IT is no secret that most countries in the Mekong region compete vigorously to attract
foreign investment to hasten economic development. Recently, for example, officials
at the highest levels of the Cambodian government met with prospective investors
at the Economist Roundtable forum. Cambodia and other nations have announced to the
world that they are "open for business."
One country with which Cambodia must increasingly compete for foreign investment
is Myanmar. While both countries have embarked on the road to market economies, the
following comparison of the rules governing foreign investment in each country shows
that Cambodia has selected a more direct route.
Background and Sources of Law
Unlike Cambodia, the Myanmar system of government is not a parliamentary democracy.
The country is ruled by the State Law and Order Restoration Council (SLORC) which
consists of high-ranking military officers who assumed power in 1988. In 1990, the
National League for Democracy, led by Aung San Suu Kyi, emerged victorious in parliamentary
elections. SLORC has not acknowledged this victory and remains in power.
A British colony until 1948, Myanmar's legal system is based on British common law.
Despite twenty-six years of socialist experiment beginning in 1962, many of the commercial
laws of Myanmar in effect today are little changed from the British period. As in
Cambodia, the Myanmar legal system and many of its laws are currently being revised
to reflect changes in the economic philosophy of the country and its reintegration
into the world economy.
Sectors Open for Investment
Cambodia's private economic sector is far more advanced than in Myanmar. Through
its state-owned economic enterprises (SEEs), the government of Myanmar directly participates
as competitors in a significant portion of the economy. For example, SEEs are involved
in the food, paper and chemical, pharmaceutical, ceramics and textile industries.
In addition, a foreign investor must receive approval from the appropriate ministry
to engage in a very long list of activities, many of which would generally not warrant
significant government intervention in other free market economies.
Foreign investment in Myanmar is governed largely by the Foreign Investment Law (FIL),
enacted in 1988 and the Myanmar Companies Act, much of which dates back to 1913.
The FIL established the Myanmar Investment Commission (MIC) to be an investment center
for foreigners similar to the Council for the Development of Cambodia (CDC). In addition,
the FIL provides for a variety of investment incentives for qualifying investors.
Foreign investors desiring to invest in Myanmar under the FIL must comply with application
procedures established by the MIC. Reports indicate that the MIC process generally
takes two to three months from the time the fully completed application is submitted.
It is not necessary in all cases for foreign investors to obtain a permit under the
FIL. Indeed, the FIL criteria are somewhat rigorous and many investors may not qualify.
In some economic sectors, it is possible to proceed without an FIL permit by obtaining
a "Permit to Trade" under the Myanmar Companies Act. In Cambodia, an analogous
course would be to seek company registration directly from the Ministry of Commerce
without involvement of the CDC. Investment incentives, however, are not available
to investors who do not obtain a permit under the FIL, just as no incentives may
be granted to a company that has not been licensed by the CDC in Cambodia.
Investment Guarantees and Incentives
Both Myanmar and Cambodia make available under their respective investment laws
certain guarantees and incentives for qualifying investors. In Myanmar, guarantees
to all investors include:
- exemption from income tax for the first three years of the investment.
- no nationalization.
- the right to repatriate the investor's share of foreign currency upon termination
of the investment.
In Cambodia investors are guaranteed:
- no nationalization adversely affecting the property of investors.
- no price controls on products or services produced by licensed investors.
- remittance of foreign currencies abroad.
The three-year exemption from income tax granted to all licensed investors in
Myanmar is very attractive to many investors. However, the lack of restrictions on
foreign currency remittance in Cambodia may be equally important to other investors.
Each country also offers a long list of other investment incentives that may be
granted. In Myanmar, such incentives include:
- exemption from corporate income tax on profits re-invested in the business within
- three year loss carry-forward.
- exemption from corporate income tax beyond the three years guaranteed to all.
- exemption from import duties on machinery, equipment and materials imported for
use in the investment.
Maximum discretionary investment incentives available to foreign investors
in Cambodia include the following:
- nine percent corporate income tax.
- eight year exemption from corporate income tax.
- five year loss carry-forward.
- exemption from import duties for certain projects for specified periods.
- tax free repatriation of profits.
- tax free distribution of dividends and profits.
- Land Ownership
Neither Cambodia or Myanmar permit foreigners to own land. In Cambodia, however,
foreigners may own up to 49 per cent of a legal entity that owns land. In Myanmar,
there can be no foreign equity participation whatsoever.
Similarly, foreigners may enter into renewable long term leases of real property
of up to seventy years in Cambodia. Under the laws of Myanmar, investors with permits
under the FIL may lease government-owned land for up to thirty years. Otherwise,
foreigners may not lease land for more than one year.
Foreign Exchange Controls
Cambodia does not limit the amount of hard currency that an investor may remove from
the country. In Myanmar, investors without a permit under the FIL face significant
restrictions in repatriating their profits. Moreover, for certain purposes, the government
clings to an official rate of approximately 5.8 Myanmar kyat to the US dollar compared
to a prevailing market rate of approximately 130 kyat/dollar.
The currency situation in Myanmar is changing, however. The government has issued
Foreign Exchange Certificates (FECs) which may be exchanged for kyat at or near the
market rate. Citizens of Myanmar are legally entitled to hold FECs. In addition,
foreigners may exchange FECs for dollars.
Overall, a foreign investor faces a more restrictive investment environment in Myanmar
than in Cambodia. This is probably not surprising, in view of the much greater extent
to which the Myanmar government participates directly in the economy of the nation
through the SEEs. Cambodia has chosen to take a speedier, more direct path to a free
market economy and its investment laws and environment reflect that choice.
- (Darryl S. Vhugen is a visiting lawyer from Seattle, Washington, currently
working in association with Dirksen Flipse Doran and Le. DFDL is an international
law firm with regional offices in Vientiane, Phnom Penh and Ho Chi Minh City.)