Myanmar's newly enacted Foreign Investment Law has received positive response from foreign businesses, guaranteeing more opportunities for tax exemption and relief and flexibility in investment ratios in a joint venture.
“This is a very interesting law. According to the law, shares can be negotiated between both sides,” said Myat Thin Aung, chairman of the AA Medical Company and of the Hlinethaya Industrial Zone.
“Any ratio can be fixed as they agree. Now, we don’t need to pay income tax up to five years after establishing a business.”
Myat Thin Aung, an authorised wholesale dealer of Samsung Electronics, added: “those points are beneficial to foreign investors. In my opinion, I would like more businesspeople to invest in the manufacturing sector.”
Myanmar’s new investment law will give overriding power to the Foreign Investment Commission (FIC), which will have the authority to approve the shareholding ratio in a foreign joint venture.
President Thein Sein penned the law last Friday after an ambiguity over a foreign-investment ratio set by parliament at 50:50.
Under the revised law, foreigners will be allowed to own 100 per cent of many businesses as approved by the FIC. The commission will be answerable to parliament.
In many ways, the law is liberal, as there are no specifics on foreign shareholding but every investment application must pass through the commission.
Some observers said the FIC appeared to have greater power and authority than the Board of Investment of Thailand, which is chaired by the prime minister but comes under supervision of the Ministry of Industry. Myanmar’s FIC will go before parliament and has much discretion to decide on investment projects.
“The bill is quite flexible,” said MP Kyi Myint. “The commission aims to give protection to the investments by foreign firms. Some discussions will also be held with foreign investors in the drafting of generic regulations. These will help attract foreign business firms.”
Other restricted businesses for foreigners include those that might damage the culture and tradition of ethnic minorities, those that could damage public health, and those that may convey hazardous chemicals and toxic wastes, among others.
For high-tech industries, foreign companies are required to hire local skilled employees – at least 25 per cent in the first two years of operation, at least 50 per cent in the next two years, and at least 75 per cent in the third two years.
They must also organise training for local employees.
Thein Sein blocked a previous version of the law that allowed foreign investors to hold up to 50-per-cent equity in joint ventures.
Under the new law, foreign investors can lease land from the government or from authorised private owners for up to 50 years, depending on the type and volume of the investment. The deal can be extended twice, for 10 years each time.
Foreign firms may be entitled to a tax exemption for the first five years of operation and other forms of tax relief may be available depending on the investment, if deemed in the national interest.
Foreign manufacturing companies may be entitled to tax relief of up to 50 per cent on profits from exports.
Tax exemption or relief can be granted providing it is reinvested in the business within one year.
A previous version had raised concern that if a company were nationalised in the public interest, compensation would be offered. This clause has now been deleted.
The new legislation promises that an enterprise formed under this law will not be nationalised during the contract term or its extension.
However, one clause says an enterprise allowed under the law will not be stopped without firm reason before the contract expires.
MP Myo Aung said: “Parlia-mentarians should seriously supervise the drafting of the details of the foreign investment bylaws. The Foreign Investment Commission is going to be very powerful.”
In this regard, he expressed concern over the lack of checks and balances, which is the essence of democratic control on the commission’s power.