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Myanmar moves to ease foreign investment

Groundbreaking legislation eases restrictions on foreign ownership of industries, offering tax breaks and land leases.
Last Modified: 04 Nov 2012 05:18
Also on Saturday, a deal was signed allowing foreign credit cards in the country for the first time [EPA]

A new foreign investment law in Myanmar will allow overseas firms to fully own ventures and offers tax breaks and lengthy land leases, state media has reported.

The law, approved by President Thein Sein on Friday, had gone back and forth between the legislative and executive branches of the government since March.

The tussle over the law involved a government eager to attract foreign investment, tycoons determined to protect their monopolies, and small businesses keen not to be shut out.

Thein Sein took office in March 2011 at the head of a quasi-civilian government that brought almost 50 years of military rule to an end.

Committing funds

He has undertaken economic and political reforms that have persuaded Western countries to suspend sanctions and prompted an upsurge of interest in the country from multinational firms, which see potential in Myanmar's abundant resources and a low-cost economy bordering India and China.

Most major firms have been waiting to see the new law before committing significant funds.

The details in Myanmar-language state newspapers said joint ventures between foreigners and Myanmar citizens or the government would be permitted with any stake ratio agreed between the partners.

Foreigners can still own 100 per cent of businesses without the need for a local partner, as in the previous law dating from 1988. There could be restrictions in some areas, however.

A previous draft had said foreigners would only be able to hold a maximum 50 per cent of a firm in certain sectors deemed sensitive, including agriculture, and that foreigners would have to hold at least 35 per cent of any start-up joint venture.

One article of the new law says the Myanmar Investment Commission can allow foreign investors into the restricted sectors with the approval of the government, in the interests of the people and the country.

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 size of the investment, and the deal can be extended twice, for 10 years each time.

The old law did not define land lease periods but in practice contracts tended to cover 30-year terms, extendable for two periods of five years.

Tax holiday

Foreign firms may be entitled to a tax holiday 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. The old law allowed for a three-year holiday.

Foreign manufacturing companies may be entitled to tax relief of up to 50 per cent on profits made from exports. Tax exemption or relief can be granted providing it is reinvested in the business within one year.

The new law states that output can be used for "both export promotion and import substitution". The old law stressed export promotion.

Like the old law, the new legislation guarantees that an enterprise formed under this law will not be nationalised during the contract term or its extension.

A previous version had raised concern by also saying that if a company were nationalised in the public interest, compensation would be offered. This clause has now been dropped.

However, one clause says an enterprise allowed under the law will not be stopped "without sufficient reason" before the contract expires.

As under the old law, foreign investors will be entitled to withdraw capital on expiry of the contract in the foreign currency the original investment was made in.

The new law says it supersedes the old one enacted in November 1988 and that foreign firms who set up business under the old law would now be governed by the new legislation.

Credit card deal signed

In a separate but related economic development, officials in Myanmar said that three private banks had signed agreements with Visa, to enable international travellers to use credit cards and withdraw cash from ATM machines by January 2013.

Until recently, foreign visitors were barred from using credit cards in the Southeast Asian nation because of financial sanctions imposed by the US and EU to punish the former military regime.

Those restrictions were lifted earlier this year after democratic reforms, and some businesses have already begun accepting credit cards.

Than Lwin, deputy chairman of Kanbawza Bank, says the deal was agreed between Visa and his bank as well as two others  - ooperative Bank and Myanmar Oriental Bank.

He called the agreement "a milestone" that will boost the tourism industry in particular.

745

Source:
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