Sherpa Hossainy's Blog

MIC Set to Tighten Foreign Investment Rules

Posted in Myanmar, Yangon by Sherpa Hossainy on August 24, 2014

Many foreign services companies may no longer be eligible for MIC permit

Published in Myanmar Business Today (Vol 1, Issue 39) on Oct 28, 2013

The Myanmar Investment Commission (MIC) may restrict many types of foreign services companies from receiving an MIC permit, a source familiar with the matter said.

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 says 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.

However, in an upcoming update to MIC’s notification 1/2013, which lists permitted activities for foreign investors, it is possible that some firms will no longer be eligible to receive the coveted permit.

It may also be possible that the government will move more types of services companies to the list of activities which require a joint venture with a Myanmar citizen.

In an apparent tightening of the policy, the MIC might try to limit the application of tax and investment incentives to areas such as manufacturing, real estate, hospitality, infrastructure, power and resources.

“The companies that are highly capital intensive will probably not be affected by the new draft. If you are a service company, but highly capital intensive, different rules may apply to you,” the source with direct knowledge of the matter told Myanmar Business Today. For example, telecommunication and construction may be unaffected by the policy shift.

“However, I fear that for the 100 percent foreign-owned businesses which have low capital, this battle has been lost.”

Companies in information technology, engineering, consulting, financial services, transportation and other types of services may be affected by the new policy.

A redraft of the Notification 1/2013 has already been prepared and the new draft will be considered shortly in MIC meetings.

“We can expect some decision in the coming weeks,” the source, who wishes to remain anonymous, said.

However, no concrete list of businesses which might be affected by the new policy was still unavailable at the time of writing this report.

“It’s still up to the MIC. My assessment is 100-percent-foreign companies which are not so capital intensive, whatever threshold MIC comes up with for that, will no longer be able to receive MIC Permit.”

The FIL also provides that investments may not be nationalised. Some of these arrangements are also possible for non-MIC foreign owned companies, but the benefits and protections are not as comprehensive and not organised 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 organisation 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.”

However, it would alternatively be possible to keep service companies within the system, if necessary without tax incentives, the source said. Decoupling the tax incentives from the other benefits and protections of the FIL also seems to be possible under the FIL.

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