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

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2 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 Note: Level 8, Centrepoint Towers No. 65 Sule Pagoda Road & Merchant Street Kyauktada Township, Yangon, Myanmar Tel / Fax No. S-204, Tha Pyay Kone Ward, Zabu Thiri Township Nay Pyi Taw, Myanmar (Located just east off of Yaza Thingyan Road between Junction Mall and the Gem Museum) Tel: Fax: For orders, please contact: Edwin Vanderbruggen Fax Edwin@vdb-loi.com Page 2

3 CONTENTS WHAT YOU WILL FIND IN THIS REPORT... 6 THE AUTHORS... 8 VDB Loi and the Myanmar Real Estate sector... 9 INTRODUCTION CHAPTER 1: How are foreign-invested real estate projects usually STRUctured in Myanmar? CHAPTER 2: LAND LAW IN MYANMAR Types of land in Myanmar Rights to immovable property for Myanmar nationals Restrictions on foreign ownership of immovable property CHAPTER 3: LICENSING OF FOREIGN INVESTMENT IN REAL ESTATE Forms of investment allowed for foreign investors Joint ventures in real estate Investment licensing CHAPTER 4: CONDOMINIUM LAW CHAPTER 5: BUILD-OPERATE-TRANSFER OF REAL ESTATE CHAPTER 6: CONSTRUCTION PERMITS CHAPTER 7: ENVIROMENTAL LAW AND REGULATION Requirements for IEE Requirements for EIA Requirements for EMP CHAPTER 8: FINANCING AND SECURITY Legal framework of lending and security Tax implications of financing Foreign exchange control CHAPTER 9: TAX IMPLICATIONS Page 3

4 ABBREVIATIONS Definition AGO BOT CCTO CDC CIT CRO CT Term Attorney General Office Build-Operate-Transfer Companies Circle Tax Office City Development Committee Corporate Income Tax Companies Registration Office Commercial Tax CTL Commercial Tax Law of 1990 DICA DRO EPC FEMD Directorate of Investment and Company Administration Deed Registration Office Engineering-Procurement-Construction Foreign Exchange Management Department FEML Foreign Exchange Management Law of 2012 FIL INRD IRD Foreign Investment Law Immigration and National Registration Department Internal Revenue Department ITL Income Tax Law of 1974 JV Co JVA Joint Venture Company Joint Venture Agreement MCPA Myanmar Companies Act of 1914 MIC MOC MOD MOF MOU PIT Myanmar Investment Commission Ministry of Commerce Ministry of Defense Ministry of Finance Memorandum of Understanding Personal Income Tax SLCA Sea and Land Customs Act of 1878 TIPRA TOS USD WHT YCDC Transfer of Immoveable Property Restriction Act of 1987 Tax on Salary United States Dollar Withholding Tax Yangon City Development Committee Page 4

5 Selected Major ProjecTS in Yangon 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) Page 5

6 WHAT YOU WILL FIND IN THIS REPORT Page 6 Old Secretariat Building

7 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 1 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. 2 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. 3 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. 4 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. 5 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. 6 In the sixth chapter we review the process for obtaining construction permits and some of the legal challenges involved. 7 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). 8 In the eighth chapter, we provide an introduction to the financing and security aspect of investment in this sector. 9 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. Page 7

8 Author 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 Edwin@VDB-loi.com Edwin Vanderbruggen Partner, VDB Loi Offices in myanmar Yangon Level 8, Centrepoint Towers, No. 65 Sule Pagoda Road & Merchant Street, Kyauktada Township, Yangon T: / F: Nay Pyi Taw No. S-204, Tha Pyay Kone Ward, Zabu Thiri Township, Nay Pyi Taw T: F: On Yaza Thingaha Road, driving from Junction Mall to the Gem Museum, look for signage on the right directing you to our office Contact Edwin@vdb-loi.com Jean@vdb-loi.com Contact jonathan.linton@vdb-loi.com Page 8

9 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. Page 9

10 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 gasfired, hydro and coal-fired power plants Advice on the structure and licensing of passive network telecommunications infrastructure (towers and rooftops) 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. Construction 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. 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. Page 10

11 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). 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. Our approach results in significant time and cost savings for prospective investors. 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 Department Large Taxpayers Office Page 11

12 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 Page 12

13 INTRODUCTION 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 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. Page 13

14 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 standalone 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 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. Page 14

15 Ayeyarwaddy Bank CHAPTER 1: How are foreigninvested real estate projects USUALLY structured in Myanmar? Page 15

16 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. Page 16

17 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. Small & Medium Development Bank 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 prerequisite, 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 nonresident providers, 2% to resident providers), and a Commercial Tax impost at a rate of 5% or 2% applies to construction services. Page 17

18 CHAPTER 2: LAND LAW IN MYANMAR Supreme Court Page 18

19 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. Page 19

20 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 Page 20

21 CATEGORY OF LAND Freehold Land Grant Land Farm / Agricultural Land WHICH LAND CAN BE LEASED TO FOREIGN INVESTORS? Owner may freely lease land to a foreign investor, with approval from the cabinet and from the MIC. Landholder may lease all or part of the land to a foreign investor, with permission from the cabinet and the MIC. 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). 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. Leased Land Permit / Licensed Land Vacant / Fallow / Virgin Land Monastery / Religious 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). 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. 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. 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. 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. Page 21

22 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 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-bycase 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. COMPLETED residential building contructed under residential housing scheme Buildings (number) Floor Space (sq.ft.) Family Units (Number) Cost (K million) Source: Statistical Yearbook 2011 Page 22

23 Name of Law Foreign Investment Law 2012 Notification 11/2013 of 31 January 2013 of the Ministry of National Planning and Economic Development Myanmar Companies Act 1914 Foreign Exchange Management Law 2012 Income Tax Law 1974 Commercial Tax Law 1990 The Tariff Law of 1992 Myanmar Stamp Act of 1899 Transfer of Property Act 1882 Transfer of Immovable Property Restriction Act 1947 Farmland Law of 2011 Farmland Rules of 2012 Vacant, Fallow and Virgin Lands Management Law of 2012 Vacant, Fallow and Virgin Lands Management Rules of 2012 Upper Burma Land and Revenue Regulation of 1889 Lower Burma Town and Village Lands Act of 1899 Registration Act of 1908 Myanmar Contract Act of 1872 Environmental Conservation Law of 30 March 2012 Sea Custom Act 1978 Land Custom Act 1924 The Arbitration Act of 1944 Applicable laws for investment in real estate 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; Provides the details for implementation of FIL; the Act that governs the formation of companies; The Law governs the financing of projects owned by foreign lenders and provides additional guidance on foreign exchange transaction within Myanmar; The Law provides that, depending on the basis of residence, non-residence and the nature of the business, the income tax rates vary; CT is levied on goods produced within Myanmar, services rendered within Myanmar and imported goods; Administers the custom tariff rates; Stamp duty is payable on execution of instruments, including lease agreements and transfer of property; The Act relates to the sale and lease of property; The Act lists the restrictions on immovable property to foreigners; sets forth the law on the use and transfer of farm land in Myanmar; sets forth the rules for obtaining a permit to use farm land in Myanmar; sets forth the law on the use and transfer of vacant, fallow and virgin lands in Myanmar; sets forth the rules for obtaining permission to use vacant, fallow and virgin lands in Myanmar; sets forth the land laws pertaining to Upper Burma; sets forth the land laws pertaining to Lower Burma; The Act states the type of documents compulsory and optional for registration; 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; 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; The Act regulates and governs customs values Relates to local arbitration within Myanmar Page 23