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Lawyers disect ‘foreigner friendly’ Foreign Investment Law rules

Date: 13/02/2013
Source: The Myanmar Times
Lawyers disect ‘foreigner friendly’ Foreign Investment Law rules

A window of opportunity has been created by the enactment of the Foreign Investment Law and, on January 31, the rules determining investments, a foreign law firm working in Myanmar said last week.

The Ministry of National Planning and Economic Development released the 100-page document, which details prohibited and restricted sectors, as well as the exemptions different ministries may grant, on January 31.

As The Myanmar Times reported last week, the role and responsibilities of the Myanmar Investment Commission and the Department of Investment and Company Administration have also been enhanced.

Mr Edwin Vanderbruggen, a partner at VDB, a specialised law and tax advisory firm that has more than 60 transactional lawyers and tax advisers working in offices across Southeast Asia, said the investment law and subsequent rules are “foreigner friendly”.

“I consider the 1988 Foreign Investment Law foreigner friendly,” he said. “I consider the 2012 update just a modernisation of it. And now the regulations and notifications are out I think it confirms a consistent choice of the government to create a highly open climate for foreign investors but one where the foreign investor needs to engage with the government in order to actually get a project going.”

Mr Vanderbruggen said the most important rule allows up to 80 percent foreign ownership in companies, which had been the subject of fierce debate in parliament as it considered the law, and looked likely to see foreign ownership in most ventures capped at 50pc.

“Generally speaking, the fact that even within prohibited and restricted activities foreign ownership [is] up to 80pc and maybe even more is possible … this one is quite far reaching.

“We’re talking about activities that you cannot have even 1pc in some countries. And here you not only have a majority but you can also have an absolute majority … the government is giving a super majority to the foreign investor. That means they can do anything they want in that company.”

Mr Vanderbruggen said the rules benefited companies that put project proposals to the government.

“The common mistake that I see clients making is that they say: ‘Well, what does that mean? We need to figure out what this means, and how would that work? Can we ask the MIC for this or that?’

“And I always tell them the same thing: If you want to progress here you need to put a deal on the table. If you want the government to take you seriously you need to put a proposal in. If you want the government to compromise, you need to give them something to compromise for. You need to tell them: ‘Look, this is my project, this is US$20 million that I’m bringing in, it is 800 jobs, I’ll purchase that and that from local suppliers, and I really believe in this country and I really want to be here.

“But I need something from you too – you need to make clear how that and that is going to work. I need to get confirmation on how this and this is going to work. And I really need you to confirm this and that’,” Mr Vanderbruggen said.

Mr William Greenlee, a partner in law firm DFDL, which has a team of 10 Myanmar and foreign lawyers in Yangon and was founded in Myanmar in 1995, said the company had received hundreds of client enquiries since it sent out a notice detailing the rules on February 2.

Mr Greenlee said he considered the enabling of share transfers from Myanmar owners to foreign hands and vice versa to be a key component of the rules.

“One of the most important features of the new FIL notification and rules is that shares held by Myanmar citizens of companies in entities formed under the FIL, with MIC approval, may now be transferred to foreigners and from foreigners to Myanmar citizens,” he said. “This is a significant step in making equity in Myanmar companies more fungible and attractive to foreign investors. This is a significant change from previously, when all such transfers were prohibited by government policy.”

He added that the 80pc equity limit would not be a “major deterrent for foreign investors”.

“In my opinion quite good; it is a low entry barrier, even compared to some other countries in the region.”

Mr Greenlee said client feedback had suggested that industries in the prohibited list such as telecommunications, banking, insurance and energy would be better suited to the restricted list. “This would allow the government to encourage the development of its own industries but still foster growth in a controlled manner,” he said.

Mr Vanderbruggen added: “There are a number of surprises in terms of specific conditions, such as local content conditions for beverages, for spirits, cigarettes, a few more things that we knew about. They were actually in the practice of the MIC but it was not official or published.”

The rules also boost the role of MIC, which Mr Vanderbruggen said gave the government flexibility in dealing with investors. “When you look at the regulations [rules] that have been created and also in the FIL they [the government] do need some latitude,” he said

“It’s a trade-off between flexibility and arbitrariness. The government is very concerned about being transparent and even-handed but at the same time when we’re talking about promoting investments it’s also about making choices.

“MIC is making these choices and they need that latitude. MIC’s role is to be able to say: ‘Well, as a rule we don’t want you to have 100pc foreign-owned mining company but maybe there are circumstances conceivable where shareholding for the local partner should be less than 20pc’.

“Maybe that’s for the benefit of the country in certain circumstances. And that means that the MIC needs to have flexibility ... even if it’s at the risk of being blamed by all of the people they said no to for not being even handed. It’s not easy,” he said.

Mr Greenlee said the increase in MIC’s power would hasten projects.

“MIC now having more authority as a government body may speed up the time in which relevant approvals are obtained. For example, the notification and rules require a relevant ministry to respond to one of its potential FIL company queries within seven days,” he said.

Topic: Investment Legislation
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