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08 Apr 2016

New Myanmar Foreign Investment Law notification on the prohibited and restricted activities

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The Myanmar Investment Commission ("MIC") published Notification 26/2016 dated 21 March 2016 ("Notification 26/2016") on prohibited and restricted activities for foreign investment. Notification 26/2016 repeals Notification 49/2014 dated 14 August 2014 ("Notification 49/2014"). The MIC has only issued the new Notification 26/2016 in the Myanmar language.

While the new Notification 26/2016 is largely similar to Notification 49/2014, there are some key changes that are relevant for investors in specific sectors and some general discretionary powers for the MIC have been introduced.

(a) The following economic activities no longer require a joint venture with Myanmar citizens:

(i) production and distribution of hybrid seeds;
(ii)  production and propagation of high-yield seeds and local seeds;
(iii)  manufacturing of rubber and rubber products; and
(iv) ecotourism. 

Therefore, by inference, these economic activities may now be 100% foreign-owned, without any Myanmar citizen equity participation.

   
(b) Ecotourism no longer requires the approval of the Ministry of Environmental Conservation and Forestry (which has recently been amalgamated to form the Ministry of Resources and Environmental Conservation).

(c) Manufacturing and distribution of vaccines now require a joint venture with the Union Government. Further, such economic activity must meet the minimum standards provided in the World Health Organisation's Good Manufacturing Practice.

 (d) “Economic activities damaging or destroying watershed forests, sacred religious sites, traditional ritual sites, grazing lands, plantations and farmlands, and/or water resources”  are now included in the List of Economic Activities under Prohibition [to foreign investment]. How this potentially broad prohibition will be interpreted in practice remains to be seen.

(e) In addition to the previous requirement that certain rail related economic activities could only be performed through a joint venture with the Ministry of Rail Transport (which has recently been amalgamated to form the Ministry of Transport and Communication), it is now possible to engage in some of these activities through Build Operate and Transfer or lease. Furthermore, the categories of rail related economic activities for which the permission of the Union Government is required have been significantly reduced, but it remains necessary to obtain the approval of the Ministry of Rail Transport (which has recently been amalgamated to form the Ministry of Transport and Communication) for all rail related economic activities. The approval of the Ministry for Electric Power and Energy is additionally required for any generation of electric power to be used for train operations.

 
(f) While the permission of the Union Government is no longer required for "vehicle inspection, driving training centre, repair and maintenance training", such economic activities may only be conducted through a joint venture company of which the share capital is 50% foreign owned and 50% owned by Myanmar citizens.

 
(g) While the now repealed Notification 49/2014 expressly provided that economic activities that were not listed in Notification 49/2014 could be carried out as a 100% foreign investment, Notification 26/2016 includes a general proviso that, depending on the nature of the proposed economic activity, if the MIC determines that such economic activity requires the permission of the relevant ministry, such economic activity may not be carried out as a 100% foreign investment.  So the new Notification effectively grants the MIC broad discretion to prohibit wholly foreign ownership of entities conducting economic activities which the MIC considers should require ministry approval. This essentially documents what was in any event the previous prevailing practice.

   
(h) Notification 26/2016 also provides that service businesses "that are not suitable as an investment" may only be conducted with the permission of the relevant ministry.  While this restriction only applies to a service business that has applied for an investment permit from the MIC, as there is no guidance as to what may be considered "not suitable", this gives the MIC potentially broad discretionary powers to require service providers to seek ministry approval.      

Since the enactment of the Myanmar Foreign Investment Law (2012) and the publication of the first related notification, Notification 1/2013, the Myanmar governmental authorities have gradually refined the list of prohibited and restricted activities for foreign investment and overall increasingly reduced the sectors subject to restrictions. Notification 26/2016 is a further progressive step in the Myanmar authorities' attempts to encourage foreign investment into Myanmar. It is hoped that the official English language version will follow soon.

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