDE THIRD EDITION April 2016

2 02 MYANMAR INVESTMENT GUIDE 2016 HERBERT SMITH FREEHILLS

3 HERBERT SMITH FREEHILLS MYANMAR INVESTMENT GUIDE CONTENTS Introduction Note from the authors and editors Herbert Smith Freehills LLP...04 Herbert Smith Freehills Myanmar practice Myanmar group contacts...06 MLSL Map of Myanmar...08 At a glance...09 Introduction to Myanmar Promotion of foreign investment...13 Dual process for projects involving foreign investment licences Establishment options in Myanmar...23 Bribery and sanctions issues...28 Key contract law issues Lending and taking security...33 Dispute resolution...39 Oil and gas...43 Technology and communications...54 Labour law and visa requirements Real estate law...66 Intellectual property law...68 Competition law Glossary and abbreviations...72 Endnotes... 74

4 02 MYANMAR INVESTMENT GUIDE 2016 HERBERT SMITH FREEHILLS INTRODUCTION Since we produced the first edition of this Myanmar Investment Guide in 2012 and the second edition of this Myanmar Investment Guide in 2014, foreign investment in Myanmar has increased dramatically. Myanmar itself has undergone a period of rapid economic growth and of political change; that evolution continues at an astonishing pace. The country is now squarely on the investment map for South East Asia and presents investors with a wealth of opportunities across a range of sectors and industries. In our experience, the country is moving from a phase of abundant, but largely untapped, potential to a phase of multiple market entrants and a more pragmatic, considered analysis of the investment climate. There are opportunities and challenges in equal measure, and further positive developments are expected following the success of the first democratic general election in 25 years. As with our previous editions, this guide aims to provide an overview of the prevailing legal and regulatory regime. We hope that you will find this third edition informative and focused as much on the practicalities of doing business in Myanmar as on the complexities of the legal sector. Our Myanmar group is always available to respond to any further questions that you may have. Please let us know if we can assist further. Justin D Agostino Managing Partner, Asia Herbert Smith Freehills LLP In response to questions and feedback from our global client base, I am delighted to introduce this third edition of our guide to investing in Myanmar. The firm continues to advise clients on major transactions, capital projects, dispute resolution, business establishment, compliance, investigations and public international law issues in, or relating to, Myanmar. Most importantly, we continue to assist our clients in navigating the practical day-to-day challenges that many have faced or will face when considering a new investment opportunity or developing a business in the country.

5 HERBERT SMITH FREEHILLS MYANMAR INVESTMENT GUIDE NOTE FROM THE AUTHORS AND EDITORS There have been a number of notable developments in the Myanmar legal sector since These include: the opening up of the banking sector, with the award of the first preliminary licences to nine foreign banks in 2014, followed by a further four licences in 2016; the liberalisation of the telecommunications sector into a completive market, with the reform of the Telecommunications Law of the Republic of the Union of Myanmar 2013 and the proposed establishment of the MTC as an independent regulator; the establishment of a new framework for competition policy in Myanmar, with the passing of the new Competition Law of 2015; and the reform of arbitrational conduct and enforcement of foreign arbitral awards in Myanmar, with the passing of the Arbitration Law (Union Parliament Act No. 5 of 2016). Each of these initiatives has been welcomed by the international community and (in aggregate) has boosted confidence in the overall investment climate. Whilst the Myanmar legal framework is complex, it is being continually adapted to support the development priorities of the country as it opens up to increased levels of foreign investment. The Government of Myanmar has focused on a number of market reform initiatives; in the telecommunications and power sectors most notably and has promoted several large scale infrastructure hubs or special economic zones such as Dawei and Thilawa. The developments have been supported by new legislation such as the Myanmar Special Economic Zone Law (2014). Commentators believe that this trend is likely to continue under the leadership of the new NLD led government which took its seats in parliament in February this year, after their landslide victory in the country s first democratic general elections in 25 years. The licensing rounds in the telecommunications and the upstream oil and gas sectors have been of real significance and have attracted considerable interest from major global corporates. Several foreign investments in those sectors have been the largest into the country to date and are likely to lead to the continued growth of long-term businesses and socio-economic benefits for Myanmar. In researching the third edition of this guide, we have addressed the legal position set out in the main national laws currently in force in Myanmar as of 1 April We have also commented on informal practice in relation to the implementation of various elements of the laws. However, practice may change from time to time and may be reflected in subordinate or regional legislation. We would like to thank the attorneys at Myanmar Legal Services Limited (MLSL) for their extremely helpful collaboration on this guide. David Clinch Partner, Singapore Herbert Smith Freehills LLP Brian Scott Partner, Singapore Herbert Smith Freehills LLP Mark Robinson Partner, Singapore Herbert Smith Freehills LLP

6 04 MYANMAR INVESTMENT GUIDE 2016 HERBERT SMITH FREEHILLS HERBERT SMITH FREEHILLS LLP Herbert Smith Freehills is a leading international law firm with 2,800 lawyers and 480 partners in over 23 offices spanning Asia, Africa, Europe, Australia, the US and the Middle East. Working for many of the largest and most ambitious multinationals across the world, Herbert Smith Freehills provides innovative legal services to corporations, governments, financial institutions and all types of commercial organisations. The firm advises on corporate, dispute resolution, banking and finance, real estate, energy, mining and infrastructure, and offers a full range of specialist services including investment funds, real estate and property, regulatory and competition, employment and employee incentives, construction, insurance, tax and IP/IT. As the largest, fully-integrated law firm in Asia Pacific, Herbert Smith Freehills can also provide unparalleled depth of expertise across the Asia Pacific region. Herbert Smith Freehills has 53 partners and over 230 lawyers based in offices in Seoul, Tokyo, Hong Kong, Shanghai, Beijing, Singapore, Bangkok and Jakarta (where we have a presence through our associated firm Hiswara Bunjamin & Tandjung, a market-leading legal services provider in Indonesia.

7 HERBERT SMITH FREEHILLS MYANMAR INVESTMENT GUIDE HERBERT SMITH FREEHILLS MYANMAR PRACTICE We believe Herbert Smith Freehills has the most experienced Myanmar practice of all of the major international law firms, having advised on a number of financings, investments, tender processes and disputes across a range of sectors in Myanmar over recent years. We have also had an on-the-ground presence in Yangon through our secondment arrangement with MLSL which is a relationship that has been commended for work[ing] well and being focused on value-adding support (Chambers Asia-Pacific 2016). We have been and are currently advising on investments, market-entries and commercial arrangements for numerous multinational clients across a broad range of sectors, including (amongst others) in the oil and gas, energy and resources, telecommunications, financial services, consumer goods, automotive, agricultural, real estate, hotel and tourism and pharmaceuticals sector on their current and proposed Myanmar activities. compliance and establishment issues in Myanmar tailored to their commercial objectives. As a result of this extensive experience we understand the local legal and commercial market and the regulatory and political framework which our clients are likely to be faced with upon investing in Myanmar. As the legal and regulatory landscape continues to change, we keep abreast of developments in Myanmar and provide updated advice through our very close ties to local advisers in Myanmar. Our Myanmar practice group consists of approximately 20 partners from across our global network and we have approximately 13 other fee-earners within the practice group. We are committed to continuing to expand our practice in Myanmar in line with the needs of our clients. Band 1, Mayanmar - Chambers Asia Pacific Our corporate, finance and disputes practices have linked up with our market-leading sanctions and bribery and corruption practices to help a number of clients as they consider their options in the jurisdiction. In particular, we have advised multinational corporations in pre-qualification and tender processes and on related regulatory,

8 06 MYANMAR INVESTMENT GUIDE 2016 HERBERT SMITH FREEHILLS MYANMAR GROUP CONTACTS SINGAPORE David Clinch Partner T david.clinch@hsf.com Brian Scott Partner T brian.scott@hsf.com Mark Robinson Partner T mark.robinson@hsf.com Alastair Henderson Partner T alastair.henderson@hsf.com Pamela Kiesselbach Senior Consultant T pamela.kiesselbach@hsf.com TOKYO Graeme Preston Partner T graeme.preston@hsf.com Andrew Blacoe Partner T andrew.blacoe@hsf.com BANGKOK Gavin Margetson Partner T gavin.margetson@hsf.com HONG KONG Kyle Wombolt Partner T kyle.wombolt@hsf.com Austin Sweeney Partner T austin.sweeney@hsf.com LONDON Anna Howell Partner T anna.howell@hsf.com Stephen Murray Partner T stephen.murray@hsf.com AUSTRALIA Robert Merrick Partner T robert.merrick@hsf.com SEOUL Lewis McDonald Partner T lewis.mcdonald@hsf.com BEIJING Tom Chau Partner T tom.chau@hsf.com Monica Sun Partner T monica.sun@hsf.com SHANGHAI Nanda Lau Partner T nanda.lau@hsf.com Herbert Smith Freehills GJBJ and Herbert Smith Freehills, an Australian Partnership, are separate member firms of the international legal practice known as Herbert Smith Freehills. Further information is available from The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication. Herbert Smith Freehills LLP 2016

9 HERBERT SMITH FREEHILLS MYANMAR INVESTMENT GUIDE MLSL MLSL has acted for international investors in Myanmar since 1995, advising on a wide range of projects in Myanmar including: manufacturing, infrastructure, mining, pipelines, oil and gas, and the recent award of international licences in the telecommunications sector. MLSL is experienced in dealing with both complex regulatory issues as well as local issues relating to projects in Myanmar and has connections with the relevant regulatory authorities, including senior officials at the Central Bank of Myanmar, Myanmar Investment Committee, the Attorney General s Office and the Directorate of Investment and Company Administration. As one of the few Myanmar law firms with high-level business law experience and skills (Chambers Asia Pacific 2014), and being a law firm known for being very knowledgeable in market practice (Chambers Asia-Pacific 2016). MLSL understands the different issues foreign investors will need to consider in deciding how to proceed with a project and has the relevant connections to be able to see projects through to completion. with a commercial understanding of what the client wants (Chambers Asia-Pacific 2016) who is both highly respected by many senior government officials (Chambers Asia Pacific 2014) and always good to work with (Chambers Asia Pacific 2011). HERBERT SMITH FREEHILLS STRONG RELATIONSHIPS WITH MLSL Our work in Myanmar has led to us developing successful working relationships with a number of local law firms, including MLSL. Herbert Smith Freehills and MLSL know each other well, having worked together on a number of matters in Myanmar over the years. We have developed a programme of seconding corporate associates to Yangon to work with MLSL. This arrangement has allowed clients to directly benefit from our secondees on-the-ground knowledge of Myanmar and ensured a seamless service is provided to clients on their Myanmar transactions. KHIN CHO KYI The MLSL team is led by Managing Director, Daw Khin Cho Kyi, who has over 30 years of legal experience in Myanmar. Her clients include private Myanmar and international corporate entities, as well as multilateral international foundations and financial institutions, foreign embassies, and law firms. Daw Khin Cho Kyi is considered to be a top tier leading individual in general business law in Myanmar (Chambers Asia Pacific 2012), and is described as an outstanding Myanmar lawyer

10 08 MYANMAR INVESTMENT GUIDE 2016 HERBERT SMITH FREEHILLS MAP OF MYANMAR NEPAL BHUTAN CHINA INDIA BANGLADESH KYAUKPYU MANDALAY MYANMAR NAY PYI TAW LAOS VIETNAM BAGO YANGON THILAWA THAILAND DAWEI CAMBODIA

11 HERBERT SMITH FREEHILLS MYANMAR INVESTMENT GUIDE AT A GLANCE (As at the time of publication unless stated otherwise) GENERAL INFORMATION NAME OF COUNTRY AREA 676,578 KM 2 POPULATION 51,419,420 CAPITAL ADMINISTRATIVE DIVISIONS THE REPUBLIC OF THE UNION OF MYANMAR NAY PYI TAW WORKFORCE 31,008,550 MAIN LANGUAGES MAIN RELIGIONS MAIN INDUSTRIES REGIONS: SAGAING, TANINTHARYI, BAGO, MAGWAY, MANDALAY, YANGON, AYEYARWADY STATES: KACHIN, KAYAH, KAYIN, CHIN, MON, RAKHINE, SHAN THE UNION TERRITORIES (INCLUDING NAY PYI TAW) MYANMAR, REGIONAL DIALECTS (CHIN, JINGPHO, KAYAH, KAREN, MON, RAKHINE, SHAN) AND ENGLISH BUDDHISM, ISLAM, CHRISTIANITY AND HINDUISM AGRICULTURE, OIL AND GAS PRODUCTION, FORESTRY, TEXTILES, MINING AND GEMSTONES, HEAVY INDUSTRY AND IRON AND STEEL MANUFACTURING ECONOMIC DATA AND STATISTICS CURRENCY TRADE ORGANISATION MEMBERSHIPS GDP (PPP; NOMINAL) GDP PER CAPITA KYAT (MMK) WTO, ASEAN, BIMSTEC, SAARC US$ BILLION; US$65.3 BILLION US$4,800; US$1,269.0

12 10 MYANMAR INVESTMENT GUIDE 2016 HERBERT SMITH FREEHILLS POLITICAL POSITIONS PRESIDENT HTIN KYAW (INAUGURATED ON 30 MARCH 2016) FIRST VICE PRESIDENT MYINT SWE (INAUGURATED ON 30 MARCH 2016) SECOND VICE PRESIDENT HENRY VAN THIO (INAUGURATED ON 30 MARCH 2016) MINISTER FOR FOREIGN AFFAIRS MINISTER OF COMMERCE MINISTER OF ELECTRIC POWER AND ENERGY MINISTER OF INDUSTRY MINISTER OF LABOUR, IMMIGRATION AND POPULATION MINISTER OF NATURAL RESOURCES AND ENVIRONMENTAL CONSERVATION MINISTER OF PLANNING & FINANCE MINISTER OF TRANSPORT AND COMMUNICATIONS GOVERNOR OF THE CENTRAL BANK OF MYANMAR SPEAKER OF THE UPPER HOUSE SPEAKER OF THE LOWER HOUSE MAIN POLITICAL PARTIES AUNG SAN SUU KYI THAN MYINT AUNG SAN SUU KYI KHIN MAUNG CHO THEIN SWE OHN WIN KYAW WIN THANT ZIN MAUNG KYAW KYAW MAUNG MAHN WIN KHAING THAN WIN MYINT NATIONAL LEAG UE FOR DEMOCRACY PARTY, UNION SOLIDARITY AND DEVELOPMENT PARTY, NATIONAL UNITY PARTY, SHAN NATIONALITIES DEMOCRATIC PARTY, RAKHINE NATIONALITIES DEMOCRATIC PARTY, ALL MON REGIONS DEMOCRATIC PARTY, AND NATIONAL DEMOCRATIC FORCE

13 HERBERT SMITH FREEHILLS MYANMAR INVESTMENT GUIDE INTRODUCTION TO MYANMAR MODERN HISTORY OF MYANMAR After gaining its independence from the British in 1948, Myanmar 1 entered a period of armed conflict and political instability. Following a socialist revolution led by the military in 1962, Myanmar continued to be governed by a succession of military governments. In 1989, the government began to implement economic reforms, including passing a foreign investment law. In November 2010, Myanmar held its first general election in 20 years, as a result of which, in March 2011, a new civilian government was established under the leadership of President Thein Sein. Since then, Myanmar has been actively introducing economic and political reforms, ranging from the introduction of foreign investment initiatives to the implementation of new labour laws protecting the rights of workers. Myanmar has also been fostering international relations, and recently held the rotating presidency of the Association of South East Asian Nations (ASEAN) for There have also been an increasing number of diplomatic visits from the United States (including the first by an in-office president of the United States of America when Barack Obama visited Yangon in November 2012) and European countries, in addition to those from neighbouring Asian countries including Thailand, Malaysia and Japan. Furthermore, as sanctions previously imposed on Myanmar have been suspended either in whole or in part by the European Union, the United States of America and other western countries, there has been a surge in the number of international investors seeking to expand their presence in the country. ADMINISTRATIVE STRUCTURE Myanmar is a presidential republic with a bicameral legislature (Pyidaungsu Hluttaw) comprising two houses: the Upper House (Amyotha Hluttaw) containing 224 seats; and the Lower House (Pyithu Hluttaw) containing 440 seats. Myanmar adopted a new constitution, which was announced on 29 May 2008, and subsequently ratified and promulgated by way of a national referendum. The new constitution came into effect on 31 January Under the new constitution, a quarter of seats in both parliamentary chambers are reserved for members of the military, and the three key ministerial posts (Ministers of Defence, Home Affairs and Border Affairs) are allotted to serving army personnel. 2 President Thein Sein is also a retired army general, and served as prime minister under the former military regime. BASIS OF MYANMAR S LEGAL SYSTEM Myanmar s legal system is complex and reliant on a number of very old statutes, some of which date back to the nineteenth century. It is based on a combination of: colonial period laws (pre-1948); parliamentary laws ( ); Revolutionary Council laws ( ); People s Assembly laws ( ); State Law and Order Restoration Council/ State Peace and Development Council laws ( ); and current legal period (Pyidaungsu Hluttaw laws) (2011 to present).

14 12 MYANMAR INVESTMENT GUIDE 2016 HERBERT SMITH FREEHILLS In addition to statute, the courts of Myanmar continue to apply common law principles dating back to the British colonial period. The main sources of Myanmar s legislation include the legislation referred to above and rules and regulations, directives, notifications and instructions, in each case issued by relevant governmental authorities in Myanmar. OVERVIEW OF FOREIGN INVESTMENT OPPORTUNITIES In 1988, the Myanmar Government implemented a market economy policy with a view to attracting foreign investment and revitalising the domestic private sector. It was in this context that the Union of Myanmar Foreign Investment Law of 1988 (1988 FIL) was enacted, and the Procedures Relating to the Union of Myanmar Foreign Investment Law of 1988 (FIL Procedures) were introduced to ameliorate foreign investment conditions. Despite the introduction of the 1988 FIL and FIL Procedures, until recent years, foreign investment opportunities were limited, due in no small part to the international sanctions regimes imposed against Myanmar. Since the regime change in March 2011, however, the new government has been pro-actively promulgating an open-door policy on foreign investment. This shift in attitude has brought about wide-ranging changes in the legal framework for foreign investment and has created a rapidly changing regulatory environment. On 2 November 2012 a long-awaited and much-debated new Foreign Investment Law (2012 FIL) was signed into law by President Thein Sein to replace the 1988 FIL. The 2012 FIL took some 10 months to pass into the Myanmar statute book. Several iterations of the 2012 FIL were put before President Thein Sein but rejected for being too protectionist before the 2012 FIL was finally enacted. The 2012 FIL has taken further steps towards the liberalisation of the foreign investment regime in Myanmar, narrowing certain restrictions that had previously been in place and widening tax and other incentives in an attempt to attract foreign investors. On 31 January 2013, the Ministry of National Planning and Economic Development (MNPED) issued implementing rules and regulations pursuant to the 2012 FIL which further clarify the principles set out in the 2012 FIL and the rules which foreign investors must comply with (FIL Rules). In addition, on 31 January 2013 the Myanmar Investment Commission (MIC) which facilitates the provisions of the 2012 FIL, issued Notification No. 1/2013 which provided further detail regarding the implementation of the 2012 FIL, including the specific business activities classified as (i) prohibited, (ii) restricted to a joint venture with a maximum of 80% foreign ownership, and/or (iii) subject to terms and conditions which may be stipulated by the Myanmar Government or the relevant Ministry. On the 14 August 2014 the MIC issued Notification No. 49/2014 (MIC Notification 2014), which replaces Notification No. 1/2013 although does not significantly affect the foreign investment regime and continues to set out the specific business activities which are classified as (i) prohibited, (ii) restricted to a joint venture; or (iii) subject to conditions. In general, the new MIC Notification 2014 introduced a more limited list of restricted activities required to be conducted in a joint venture with a Myanmar person, but also expanded the third category of activities subsect to conditions at the discretion of the relevant Ministry and extended the requirement activities within this third conditional category also be conducted through a joint venture with Myanmar person subject to a maximum of 80% foreign ownership threshold.

15 HERBERT SMITH FREEHILLS MYANMAR INVESTMENT GUIDE PROMOTION OF FOREIGN INVESTMENT OVERVIEW Myanmar s foreign investment policy forms part of its strategy to reconstruct and develop its economy. The reform process entails adopting a market economy, encouraging private investment, and opening up the economy to foreign trade and foreign investment. Together with its implementing legislation ie the FIL Rules and the most recent MIC Notification 2014, the 2012 FIL sets out the general framework for foreign investment in Myanmar. The 2012 FIL contains various incentives for foreign investment, such as tax exemptions and reliefs, an extension to land lease rights, and state guarantees against nationalisation and in relation to the repatriation of profits. Additional laws intended to promote foreign investment have also recently been enacted, such as the Myanmar Special Economic Zone Law 2014 (2014 SEZL). The 2014 SEZL replaces the Dawei Special Economic Zone Law of 2011 (DSEZL) and the Special Economic Zone Law of The new 2014 SEZL is a general law covering all special economic zones (Special Economic Zones) within Myanmar which allow foreign investors to undertake a range of business activities in designated areas whilst offering various tax reliefs and exemptions to eligible investors. A new Myanmar investment law is currently being developed which, if passed, will repeal Myanmar s Citizens Investment Law 2013 and the FIL and replace them with one consolidated law (Proposed Investment Law). It is expected (based on the draft of the Proposed Investment Law released dated 24 February 2015) that this law will include various other changes to the current foreign investment regime including removal of the requirement for all foreign investors to obtain an MIC permit before they are eligible to obtain various rights (for example the right to lease land for 50 years rather than one year). GOVERNMENTAL BODIES OVERSEEING FOREIGN INVESTMENT The MIC is the governmental agency which administers the 2012 FIL (as further implemented by the FIL Rules and MIC Notification 2014) in coordination with various ministries and organisations to facilitate foreign investment in Myanmar. It is also responsible for reviewing foreign investment proposals and has the authority to stipulate the terms and conditions of foreign investment under the 2012 FIL. 3 The Directorate of Investment and Company Administration (DICA) acts as the Secretariat for the MIC and the Director General of the DICA was formally known as the Registrar of Companies and receives applications for the incorporation of foreign companies. Both the MIC and DICA are part of the MNPED. FOREIGN INVESTMENT REQUIREMENTS AND PROCEDURES In order to benefit from the incentives and protections set out in the 2012 FIL, any company established in Myanmar must be registered with, and obtain a permit (MIC Permit) from, the MIC in accordance with the terms of the 2012 FIL and the FIL Rules (although as noted in above this requirement may be relaxed in the near future). It is not mandatory for a foreign company to obtain an MIC Permit and a foreign investor may instead choose to solely register their company under the MCA without applying for an MIC Permit. However a foreign company

16 14 MYANMAR INVESTMENT GUIDE 2016 HERBERT SMITH FREEHILLS solely registered under the MCA will not be eligible for the benefits and protections available under the 2012 FIL, and will be subject to certain limitations in the business activities it is able to carry out. In principle, pursuant to the 2012 FIL, the FIL Rules and MIC Notification 2014, foreign investors can invest in Myanmar through a 100% foreign owned entity, other than in relation to business activities which are classified as: prohibited; restricted to joint ventures with a Myanmar person; or restricted to joint venture and subject to conditions which may be stipulated by the Myanmar Government or the relevant ministry. Businesses operating in sectors which are classified as restricted are only open to foreign investment through a joint venture with a Myanmar entity or citizen. Any such joint venture company shall be subject to a maximum foreign ownership limitation of 80%, subject to the approval and discretion of the MIC and the Myanmar Government. Subject to certain limited exceptions, the relevant conditions applicable to businesses operating in sectors identified in the third category are not expressly set out in MIC Notification Such conditions are generally able to be imposed at the discretion of the relevant government ministry and some are permitted only in a joint venture with the relevant government ministry itself. In addition, MIC Notification 2014 introduced the requirement that business operating activities within this third conditional category will now also be subject to the maximum 80% foreign ownership limitation. While this requirement is now express, a minimum local ownership requirement was always within the broad discretionary authority of the government and ministries. There is no longer any prescribed minimum capital investment requirement in order to obtain an MIC Permit. Historically, the MIC required a minimum foreign capital investment of between US$300,000 to US$500,000, depending on the nature of the business. However these figures are no longer prescribed under the relevant regulations and the MIC may now determine the appropriate level of capital required on a case-by-case basis depending on the nature and scale of the proposed project. In some business sectors, the minimum capital requirement is likely to be considerably higher than the above amounts. Foreign investment projects under the 2012 FIL are also subject to a dual licensing and registration process comprising the following steps: submitting an application to the MIC to obtain an MIC Permit; and submitting an application to the DICA to register an entity and obtain a permit to conduct its business under section 27(A) of the MCA (a Permit to Trade). RESTRICTED AND PROHIBITED BUSINESS ACTIVITIES UNDER THE 2012 FIL (AND SOEEL) As noted above, the list of prohibited activities under the most recent MIC Notification 2014 has been reduced from the list set out in MIC Notification Prohibited activities generally include business activities in particularly sensitive sectors, such as the exploration and production of jade and gemstones or administrating electrical power systems. Business activities listed in the restricted category are required to be conducted in a joint venture subject to an 80% maximum foreign ownership limitation. This category includes most manufacturing activities and the development and construction of commercial or residential real-estate projects. The list of conditional business activities includes certain

17 HERBERT SMITH FREEHILLS MYANMAR INVESTMENT GUIDE bespoke conditions for particular sectors but also now requires some activities to be conducted in a joint venture with a Myanmar person or the relevant Government Ministry for the sector. A number of specific business activities are listed in MIC Notification 2014 and it is therefore important to consider each new venture by reference to the activities listed in MIC Notification Foreign investment in business activities in sectors not included within the list of prohibited or restricted activities, or which are otherwise reserved for the state under the State-Owned Economic Enterprises Law of 1989 (SOEEL), are considered on a case-by-case basis. RESTRICTED BUSINESS ACTIVITIES UNDER THE SOEEL The SOEEL grants the Myanmar Government the exclusive right to conduct any economic enterprise in relation to the following 12 business sectors: extraction of teak and sale of the same in the country and abroad; cultivation and conservation of forest plantation with the exception of village-owned fire-wood plantation cultivated by villagers for their personal use; exploration, extraction and sale of petroleum and natural gas and production of products of the same (which is likely to mean derivative products); exploration and extraction of pearl, jade and precious stones and export of the same; breeding and production of fish and prawns in fisheries, which have been reserved for research by the government; postal and telecommunications services; air transport services and railway transport services; banking services and insurance services; broadcasting services and television services; exploration and extraction of metals and export of the same; electricity generating services other than those permitted by law to be carried out by private and cooperative electricity generating services; and manufacture of products relating to security and defence which the government has, from time to time, prescribed by notification. However, the SOEEL also permits the above listed restricted business activities to be undertaken through a joint venture with the state, or independently by any person (subject to conditions), if it is in the interests of the state. In addition to governmental approval, most of the business activities listed above will also require the permission of specific ministries. INVESTMENT PROTECTION UNDER THE 2012 FIL Under the 2012 FIL, the Myanmar Government guarantees that companies operating with the permission of the MIC in accordance with the 2012 FIL will not be nationalised during the period (or extended period) of the relevant contract. The law also guarantees that the investment activities taking place under an MIC Permit will not be terminated before the expiry of the term of the MIC Permit without sufficient cause. The 2012 FIL contains another guarantee by the government that an investor of foreign capital will be able to repatriate its profits and that it may do so in a foreign currency. In practice, however, the Foreign Exchange Management Department of the Central Bank of Myanmar (CBM) must also give permission for all transfers abroad of foreign currency. Arranging

18 16 MYANMAR INVESTMENT GUIDE 2016 HERBERT SMITH FREEHILLS foreign currency transfers is a bureaucratic process, however provided the basis for a foreign currency transfer is approved under the terms of an MIC Permit (ie repayment of capital or interest on an approved offshore loan), obtaining the approval of the CBM should be merely administrative. TAX RELIEFS AND EXEMPTIONS UNDER THE 2012 FIL Under the 2012 FIL, the MIC is to grant tax exemptions to foreign companies from income tax for a period extending to five consecutive years, inclusive of the year of commencement of production of goods or services in respect of any enterprise for the production of goods or services. Where it is beneficial for the state, exemption or relief from income tax for a further reasonable period may also be granted, depending upon the success of the enterprise in which the investment is made. In addition, the MIC may grant any of the following tax exemptions, reliefs and/or benefits to foreign companies: exemption or relief from income tax on profits of the business if they are maintained in a reserve fund and reinvested within one year after the reserve is made; the right to accelerate depreciation in respect of machinery, equipment, buildings or other capital assets used in the business, at the rate fixed by the MIC for the purpose of income tax assessment; if the goods produced by any enterprise are exported, relief from income tax of up to 50% on the profits accrued from such exports; the right to pay income tax on the income of foreign nationals at the rates applicable to the citizens residing within the country; the right to deduct from assessable income such expenses incurred in respect of research and development relating to the enterprise which are actually required and are carried out within the state; if losses are sustained within two years immediately following the period set out in (a), the right to carry forward and set off such losses for up to three consecutive years; exemption or relief from customs duty or other internal taxes or both on machinery, equipment, instruments, machinery components, spare parts and materials used in the business which are imported for use during the period of construction (along with any additional materials required in the event that the project is expanded); exemption or relief from customs duty or other internal taxes or both on such raw materials imported for the first three years of commercial production following the completion of construction; and exemption or relief from commercial tax on products manufactured for export. There are no rules or guidelines in accordance with which the MIC will determine whether or not to grant the above benefits, and they are understood to be granted on a case-by-case basis. It should also be noted that the draft of the proposed new investment law the draft of which was dated 24 February 2015 does not contain any tax exemptions or reliefs and it remains unclear what the tax position of foreign investors will be under this law. SPECIAL PROVISIONS AND PROTECTIONS UNDER THE 2014 SEZL As mentioned above, the 2014 SEZL was passed by Parliament in January 2014 and is a general law covering all Special Economic Zones in Myanmar. The 2014 SEZL is similar to the previous special economic zone laws in that its objective is to develop industry and develop cooperation between Myanmar and other countries in relation to industry, business, the

19 HERBERT SMITH FREEHILLS MYANMAR INVESTMENT GUIDE economy and commercial and financial business within a prescribed zone identified for the purposes of development. It also aims to create employment opportunities and improve living standards in the areas surrounding the Special Economic Zones. Additionally the MIC has issued notification 59/2014 in connection with the Kokang Special Economic Zone and the Ministry of National Planning and Economic Development has issued notification 81/2014 in connection with the Thilawa Special Economic Zone. The former sets out the boundaries of the Kokang Special Economic Zone whilst the latter outlines the procedure for businesses looking to establish in Thilawa Special Economic Zone. Foreign entities looking to invest in Myanmar under the 2014 SEZL will need to gain approval from the Management Committee, established by the Central Body. Similar to the 2012 FIL, tax reliefs and exemptions are granted to foreign investors on a case-by-case basis. Investors are only entitled to carry out certain business activities within the Special Economic Zones, as stipulated in the 2014 SEZL. However, in practice, virtually all kinds of businesses, provided they are not prohibited by the state and are approved by the Management Committee of the relevant Special Economic Zone, can potentially be conducted in Special Economic Zones. TAX RELIEFS AND EXEMPTIONS UNDER THE 2014 SEZL Foreign investors who are operating under the 2014 SEZL may also apply for the following reliefs and exemptions: income tax exemption for the first seven years in relation to business investments in exempted zones or exempted zone businesses; income tax exemption for the first five years in relation to business investments in business development zones or other businesses within the territory of a Special Economic Zone; 50% relief on the income tax specified for the second five year period for investment business in an exempted zone and business development zone; 50% relief on the income tax specified for the third five year period for investment business in an exempted zone and business development zone if the profit is kept for reinvestment and reinvested into the business within one year; exemptions from customs duty and other taxes for raw materials, machinery and equipment and certain types of goods for investors in an exempted zone; and certain exemptions from customs duty and other taxes for the first five years on machinery and equipment for construction for investors in a business development zone, followed by relief of 50% of customs duty and other taxes for a further five years. Under the 2014 SEZL, foreign investors are also entitled to apply for an extended land lease of up to fifty years with the option to apply for an extension of up to another twenty five years. Developers and investors under the 2014 SEZL may also seek the permission of the Management Committee to rent, mortgage or sell the land and buildings to another person for investment within the terms granted to operate. The 2014 SEZL also includes a guarantee against nationalisation of business ventures within the period of the investment approval granted by the relevant Management Committee.

20 18 MYANMAR INVESTMENT GUIDE 2016 HERBERT SMITH FREEHILLS FOREIGN EXCHANGE AND CURRENCY Foreign exchange transactions are governed by the Foreign Exchange Management Law of 2012 (FEML) and the Foreign Exchange Management Rules of 2014 (FEMR) which are administered by the CBM. The FEML repealed the Foreign Exchange Regulations Act of 1947 (FERA). Foreign exchange control is managed by the Foreign Exchange Management Department (under the authority of the CBM), and the Foreign Exchange Management Board in accordance with the FEML, the FEMR and the instructions of the Ministry of Finance and Revenue. The FEML provides that there shall be no restriction on foreign exchange payments out of Myanmar for current transactions, which includes any payments in connection with foreign trade and business, interest on offshore loans, and payments of net income. However all foreign exchange transactions require the approval of the CBM and may only be conducted through banks authorised by the CBM to deal in foreign exchange. Underlying documentation is likely to be required by the transferring bank making the foreign exchange payment, such as a contract or invoice. All international transfers will then be submitted to the regular sitting of the relevant CBM committee for approval as a matter of the internal procedure of the transferring bank. In practice, approval of the CBM will generally be an administrative requirement for the transfer of money out of Myanmar in accordance with a business plan which has been approved pursuant to an MIC Permit. 4 If a foreigner wishes to transfer funds to a Myanmar company or citizen, this may be done through the recipient s account with a relevant Myanmar bank licensed to conduct foreign currency transactions. It is not possible to transfer Myanmar Kyat (MMK) out of the country.

21 HERBERT SMITH FREEHILLS MYANMAR INVESTMENT GUIDE DUAL PROCESS FOR PROJECTS INVOLVING FOREIGN INVESTMENT LICENCES OVERVIEW The current process for obtaining various permits and registering companies is time-consuming, typically taking approximately three months to complete the company establishment process. Efforts have been made to streamline the process and to create a one-stop shop service within the DICA including the recent opening of a DICA office in Yangon (the head office where applications are processed has historically been in Nay Pyi Taw) and the process has certainly improved. Further reforms are expected to be introduced by way of a revised companies law, which was initially expected to be issued by the end of 2015, but which is likely to be further delayed. CURRENT PROCESS FOR OBTAINING AN MIC PERMIT In order to enjoy the benefits of the 2012 FIL, foreign investors are required to obtain an MIC Permit by submitting an investment proposal to the MIC in the prescribed form. The MIC Permit enables the foreign investor to carry out specific business activities under the 2012 FIL and to benefit from the tax reliefs, exemptions and other preferential treatment available under the 2012 FIL. The requirements and supporting documents relating to the investment proposal to be submitted to the MIC in connection with the MIC Permit application is set out in detail in the Foreign Investment Rules and summarised below: documentation evidencing financial credibility (for example the latest audited final accounts of the person or company intending to invest); bank reference and recommendation; detailed calculations supporting the economic viability of the project, which cover the following items: estimated annual net profit, income and expenditure; estimated amount of foreign exchange earnings and requirements; estimated period for recovering initial investment; prospects of creating employment; prospects of increasing national income; relevant local and foreign market conditions; and requirements for domestic consumption (of the results of the project); in the case of a proposal by a 100% foreign-owned company, the draft terms of any contracts to be entered into with the relevant authorities under whose jurisdiction the project falls; in the case of a joint venture, the draft terms of any contracts to be entered into between the foreign investor and a Myanmar national or entity, and if the joint venture is to take the form of a limited liability company, the draft articles and by-laws; and documentation relating to any applications for tax exemptions under the 2012 FIL. If the MIC is satisfied that the proposal fulfils all the requirements under the 2012 FIL, it will award the foreign investor an MIC Permit, with terms and conditions attached. The 2012 FIL stipulates that the MIC is required to assess the

22 20 MYANMAR INVESTMENT GUIDE 2016 HERBERT SMITH FREEHILLS completeness of the proposal within 15 days of its submission (and reject it where it is incomplete). The MIC must then make a decision on whether to issue the MIC Permit within 90 days of its submission. The MIC is empowered by the 2012 FIL to grant an extension, relaxation or amendment of any term of an MIC Permit. However, the 2012 FIL does not empower the MIC to grant approvals required by other Myanmar laws and only the authorities empowered under the relevant laws are able to grant the necessary approvals. CURRENT PROCESS FOR REGISTERING AN ENTITY AND OBTAINING A PERMIT TO TRADE In addition to obtaining an MIC Permit, foreign investors wishing to benefit from the incentives and exemptions available under the 2012 FIL must also establish a Myanmar company or branch office, and obtain a Permit to Trade (akin to a business permit) from the DICA, prior to commencing operations in Myanmar. This is a separate process from the MIC Permit process outlined above and is administered by the DICA rather than the MIC. Foreign companies and branches of foreign companies must be registered with the DICA and obtain a Certificate of Incorporation or in the case of a branch office, a Certificate of Registration. The Certificate of Incorporation (or Certificate of Registration) evidences the formal commencement of the corporate entity in accordance with the MCA. The application processes for registration of an entity obtaining an MIC Permit and obtaining a Permit to Trade were previously separate, however, these applications are now processed by the DICA and MIC simultaneously. The first step in any company registration is conducting a name check to ensure the intended name is available for use. The application for registration of a company must include the following documentation: application for registration; copy of shareholders certificates of incorporation and copy of memorandum and articles of association; two sets of the company s memorandum and articles of association printed both in Myanmar and English. In the case of a joint venture with a state-owned enterprise, the memorandum and articles must also have been approved by the Attorney General and the Minister of MNPED, in accordance with the SCA; a declaration of registered office; letter confirming results of name check; a declaration both in Myanmar and English, as to which documents are legal documents and which are official; undertaking not to conduct trading activities; a declaration stating the full address of the registered office of the company or branch office in Myanmar; a certificate of translation; a list of the directors and managers of the Myanmar entity including names, nationalities and addresses and copy of passport or national registration card; copy of passport or national registration card of each shareholder; and a list of persons authorised to accept service of process and notices in Myanmar on behalf of the company or branch. The requirement for a Permit to Trade applies to all entities with any foreign, shareholding or ownership, whether they are 100% foreign-owned, a joint venture between a foreign entity and Myanmar entity (including

23 HERBERT SMITH FREEHILLS MYANMAR INVESTMENT GUIDE state-owned enterprises) or a branch office of a foreign incorporated company. Despite its name, a Permit to Trade does not allow a foreign entity to engage in general trading activities, but rather it acts as a general business licence for foreign entities. The application for a Permit to Trade must be submitted to the DICA in the prescribed form and be supported by the following documents (a number of which are also required in the application for registration set out above): Form A of the Myanmar Companies Regulation of 1957; list of intended economic or business activities to be undertaken in Myanmar; bank statement evidencing the financial resources of the foreign company / individual. The bank statement should show that the shareholder has sufficient capital for incorporation; resolution of the board of directors (if both or either of the foreign and local parties to a joint venture are companies); resolution of the shareholders; and a signed undertaking to bring into Myanmar the prescribed amount in foreign currency. To register a branch office of a foreign incorporated company, the following documents must be submitted in addition to those required for applications for company registration: a copy of the memorandum and articles of association or the company charter, statute or other instruments constituting or defining the constitution of the foreign head office, notarised and consularised by the Myanmar Embassy in the country where the company is incorporated; either (i) the annual reports for the last two financial years, or (ii) copies of the balance sheet and profit and loss accounts for the last two financial years of the foreign incorporated head office, which are notarised and consularised by the Myanmar Embassy in the country where the company is incorporated; and where the original memorandum and articles of association and other relevant documents are not in the English language, authenticated translations of such documentation.

24 22 MYANMAR INVESTMENT GUIDE 2016 HERBERT SMITH FREEHILLS An application for a Permit to Trade is reviewed by the Capital Structure Committee (CSC), with the Director General of the MNPED acting as Chairman. Upon accepting the application, the CSC and Chairman will decide on the amount of initial foreign capital to be brought into Myanmar, and will issue instructions for such foreign capital to be remitted. The Chairman also stipulates the terms and conditions to be attached to the Permit to Trade. DICA PROCESS AND APPROXIMATE TIME FRAME Submission of application to DICA Payment of registration fee Receipt of temporary documents Open bank account Inject 50% foreign capital Receipt of final registration documents 1 2 WEEKS 1 2 WEEKS 1 2 WEEKS 1 WEEK 1 WEEK 90 DAYS Submission of application to MIC Review and meeting with Proposal Review Group Submission to Ministries, local govt, and NPT Council MIC Review and consideration Approval or denial of MIC Permit MIC Permit issued within 90 days of submission 3 4 MONTHS MIC PROCESS AND APPROXIMATE TIME FRAME