vdb loi_investing in the myanmar real estate sector

Copyright, all rights reserved.

Published in 2014

Printed in the Union of Myanmar

Cataloging-In-Publication Data

Author: Edwin Vanderbruggen Title: REAL ESTATE DEVELOPMENT REPORT

1. Property, real estate, land. 2. Law. 3. Myanmar. I. Edwin Vanderbruggen

The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the organization they are associated with.

VDB Loi or Edwin Vanderbruggen do not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. Nothing in this publication constitutes legal advice.

Source material on page 25, 27, 41 and 44 courtesy of Frontier Myanmar

Frontier provides local research and analysis covering a range of sectors and issues in Myanmar, helping clients better understand their business environment. Frontier also publishes subscription-based information services focusing on specific industries, covering news, legislation, companies, projects and tenders.

In June 2014, Frontier launched the Quarterly Yangon Real Estate Review, a compilation of over 40 ongoing projects and 25 company profiles in the sector, and its first subscription service called the Myanmar Real Estate and Construction Monitor.

Frontier Myanmar Research was incorporated as a Myanmar limited company in 2014 by its parent company Frontier MEA Ltd (UK). Like our affiliate offices in the Libya and Ghana, the Yangon business is led by a team of local and international staff who collect on-the-ground research leading to independent, in-depth and actionable information for clients.

For more information, see http://realestate.frontiermyanmar.com/

Note:Level 8, Centrepoint TowersNo. 65 Sule Pagoda Road & Merchant StreetKyauktada Township, Yangon, MyanmarTel +95 137 1902/+95 137 1635Fax +95 124 1238www.vdb-loi.com/

For orders, please contact:Edwin VanderbruggenFax +95 124 [email protected]

No. S-204, Tha Pyay Kone Ward, Zabu Thiri TownshipNay Pyi Taw, Myanmar (Located just east off of Yaza Thingyan Road between Junction Mall and the Gem Museum)Tel: +95 678 108 091Fax: +95 678 108 092

WHAT YOU WILL FIND IN THIS REPORT ....................................................................................... 6

THE AUTHORS .......................................................................................................................................... 8

VDB LOI AND THE MYANMAR REAL ESTATE SEcTOR ......................................................... 9

INTRODUcTION ...................................................................................................................................... 13

cHAPTER 1: HOW ARE FOREIgN-INVESTED REAL ESTATE PROjEcTS USUALLY STRUcTURED IN MYANMAR?........................................................................................................... 15

cHAPTER 2: LAND LAW IN MYANMAR........................................................................................... 181. Types of land in Myanmar ........................................................................................................ 192. Rights to immovable property for Myanmar nationals ................................................ 213. Restrictions on foreign ownership of immovable property ........................................ 21

cHAPTER 3: LIcENSINg OF FOREIgN INVESTMENT IN REAL ESTATE ............................ 241. Forms of investment allowed for foreign investors .......................................................... 262. Joint ventures in real estate ...................................................................................................... 273. Investment licensing ................................................................................................................... 28

cHAPTER 4: cONDOMINIUM LAW ................................................................................................. 30

cHAPTER 5: BUILD-OPERATE-TRANSFER OF REAL ESTATE ................................................. 32

cHAPTER 6: cONSTRUcTION PERMITS ....................................................................................... 34

cHAPTER 7: ENVIROMENTAL LAW AND REgULATION ......................................................... 381. Requirements for IEE .................................................................................................................. 402. Requirements for EIA .................................................................................................................. 403. Requirements for EMP ................................................................................................................ 41

cHAPTER 8: FINANcINg AND SEcURITY ................................................................................... 421. Legal framework of lending and security............................................................................. 432. Tax implications of financing .................................................................................................... 463. Foreign exchange control .......................................................................................................... 46

cHAPTER 9: TAX IMPLIcATIONS ...................................................................................................... 47

CONTENTS

Definition TermAGO Attorney General Office

BOT Build-Operate-Transfer

CCTO Companies Circle Tax Office

CDC City Development Committee

CIT Corporate Income Tax

CRO Companies Registration Office

CT Commercial Tax

CTL Commercial Tax Law of 1990

DICA Directorate of Investment and Company Administration

DRO Deed Registration Office

EPC Engineering-Procurement-Construction

FEMD Foreign Exchange Management Department

FEML Foreign Exchange Management Law of 2012

FIL Foreign Investment Law

INRD Immigration and National Registration Department

IRD Internal Revenue Department

ITL Income Tax Law of 1974

JV Co Joint Venture Company

JVA Joint Venture Agreement

MCPA Myanmar Companies Act of 1914

MIC Myanmar Investment Commission

MOC Ministry of Commerce

MOD Ministry of Defense

MOF Ministry of Finance

MOU Memorandum of Understanding

PIT Personal Income Tax

SLCA Sea and Land Customs Act of 1878

TIPRA Transfer of Immoveable Property Restriction Act of 1987

TOS Tax on Salary

USD United States Dollar

WHT Withholding Tax

YCDC Yangon City Development Committee

ABBREVIATIONS

SELEcTED MAjOR PROjEcTS IN YANgON

1. 68 Residence (Kabaye Pagoda Rd)

2. Botahtaung Port (Botahtaung Tsp)

3. Daewoo Amara Hotel and Service Residence (Sin Phyu Shin Avenue (near Inya Lake), Kamaryut Tsp)

4. Dagon city (Kabaye Pagoda Rd, Dagon Tsp)

5. Dagon Landmark complex (Kabaye Pagoda Rd, Dagon Tsp)

6. golden city (Yankin Township)

7. HAgL Myanmar centre (Kabaye Pagoda Rd, Opposite Sedona Hotel)

8. Hilton Yangon (Downtown, Kyauktada Tsp)

9. junction city (Bogyouk Aung San Rd)

10. Kan Thar Yar consortium Project (Corner of Kanyelikthar Street and U Aung Myat St, Migalartaung Nyunt Tsp)

11. Novotel Yangon Max (459 Pyay Rd, Kamaryut Tsp)

12. Paragon Residence (Kanner Rd, Ahlone Tsp)

13. Pyay garden (U Wisara Rd)

14. Sedona II (Pyay Rd, Sanchaung Tsp)

15. Star city (Thinlyin)

16. Time city (Hanthawaddy Rd)

17. Traders Square (Sule Pagoda Rd, Downtown CBD, Panbedan Tsp)

18. Twin centro condominium (Baho Rd, Sanshaung Tsp)

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WHAT YOU WILL FINDIN THIS REPORT

Old Secretariat Building

In the fouth chapter, we provide an overview of the soon to be release

condominium law which will allow foreigners to own condominiums (with some restrictions), establishes rules for their construction and details how they will be operated.

In the fifth chapter, we provide an overview of how the Myanmar

Government actively encourages development of hotels, office buildings, commercial buildings, conferences centers and mixed use projects on government land through a Build Operate Transfer (BOT) structure.

In the sixth chapter we review the process for obtaining construction

permits and some of the legal challenges involved.

The seventh chapter contains an overview of environmental law and

regulation in Myanmar. This includes detailed information regarding Initial Environmental Assessments (IEAs), Environmental Impact Assessments (EIAs), Environmental Management Plans (EMPs) and Social Impact Assessments (SIAs).

In the eighth chapter, we provide an introduction to the financing and security

aspect of investment in this sector.

In the ninth chapter tax implications and stamp duty are discussed

with detailed information tax information including withholding tax, commercial tax, corporate income tax, capital gains tax, customs duty, and income tax on salaries.

In the highly dynamic environment of the liberalization of Myanmar’s economy, economic laws and regulations play a pivotal role. This report aims to analyze how the current laws, regulations and Government processes affect foreign investment in Myanmar’s real estate sectors. Put another way, our particular vantage point for looking at the Myanmar real estate sectors is its regulatory framework.

Chapter Overview

In the first chapter, we outline how most foreign-invested real estate projects are

structured in Myanmar. There are a few structuring options, including joint venture, BOT or the locally popular unincorporated joint venture.

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In the second chapter, we analyze Myanmar’s Land Laws and Regulations that

specifically relate to the real estate projects. We then discuss how general Myanmar legislation, such as the Foreign Investment Law and its implementing regulation, affects foreign investors this sector.

The third chapter is dedicated to the licensing of foreign investment

in real estate. We cover forms of foreign investment which are allowed, joint ventures in real estate, investment licensing and the Myanmar Investment Commission (MIC) permit process.

authOr

OffiCes in myanmar

This report has been prepared by VDB Loi Myanmar Ltd, a leading Myanmar law and advisory firm based in Yangon and Nay Pyi Taw (the Firm). The Firm also has offices in Cambodia, Indonesia, Laos, Singapore and Vietnam.

Providing legal and tax advisory services to real estate investors is one of the Firm’s core specialties. The Firm has assisted a number of international developers, construction companies and lenders in relation to many of the largest real estate projects in Myanmar. In addition, the Firm’s partners and advisors have worked on some complex and large real estate projects in the region.

Any feedback on this report can be sent to its principal author, Edwin Vanderbruggen at [email protected]

Edwin VanderbruggenPartner, VDB Loi

Level 8, Centrepoint Towers, No. 65 Sule Pagoda Road & Merchant Street, Kyauktada Township, Yangon

T: +95 137 1902 / +95 137 1635

F: +95 124 1238

yangonNo. S-204, Tha Pyay Kone Ward, Zabu Thiri Township, Nay Pyi Taw

T: +95 678 108 091

F: +95 678 108 092

On Yaza Thingaha Road, driving from Junction Mall to the Gem Museum, look for signage on the right directing you to our office

nay pyi taw

contact Email: [email protected] | [email protected] contact Email: [email protected]

vDB LOi anD the myanmar reaL estate seCtOr

Our Myanmar team counts real estate and infrastructure among its most important areas of expertise

Highlights of our practice:

� Advising on many of the major mixed-use developments in Myanmar, including a US$2B satellite city for a Singapore-listed developer and an 8-hectare mixed-use development for a major Vietnamese developer

� Assisting a major luxury hotel development at the site of a legacy railway station for a Hong Kong hotel management company, and the proposed investment by a Korean financial conglomerate in a US$300M hospitality project

� Advising a leading Japanese financial group on a real estate joint venture with the Myanmar Government � Deep practical understanding of Myanmar land law and use regulations, spearheading legal reform with the

Government � Interdisciplinary team comprising accountants and financial specialists to prepare the voluminous financial portion

of the investment (MIC) licensing application, overseen by a partner with a CPA and Big Four background. We know the pitfalls, saving precious time and costs for the client.

In Myanmar, there is often a significant gap between theory and practice. This is particularly evident with real estate issues. Clients need assistance and advice based not just on legal research, but on the reality on the ground. For example, one would never know it from reading the laws, but transfers of titles rarely occur in practice. Land owners find the taxes prohibitively expensive in many cases. A practice has developed using powers of attorney from the title owner to the purchaser. This typically local circumstance in the land documentation has wide repercussions for development, construction and leasing by our clients, and we often assist them in trying to mitigate liabilities in this respect.

Our clients choose us because our service goes beyond what a typical law firm does. We not only provide advice on the Myanmar law aspects of the project documentation and structure, and perform due diligence – we go the extra mile. Our team is experienced in securing

construction permits for clients in Yangon, Mandalay and Rakhine. We have assisted in transforming the category of land, such as from farmland to residential, which is a lengthy administrative procedure. We have obtained tax exemptions, import licenses for construction materials, and helped structure innovative security packages in an uncertain regulatory climate. In short, in addition to our solid legal skills, we offer practical solutions.

Of particular note is VDB Loi’s work on the regulatory framework of land use and the construction of a telecommunications network infrastructure. Acting for a foreign licensed telecom operator and several tower companies, we prepared a detailed assessment of the laws, regulations and actual practices of Union, state and region authorities with respect to land leasing, land use and construction permits. We then prepared a detailed plan for proposed reform, including draft amendments and new regulations for the Government’s consideration.

Our team’s extraordinary tax skills deserve special mention. Our real estate clients often choose to work with us because we are able to offer specialized tax structuring advice as well as legal services. Everybody can tell you the tax rates, but we focus on the reality of the tax assessments. How will the tax authorities determine in which year income from selling a condo unit will be taxed? Will the allocation between onshore and offshore parts of a turnkey construction contract be accepted by the tax officials? How will the authorities interpret the tax exemption rules in reality? For example, we assisted a European multinational construction company with its plan to build 1,200 apartment units in the Yangon region. Early on in the engagement, we identified that although legally sound, the contractual structure created an expensive Commercial Tax inefficiency. We proposed and implemented a solution, saving a significant amount of unnecessary taxes.

The team has worked on some of the largest and most complex infrastructure projects in the country. The Thilawa Special Economic Zone is a massive Government-to-Government project with a public private partnership twist, where VDB Loi advises the Japanese Government as local counsel. Other projects include:

� The privatization of a midstream oil and gas enterprise, the largest in Myanmar, comprising pipelines and storage tanks

� Advice on the installation of aviation fuel distribution and storage facilities

� Advice in relation to the construction of an oil and gas pipeline

� The construction and operation of a new Yangon international airport, advising the Korean Government

� The installation and operation of a nationwide fiber optic cable network

� The tender for the construction and operation of a deep-sea port terminal

� Advice in relation to the proposed construction of a waste water treatment facility

� Assistance in connection with the construction, licensing and operation of gas-fired, hydro and coal-fired power plants

� Advice on the structure and licensing of passive network telecommunications infrastructure (towers and rooftops)

Land due diligence

Few matters are as complex in Myanmar as land use rights. Roughly a dozen types of land exist, each with their own legal rights and obligations. The use that land rights holders can make of the land is regulated by the type of land rights as well as by zoning rules. Foreign investors can only lease land on a short- or long-term basis.

It is required for investors in Myanmar to provide information and documents on the land they intend to use for their project. A lack of proper due diligence in relation to the land rights and the permitted use of the land may result in significant delays or even a rejection of the application. For example, is the lessor of any particular plot of land allowed under Myanmar law to sign a lease to the project company? We often assist clients with land due diligence and draft or review the land rights documentation as per Myanmar land and investment law, seeking to maximize the client’s legal protection.

Assistance with drafting and reviewing documentation

Our clients primarily seek the assistance of the firm with respect to the Myanmar law issues of the contractual framework, which may include a number of documents, including the land lease or sublease, BOT contracts, the joint venture agreement (certain real estate investments require a joint venture with a local partner) and the EPC agreement.

Investment licensing of real estate and infrastructure projects

Obtaining an investment permit from the Myanmar Investment Commission (MIC) for the real estate project company is a crucial step in the investment process, and a major specialty of VDB Loi. The preparation and application process is often underestimated by investors. Service providers in Myanmar use quite different approaches and fee structures in relation to obtaining an MIC Permit.

Our firm’s approach is to provide not just high-level advice on the process, but to actually prepare the legal documents and the voluminous financial portion of the application ourselves. Of course, this is only possible with an interdisciplinary team which comprises accountants and financial specialists (overseen by a partner with a CPA and Big Four background), as well as lawyers:

� We drive and monitor the document collection process with precision and unparalleled responsiveness: Our deep understanding of the small but often very important details of the process allows us to be clearer in our communications with the client, and to eliminate unnecessary costs and time.

Construction

A key component of the investment proposal is the land documentation, which is closely reviewed by the MIC. Our team’s unique practical experience with land rights issues is highly sought after by our clients. In Myanmar, there is often a significant gap between theory and practice. This is particularly evident with real estate issues. Clients need assistance and advice based not just on legal research, but on the reality on the ground.

� We actually complete the investment proposal and, more importantly, the financial projections which are required to be added to the proposal: The financial projections and analysis is the area where clients lose a lot of time if they are not properly assisted by an advisor who has a deep understanding of the particular requirements and expectations of the MIC. Our team, not the client, will have the labor-intensive task of preparing the investment proposal and its annexes, based on the client’s business plans or budgets.

� Lodging the proposal with the MIC: We will lodge the investment proposal dossier with the MIC on your behalf.

� Following up the proposal and project presentation: We will liaise with the authorities in order to obtain the MIC Permit. This usually requires us to provide additional information to the authorities upon their request before they accept or agree to pass on the proposal internally.

Very often face-to-face meetings and an actual project presentation will be required. We will conduct such meetings (with or without your representatives), assist in preparing the presentation (for example pointing out where to put emphasis, based on our prior experience with the MIC), and assist you at the time of the presentation (or make it on your behalf if you are unable to attend).

Our approach results in significant time and cost savings for prospective investors.

Real estate financing

Myanmar reset its regulatory framework for international financing in 2013, opening up new opportunities for real estate developers. However, most projects to date are financed with equity or with financing that is converted into equity onshore. Thus, the Government has little experience with the implementation of actual international financing, particularly under the new rules.

Our clients often select us for our ability to find a way forward, even when the rules and precedents do not yet exist. Partner engagement and a deep understanding of the issues are key in such cases. The firm’s strength in navigating the MIC process is a trump card when it comes to financing, since the MIC is the primary regulator for international lending.

For example, when we acted for a real estate private equity fund developing six residential towers in Yangon, we first assisted the client with inserting language in the master land lease agreement which we knew from experience to be necessary for the regulator to allow a lender to take security over the units that are be constructed. We assisted in negotiations with the Government land owner, making sure that the crucial provisions for the financing and sale of units were written in a way that would later be acceptable to the investment regulator, but also to future international commercial lenders.

construction licensing

Obtaining construction permits is extremely hands-on in Myanmar. Procedures are not always as clear as they could be. It is challenging to get access to constantly overloaded authorities. Our team has provided technical assistance to the Yangon City Development Committee in relation to strengthening the administrative process for specialized construction permits. We assist a number of our real estate and engineering clients with obtaining construction permits, contractor operating licenses, zoning approvals and special permissions from the Department of Civil Aviation for certain construction projects. The firm also assists with obtaining import licenses and regulatory approvals for equipment and materials.

Internal Revenue DepartmentLarge Taxpayers’ Office

Citing an example from the opposite side, given our deep understanding of which assets and rights can be secured in reality, and which might take too long, we were able to advise an international lender in the course of a due diligence project on the potential concerns associated with a particular project.

Approvals or registrations need to be obtained from up to a half dozen Ministries and Government agencies for international financing, including the state land owner, the MIC, the Central Bank of Myanmar and the Company Registration Office. As the first foreign law firm to open a fully operational office in Nay Pyi Taw, VDB Loi’s team in the capital provides clients the quick and constant access to Government decision makers that is crucial to getting a financing deal through.

Our team assists clients with advice on possible securities, drafting and review of security documentation, and obtaining all necessary approvals and registrations.

The firm has assisted with advising on and implementing international financing for a number of projects in Myanmar, including advising on the secured financing of a US$500M asset financing, and assistance in relation to the financing of the new Yangon international airport. We also advised a Korean financial group on the possible security package and drafted various security agreements for a US$200M hospitality development.

Real estate tax advisory

The firm is renowned for its superior tax knowledge in Myanmar. Few firms are able to field a highly experienced tax advisory team in Myanmar, let alone with an engaged resident tax partner. At VDB Loi, both resident partners have backgrounds as highly accomplished tax specialists with global firms, which is a unique proposition. The firm provides technical assistance to tax and customs authorities in Myanmar and throughout the region.

Everybody can tell you the tax rates, but we focus on the reality of the tax assessments. How will the tax authorities determine in which year income from selling a condo unit will be taxed? Will the allocation between onshore and offshore parts of a turnkey construction contract be accepted by the tax officials? How will the authorities interpret the tax exemption rules in reality? For example, we assisted a European multinational construction company with its plan to build 1,200 apartment units in the Yangon region. Early on in the engagement, we identified that although legally sound, the contractual structure created an expensive Commercial Tax inefficiency. We proposed and implemented a solution, saving a significant amount of unnecessary taxes.

Boaungkyaw Street, Yangon

As Myanmar continues its rapid modernization and development, opportunities for investment in the real estate sector have grown exponentially. With a population of over 60 million, 70% of which have little to no access to modern infrastructure, Myanmar will demand large increases in investment in both the short and long term to

INTRODUcTION

approach the standards of its neighbors in ASEAN. Real Estate development is one of the most promising sectors for growth and this report aims to provide extensive background and information for interested foreign investors. To accomplish this, the real estate sector will be examined primarily from a legal and regulatory framework perspective.

Real estate development will provide opportunity for investment across Myanmar in 4 primary areas: hotels, offices, residential properties and retail properties. Each has the potential for significant growth in the coming years, both in major metropolitan areas like Yangon, Mandalay and Nay Pyi taw as well as more rural parts of the country.

FIRST, hotels have already attracted significant foreign investment in Yangon with the number of hotel rooms expected to increase by 50% in the next five years to meet growing demand. As tourism booms in Myanmar, demand will continue to outstrip supply for the foreseeable future as tourists venture outside of the traditional Yangon-Mandalay-Bagan tourist destinations. Destinations including Inle Lake, Bago and numerous upcoming beach resorts will require additional capacity. Much of the current investment in hotels has focused on the upscale and luxury segments which will leave substantial room for mid-level hotels throughout the country.

SECOND, residential properties including condominiums and serviced apartments are currently at near maximum capacity in Yangon which indicates strong demand for long-stay options in the market. The majority of current development in and around Yangon is again focused on the upscale and luxury segments which indicate substantial opportunities for developments in the mid-level range. In addition, foreigners are still unable to stay in residential housing throughout much of Myanmar; this is expected to change in the near future which will also drive demand.

THIRD, office space in Yangon currently rivals Singapore for the highest price per meter in South East Asia. This is due to a glaring lack of modern offices available to the rapidly increasing presence of foreign companies in Myanmar. Demand is forecast to outstrip supply for many years to come as successful elections in 2015 are expected to bring another huge wave of foreign investment into the country.

FINALLY, the retail sector is growing at a healthy rate with many international stores and brands beginning to enter the market. This has created demand for new retail facilities of every size from large multi-use developments to stand-alone stores. Outside of Yangon, Nay Pyi Taw and Mandalay the sector is underdeveloped with few modern retail outlets.

From a legal standpoint recent growth in Myanmar has been aided by economic reforms, such as the Foreign Investment Law and Special Economic Zone Law which have served to aid development in the real estate sector. In general these laws, coupled with the government’s plans to encourage development have proven successful. Yet, to continue this change, further reforms will be needed and the government must stay committed to its current path through the elections in 2015.

With optimism and opportunities for investing in Myanmar at their highest level in decades, foreign investors must also keep in mind the unique set of challenges posed by investment in the country. The Myanmar Government has liberalized many aspects of the economy and decentralized development. Yet, there is still significant regulatory uncertainty which has resulted, at times, in a relatively moderate pace of development.

In particular, some of the Myanmar government’s policies which can be challenging for foreign investors include: government oversight which often involves numerous ministries, land lease issues and constantly evolving laws, rules and regulations. Many of these laws are still in the draft phase; some rules and regulations are also unwritten, which requires close coordination with government entities to fully understand. Going forward, clear implementation of these laws will be essential as will the effectiveness of the government in regulating them.

The country is also facing significant hurdles due to inadequate infrastructure necessary to facilitate continued growth in the real estate sector. This is particularly apparent outside of the major cities of Yangon, Mandalay and Nay Pyi Taw. As a result real estate development in much of the country will face challenges which developers may be unaccustomed to.

However, the overall outlook for development in these sectors is bright and with appropriate planning, many foreign investors have already proven that Myanmar has enormous potential now and in the future.

cHAPTER 1: HOW ARE FOREIgN-INVESTED REAL ESTATE PROjEcTS USUALLY STRUcTURED IN MYANMAR?

Ayeyarwaddy Bank

Real estate development projects with one or more foreign investors have, particularly since the entry into force of the Foreign Investment Law of 2012, been organized along the lines of three major structuring options. The most common is the incorporated joint venture, where a foreign investors and a local investor both hold shares in a

Myanmar-registered company. The local shareholder receives shares as a remuneration for the contribution of land rights. An alternative adopted from a widely used practice within Myanmar, is to use an unincorporated joint venture under which a local land right holder gives a foreign investor (who sets up a Myanmar-registered company)

the right to build a construction and rent or sell units in return for the use of the land right. Finally, in Build-Operate-Transfer projects, the foreign investor invests in a construction which is after 30 or 50 years turned over to the land right owner, usually the Government, as the sole shareholder.

Structuring Options

1 Incorporated joint venture with local shareholder who contributes land rights by means of a lease

2 Unincorporated joint venture with a local land holder through a

3 Locally-owned foreign company or joint venture company which concludes BOT-Contract with the (Government) land owner.

Land use rights

Under Myanmar law, a foreign-invested company cannot hold any land use rights, except a long term lease with the approval of the Government, or a lease which does not exceed one year in duration. Both Government-owned land and privately held land use rights can be used for long term leases to foreign owned companies.

As is explained in more detail in this Report, Myanmar has various types of land as per up to a dozen land laws. Each land law provides in its own legal regime with respect to use by foreign-owned companies. In all cases, permission is needed from the Myanmar Investment Commission for the long term use of the land by the (partly) foreign-owned project company. In addition, for many types of land such as farmland and vacant, fallow and virgin land special permission from various land regulators at state or region and at Union level is needed for such land to be used for a foreign invested project.

Land that is already leased by the Government (which may be acting through virtually any Ministry or state/region entity) to citizens can be used for foreign investment in two ways: (1) the Government terminates the lease to the citizen, with that citizen’s consent, and extends a new lease to the foreign invested company, where such citizen holds shares; or (2) the citizen creates a sub-lease with the foreign-invested project company as a lessee.

The use of land is regulated in several ways. Some types of land may be used only for one purpose, such as for cultivation by the rights holder, and a change can only be effected with the approval of the regulator. In addition, there are zoning regulations in urban areas or approvals are needed in towns and villages.

The relationship between the relevant land law, the master lease or BOT and any subleases to the project company are crucial in any real estate development

project. Since “one cannot transfer what one not has”, downstream rights of unit holders and even the actors in the secondary market of apartments are to some extent conditioned by the contractual rights upstream. In practice, this means that for projects based on a master lease or a BOT contract which has already been concluded, it may be difficult to assure the protection of right holders that are located downstream such as “sub-developers” of phases of a large project, or unit purchasers.

Land due diligence is thus crucial in Myanmar. One needs to assess who has the rights to the land, and what the restrictions are on the use of the land in question. The exact size of a parcel of land can also be in dispute. Particular attention should be paid to situations where land right holders are married (under Myanmar customary right, this means that the spouse is often regarded as a co-owner), or where there is a succession.

Foreign shareholding

Real estate development requires a joint venture with a local partner, which should hold at least 20% shareholding. Exceptions are made for hospitality projects and for projects on a BOT basis. In fact, for any type of project an exception can be made by the Government, but it is rare to see a 100% foreign owned real estate project except for those structured as a BOT.

capitalization

There is no minimum capital provided for a real estate development project by any laws or regulations. As the project will usually be subject to approval by the MIC, the MIC will make a case-by-case assessment as to whether the capital that the investor proposes to use for this project suffices. The MIC assesses this by taking into account the entire financial planning of the project, including its gearing. The MIC also takes into account the IRR of a project in this respect.

In many cases, the foreign shareholder will contribute materials and equipment (i.e. equipment that is integrated in the building such as climate control and lifts) as capital in kind to the project.

Financing

Foreign loans are possible by banks or shareholders or any other third parties, provided they are approved by the MIC. The MIC reviews the interest rate, the loan agreement, the security and the financial merits of the investment plan. The Central Bank of Myanmar (CBM) needs to provide approval as well, but when MIC approval has been obtained that usually means that the CBM approval has already been secured.

construction

Once a construction permit has been received, the construction can commence. As a pre-requisite, the project company must obtain an export/import registration and apply for import licenses for nearly all materials and equipment. In Myanmar, materials and equipment must be imported in the name of the project company for tax incentives to apply. Withholding taxes apply to payments made to EPC providers (3.5% to non-resident providers, 2% to resident providers), and a Commercial Tax impost at a rate of 5% or 2% applies to construction services.

Small & Medium Development Bank

cHAPTER 2: LAND LAW IN MYANMAR

Supreme Court

1. Types of land in Myanmar

There are almost a dozen different types of land rights for citizens, each of which has its own rights and obligations. The extent of the rights of the land use right holder in relation to each type of land use right differs as per law, regulations and local practice and may even be stipulated on a case-by-case basis in a lease, a land use license or other land use right document. Below we discuss in more detail the following types of land: Freehold land, Grant land, Farm / Agricultural land, Permit / Licensed land, Leased land, Vacant / Virgin / Fallow land, and Monastery / Religious land. Depending on the type of land, a lessor will need to obtain certain approvals or follow certain procedures before a lease can be legally concluded and registered on the land in question, or before a company can apply for a construction permit (if necessary).

The main types of land classification relevant to foreign investors for the transfer of immoveable property in Myanmar are:

Freehold land:

Freehold land is also known as ancestor land. Ownership by a Myanmar national is outright and there are no restrictions on the owner to lease, transfer or sell interest in land to other Myanmar nationals and Myanmar companies. Freehold land can only be taken back by the Government, for State interest. Such land may be used for any lawful purpose. Freehold land is evidenced by a title deed and may be leased, sub-leased or transferred in accordance with Myanmar law.

grant land:

Grant land is the most extensive form of land use right for state land. Grant land may be used for any lawful purpose. In issuing Grant land, the government grants a party the right to occupy the land for a certain period which is explicitly spelt out in the ‘Ga-yan’ or grant. The lease period could range from 10 years, to 60 years to 90 years etc. which is extendible upon application. Normally, extensions are always granted. Grant land is transferable and can be inherited within certain legal restrictions. A land fee is due on grant land as a premium as an upfront payment upon signing the lease.

The holder of Grant land is free to lease, transfer, mortgage or sell his/her interest in the land to other Myanmar nationals and Myanmar companies.

Farm / Agricultural land:

Farm land and Agricultural land are very similar types of land. Both are land that is owned by the Government and given to a Myanmar citizen for a particular purpose. With Farm land, a citizen is only permitted to cultivate paddies. With Agricultural land, a citizen is permitted to cultivate any kind of crop. To legally obtain the right to use Farm or Agricultural land, farmers must apply for and obtain a Farm Land Work Permit (Form 7) from the Central Farmland Management Bureau (CMFB) granting the farmers the right to use the land. Farmers must also pay land tax on Farm / Agricultural land.

If a farmer is in possession of a Farm Land Work Permit, he may lease or sub-lease the whole or a part of the land. Farm / Agricultural land may only be leased, sub-leased or transferred to a foreign company with the permission of the Government.

Permit / Licensed land:

Permit / Licensed land is land that is given by the Government to civil servants to live on and cultivate for personal use. Permit / Licensed land is neither grant land nor leased land; it also belongs to the State. Such land can be licensed to Myanmar citizens by an authorized Revenue Officer (section 3(7) Lower Burma Town and Village Lands Act, 1899).

Permit / Licensed land may only be leased, sub-leased or transferred with the permission of the local land authorities.

government leased land:

Although technically not an actual type of land as set out by law, leases of Government land are regularly the basis of a foreign-invested project. Government leases are for land that is owned by the state and administered by a municipal or government authority. Any Government entity, such as a Union Ministry or a state or region body may have land that it is able to lease. For example, in Yangon among the authorities permitted to lease out government land are the YCDC and the Housing Board. These two bodies are part of the Yangon city municipal authority. YCDC historically was in charge of the city’s upkeep while the Housing Board managed the city’s housing. Now both bodies have authorization on behalf of the government, to grant leases within the confines of Yangon city. These two bodies are responsible for renewing leases already granted and also will issue new leases on a regular basis.

Leased land is to be used for the purpose stated in the lease, such as, “residential construction”. Such land can only be transferred by the lessee with approval of the Government lessor, which is often granted. Further, Leased land can only be mortgaged by the lessee with approval of the Government lessor, which is often only allowed in relation to the buildings on the land in question. Government leases usually provide that a sublease is not allowed.

Vacant / Fallow / Virgin land:

Vacant / fallow / virgin land is land that has never been cultivated or has been abandoned by its owner. Such land may be used for agriculture, livestock, mining, or any other use permitted by the Central Committee for the Management of Vacant, Fallow and Virgin Lands. This land can be leased, sub-leased, or transferred with the Cabinet’s permission. MIC approval must be obtained to permit a foreign company to use vacant / fallow / virgin land for a purpose other than agriculture, livestock, mining, or the purpose originally permitted by the Government.

Monastery / Religious land:

Monastery / religious land is land that has been given by the Government to a religious entity (monastery, pagoda, church, etc.) for religious purposes. Once monastery / religious land is classified as such, its status cannot be changed, unless the Cabinet so permits.

Monastery/ religious land cannot be leased to foreign investors. A foreign company may nevertheless apply to the Ministry of Home Affairs (MoHA) to change the purpose of monastery land in an effort to obtain permission to lease such land. With the application, the company would have to include a religious ownership document and a land tax receipt from the lessor. The MoHA would the send the application to the Cabinet for review and the Cabinet would have to approve the change of purpose. According to the YCDC, the Cabinet will rarely, if ever, approve a change of purpose for monastery land.

City Hall, Yangon

cATEgORY OF LAND

WHIcH LAND cAN BE LEASED TO FOREIgN INVESTORS?

Freehold Land

Owner may freely lease land to a foreign investor, with approval from the cabinet and from the MIC.

Grant Land Landholder may lease all or part of the land to a foreign investor, with permission from the cabinet and the MIC.

Farm / Agricultural Land

Landholder in possession of Form 7 (Farm Land Work Permit) may lease, sub-lease or transfer the land to a foreign company, with Government permission. To use the land for something other than paddy or crop cultivation, the landholder must obtain a change of purpose permission from the Government (Form 15).

Leased Land Typically long term leases of 10/60/90 years. Lessee can lease land directly from the Government or sub-lease land if the Government lease allows it (with amendment of the lease, if necessary).

Permit / Licensed Land

Land may be leased, sub-leased or transferred with Government permission. Permit Land must be converted to Grant Land before it can be used for a purpose other than habitation or personal cultivation.

Vacant / Fallow / Virgin Land

Can be leased, sub-leased or transferred to a foreign investor only with Government permission. If the use of the land will be something other than agriculture, livestock breeding or aquaculture, mining, or another use specifically permitted by the Government, then the lessor will have to apply for a change of the purpose of the land.

Monastery / Religious Land

Cannot be leased, sub-leased or transferred to a foreign investor. The status of Monastery land cannot be changed. In rare cases, the Cabinet will approve a change of purpose for the land.Rule 125(a) of Notification 11/2013 prohibits foreign investors from conducting business on religious lands.

2. Rights to immovable property for Myanmar nationals

Myanmar nationals (individuals and companies) are able to sell, lease, mortgage and transfer their rights to immoveable property, whether it is a freehold, leasehold or Government lease, to other Myanmar nationals. These transfers include rights to apartments, condos and land.

When freehold land is transferred, the rights of the previous owner transfer to the new owner who enjoys the same rights as the previous owner.

For grant land or leased land, the new lessee will enjoy the rights as accorded to the previous owner/tenant for the duration of the period of the leasehold.

In a Government lease, the same principle applies as with grant land: ownership and the right to occupy the property or the land will last for the duration of the period as stated in the transfer document.

3. Restrictions on foreign ownership of immovable property

TIPRA sets out the key restrictions for foreign ownership of real property in Myanmar. Generally, TIPRA states that foreigners cannot own any property in Myanmar. Chapter 2 of TIPRA lists the restrictions on immoveable property to foreigners. The restrictions are as follows:

� A Myanmar national may not transfer immoveable property to foreigners by “sale, purchase, give away, pawn, exchange or transfer by any other means”. (Section 3, TIPRA).

� A foreigner or foreign entity may not acquire immoveable property by “purchase, gift, pawn, exchange or transfer”. (Section 4, TIPRA).

� A foreigner may not be granted a lease of more than one year. (Section 5, TIPRA).

� The immoveable property of a foreigner who dies or departs Myanmar is scrutinized by the relevant ministry to allow for inheritance in accordance with the law or for confiscation of the property to the state. (Section 6, TIPRA).

� In the case that the immoveable property is allowed to be inherited, the inheritor is to be granted an order of the Court as per the Inheritance Act. (Section 7, TIPRA).

In essence, foreigners cannot be transferred ownership or a grant of immoveable property from a Myanmar national. The exception to this restriction is Section 15 of TIPRA, which states: “The provisions of this Act do not apply to companies or organizations that have relevant beneficial contracts with the state”.

In 1988, the Myanmar Government published the first FIL (FIL 1988) to encourage foreign investment in Myanmar. As TIPRA and the FIL were released within the same time period, the definition of the “relevant beneficial contracts with the state” under Section 15 of TIPRA has to be viewed within the context of the FIL 1988. This section has been interpreted to mean that foreign companies can be transferred immoveable property if they, as investors, have received permission to do so from the Government. The relevant authority in Myanmar for foreign investment is the MIC.

Therefore, foreign companies established in Myanmar and issued a permit by the MIC can acquire certain rights to immoveable property (see below), but may not own immoveable property.

The current laws and regulations, including the current FIL (FIL 2012), allow foreign nationals and companies to obtain rights to immoveable property, directly or indirectly in the following ways;

� Government leases and sub-leases; � Build-Operate-Transfer agreement (BOT);

or � Leasing or sub-leasing from a private party

Obtaining land rights further to leases or subleases of Government land involves, first, negotiating with individual land rights holders on a case-by-case basis. Then, approval for the arrangement must be sought from either the local, state or regional authorities. Finally, the MIC must approve the land right acquisition arrangement. As stated above, there are almost a dozen different land classifications in Myanmar and each different land type comes with a different ‘land use’. A lot of land, such as Agricultural land, will not be suitable for commercial use unless an application is made to the relevant authorities to change the land use (see below).

Foreigners can lease immoveable property from a private party, a Myanmar national, for a maximum of one year, renewable with agreement from the lessor. The law is silent on whether there is a limit on the number of years the lease may be renewed. Based on our experience, the one year leases have been renewed on a regular basis with agreement from the lessor.

Some foreign companies and individuals choose to opt for a nominee structure when purchasing property in Myanmar, however this form is not recommended as there is a high risk of conflict that may lead to litigation concerning the ownership of the property between the parties in the future.

Buildings (number) Family Units (Number)

Floor Space (sq.ft.) Cost (K million)

2010 -11

2009-10

2008-09

2007-08

2006-07

2005-06

2004-05

2000-01

1995-96

1990-91

5

42126

1

531.52209576

12559574

245

2991.35240157

28032

8060.22351332

43473

21820.74751535

592153

31448

3885946168.88

6075.41329736

382

33

12341447158

362160.16

25589.92

28413

5

7636662

13.40

8809883

COMPLETED RESIDENTIAL BUILDING CONTRUCTED UNDER RESIDENTIAL HOUSING SCHEME

Source: Statistical Yearbook 2011

Name of Law Applicable laws for investment in real estate

Foreign Investment Law 2012 Provides that a company registered under FIL needs to submit the investment proposal to MIC for MIC Permit, which provides a number of advantages, including the ability to import into Myanmar and tax incentives;

Notification 11/2013 of 31 january 2013 of the Ministry of National Planning and Economic Development

Provides the details for implementation of FIL;

Myanmar companies Act 1914 the Act that governs the formation of companies;

Foreign Exchange Management Law 2012

The Law governs the financing of projects owned by foreign lenders and provides additional guidance on foreign exchange transaction within Myanmar;

Income Tax Law 1974 The Law provides that, depending on the basis of residence, non-residence and the nature of the business, the income tax rates vary;

commercial Tax Law 1990 CT is levied on goods produced within Myanmar, services rendered within Myanmar and imported goods;

The Tariff Law of 1992 Administers the custom tariff rates;

Myanmar Stamp Act of 1899 Stamp duty is payable on execution of instruments, including lease agreements and transfer of property;

Transfer of Property Act 1882 The Act relates to the sale and lease of property;

Transfer of Immovable Property Restriction Act 1947

The Act lists the restrictions on immovable property to foreigners;

Farmland Law of 2011 sets forth the law on the use and transfer of farm land in Myanmar;

Farmland Rules of 2012 sets forth the rules for obtaining a permit to use farm land in Myanmar;

Vacant, Fallow and Virgin Lands Management Law of 2012

sets forth the law on the use and transfer of vacant, fallow and virgin lands in Myanmar;

Vacant, Fallow and Virgin Lands Management Rules of 2012

sets forth the rules for obtaining permission to use vacant, fallow and virgin lands in Myanmar;

Upper Burma Land and Revenue Regulation of 1889

sets forth the land laws pertaining to Upper Burma;

Lower Burma Town and Village Lands Act of 1899

sets forth the land laws pertaining to Lower Burma;

Registration Act of 1908 The Act states the type of documents compulsory and optional for registration;

Myanmar contract Act of 1872 The Act regulates and governs the general rules of a contract. Business transactions in Myanmar are done by way of execution of a contract and thus creating contractual obligations and liabilities between the contracting parties;

Environmental conservation Law of 30 March 2012

The Law lists broad principles and empowers the Ministry of Environmental Conservation and Forestry to enforce environmental standards, environmental conservation, management in urban areas, conservation of natural and cultural resources, and the process for businesses to apply for permission to engage in an enterprise that has the potential to damage the environment, prohibitions, offences and punishments;

Sea custom Act 1978Land custom Act 1924

The Act regulates and governs customs values

The Arbitration Act of 1944 Relates to local arbitration within Myanmar

cHAPTER 3: LIcENSINg OF FOREIgN INVESTMENT IN REAL ESTATE

Independence monument and centrepoint tower

The parties must identify and secure the land for the project to lease from the Government or private party. A copy of any land lease agreement (either with the Government or private party) must be submitted for approval to the MIC as part of the application process.

The MIC will verify already at an early stage whether the investor has the right to use the land he plans to use. Whether it’s a plot of land you plan to build something on, a warehouse you sublease, or a terrain you will use as a plantation, the MIC will verify the legal merits of your use, which includes the lease agreement, the master lease (if any) and the land right holder’s title (for lack of a better word) documentation..

For the investor to check everything in advance sounds straightforward enough, but it isn’t. Land due diligence is one of the toughest things to do in Myanmar, for various reasons. First of all, the land law is (mostly) quite dated, it is scattered into many different laws and regulations, and there are massive gaps between theory and practice. Secondly, land owners are often, for one reason or another, reluctant to produce copies of their documents for inspection, which does not make things easier. Finally, there may in some cases be misunderstandings of laws and regulations by local land owners, which come to the surface when the MIC gets involved. For example, when a building had no construction permit, or no stamp duty has been paid on a lease this might come up in the course of the MIC’s assessment.

In a number of cases, land right holders may be honestly convinced that it is possible to build a factory on their land, or to sublease the land in question to a third party. If the investor went ahead based on that representation, and it turns out to be erroneous, the MIC application may get stuck for quite a while.

RESIDENTIAL REAL ESTATE

DISTRIBUTION OF cONDOMINIUM UNITS BY AREA, Q2 2014

16%

7%

17%

23%

37%

Downtown

Semi-downtown

Eastern

Western

Uptown

Sample of appraised vaules, 2014 (Ks960=$1)

township area Ks/sq ft

Dagon Pyay Rd 325,000

Bahan Kabar Aye Rd, Ko Min Ko Chin Rd, Bahan Rd

325,000

Hlaing Pyay Rd 275,000

Kamaryaut Junction Square 275,000

Lanmadaw Mahar Bandoola Rd, Anawrahtar Rd, Strand Rd, Merchant Rd, Bogyoke Rd

240,000

Prices are in Ks per square foot, as cited by the IRD

Source: Frontier Myanmar research

1. Forms of investment allowed for foreign investors

TYPE OF PROjEcT INVESTMENT FORM

Residential (condos and apartments)

Joint Venture

Housing near industrial areas

Commercial

Low cost housing

New townships

Hospitality 100% Foreign Owned(for establishments rated 3 stars and above)

In theory all, but in practice infrastructure, hotels, commercial, townships and offices

BOTA BOT can be executed by a Myanmar registered company with a100% foreign owned company

Foreign investors (which includes Myanmar registered companies which have one or more foreign shareholders, may not own immovable property. They are however allowed to hold land through a long term lease (for more than one year) provided it is “engaged in a contract benefiting the state as per section 15 [TIPRA]”. This condition is deemed fulfilled, in practice with respect to privately held land, when the foreign invested company has received approval from the MIC for the project in question. Foreign investors wishing to undertake a real estate development project will need approval from the investment regulator (MIC) and will need to obtain an MIC Permit. Alternatively, the investor will need specific permission from the Government in another form.

Even with approval from the MIC, foreigners and their Myanmar-registered companies cannot own freehold or granted land. It is expected that there will be an exception for foreign ownership of condominium units; however, such a law has not yet been passed.

Under the FIL, foreign companies can operate as an investor in a variety of sectors, either as a 100 percent foreign owned entity, as a joint venture with a Myanmar national or a company, or under a contract (for example a BOT contract with the Government).

Notification 1/2013 features several activities which are related to real estate development. For these activities, a JV would be required. Notification 1/2013 specifies that no JV is required in case the real estate development project is implemented based on a contract. Finally, there are some real estate development activities for which no JV is required, according to the Notification 1/2013. Accordingly, there are basically three ways for a foreign investor to undertake real estate development activity in Myanmar:

MIC PERMITS 1/1/2013 – 31/3/2014

Source: Myanmar Investment Commision

2. joint ventures in real estate

28 Building bridges, high way roads, overhead bridges and underground rail roads and activities related to development of transportation means

29 Developing and establishing of international golf club and recreational areas

30 Enterprises involving construction, sale and renting out of condos and apartments

31 Enterprises involving construction and sale of offices and commercial buildings

32 Enterprises involving construction, sale and renting out of residential areas connected to industrial zones

33 Enterprises involving construction of low cost housing

34 Enterprises involving construction and developing of new townships

According to Notification 1/2013, a number of real estate activities are only permitted with a JV. They are specifically (numbers refer to List B of Notification 1/2013):

Among the list of activities only permitted with certain conditions, the requirements concerning construction and real estate for the establishment and lease of office / commercial buildings require specific approval from the Ministry of Construction. In order to receive permission, the following conditions must be followed:

� If a JV, the local partner may contribute the right to use the land on a long term basis as equity or the local partner may lease the land to on a long term basis to the foreign partner;

� The land has to be returned to the owner upon the expiry of the permitted business term; and

� If the business activity is conducted in urban heritage buildings, the Conservation Management Plan has to be used as guidance and the activity shall not affect the original character and design.

In addition, Notification 1/2013 sets out the economic activities for which it is required to provide studies on environmental and social impact. These are to be conducted before permission would be granted to commence the business activity in:

� Construction of large scale housing; and � Construction of large scale hotel, recreation

places and resorts.

8%

87%

5%

OFFICE REAL ESTATE

APPROXIMATE DISTRIBUTION OF HIgH-END MULTI-TENANT OFFIcE BUILDINgS, Q2 2014

Downtown Semi-downtown Eastern


3. Investment licensing

OVERVIEW OF INVESTMENT INcENTIVES 2012 FOREIgN INVESTMENT LAW

Forms of business allowed

- 100% foreign owned;- JV by contract – no minimum threshold.

Tax holiday Automatic 5 year tax holiday.

Discretionary tax benefits

Customs duty free importation of machinery and equipment during construction period plus raw materials for 3 years.

Exemption from income tax profit that is reinvested within one year.

Exemption from income tax profit that is reinvested within one year.

Right to pay income tax at Myanmar citizen rates on behalf of foreign employees and to deduct the same from income of enterprise.

Deduct R&D costs and accelerate depreciation.

Losses may be carried forward and set off against profits for the subsequent three consecutive years, with the exception of capital losses.Any losses incurred during the tax holiday period cannot be carried forward.

Exemption of customs duties for machinery and equipment if the investment amount is increased and the original business is expanded.

Exemption from CT on goods produced for export.

Labor For the first two years, 75% of the workforce can be foreign. For the next two years, 50% can be foreign. In the third two years, the foreign workforce must be reduced to only 25%.

Nationalization Government will not terminate any enterprise without “a proper reason”.

Foreign currency extraction

Authorized to remit foreign currency abroad, subject to certain limitations.

Land use Foreign investors may lease land up to an initial term of 50 years, plus two consecutive 10-year extensions.

Transfer of business Foreign investors have the right to transfer their shares to Myanmar nationals, foreigners, local companies, as well as foreign companies.

Insurance Foreign investors must have prescribed insurance from insurance company permitted in Myanmar.

3.1 MIc Permit submission procedures for a real estate jV

An application for an MIC Permit can only be submitted once the land rights (lease, sub-lease or BOT) have been arranged, as evidenced by a draft lease or a letter of confirmation from the land right owner).

Where a new JV Co is formed under the FIL by a Myanmar-owned company with a foreign partner, the submission is accompanied by the final JV Agreement between the Myanmar partner and the foreign investor.

Where the Myanmar partner was already granted this investment license, and is contributing this right as capital in kind to the new JV Co, this MIC approval step is completed more quickly than where a license must be issued to a new 100% foreign-owned entity.

The approval process will in theory be completed in approximately 90 days from submission of the MIC proposal until the issue of the MIC Permit. However, for real estate projects 4 to 5 months is more realistic.

STEPS AcTIONS TIMINg

1 MIC permit application is filed

Day 1

2 Attend Proposal Assessment Team (PAT) meeting

Day 30

3 MIC seeks feedback from MOF, States/Regions, AGO and IRD

Day 60

4 Proposal goes to MIC member meeting

Day 90

5 Receive MIC permit Day 110

Tota

l num

ber

1990 1995 2000 2004 2005 2006 2007 2008 2009 2010

1000

2000

3000

4000

5000

6000

7000

20121821

407

33533127

1634

6841

5201

1112

2587 2521

727

1344

1490

918

19352047

731

29162782

1376

1955 1985

808

42694080

1198

2032 2135

737

Application Submitted

Application Approved

Completed Construction

PRIVATE BUILDING ACTIVITIES IN YANGON

The table below summarizes the step-by-step process.


cHAPTER 4: cONDOMINIUM LAW

Sule Shangri-la Hotel and Sakura Tower

The condominium law is currently in the draft phase and is expected to be released by the end of 2014 with the accompanying regulations following in early 2015. The law is expected to abrogate existing legislation to allow foreigners to own land and condominiums in Myanmar.

The law will cover 3 primary regions including Nay Pyi Taw, Mandalay and Yangon with the Ministry of Construction granted the ability to expand the list with the approval of the Union Government.

The purpose of the condominium law is to support the development of projects in urban settings with increasing populations. It will also grant the right to own and transfer condominiums and in theory strengthen ties among the Myanmar and international residential development community. It is expected that foreigners will be allowed to own 40% of the units above the 6th floor under this new law. Currently, foreigners are barred from owning condominiums in Myanmar and allowing foreigners to own even a percentage of condominiums in a given development will facilitate accelerated growth in the sector.

Included in the law will be a number of provisions which detail the processes for construction of condos, the responsibilities of the developer, the formation of supervisory and executive committees (condominium associations), rights and duties of co-

owners, functions and duties of the relevant departments and dispute resolution guidelines.

In regards to registration and development of condominiums there will be a number of stipulations including how to properly register the condominium on co-owned land, the type of land which can be used, how to transfer the land in the future, size restrictions, minimum number of stories and minimum number of units. The Department of Human Settlements and Housing Developments (the Department) will review each application and collect licensing fees. The application is then forwarded to the Ministry of Construction for final approval.

The developer is responsible for construction of the condominium in accordance with these agreements and will be issued a building completion certificate upon completion of the project. The developer will be responsible for payment of the stamp duty for all deeds that are registered as co-owned land and buildings.

In addition the condominium law introduces the concept of communal management. It provides for the formation of a temporary supervisory committee, a condominium association and an executive committee. The temporary supervisory committee is formed if less than 50% of the units have been sold. After more than 50% of the units are sold a condominium

association is established. Each co-owner is a member for the purpose of management and maintenance of the condominium. An executive committee is also elected from the members of the condominium association. The executive committee is responsible for a number of administrative activities including control of the condominium maintenance fund, insurance, general finances, repair of the condominium, hiring management and maintenance staff, and organization of condominium association meetings.

Finally, the law details the responsibilities of the co-owners as well as the functions and duties of the Department. For the co-owner this includes their responsibility to contribute to the maintenance fund, to maintain the condominium, to notify the committee if a unit is leased or mortgaged, to take responsibility for any damage and to not affect the original design or structure of a unit without the permission of the committee. For the Department this includes an obligation to assist developers, to provide support to the executive committees, to review the share values for each condominium and to research technology to enhance the development of condominium communities in Myanmar.

It is important to note that the condominium law is still in the draft phase at the time of this writing and some aspects will likely be changed in the final version.

cHAPTER 5: BUILD-OPERATE- TRANSFER PROjEcTS

Dagon Centre II, Yangon

The Government actively promotes the development of real estate projects on Government land through a BOT system. Under such contract, obviously, the foreign investor constructs a building on Government land, and operates that building for a period of years, depending on the case. The investor will realize the revenue derived from the building, possibly with a Government share as a royalty or annual lease fee. In that structure, the foreign investor would setup a 100% foreign owned Myanmar company to hold the project, or a JV Co. After the expiration of the contract, the construction is transferred to the Government.

The BOT structure is common for hotels, office buildings, commercial buildings and conference centers, as well as for mixed use projects on Government land.

The terms of BOT contracts will of course vary from case to case, and from Ministry to Ministry. Below we point out some of the more common terms.

The Government can also decide to lease land directly to a foreign owned company, even a 100% foreign owned entity. In practice this is rare, because there is only very little land that is suitable for real estate projects which is not already leased to Myanmar citizens or companies.

BOT cONTRAcT TERMS

ISSUE TERM

Structure The contract states that the investor will make all investments and expenses to construct the building.

Upfront payment “Premium” (payment terms)

Premium to be paid, schedule of payment.

Regular Government fee or royalty

Annual or periodical revenue sharing for the Government, which can also be calculated as a US$ per built surface, depending on the case.

No sub-lease allowed

The contract will usually state that the investor must use the land for the specific purpose of the BOT project. Sub-leases are only allowed with the permission of the land owner.

Taxes, fees The investor is required to pay all applicable taxes and land use fees.

Construct only with approval

The investor must submit a construction plan for approval by the land owner. Any amendments to the plan must be approved in advance. The investor must respect city planning and zoning regulations.

Who owns the additional construction?

The contract may or may not have clear clauses on legal title to buildings for the duration of the contract.

Environmental issues

For projects of a certain size, the contract will normally state that the investor must prepare an Environmental Impact Assessment and must adhere to regulations on environmental protection.

Term The term is agreed in common accord between the land owner and the investor, usually between 15-30 years. Note that under the FIL, a 50 year period would normally be required (plus two 10-year extension).

Extensions of initial period

Often, BOT contracts provide extensions subject to the discretion of the Government in following of lease agreements.

cHAPTER 6: cONSTRUcTION PERMITS AND cHANgE OF LAND USE

Night view of Yangon

The permission to erect a structure based on a submitted plan or design is handled by the Engineering Department of the relevant State, Region or CDC. To apply for a construction permit, the owner or lessee of the land use right must provide the following documents:

How to obtain construction permits in Yangon?

Upon receipt and review of the application, the Engineering Department will forward the application to the Construction / Permit Issuing section, which will in turn forward the application to the Field Inspection station. A field inspection is carried out at the site, after which a recommendation is made to the Engineering Department. Upon approval by the Engineering Department, construction permit is issued to the applicant. The construction permit application process is meant to be completed in 30 days; however, in practice, it can

Years

1990-1991

30000

35000

20000

10000

5000

15000

25000

2005-20062000-2001 2007-2008 2009-20101995-1996 2006-20072004-2005 2008-2009 2010-2011

Num

ber o

f bui

ldin

gs

RESIDENTIAL BUILDINGS COMPLETED BY THE DEPARTMENT OF HUMAN SETTLEMENT AND HOUSING DEVELOPMENT

336380576434266

633

12543

220676

12855 1311114015

286472954629280 29980

30556 30936 31272

• Applicationform• Land ownership documents (e.g.

Head lease, Land lease, title deed, etc.)• Structural designs and drawings

applicable to the project (e.g., shelter, foundation, elevation, and land map) (measurements in feet, not meters)

• Recommendation letter & structuralcalculations from Myanmar-licensed structural engineer with senior engineering license

• Recommendation letter from theYangon Electricity Supply Board (in practice, YCDC may not require this)

• Consent letter fromall neighbors (inpractice, YCDC may not require this)

take several months.

Once completed the CDC will inspected the erected structure and will issue a certificate of completion to the permit holder

Companies may be held civilly and criminally liable under Myanmar law for engaging in construction without a construction permit, although typically the penalty imposed by the City Development Committee is a fine or a stop work order.


A contractor may be subject to civil liability where the construction and installation activities result in bodily injury to or death of a person, or injury to or destruction of property, which may be suffered by persons other than the contractor’s own employees. This legal principle is not explicitly stated in any body of law in Myanmar; however, the existence of this liability can be established with the application of English tort law principles combined with case law and general practice within the construction industry in Myanmar. In general, public liability is a principle grounded in English common law. In the precedential case Donoghue v. Stevenson, liability for negligent acts that result in public harm was established in the United Kingdom.1 Three crucial factors are weighed in determining public liability, namely: (1) requisite duty of care; (2) proximity or foreseeability; and (3) measurable damages. While we are not aware of any specific case law that explicitly adopts the precedent of Donoghue in Myanmar, the standards established by this case have been employed by the Myanmar Supreme Court in relation to a claim for damage to a neighboring building as the result of construction by a company without a proper construction permit.2 In that case, the construction company was ordered to pay compensation to the injured party and could not recover losses from the work lost as the result of the Yangon City Development Committee’s stop work order.

1 “The liability for negligence…is no doubt based on public sentiment of moral wrongdoing for which the offender must pay[….] You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour.” Donoghue v Stevenson, A.C. 532, 580 (1932).

2 Daw Swe Rain (her authorized representative, U San Shein) v. Daw Hla Hla Soe (Legal representative of deceased U Nyo Maung), Special Civil Appeal Suit No. 50, Special Appellate Tribunal, Supreme Court of Myanmar (2000).

3 Art. 11, Penal Code.4 Art. 52, Penal Code.5 Art. 43, Penal Code.6 Art. 80, Penal Code.7 The illustration provided in the Penal Code is as follows: A is working with a hatchet. The head of the hatchet flies off and kills a man standing by A. If there no want of proper

caution on A’s part, then his act is excusable and is not a criminal offence.8 Art. 287, Penal Code.9 Art. 288, Penal Code.10 Art. 336, Penal Code.11 Queen-Empress v. Nga Myat Thin, Judicial Commissioner of Lower Burma, Criminal Revision No. 287 (19 April 1898); Queen-Empress v. Nga Tha Ku, Judicial Commissioner of Lower

Burma, Criminal Revision No. 74 (31 July 1879); Queen-Empress v. Lu Maung, Judicial Commissioner of Lower Burma, Criminal Revision No. 316 (14 July 1879).12 Queen-Empress v. Mi On, Special Court v, Criminal Reference No. 8 (22 July 1881); Queen-Empress v. Nga Ya Po, Judicial Commissioner of Lower Burma, Criminal Revision No. 191

(28 April 1885); Queen-Empress v. Nga Sein, Judicial Commissioner of Lower Burma, Criminal Revision No. 739 (28 November 1891).13 Art. 153(a), City of Rangoon Municipal Act. 14 Art. 3(xiv), City of Rangoon Municipal Act.15 Art. 200, 211-19, City of Rangoon Municipal Act.16 Art. 25, 88, Yangon City Development Law.

The Penal Code establishes criminal responsibility for “persons”, which includes companies, associations, or bodies of persons, whether incorporated or not.3 The concept of acting in good faith is recognized in the Penal Code, which defines “good faith” as acting or believing with “due care and attention”.4 A person will breach a duty by omitting to act in a way that he is legally bound to act.5 A person can be held criminally responsible under the Penal Code for not taking “due care and caution”, even if the person was committing a lawful act by lawful means and without criminal intent or knowledge.6 If, however, the person acted with proper care and caution, then he will not be criminally liable for accidents that occurred as a result of his lawful acts committed without criminal intent or knowledge.7 There are several criminal offences in the Penal Code that relate to negligent behavior, including “negligent conduct with respect to machinery”,8 “negligent conduct with respect to pulling down [i.e. demolishing] or repairing buildings”9, and an “act endangering life or personal safety of others”10. Myanmar case law establishes that to act negligently (i.e., to act “rashly” as the offences are defined in the Penal Code) means to act “without due deliberation and caution.”11 Negligence must be established by evidence of actual carelessness or of an illegal omission to take order; the mere occurrence of an accident that destroys property or risks life or property, even if one can assume or infer negligence, is insufficient evidence of negligent conduct under Myanmar law.12

With regard to construction that takes place in the Yangon Region, there are two municipal laws that govern: the 1922 City of Rangoon Municipal Act and the 1990 Yangon City Development Law. It is a violation of the City of Rangoon Municipal Act to “erect or re-erect any building” without permission from the municipal authorities.13 The definition of “erect or re-erect any building” includes, inter alia, any material alteration of any building and the addition of any structures to a building.14 The municipal authorities have up to one year to decide a request for permission to build, although typically such requests are decided within 45 days. Any such work done without permission from the municipal authorities would constitute a violation that renders the offender liable to municipal prosecution in accordance with the Code of Criminal Procedure.15 Similarly, it is a violation of the Yangon City Development Law to engage in construction without a construction permit. The Yangon City Development Law provides for municipal proceedings to be taken against persons or companies charged with violating any of the rules issued under the Law, which includes the Yangon City Development Committee Building Rules.16 In practice, the Yangon City Development Committee will seek to hold responsible all parties that were involved in construction that resulted any damage, injury or death to property or persons.

Depending on the particular type of land, the lessor will have to apply for a change of purpose of the land before he can lease the land to a foreign-owned company. This is most notably the case for Farm / Agricultural land, which is land specifically designated for paddy or crop cultivation. Farm / Agricultural land cannot be used for any purpose other than paddy or crop cultivation, unless the purpose of the land is changed. Similarly, Permit / Licensed land cannot be sub-leased until the land has been converted into Grant land.

The Farmland Law and Farmland Rules set forth the procedures that are required to obtain permission to use Farm / Agricultural land, as well as permission to change the purpose of such land. To obtain legal permission to use Farm / Agricultural land, a farmer must apply to the CMFB for a Farmer’s Certificate (also called Form 7).

If the farmer then wishes to change the purpose of the land, then the farmer must apply to the CFMB for permission to change the purpose of the land. The farmer must specify the purpose for which he wishes to use the land.

If the holder of Permit / Licensed land wishes to convert the land to Grant land, the land holder must apply to his regional or local CDC or other land authority. When approved, the applicant will receive a Grant land slip. This slip is proof that the Permit / Licensed land has been converted into Grant land.

change of land use

• MinistryofAgricultureandIrrigation

• CentralFarmlandManagementCommittee

• RegionorStateFarmlandManagement Committee

• DistrictFarmlandManagementCommittee

• TownshipFarmlandManagement Committee

• WardorVillageTractFarmlandManagement Committee

• CentralCommitteefortheManagement of the Vacant , Fallow and Virgin Land

• DeedRegistrationOffice(DRO)• TownshipInternalRevenue

Department • TownshipSettlementandLand

Record Department ( TSLRD or TLR )

• CityDevelopmentCommittee(YCDC, MCDC, NCDC )

• HousingBoard(HB)

A number of ministries, committees and other interested parties can be involved in the process such as:

Ministry of Agriculture and Irrigation

Central Farmland Management Committee

a- Region or State Farmland Management Committee

b- District Farmland Management Committee c- Township Farmland Management

c- Township Farmland Management Committee

d- Ward or Village Tract Farmland Management Committee

Central Committee for the Management of the Vacant,

Fallow and Virgin Land

cHAPTER 7: ENVIROMENTAL LAW AND REgULATIONInitial Environmental Assessment, Environmental Impact Assessment (EIA), Environmental Management Plan (EMP) and Social Impact Assessment (SIA)

Parkroyal Hotel

The Ministry of Environmental Conservation and Forestry (MECF) is primarily responsible for assessing an investor’s compliance with Myanmar’s environmental law. The MECF was responsible for drafting the current Environmental Conservation Law and it was passed by Parliament in 2012. The central goal of the law is to safeguard the nation’s natural resources for the benefit of present and future generations. This is important for investors to keep in mind as, after passage of ECL and further draft regulations, the MECF has been taking a more active role in new MIC Permit applications.

The MECF is part of the MIC panel and will be present in Proposal Assessment Team (PAT) meetings. For a project to proceed, a letter of non-objection must be obtained from the MECF. This indicates that the Ministry is comfortable with an organization’s planning and level of compliance in relation to environmental concerns. It is important to note that there are still no hard and fast rules when it comes to this part of the process. There have been some instances in which companies have not had to do an IEE (for example a software company) but this is rare and increasingly uncommon. Many of the pertinent rules are still in the draft phase and have not been finalized. The process and guidelines outlined in this briefing are based on our experience with MIC Permit applications. We believe what follows is the best way for investors to avoid problems related to environmental concerns during the application process.

The FIL identifies environmental protection as a fundamental requirement of foreign investors in Myanmar (Art. 8(l) FIL). Investment projects detrimental to the environment are restricted or prohibited (Art. 4(c) FIL). An investor’s bid or proposal to the MIC will be scrutinized for its adherence to environmental protection (Art. 12(a)) and investors have a duty to avoid polluting and degrading the environment (Art. 17(h) FIL). Failure to comply with the FIL results in the

investor being warned, temporary suspension of tax exemptions and relief, revocation of an investment permit, and preclusion from receiving any permit from the MIC (Art. 42 FIL).

For investors, the first step of this process is to review Schedules 1, 2 and 3 found in the MECF’s draft of Environmental Impact Assessment Procedures. These Schedules dictate when an IEE or EIA needs to be conducted based on the type of project, location and potential environmental impact.

The IEE is a “light” version of the EIA. If only an IEE is initially required, the MIC and MECF will determine if an EIA needs to be completed after the IEE is submitted. An EMP must be provided with both the IEE and EIA. Currently, these reports are submitted directly to the MECF when the investment proposal is submitted to the MIC; however, this is subject to change.

ConstructionThe National Housing and Town and Country Development Board which was formed in October 1951, was reorganize and reconstituted into Housing Board at the end of 1965. In March 1972, along with the general reorganization of all government departments, the Housing Board became the Housing Corporation and was later renamed as Housing Department. With Effect from 1st July 1990, Housing Department was again renamed as Department of Human Settlement and Housing Development. It was charged with planning and execution of all residential housing schemes undertaken by the state. But the responsobility for actual construction work was entrusrted to the Constrution Corporation which was rename in April 1989 as Public Works. In 1988-89 the Department of Human settlement and Housing Development has introduced the Urban Development Housing Scheme under which private comtractors are permitted to construct buildings of different designs in the vacant plots of the downtown areas of the Yangon City, with their own monies. After completion of the construction, family units in the buildings are divided according to the ratio agreed upon, by the Department

and the contractors.

There are three categories of projects for which an IEE or an EIA is required. When an EIA is required an IEE does not need to be conducted beforehand. These categories can be found in the MECF’s draft of Environmental Impact Assessment Procedures and are expected to be finalized soon.

Schedule 1 projects, which are predominantly related to power generation, mineral extraction and processing, breweries and distilleries require an IEE.

For example Schedule 1 includes housing development projects (250-500 acres), construction of bridges (more than 50 feet and less than 180 feet) and port development.

Schedule 3 projects require an EIA based not on the industry but on location. The definition of projects in Schedule 3 is broad at this time with few specific project types listed. It includes areas which are fragile, areas susceptible to natural hazards, areas that have unique characteristics (religious, historical, cultural etc), parks, and major water sources.

Schedule 2 projects, including power generation, telecommunication projects, vehicle manufacturing, large-scale construction and mining, require an EIA.

For example, Schedule 2 includes construction of highways and fly-overs, construction of airports Airstrips of 8200 feet or longer, land development for agricultural projects (1,250 acres or more), transmission lines, telecommunication network construction projects (100 Km or more), Solid waste and sewerage management system and construction of multi-story buildings (Above 60 meters).


{ {

The IEE is a relatively straightforward part of the MIC Permit application. An IEE report may be prepared by an outside expert, a third party or prepared internally if an expert is available. While this report can be time consuming, in our experience, it can be used concurrently to gain a better understanding of the challenges investors will face conducting business in Myanmar and a clearer view of the opportunities as well.

There are a number of requirements for the information an IEE must contain. The most important information to provide is a detailed account and summary of the project, analysis and description of possible adverse environment effects (including maps, aerial and satellite photos) and proposed measures to minimize any potential environmental effects of the project.

Upon submission of the IEE, investors should expect to hear back quickly from the MECF and MIC as to whether an EIA is required for the project.

An EIA is a more in-depth study of the impact of a proposed project or business on the physical, biological and socioeconomic environment. This is the “heavy” version of the IEE. An EIA must be completed for any project, business or activity that is deemed “likely to have a significant impact or change on the environment.” This includes Schedules 2 and 3 but is not limited to only the type of projects listed there. Ultimately, it is up to the discretion of the MIC and MECF to decide if an EIA needs to be done for any project.

The MECF requires that the EIA be conducted by a qualified third party licensed by the Environmental Conservation Department (ECD). However, the ECD is currently drafting licensing rules and criteria. As a result, there are no officially licensed third parties to conduct EIAs. These rules are expected to be completed soon; in the meantime there is some leeway as to who can conduct EIAs. The ECD has created a list of companies it suggests using, based on previous MIC applications, known as the EIA referral list. This list does not indicate that a company is licensed to conduct EIAs but it is indicative of companies which have had success in the past drafting EIAs.

In addition to the elements found in an IEE the EIA needs to contain alternatives to the proposed project, policies, applicable laws, organizational framework, methodology for the EIA, a description of public the public negotiations and comment process and a Social Impact Assessment.

It is important to note that it is possible to be granted an MIC Permit even if the EIA is not finished due to time constraints. This is left to the discretion of the MECF based on their level of comfort with a proposal.

1. Requirements for IEE 2. Requirements for EIA

Bogyoke Aung San Market

The EMP is comprised of a broad overview of the project and a summary of activities designed to reduce the adverse environmental impact of the project. A well designed EMP will include allocation of funds and duties, summary measures taken to reduce adverse environmental effects, management and monitoring proposals for each stage of the project including termination and post-termination of work.

The EMP also needs to include comprehensive sub programs for managing and monitoring these sectors: air quality, water quality, waste, sound, smell, chemical substance, soil erosion, biodiversity, health and safety for the workplace and society, cultural heritage, employment and training. Sub programs must also be created for each location or workplace. This is one of the more time consuming aspects of the process as it can become quite complicated depending on the number of locations.

3. Requirements for EMP

RESIDENTIAL REAL ESTATE

BUILDING PERMISSIONS GIVEN BY YEAR, 2001-2013

4,000

3,500

3,000

1,500

2,500

1,000

2,000

500

-

20012006

20022007

20032008

20112004

20092012

20052010

2013

>4 floors <4 floors


LAUNCH TIMELINE FOR CONDOMINIUM UNITS, 2009-2014

4,000

3,500

3,000

1,500

2,500

1,000

2,000

500

2009 2010 2011 2012 2013 H1 20140

cHAPTER 8: FINANcINg AND SEcURITY

Strand Hotel

Unlike the 1988 Foreign Investment Law, the 2012 Foreign Investment Law (FIL) states the right of the foreign investor to provide security over land and buildings17. A similar provision exists for Myanmar citizen investors18. This right is implemented for foreign investors by Notification 11/2013 (the Rules), which set forth a few conditions for the MIC to approve the creation of security, notably:

1. Legal framework of lending and security

1. Whether or not the reason for wishing to [...] mortgage is true;

2. Whether or not the […] mortgage will be detrimental to the interests of the state and its citizens; and

3. Whether or not the receiver of the mortgage is in a position to proceed with the activity successfully or not19.

The MIC has the authority to make a case-by-case evaluation, taking into account the wider implications of the project and it’s financing. Presumably, the MIC will facilitate the international financing of investment projects that is wishes to promote. Condition number 3 may require some further interpretation. Commercial lenders are generally not in the position to continue with the investment project, at least not without the intervention of a third party. In practice, we have chosen to submit the entire security package to the MIC for review and approval, and not just the security on land and buildings.

Approvals by the CBM are also required, but these are part and parcel of the MIC approval process provided the borrower is indeed licensed under the FIL by the MIC.

Mortgage on immovable property

Myanmar law recognizes six types of mortgages on immovable property, namely the simple, conditional sale, usufructuary, English, deposit of title deeds and the anomalous mortgage. Most of these are not used in current Myanmar practice. The “simple” mortgage seems to us most in line with international practice. The term “mortgage” is in Myanmar mostly used in relation to immovable property, although it should be noted that for the Myanmar Stamp Act the term is also used in relation to movable property.

A complicating factor is that foreigners are not allowed to “acquire immovable property by way of purchase, gift, mortgage, exchange or transfer”20 without special Government permission, which is granted by the Myanmar Investment Commission (MIC) (see below some practical implementation issues in this regard).

One of the more comprehensive definitions of “immovable property” used in Myanmar law is found in the Registration Act: “immoveable property” includes lands, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to the earth or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops nor grass”21. There is some conflicting case law of the Myanmar courts with respect to the characterization of plant and installations as immovable property, but the definition of the Registration Act is often held to be determinative.

Foreign invested borrowers would normally have a 50-year extendable lease, it is in practice important to know that a leased property can indeed be the subject of a mortgage under Myanmar law22. In fact, unless the lease agreement provides otherwise a lessor can by law mortgage his interest in the immovable property. However, in practice nearly all leases, particularly leases of Government land state that the lessee is not entitled to transfer or mortgage his interest without the express permission of the lessor.

17 s. 17 d) FIL 2012,18 s. 15 and 16 Myanmar Citizen Investment Law 19 s. 62 to 64 Notification 11/201320 s. 4 Transfer of Immovable Property Restriction Act21 s. 2.6 Registration Act22 s. 72 TPA

FMI TRADING CENTRE SHARE PRICE & VOLUME 2012-2013

0

2,000

4,000

6,000

8,000

10,000

12,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar

Volume 35,042 4,330 19,700 11,169 17,039 12,436 30,220 5,576 24,801 6,993 16,190

Minimum Price 2,400 2,800 3,100 3,200 3,300 3,500 4,300 4,500 6,500 5,500 7,000

Maximum Price 2,800 3,600 3,600 3,600 4,000 4,500 4,500 7,000 8,000 8,500 10,000

PriceVolume

Source: FMI research report by dated June13, 2013

Security on any type of mortgage or fixed charge on immovable property can, as a matter of law, be enforced without the intervention of a court, subject to a number of conditions and restrictions. Most importantly, the mortgage deed must state the right of the mortgagee or chargee to foreclose without court intervention. In addition, a default must have occurred and have been notified to the mortgagor. Furthermore, the self-enforcement depends on the location of the immovable property in question. A mortgagee may foreclose on immovable property situated in certain designated towns without intervention of the court. In other cases, if the mortgage money has become due without payment or deposit, the mortgagee may file a suit for foreclosure with the court.

A major issue in actual cases is whether the land right holder has the right to mortgage this particular type of land under the land law that corresponds

with the land in question. The right to mortgage a property depends of the provisions of one of a dozen land laws. For example the Vacant, Fallow and Virgin Land Act provides that cabinet permission is required to create a mortgage on land that resorts under this category23. Needless to say that the due diligence should focus on this issue as early as possible.

In a BOT project, the seller of the output (which usually holds a concession through a Build-Operate-Transfer arrangement) will normally have a land lease as part of the concession. As a principle, this leased interest can be the subject of a mortgage or a fixed charge in Myanmar law24. In all cases, practically speaking, the permission of the land right holder is required to register a mortgage on the leased land. The land may be any type of Government agency. Typically, as was mentioned above, Government leases do not provide in an advance approval for the lessee to mortgage his interest.

The facility will normally speaking be considered an immovable property under Myanmar law, and as such follow with a mortgage or fixed charge on the leased land.

The perfection of most types of mortgages on immovable property in Myanmar requires besides a registration of the charge with the corporate authorities, an additional registration with the Deed Registration Office25. Although the laws and regulations to perfect a mortgage on immovable property may exist, these rules are largely untested in practice. At present, we are working with the authorities to arrange for the registration of the first long term leases and secured interests.

A stamp duty of 1.5% applies to most mortgages of immovable property, but a 3% rate applies in case there is possession by the lender.

23 s. 16 c) Vacant, Fallow and Virgin Land Act24 s. 108 B j) TPA25 s. 17 Registration Act

Additional annual supply Supply at start of year

4,000

4,500

5,000

3,500

3,000

1,500

2,500

1,000

2,000

500

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

– – – – – – – – – – – – – – – – – – – – – – – –0

INDUSTRIAL REAL ESTATE


Fixed and floating charge on the chargor’s assets and rights under the BOT

Myanmar law recognizes fixed charges on a specific fixed-asset or class of fixed assets to repay a loan. Under the Myanmar Companies Act, a fixed asset can be created on (at least) immovable property, uncalled share capital, book debts, movable property and stock in trade.

A floating charge can under Myanmar law be created on “the undertaking or property of the company”. It has a defined value which takes effect over a range of property but not over any specific property until the occurrence of a future event, typically a default by the chargor.

It is unclear whether the approval of the MIC is needed to create a fixed and floating charge. In our cases, we have decided to submit the entire package to the MIC. In regards to perfection, most charges need to be registered by the chargor with the Company Registration Office. As a matter of law, the chargee of a fixed and floating charge can appoint a receiver to enforce his rights over the secured assets. As is the case in English law, creditors with a fixed charge have a higher rank than those with a floating charge in a winding-up situation.

The stamp duty rates for loan instruments themselves and for security agreements range between a nominal fee to 1.5% or 3% on the secured amount depending on the specific definitions and categories in the Stamp Duty Act. For loan instruments, these include “bond”, “mortgage deed”, “promissory note”, “bill of exchange”, “marketable debenture”, and “memorandum of agreement”. For security agreements, the most relevant categories are “mortgage deed” (including a mortgage of movables), “pledge” and “mortgage by deposit of title deeds”.

With respect to taking a secured interest on the contractual rights under the PPA, it can be noted that most Myanmar BOTs do not contain any recognition of lender rights. Some of the newer and more specific BOTs in the power and infrastructure sectors, contain some language foreseeing

assignment of rights to lenders, but there are many differences in the specifics. Importantly, payment rights in case of termination, force majeure and default are structured entirely differently in each BOT.

In general, Myanmar law allows that a fixed charge is created on contractual rights or book debts of a company (the receivables from the buyer under the contract), or that a floating charge is created on any other property including cash the buyer paid on invoices into the company’s trading account26.

Although a charge on onshore bank account is possible in theory, in practice Myanmar local banks are not accustomed to charges on bank account and likely refuse to acknowledge a charge without

blocking the bank account altogether. Foreign banks are not yet allowed to operate, although this is expected to change in 2015.

In practice we have noticed that it may be difficult for some instruments to determine which category it resorts under, such as “bond”, “debenture” or “promissory note”. The difference in duty between some of these categories can be substantial, so it is difficult for the borrower to determine in advance what the cost of the transaction will be. Another area of concern is whether or not the authorities agree that different agreements are part of one and the same transaction, in which case only the stamp duty on the highest rated instrument is payable. If not, the aggregate of the stamp duty on each instrument must be paid.

26 s. 109 Myanmar Companies Act

SEcURITY UNDER LAND LEASE AgREEMENT/BOT

No. TYPE OF SEcURITY cOMMENTS

1Pledge/security assignment over the funds deposited in the project accounts held by the borrower.

This is possible as a matter of law and has been implemented in practice by local banks, but it leads to blocking the bank account in question. The security is registered with the CRO.

2Mortgage over land and building.

Possible as a matter of law, subject to approvals from the MIC, the land owner and (most likely) the relevant line Ministry. The security is registered with the CRO and with the ORD.

3Pledge/security assignment over all of the contractual rights and interests held by the borrower (including the BOT and performance bond, etc.)

This would be part of a general fixed and floating charge which is possible under Myanmar law. Approval is recommended from the MIC, and registration with the CRO is required by law. This type of security has been implemented in practice.

4Pledge/security assignment over the shares held by the shareholders in the project company or borrower.

A charge on shares is possible under Myanmar law. However, there is no mention of share pledge in the regulations under the FIL. Nevertheless, it has been implemented in practice and registered by the CRO.

5Guarantee by the shareholders of the borrower.

Guarantees are possible under Myanmar law. There does not seem to be any need for MIC approval of guarantees but it remains recommended.

With respect to commercial lenders, it is to be noted that there is no withholding tax on interest paid to domestic recipients. However, a 15% withholding tax applies to payments of interest to non-residents. There is no tax deduction on the remittance of capital reimbursements. The 15% withholding tax rate is reduced to 10% under a number of DTAs, and even to 8% under the DTA with Singapore (only lenders that are banks).

The corporate income tax (the common rate is 25% for corporations) contains general rules on the limitation of the deductibility of expenses, including interest expenses, which need to be taken into account for tax planning purposes.

The table below sets out the withholding tax on interest and for those countries with which Myanmar has a DTA.

The FIL guarantees the remittance in foreign currency of imported capital from abroad provided that the remittances are made though a bank authorized to perform international banking from the government at the prescribed rate of exchange. FEML provides additional guidance on foreign exchange transactions within Myanmar, in particular, Chapter 9. The main points are as follows:

• Persons in Myanmar, including foreign invested companies, have the right to hold foreign currency in accordance with the regulations and hold a foreign currency bank account;27

• No limitations will be provided for inward or outward

2. Tax implications of financing

3. Foreign exchange control

Stamp duty is payable on execution of instruments, including loan agreements. Section 17 of the Myanmar Stamp Act requires that the instrument must be stamped before or at the time of execution of the agreement and the duty must be paid to the IRD, although registration is not required. The stamp duty levied on the agreement, as per Notification 112/2012, is 1.5%/5% of the contract value. The stamp duty on contracts denominated in US$ or other foreign currency is now the same, for calculation of stamp duty the amount need to be converted to Myanmar Kyats

WITHHOLDINg TAX ON INTEREST PAID TO NON-RESIDENTS

No DTA 15%

UK No rule

India 10%

South Korea 10%

Malaysia 10%

Thailand 10%

Vietnam 10%

Singapore 10% or 8%

remittances on current account;28 • In terms of capital account

payments, foreign currency may be retransferred overseas after examination and approval from the Central Bank. However, for foreign invested enterprises, the MIC will have authority29; and

• Injection of funds into the country shall be accompanied by documentation filed with the Central Bank, every time funds are to be transferred into the country for investment. However, for foreign invested enterprises, the MIC will have authority.

In practice, a foreign invested enterprise is required to open a capital remittance account in Myanmar for the inward remittance of the capital

and monies raised through loans. In addition, in terms of outward remittances, the company is allowed to open any bank account with a licensed Myanmar bank in a foreign currency and in Myanmar Kyat. The bank where the company has its bank account is allowed to process the payment of outward remittances subject to the following authority and process.

Through the combination of the FIL and the FEML, inward and outward foreign exchange remittances have now become fairly straightforward in Myanmar for those categories of payments which are by law allowed to be remitted, provided the appropriate procedure is followed.

27 Section 10 and 11 FEML.28 Section 24 and 25 FEML.29 Section 31 of the FEML provides that the FIL has priority over the FEML.

cHAPTER 9: TAX IMPLIcATIONS

The Customs Department, Yangon

Myanmar’s real estate investments are subject to the normal tax rules applicable throughout the country. There is no exception regime for income derived from real estate, except in the framework of the general FIL and the Myanmar Citizens Investment Law. The following table provides an overview of the taxes and tax incentives which apply to power sector investments.

Taxes Applicable to Real Estate Projects

Corporate income tax • Standard tax rate of 25%• Five-year initial exemption under the FIL • Possible additional exemption to be negotiated under the FIL• Possible relief for profits that are reinvested within one year

Withholding tax on interest • Tax of 15% on all interest payments made to a non-resident lender• Tax of 0% on all interest payments made to a resident national or resident

foreigner

Commercial Tax Prior to commercial operation date:• All imported equipment (e.g. escalators, lifts, climate control) and materials are

fully exempt under the FIL (Not for projects based on sale)• Commercial Tax rate of 5% or 2% payable on most services provided to the

project company depending on the supplierAfter commercial operation date:• 5% Commercial Tax on rental income

Withholding tax on goods and services

• 2% on goods and services purchased from local contractors and subcontractors • 3.5% on services purchased from foreign contractors and subcontractors• 0% on goods purchased from foreign contractors and subcontractors

Income tax on salaries • Non-residents deriving salary in Myanmar: 35% flat rate• Foreigners working in Myanmar as residents: 25% progressive rates• Non-residents working for companies registered under the FIL are subject to a

rate of 25%

Customs duty • All imported materials are exempt from customs duty under the FIL (Not for projects based on sale)

Capital gains tax • Resident companies and individuals: 10%• Non-resident companies and individuals: 40%

Property tax • General tax not to exceed 20% of annual value• Lighting tax not to exceed 12% of annual value• Water tax not to exceed 12% of annual value• Conservancy tax not to exceed 15% of annual value

Undisclosed income tax • 30% (with variations for lower priced immovable property which is the primary residence of the buyer) imposed on an individual buyer of immovable property who is unable to demonstrate the taxed nature of the funds used to purchase such property

Myanmar does not currently have a full coverage of double taxation agreements (DTAs). However, there are currently DTAs in place with India, Malaysia, Singapore, South Korea, Thailand, the United Kingdom and Vietnam. It also has DTAs with Bangladesh and Indonesia, though these are not yet in force.

STAMP DUTY RATE

LEASE

Less than 1 year 1.5% of whole amount

1 - 3 years 1.5% of average annual rental

Over 3 years 5% of average annual rental

SALE

Apartment 3% (+2% additional for Yangon, Mandalay and Nay Pyi Taw)

Land 3% (+2% additional for Yangon, Mandalay and Nay Pyi Taw)

On the way to Myanmar Port Authority

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