Impact Of Key Recent Legislation On Foreign Investment In Myanmar.
Legal News & Analysis – Asia Pacific - Myanmar - Regulatory & Compliance
26 February, 2016
The recent spate of legislation enacted by the Myanmar Parliament includes certain overhauls of out-dated laws as well as the introduction of laws to address unregulated areas, and overall is generally expected to have a significant positive impact on investment in Myanmar. Remarkably almost half of the laws passed in 2015 were rushed through in November and December, with a further 25 new laws being passed so far this year.
This article considers a selection of the recently enacted legislation and published government notifications which we believe are of particular interest to foreign investors in Myanmar. In particular, we look at:
- the much-awaited Arbitration Law (Law No. 5/2016);
- the Condominium Law (Law No. 24/2016);
- the Mines Law Amendments (Law No. 72/2015); and
- the Internal Revenue Department's Notification of 16 January 2016 regarding the exemption from penalties for late payment of stamp duty.
Arbitration Law (Law No.5/2016)
With the enactment of the Arbitration Law (Law No. 5/2016) on 5 January 2016, the Myanmar Parliament has now passed the domestic legislation required to give effect to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), to which Myanmar acceded in April 2013. The enacted legislation is essentially based on the draft Arbitration Bill published in May 2014 (as analysed in our Myanmar Alert of July 2014). The new law repeals the antiquated 1944 Arbitration Act and, of greatest significance to foreign investors, expressly provides that a foreign arbitration award must be recognised and enforced in Myanmar, unless the limited specific grounds for refusal apply. The new legislation follows much of the UNCITRAL Model Law on International Commercial Arbitration, including the grounds for refusing enforcement. Unlike the UNCITRAL Model Law, however, the new Arbitration Law covers both international arbitrations and domestic arbitrations. While the parties to an international arbitration are free to select the substantive law of the arbitration (even where the place of arbitration is Myanmar), in a domestic arbitration in Myanmar the arbitrators must apply the substantive law of Myanmar and (unless expressly excluded) either party has a right to appeal the award to the national courts on a point of law. Further, and rather unusually, the exercise by any tribunal (domestic or international) of its power to grant or refuse an order for interim relief may be appealed to the competent court. There is some concern as to how the distinction between an "international arbitration" and a "domestic arbitration" may be interpreted.
While the new Arbitration Law is a major step towards affording investors in Myanmar more reliable dispute resolution mechanisms in line with international standards, only time will tell how easily in practice a foreign arbitral award can be enforced in Myanmar. Much will depend upon how the Myanmar courts approach the new law and the speed and efficacy of the much-needed training of judges and arbitrators and the related implementing rules and procedures.
Existing investors in Myanmar should review the dispute mechanism provisions included in any existing agreements relating to Myanmar and consider whether these should be revised so as to benefit from the greater protections afforded by the new Arbitration Law, and in particular the ability to agree on arbitration by a reputable foreign arbitral tribunal with increasing confidence that any foreign arbitral award should be enforceable in Myanmar.
Condominium Law (Law No. 24/2016)
The enactment of the Condominium Law (Law No. 24/2016) by the Myanmar Parliament on 29 January 2016 is of particular interest to foreigners as it allows up to 40% of the residential units in a "condominium" to be owned by "foreigners", as well as the lease and mortgage of condominium residential units to foreigners. The new Condominium Law, as drafted, is unclear in certain respects, including notably whether the definition of "foreigners" includes non-natural persons – and accordingly whether a foreign corporate is entitled to own, lease or mortgage a condominium unit.
The Condominium Law also recognises the ownership of individual residential units in a condominium, provided the individual units are duly registered with the relevant authorities as required under the Condominium Law. This is a significant improvement on the previous limited ownership options for residential apartment owners in Myanmar, which only provide for contractual rights against the owner of the land on which the building is built and which give no title in the units per se. Under the new Condominium Law's strata title-like system of ownership, owners of individual residential units have broader ownership rights and will be able to benefit from a more sophisticated system for transferring ownership, by registering the transfer of the relevant residential unit registration documents with the relevant authorities as required under the Condominium Law. The Condominium Law interestingly provides that the sale of a condominium residential unit to a foreigner must be done in foreign currency (instead of Myanmar Kyats) brought into Myanmar through legal means.
The Condominium Law only applies to qualifying properties that are registered under the new law. To qualify:
- (i) the property must be a collectively-owned building of at least six floors and built on collectively-owned land of at least 20,000 square feet;
- (ii) the permitted land use must include residential development;
- (iii) the land must be capable of being legally transferred; and
- (iv) the land owner must have already registered the land at the relevant Office of the Registry of Deed and Assurances.
Additional stipulations will be imposed by the Ministry of Construction and other relevant governmental authorities.
While the previous draft legislation published for consultation envisaged restricting condominium developments largely to freehold land, it is welcome that the enacted Condominium Law also permits the development of condominiums on land under the responsibility of governmental departments or authorities, provided the latter consent. This additionally opens the way for condominium developments on so-called "grant land" and land under the responsibility of ministries.
It is unclear how the responsible Myanmar authorities will interpret this new law, especially in light of the Transfer of Immovable Property Restriction Law's severe restrictions on the lease or transfer of property to foreigners, not to mention the practical complexities and challenges of the current Myanmar land title system. It is hoped that further guidance will be provided in the relevant implementing rules, which could however also include additional restrictions.
Mines Law Amendments (Law No. 72/2015)
The amendments made to the Mines Law of 1994 through the enactment of Law No. 72/2015 on 24 December 2015 (Mines Law Amendments) constitute some progress towards addressing areas of concern to investors in the mining industry. Key perceived improvements for foreign investors include:
- (i) the increase of the maximum production permit period for large scale extraction/production to 50 years;
- (ii) recognition of a priority right of exploration permit holders to obtain production permits;
- (iii) allowing joint ventures between foreign investors and local investors for large scale extraction/production projects by way of conversion or upgrading of existing locally owned small or medium scale projects; and
- (iv) specification of criteria for determining the size of individual production permit areas.
It is also welcome that the amended legislation introduces a guaranteed right to extraction/production for those who have successfully carried out prospecting and exploration and completed a feasibility study.
Investors should also note that the Myanmar State (through the Ministry of Mines) has an express right to participate in any mineral extraction with a permit holder, either jointly or through a joint venture in the form of production sharing (with allowance for certain expenses), equity sharing or profit sharing (based on the parties' respective contributions). It is also significant that the royalty rates have been tightened up further (now a stipulated fixed percentage, rather than the previous permitted percentage range) and will be based on the percentage of pure metallic mineral content, rather than on net sales proceeds.
Gemstones and gemstone mining have been removed from the ambit of the Mines Law and will presumably be separately regulated.
While the Mines Law Amendments are viewed as a step in the right direction, it is generally believed that further changes will be required in order to create the necessary legal and regulatory environment conducive to foreign investment in the mining industry. It is hoped that the implementing rules (due within 90 days of the enactment of the new legislation) will provide further guidance and help address some of the additional changes required – but ultimately further measures are likely to be necessary.
Stamp Duty Notification: Penalty Exemption
On 15 January 2016, the Internal Revenue Department of the Ministry of Finance issued a notification that allows parties who have failed to pay any applicable stamp duty due on instruments, the ability to pay such stamp duty by 31 March 2016 without incurring the usual late payment penalties (Stamp Duty Notification). As failure to pay sufficient stamp duty within the applicable period under the Myanmar Stamp Act generally results in both a penalty calculated at ten times the amount of the proper duty (or any shortfall payable), as well as payment of the unpaid stamp duty (or of any shortfall), this grace period exemption offers significant savings to parties who have not complied with stamping obligations.
The Stamp Duty Notification applies to relevant instruments executed by private companies including those with other private companies and/or governmental entities (including ministries, regional and state government bodies and economic enterprises).
Given the general exemption under section 3 of the Stamp Act which exempts from stamp duty instruments executed by, on behalf of or in favour of the Myanmar Government where the Government would otherwise be liable to pay the duty, in light of the Stamp Duty Notification it is now unclear whether there is an implication that government entities may indeed be under an obligation to pay stamp duty (notwithstanding the section 3 exemption).
This grace period exemption will be particularly welcomed by private parties who have been prevented from timely compliance with stamping obligations due to various regulatory and administrative hurdles outside of their control.
It is strongly recommended that any instruments subject to stamp duty should be duly stamped, given the significant consequences of failure to comply. In particular, an instrument subject to stamp duty will only be admitted as evidence in Myanmar if duly stamped and the Myanmar authorities are likely to only recognise and register duly stamped instruments. So from a practical perspective it can be impossible to obtain necessary permits unless relevant related documents (where subject to stamp duty) have been duly stamped. Investors are advised to consider whether sufficient stamp duty has been paid on all their applicable instruments within the relevant period. In the event of any non-compliance to date, to ensure the enforceability of the instruments, investors would be wise to take advantage of the current penalty exemption under the Stamp Duty Notification and ensure full payment of any due stamp duty, bearing in mind that the grace period only applies until 31 March 2016. Thereafter the usual penalties for failure to comply with the stamping requirements will again continue to apply.
Competition Law to come into force on 24 February 2017
Finally, we think it worth noting briefly that pursuant to Notification No. 69/2015 issued on 2 December 2015, the Competition Law will come into force on 24 February 2017. It is hoped that the anticipated implementing rules will clarify some of the ambiguities in the Competition Law.
Following the rush of new legislation and notifications recently passed, we now await the many related implementing rules and further guidance for a clearer picture of what implementation will mean in practice. In the interests of clarity and consistency for all, it is hoped that official English language translations will be forthcoming shortly, as these are still awaited. It will then remain to be seen whether these laws, notifications and rules will remain in the form as enacted under the outgoing government – and the extent to which further changes lie ahead. What is apparent is that many of the new provisions outlined above are aimed at encouraging foreign investment and work towards providing a more robust legal and regulatory framework more akin to prevailing standards elsewhere, as well as introducing the much-awaited recourse to more attractive dispute resolution mechanisms.
For further information, please contact:
Tom Platts, Partner, Stephenson Harwood