Hong Kong: Myanmar - The Foreign Investment Licence And Permit To Trade - Background

Last Updated: 20 November 1995
Most Read Contributor in Hong Kong, October 2018
The 1988 Union of Myanmar Foreign Investment Law (FIL) lays down the procedure for making proposals for foreign investments and to provide guarantees and incentives for foreign investors. The law allows foreign investors to establish 100% foreign-owned ventures or joint ventures in which the foreign partner is required to take at least a 35% equity stake. Priority is given to projects which promote exports, optimally exploit domestic natural resources, transfer high technology, increase employment, save energy or contribute to regional economic development and improve energy supply, transportation and communication.

Procedures related to the FIL further require that a minimum of $100,000 be brought into the country as investment. The form of incorporation of the business entity can be sole proprietorship, partnership or limited company. Incorporation of businesses not involving state enterprises is to be made under the Myanmar Companies Act. If the investment involves a state enterprise, incorporation must be made under the Special Companies Act.

As the private sector in Myanmar is still at an early stage in its development, it will be difficult in practice for foreign investors to find suitable local business partners. To deal with this problem, and also to assist Myanmar businessmen to familiarise themselves with various economic activities, the government has established a number of joint-venture corporations (JVCs) with the private sector. In most of the limited number of JVCs that have been formed the government's share is 50% or over. A holding company (The Union of Myanmar Economic Holdings Limited), formed with present and veteran members of the defence forces, has also been set up.

Foreign investors can enter into joint ventures with these organisations. They can also start joint ventures with state enterprises (indeed this is the preferred type of incorporation at the moment.) In addition, they can enter into joint ventures with local private business partners, or establish their businesses on a wholly-owned basis.

The Foreign Investment Commission (FIC) was appointed by the government in 1988 to approve applications for investment projects. The commission can also grant terms and conditions on the issuance of permits, monitor and evaluate the foreign investment situation, relax and amend the terms and conditions previously defined etc. The FIC is chaired by the Minister for Planning and Finance, with ministers from economic ministries as members. The commission has 11 members and an appointed secretary carries out the administrative matters of the FIC. It meets fortnightly. It should be understood that FIC approval is not a pre-requisite to foreigners doing business in Myanmar (unlike the permit to trade referred to later) so much as a means of obtaining certain concessions to assist in and facilitate the carrying on of business.

Apart from the right to repatriate profits and to withdraw legitimate assets on a winding up of their businesses, foreign investors can enjoy the following tax incentives:

- An income tax holiday for three years, with a possible extension. Foreign investments made under the FIL enjoy automatic exemption from income tax for three consecutive years. Other tax exemptions and reliefs are given on a case-by-case basis. For any enterprise producing goods or services, exemption from income tax is given for a period extending to three consecutive years, inclusive of the year of commencement of production of goods or services. In cases where it is beneficial for the state, exemption or relief from income tax may be granted for a further reasonable period depending upon the success of the enterprise in which investment is made.

- Exemption or relief from income tax on profits of the business if they are maintained in a reserve fund or reinvested within one year after the reserve is made.

- A grant of accelerated depreciation on capital assets. A right to accelerate depreciation on machinery, equipment, buildings and other capital assets used in the business, at a rate fixed by the FIC, to the extent of the original value for the purpose of income tax assessment.

- If the goods produced by an enterprise are exported, relief from income tax of up to 50% is granted on the profits accrued from the exports.

- Exemption or relief from customs duty or other internal taxes, or both, on machinery, equipment, instruments, machinery components, spare parts and materials used in the business which are imported, as far as they are actually required for use during the period of construction.

- Right to carry forward and set off losses for up to three consecutive years from the year the loss is sustained in respect of such losses sustained within two years immediately following the enjoyment of exemption or relief from income tax, for each individual enterprise.

- Permission to pay income tax on behalf of foreign employees and the right to deduct such payment from the assessable income.

- Right to pay income tax on the income of foreigners at the rates applicable to citizens residual enterprise.

- Deductions for research and development.

There is an unequivocal state guarantee against nationalisation and expropriation. The government also guarantees the repatriation in foreign currency of the rightful entitlement of the foreign investor after termination of the business. The FIL also recognises as a right the regular repatriation of the profits of the foreign investor and the repatriation of the savings of foreign employees engaged by the foreign investor. In this context the huge disparity between the official exchange rate and the black market rate is an obvious disadvantage.

There are certain economic enterprises, however, that are not permitted to be entered into by foreign investors, as follows:-

List of Economic Enterprises which the government reserves the sole right to undertake

1. Extraction of teak and sale of the sale of the same in the country and abroad;

2. Cultivation and conservation of forest plantation with the exception of village-owned fire-wood plantations cultivated by the villagers for their personal use;

3. Exploration, extraction and sale of petroleum and natural gas and production of products of the same;

4. Exploration and extraction of pearls, jade and precious stones and export of the same;

5. Breeding and production of fish and prawns in fisheries which have been reserved for research by the Government;

6. Postal and Telecommunications Service;

7. Air Transport Service and Railway Transport Service;

8. Banking Service and Insurance Service;

9. Broadcasting Service and Television Service;

10. Exploration and extraction of metals and export of the same;

11. Electricity Generating Services other than those permitted by law to private and co-operative electricity generating services; and

12. Manufacturing of products relating to security and defence which the Government has, from time to time, prescribed by notification.

NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor".

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