Like many other Southeast Asian countries, Myanmar has much to offer in terms of natural resources and opportunities for growth and development. However, it has one major advantage over other Southeast Asian countries in that its burgeoning economy is ripe for major foreign investment. The lack of proper infrastructure and lagging development is akin to a rich man’s gold mine. Here, companies can put down roots and enjoy the fruits of their investment for years to come.
Myanmar is currently working with various multinational corporations to develop basic economic necessities and infrastructure such as a stable electrical supply, railway networks, maritime and air transport, foreign exchange control, reliable banking services and telecommunications. All this is possible with two laws that provide key incentives in Myanmar: the Foreign Investment Law (FIL) and the more recently introduced Special Economic Zone (SEZ) law.
The FIL was enacted in November 2012 mainly to encourage manufacturing-based businesses in Myanmar. However, service-based businesses that are capital intensive in nature may also apply for a licence under the FIL on a case-by-case basis. Besides inspiring an influx of foreign investment, the FIL was designed to motivate job creation, to develop a local supply of human capital, to increase exports and to reduce Myanmar’s reliance on imports. Under the FIL, foreign entities may participate in all types of manufacturing-based businesses, excluding certain business that relate to the integrity of Myanmar’s traditional and cultural heritage, directly affect public safety, agriculture-related businesses and businesses that infringe upon matters of national security. The FIL provides both tax and non-tax incentives to companies that qualify with the minimum foreign capital requirements (determined by the Myanmar Investment Commission (MIC) on a case-by-case basis) and with the local employment requirements, which defines the percentage of employees that must be locally sourced in a given year.
Non-tax incentives give foreign companies the right to use or, more accurately, lease land for an initial period up to 50 years (with the option to renew the lease an additional two times for a 10-year period each) and also allows non-local employees to obtain a permit to live and work in Myanmar (ie a “stay permit”). Tax incentives under the FIL include corporate income tax (CIT) exemptions, certain import duty exemptions, a five-year tax holiday and a commercial tax exemption on products manufactured for export.
Now, recall that the FIL favours manufacturing-based/capital intensive companies. Other companies that engage in service-based/non-capital intensive businesses do not qualify for MIC permits. These companies may negotiate for incentives on a case-by-case basis but are rarely successful. Without an MIC permit, the process of obtaining a stay permit can be extremely difficult as the MIC permit is one of the key requirements of the stay permit application. Without a stay permit and without an adequate local supply of skilled workers, many companies face practical challenges in hiring appropriate resources to work for their businesses in Myanmar. This is where companies can turn to the SEZ law for an alternative approach.
In 2014, SEZs were introduced in order to encourage companies to relocate to and/or establish operations in certain geographic areas. However, these SEZs also indirectly provide practical solutions to the dilemma presented by the FIL. The SEZ law permits non-manufacturing companies to establish operations within a SEZ and offers them various incentives to do so, including stay permits for foreign individuals.
Currently, there are three SEZs being developed in Myanmar – the Kyaukpu SEZ, the Thilawa SEZ and the Dawei SEZ. The SEZ law provides non-manufacturing companies located in a SEZ with the following tax incentives:
– CIT exemption for an initial period of five to eight years, depending on the location;
– 50 per cent CIT tax rebate for an additional five-year period following the first tax holiday
– 50% CIT tax rebate on profits derived from re-investment for a third five-year period
– Import duty exemption or a 50-per-cent reduction on machinery, equipment, tools, and machinery parts
– permission to carry forward losses for five years from the year in which the loss was incurred
Furthermore, these non-manufacturing companies are permitted to use and lease land for a 50-year initial lease period (with the option to renew the lease for an additional 25 years) and to hire non-local employees to work for them. Another advantage of the SEZ law is that, while it requires these companies to be located in a SEZ, they are allowed to maintain a client-base outside the SEZ and to conduct operations throughout Myanmar.
At the moment, the three SEZs are mainly populated by Japanese, Thai, and Chinese companies that registered with the SEZ Committee/MIC and received permission to operate in Myanmar. However, companies of any nationality may contact the SEZ Committee/MIC to apply for permission to conduct business in the country under either the FIL or the SEZ law. Myanmar is still adapting to its new economic role within the international community and continues to evolve to meet the various demands and challenges presented by its development.
Source: The Nation