Myanmar’s new FDI law levels the field

On October 18 Myanmar president Htin Kyaw approved the Myanmar Investment Law (MIL), due to come into effect by April 1. The MIL will replace the Foreign Investment Law (FIL - 2012) and Myanmar Citizen Investment Law (MCIL – 2013) for all new applications. The new law has been well received by both the foreign and domestic business communities for levelling the playing field between the two.

The MIL reflects the priorities to the new government under the National League for Democracy (NLD) – the party of Aung San Suu Kyi – which won the November 2015 general election and came to power in March 2016. For example, the Myanmar Investment Committee (MIC) will hand out tax incentives to projects based on their location to encourage investments in the country’s poorest areas. Projects in Zone 1 (least developed) will get a seven-year income tax exemption, while those in Zone 2 (moderately developed) get five years and in Zone 3 (adequately developed) get only three years. MIC priority sectors will be infrastructure and labour-intensive industries. Myanmar’s lack of basic infrastructure, such as electricity, roads and ports, is deemed a major inhibitor to FDI.

Tough restrictons

Although the MIL has done much to level the field for FDI, more is still required. For instance, foreign entities are still penaliaed by Myanmar’s 1987 Property Law, which prohibits foreigners from owning land and limits them to one-year leases. “I would say that one of the major inhibitors to foreign investment in Myanmar has to do with the ownership and of use of the land. As a foreigner, without MIC approval, you are only allowed to rent year to year,” says Eric Rose, director of Herzfeld Rubin Meyer & Rose, the first US law firm to set up in Myanmar.  If MIC-approved, however, foreign investments can rent land for up to 70 years.

Another discriminatory law is the Companies Act, which defined a company as “foreign” if it has foreign ownership of 1% or more. Foreign companies cannot borrow from the foreign bank branches based in Myanmar, and are penalised by the Property Law. There are hopes that an amended Companies Act would allow increased foreign holdings of up to 49% to still qualify as a local firm, thereby encouraging joint ventures.