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In a forthcoming update to Notification 1/2013 of the Myanmar Investment Commission (MIC), the famous list of permitted activities for foreign investment, it is possible that many types of service companies will no longer be eligible to receive an MIC Permit. In a tightening of the policy to date, the MIC tries to limit the application of tax and investment incentives to other activities such as manufacturing, real estate development, hospitality, infrastructure, power and resources. It is expected that services which require a high amount of capital expenditure such as telecommunication and construction may be unaffected by the policy shift.

Companies in information technology, engineering, consulting, financial services, transportation and other types services may be affected by the new policy. It may be possible that the Government will move more types of service companies to the list of activities which require a joint venture with a Myanmar citizen.

Currently, an MIC Permit is the only way to receive the different benefits and protections of the Foreign Investment Law (FIL). Besides tax exemptions, the FIL provides that foreign investors may lease land, open bank accounts in foreign currency, remit funds overseas, import materials and equipment, employ foreign and local staff, obtain financing and offer security to lenders. The FIL also provides that investments may not be nationalized. Some of these arrangements are also possible for non-MIC foreign owned companies, but the benefits and protections are not as comprehensive and not organized as transparently as under the FIL. For example, a foreign owned company without an MIC Permit may also receive permission from the Ministry of Finance and the Central Bank to remit foreign currency overseas, but the right to do so and the applicable process is not set out as clearly under the FIL. For a company with an MIC Permit, it suffices to receive MIC approval for the remittances at the outset. Foreign investors, including those who invest in service projects, worry about losing the non-tax benefits and the clarity of the FIL.

Part of the problem is the organization of the FIL. Arguably, its provisions do not automatically apply to all investors but only to those that have received an MIC Permit. In fact, “investor” under that law is defined as a person that has received the MIC Permit. It was originally conceived as a system where every investor would receive a permit. In that sense, not giving a foreign owned project an MIC Permit means it has none of the benefits or protections under the FIL.

We have suggested to the Government it would alternatively be possible to keep service companies within the system, if necessary without tax incentives. Decoupling the tax incentives from the other benefits and protections of the FIL seems to be possible under the FIL if one takes into account not only art. 27 but also art. 12 j) of the FIL.

We will keep you updated on this development. In the meantime, do not hesitate to contact us to discuss how the new policy might affect your plans in Myanmar.

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