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bangkok | hanoi | ho chi minh city | jakarta | vientiane | yangon
Presented by…
Michael Ramirez, Senior Legal Consultant
October 2, 2014
Bangkok, Thailand
Myanmar
A Climate for Change in SEA’s
Last Great Economic Outpost
Economic Liberalization
3
Adoption of market
oriented system for the
allocation of resources.
Encouragement of private
investment and
entrepreneurial activity.
Opening of the economy
for foreign trade and
investment.
Economic Growth
Liberalizing and growing economy
$512mil loan from Asian Development bank aimed at banking services (will eventually influence infrastructure and public projects as a result)
Recent deal with 19 creditor nations to clear ~60% of its foreign debt announced
Most EU and US sanctions eased and/or lifted
4
Legal and Regulatory Environment
Clear political directive for legal and regulatory change
Rapid pace of law revision and implementation of new laws
Focus on encouraging economic development and foreign investment
AEC directives driving force in encouraging regional access to Myanmar markets
5
Legal and Regulatory Environment
Lack of clarity in regulations and interpretation
Government civil servants/agencies experiencing inconsistent application and interpretation
Limited governmental resources Inconsistent enforcement Limited ministerial guidelines and
directives Lack of established case law
6
Foreign Investment Reform
2012 – Foreign Investment Law (FIL) passed, offering an alternative to previous FIL and Myanmar Companies Act
2014 - Special Economic Zone Law 2013 – Central Bank of Myanmar Law
offering Central Bank more independence from Ministry of Finance in regulating banking sectors and encouraging investment initiatives, transactions and policies
2013 – Foreign Exchange Management Law lifts restrictions on international transactions
7
Foreign Investment Reform
2014 – Union Tax Law 2013 – Employment and
Skills Development Law 2013 – Telecommunications
Law General commitment to
liberalization of numerous sectors, such as telecom, banking and trade and the promotion of further facilitating legislation
8
Liberalization under FIL
2 Nov 2012: Thein Sein signs new Foreign Investment Law (FIL) to replace prev. 1988 law, granting benefits to foreign-owned (i.e. not 100% domestic) companies under a permit FIL Rules (Notifications 1/2013 & 11/2013) provide further
guidance
Administered by MIC (Myanmar Investment Commission); subject to discretion
Permits foreign investment through 100% foreign-owned companies, and joint ventures with the Myanmar government or Myanmar nationals - except in restricted subsectors listed in the FIL Rules, wherein percentage limits for investments have been set Joint ventures with the Myanmar govt. can opt for local
company status under Special Company Act (1950)
Even in some restricted sectors, foreigners can hold <80% of shares
9
Liberalization under FIL
Entitles foreign investors to an (extendable) 5-year tax holiday, tax exemption for profits reinvested in Myanmar within a year, accelerated depreciation, exemptions from some customs duties, and other potential tax relief
Allows for remittance of foreign currency: Entitles foreign companies to hold foreign currency
and a foreign currency bank account in Myanmar with no limitations on inward or outward remittances
Permits investment of capital and transfer of profits in foreign currency through Myanmar banks
Foreign currency can be retransferred overseas at the discretion of the MIC
Permits transfer of equity in an enterprise under FIL to foreigners and Myanmar citizens
10
Liberalization under FIL
Permits foreign investors to lease land from any party for up to 50 years Extendable to 2 additional terms of 10 years each
Can be greater than 50 years when investing in less developed regions
Security can be taken on land and buildings
Legitimizes enforcement of dispute settlement mechanisms under Myanmar law or as specified in a contract (could enable international arbitration)
Permits employment of foreigners, granted adherence to the requirement that ‘unskilled’ workers are Myanmar citizens and an increasing min. quota of Myanmar citizens
11
Restrictions on Foreign Investment
– MIC Notifications
List 1 – 11 activities reserved only for Myanmar citizens
List 2 – 30 restricted activities permitted for Myanmar and foreign JV companies only
List 3 List of activities permitted in JV, but
requiring recommendation of relevant ministry
List of additional activities that are only allowed in a joint venture and may be subject to additional governmental restrictions
List of additional activities requiring Environmental Impact Assessments
12
Special Economic Zone Law
13
Dawei Special Economic
Zone
Thilawa Special Economic
Zone
Kyaukphyu Special
Economic Zone
Income tax exemptions and
relief
Customs duty exemptions
Land lease benefits (50+25
yrs)
Industrial/Infrastructure Reform
14
Central Bank of Myanmar Law
15
Intended to permit foreign
banking institutions in
three stages
Domestic joint ventures with
foreign institutions
Foreign owned and locally
incorporated subsidiaries
(100% foreign owned)
Allowing foreign banks to
establish local bank
branches
Foreign Exchange Management Law
16
Removal of exchange
restrictions and multiple
currency practices
Banks permitted to perform
payment and transfer without
restrictions
Forex licenses for foreign
exchange
Remittance of certain foreign
currency transactions
overseas
Union Taxation Law
Increase in personal income tax – distinction for residents and non-residents
Uniform system of taxation aimed at elimination of traditional loopholes
Commercial tax Stamp duties for contract and
select transactions
17
Telecommunications Law
18
Liberalization of telecom
for foreign investors
License terms – 5-20 years
Permitted activities:
Network facility services
Network services
Application services
Employment and Skills Development Law
19
Liberalization of
telecom for foreign
investors
License terms – 5-20
years
Permitted activities:
Network facility services
Network services
Application services
Alternative Dispute Resolution
Arbitration Act of 1944 traditionally applied to domestic arbitration – UNCITRAL rules for foreign parties
2013 – Myanmar accedes to the NY Convention on enforcement of arbitral awards
Implementing legislation pending
What does it mean?
20
The Path Forward –
Considerations for Investors
21
Strengths
Abundant underemployed labor supply
Valuable unexploited natural resources
Favorable demographics
Strategic geographic location
Commitment to reduction of restrictions on
trade
Supportive commitment to legal, procedural and
regulatory reform to facilitate foreign investment
The Path Forward –
Considerations for Investors
22
Weaknesses
Political, social and economic instability
Investment incentives
High logistics led-time
Unreliable electricity supply
High electricity, Internet and telecom costs
High construction costs
Minimal international banking services
For more information, please visit:
www.tilleke.com
Michael Ramirez
Bangkok | +66 2653 5555
michael.r@tilleke.com
http://www.facebook.com/tillekegibbins
http://twitter.com/tillekegibbins
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