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New Zealand Thai Chamber of Commerce Thai-Canadian Chamber of Commerce 25 July 2013

New Zealand Thai Chamber of Commerce Thai-Canadian Chamber of Commerce 25 July 2013. Jamie Cummiskey Regional Director jrc@interactivemyanmar.com. The New FIL and FIL Rules. The New Foreign Investment Law (the “New FIL” ) was promulgated on 2 November 2012;

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New Zealand Thai Chamber of Commerce Thai-Canadian Chamber of Commerce 25 July 2013

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  1. New Zealand Thai Chamber of CommerceThai-Canadian Chamber of Commerce 25 July 2013 Jamie Cummiskey Regional Director jrc@interactivemyanmar.com

  2. The New FIL and FIL Rules • The New Foreign Investment Law (the “New FIL”) was promulgated on 2 November 2012; • The Ministry of National Planning and Economic Development Published the Foreign Investment Rules (the “FIL Rules”) on 31 January 2013; • There are currently 181 FIL Rules.

  3. Sectors Addressed • Banking and Finance • Agriculture • Infrastructure Development- Electricity Development, Oil and Gas, Mining • Construction • Manufacturing

  4. Three Categories of Investment The New FIL sets out three categories of investment which are: • Businesses which are restricted for foreign investment; • Businesses which require a Joint Venture between foreign shareholders and Myanmar Companies, individuals or Governmental Entities; and • Businesses which may be 100% Foreign Owned with the Approval of the Myanmar Investment Commission (the “MIC”).

  5. Restricted Businesses- No Foreign Investment • List is not comprehensive, the MIC may issue additional rules and regulations restricting certain business sectors; • Certain manufacturing production; • Certain types of short and long term agricultural projects; • Livestock breeding and animal husbandry; • Open Ocean fisheries in Myanmar waters; • Industries which would be prejudicial to public health, natural resources, the environment and biodiversity; • Importing hazardous or toxic waste materials; • Importation of Medicine and other materials which have not been properly tested and demonstrated as being safe. • Trading Activities are still restricted to Myanmar citizens or 100% Myanmar owned companies with some exemptions.

  6. Joint Venture Businesses • More flexible shareholding ratios for Joint Ventures; and share transfers between local and foreign shareholders. • Previous requirement that at least 35% of the shares must be held by foreigners has been removed; however minimum foreign investor shareholding may be set by the MIC with respect to various different sectors/projects. • Any subsequent transfer of part or all of the shares of a foreign investor must have pre-approval of the MIC and if all of the foreign investor shares are transferred, the Investment Permit must be returned to the MIC

  7. Joint Venture Businesses (Con’t) • Roads and Railway Developments; • Mining; • Electricity Generation (Coal and Hydropower); • Oil and Gas (although possible for 100% foreign ownership if granted permission by the Government); • Certain Manufacturing Sectors; • Certain Construction Sectors (Residential Estates, transportation infrastructure, Golf Courses and other Leisure Developments).

  8. 100% Foreign Owned Businesses • Hotels which are 3 Stars and over; • Wellness Spas in 3 Star Hotels or over; • Casino Developments with the approval of the Ministry of Home Affairs; • Office Developments; • Certain Manufacturing Sectors (Particularly Garment Manufacturing and Export Oriented Manufacturing Projects) • Build Operate Transfer Projects (“BOT”).

  9. Tax Incentives • Investors may be granted up to 5 years tax holiday exemption period from the commencement of operations; • A longer tax exemption period may be granted for projects which are deemed to be in the National Interest; • Exemption on Customs Duties for importation of equipment and machinery; • Depreciation and Reinvestment of Profits from First year; • Foreign employee income tax exemption

  10. Investment Capital • The New FIL does not set out specific capital requirements, however in practice, the capital investment requirements of US$300,000 for service industries and US$500,000 for manufacturing industries remain.

  11. Land Use Rights • The New FIL allows for Long Term Lease of Land for MIC Approved Projects of up to 50 years with two 10 year renewal terms; • Foreign Ownership of Land is Prohibited in Myanmar.

  12. MIC Application Process Investments under the New FIL must be approved by the MIC. Required documentation includes, but is not limited to: • Project Investment Proposal, Detailed Business Proposal; • Development Schedule and Projected Costs and Profits • Draft Lease Agreement where project involves land; • Draft Joint Venture Agreement where project is a Joint Venture; • Environmental Impact Assessment Report for certain types of projects.

  13. MIC Application Process (Con’t) • The MIC shall, within 15 days, accept or refuse the proposal and if it is accepted, shall Issue Approval or Rejection of the Proposed Business within ninety (90) days of the application being submitted to the MIC; • The MIC will coordinate required governmental approvals based on the project concerned; • Investors must complete the development of their projects within the timeframe approved by the MIC; although an extension of up to 50% of the original timeframe is possible with approval of the MIC; • Relevant Insurance Policies Must be Acquired and Maintained.

  14. Labor Issues • Jobs requiring unskilled labor must be reserved for Myanmar citizens. • If a particular enterprise requires skilled labor, investors must employ at least 25% Myanmar citizens during the first 2 years of operation; 50% Myanmar citizens during the following 2 years; and 75% Myanmar citizens in the following 2 years. • All existing labor laws and regulations otherwise remain unchanged and are in full force and effect.

  15. Foreign Exchange and Repatriation of Profits • Investors must open foreign currency bank accounts in Myanmar and report funds brought into the country; • Funds brought into the country, dividend payments to foreign shareholders, profit after tax and foreign salary may be repatriated at the official exchange rate then in effect.

  16. Arbitration and Non-Nationalization • The New FIL states that the Government of Myanmar assures investors that it shall not nationalize projects approved under the New FIL during the term or extended term of the investment project. • However, there is an additional provision which states that projects which have MIC permission shall not be terminated without “sufficient cause” although no guidelines as to what would constitute sufficient cause have been issued to date. • The New FIL also allows for resolution of disputes as per the agreement of the parties, thereby allowing for the possibility of arbitration and other alternative dispute resolution practices. • However, enforcement of arbitral awards in Myanmar is still questionable as Myanmar just acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards on 16 April 2013.

  17. The State-Owned Economic Enterprises Law • It is important to note that the New FIL has not repealed the State-Owned Economic Enterprises Law (the “State Enterprises Law”) and it therefore remains in effect. • The State Enterprises Law restricts private sector investment in key sectors of the economy of Myanmar such as oil and gas exploration and production, certain electricity generation and transmission projects, telecommunications services, banking and insurance services. • Foreign Investment in such sectors may still be permitted under the New FIL, but a specific exemption must be granted by the Government of Myanmar.

  18. Banking and Finance Sectors • The New FIL and FIL Rules do not make any provisions with respect to Banking and Financial Sectors. • Therefore, the Banking and Finance Sectors are still governed by the Financial Institutions Of Myanmar Law of 1990 . Section 13 of this law states that a foreign financial institution may obtain a license from the Central Bank to operate as a financial institution; however to date no such license has been granted. • Currently, foreign banks may only set up representative offices which cannot perform any of the functions prescribed for financial institutions. Such foreign representative offices must have obtained a license to open a representative office from the Central Bank prior to registering as a representative office. • The Central Bank is in the process of implementing a banking sector development strategy and is in the process of drafting rules and regulations which would apply to foreign banks operating in Myanmar either through representative offices, locally incorporated subsidiaries and joint ventures.

  19. Agriculture Sector • Small scale and traditional agricultural projects are restricted sectors for foreign investors. • Large scale agricultural projects may be granted to foreign investors with the approval of the Government of Myanmar (through the Ministry of Agriculture and Irrigation). • Seems that foreign investment may be 100% foreign owned or through Joint Venture Arrangements, but the FIL Rules do not make specific provision on this point. • Environmental Impact Assessment (“EIA”) reports must be completed and approved by the Ministry of Environmental Conservation and Forestry as part of the overall MIC application process.

  20. Infrastructure Sector- Electricity • Hydropower and Coal Fired Power Generation Projects are open to foreign investment through a Joint Venture with the Ministry of Electric Power and on a Build-Operate Transfer BOT status; • The duration of the BOT concession is not set out in the FIL Rules and thus should be determined by the Joint Venture Agreement with the approval of the MIC; • Management of the electricity system such as transmission lines, distribution, trading of electricity and other regulatory aspects are restricted businesses for foreign investors, although a Joint Venture is possible with 80% of the shares held by Myanmar shareholders and 20% of the shares held by foreigners. Such Joint Venture would require the approval of the MIC and the Union Government.

  21. Infrastructure Sector- Oil and Gas • All businesses related to Oil and Gas exploration, extraction and processing are open to foreign investors, however only through a joint venture with the Ministry of Energy or another State Agency there under; • This sector is still subject to the State Enterprises Law; • EIAs are necessary as part of the Joint Venture Application process in addition to waivers under the State Enterprises Law; • The next round for offshore exploration bidding is scheduled for April 2013.

  22. (Ministry of Energy) Organizations and Respective Responsibilities Myanma Petroleum Products Enterprise (MPPE) Energy Planning Department (EPD) MyanmaOil and Gas Enterprise (MOGE) Myanma Petrochemical Enterprise (MPE) • Exploration • Drilling • Production • On Land Oil and Gas • Pipeline Network • CNG • Marketing • Distribution • Refineries & Process • Fertilizer Plants • Methanol Plant • CO2 and LPG Plants • Waxing & Tar • Technical Arm • Coordination • Management • Policy Formulation

  23. Status of Onshore and Offshore Blocks • Status of Blocks • 19 onshore blocks and 22 offshore blocks are operating by multi companies. • 34 onshore blocks were open for bidding in January 2013 and results are expected in November 2013. • Most of 29 offshore blocks are available for investors. Bidding for Offshore Blocks were opened in April 2013.

  24. Infrastructure- Mining • The New FIL sets out three categories of mining projects: (i) small; (ii) medium; and (iii) large; • Only large mining projects are capable of private and foreign investment through a Joint Venture Agreement although the New FIL does not specifically define the difference between small, medium and large mining projects; • For rare and strategic minerals, radioactive minerals, and gem stones a Joint Venture must be formed with the Ministry of Mining.

  25. Infrastructure- Mining (Con’t) • The FIL Rules state that the permit for exploration of minerals shall not be granted for longer than 2 years; the permit for testing minerals shall not be granted for longer than 3 years and the permit for feasibility studies shall not be longer then 2 years. An extension may be applied fro 3 months prior to the expiration of the relevant permit granted. • Extraction permits for large mining projects are entitled to a permit of up to 15 years; and four 5 year extensions may be applied for in this respect. • For pearls, however each extension period is for a 2 year term. • EIA approval is required as is an exemption under the State Enterprises Act.

  26. Infrastructure- Construction • Construction of housing estates, apartment and condominium buildings, bridges, golf courses and other leisure facilities, highways, and railroads require a Joint Venture with local investors; • Construction of office and commercial buildings must first have an approved Conservation Management Plan and are operated as JV under a BOT system; • Building designs and architectural plans must follow the standard of Mutual Recognition Arrangements, National Building Codes and other Rules and Regulations issued by the Ministry of Construction.

  27. Infrastructure- Construction (Hotels) • Construction and development of hotels of less than 3 stars may only be undertaken by foreign investors through a Joint Venture; • Construction and development of hotels of which are 3 stars or over may be undertaken by foreign investors 100%; • Health Spas in hotels which are 3 stars or over may be undertaken by foreign investors 100%.

  28. Manufacturing Sector • Most types of manufacturing activities may be undertaken by foreign investors with the products being for the export market (no trading activities in Myanmar permitted, although there are some exemptions); • There is a List of Restricted Manufacturing Activities which are not open to foreign investors (examples include production of arms and explosives, prohibited substances destructive to the Ozone Layer under the Vietnam convention for the Protection of Ozone Layer and Montreal Protocol, production of organic pollutants including the 21 prohibited under the Stockholm Convention on Persistent Organic Pollutants and manufacturing of asbestos based construction materials.

  29. Manufacturing Sector (Con’t) • There is a list of 22 types of manufacturing undertakings that must be subject to a Joint Venture with Myanmar companies or individuals. Most of these are with respect to food, beverage, rubber, plastic, certain leather, textile threads, paper, chemicals, flammable substances, medical raw materials vaccinations using advanced technology and new trains and train engines.

  30. Manufacturing Sector (Con’t) • There is a list of 12 products which require special permission from the Union Government for their manufacture in the country. Many of these special permission manufacturing products attach limitations on the percentage of foreign investment and have requirements with respect to use of local raw materials in their production and the amount of product which must be exported.

  31. New Zealand Thai Chamber of CommerceThai-Canadian Chamber of Commerce 25 July 2013 Jamie Cummiskey Regional Director jrc@interactivemyanmar.com

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