Sherpa Hossainy's Blog

Foreign investment rules in practice in Myanmar (Part 1)

Posted in Investment, Legal, Myanmar, Real estate and property, Yangon by Sherpa Hossainy on July 27, 2013

Part 1: Real estate and property

Published in Myanmar Business Today (Vol 1, Issue 24) on May 9, 2013

 

Recently, international law firm Clifford Chance and VDB Loi have jointly released a briefing note on the practical implementation of the Foreign Investment Law in Myanmar. Myanmar Business Today will publish a sector wise analysis based on the briefing, starting with real estate and property.

The Myanmar government implemented the country’s Foreign Investment Law (FIL) 2012 with two notifications or FIL Rules, creating a practical framework to match the government’s policy of welcoming foreign investment. Both notifications, 11/2013 of the Ministry of National Planning and Economic Development and 1/2013 of the Myanmar Investment Commission (MIC), were released on January 31.

Notification 1/2013 sets out the permitted activities for foreign investors and the activities which require a joint venture (JV), and notification 11/2013 introduces various regulations on applying for an investment licence or MIC Permit, the use of land, transfer of shares, remittance of foreign exchange and the taking of security on land and buildings.

By and large, investment with 100 percent foreign ownership is permitted for the vast majority of business activities, including telecommunications, power generation, services, infrastructure projects, agriculture, hospitality and non-food manufacturing.

Retail and wholesale activities have been opened to foreign investment as well, subject to certain conditions. A relatively limited number of activities require a local partner, such as food production, beverage production, plastics and certain chemical industries, mining and real estate development. However, even for those restricted sectors, foreign investors may hold up to 80 percent of the shares.

Notification 11/2013 strengthens the land use rights by foreign-invested companies, including the possibility to lease land from anyone, and to take security on land and buildings. It also, in conjunction with other measures in Myanmar and abroad (such as the general licence issued by the US Treasury easing sanctions with respect to four Myanmar banks), made it easier to remit foreign currency overseas.

“Myanmar is a country where there are often significant differences between the theory and the practice. In our overview of how foreign invested projects work in Myanmar, we base ourselves not just on the laws and the new regulations, but on our on-the-ground experience with getting projects from inception to completion,” said Edwin Vanderbruggen, co-author of the report and a partner at VDB Loi, a specialised law and tax advisory firm with offices all over Southeast Asia.

Calling upon on-the-ground experience with ongoing investment projects and financing transactions, we tried to clarify how power projects are licensed, which approvals are granted in practice to distribution and retail, and how the authorities allow foreign investment in real estate, Edwin said. Joint venture requirement for foods manufacturing, beverages and mining and the new possibilities for taking security on land and buildings were also elaborated in the report.

Real estate development

“In practice, the ownership structure of a foreign-invested property project will very much depend on the land rights for the project in question,” Edwin said.

In Myanmar, freehold, granted land and government leased land are in practice the most relevant types of land when it comes to foreign investment.

For land that is privately owned, which has been granted to a local partner, or where the local partner holds a government lease, a JV is required for development of most types of property, including buildings, condominiums, apartments, offices, commercial space, houses in industrial zones and low-cost housing, the briefing note said.

In this case, the local partner will receive shares in the JV in return for transferring the land rights to the company, it added.

The report said a JV is also required for the construction and development of new townships, golf courses, recreational areas, factories and mills, bridges, highways, underground railroads and construction related to transportation.

“If the land is directly leased by the government to the project company, such projects are usually conducted under build, operate, transfer (BOT) basis and foreign investors may hold 100 percent of the project company,” Edwin said.

If a legacy building is involved, then a conservation management plan is also required. Large scale property projects require an Environmental Impact Assessment (EIA), the report said.

The provision of architecture services, construction consultancy services, production of construction materials supporting the urban housing sector, prefabrication of construction materials, construction of disaster-proof buildings, and the fixing and commissioning of machines and their parts are subject to a Mutual Recognition Arrangement (MRA) and must follow the Myanmar National Building Code’s rules and regulations, the note added.

Use of land by foreign investors

Foreign investors cannot actually purchase land, according to Transfer of Immoveable Property Restriction Act of 1987, but they can lease land from the government or from private parties (since this year) with the permission of the MIC.

“In practice, when the project involves the use of land, foreign investors need to agree to a draft lease agreement with the (public or private) land owner before submitting their investment proposal to the MIC,” Edwin explained.

The government can lease land directly to the foreign-invested company (often in the context of a BOT agreement), but it is more common that a local partner who has already obtained the government lease contributes the land rights to a JV company in return for shares, he added.

Taking security

Until recently, there was largely no regulation in Myanmar on taking security over land and buildings. Notification 11/2013 now specifically allows creditors to take security over land and buildings.

“The taking of security on bank accounts, receivables and movable goods is in theory possible, but it remains virtually untested and very uncommon in practice,” Edwin explained.

Every type of security, mortgage or charge taken by a company in Myanmar must be registered with the Deed Registration Office within 21 days of creation.

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