Myanmar Investment Law Updates

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Myles Cobb
5 years ago
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1 Myanmar Investment Law Updates PwC Myanmar The new Myanmar Investment Law 2016 ( MIL ) has been enacted on 18 October The new MIL is a consolidation of the Myanmar Citizen Investment Law (2013) and the Myanmar Foreign Investment Law (2012). The Myanmar Citizen Investment Law and Myanmar Foreign Investment Law have been repealed with effect from 18 October However, by-laws implementing the new MIL have not been issued yet and as such the rules issued under the old Myanmar Foreign Investment Law continue to be in effect to the extent that they are not contrary to the new MIL. Investment permits issued under the old investment laws continue to be valid. It is likely that the MIC will process MIC applications as if the new law did not exist for a transitional period (until the new by-laws are implemented). Summary of key changes in the new MIL 1. Two ways to invest MIC Permit vs Endorsement Under the previous investment laws, investors were required to submit an application and obtain approval for an MIC Permit. The new MIL has introduced a new route for investment, i.e. endorsement application. A MIC Permit is required for businesses that are (a) strategic for the Union; (b) large capital intensive projects; (c) projects which have a large potential impact on the environment and the local community; (d) use state-owned land or buildings; and (e) designated by the government to require the submission of a proposal to the Commission. The requirement to obtain a MIC permit applies to both foreign and citizen investors. Businesses/investments that do not fall under the categories above do not require a MIC Permit. However, these businesses would still need to submit an endorsement application to the MIC to be eligible to enjoy the right to use land and obtain tax exemptions. Furthermore, they will benefit from other advantages under the new MIL (e.g. guarantee against confiscation, explicit right to repatriate profits) that have so far only been available to MIC companies. Under the new MIL, the MIC Permit appears to be mainly for the purpose of regulating investments that are restricted. Investors seeking to secure rights to use land and tax incentives would only submit an Endorsement application.

2 PwC View The MIC endorsement is newly introduced under the MIL which will presumably be less rigorous than a MIC permit application. If this is the case, it will likely attract more foreign investment which is in line with the intent of the government to attract foreign direct investment. However, clarity needs to be sought from the MIC as to the actual endorsement process and how this will differ from the MIC permit application process. As mentioned above, foreign investors wishing to invest in businesses for which a MIC permit is not required may file an application to obtain a MIC endorsement for the long term land lease and possibly obtain tax exemptions. Different from the previous investment laws, the new MIL provides that foreign investors in non-mic businesses will still be eligible to lease land long term. This would encourage investors who need land but will not be involved in an MIC related business, e.g. not large capital intensive project. This should help to attract foreign direct investments in Myanmar. 2. Scope of permitted and restricted investments The new MIL also provides certain investments which are restricted and prohibited and are generally along the same vein as that in the old investment laws. The new MIL classifies businesses that are detrimental and harmful to Myanmar as prohibited investments. The new MIL has also stipulated the restricted businesses/ investments as follows: (a) sectors which are allowed to be carried out by the government only; (b) sectors that are restricted to foreign investors; (c) sectors that are allowed only in joint venture with a citizen owned entity or a citizen of Myanmar; and (d) sectors that are permitted only with the recommendation of the relevant ministries. The specific businesses/investments that are prohibited/restricted will be determined by the MIC with the approval of the Government. PwC View The most recent list of restricted activities was announced by MIC via Notification 26/2016 which was issued in July. It is unclear if the MIC will issue a new notification setting out an updated list of restricted activities. However, it can be assumed that the current notification should still be effective until a new notification is issued by MIC. 3. Tax incentives The list of tax benefits under the new MIL are as follows: (a) For investments in sectors listed in a notification to be issued by the Commission in order to promote investment: exemption from corporate income tax for seven, five of three years depending on whether the investment takes place in an underdeveloped, moderately, developed, or adequately developed region or state. The designation of these zones are subject to change from time to time depending on the development in the respective regions. (b) Income tax exemptions shall only be granted to sectors which the Commission has specified as sectors which are promoted for investments.

3 (c) The Commission may allow more favorable exemptions and reliefs for locations where Myanmar citizen-owned businesses are operated. The Government may also provide subsidies, funding, capacity building and training to Myanmar citizen investors and citizen owned small and medium sized enterprises. (d) Exemption from custom duties or other internal taxes or both on machineries, equipment, instruments machinery components, spare parts, construction materials not available locally and materials used in the business which are imported as they are actually required, during the construction period, or during the preparatory period of the investment business. (e) Exemption or relief from customs duties and/or other domestic taxes on raw materials and semi-finished goods which are imported for the production of export goods by wholly export investment business. (f) Right to obtain a refund, based on the amount of exported goods, of customs duties and/or other domestic taxes paid at the time of importation of raw materials and semi-finished goods which are used to manufacture the products in the country and re-export it. (g) If the volume of investment is increased and the original investment business is expanded during the period of investment, exemption or relief from customs duties or other internal taxes or both on machineries, equipment, instruments, machinery components, spare parts, materials used in the business and construction materials not available locally, which are imported as they are actually required for use in the business which is being expanded. (h) Exemption or relief from income tax if the profits obtained from the investment business is reinvested in the same business or in a similar type of investment business within one year. (i) (j) Right to deduct depreciation for the purpose of income tax assessment, after computing such depreciation from the year of commencement of commercial operation based on an accelerated depreciation rate (which is less than the stipulated lifetime of the asset). Right to deduct expenses from assessable income, incurred for research and development related to the investment activities/business required for the development of the country and is carried out in the country. (k) Foreign investors will pay income tax at the rates applicable to citizens residing within the country.

4 PwC View The new set of tax incentives under the new MIL was introduced as part the Government s strategy for reshaping the existing tax incentive mechanism with an aim of promoting foreign investment in the promoted sectors and achieving GDP increase of tax revenue. Particularly, Under the previous investment laws, the MIC permit holders were automatically granted a tax holiday period for 5 years. The key change under the new MIL is that the tax holiday will no longer be automatically granted to investors and the granting of a tax holiday will depend on the location and sectors promoted for investment at the discretion of MIC. As such, there could be investments which may not be able to enjoy tax holiday. Clarity needs to be sought from the MIC as to the designated zones and promoted sectors. We understand that the by-laws and notifications will be issued in early The introduction of selective income tax exemption depending on the locations and sectors appears to be part of the Government s effort of increasing GDP in tax revenue and foreign investment inflows in the sectors and zones that the Government will like to promote. Under the previous investment laws, reliefs from customs duty and other internal taxes on importation of machineries, equipment, instruments machinery components, spare parts, construction materials during the construction period. Under the new MIL, the reliefs from customs duty and other internal taxes on importation will only be granted to machinery and equipment which is not available locally. This indicates that the government intends to promote local spending and local economic development. Under the previous investment laws, reliefs from customs duty and other internal taxes on importation of raw materials for the production for the initial three years after the completion of construction period. Under the new MIL, the exemption period of 3 years was removed now and the reliefs from customs duty and other internal taxes on importation have been expanded to include semi-finished materials. This incentive has however been confined to only export oriented businesses. This incentive appears to provide promotional measures to boost Myanmar s export and economic growth. Under the new MIL, the government may also grant subsidies, funding, capacity building and training to Myanmar citizen investors and citizen-owned small and medium-sized enterprises (SMEs). The government may also grant more favorable exemptions and reliefs to Myanmar citizens. This appears to be the Government s initiative to provide support for local investors and especially the local SMEs with the objective of them to achieve quality growth in the areas of productivity and capability upgrading and remain competitive in the market. Investors may apply to claim accelerated tax depreciation on machinery, equipment, building or capital assets. However, this may not be explicitly advantageous to investors that will be enjoying the tax holiday. For investors that will not be enjoying the tax holiday, they may consider this incentive especially if they will be making profits from early in the investment period. The incentive which states that foreign investors have to pay income tax on their income at the rates applicable to citizens residing within the state, appears not to be clear whether this would apply to the foreign employees of a company. Clarity will need to be sought whether this incentive would include the foreign employees of a foreign investor.

5 4. Right to use land The previous investment laws granted investors right to lease land long-term for a period of 50 years with the option for two 10-year extensions. The new MIL retains this long-term land lease provision. It has also added that the government may grant a longer period for the right to lease land or building to investors who invest in less developed and remote regions. PwC View Whilst the general land lease options remain unchanged, it appears that the government would like to promote growth in the more remote regions of the country by possibly granting longer land lease periods for investments in less developed and remote regions. Less developed and remote regions are not defined and clarity should be sought on the definition of these regions. 5. Staff recruitment Unlike the previous Myanmar Foreign Investment Law, the MIL has removed the requirement for appointment of a specified percentage of skilled employees. However, employers should arrange for capacity building programs in order to be able to appoint citizens to positions of management, technical and operational experts, and advisors. For non-skilled work, only citizens shall be appointed. PwC View This appears to be in line with the intention of the government to encourage the growth of local talent whilst also taking into consideration that it may not be feasible for knowledge to be transferred within a short timeframe, i.e. within 6 years under the MFIL. Clarity should be sought from the MIC on the definition of non-skilled work as this is currently not defined in the MIL. 6. Investor relations The new MIL states that the government will accord foreign investors and investments made by foreign investors that is no less favourable than that accorded to Myanmar citizen investors except as stipulated in laws, rules and notifications. Foreign investors of a country shall not be treated less favourably than a foreign investor of another country except for favourable treatment that is accorded under an international agreement. The government also guarantees fair and equitable treatment in respect of (a) the right to obtain relevant information on any measures or decisions which have a significant effect on an investor and its direct investment; and (b) the right to due process and the right to appeal on matters concerning an investor. These provisions were previously not included

6 PwC View Whilst the new MIL states that foreign investors shall not be treated less favorably that citizen investors, the MIC may still grant more favorable exemptions to a citizen investor. How PwC can assist? PwC helps its clients navigate challenges of investing in Myanmar, advising them on market entry including the necessary investment permit and tax incentives application. The proposed investment in Myanmar is likely to be subject to regulatory requirements and conditions. The approval process could be time consuming and involve considerable effort and time in preparing the documents and liaison with the approving authorities. Separately, the incentives package granted to the investment may not meet its operational and commercial. The liaison with the approving authorities is time consuming and the request and negotiation will need to be supported by sound justification and basis. PwC equipped with a senior team on the ground will be able to facilitate and assist in the application of permits and negotiation with the relevant approving authorities. We will be ready to share our practical insights with you on the tax incentives available to the investment and the key considerations that you need to take note of as part of the negotiation process with the approving authorities.

Contacts If you would like to discuss any of the issues raised, please get in touch with your usual PwC contact or any of the individuals listed below: Jovi Seet Senior Executive Director +959 450

7 Contacts If you would like to discuss any of the issues raised, please get in touch with your usual PwC contact or any of the individuals listed below: Jovi Seet Senior Executive Director Paul Cornelius Tax Partner Jessica Ei Ei San Head of Local Compliance Ding Suk Peng Tax Director This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers Myanmar Co Ltd, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers Myanmar Co. Ltd. All rights reserved. PricewaterhouseCoopers and "PwC" refer to PricewaterhouseCoopers Myanmar Co. Ltd or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate legal entity.

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