Myanmar’s investment law: temper applause with caution

After months of parliamentary debate, Nay Pyi Taw has finally done it: Myanmar’s new Foreign Investment Law was enacted on Nov 2 with a number of protectionist measures struck from the final draft.

While the law clarifies some issues for investors and create new incentives for investment, it also extends the powers and remit of the Myanmar Investment Commission (MIC), whose task is to approve and oversee foreign investment.
Investors will need to closely scrutinise the government’s practical interpretation of multiple provisions of the law and remember that MIC approval will be needed to effect an exit or increase in any investment.
Most significantly, the law creates new broad-based categories of restricted investment, which could apply to many businesses and extends investor duties. Additionally, it requires the Ministry of National Planning and Economic Development (NPED), which oversees the MIC, to issue implementing rules and procedures by the end of January.
The content and application of these rules, together with interpretation of the law’s new categories of restricted investment, will be crucial in determining the extent to which the FIL truly facilitates foreign investment in Myanmar. Investors planning to make an application to the MIC before these new rules and procedures are issued will need to consider their investment strategy carefully.
The FIL imposes significant requirements on investors in the area of employment and labour, for the first time requiring that an employment contract be executed with all employees, prohibiting wage discrimination between similarly qualified Myanmar citizens and foreign citizens, and requiring investors to employ an increasing proportion of Myanmar citizens over a six-year period, moving from 25% to 75% in two-year intervals.
Under the law, investors are also required to run employee training programmes to improve the skills of their workforce. In addition, for the first time, the FIL requires foreign employees to obtain a work permit in addition to a stay permit.
On the plus side, the FIL provides flexibility regarding the level of participation by a foreign investor in joint ventures, is significantly more liberal than the 1988 Foreign Investment Law with respect to the lease of land, provides for the ability to transfer invested capital and net profits at prevailing exchange rates, and allows the investor to hold foreign currency accounts at designated Myanmar banks.
It also provides improved tax benefits, such as a five-year income tax holiday and an exemption or relief from commercial tax on exported goods.
The legal protection of an investment and legal recourse in the case of a dispute is naturally of concern to investors in any market. The FIL addresses this concern two principal ways. It provides a guarantee against nationalisation of an FIL investment and allows the freedom to negotiate the application of foreign law and foreign arbitration to investments.
However, even if an investor can successfully negotiate this, Myanmar is not yet a party to the New York Convention on Foreign Arbitral Awards (1958), which requires contracting states to recognise and enforce arbitration awards made in other contracting states. As such, investors may encounter difficulty enforcing a foreign award in Myanmar courts.
The FIL lays down a helpful time scale for MIC response to an investment proposal. Within 15 days after “necessary scrutiny”, the MIC may make a response to the investor, either accepting or rejecting their proposal. In practice, this may not result in shorter deliberations by the MIC. The law requires the MIC to issue a permit within 90 days of acceptance of a proposal.
There were high expectations of the new Foreign Investment Law. Whether those expectations can be met will depends on its practical implementation over the next few months and years, as well as the provision of detailed rules yet to be issued. Investors will need to move cautiously to manage risk and secure their investment.

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Clive Cook is a Senior Consultant and Saw Yu Win is a consultant with the international law firm Baker & McKenzie

Posted in: World news