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BLP'S Myanmar Postcard - Our top picks for February 2017

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Summary: Welcome to the latest edition of BLP’s monthly Myanmar update. We have distilled the latest Myanmar news into this ‘speed read’. Please get in touch for more information.

1.Update: Myanmar Investment Rules

Further to our update in our January 2017 postcard, the Directorate of Trade and Company Administration (DICA) conducted the final public consultation on the draft Myanmar Investment Rules on 13 February 2017. BLP is supporting the government in this drafting process and Chris Hughes, Managing Partner of BLP’s Yangon office, was one of the panellist speakers at this consultation. The event which included a Q&A session was held at the Parkroyal Hotel, Yangon and was well attended by government officials, members of civil society groups and the business community.

U Aung Naing Oo, the Director General of DICA gave an update and overview on the processes. After finalising the draft Investment Rules, DICA will submit the draft to the Attorney General’s Office and to Parliament. It is expected that the new Investment Rules will be implemented by 1 April this year.

We have also been working closely with the Myanmar Investment Commission (MIC) and DICA in relation to the new Myanmar Companies Law. Please feel free to contact a member of our team if you have any questions regarding the draft Investment Rules, the draft Myanmar Companies Law or in relation to your investment and business activities in Myanmar.

2.Draft list of restricted business activities released

This month, the MIC published a draft notification which sets out a list of restricted business activities pursuant to section 42 of the Myanmar Investment Law 2016. Once implemented, this list will replace the current list of restricted business activities contained in MIC Notification No. 26/2016 which we have previously covered in our April 2016 postcard.

We note that this list is in draft form only at this stage and further changes may be made, as it is still subject to Parliament’s review as well as a public consultation process. The list can be accessed at the DICA website here and a translation of the list can be accessed here.

Whilst the list provides clarification for certain sectors, the number of restricted activities set out in the list has increased – the draft notification contains 136 business activities compared to 64 business activities in the current notification.

One notable development is in retail trading. Retail trading carried out on a floor area of 10,000 feet (100 feet x 100 feet) or 929 square meters and above is now permitted to be undertaken by a joint venture between a foreign investor and any Myanmar citizen or citizen owned entity.

3.Withholding tax Notification

The Ministry of Planning and Finance Notification 2/2017 (“WHT Notification”) released on 10 January 2017 provides for reductions in Myanmar withholding tax rates of up to 5% and also clarifies the application (or disapplication) of withholding tax in certain situations. The WHT Notification will be effective from 1 April 2017. Myanmar withholding tax is required to be withheld at the time of payment and must be paid to the Inland Revenue Department within 7 days of the withholding.

The reductions in applicable withholding tax rates are as follows:

  • 5% reduction applicable to royalty payments made to both residents (currently 15% withholding) and non-residents (currently 20% withholding for residents of non-tax treaty countries) respectively for the use of licences and intellectual property rights; and
  • 1% reduction applicable to payments made to non-residents for the purchase of goods, work performed, supply of services and hiring arrangements which are made in Myanmar.

Withholding tax rates applicable to interest payments made on loans or other financial indebtedness remains at existing rates – that is, 15% for payments to non-residents and no withholding for payments made to residents.

The WHT Notification also clarifies that “hiring” and “hiring arrangements” are subject to withholding tax, a point which was left uncertain in previous Notifications. Leasing and rental arrangements (for both real estate and goods) are now caught within the ambit of taxable transactions. From 1 April 2017, only sale of goods, provision of services and hiring arrangements “within Myanmar” will be subject to withholding tax under the Myanmar tax regime (therefore excluding the relevant activities carried out abroad).

Additionally, the WHT Notification clarifies that:

  • no withholding tax is applicable to payments in Kyat where the aggregate amount of such payments is less than MMK 500,000 in a financial year;
  • no withholding tax is applicable to: (i) payments made among government organisations; (ii) payments made among state-owned enterprises; and (iii) interest payments made to branches of foreign entities registered in Myanmar; and
  • if a foreigner residing in a country which has a tax treaty for avoidance of double taxation with Myanmar can submit a “certificate of residence” of such country, the withholding tax rates applicable under the relevant treaty will be applied.

4.New Competition Law in force

The Competition Law No. 9/2015 ("Competition Law") came into force on 24 February 2017. Passed on 24 February 2015 but with a delayed commencement period, the Competition Law prohibits anti-competitive arrangements (such as price fixing), “abuses of market dominance” and “market monopolies”. The Competition Law also provides for controls on mergers and protections around unfair competition (including consumer protections).

A new Competition Commission will oversee the administration of the Competition Law and will have the power to impose significant penalties for breach, ranging from fines to imprisonment.

All businesses active in Myanmar should be aware of the Competition Law and if they have not already done so, review their commercial practices to ensure compliance with the Competition Law. Foreign investors seeking to acquire an interest in existing Myanmar businesses should also be aware of the merger controls that are now in place.

Please see our previous analysis of the Myanmar Competition Law.

5.Parliament considers two draft laws affecting foreigners

Two new bills affecting foreigners in Myanmar are to be considered in the current session of Parliament, which opened on 30 January 2017. The draft Law Concerning Foreigners and the draft Foreign Worker Law are revised versions of earlier laws and are priority items on the parliamentary agenda.

The draft Law Concerning Foreigners contains the following provisions on the Foreigner Registration Certificate (FRC) regime:

  • a requirement to obtain and carry a FRC for non-citizens over 10 years old who intend to stay in Myanmar for longer than 90 days; and
  • a requirement to obtain the prior approval of a registrar (being a person who heads a township immigration or manpower office or of a higher position) if a FRC holder takes a trip within Myanmar of more than 24 hours.

The draft Foreign Worker Law proposes a formal work permit regime for non-citizens working in Myanmar. Prospective employees under the draft proposal would have to present evidence of relevant qualifications and experience, undergo medical examinations upon arriving in Myanmar.

These draft laws have been put forward by the Ministry of Labour, Immigration and Population. The government has spent some time negotiating with the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) and incorporating comments from the Attorney General’s Office before including these bills in the parliamentary agenda. Please refer to our previous report on the publication of the draft Law Concerning Foreigners in the local papers on 3-5 December 2016.

6.Yoma Central groundbreaking

The BLP Myanmar team was invited to attend the groundbreaking ceremony of the FMI Centre Redevelopment and The Peninsula Yangon Project on 16 February 2017.

The site, where the FMI Centre currently stands, will be redeveloped into Yoma Central – a mixed-use project comprising hotels, a condominium building, a serviced apartment complex, office towers and a retail podium. As a part of this prestigious development, the former headquarters of the Burma Railway Company will also be redeveloped into a Peninsula Hotel. The team has been working on this project since ‎2013 and this groundbreaking is a major milestone in this project which represents one of the biggest foreign direct investment in the real estate sector in Yangon.

7.Negotiations to revive US Air Service Agreement

On 8 February 2017, the Ministry of Transport and Communications announced that negotiations had commenced with the United States of America to revive the air service agreement first signed in September 1949 ("Air Service Agreement").

The Ministry announced that negotiations have been on-going since August 2016 and are due to be finalised by the end of 2017.

Although the Air Service Agreement was signed in 1949, there is no record of flight services between the two countries. The aim is to revise the terms of the Air Service Agreement in accordance with current aviation standards, after which the new agreement should pave the way for airlines from the two countries to offer direct routes.

The proposed amendments to the Air Service Agreement follow on from similar revisions of bilateral service agreements with the Netherlands and Bhutan last year.

8.Myanmar and Thailand Cooperation MoUs

The Myanmar and Thai private sectors have signed 16 memoranda of understanding ("MoUs") for mutually beneficial economic development in six fields of business activity. The MoUs were signed between UMFCCI and the Federation of Thai Industries with the intention of developing Myanmar’s small and medium-size enterprises as well as industrial estates. The MoUs specifically focus on the development of the Myanmar infrastructure, banking, health services and manufacturing sectors and are expected to be implemented within the next two to three years.

In addition, State Counsellor Daw Aung San Suu Kyi and the Deputy Prime Minister of Thailand have recently met to discuss bilateral cooperation between the two countries. In light of this, two MoUs have been signed between the governments of Myanmar and Thailand – one for the development of an emergency department at Dawei General Hospital, another on fisheries cooperation and money transfer services for Myanmar migrant workers in Thailand.

Thailand and Thai businesses continue to be key strategic investors in Myanmar and the signing of these MoUs is a welcome development. Media sources report that the two countries intend to double bilateral trade by the end of 2021.

9.Amendment of Land Laws

The return of appropriated land remains a key concern of the new Union government. The scale of land disputes is large – for example, there is currently an investigative committee tasked with considering the issue and the Ministry of Agriculture and Irrigation has recently reviewed in excess of 1,000 letters of complaint in relation to land disputes. Land may have been appropriated by government departments, private groups or the military. In light of this, the Union government intends to amend the Farmland Law 2012 and the Vacant, Fallow and Virgin Lands Management Law 2012 ("Land Laws"). In theory, the amendments would provide a process for resolving land disputes (which can be difficult due to insufficient title records) and streamline the return of appropriated land to its proper owner. Drafts of the amendments to the Land Laws have not yet been submitted to Parliament.

U Kyaw Min Oo, Director General of the Department of Agricultural Planning under the Ministry of Agriculture and Planning stated that drafts of the Agricultural Development Strategy and Investment Project has now been prepared and further steps will be taken for its approval.

We will provide further analysis and commentary in due course.

10.Telecommunications Sector Update

A group of civil society activists campaigning for changes to the Telecommunications Law 2013 (the "Telecoms Law") submitted its findings to Parliament in February 2017. The group is led by Maung Saungka, IT expert Ko Soe Thiha Naung and High Court lawyer Ko Kyi Thar Phone Myint and have been conducting its research since November 2016.

One of the focus of the group is the amendment of the now infamous section 66(d) of the Telecoms Law. Section 66(d) provides that a person found guilty of extortion of any person, coercion, unlawful restriction, defamation, interfering, undue influence, or intimidation using a telecommunication network shall be punished with imprisonment for a term not exceeding three years or with a fine or with both. This section has been widely used recently and PEN Myanmar recorded 38 cases in 2016 compared to seven from the Telecoms Law’s enactment in 2013 to 2015.

There has been widespread calls in Myanmar to make changes to this particular section of the Telecoms Law and in January 2017 there were protests outside City Hall in Yangon calling for certain amendments to be made.

The telecommunications sector is one of the first sectors to be liberalised in Myanmar and has attracted large volumes foreign investment. We will provide analysis and updates on further developments in this area.

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