Temple

BLP's Myanmar postcard - Our top picks for March 2017

Article

Posted by , , , on

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

The Myanmar Investment Rules (the “Rules”), necessary for the implementation of the new Myanmar Investment Law (the “Law”) which was enacted on 18 October 2016, are expected to be passed and implemented by 1 April 2017.

BLP is assisting the Myanmar Investment Commission and the International Finance Corporation in drafting the Rules. Provisions of the Law and draft versions of the Rules have highlighted the following key points:

  • Income tax exemptions will only be available to businesses operating in promoted sectors.
  • To encourage investment in less developed regions, the duration of the income tax exemption will depend on the location of the investment, with the least developed areas of the country being eligible for a 7 year exemption, while other areas being able to apply for 5 year and 3 year exemptions. We have included a link to the unofficial English language translation which sets out a detailed list of the length of income tax exemptions in different areas of the country, and a summary is provided in the table below. Source: Notification No.10/2017 issued on 22 February 2017.
Zone Region Potential income Tax Exemption
1 Less developed Up to 7 years
2 Moderately developed Up to 5 years
3 Developed Up to 3 years

 

  • Any business which re-invests its profits in Myanmar is eligible to deduct such amounts from its assessable income.
  • Other tax exemptions are available to businesses in general. Businesses importing equipment and materials for the construction of their investment in Myanmar are eligible to apply for import duty exemptions. Businesses exporting manufactured products will also be eligible to import their raw materials duty free or be able to claim a credit against duty paid.
  • Companies will only be required to obtain an MIC Permit if the investment meets certain criteria, mostly based on potential social and environmental impacts, large scale land use requirements and the size of the investment. Tax incentives are decoupled from the MIC Permit and can now be applied for without obtaining an MIC Permit.
  • Currently, only businesses with an MIC Permit can obtain approval to enter into a long term land lease. This will now be available to any business without the requirement of obtaining an MIC permit.
  • Investors having difficulty dealing with other government agencies can take advantage of a specific procedure where MIC will assist in resolving issues with other government agencies. Investors will also have the right to request that grounds are provided for government decisions.

2. Update: Myanmar Companies Law delayed

As mentioned in our January 2017 postcard, the new Myanmar Companies Law was submitted to the Pyithu Hluttaw for final approval in early January. At the time, it was expected that the new law would be ready by the beginning of the next financial year, 1 April 2017. However, we understand that the final approval could be delayed until at least the next session of Parliament in June 2017.

Members of the BLP team were engaged to undertake the drafting of the Myanmar Companies Law and to lead the consultation process. See our review of the Myanmar Companies Law (in English and Burmese) explaining its effects on companies operating in Myanmar.

3. Notification 11/2017 - determining the threshold of investment value at which State and Regional Committees can issue an Endorsement

Pursuant to Rule 37 of the draft Myanmar Investment Rules 2017 (the “Rules”), an investor shall make all submissions to the Myanmar Investment Commission in accordance with the Myanmar Investment Law 2016 (“MIL”) and the Rules i.e. either (i) submit a proposal to the Myanmar Investment Commission if the investment requires a permit under Section 36 of the MIL or (ii) apply for an endorsement (“Endorsement”) if the investor wishes to apply for a land use right and/or a tax or duty incentive.

On 22 February 2017, the Myanmar Investment Commission issued Notification 11/2017 (the “Notification”). Under the Notification, the Myanmar Investment Commission may delegate the authority for assessing the Endorsement application and issuing an Endorsement to a State or Regional Committee if the value of the investment is less than US$ 5 million, or to another officer of the Myanmar Investment Commission of director level or above or a committee of Myanmar Investment Commission officials formed for that purpose.

4. By-laws necessary for condo market to pick up steam

Enacted in January 2016, the Condominium Law allows foreign nationals, for the first time, to legally purchase condominiums in Myanmar. However, total foreign ownership in any one project is limited to 40%.

The Condominium Law stipulates the criteria necessary for a project to qualify as a condominium suitable for foreign ownership. The requirements include that the building is:

  1. of at least six storeys;
  2. constructed on land that is more than 20,000 square feet (or 1,858 square metres); and
  3. constructed on land which has been registered as “collectively owned land” by the relevant Myanmar Authorities.

For more information, please read our article Myanmar's New Condo Law.

The aim of the Condominium Law was to open up the possibility for foreigners working in Myanmar to purchase their own home and foreign investors to diversify their property portfolio. Unfortunately, however, it has been reported that a lack of clarity in certain key areas in the Condominium Law has meant that many foreign nationals are choosing to wait for detailed by-laws to come into effect to provide clarification and more stable ownership before investing in housing units. Like many Myanmar laws, the devil is in the implementation detail.

For example, it is currently unclear what kind of identity documentation foreign nationals must hold to be eligible to invest in condominium units. It is also unclear whether there are any limitations on commercial use, whether a foreign entity (or any non-natural person) is entitled to purchase an apartment, how the condominiums can be managed, and whether Build-Operate-Transfer (BOT) projects can qualify as condominiums.

It is hoped that the by-laws will, when in effect, provide detailed rules and regulations dealing with the above for both buyers and sellers to give the property market a much needed boost. We will provide an update once details of the by-laws are made available.

5. Power projects delay - Yangon

The risk facing IPPs in Myanmar was shown this month when it was revealed that two large power plants – up to 600MW capacity combined – have been unable to conclude PPAs with the Ministry of Electricity and Energy.

The two projects in question (the first of which won a public tender last year) were set to develop separate power plants to supply power to Yangon, but budgetary constraints at the Ministry of Planning and Finance have now resulted in delays in the approval of the required PPA spend. This is not uncommon in developed and developing countries where governments need to deal with often competing objectives of ensuring (i) affordable electricity to consumers and (ii) security of supply.

Until funds are allocated – and a bankable PPA is in place - direct sale of power to industrial non-state offtakers (with an appropriate covenant strength) through a private wire corporate PPA may be an interim solution for smaller scale projects. BLP has extensive experience in this area and would be happy to speak to you if your company is exploring opportunities in this area.

6. Private loans to agricultural sector and SMEs

Officials from the Ministry of Planning and Finance, the Central Bank and the Ministry of Commerce have proposed that private banks must dedicate a minimum percentage of their commercial loans to the SME and agricultural sectors.

At the moment, apart from the state-owned Myanmar Agricultural Development Bank, barely 1% of loans are granted to these sectors by the private banking sector. Although this has the potential to rejuvenate the agricultural and SME sectors, many issues (such as appropriate collateral arrangements with small-holders, or government guarantees) will need to be teased through.

7. Occupational Safety and Health Bill out for public consultation

The Occupation Safety and Health Bill (“Bill”) was finally published for public consultation on 23 February 2017 (in Burmese).

Myanmar’s occupational safety and health laws have received very few updates since 1951. Such updates are necessary as the country opens itself further to foreign investment. The current laws are either outdated or require workers (not employers) to pay contributions if they wish to receive workplace compensation.

The purposes of the Bill include the effective implementation of occupational safety and health matters in every industry, to define the duties of employers and employees and, importantly, to mitigate occupational diseases and accidents. The Bill covers, inter alia, the types of industry to which the law will apply, the appointment of inspection officers and their powers and duties, and how to make a complaint.

Workplace accidents are not uncommon in Myanmar, where scaffolding, hard hats and other safety equipment are often missing from construction sites, and it has been reported that factory workers are often required to purchase their own personal protective equipment. It is hoped that the new law and its enforcement will promote responsible businesses and safe working environments.

8. Bill amending Tax on Specific Goods Law

Myanmar’s mining sector is closely linked to its evolving economy and shifting political landscape. The country accounts for most of global jade and ruby production. It has significant reserves of metallic minerals (such as gold, copper and tin) and industrial minerals and stones (such as coal and limestone). In the eyes of many, these resources are key to national development.

The bill relating to the Tax on Specific Goods Law (“Bill”) was announced for public consultation with industry stakeholders on 15 March 2017. According to the Bill, some expressions such as “gemstones” and “gemstones traders” have been added to the definitions section of the Law. Tax will be payable on the trading of gemstones, with the seller responsible for payment. Where gemstones are held but no tax has been paid, the holder must pay the tax. The procedure for offsetting tax on specific goods has been amended, and according to the new procedure, no tax can be offset for the manufacturing and trading of gemstones.

9. Myanmar Oil and Gas Enterprise (MOGE) tenders

MOGE has recently issued tender documents for interested parties in relation to three projects: a joint venture in onshore pipeline construction and maintenance services; a joint venture in onshore drilling services; and a joint venture in onshore seismic acquisition services. The main goals are to strengthen MOGE’s technological know-how, upgrade its workforce, gain access to financing, adopt international best practices and widen market access.

The tenders (including submission guidelines) can be purchased at Complex 44, MOGE Office, Nay Pyi Taw, Yangon, for a non-refundable cash payment of USD $500. Please let us know if you would like any assistance in this tender or other work in the oil and gas sector.

10. Fun Fact: How many days of Thingyan should one get?

One of the most important periods in Myanmar is the Thingyan water festival where people are allowed to spend extended time with their families and friends.

Thingyan in 2017 is due to run from April 12 to April 21, meaning offices will be open for only 12 working days that month. To that end, the Union government recently proposed shortening the annual Thingyan New Year holiday from ten to five days, in order to lessen the economic impacts of the extended holiday.

Under the proposal, the five days taken from Thingyan would be added to holidays celebrated later in the year. Naturally, the proposal has met some opposition amongst festival goers, especially for those living far away from home.

Some businesses have implemented the official line but others are maintaining the traditional longer period. So for any visitors to Myanmar during this period, please check with your hosts or you can always enjoy the water festivities!

This site uses cookies to help us improve our services and your browsing experience. For further information about cookies, including about how to change your browser settings to no longer accept cookies, please view our privacy policy.