Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

Study on Legal System and Procedures for Promoting Enabling Business Environment

Final Report

March 2014

Japan International Cooperation Agency

Mitsubishi UFJ Research and Consulting Co. Ltd. KRI International Corp.

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

Table of Contents

CHAPTER 1 Outline of the Study ...... 1-1 1.1. Background of the Study ...... 1-1 1.2. Purpose of the Study ...... 1-1 1.3. Implementation Structure of the Study ...... 1-2 1.4. Study Schedule ...... 1-3 CHAPTER 2 Overview of the Current Economic Situations in Myanmar, Cambodia and Bangladesh 2-1 2.1. Overview of the Economy, Investment and Trade in Myanmar ...... 2-1 2.1.1. Economic Trends ...... 2-1 2.1.2. Investment Trends ...... 2-3 2.1.3. Trade Trends ...... 2-6 2.2. Overview of Economy, Investment and Trade in Cambodia ...... 2-10 2.2.1. Economic Trends ...... 2-10 2.2.2. Investment Trends ...... 2-13 2.2.3. Trade Trends ...... 2-19 2.3. Overview of the Economy, Investment and Trade in Bangladesh ...... 2-25 2.3.1. Economic Trends ...... 2-25 2.3.2. Investment Trends ...... 2-27 2.3.3. Trade Trends ...... 2-32 CHAPTER 3 Overview of the Current Legal and Regulatory System in Myanmar, Cambodia and Bangladesh 3-1 3.1. Overview of the Current Legal and Regulatory System in Myanmar ...... 3-1 3.1.1. Overall Legal System ...... 3-1 3.1.2. Business Related Rules and Regulations ...... 3-3 3.1.3. Donors‟ Cooperation Programs for Regulatory Reform/Private Sector Development .. 3-20 3.2. Overview of the Current Legal and Regulatory System in Cambodia ...... 3-22 3.2.1. Overall Legal System ...... 3-22 3.2.2. Business Related Rules and Regulations ...... 3-26 3.2.3. Donors‟ Cooperation Programs for Regulatory Reform ...... 3-40 3.3. Overview of the Current Legal and Regulatory System in Bangladesh ...... 3-43 3.3.1. Overall Legal System ...... 3-43 3.3.2. Business Related Rules and Regulations ...... 3-46 3.3.3. Donors‟ Cooperation Programs for Regulatory Reform/Private Sector Development .. 3-66 CHAPTER 4 Current Issues in Business Related Rules and Regulations in Myanmar, Cambodia and Bangladesh 4-1

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

4.1. Overview of Business Related Issues in Myanmar, Cambodia, and Bangladesh ...... 4-1 4.2. Current Issues in Business Related Rules and Regulations in Myanmar ...... 4-3 4.2.1. Method and Source of Issues Identification ...... 4-3 4.2.2. Current Major Issues in Business Environment ...... 4-4 4.3. Current Issues in Business Related Rules and Regulations in Cambodia (in relation to regulatory development and enforcement) ...... 4-27 4.3.1. Method and Source of Issues Identification ...... 4-27 4.3.2. Current Major Issues in Business Environment ...... 4-28 4.4. Current Issues in Business Related Rules and Regulations in Bangladesh (in relation to regulatory development and enforcement) ...... 4-48 4.4.1. Method and Source of Issues Identification ...... 4-48 4.4.2. Current Major Issues in Business Environment ...... 4-48 CHAPTER 5 Selections of Prioritized Rules and Regulations for Enabling Business Environment 5-1 5.1. Overview and Evaluation Method ...... 5-1 5.2. Selections of Prioritized Rules and Regulations in Myanmar (Short list) ...... 5-1 5.2.1. Overview of Short Listed Issues ...... 5-1 5.2.2. Description of Prioritized Issues...... 5-2 5.3. Selections of Prioritized Rules and Regulations in Cambodia (Short list) ...... 5-51 5.3.1. Overview of Short Listed Issues ...... 5-51 5.3.2. Description of Prioritized Issues...... 5-52 5.4. Prioritized Rules and Regulations in Bangladesh (Short list) ...... 5-75 5.4.1. Overview of Short Listed Issues ...... 5-75 5.4.2. Description of Prioritized Issues...... 5-76 CHAPTER 6 Conclusion and Recommendations: From the Perspective of Each Legal System and Enforcement 6-1 6.1. Conclusion: Comparison of the Legal Systems in Each of the Target Countries and Implications for their Future Legislative Development ...... 6-1 6.1.1. Comparison of the Legal System in each of the Target Countries ...... 6-1 6.1.2. Implications for Future Legislative Development ...... 6-2 6.2 Recommendations for Enabling Business Environment in Myanmar ...... 6-3 6.2.1. Overview ...... 6-3 6.2.2. Recommendations for Regulatory Improvement Measures ...... 6-4 6.2.3. Recommendations for Regulatory Enforcement Improvement Measures ...... 6-6 6.3 Recommendations for Enabling the Business Environment in Cambodia ...... 6-7 6.3.1. Overview ...... 6-7 6.3.2. Recommendations for Regulatory Improvement Measures ...... 6-9

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

6.3.3. Recommendations for Regulatory Enforcement Improvement Measures ...... 6-10 6.4 Recommendations for Enabling Business Environment in Bangladesh ...... 6-13 6.4.1. Overview ...... 6-13 6.4.2. Recommendations for Regulatory Improvement Measures ...... 6-15 6.4.3. Recommendations for Regulatory Enforcement Improvement Measures ...... 6-16 Appendices ...... A-1 1. Outline of Seminar in Myanmar ...... A-1 2. Outline of Seminar in Cambodia ...... A-3 3. Outline of Seminar in Bangladesh ...... A-7 Reference ...... R-1 1. List of Regulations in Myanmar ...... R-1 2. List of Regulations in Cambodia ...... R-3 3. List of Regulations in Bangladesh ...... R-8

Tables and Figures

Table 1-1 JICA Study Team Member ...... 1-2 Table 2-1 FDI Inflow by countries ...... 2-5 Table 2-2 Composition of GDP by Economic Activity ...... 2-12 Table 2-3 Breakdown of Industry in GDP, 2003-2012 ...... 2-13 Table 2-4 Amount of Investments Approved by CIB/CSEZB (2003-2013) ...... 2-14 Table 2-5 The Value and Number of Approved QIPs by CIB by Sector ...... 2-15 Table 2-6 The Value and Number of QIPs Approved by CSEZB by Sector ...... 2-15 Table 2-7 Value of QIPs Approved by CIB by Major Countries ...... 2-16 Table 2-8 Value of QIPs Approved by CSEZB by Major Countries ...... 2-17 Table 2-9 Value and Number of Japanese QIPs Approved by CIB ...... 2-17 Table 2-10 Value and Number of Japanese QIPs Approved by CSEZB ...... 2-18 Table 2-11 Major Export Products from Cambodia ...... 2-20 Table 2-12 Major Export Destinations ...... 2-21 Table 2-13 Major Import Products to Cambodia ...... 2-22 Table 2-14 Major Import Origins ...... 2-23 Table 2-15 FDI inflow (2000-2011) ...... 2-28 Table 2-16 Private Investment Proposals Registered in BOI ...... 2-29 Table 2-17 Breakdown of FDI stock by country and industry in the top 10 countries ...... 2-31 Table 2-18 Trade Balance (2005-2012) (predictive values in 2012) ...... 2-33 Table 2-19 Main exported commodities, the trend of the total export (2007-2012) ...... 2-34

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

Table 3-1 Business related major laws and regulations ...... 3-4 Table 3-2 Legal Structure on Trade ...... 3-15 Table 3-3 Legal Hierarchy in Cambodia ...... 3-23 Table 3-4 Laws and Regulations Relevant to Business Environments ...... 3-26 Table 3-5 Forms of conducting business in Cambodia and its procedure ...... 3-31 Table 3-6 Tax Scheme of Cambodia...... 3-32 Table 3-7 Cambodian Accounting and Auditing Standards ...... 3-34 Table 3-8 List of Projects related to Legal and Judicial Sector in Cambodia ...... 3-40 Table 3-9 List of JICA‟s Studies/Projects related to Regulatory Reform ...... 3-41 Table 3-10 Business Related Laws and Regulations ...... 3-47 Table 3-11 Reserved Industries and Controlled Industries ...... 3-48 Table 3-12 Investment Promotion and Facilitation Agencies ...... 3-50 Table 3-13 Major Incentives and Facilities provided by BOI ...... 3-51 Table 3-14 Major Incentives and Facilities provided by BEPZA ...... 3-52 Table 3-15 Company Classification ...... 3-53 Table 3-16 The Process for Opening of Branch or Liaison or Representative Office ...... 3-55 Table 3-17 Corporate Income Tax Rates by Type of Company (assessment year: 2012-2013) ...... 3-56 Table 3-18 Non Corporate / Individual Tax Rates (assessment year: 2012-2013) ...... 3-57 Table 3-19 Principal policies on Infrastructure (list extracted by BOI) ...... 3-65 Table 3-20 The major cooperation programs are mentioned in the following chart: ...... 3-66 Table 4-1 Ranking on the potential countries for mid-term business investment ...... 4-1 Table 4-2 Comparison of Ranking of Doing Business of the Target Companies ...... 4-1 Table 4-3 Interviewed Japanese Firms ...... 4-3 Table 4-4 Interviewed Myanmar Government Agencies ...... 4-4 Table 4-5 List of Main Studies/Projects/Literatures on Business Environments in Cambodia ...... 4-27 Table 5-1 Short List of Prioritized Issues ...... 5-1 Table 5-2 Regulation for Construction Services in Notification No.1/2013 ...... 5-6 Table 5-3 Regulation for Promoting Foreign Investment in ASEAN countries ...... 5-12 Table 5-4 Process for Permit and Company Registration ...... 5-17 Table 5-5 Summary of Corporate Tax Rates in 2013 ...... 5-21 Table 5-6 Summary of capital gains tax in region ...... 5-23 Table 5-7 Use of unique taxpayer identifiers for information reporting and matching ...... 5-27 Table 5-8 Selected countries in region with rulings issued by tax authorities ...... 5-28 Table 5-9 Summary of indirect tax rates ...... 5-31 Table 5-10 Restrictions for Foreign Remittance in Myanmar ...... 5-34

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

Table 5-11 Country-by-country comparison of regulations on overseas remittance of dividends, etc...... 5-38 Table 5-12 Import/Export Regulations and Description Method in ASEAN countries ...... 5-40 Table 5-13 Bonded warehouse and Duty free shop in Myanmar ...... 5-44 Table 5-14 Functions of Bonded warehouses ...... 5-46 Table 5-15 Current situation regarding Special JV system in three countries ...... 5-49 Table 5-16 History of the Special JV System in Japan ...... 5-51 Table 5-17 Short List of Prioritized Issues ...... 5-52 Table 5-18 Composition of One Stop Service Offices in SEZs ...... 5-53 Table 5-19 List of advance ruling system in other ASEAN countries ...... 5-59 Table 5-20 Tax audit system in Cambodia ...... 5-61 Table 5-21 List of Base Date to Calculate Interest on Refund ...... 5-66 Table 5-22 Advance Ruling System on Customs in Japan ...... 5-72 Table 5-23 Comparison Table of the Customs Business Act in Japan and the Rules of Customs Brokers in Cambodia ...... 5-73 Table 5-24 Short List of Prioritized Issues ...... 5-75 Table 5-25 Required Documents for Application of BGMEA Membership ...... 5-79 Table 5-26 Land Purchasing Process ...... 5-86 Table 5-27 VAT Calculation Arrangements in Thailand, Philippines and Vietnam ...... 5-91 Table 5-28 Required Documents for Application of Bond License ...... 5-96 Table 5-29 Required Percentage of Export Eligible to Access Bonded Warehousing Facilities ...... 5-98 Table 5-30 Government‟s Support Measures for PPP (BOT) Projects in Some Asian Countries ... 5-104

Figure 1-1 Implementation Structure of the Study ...... 1-3 Figure 1-2 Overall Study Schedule ...... 1-3 Figure 2-1 Current GDP and GDP per capita ...... 2-1 Figure 2-2 GDP Growth rate in Myanmar ...... 2-2 Figure 2-3 Industrial Structure of GDP ...... 2-2 Figure 2-4 FDI Inflow and Stock ...... 2-3 Figure 2-5 Share of FDI Inflow by sectors ...... 2-4 Figure 2-6 FDI Inflow from Japan ...... 2-6 Figure 2-7 Trade Balance ...... 2-7 Figure 2-8 Export share by commodity ...... 2-8 Figure 2-9 Trend of export to main countries ...... 2-8 Figure 2-10 Import share by commodity ...... 2-9 Figure 2-11 Import from main countries ...... 2-9

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

Figure 2-12 Trade volumes with Japan ...... 2-10 Figure 2-13 GDP Growth Rate (2002-2014) ...... 2-12 Figure 2-14 Trade Balance: 2002 – 2012 ...... 2-20 Figure 2-15 Export Items from Cambodia to Japan ...... 2-24 Figure 2-16 Import Items from Cambodia to Japan ...... 2-24 Figure 2-17 Trend of GDP Growth Rate ...... 2-25 Figure 2-18 Regional Comparison of GDP Growth Rate ...... 2-26 Figure 2-19 GDP growth rate by industry (2005-2011) ...... 2-27 Figure 2-20 Inward FDI stock (2000-2012) ...... 2-27 Figure 2-21 Trend of Inward FDI stock (2000-2012) ...... 2-28 Figure 2-22 FDI inflow by sector (FY2000-2011) ...... 2-30 Figure 2-23 FDI stock by country (2000-2011) ...... 2-30 Figure 2-24 FDI stock from Japan (2000-2011) ...... 2-31 Figure 2-25 Breakdown of FDI stock from Japan ...... 2-32 Figure 2-26 Trend of trade (2001-2012) ...... 2-33 Figure 2-27 Main exported commodities(2007and 2012) ...... 2-34 Figure 2-28 Main exported commodities(2007and 2012) ...... 2-34 Figure 2-29 Major Exporting Countries (2001) ...... 2-35 Figure 2-30 Major Exporting Countries (2012) ...... 2-35 Figure 2-31 Main imported commodities (2007) ...... 2-36 Figure 2-32 Main imported commodities (2012) ...... 2-36 Figure 2-33 Major importing countries (2000) ...... 2-37 Figure 2-34 Major importing countries (2000) ...... 2-37 Figure 2-35 Total Export to Japan (2001-2012) ...... 2-38 Figure 2-36 Total Import from Japan (2001-2012) ...... 2-39 Figure 3-1 Flow for MIC permit ...... 3-10 Figure 3-2 Flow for Permit to trade and Company registration ...... 3-10 Figure 3-3 Process of Legislation by Member of National Assembly ...... 3-24 Figure 3-4 Structure of Courts ...... 3-25 Figure 3-5 QIP Application Flow ...... 3-29 Figure 3-6 Legislative Procedures of the Parliament ...... 3-45 Figure 3-7 The Process for the Establishment of a Business (for Private Limited Company) ...... 3-55 Figure 5-1 Schematic image of the concept of the issue on tax registration ...... 5-56 Figure 5-2 Schematic image of advance ruling system on tax in Japan ...... 5-59 Figure 5-3 How to Calculate Interest on Refund ...... 5-67 Figure 5-4 Structure of the Issue on different Interpretations of VAT on Land Lease ...... 5-68

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

Figure 6-1 Positioning of Legal System in Target Countries ...... 6-2 Figure 6-2 FDI Approval Flow in Indonesia ...... 6-5 Figure 6-3 Recommended FDI System ...... 6-5 Figure 6-4 Clear clarification of Rules and Regulations ...... 6-10 Figure 6-5 Comprehensive and continuous provision of accurate and clear information ...... 6-11 Figure 6-6 Coordination among related ministries in order to provide consistent interpretation among laws and regulations ...... 6-12 Figure 6-7 Future Direction of Improvement of Legal System in Cambodia ...... 6-13 Figure 6-8 Future Direction of Regulatory Reform to Facilitate FDI ...... 6-14 Figure 6-9 Recommendations to BOI for Better Regulatory Environment ...... 6-17

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

List of Abbreviations

(Common abbreviation for 3 countries)

ADB : Asian Development Bank

ASEAN : Association of South‐East Asian Nations

CIDA : Canadian International Development Agency

DFID : UK Department for International Development

EIA : Environmental Impact Assessment

EPZ : Export Processing Zones

FDI : Foreign Direct Investment

IFC : International Finance Corporation

IMF : International Monetary Fund

JCIAD : Japan Commerce & Industry Association in Dhaka

JETRO : Japan External Trade Organization

JICA : Japan International Cooperation Agency

L/C : Letter of Credit

PPP : Public-Private Partnerships

SEZ : Special Economic Zone

USAID : United States Agency for International Development,

VAT : Value Added Tax

WTO : World Trade Organization

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

(Myanmar) ACCP : the ASEAN Committee on Consumer Protection

ACMECS : Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy

AILP : ASEAN Import Licensing Procedure

BIMSTEC : Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation

CMP : Cutting, Making and Packing

CPA : Certified Public Accountants

CRO : Companies Registration Office

DICA : Directorate of Investment and Company Administration

ERA : Electricity Regulatory Authority

FDA : Food and Drug Administration

FIL : Foreign Investment Law

FRC : Foreign Registration Certificates

GMS : Greater Mekong Sub-region

IFRS : International Financial Reporting Standards

MFRS : Myanmar Financial Reporting Standards

MIC : Myanmar Investment Commission

MOC : Ministry of Commerce

MOEP : Ministry of Electric Power

MRA : ASEAN Mutual Recognition Arrangement

NCDP : National Comprehensive Development Plan

SC. : Supreme Court of the Union

SMEs : Small and Medium Enterprises

SPDC : State Peace and Development Council

UAGO : Union Attorney General’s Office

UMFCCI : Chambers and Commerce Industry

WIPO : World Intellectual Property Organization

YSE : Yangon Stock Exchange

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

(Cambodia) AEC : ASEAN Economic Community

AFA : the ASEAN Federation of Accountants

ASEAN : Association of South East Asian Nations

ASYCUDA : Automated System for Customs Data

BLT : Build-Lease-Transfer

BOO : Build-Own-Operate

BOOT : Build-Own-Operate-Transfer

BOT : Build-Own-Transfer

CAMS : Cambodia Airport Management Services Ltd.

CAS : Cambodian Accounting Standards

CBTA : Cross Border Transportation Agreement

CC : Civil Code

CCJAP : Cambodia Community Justice Assistance Partnership

CCP : Code of Civil Procedure

CDC : Council for the Development of Cambodia

CFRS : Financial Reporting Standards

CIB : Cambodia Investment Board

COO : Certificate of Origin

CRC : Conditional Registration Certificate

CSA : Cambodian Standards of Auditing

CSEZB : Cambodia Special Economic Zone Board

CSX : Cambodia Securities Exchange

CTS : Certificate of Tax Situation

DGIR : Director General Inland Revenue Board Malaysia

EAC : Electricity Authority of Cambodia

EBA : Everything-But-Arms Initiative

ECCC : the Extraordinary Chambers of the Courts of Cambodia

EDC : Electricite Du Cambodge

FDI : Foreign Director Investment

FRC : Final Registration Certificate

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

FSDS : Financial Sector Development Strategy

FSP : Financial Sector Program

G-PSF : Cambodia’s Government-Private Sector Forum

GANT : General Act of National Taxes

GDA : General Department of Agriculture

GDCE : General Department of Customs and Excise

GDP : Gross Domestic Product

GDT : General Department of Taxation

GSP : Generalized System of Preferences

ICT : Information and Communication Technology

IPP : Independent Power Producers

IPR : Intellectual Property Right

IRBM : Inland Revenue Board Malaysia

KICPAA : Kampuchea Institute of Certified Public Accountants and Auditors

KRX : Korea Exchange

LDC : Least Developed Country

LEPNRM : Law on Environment Protection and Natural Resource Management

MEF : Ministry of Economy and Finance

MFN : Most Favored Nation

MIME : Ministry of Industry, Mining and Energy

MLMUPC : Ministry of Land Management, Urban Planning and Construction

MLVT : Ministry of Labor and Vocational Training

MOC : Ministry of Commerce

MOE : Ministry of Environment

MOP : Ministry of Planning

MPTC : Ministry of Posts and Telecommunications

NAC : National Accounting Council

NPRD : National Programme to Rehabilitate and Develop Cambodia

NSDP : National Strategic Development Plan

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

ODA : Official Development Assistance

PMIS : Provincial-Municipal Investment Sub-Committee

PPIA : Phnom Penh International Airport

PPP : Public Private Partnership

QIP : Qualified Investment Project

REE : Rural Electricity Enterprises

RGC : Royal Government of Cambodia

SAD : Single Administrative Document

SCA : Société Concessionnaire des l‟ Aéroports

SEC : Stock Exchange Committee

SEDP-I : The First Five-year Socio-Economic Development Plan

SEDP-II : The 2nd Five-year Socio-Economic Development Plan

SEZ : Special Economic Zone

SMEs : Small and Medium Rnterprises

SRIA : Siem Reap International Airport

SSCA : State Secretariat of Civil Aviation

TRC : Telecommunication Regulator of Cambodia

UNDP : United Nations Development Programme

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

(Bangladesh) AD : Authorized Dealer

ASYCUDA : Automated Systems for Customs Data

BDS : Business Development Service

BEPZA : Bangladesh Export Processing Zones Authority

BEST : Better Work and Standard Programme

BEZA : Bangladesh Economic Zones Authority

BGMEA : Bangladesh Garment Manufacturers & Exporters Association

BICF : Bangladesh Investment Climate Fund

BITs : Bilateral Investment Treaties

BNP : Bangladesh Nationalist Party

BOI : Board of Investment

BSCIC : Bangladesh Small Cottage and Industry Corporation

BUILD : Business Initiative Leading Development

CBC : the Customs Bond Commissionerate

CCEA : Cabinet Committee on Economic Affairs

CCI&E : Chief Controller of Imports and Exports

CIF : Cost, Insurance and Freight

CPTU : Central Procurement Technical Unit

DCCI : Dhaka Chamber of Commerce and Industry

DOE : Department of Environment

ECA : Environment Conservation Act

ECC : Environmental Clearance Certificate

E-VISA : Employment VISA

EPB : Export Promotion Bureau

ERC : Export Registration Certificate

ETP : Effluent Treatment Plant

FBCCI : Federation of Bangladesh Chambers of Commerce and Industry

GOB : Government of Bangladesh

GSP : Generalized System of Preferences

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

IDCOL : Infrastructure Development Company Limited

IPO : Initial Public Offering

IRC : Import Registration Certificate

MCCI : Metropolitan Chamber of Commerce and Industry

MOHA : Ministry of Home Affairs

MOLJP : Ministry of Law, Justice, Parliamentary Affairs

NBR : National Board of Revenue

NFCD : Non-resident Foreign Currency Deposit

NITA : Non-Resident Investor’s Account

NRTA : Non-Resident Taka Account

PPD : Public Private Dialogue

PPPAC : Public-Private Partnership Advisory Council

PI-VISA : Private Investment VISA

PSDSP : Private Sector Development Support Project

PSI : Pre-Shipment Inspection

RJSC&F : Registrar of Joint Stock Companies and Firms

SEDF : South Asia Enterprise Development Facility

SMEF : Small and Medium Enterprise Foundation

TIN : Tax Identification Number

TVET : Technical and Vocational Education and Training

UCPDC : Uniform Customs and Practice for Documentary Credits

UD : Utilization Declaration

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

Chapter 1 Outline of the Study

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

CHAPTER 1 Outline of the Study

1.1. Background of the Study Under the political stability and rapid economic progress, Myanmar, Bangladesh and Cambodia (hereinafter referred to as “the Target Countries”) have lately attracted attention of foreign investors as well as Japanese companies. As the countries with a supply of cheap labor compared with other neighboring countries such as Vietnam and Indonesia, their emerging domestic markets as well are watched by foreign investors with keen interests. However, these countries have been still facing the challenges of weakness of legal system, non-transparent procedures and practices in doing investment and trade. For these backgrounds, it is urgently required to develop business-related legal system in order to promote enabling business environment. JICA has implemented many projects in legal sector, mainly on establishing basic law and promoting regulatory reform in developing countries, in cooperation with the Ministry of Law, the Supreme Court, and the Lawyers Association of Japan. These cooperation projects have been aiming at establishing national legal system and developing capacity of the relevant government officials with a long-term perspective. However, the above mentioned JICA‟s long-term approach has not necessarily responded to the needs of private sector that urgently requires improvement of specific business related regulations. In addition, it is also required to promote public-private partnership approach to facilitate Japanese companies‟ investment and trade in these 3 countries. Therefore, JICA has decided to formulate the Study on Legal System and Procedures for Promoting Enabling Business Environment (hereinafter referred to as “the Study”) in the Target Countries and dispatched a team of consultants (hereinafter referred to as “the JICA Study Team”) consisting of legal and business experts.

1.2. Purpose of the Study Based on the background mentioned above, the Study has the following primary objectives: i) To support the improvement of business environment in the Target Countries by promoting concrete remedial plan against short-time regulatory impediments with which private sector has been facing in doing business there.

ii) To recommend the formulation of future JICA projects for improving medium- and long- term regulatory impediments.

iii) To support the enhancement of investment and trade of Japanese companies in emerging countries as the Target Countries, by sharing the results and information collected through the Study to stakeholders in private sector in Japan.

1-1 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

1.3. Implementation Structure of the Study The Study has been implemented by JICA Study Team jointly formed by Mitsubishi UFJ Research and Consulting Co., Ltd., KRI International Corps. and Mori Hamada & Matsumoto Law Firm. JICA Project Team was composed of 6 members whose areas of responsibility were as shown in the following table. Table 1-1 JICA Study Team Member

No Responsibility Name Organization 1 Team Leader Takuji Kameyama MURC

Deputy Team Leader/ Business Environment Analyst 2 Akihiko Morinaga KRI (Cambodia) 3 Legal System Advisor/Business Environment Analyst Yoichi Matsui KRI

4 Business Environment Analyst (Myanmar) Munenori Tada KRI

5 Business Environment Analyst (Bangladesh) Masumi Shimamura MURC

6 Business Environment Analyst (Myanmar) Yukari Isa MURC

7 Group Leader, Legal System Analyst Takeshi Mukawa MHM

8 Legal System Analyst (Myanmar) Takeshi Komatsu MHM

9 Legal System Analyst (Cambodia) Kana Manabe MHM

10 Legal System Analyst (Bangladesh) Kenichi Sekiguchi MHM 11 Project Coordinator 1 Shinobu Shimokoshi KRI 12 Project Coordinator 2 Midori Kondo MURC

As the figure below illustrates, JICA Study Team will implement the project in close collaboration with the important stakeholders such as government and private sector of the Target Countries as well as Japanese private sectors.

Bangladesh Myanmar Cambodia Gov‟t & Gov‟t & Gov‟t & Private Private Private Consultation

JICA Study Team**

Japanese

JICA MURC KRI MHM Private Sector

Consultation Consultation

Support

Bangladesh Myanmar Cambodia Law Law Law Firm Firm Firm

** MURC : Mitsubishi UFJ Research and Consulting Co.,Ltd KRI : KRI International Corp. MHM : Mori Hamada & Matsumoto Law Firm Source: JICA Study Team

1-2 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

Figure 1-1 Implementation Structure of the Study

1.4. Study Schedule As illustrated in the following figure, the overall study schedule is divided into three phases:  1st Phase: Fact Finding & Issue Analysis  2nd Phase: Selection of Target Regulations & Detailed Analysis  3rd Phase: Recommendation & Action Plan

Aug-Oct, 2013 Nov. „13 - Jan.‟14 Feb. - Mar. 2014

Selection of Target Recommendation Fact Finding & Regulations ＆ & Issue Analysis Detailed Analysis Action Plan

• Investment & Trade • Recommendation • Selection of Target • Legal System • Short-term plan Regulations (Short List) • Business Laws and • Medium- & long-term • Problem Analysis Enforcement plan • Alternative Analysis • Problematic • Wrap up seminar & • Impact Analysis Regulations for workshop Private Sector (Long List)

【Inception Report】【 Interim Report 】【 Final Report 】

Figure 1-2 Overall Study Schedule

1-3 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

Chapter 2 Overview of the Current Economic Situations in Myanmar, Cambodia and Bangladesh

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

CHAPTER 2 Overview of the Current Economic Situations in Myanmar, Cambodia and Bangladesh

2.1. Overview of the Economy, Investment and Trade in Myanmar 2.1.1. Economic Trends

(1) Overview of Economic Policy and GDP Growth Trend In terms of area, Myanmar is the second largest country in Southeast Asia after Indonesia. It has borders with five nations, and it is rich in natural resources such as minerals, natural gas and fish. Current Gross domestic product (GDP) is Kyat 39.8 trillion and GDP per capita is Kyat 667 thousand in fiscal year 2010, which grew by 150% in the last decade (Figure2-1). GDP grew by 6.3% in FY2012. During FY 2001-FY 2007, GDP growth consistently exceeded 10%. The figure slowed down to 3.5% in 2008 due to the world economic recession, but it has been increasing since 2009 (Figure 2-2). GDP is expected to grow by 6.8% in FY 2013 and 6.9% in FY 20141. Recent growth is driven by improved business confidence entailed by political and economic reforms. International sanctions imposed on Myanmar resulted in a system of laws and regulations which hindered economic development. Since 2011, however, the government has sought to rejuvenate the economy and the State Peace and Development Council (SPDC) formally transferred power to a new Union Government headed by President Thein Sein in March 2011. This democratically elected new government contributed to recover investors‟ confidence and to ease the economic sanctions imposed by Western nations. While there are some short term risks to growth including the rapid appreciation of its currency, Kyat, the world economic slowdown, and operational challenges facing the authorities, the investment climate has been improving as a result of the reforms and therefore its economy is expected to see sustainable growth.

（million Kyat）（Kyat） 50,000,000 700,000 GDP GDP per capit 600,000 40,000,000 500,000 30,000,000 400,000 20,000,000 300,000 200,000 10,000,000 100,000 0 0 1991 1996 2002 2005 2006 2007 2008 2009 2010 2011 1990- 1995- 2001- 2004- 2005- 2006- 2007- 2008- 2009- 2010-

Source: CSO database2012 Figure 2-1 Current GDP and GDP per capita

1 International Monetary Fund, World Economic Outlook Database, Oct. 2013

2-1 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

（%） 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: International Monetary Fund, World Economic Outlook Database, Apr. 2013 Figure 2-2 GDP Growth rate in Myanmar

(2) Industrial Structure of GDP The Myanmar‟s main industrial sectors are occupied by agriculture and farm-related activities including livestock, fishery and forestry. The GDP of agriculture and farm-related activities in FY 2010 is Kyat 14,632.6 billion, which accounted for 36.7% of the total GDP in the above year. The figure decreased from 57.2% in FY 2000. In agriculture sector alone, its share of GDP decreased from 48.8% in FY 2000 to 27.8% in FY 2010. While agriculture sector saw significant drop in its share of GDP, its share of total employment still exceeds 50%. This difference in the employment and output shares reflects low labour productivity in agriculture sector in comparison to the average productivity of the whole economy.2 On the other hand, the GDP share of non-agriculture sector has been increasing. Manufacturing sector expanded its output from Kyat 182.9 billion, 7.2% of GDP in FY 2000 to Kyat 7,897.0 billion, 19.8% of GDP in FY 2010. During the same period, service sector also expanded from Kyat 230.5 billion 9.0% of GDP to Kyat 6,725.6 billion, 16.9% of GDP. Transportation sector, in particular, saw growth from Kyat 146.3 billion, 5.7% of GDP to Kyat 4,837.3 billion, 12.1% of GDP. (Figure2-3) （million Kyat） Financial Institutions 35,000,000 Energy 30,000,000 Forestry 25,000,000 Mining Communications 20,000,000 Electric Power 15,000,000 Rental and Other Services 10,000,000 Social and Administrative Services Construction 5,000,000 Livestock and Fishery 0 Transportation Processing and Manufacturing

1991 1996 2001 2005 2006 2007 2008 2009 2010 2011 Agriculture 1990 - 1995 - 2000 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - Source: CSO database2012 Figure 2-3 Industrial Structure of GDP

2 ADB, “Economic Indicator 2013”, p.70.

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2.1.2. Investment Trends

(1) Overview of Investment Policy and FDI Trend in the last 10 years As economic sanctions had banned investment from US and EU, the majority of FDI inflows to Myanmar came from neighbouring Asian countries and some other countries for a decade. Investment is dominated by China in power and oil and gas sectors, but change is underway. In November 2012, President Thein Sein executed a new Foreign Investment Law (FIL), which most observers view as a positive, pro-business step in the right direction, especially in comparison to earlier protectionist versions of the law. Improved business environment contributed to enhance FDI inflow to Myanmar. It has achieved USD 470 million by investors from Vietnam, USD 330 million from Singapore and USD 240 million from UK since the beginning of FY2012. As a result, Myanmar has already received USD 42 billion as stock as of the end of FY2012 (Figure2-4). While most of FDI was concentrated in oil and gas sectors, significant increase of investment in manufacturing sector is anticipated and investments in hotels and tourism as well as agriculture are also gradually increasing. The Government‟s efforts in this direction include the promulgation of the Foreign Investment Law in 2012 towards a more open and secure legal environment, promoting bilateral treaties, and recently ratifying the NY Convention for enabling investment climate.3 (million USD） 50,000 FDI stock FDI Inflow 40,000 30,000 20,000 10,000 0 1990-1991 1995-1996 2001-2002 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Source: CSO database2012 Figure 2-4 FDI Inflow and Stock

(2) Trend of investment by business sector Myanmar has attracted foreign investors mainly from neighboring countries, primarily attracted by its natural resources and power sector. The amount of investment in oil and gas sector and power industry (electrical generation) saw dramatic increase in FY 2010, with twelve enterprises investing to oil and gas sector, and two enterprises investing to power industries in that year. Oil and gas sector received USD 10,179.3 million, representing 50.9% of total value, and power industry at USD 8,218.5 million, 41.1% of total value in FY 2010. In FY2012, the amount of total FDI Inflow relatively decreased. However, the cumulative total investment as of the end of FY2012 indicates that FDI inflow is still dominated by these two sectors. The mining sector and manufacturing sector stand in the third and the fourth place with 7.0% and 2.0% respectively as of the end of FY2012. Hotel and Tourism and Real

3 DICA, “OECD Investment Policy Reform in Myanmar”, presentation for OECD Investment Committee, 15th. Oct, 2013

2-3 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report estate occupy the fifth and the sixth place with 1.4% and 0.8% respectively. Although the share of manufacturing sector and Hotel and Tourism sector is small compared with the above two main sectors, manufacturing sector receives USD 1,400 million and Hotel and Tourism sector receive USD 1,300 million in FY 2012(Figure2-5).

(million USD) Power 12000 Oil and Gas 10000 Mining

8000 Manufacturing

Hotel & Tourism 6000 Real Estate Development 4000 Agriculture

2000 Transport & Communication

Livestock & Fishery 0 Others

Construction

Industrial Estate 1990-1991 1995-1996 2001-2002 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Source: CSO database2012 Figure 2-5 Share of FDI Inflow by sectors

(3) Trend of investment by country in the last 10 years China is the largest foreign investor in Myanmar as of FY2012, with USD 14,356.2 million, which represents 34.1% of the total investment amount. According to the Vice Secretary General of the China-ASEAN Expo Secretariat, Mr. Nong Rong, Chinese investors are targeting at underdeveloped infrastructure and construction sectors as well as manufacturing due to availability of cheap labour.4 Thailand ranks the second with investment of USD 9,569.4 million, which occupies 22.7% of the total investment amount in FY2012. Thailand‟s investment is particularly focused in oil and gas sector. Hong Kong is the third largest investor, with USD 6,389.3 million, and its share in total investment is 15.2%. (Table2-1)

4 PWC, “Myanmar Business Guide”, Aug., 2012, p.8.

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Table 2-1 FDI Inflow by countries USD million

Cumulative Total FY 2012 rank country as of March 31, 2013 value percentage value percentage

1 China 407.3 28.7% 14,356.2 34.1%

2 Thailand 1.3 0.1% 9,569.4 22.7%

3 Hong Kong 80.8 5.7% 6,389.3 15.2%

4 Korea 37.9 2.7% 2,979.2 7.1%

5 UK 232.7 16.4% 2,992.5 7.1%

6 Singapore 247.8 17.5% 2,066.4 4.9%

7 Malaysia 4.3 0.3% 1,031.3 2.4%

8 France - 0.0% 469.0 1.1%

9 Japan 54.1 3.8% 270.3 0.6%

10 U.S.A - 0.0% 243.565 0.6%

11 Indonesia - 0.0% 241.497 0.6%

12 Netherlands 10.3 0.7% 249.1 0.6%

Note: No available data for France, U.S.A and Indonesia. Source: CSO database2012

(4) Trend of investment by Japan While Japan invested in 35 projects since 1990, its investment is still rather limited. As a result of economic liberalization policy in 1990, while Japan‟s investment amounted around USD 60 million in FY1990, its investment had slumped for a long time until FY 2012. Japan‟s cumulative investment amount is USD 270.3 million with only 0.6% of total investment, which ranks at the 9th investor for Myanmar. Bilateral investment treaty between Japan and Myanmar has been under negotiation since 2012. In FY 2012, 11 new investments with USD 54.1 million are allowed, mainly in labor-intensive manufacturing industries such as textile and shoes. There is also investment in IT sector, which seeks to take advantage of the low-wage local engineers with relatively high adaptability to Japanese language environment.5(Figure2-6)

5 JETRO, “JETRO White Paper and JETRO Global Trade and Investment Report”, 2013

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(million USD） 70 60 50 40 30 20 10 0 1990-1991 1995-1996 2001-2002 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Source: CSO database2012 Figure 2-6 FDI Inflow from Japan

2.1.3. Trade Trends

(1) Overview of Trade Policy and Trade Trend Myanmar has recently emerged as a natural gas exporter, with exports to neighboring countries providing an increasingly important revenue stream6. Myanmar kept trade surplus from FY 2004 to FY 2011 due to the Export First Policy adopted since 2001. In 2011, however, the new government eased import regulation, turning trade balance to deficit at USD 91.9 million, exported USD 8,977.0 million, and imported USD 9,609 million in FY 2012.7 (Figure2-7) Myanmar is a member of WTO, ASEAN, the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), Greater Mekong Subregion (GMS), Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy (ACMECS), and bilateral trade agreement with Bangladesh, China, Korea, Lao PDR, Malaysia, Pakistan, Philippines, Thailand and Vietnam. Myanmar is mainly an exporter of agricultural and primary products including agricultural, fishery, and forestry commodities, metal and minerals, precious stones, pearls and some industrial products. Two large gas fields, Shwe and Zawtika, are expected to come online in FY2013, more than doubling gas production and increasing exports to China and Thailand.8 Major imports are capital goods, industrial raw materials, spare parts and consumer goods. Government attempts to explore the foreign markets for exports by utilizing the natural and human resources effectively and also to promote the export of traditional value-added products while importing the capital goods, raw materials for production, other important essential goods and goods which support to the public health and export promotion.9

6 PWC, “Myanmar Business Guide” Aug., 2012, p.6. 7 JETRO, “JETRO White Paper and JETRO Global Trade and Investment Report”, 2013 8 ADB website, country profile, http://www.adb.org/print/countries/myanmar/economy, 30th, Sep.,2013 9 US chamber website, presentation from MICC, “brief on trade and related matters of Myanmar”, 27th, Feb., 2013. http://www.uschamber.com/international/asia/southeastasia/burma

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（million USD) 10,000 Export Import Balance of Trade 8,000

6,000

4,000

2,000

-2,000 1990-1991 1995-1996 2000-2001 2007-2008 2010-2011 2011-2012 2012-2013 2004-2005 2005-2006 2006-2007 2008-2009 2009-2010 Source: CSO database2012 Figure 2-7 Trade Balance

(2) Trend of export by products and countries Natural resources are main export product in Myanmar. Mineral products are the largest export product with USD 2,525.4 million and its share in total export value is 28.5% in FY 2010. The second largest export product is natural or cultured pearls, jewellery, and precious stones at USD 2,027.8 million with its share of 22.9%. Other manufactured products are exported at USD 1,648.9 million with its share of 18.6%. Vegetable products are exported at USD 1,070.7 million with its share of 12.1%. While natural resources, other manufactured products and vegetable products have relatively decreased during the last decade, natural or cultured pearls, jewelries, and precious stones have sharply increased from 0.5% share in FY 2001 to 22.9% share in FY 2010. Wood products and Textile products have also decreased from 13.5% in FY 2001 to 7.0% in FY 2010 and from 17.8% in FY 2001 to 4.4% in FY 2010 respectively. However, Textile products export is expected to increase due to production shift from China to Myanmar (Figure2-8). Thailand is the largest export destination country for Myanmar, totaled USD 4,001.0 million, with its share of 44.6% in total export value in FY 2012. Hong Kong is the second largest at USD 1,894.7 million, with its share of 21.4% in FY 201010. China is the third largest, at USD 2,238.0 million, with its share of 24.9% in FY 2012. While export to Thailand and China have sharply increased for the last decade, export to India and Singapore have decreased (Figure2-9).

10 Export volume for Hong Kong in FY2012 is not clear.

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Mineral products 2% 0% Natural or cultured pearls 6% 9% Metal, metal products, stone products 35% Vegetable and amimal products, live amimals

19% Wood, pulp, wood products

Textiles and textile products, footwear

1% 28% Plastics, chemical products

Machinery and mechanical appliances; electrical equipment

Source: CSO database2012 Figure 2-8 Export share by commodity

（million USD） Thailand 4,500

4,000 Hong Kong 3,500 China 3,000

2,500 India 2,000 1,500 Singapore 1,000 Malaysia 500 0 Japan

1991 1996 2002 2005 2006 2007 2008 2009 2010 2011 2012 2013 Korea 1990- 1995- 2001- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- Source: CSO database2012 Figure 2-9 Trend of export to main countries

(3) Trend of import by products and countries Mineral products are main imported products in Myanmar, totaled USD 1,605.74 million with its share of 25.0% in total import value in FY 2010. The second largest imported product is other manufactured products, totaled USD 1,605.7 million, with its share of 16.6%, and followed by machinery and medical appliances with its share of 18.5% in FY 2010. Miscellaneous manufactured products have significantly increased from 5.0% in FY 2001 to 16.6% in FY 2010. While machinery and medical appliances have increased from 5.0% in FY2001 to 16.5% in FY 2010, textile and textile products have decreased from 12.9% to 5.2% during that period (Figure2-10). China is the largest exporter to Myanmar, totaled USD 2,719.0 million, with its share of 30.0% in total import value in FY 2012. Singapore is the second largest exporter, at USD 2,535.0 million, with its share of 28.0%. While import from China sharply increased in the last decade, import from Thailand, Korea, and India relatively decreased (Figure2-11).

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1% 1% Mineral products

Miscellaneous manufactured articles 6% Machinery and mechanical appliances; electrical 25% equipment; parts thereof; sound recorders 11% Metal, metal products, stone products

5% Textiles and textile products, footwear

Plastics, chemical products 8% Vegetable and amimal products, live amimals 17% 9% Wood, pulp, wood products

Works of art, collectors' pieces and antiques 17% Wood, pulp, wood products

Source: CSO database2012 Figure 2-10 Import share by commodity

（million USD） China 3,000

2,500 Singapore

2,000 Thailand

1,500 Korea

1,000 Indonesia

500 Japan 0

India

Malaysia 1990-1991 1995-1996 2001-2002 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Source: CSO database2012 Figure 2-11 Import from main countries

(4) Trend of trade with Japan Japan is the fourth largest export destination country for Myanmar and its value totaled USD 406.0 million, with its share of 4.5% in total export value in FY 2012. Although its export to Japan decreased in the last decade, it has been increasing since 2011 due to the relaxation of economic sanctions and Japanese companies‟ production shift from China to Myanmar. On the other hand, Japan is the third largest exporter to Myanmar. Import from Japan valued at USD 1,092.0 million, with its share of 12.0% in total import value in FY 2012. Compared with the same figure in FY2000, its import value has become 5 times larger. Recent increase of import from Japan significantly owes to used cars due to relaxation of import regulation in September 2011 (Figure2-12).

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Since many import items are deregulated under the new regime, import from Japan is expected to increase further. （million USD）

1200.00

1000.00 export import

800.00

600.00

400.00

200.00

0.00

Source: CSO database2012 Figure 2-12 Trade volumes with Japan

2.2. Overview of Economy, Investment and Trade in Cambodia 2.2.1. Economic Trends

(1) Overview of Economic Policy and GDP Growth Trend

1) Economic Policy Transition The Royal Government of Cambodia (RGC) formulated the National Programme to Rehabilitate and Develop Cambodia (NPRD) in 1994. Based on this NPRD, the first five-year Socio-Economic Development Plan (SEDP-I, 1996-2000) was formulated to lay out its rehabilitation and development vision putting emphasis on macroeconomic stability, social development, and poverty reduction, followed by the 2nd Socio-Economic Development Plan (SEDP II 2001-2005). In 2004, the RGC formulated the “Rectangular Strategy” for Growth, Employment, Equity and Efficiency as an economic policy in Cambodia. Using the structure of the Strategy, the RGC prepared the National Strategic Development Plan (NSDP) 2006-2010 as a new national plan. To reflect the steady macroeconomics and rapid economic growth, however, there was a need for the RGC to fine tune its policy priorities and further improve sectoral strategies. Therefore, the “Rectangular Strategy - Phase II” was formulated to serve as the fundament of the RGC‟s economic policy in 2008. Additionally, the NSDP needed to be updated in order to ensure that the actions, programmes, and projects of all ministries and agencies are aligned to implement the prioritized policies that are outlined in the Rectangular Strategy Phase II. In this context, the National Strategic Development Plan Update (NSDP Update) 2009-2013 has been prepared. The NSDP Update states 6 key policy priorities and actions, and the highest priority of all concerned RGC institutions are to support the creation of an enabling environment that fosters private sector development by taking measures to alleviate major bottlenecks to private sector development.

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2) National Strategy Development Plan 2014-2018 To ensure a smooth transition from the current plan (NSDP Update 2009-2013) to the forthcoming one, the Ministry of Planning (MOP), the responsible ministry for leading the process of preparation of the new plan (NSDP 2014-2018), began to initiate the process in April 2013 by presenting the guideline for formulating the NSDP 2014-2018 with economic development being regarded as one of the 11 priorities in the Guideline, focusing on 6 sub-priorities related to business environments as set out below:

(1) Promote modernization and diversification of agriculture and raise yield rates, step-up land-reforms, boost commercial development of livestock and marine fishery sectors, and form farmers‟ associations; (2) Encourage growth of private sector for diversified industrialization and modernization, develop SMEs; (3) Strengthen banking and financial sectors for greater penetration of finance in small towns and the hinterland; (4) Enable evolution of competitive and transparent labor markets and induce „value-added‟ job-creation processes; (5) Invest in improving physical infrastructure (transport, electricity, irrigation, ICT, others); and (6) Promote tourism.

The Plan is currently being drafted by relevant ministries with consideration as to ASEAN integration. According to the guideline, the NSDP 2014-2018 will be disseminated in February 2014 to put the country on a path to attain sustainable and inclusive development.

3) GDP Growth Trend As the figure below shows, the Cambodian economy maintained a high growth rate ranging from 6-13% annually in the period between 2002 and 2008 with the highest record rate of 13.3% in 2005. Although the GDP growth rate dropped to 0.1% in 2009 due to the world economic recession, it recovered to 6.0% in 2010. The GDP growth rate remained at around 7% in 2011 and 2012. According to the National Bank of Cambodia‟s forecast, the growth rates are forcasted to be approximately 7.6% in 2013 and 7.0% in 2014.

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% 14 13.3 12 10.8 10.3 10.2 10 8.5 7.6 8 7.1 7.3 7.0 6.6 6.7 6.0 6

2 0.1 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013p 2014p

Source: Ministry of Economy and Finance (MEF), Cambodia (2002-2003) and National Bank of Cambodia (2004-2014p) Note: “p” stands for “Projection” Figure 2-13 GDP Growth Rate (2002-2014)

(2) Industrial Structure of GDP

1) GDP Contribution by Industrial Sector The composition of GDP by industrial sector is shown below. Since 2003, the industrial structure of GDP has changed little. “Services” accounts for about 40%, followed by “Agriculture, Fisheries, & Forestry” (around 30%) and “Industry” (around 25%). The other 5% is from “Taxes on Products and others”.

Table 2-2 Composition of GDP by Economic Activity (Unit: %) Category 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013(p) Agriculture, 32.0 29.4 30.7 30.1 29.7 32.8 33.5 33.9 34.6 33.5 32.3 Fisheries & Forestry Industry 25.0 25.6 25.0 26.2 24.9 22.4 21.7 21.9 22.1 23.0 23.8 Services 38.2 39.3 39.1 38.7 38.5 38.8 38.8 38.3 37.5 37.8 38.2 Taxes on Products 4.8 5.7 5.2 5.0 6.9 6.0 6.0 5.9 5.8 5.7 5.7 & others Total 100 100 100 100 100 100 100 100 100 100 100 Source: Ministry of Economic and Finance, Cambodia Note: “p” stands for “Projection”

2) Breakdown of Industry in GDP As the table below shows, the total value by industry sectors in GDP was Riel 4 trillion in 2003 and has been continuously increasing since then. The value exceeded Riel 10 trillion in 2010 and about Riel 13 trillion is estimated for 2012.

The largest share in total industry has been “Manufacturing” since 2003, followed by “Construction”. Although the share of “Manufacturing” was gradually decreasing from 73% in 2003 to 63% in 2012, its value has been increasing from Riel 3.3 trillion in 2003 to Riel 8.5 trillion in 2012.

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For the “Manufacturing” sector, the “Textile, Apparel & Footwear” sub-sector has been the major players for fast growth of the sector by occupying nearly 70% of the sector. In addition, “other manufacturing” sub-sector recorded the largest increase (nearly 3 times) in the “Manufacturing” sector. One of the reasons may be that the production of parts manufacturing has been accelerated in the country.

Table 2-3 Breakdown of Industry in GDP, 2003-2012 (Unit: Riel Billion, %) Industry Sector 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e 58 74 97 115 135 165 196 279 330 439 Mining (1.3%) (1.3%) (1.5%) (1.5%) (1.5%) (1.8%) (2.1%) (2.7%) (2.9%) (3.4%) 3,374 4,027 4,585 5,541 6,074 6,441 6,208 6,913 7,900 8,552 Manufacturing (72.9%) (73.2%) (71.2%) (70.9%) (69.5%) (68.6%) (66.6%) (67.2%) (68.5%) (65.7%) Food, Beverages 488 505 608 664 757 924 978 1,071 1,163 1,276 & Tobacco (14.5%) (12.5%) (13.3%) (12.0%) (12.5%) (14.3%) (15.8%) (15.5%) (14.7%) (14.9%) Textile, Apparel 2,294 2,847 3,158 3,869 4,234 4,315 3,938 4,403 5,192 5,581 & Footwear (68.0%) (70.7%) (68.9%) (69.8%) (69.7%) (67.0%) (63.4%) (63.7%) (65.7%) (65.3%)

Wood, Paper & 105 119 148 171 203 239 252 273 296 314 Publishing (3.1%) (3.0%) (3.2%) (3.1%) (3.3%) (3.7%) (4.1%) (3.9%) (3.7%) (3.7%)

Rubber 111 122 126 181 148 153 168 219 243 269 manufacturing (3.3%) (3.0%) (2.7%) (3.3%) (2.4%) (2.4%) (2.7%) (3.2%) (3.1%) (3.1%)

Other 377 433 545 657 732 811 872 947 1,006 1,112 Manufacturing (11.2%) (10.8%) (11.9%) (11.9%) (12.1%) (12.6%) (14.0%) (13.7%) (12.7%) (13.0%) Electricity, Gas 93 110 124 164 195 212 230 252 270 294 & Water (2.0%) (2.0%) (1.9%) (2.1%) (2.2%) (2.3%) (2.5%) (2.4%) (2.3%) (2.3%) 1,106 1,288 1,631 1,995 2,338 2,572 2,694 2,845 3,029 3,738 Construction (23.9%) (23.4%) (25.3%) (25.5%) (26.7%) (27.4%) (28.9%) (27.7%) (26.3%) (28.7%) 4,631 5,498 6,436 7,816 8,741 9,389 9,327 10,289 11,529 13,023 Total Industry (100%) (100%) (100%) (100%) (100%) (100%) (100%) (100%) (100%) (100%) Source: Ministry of Economic and Finance, Cambodia Note: 1. “e” stands for “estimation” 2. There are some rounding errors.

2.2.2. Investment Trends

(1) Overview of Investment Policy and FDI Trend Laws and regulations governing Foreign Director Investment (FDI) in Cambodia are basically designed to encourage investment. As the Law on Investment stipulates, FDI allows investors to invest freely in many areas and are treated in a non-discriminatory manner except for land-ownership, which is restricted to Cambodians by the Constitution. Investment projects, which are approved by the Council for the Development of Cambodia (CDC) to be granted investment incentives and guarantee, consist of projects by both Cambodian and foreign capital. Those projects are called “Qualified Investment Projects (QIPs)” under the Law on Amendment to the Law on Investment of 2003. The approval of QIPs is not issued to an investor or investing enterprise but to a project.

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In addition, the Cambodian government has been improving their investment facilitation services. For example, the Government decided in 2005 to establish the Cambodian Special Economic Zone Board (CSEZB) under the CDC to promote the special economic zone (SEZ) scheme in Cambodia. The investments out of SEZs are approved by Cambodia Investment Board (CIB), while those in the SEZs are approved by CSEZB.11 The table below shows the trends in the amount of investment approved by CIB and CSEZB. In general, the total amount of investments has been increasing from 2003 to 2011. The spikes in total amount of investments in 2008 and 2011 are due to gigantic QIPs approved by CIB in those years.

Table 2-4 Amount of Investments Approved by CIB/CSEZB (2003-2013) (Unit: million USD) Type 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CIB 66 153 686 2,359 1,333 6,955 2,106 2,300 5,082 1,373 637 investment CSEZB - - - - - 56 242 81 426 191 42 investment Total 66 153 686 2,359 1,333 7,011 2,348 2,381 5,508 1,564 679 Notes: 1. Investments by Cambodia are not included. 2. CIB investment in 2013 is only from January to September, 2013 3. CSEZB investment in 2013 is from January to June, 2013.

(2) Trends of investment by business sector

1) Investment Approved by CIB As for the amount of investment by business sector, investment in industries has accounted for the largest proportion of all sectors in the past 10 years with gradual increases in the amount. In particular, “Garment / Textile” and “Shoes” are major business sectors industries. Investment in the agriculture sector has remained stable between 2006 and 2012, except for a deline in 2008. Investment in the service sector dropped in 2009 due to decreased investment in the construction sector due to the economic crisis, but recovered in 2010. The amount of investment in the tourism sector has been changing drastically every year owing to the presence or absence of large scale investment projects.

While the number of approved QIPs by CIB in 2003 were only 47, those in 2005 exceeded 100. Since then, more than 100 projects have been approved every year. The industry sector accounts for the largest share among all the sectors throughout the period between 2003 and September 2013.

11 As the data of the investments in Cambodia are separately collected in and out of the SEZ, the analyses were also made separately in this section.

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Table 2-5 The Value and Number of Approved QIPs by CIB by Sector (Unit: USD Million, Number of Projects) Sector 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Agriculture 2 12 26 505 371 95 590 524 725 533 168 (1) (2) (4) (20) (9) (5) (19) (22) (24) (18) (7) Industries 90 125 831 987 337 726 958 976 2,869 830 2,306 (31) (47) (89) (64) (93) (66) (65) (75) (113) (131) (98) Energy - 24 78 596 11 494 665 589 - 33 - - (2) (4) (5) (2) (6) (5) (4) - (1) - Food 41 1 5 4 21 4 12 66 25 9 - Processing (2) (1) (1) (1) (2) (1) (2) (5) (1) (2) - Garment/ 29 85 121 147 205 147 93 133 398 543 274 Textile (19) (36) (55) (43) (45) (37) (24) (41) (84) (90) (54) Machine/Metal/ - - 10 4 4 12 2 5 9 14 19 Electronics - - (3) (2) (2) (1) (1) (1) (3) (2) (4) Mining 6 - 182 3 31 5 15 92 31 5 - (1) - (11) (1) (19) (4) (7) (2) (3) (1) - Plastic - 4 15 - 5 6 2 6 - 20 - - (2) (4) - (2) (2) (1) (2) - (4) - Shoes - 1 - 31 25 12 28 48 35 116 72 - (1) - (7) (7) (2) (7) (8) (8) (13) (11) Wood 3 1 1 - 7 - 16 2 - 9 17 processing (2) (1) (1) - (4) - (4) (1) - (2) (1) Others 11 9 419 202 28 46 125 35 2371 81 1,924 (7) (4) (10) (5) (10) (13) (14) (11) (14) (16) (28) Services 28 26 71 2,171 653 1,292 410 1,059 658 226 21 (4) (4) (6) (8) (13) (9) (4) (2) (3) (3) (1) Construction/ 15 25 71 2,136 91 104 90 - - 3 21 Infrastructure (2) (3) (6) (4) (4) (2) (1) - - (1) (1) Services 13 1 - 35 562 1,188 320 1,059 658 223 - (2) (1) - (4) (9) (7) (3) (2) (3) (2) - Tourism 119 66 102 777 1,295 8,776 3,901 132 2,760 691 106 (11) (6) (6) (9) (14) (20) (12) (3) (8) (5) (1) Hotel 109 24 65 22 113 1,189 17 4 283 35 106 (9) (3) (4) (4) (5) (6) (1) (1) (2) (2) (1) Tourism 10 42 37 755 1,182 7,587 3,884 128 2,477 656 - (2) (3) (2) (5) (9) (14) (11) (2) (6) (3) - Total 239 229 1,030 4,440 2,656 10,889 5,859 2,691 7,012 2,280 2,601 (47) (59) (105) (101) (129) (100) (100) (102) (148) (157) (107) Source: CIB (CDC) Note: Figure in 2013 is only from January to September, 2013.

2) Investment Approved by CSEZB The accumulated number of approved QIPs by CSEZB during the period between 2006 and 2013 is 172 and the accumulated approved investment amount during the same period is USD 1,735 million. The energy sector is significantly larger than the other sectors in terms of the amount of QIP investments, while garment/textile, machine/metal/electronics, and plastic products are major projects in the SEZs in terms of the number.

Table 2-6 The Value and Number of QIPs Approved by CSEZB by Sector (Unit: million USD, number) Sector in industry 2005 2006 2007 2008 2009 2010 2011 2012 2013 Unknown Total - - - - 249 - 543 261 - - 1,053 Energy - - - - (2) - (1) (1) - - (4)

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- - - - 6 6 - 1 17 - 29 Food processing - - - - (1) (2) - (1) (1) - (5) - - - 22 7 29 37 42 22 7 164 Garment/Textile - - - (5) (1) (4) (12) (14) (6) (2) (44) Machine/Metal/ - - - 12 50 7 59 10 6 19 162 Electronics - - - (1) (1) (3) (5) (5) (5) (2) (22) - - - 1 7 9 - 17 - - 33 Plastic - - - (1) (2) (3) - (4) - - (10) - 13 - 2 2 1 2 17 - - 37 Shoes - (2) - (1) (1) (1) (1) (1) - - (7) 2 - 1 9 5 32 46 107 48 6 256 Others (1) - (1) (5) (4) (13) (17) (21) (14) (4) (80) 2 13 1 45 325 84 686 453 93 32 1,734 Total (1) (2) (1) (13) (12) (26) (36) (47) (26) (8) (172) Source: CDC Note: Figure in 2013 is only until October, 2013.

(3) Trends of investment by country

1) Investment Approved by CIB As can be seen from the table below, the top three foreign countries in terms of the accumulated amount of investments approved by CIB from 2003 to September 2013 are China, Korea, and the UK. China is particularly significant as it has placed in the top three every year since 2003. ASEAN countries such as Malaysia, Thailand, and Singapore have continuously invested in Cambodia during the last 10 years, though the amount of their investments has not ranked in the top three in the past 4 years.

Table 2-7 Value of QIPs Approved by CIB by Major Countries (Unit: USD Million) Country 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total Rank Cambodia 185 76 366 2,081 1,323 3,932 3,753 391 1,930 907 1,964 16,908 - China 34 83 454 717 180 4,371 893 694 1,193 264 246 9,129 1 Korea 2 5 56 1,010 148 1,238 121 1,027 146 284 60 4,097 2 UK 1 2 6 4 26 6 5 10 2,238 37 83 2,418 3 Vietnam - - - 56 139 21 210 115 631 86 - 1,258 4 USA - 2 4 62 3 672 1 36 144 5 4 933 5 Malaysia 5 33 26 28 241 3 7 167 235 1 4 750 6 Thailand 7 1 81 100 108 74 178 2 - 121 24 696 7 Russia - - - 278 - 102 235 - - - - 615 8 HKG 5 - 1 4 26 - 7 30 331 117 49 570 9 Singapore 4 5 25 12 2 52 272 37 14 83 55 561 10 Others 8 22 33 88 460 416 177 182 150 375 112 2,023 - Total 251 229 1,052 4,440 2,656 10,887 5,859 2,691 7,012 2,280 2,601 39,958 - Source: CIB (CDC) Note: Figure in 2013 is only from January to September, 2013.

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2) Investment Approved by CSEZB In terms of the accumulated foreign investments in the SEZs between 2008 and 2013, China occupies the top share since its QIPs include gigantic power generation plant investment projects, and is followed by Malaysia. In addition, unlike the case of CIB investment, Japan has placed within the top 3 of the CSEZB investment since 2011. This is because most of the Japanese companies invested in Cambodia belong to the manufacturing sector, which requires them to establish a factory in SEZs as a production base. On the other hand, the amount of investment in SEZs from Korea, one of the major countries in CIB investment, is rather small because it is engaged mainly in real estate projects outside of SEZs.

Table 2-8 Value of QIPs Approved by CSEZB by Major Countries (Unit: USD Million) Country 2008 2009 2010 2011 2012 2013 Total Rank Cambodia 1 27 5 267 263 - 563 - China 22 12 41 355 100 13 543 1 Malaysia 1 195 2 - 11 - 209 2 Japan 21 7 26 60 59 27 200 3 Singapore 3 26 - 1 - - 30 4 Thailand - - - 1 9 - 10 5 Brunei - - - 5 1 2 8 6 Turkey - - - - 8 - 8 7 Vietnam - - 5 - 1 - 6 8 Philippines - - 5 - - - 5 9 Korea 5 - - - - - 5 9 Others 4 2 2 4 2 - 14 - Total 57 269 86 693 454 42 1,601 Source: CSEZB Note: Figures in 2013 is only from January to June, 2013

(4) Trends in investment by Japan

1) Japanese Investment Approved by CIB The value of Japanese investments outside of SEZs remained at low levels from 1995 to June 2013 except for 2007 and 2012. The significant increase in 2007 and 2012 are the result of of the approval of QIPs for processing sugarcanes and real estate development, and for the construction of a shopping mall, respectively. The types of companies investing outside of SEZs in Cambodia are diverse from agriculture to tourism, with the garment and textile sector tending to be slightly larger than the other sectors in terms of the number of QIPs.

Table 2-9 Value and Number of Japanese QIPs Approved by CIB (Unit: million USD, number of project) 1995- 1995- Sector 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003 2013 2 ------17 - 19 Agriculture (1) ------(1) - (2)

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1995- 1995- Sector 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003 2013 Industries Food 2 - - - 31 - - - - 2 - 35 Processing (2) - - - (1) - - - - (1) - (4) Garment/ 2 - - 2 - - 4 - 9 9 3 29 Textile (3) - - (1) - - (1) - (3) (4) (1) (13) Machine/Metal/ 2 ------2 - 4 Electronics (2) ------(1) - (3) ------4 - - 4 Shoes ------(1) - - (1) Wood ------2 - 2 processing ------(1) - (1) 2 2 - - 2 7 1 - 2 2 - 18 Others (2) (1) - - (1) (1) (1) - (1) (1) - (8) 1 - - - 80 1 - - - 205 - 287 Services (1) - - - (2) (1) - - - (1) - (5) Tourism 9 ------9 Hotel (1) ------(1) 20 2 - 2 113 8 5 - 15 239 3 407 Total (12) (1) - (1) (4) (2) (2) - (5) (10) (1) (38) Source: CDC Note: Figure in 2013 is only from January to June, 2013.

2) Japanese Investment approved by CSEZB All Japanese investments in SEZs are in the industry sector. Both the number of QIPs and amount of investment have been increasing since 2009 and especially the number of Japanese QIPs approved by CSEZB in 2011 and 2012, which marked more than 10 projects. Almost half of the projects approved in 2011 are related to parts manufacturing, while that in 2012 is from the garment, textile, and footwear sector.

Table 2-10 Value and Number of Japanese QIPs Approved by CSEZB (Unit: USD million, number of project) Sector 2008 2009 2010 2011 2012 2013 2008-2013 ------Agriculture ------Industries 26 5 - - 1 - 32 Food processing (1) (1) - - (1) - (3) 11 2 2 13 45 2 75 Garment/textile, footwear (2) (1) (2) (5) (10) (1) (21) 12 - 23 39 7 7 88 Parts manufacturing (1) - (1) (6) (4) (2) (14) - - 11 4 35 3 53 Others - - (3) (3) (5) (2) (13) Tourism ------

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------49 7 36 56 88 12 248 Total (4) (2) (6) (14) (20) (5) (51) Source: CDC Note: Figure in 2013 is only from January to June, 2013.

2.2.3. Trade Trends

(1) Overview of Trade Policy and Trade Trend

1) Trade Policy The RGC realizes that the current economy heavily depends on FDI and ODA and faces large trade and budget deficits. Also, it was realized that economic diversification is still small and value-added processes are shallow. On the other hand, ASEAN integration in 2015 is just around the corner and the country has set 2015 as the target year to graduate out of LDC status. In related trade, ASEAN integration will require Cambodia to give away some benefits, including import duties. Secondly, graduation from LDC countries implies that Cambodia may not be provided with tariff exemption under the Generalized System of Preferences (GSP) scheme.12 Based on the above discussion, the government emphasizes export promotion, especially in the fields of rice, agricultural products, and light engineering in the coming NSDP 2014-2018. Also, Cambodia is plans to strengthen an open trading system through trade liberalization and putting trade policies within the framework of regional and global integration, focusing on some critical aspects such as investment agreements, trade facilitation measures, and regulatory reforms.

2) Trade Trends As shown in the figure below, Cambodia continuously records a trade deficit and the gap between the exports and imports widened suddenly in 2005. Between 2007 and 2011, the deficit has been relatively stable at around USD 1.4 billion to 1.5 billion per year. In 2012, however, the deficit exceeded USD 1.9 billion. The volume of exports from Cambodia displayed an increasing trend up until 2007. Although it dropped in 2008 and further in 2009 due to the global financial crisis, it quickly recovered in 2010 and has been continuously increasing since then. The amount of exports in 2012, which exceeded USD 6 billion, increased by 13% from 2011. Imports to Cambodia follow the same trends as exports, but the growth rate is faster than that of exports. The volume of imports has rapidly increased in the past 3 years. Especially, it increased by 16% and marked nearly USD 8 billion in 2012.

12 Because Cambodia is in the category of Least Developed Countries (LDC) defined by CDP, the country can benefit from the Generalized System of Preferences (GSP). According the GSP, Cambodia can enjoy the exemption or lowering of import tax by developing countries.

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10,000

8,000

6,000

4,000 Million USD Million

2,000

-2,000

-4,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Export FOB 1,755 2,027 2,589 2,910 3,693 4,089 3,493 2,996 3,884 5,220 6,016 Import FOB 2,318 2,560 3,270 3,928 4,749 5,432 5,077 4,490 5,466 6,710 7,965 Balance -563 -533 -681 -1,018 -1,056 -1,343 -1,584 -1,494 -1,582 -1,490 -1,949

Export FOB Import FOB Balance

Source: National Bank of Cambodia Figure 2-14 Trade Balance: 2002 – 2012

(2) Trend in export by product and country

1) Export Trends by Products As the table below shows, the GSP export accounts for about 90% of the total export value, followed by re-exports and other exports in the last five years. Among the GSP products; garments, footwear and textilea have been the dominant export products. However, the share of the garments, footwear, and textiles among GSP products has decreased from 97% in 2008 to 88% in 2012, while other GSP exports, including rice, have shown significant increases from 3% in 2008 to 12% in 2012. Rubber is a major export product among other export products. To be specific, the share was 37% in 2008, but it became 65% in 2012. On the other hand, the share of rubber wood decreased from 3.4% in 2008 to 0.6% in 2012.

Table 2-11 Major Export Products from Cambodia (Unit: million USD, %) Product 2008 2009 2010 2011 2012 3,159 2,627 3,436 4,639 5,291 GSP products (90.4%) (87.7%) (88.5%) (88.9%) (90.0%) 3,070 2,501 3,199 4,183 4,642 Garment/footwear/textile (97.2%) (95.2%) (93.1%) (90.2%) (87.7%) 89 126 237 456 649 Other GSP exports (2.8%) (4.8%) (6.9%) (9.8%) (12.3%) 238 262 264 292 334 Re-export (6.8%) (8.7%) (6.8%) (5.6%) (5.7%) 96 107 186 289 251 Other exports (2.8%) (3.6%) (4.7%) (5.5%) (4.3%)

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36 51 87 197 162 Rubber (37.4%) (47.7%) (46.9%) (68.4%) (64.7%) - 2 32 47 29 Sawn timber - (1.7%) (17.3%) (16.2%) (11.5%) 2 4 3 3 4 Fish and processed fish products (2.4%) (3.7%) (1.6%) (1.1%) (1.6%) 3 2 3 2 2 Rubber wood (3.4%) (1.9%) (1.4%) (0.7%) (0.6%) 20 29 54 31 33 Miscellaneous (20.7%) (27.0%) (29.0%) (10.6%) (13.1%) 35 19 7 9 21 Other products (36.1%) (18.1%) (3.7%) (3.0%) (8.5%) 3,493 2,996 3,884 5,220 5,876 Total Exports (100.0%) (100.0%) (100.0%) (100.0%) (100.0%) Source: National Bank of Cambodia Note: There are rounding errors.

2) Export Trend by Country The US has been the top export destination country until 2007 and accounted for more than 50% of total export value. Because of the global financial crisis in 2008, however, the volume of exports to the US decreased, while that of Hong Kong drastically increased. Also, the export value to Singapore in 2009 became 4 times larger than that in 2008.

Table 2-12 Major Export Destinations (Unit: USD Million) Country 2002 2003 2004 2005 2006 2007 2008 2009 2010 United States 960 1,126 1,312 1,595 1,899 1,881 1,970 1,553 1,903 Hong Kong 6 5 5 541 543 464 841 1,647 1,385 Singapore 27 29 10 70 139 132 114 482 429 Canada - - 94 107 115 138 291 196 274 Netherlands - - 33 21 28 79 152 145 236 United Kingdom 133 143 175 124 153 148 156 180 235 Thailand 8 12 17 15 15 18 14 22 150 Germany 118 154 238 225 233 185 138 109 112 Spain - - 31 34 85 99 124 106 101 Vietnam 32 39 42 46 75 80 171 115 96 Other countries 205 261 229 236 276 304 388 431 662 Total 1,489 1,771 2,188 3,014 3,562 3,528 4,359 4,986 5,584 Source: National Bank of Cambodia Note: There are rounding errors.

(3) Trends in imports by product and country

1) Import Trend by Product The total import value has been increasing since 2008, although that in 2009 decreased from the previous year due to the global financial crisis.

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The composition of the main imported products has not changed substantially in the last 5 years. Especially, garment materials occupy more than 25% of the total import products since 2008, which clearly shows that garments are a major industry in Cambodia.

Table 2-13 Major Import Products to Cambodia (Unit: USD Million, %) Product 2008 2009 2010 2011 2012 1,188 1,045 1,355 1,757 2,177 Garment materials (23.4%) (23.3%) (24.8%) (26.2%) (27.3%) 434 430 485 999 1,146 Fuels, lubricants & related materials (8.6%) (9.6%) (8.9%) (14.9%) (14.4%) 444 226 325 406 566 Machinery and transport equipment (8.7%) (5.0%) (5.9%) (6.0%) (7.1%) 329 237 244 233 322 Construction materials (6.5%) (5.3%) (4.5%) (3.5%) (4.0%) 139 150 138 119 155 Alcoholic beverage and tobacco (2.7%) (3.3%) (2.5%) (1.8%) (1.9%) 78 85 95 105 129 Food (1.5%) (1.9%) (1.7%) (1.6%) (1.6%) 31 70 59 78 87 Fertilizers (0.6%) (1.6%) (1.1%) (1.2%) (1.1%) 28 8 13 12 13 Electronic products (0.6%) (0.2%) (0.2%) (0.2%) (0.2%) 4 5 12 15 20 Non alocoholic beverages (0.1%) (0.1%) (0.2%) (0.2%) (0.3%) 2,382 2,180 2,636 2,860 3,214 Miscellaneous (46.9%) (48.5%) (48.2%) (42.6%) (40.4%) 20 55 105 125 135 Others (0.4%) (1.2%) (1.9%) (1.9%) (1.7%) 5,077 4,490 5,466 6,709 7,965 Total (100.0%) (100.0%) (100.0%) (100.0%) (100.0%) Source: National Bank of Cambodia Note: There are rounding errors.

2) Import Trends by Country The major origination countries for imports are China and ASEAN countries. The value of imports from China (mainland) significantly increased as well. This is partially because some garment companies constructed factories in Cambodia and brought raw and secondary materials from China. As a result, the share of import value from China increased from 12% in 2002 to 24% in 2010. In relation to ASEAN countries, imports from neighboring countries such as Thailand and Vietnam increased since 2006, becoming a major source of imports in the past few years.

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Table 2-14 Major Import Origins (Unit: USD Million) Country 2002 2003 2004 2005 2006 2007 2008 2009 2010 China (Mainland) 198 223 342 424 524 628 933 881 1,185 Thailand 238 216 231 291 415 513 697 465 690 Hong Kong 372 409 413 450 539 683 588 484 553 Vietnam 98 119 169 182 270 348 472 493 487 Taiwan 189 188 243 291 382 383 366 341 477 Korea 95 81 100 151 146 192 229 209 248 Indonesia 78 82 79 83 85 89 96 146 175 Switzerland n.a. n.a. 6 8 5 6 16 53 171 Malaysia 58 78 78 92 89 107 122 132 165 Japan 64 75 84 100 130 141 114 119 156 Other countries 285 262 332 477 399 461 782 578 590 Total Exports 1,675 1,732 2,075 2,548 2,985 3,550 4,417 3,901 4,897 Source: National Bank of Cambodia Note: There are rounding errors.

(4) Trends in trade with Japan According to JETRO, trade between Cambodia and Japan has been steadily growing, and exports to Japan are larger than imports from Japan as shown in the following figures. As for the export from Cambodia to Japan, more than 90% of the exports to Japan are in the form of footwear and/or garments. The result shows that Cambodia is increasing its exports to Japan by utilizing the GSP scheme.13 Though the share is still small, it is worth noting that electronic equipment started to increase. It can also be said that Cambodia is becoming a production base not only for the garment sector but also other invested manufacturing sectors from Japan.

13 In case of Japan and Cambodia, Cambodia has 2,200 items with preferential tariffs in addition to 3,540 items under GSP.

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450.00 404.44 400.00 350.00 308.83 300.00

250.00 209.15 200.00 142.69 150.00

millionUSD 100.00 50.00 0.00 2009 2010 2011 2012 Others 2.29 6.42 8.12 14.66 Leather 0.00 0.01 0.01 6.10 Electronic equipments 0.00 0.00 0.01 8.46 Garment (knit) 18.39 28.56 42.57 50.67 Garment (textile) 26.51 55.18 112.02 140.08 Footwear 95.50 118.98 146.11 184.47

Source: JETRO Note: There are rounding errors. Figure 2-15 Export Items from Cambodia to Japan

Regarding the trends in imports from Japan, the share of boats and ships was 34%, which was the largest share in 2009. However, it was reduced to about a quarter in 2012. Instead, the share of electrical machinery, vehicles, and iron and steel were growing. It can be said that the machines which are necessary for the construction of a factory for manufacturing sectors and those for garment sector are procured from Japan. Also, the value of other import items is increasing, which implies that the import items from Japan are getting more diversified.

250.00 205.43 234.25

200.00 158.28

150.00 112.39

100.00

50.00 MillionUSD

0.00 2009 2010 2011 2012 Others 18.09 30.24 48.81 71.02 Iron and steel 1.06 3.98 8.28 8.82 Electrical machinery 9.10 8.38 10.16 20.11 Ships and boats 37.78 33.69 16.19 9.80 Meat 0.00 3.15 19.25 22.97 Vehicles, not railway 22.29 27.43 47.88 56.48 Machinery 24.07 51.41 54.86 45.05

Source: JETRO Figure 2-16 Import Items from Cambodia to Japan

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2.3. Overview of the Economy, Investment and Trade in Bangladesh 2.3.1. Economic Trends

(1) Overview of Economic Policy and GDP Growth Trend Although the political instability has continued since the independence in 1971, the military regime was changed to the democratic regime in 1990. Not only the political democratization but also the worldwide favorable economic situation in the 1980s contributed to the increase of the Bangladesh‟s economic growth rate from 5.5% in 1971 to 5.9% in 1990. As the figure below shows, from 1990s until now, Bangladesh‟s economy has sustainably achieved a high growth ranged around 5-6% growth rate per annual and its GDP has surpassed USD 100 billion in 2010. This sustainable economic growth has been supported by various economic policy measures: the proper management of the macro economy, the intensive trade promotion focusing on the garment and frozen foods industries, the deregulation in the financial sector, the investment in human resource development and the improvement of social security system. In addition to the above, it is said that foreign migrant workers have significantly contributed to the household income in Bangladesh.

Source: World Bank WDI at http://data.worldbank.org/data-catalog/world-development-indicators Figure 2-17 Trend of GDP Growth Rate

The Government of Bangladesh (GOB) has established 8 export processing zones (EPZ) with a view to promoting export activities. EPZ was first established in Chittagong in 1983, followed by Dhaka and other cities. Recently GOB has been preparing to establish Special Economic Zone (SEZ) in 20 locations all over the country. „The Vision 2021,‟ the poverty reduction strategy in Bangladesh, was announced in 2006. Under this framework, the 6th 5-year plan (2011-2015) is in practice at present. The 6th 5-year plan aims at getting Bangladesh to become the middle-income country by 2021 which is the 50th anniversary of its independence. The World Bank indicates that, at least, the GDP annual growth with 7-8% and the investment with 33% in the proportion of GDP are requisite in achieving the objective of the 6th 5-year plan. The World Bank also points out 6 key tasks to accomplish the objective as follows14:

14 World Bank (2012 b) Towards Accelerated, Inclusive and Sustainable Growth – Opportunities and Challenges, Volume II: Main Report, p. 4.

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 The growth of exports based on (dependent on) manufacturing industry (FDI is limited.)  Job creation  The investment in the fields of health, knowledge and skills  The measures against climate change (the measures against natural disaster)  Urbanization  The political economy which makes policy and organizational reforms possible

Source: World Bank Figure 2-18 Regional Comparison of GDP Growth Rate

As the above figure indicates GDP growth rate has steadily increased since 1990 and 3.2% on the average in the 1980s, 4.8% in the 1990s and 5.8% in the 2000s. Compared to the average GDP growth rate in South Asia, as the figure above shows, Bangladesh‟s rate is more stable. It had remained high even in the period of the worldwide economic recession from 2008 to 2009 (6.2% in 2008 and 5.7% in 2009) and it has remained higher than 6% especially for 3 years from 2010 (6.1% in 2010, 6.7 % in 2011 and 6.3% in 2012). However, the above high economic growth is said not to last after the 2010s due to the high inflation rate, financial deficits and the global economy‟s impact on the micro economy.

(2) Industrial Structure of GDP The industrial structure of Bangladesh‟s GDP is classified into 3 sectors: agriculture (in a wide sense), industry and service. The GDP in agriculture increased by 6%, that in industry increased by 5% and that in service sector increased by 1% from 2010 to 2011. In detail, manufacturing industry has shown the highest contribution to GDP since 2005 (17.08% in 2005 and 19.01% in 2011). Next, the agriculture and forestry (16.98% in 2005 and 14.9% in 2011) and the wholesaling and retailing (14.08% in 2005 and 14.26% in 2011) have similar values. However, while the agriculture and forestry have a downward tendency, the wholesaling and retailing have an upward tendency. Then, as the below figure shows transportation, storage and communication industries (10.07% in 2005 and 10.72% in 2011), construction industry (9.14% in 2005 and 9.27% in 2011) and service industry for communities, societies and individuals (7.25% in 2005 and 6.61% in 2011) follow.

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Source: Ministry of Finance (2012) Economic Review Figure 2-19 GDP growth rate by industry (2005-2011)

2.3.2. Investment Trends

(1) Overview of Investment Policy and FDI Trend The Board of Investment (BOI) implements principal policies regarding investment. As mentioned earlier, the Vision 2021(the Vision) sets the objective to become a middle-income country by 2021 and the 6th 5-year plan (2011-2015) states that private investment with amount of USD 140 billion is necessary to achieve the objective. To attain the object for Bangladesh to become a middle-income country by 2021, the Vision also states that it is essential to invest in human resource development that forms the foundation of workforce. In addition, the Vision mentions that it is necessary to promote FDI which contributes to job creation and the measures against climate change and to make investments against urbanization (in Dhaka or Chittagong, etc.). In particular, it is pointed out that intensive investment in infrastructure development such as power, roads, sea port (especially maintenance of the Chittagong Port) and the urban infrastructure in Dhaka and Chittagong would be the driving force for economic development.

Source：UNCTAD database Figure 2-20 Inward FDI stock (2000-2012)

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Source：UNCTAD database Figure 2-21 Trend of Inward FDI stock (2000-2012)

Inward FDI stock and the percentage of GDP shown on the figures above have increased steadily in Bangladesh. Inward FDI stock has increased by approximately 3.3 times from 2000 (USD 2.162 billion) to 2012 (USD 7.156 billion). The percentage of GDP has increased by 1.76 % from 2000 (4.75%) to 2012 (6.51%). In comparison with the average in South Asia, the percentage of GDP is almost the same as that in South Asia in 2000, but the percentage of GDP in South Asia is 10.81% which is higher by 4.3% than that in Bangladesh in 2012. The difference between Bangladesh and South Asia is considered to be mainly caused by India which has inward FDI stock with a huge amount (2012: USD 226.346 billion) and the high percentage of GDP (2012: 12.2%).

Table 2-15 FDI inflow (2000-2011) Year USD million 2000-2001 563.90 2001-2002 400.93 2002-2003 379.18 2003-2004 284.16 2004-2005 803.78 2005-2006 744.61 2006-2007 792.74 2007-2008 768.69 2008-2009 960.59 2009-2010 913.02 2010-2011 779.04 2011-2012 1,194.88 Source：Bangladesh Bank (2012) Foreign Direct Investment Survey Report January-June 2012

As shown on the table above, FDI inflow had had a downward tendency by 2003, but sharply increased in 2004. After that year, although it decreased slightly in 2005 and 2007, it has an upward tendency on the whole up to now and it has increased by twice from 2000 (USD 564 million) to 2012 (USD 1.195 billion).

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The percentage of FDI inflow in EPZ had increased continuously (11.5% in 2007, 13.5% in 2008 and 16.6 % in 2009) and reached 23.3% in 2010, which was the highest percentage in the past 10 years. However, it decreased to 15.5% in 2011. According to the number of private investment proposals registered with BOI shown on the table below, the number of proposals for local investment has decreased by more than 1,000 from 2,875 in 2001 to 1,735 in 2011. On the other hand, the number of proposals for 100% foreign investment and Joint Venture (JV) has increased by twice from 89 to 220. Although there is a downward tendency of the number of investment proposals on the whole, the numbers are on a registration basis and thus, not all the proposals are in practice. In particular, whereas system is not strengthened enough to get the proper number of proposals for local investment methodologically, approximately 68 % of the registered local investment proposals are either implemented or at the varying stages of implementation.

Table 2-16 Private Investment Proposals Registered in BOI Foreign /JV Local Investment Investment Fiscal Year Proposals Total Proposals Registered Registered 2001-2002 2875 89 2964 2002-2003 2101 104 2205 2003-2004 1624 130 1754 2004-2005 1469 120 1589 2005-2006 1754 135 1889 2006-2007 1930 191 2121 2007-2008 1615 143 1758 2008-2009 1336 132 1468 2009-2010 1470 160 1630 2010-2011 1746 196 1942 2011-2012 1735 220 1955 Source：Ministry of Finance (2012) Economic Review 2012

(2) Trend of investment by business sector FDI inflow by industry has been changed in the last 10 years. If it is listed up the sectors in descending order of investment share in 2000: energy, gas & oil industry, manufacturing industry and trade & commerce industry. The order changed in 2005 as: transport & distribution business, energy, gas & oil industry, trade & commerce industry and manufacturing industry. However, the order in 2011 is: manufacturing industry, trade & commerce industry and energy, gas & oil industry, and it should be particularly pointed out that the proportion of the manufacturing industry becomes 34.7% (the proportion of trade & commerce industry which is in the second place is 22.8%). Further breakdown of manufacturing industry shows that garments and textile industry accounted for around 60% both in 2000 and 2011. As for the other industries, the proportion of food industry has dropped from 18% in 2000 when it was ranked second to 9%. In the other hand, the share of cement industry has risen from 7% to 14% and the one of agricultural chemicals (fertilizers) and other chemicals has also risen from 2% to 4%. As a result, the proportion of garments and textile industry has decreased relatively.

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Source：Bangladesh Bank (2012) FDI survey Figure 2-22 FDI inflow by sector (FY2000-2011)

(3) Trend of investment by country When FDI inflow in the top 11 countries of 2000 is compared with that in 2005, the proportion of the Netherlands and Britain accounted for 60% out of that of all other countries (USD 564 million) in 2000, but FDI inflow of the United States was the highest in 2005 (USD 745 million and 25% share). The recent tendency is the change from FDI by a small number of countries to FDI by more number of countries.

Source：Bangladesh Bank (2012) Foreign Direct Investment Survey., p. 25－35 Figure 2-23 FDI stock by country (2000-2011)

On the other hand, FDI stock by country shows that FDI stock of Britain has been continuously the top since 2000 and the United States is in the second place. FDI stock has had a downward tendency after the peak in 2009. For instance, FDI stock of Britain in 2009 was USD 1.346 billion (26.2% share of the total USD 5.139 billion) and it was USD 780 million at the end of June in 2012 (the share of FDI stock of Britain has dropped to 13%). On the contrary, FDI stock of Australia has increased dramatically

2-30 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report since 2009 and it reached USD 603 million in 2012 from USD 1.7 million in 2009, which is ranked the third at the end of June in 2012(which occupies 10% share).

Table 2-17 Breakdown of FDI stock by country and industry in the top 10 countries Chemicals Textile Gas & Telecomm Agrigultur Metal and Bankin and Other and Petrole unicat Power Cement e and Food Machinery Fertilizer NBFI Total g Pharmace Sector Wearing um ion Fhishing Products uticals UK 121.9 16.9 450.3 0.0 0.0 0.0 55.2 44.0 78.6 0.5 0.0 5.3 7.8 780.4 USA 13.7 521.7 123.6 3.3 0.1 0.0 0.7 4.9 0.1 0.3 0.0 3.4 24.9 696.7 Australia 0.0 627.6 0.0 0.0 0.5 0.0 0.7 0.0 0.0 0.0 0.0 0.0 1.1 629.9 South Korea 302.9 0.0 57.0 0.0 7.6 0.0 0.4 17.4 0.1 0.1 0.0 0.0 50.9 436.5 Netherlands 55.9 0.0 1.1 0.0 204.6 28.4 0.0 35.5 8.4 0.0 3.6 0.0 87.2 424.7 Egypt 0.0 0.0 0.0 311.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 311.8 Singapore 64.2 0.0 0.0 129.0 6.4 29.4 0.0 5.1 2.2 0.5 0.0 8.2 33.1 278.1 Hong Kong 222.8 0.0 29.7 0.0 0.1 0.0 0.7 0.0 -0.4 0.0 0.0 0.0 15.8 268.7 Pakistan 8.1 0.0 166.7 0.0 0.0 0.0 0.2 0.8 0.0 74.8 0.0 0.0 2.1 252.7 Japan 73.4 0.0 0.0 44.1 0.0 0.0 1.2 10.4 2.5 2.6 45.4 0.0 51.3 230.7 Source：Bangladesh Bank (2012) Foreign Direct Investment Survey

The top 10 countries in terms of descending order at the end of June in 2012 are: Britain, the United States, Australia, South Korea, the Netherlands, Egypt, Singapore, Hong Kong, Pakistan and Japan. The highest FDI stock by country and industry is gas and oil industry by the United States (USD 522 million) and followed by banking industry by the United Kingdom (USD 450 million).

(4) Trend of investment by Japan As the figure below illustrates, Japanese FDI stock in Bangladesh had continuously decreased from 2000 to 2006 and then increased by approximately 2.5 times from USD 154 million in 2007 to USD 375 million in 2008. After then, it increased to USD 456 million as of the end of FY 2010, Japanese FDI stock in Bangladesh is still ranked the 10th (at the end of June in 2012) and thus, Japan can be considered as an important country in terms of FDI in Bangladesh. FDI stock from Japan by industry at the end of June in 2012 shows that garments and textile industry accounts for approximately 30%, agricultural chemicals for 20% and communication industry for 20% (Figure 2- ) .

Source：Bangladesh Bank (2012) Foreign Direct Investment Survey Figure 2-24 FDI stock from Japan (2000-2011)

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Source：Bangladesh Bank (2012) Foreign Direct Investment Survey Figure 2-25 Breakdown of FDI stock from Japan

2.3.3. Trade Trends

(1) Overview of Trade Policy and Trade Trend Bangladesh launched a wide-ranging trade reform strategy from the early 1990s. This included substantial reduction and rationalization of tariffs, removal of quantitative restrictions, move from multiple to a unified exchange rate system and an overall outward orientation of trade policy regime. The Ministry of Commerce is responsible for overall trade and commerce related activities including the delineation of trade policy in Bangladesh. The trade promotion policy has been developed in coordination with other related ministries and introduced in 2009. Under the trade promotion policy, the major objectives of this policy may be summarized as: the promotion of free-trade policy in conformity with the rules and regulations set by WTO and the phenomena of economic globalization taking in recent years; promotion of labor-intensive manufacturing industries and development of export-oriented commodities; development of higher-end quality products capitalizing on the most-modern technologies and designs; diversification of international markets; promotion of backward and forward linkage for the development of new products for Export, and so on. One of the related organizations under the Ministry of Commerce, the Export Promotion Bureau (EPB) is functioning as one of its implementation agencies. Export promotion programs contain project finance with a low interest rate, cash incentive, exemption of corporate tax, a bonded factory for prioritized industries. Regarding export policy, Export Policy Order 2012-2015 is enacted and under this existing Export Policy, there are ten (10) thrust sectors: agro-products, plastics, leather, pharmaceuticals, software and ICT, home textiles, ocean-going shipbuilding, furniture, terry towel, and tourism, for which such supports as provisions of concessional loans, Tax Relieves, Export Credits, Discount on Transportation Fees, Technical Supports, and others are extended. Among other things, in order to promote the export of textile and garments as the whole nation, the concessionary rate of duty has been applied for import of capital equipments and dyes and the import of cotton is exempted from taxation. Since garments are the main exported goods for Bangladesh, they are strategically promoted through various policies. Indeed the garment industry has been a driving force

2-32 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report for Bangladesh‟s growing economy due to foreign investment which has been made since the middle of 1980s to search for cheap labor costs and to all sorts of favourable duty arrangement set by the Multi Fiber Arrangement.

Source: the Japanese Embassy in Bangladesh (2013) General Survey of Economy in Bangladesh Figure 2-26 Trend of trade (2001-2012)

Table 2-18 Trade Balance (2005-2012) (predictive values in 2012) (in Million USD) FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 Trade Balance -3297 -2889 -3458 -5330 -4710 -5155 -7744 -7995 Export f.o.b. 8573 10412 12053 14151 15581 16233 22592 23992 (including EPZ) Import, f.o.b. 11870 13301 15511 19481 20291 21388 30336 31987 (including EPZ) Source：Ministry of Finance (2012) Economic Review 2012

Although the trade in Bangladesh was damaged to some extent from 2008 to 2009 due to the worldwide economic recession, it increased by 4 times from 2000 to 2012. The growth of export is smaller than that of import and the trade deficit has been increasing.

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(2) Trend of export by products and countries

Source：Bangladesh Bank (2011) Annual Report 2011-2012 Figure 2-27 Main exported commodities(2007and 2012)

Source：Bangladesh Bank (2011) Annual Report 2011-2012, Appendix 2, p.241. Figure 2-28 Main exported commodities(2007and 2012)

The total export of clothing items and knit garments account for more than 70% of all export items from 2007 to 2012. The amount of clothing items and knit garments in total has increased more than twice from USD 9.211 billion in 2007 to USD 19.089 billion in 2012. The third place was frozen shrimps and fish in 2007, but it is home-made textiles in 2012. Other main exported commodities are jute and jute products consistently, but the export of processed goods made of jute tends to increase as the table below shows.

Table 2-19 Main exported commodities, the trend of the total export (2007-2012) Million US Dollar FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 1. Raw jute 147.2 165.1 148.2 196.3 357.3 266.3 2. Jute goods (excluding carpet) 320.8 318.3 324.9 591.7 757.7 701.1 3. Tea 6.9 14.9 12.3 5.7 3.2 3.4

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Million US Dollar FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 4. Leather 266.1 284.4 178.2 226.1 297.8 330.2 5. Frozen shrimps and fish 515.3 534.1 455.6 437.4 611.3 579.8 6. Woven garments 4657.6 5167.3 5918.5 6013.4 8432.4 9603.3 7. Knitwear products 4553.6 5532.5 6427.3 6483.3 9482.1 9486.4 8. Fertiliser 125.1 91.3 107.5 38.6 39.5 17.6 9. Terry Towels 106 112.9 117.7 157.1 120.1 92.1 10. Others 1479.3 1890 1875 2055.1 2826.8 3207.5 Of which : Home textiles 257 291.4 313.5 539.3 788.8 906.1 Engineering products 236.9 219.7 181.3 311.1 309.6 375.5 Footwear 135.9 169.6 186.9 204.1 297.8 335.5 Ceramic tableware 30 38.3 31.7 30.8 37.6 33.8 Miscellaneous 819.5 1171 1161.6 969.8 1393.1 1556.6 Total export : 12177.9 14110.8 15565.2 16204.7 22928.2 24287.7 of which export from EPZ 1515.9 1729.5 1900.3 2150.5 2800.9 3425.5 Source：Export Promotion Bureau

Source：Ministry of Finance (2012) Economic Review 2012 Figure 2-29 Major Exporting Countries (2001)

Source：Ministry of Finance (2012) Economic Review 2012 Figure 2-30 Major Exporting Countries (2012)

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The country with the largest amount of the total export value both in 2001 and 2012 is theUS, followed by Germany, UK and France. The United States accounted for 40% in 2001, but the share of the United States has decreased to 20% in 2012. While the share of Germany, Britain and Canada has increased by 3%, 1% and 2% respectively, that of France and Japan has maintained the same level. On the other hand, the share of the total export in other countries which have not illustrated in the above figure has increased by 15%, which shows the Bangladesh‟s export destination countries have been diversified.

(3) Trend of import by products and countries

Source：Bangladesh Bank (2011) Annual Report 2011-2012 Figure 2-31 Main imported commodities (2007)

Source：Bangladesh Bank (2011) Annual Report 2011-2012., Appendix 2, p.242. Figure 2-32 Main imported commodities (2012)

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As far as import products to Bangladesh are concerned as the Figure above shows, the No. 1 imported category is the raw material for garments such as textiles and cotton products which accounted for 17% in 2012 and 18% in 2007. Next largest imported product is Petroleum products which accounted for 12%, followed by iron, steel and other base metal in 2012. Capital machinery accounted for 13% in 2007 but its share decreased to 6% in 2012.

Source：Ministry of Finance (2012) Economic Review 2012 Figure 2-33 Major importing countries (2000)

Source：Ministry of Finance (2012) Economic Review 2012 Figure 2-34 Major importing countries (2000)

The largest exporting country for Bangladesh was India in 2001, but it changed to China in 2007. The amount of imports from China increased by approximately 9 times from 2001 to 2011 and its share increased by more than twice from 8% to 18%. The amount of imports from India also increased by approximately 9 times during the same period, but its share remained almost the same (13% and 14% respectively). On the other hand, the amount of imports from Singapore and Japan increased by almost

2-37 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report twice (by 2.1 times from Singapore and by 1.7 times from Japan). The proportions from both countries decreased by almost half (from 9% to 5% from Singapore and from 9% to 4% from Japan) and the amount of imports from South Korea exceeded that from Japan in 2011.

(4) Trend of trade with Japan The Bangladesh‟s amount of total exports to Japan has been increasing significantly since 2009. It increased by approximately 1.9 times in 8 years from 2001 (USD 108 million) to 2009 (USD 203 million) and also jumped up by approximately 3 times in 3 years from 2009 to 2012 (USD 601 million). The main exported commodities to Japan in 2011 are, fiber and textiles (USD 275.7 million, 63.5%), other daily necessaries (shoes, umbrellas, etc) (USD 64.2 million, 14.8%) and leather goods (USD 46 million, 10.6%)

Source：Ministry of Finance (2012) Economic Review 2012 Figure 2-35 Total Export to Japan (2001-2012)

The amount of total imports from Japan has an upward tendency since 2004 and it has increased by approximately 2.7 times in 8 years from 2004 to 2012 (USD 552 million in 2004 and USD 1.456 million in 2012). The main imported commodities from Japan in 2012 are vessels and related equipments (USD 546 million, 34.7%), steel (USD 357.2 million, 24.5%), vehicles (USD 195.4 million, 13.3%) and nuclear reactors and boilers (USD 178.9 million, 12.3%).

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Source：Ministry of Finance (2012) Economic Review 2012 Figure 2-36 Total Import from Japan (2001-2012)

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Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

Chapter 3 Overview of the Current Legal and Regulatory System in Myanmar, Cambodia and Bangladesh

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

CHAPTER 3 Overview of the Current Legal and Regulatory System in Myanmar, Cambodia and Bangladesh 3.1. Overview of the Current Legal and Regulatory System in Myanmar 3.1.1. Overall Legal System

Myanmar has a legal system based on the common law. The “Burma Code”, consisting of 13 volumes written between 1841 and 1954, is the cornerstone of Myanmar‟s modern law. Despite the widely-recognized understanding that legal and regulatory system in Myanmar is based on the common law, a system of law derived from British legal system, the common law concepts have been negated by statutory laws in her legal developments between the mid-1960s and 1980s during the era of the socialist state. The common law revolves around the concept of precedents and a superior court‟s decision. The lack of judicial independence from 1962 onwards (from a socialist regime until the current regime took power) has been a serious impediment to the common law‟s use and operation. The majority of laws in commercial transaction remain unchanged from the “Burma Code”. When the country was back to a market economy system in 1988, a new injection to improve the stagnant economy during the socialist era was conducted to enact the State-Owned Economic Enterprises Law (1989), the Foreign Investment Law (1988) and the Myanmar Citizen Investment Law (1994). These Laws played the significant role in the country‟s economic development including industry‟s promotion based on Foreign Direct Investment (FDI). In the 1990s, Myanmar, crippled by the international sanctions, looked to a regional economic integration and became a member of the ASEAN in 1997. Significant legal changes were also brought by the country‟s membership to the WTO in 1995. The current regime, officially a civil one, has the task to rapidly reinforce its weak judicial system and provide sufficient law protection for foreign investors. The contemporary time, notably recognized as the country‟s transitional period of economic reform, is devoted to new law-making and amendment of old laws/regulations.

(1) Hierarchy of legal system The current hierarchy of laws and regulations in Myanmar is shown below: The Constitution The Constitution is the supreme law of the Republic of the Union of Myanmar. The 2008 Constitution acknowledges several levels of authority, that is, i) president, ii) the national parliament, and iii) the judicial courts. Independence of the judiciary stipulated in the Judicial Law (2000), was also guaranteed by the 2008 Constitution. Nevertheless such a safeguard is undermined by the extent of executive control over the judiciary.

Treaties and Convention ・ Concerned ministries (e.g. ministers) can sign MOUs, Treaties, and Convention if they are given full authority. There is no need to be ratified by the parliament and president.

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・ Otherwise, president shall sign and ratify international treaties, both multilateral and bilateral, and conventions, following approval of Pyithu Hluttaw (House of Representative) and Amyotha Hluttaw (House of Nationalities). After such ratification, international treaties and conventions shall become laws and may be used as the basis for judicial decisions. ・ Grant and loans for state-owned enterprises need approval from the parliament (the Budget Law 2013)

Laws Statutes are largely classified into those made by concerned ministries and those by legislature. Both laws are passed by the parliament.

Decrees Decrees are issued by president for executing his constitutional powers.

Ministered Orders Ministered orders are issued by members of the government in exercising their own regulatory authorities.

Decisions Individual decision of the president and decision of a Union Minister or a prime minister of region/state are used in exercising his own regulatory authorities.

Circular In general, circulars are issued by the president as the top of the government or by a Union minister as head of the ministry in order to explain or clarify certain legal/regulatory measures or to provide instructions.

Order of Region/State Orders of region/state are issued by prime minister of region/state within the geographical limits of his region/state.

(2) Legislation system 1. A law is drafted by a concerned ministry 2. Submitted to Attorney General‟s Office for a consultation 3. Sent to the President‟s Office 4. Submitted to the cabinet meeting 5. Submitted to Phithu Hluttaw (People‟s Parliament) 6. Examined at Phithu Hluttaw 7. Discussed in the law committee at Phithu Hluttaw

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8. Voted 9. Sent to Amyotha Hluttaw (National Parliament) 10. Examined at Amyotha Hluttaw 11. Discussed in the law committee at Amyotha Hluttaw 12. Voted 13. Sent to the President‟s Office for the president to sign, if approved (Remarks) * Process of 1 & 2, and 2 & 3 can be more than once. It will be continued until there are no more remarks and/or comments on the draft. * A draft can be examined at Amyotha Hluttaw first.

1. A law is drafted by a parliament 2. Submitted to Phithu Hluttaw (House of Nationalities) 3. Examined at Phithu Hluttaw 4. Discussed in the law committee at Phithu Hluttaw 5. Voted 6. Sent to Amyotha Hluttaw (national parliament) 7. Examined at Amyotha Hluttaw 8. Discussed in the law committee at Amyotha Hluttaw 9. Voted 10. Sent to the President‟s Office for the president to sign, if approved (Remarks) *During process 3, Attorney General‟s Office will be invited to the Parliament if needed * A draft can be examined at Amyotha Hluttaw first.

(3) Judicial system Under the Judicial Law (2000), Myanmar‟s judiciary comprises four tiers. Most cases begin in Township Courts (the lowest level) or District Courts, and decisions of these tribunals may be appealed to a High Court and ultimately to the Supreme Court which has original jurisdictions over certain matters. There is also a nine person Constitutional Tribunal, which addresses questions relating to interpretation and application of the Constitution.

3.1.2. Business Related Rules and Regulations

Myanmar is in transitional period in formulation of business related laws and regulations as the government implement the economic reform policy. Legal system governing foreign investments provided for a relatively open and liberal business environment even before the current regime, but political

3-3 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report considerations tended to dictate where the investment came from. Since 2011, the government has implemented an investment promotion policy, revising the old business law system and introducing new laws and regulations in all business sectors across the board, and in quick succession. Such a rapid transition has resulted in pockets of inconsistency between old and new legal systems and with laws and regulations of related sectors. Vertical structure linking the regulatory framework and business institutions still survives and there is not yet to have an effective centralized system to administer registration and licensing for all business establishments. While new laws grant the Ministry of National Planning and Economic Development a centralized authority, the line ministries still retain strong power over decision-making for each investment. A case in point is a lack of consensus among ministries on the common definition of enterprises in Myanmar. The Burma Companies Act (1914), imposed by the British authority in India to colonial Burma, and related rules and regulations, have no clear definition of enterprises, industries, and enterprise sizes.15 There is also no definition of Small and Medium Enterprises (SMEs), although medium, small, and micro sized manufacturing enterprises account for the half of total enterprises in Myanmar. As the formulation of business related laws and regulations is in the incipient stage, legal and regulatory frameworks in some sectors are still underdeveloped. This is particularly the case with service sector, which had been under government monopoly. Other sectors in need of further development include business registration, licensing, labor regulation, property registration, credit regulation, taxation, trade facilitation, dispute resolution, bankruptcy law and exit rules, etc. Therefore, the effective regulatory reforms in priority areas including policy-making are in order and will be a benefit to both domestic and foreign investors. Laws and regulations of particular business interest identified in the Study are mentioned in the table below.

Table 3-1 Business related major laws and regulations

Area Law/Act Rules/Regulation ・ Foreign Investment Rule-Ministry of National Planning and Economic Development Notification No.11/2013 The Foreign Investment Law(2012） (2013) ・ Myanmar Investment Commission Notification No.1/2013 (2013) The State-owned Economic Enterprises

1 Investment Law(1989) The Myanmar Special Economic Zone

Law/The Dawei Special Economic Zone Law The Burma Copyright Act(1914) Intellectual Property Right Law, including Trade Mark Law, Industrial Design Law, Patent Law, Copy Right Law(under drafting) The Burma Companies Act(1914) The Burma Company Rules(1940) 2 Company/Business The Special Company Act(1950) The Law Amending Income Tax Law(2011) 3 Taxation/Accounting The Auditor General Law(1948)

15 OECD, “Multi-dimensional Review of Myanmar”, OECD Development Pathways,2013,p.110

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Area Law/Act Rules/Regulation The Commercial Tax Law(1990) The Financial Institution of Myanmar Law(1990)(revision is under parliament process) The Foreign Exchange Management of The Foreign Exchange Management of Finance/Foreign Myanmar Law(2012) Myanmar Rule (under drafting) 4 exchange The Central Bank of Myanmar Law（2013) The Transfer of Immovable Property

restriction Act(1947) The Myanmar Securities Exchange

Law(2013) The Export / Import Rules and Regulations The Import / Export Law （2012） (2008) The (Importers and Exporters) Registration The Land Customs Act(1924) 5 Trade/Logistics Order (1954) The Customs Tariff Law (1992) The Sea Customs Act(1962)( revision is under

drafting) The Settlement Labor Dispute Law（2012） The Leave and Holiday Act(1951) The Factories Act(1951) 6 Labor Arbitration Act (1944) The Labor Organization Law(2011) Workman's Compensation Act(1923) The Registration of Foreigners Act (1940) The Registration of Foreigners Rules(1948) The Environmental Conservation Law(under The Environmental Impact Assessment (EIA) the assessment of the National Parliament) Rule(preparing) The Employment and Trading Act(1950) 7 Infrastructure/PPP The Electricity Act (1948) The Myanmar Electricity Law (1984) The Electricity Rules (1985) The Building Code (2013)

The Competition Law(under drafting) 8 Others The Consumer Protection Law(2013) Anti-Corruption Law(2013)

Source: JICA Study Team based on the survey from various sources

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(1) Investment (including incentives, limitation on foreign participation) Investment related laws and regulations The foreign investment framework of Myanmar comprises the following three main components: 1) Foreign investment regulation based on Myanmar Companies Act and other related laws and business procedures; 2) Foreign investment-preferential policy based on Foreign Investment Law; and 3) Foreign investment-preferential policy for foreign companies investing in Specialized Economic Zone based on SEZ law.

In the absence of any laws and regulations prohibiting foreign investment in Myanmar in general terms, foreign investors may invest freely in Myanmar in areas that are not regulated by the Myanmar Companies Act. Foreign investors may invest in the areas regulated by the Myanmar Companies Act to the extent allowed pursuant to the foreign invest-preferential policy identified in the above 2) and 3). Therefore, Foreign Investment Law and SEZ law not only provide preferential treatment to foreign investors but also facilitate access to areas where foreign investments are otherwise restricted due to traditional government policy16.

The Foreign Investment Law Myanmar government enacted the Foreign Investment Law in 1988 with a view to promoting foreign investment. After the transfer of the power from the military to a civilian government, the new regime introduced the open-market policy for foreign investors. The revised Foreign Investment Law enacted in 2012 extends the Foreign Investment Law in 1988 with additional concessions to foreign investors such as wider range of tax incentives and land leasing rights. Compared with foreign investment laws in other ASEAN countries, Myanmar‟s old and new laws are neither overly generous nor excessively restrictive17. The Foreign Investment Law (2012) provides the objectives of investment, basic principles, form of investment, establishment of Myanmar Investment Commission (MIC), commission‟s power, restricted and prohibited business, right to use land for investors, and remittance. Myanmar Investment Commission, which was established under the Foreign Investment Law, has power to authorize the granting of the investment permission to foreign and domestic investors. Investment may be allowed in regulated areas by MIC on case by case basis, even in the restricted and prohibited business.

Limitation for Foreign Participation The Foreign Investment Law has two relevant notifications; Foreign Investment Rules-Ministry of National Planning and Economic Development Notification No.11/2013 and Myanmar Investment Commission Notification No.1/2013. As far as the limitation for foreign participation is concerned, Foreign Investment Rules-Ministry of National Planning and Economic Development Notification No. 11/2013, pursuant to The Foreign Investment Law, stipulates that the maximum foreign investment capital ratio should not exceed 80 (eighty)

16 Study of Ministry of Justice, Japan, ” Foreign Investment Laws and Regulations in Myanmar”Chapter6, p.220 17 OECD, “Multi-dimensional Review of Myanmar”, OECD Development Pathways,2013,p.121,

3-6 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report percent of the total investment amount if the foreigner has formed joint-venture with the Myanmar citizen to carry out prohibited or restricted businesses. However, the types of prohibited or restricted business are not stipulated in the Notification, therefore it is unclear which prohibited or restricted business is subject to the limitation for foreign participation. Myanmar Investment Commission Notification No.1/2013, pursuant to Foreign Investment Law, provides 1) the List of Prohibited Economic Activities, 2) the List of Economic Activities allowed in the form of Joint Venture with Myanmar citizens and 3) the List of Economic Activities which shall be allowed under the specific circumstances, covering 237 business activities in total18. The following is the snapshot of the contents of the Notification: 1) The List of Prohibited Economic Activities stipulates 21 prohibited economic activities, including business related to natural resources, national security, and electric power, etc. 2) Foreign company is allowed to establish joint venture with local company in 42 economic activities on the List of Economic Activities allowed in the form of Joint Venture with Myanmar citizens. For example, manufacturing and marketing of products such as food and beverage, and chemicals, construction related to infrastructure including roads, subways, airports and ports, and establishment and sales of office or commercial buildings are allowed to establish joint venture. 3) The List of Economic Activities which shall be allowed under the specific circumstances includes three lists, a) The List of Economic Activities permitted with the recommendations of the relevant ministries, b) The List of Economic Activities permitted with other conditions, and c) The List of Economic Activities which required environmental impact access.

The first List, the List of Economic Activities permitted with the recommendations of the relevant ministries stipulates 115 economic activities, requiring the recommendations from 13 line ministries, such as: the Ministry of Agriculture and Irrigation, the Ministry of Livestock and Fisheries, the Ministry of Environmental Conservation and Forestry, the Ministry of Mines, the Ministry of Industry, the Ministry of Electricity, the Ministry of Transport, the Ministry of Communications and Information Technology, the Ministry of Energy, the Ministry of Health, the Ministry of Construction, the Ministry of Hotels and Tourism, and the Ministry of Information. The approval or recommendation from line ministry or specific conditions is required for each investment. For example, recommendation from the Ministry of Communications and Information Technology is required for network facilities services and network services. Implementation according to the specifications of ASEAN Mutual Recognition Arrangement (MRA) and Myanmar National Building Codes, Rules and Regulations is required for construction of factories. 100% of foreign participation in BOT system is allowed for establishment and lease of office or commercial buildings. The second List, the List of Economic Activities permitted with other conditions stipulates 27 economic activities with specific conditions for each investment. For example, the recommendation from Ministry of Commerce is required for wholesale trading. Small-sized trading is not allowed while supermarket, department store, shipping center are allowed for retailing trading. While small and

18 It can be understood that sectors not so stipulated in the Law are open to investment at 100% by foreign investors.

3-7 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report medium-sized warehouse are not allowed, at least 40% local investment is required in joint venture for warehouse trading. The third list, the List of Economic Activities which required environmental impact access stipulates 32 economic activities related to the Ministry of Environmental Conservation and Forestry.

Limitation for foreign participation by sectors Manufacturing In principle, 100 % participation is allowed. It is required to meet the conditions as prescribed in the Notification No.1/2013 on joint venture with local enterprise and other conditions.

Wholesale It is required to follow the Ministry of Commerce opinion under Notification No.1/2013. In fact, foreign enterprises have not been allowed to enter this area.

Retail Various conditions are required by notification. Investments in Small-sized retail sector as well as investment in the business in the vicinity of existing local enterprises are prohibited Notification No.1/2013. Language of regulation is ambiguous.

Transportation Myanmar must meet the ASEAN Integration standard by 2015. Under the arrangement, ASEAN enterprises are to be allowed up to 70% equity in their investment in Myanmar, stipulated in Notification No.1/2013. This rule in effect has already been put into practice, and it is likely to be extended to Non-ASEAN enterprises as well.

Construction As mentioned earlier, although construction business is permitted under the new Foreign Investment Law, its scope of service and conditions set under the law is not clear in terms of to what extent foreign construction companies can engage in construction business. In practice, the entry of foreign companies into local construction business prior to the enforcement of the Law had been under the permit of Myanmar Investment Commission. However, due to the uncertainty mentioned above, foreign construction companies began to seek to obtain “permit to trade” by DICA under the Burma Companies Act (1914) afterwards, but it seems that their businesses permitted are limited only to engineering services which cannot directly engage in construction services.

Real Estate Development Establishment and lease of office/commercial building is to be implemented with a 100% foreign investment if it is practiced under a BOT scheme according to Notification No. 1/2013.

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Finance Foreign investment‟s entry into banking and insurance sectors is prohibited. In banking sector, however, the easing of the regulation on foreign participation is being considered. Private investment has been allowed in insurance sector since 2013. (See 3.1.2, 4): Financial market and foreign currency). The Myanmar Special Economic Zone Law, Law No. 8/2011 under amendment is expected to include deregulation allowing foreign companies to enter into banking and insurance businesses inside special economic zones.

Limitation of Foreign Ownership Foreign enterprises are not allowed to own land and are only allowed to use or lease the land up to one year under the Transfer of Immovable Property Restriction Act. As an exception to this general rule, the government or private enterprises have the right to use or lease the land under the Foreign Investment Law.

(2) Company law/business license/accounting Process and transaction A foreign entity usually establishes its presence in Myanmar as a local subsidiary (limited liability company), a registered branch or a representative office of a company incorporated outside Myanmar. In many cases, manufacturing or service companies establish its presence in Myanmar, while representative office is allowed only to banking and insurance company. In the case of companies registered under the Myanmar Companies Act, USD150,000 of minimum investment will normally be required for a manufacturing company, and USD50,000 for a service company.

Local subsidiary All foreign investors must register their companies under Burma Companies Act, regardless of their MIC permission under the Foreign Investment Law. All foreign investors are required to apply for a permit to trade from the Directorate of Investment and Company Administration (DICA) and apply for registration with Companies Registration Office (CRO). In the case of application for the registration of foreign investment under FIL, obtaining a permit from MIC is required. Both application for MIC permit to MIC and application for permit to trade and company registration to DICA are handled simultaneously. (Figure 3-1)

Negotiation for land lease and document

for contract

Review land lease contract by Attorney general Office

Prepare application form (Form 1) and

Explanation to line ministry attached documents

Refer to line ministry Submission to MIC

Review by MIC 3-9

MIC permit issued Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

Source: KPMG, Myanmar Investment Guidebook 2013 Figure 3-1 Flow for MIC permit The process for obtaining a permit to trade includes: submission of the application form (Form A); review by DICA; and issuing of permit to trade by DICA. Total process is to be completed within 90 days. The permit needs to be renewed every 5 years. Temporary permit which is available for 6 months is issued within 1-2 days, after payment of registration fee. Once the temporary permit is issued, the investors are able to open the banking account and start business. Permanent permit is issued after payment of 50% of total minimum capital, provided that all required documents including recommendation letter from police19 are in order. (Figure 3-2) Company is treated as a foreign company even with only 1 % of foreign participation.

Process for Temporary Permit

Application for From A and attached documents Payment for DICA to issue temporary permit Registration Fee

Process for Permanent Permit

Explanation to line Review by DICA DICA to indicate the Investors to confirm and ministry business condition for agree with business permit to trade by DICA condition

営業許可条件の提示 Payment of 50% of Recommendation from relevant minimum foreign capital ministries

Payment for stamp duties

Company registration completed

Source: JICA Study Team based on interviews with DICA and Japanese firms Figure 3-2 Flow for Permit to trade and Company registration

Branch / Representative Offices Foreign company branch and representative offices are treated as Non-resident companies. USD50,000 minimum foreign capital is required. The process of establishment is the same as local subsidiary, but FIL does not apply to branch and representative offices.

19 The recommendation letter from Police, which is called “Police Report”, certificates the security system of the company‟s building.

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(3) Tax The Amending Income Tax Law revised in 2011 stipulates the definition of the corporate income tax, withholding tax, and personal income tax. Its related notifications regulate the details of transaction such as tax calculation and tax rate. In practice, however, some provisions of the revised Income Tax Law are not fully implemented. For example, the revised law introduced the progressive tax rate system for corporate income tax, but the deemed-taxation system still prevails. This not only creates problem for enterprises but also for the government, which suffers loss in collection of taxes. 1) The Corporate Income Tax Corporate tax payers are classified into resident companies and non-resident companies. Resident companies are taxed on a worldwide basis, non-resident companies are taxed on only on income derived from sources within Myanmar. Resident companies established under the Foreign Investment Law are not taxed on their foreign income. Corporate tax rates vary depending on the type of taxpayers and nature of income. Companies incorporated in Myanmar under the Burma Companies Act and Enterprises operating under the Foreign Investment Law are treated as resident companies, applied to 25% of income tax rate. Non-resident foreign organization such as a branch of foreign company is applied to 35% of corporate income tax rate. 10% capital gains tax is applied for resident companies, 40% for non-resident companies. The rate ranging from 40% to 50% will be applied on gains from the transfer of shares in an oil and gas company. No tax is levied on royalty.

Tax incentive Company established under the Foreign Investment Law which has obtained MIC permits can obtain special benefits and tax incentives including the exemption from corporate income tax for the period of 5 years from the commencement of production or provision of goods or services. Tax incentives under MIC permit are follows ・ Exemption from corporate income tax for 5 years for an enterprise engaged in the production of goods or services. ・ Exemption may be extended by the MIC for further period on case by case basis. ・ Exemption from corporate income tax on profits of the business that was kept in a reserve fund and was subsequently re-invested within 1 year after the reserve fund is established. ・ Accelerated depreciation of machinery, equipment, building or other capital assets used in the business at the rate fixed by the MIC.20 ・ Relief from corporate income tax of up to 50% of the profit gained from exported goods.21 ・ The right to pay income tax payable to the state on behalf of foreign employees and the right to deduct such payments from assessable income. 22

20 PWC, Myanmar Business Guide, August, 2012 21 PWC, Myanmar Business Guide, August, 2012 22 PWC, Myanmar Business Guide, August, 2012

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・ The right to deduct expenses incurred in Myanmar on research and development relating to the business of the enterprise from assessable income.23 ・ The right to carry forward and set off losses for up to three consecutive years from the year the loss is sustained.24 ・ Right to pay income tax on the income of the foreign employees at the rates applicable to citizens residing within the country. ・ Exemption or relief from customs duty or other internal taxes on machinery equipment, instruments, machinery components, spare parts and materials used in the business, and items which are imported and required to be used during the construction period of the business.25 ・ Exemption or relief from customs duty or other internal taxes on imported raw materials for the first three years of commercial production following the completion of construction.26 ・ Exemption or relief from customs duty or other internal taxes on machinery equipment, instruments, machinery components, spare parts and materials used in the business, and items which are imported and required to be used during the construction period of the business, in the case of additional investment. Exemption or relief from commercial taxes on production goods for export.

2) Personal Income Tax Foreigners who reside in Myanmar for at least 183 days during an income year (1st of April to 31st of March) are treated as resident foreigners; foreigners who reside in Myanmar for less than 183 days are treated as non-resident foreigners. Non-resident foreigners are taxed on all income derived from sources within Myanmar, Resident foreigners are taxed on all income irrespective of the source. Tax is levied on all employment income, including salary wages, annuity, pension, benefits in kind, gratuity, any fees, and commissions. Resident foreigners are applied to progressive rate from 0% to 20%. Non-resident foreigners are applied to rate of 35%.

3) Withholding Tax Any person making a payment for goods and services are required to withhold income tax on behalf of seller at the time of payments at the certain tax rate. Royalties for the use of licenses, trademarks, patent rights, etc. is levied tax at the rate of 15% for resident foreigners, 20% for non-resident foreigners. No tax is levied on interest for resident foreigner and foreign enterprises with MIC permit, 15% of tax is levied on interest for non-resident foreigners.

23 PWC, Myanmar Business Guide, August, 2012 24 PWC, Myanmar Business Guide, August, 2012 25 PWC, Myanmar Business Guide, August, 2012 26 PWC, Myanmar Business Guide, August, 2012

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4) Commercial Tax Commercial tax is levied on goods and services, similar to Value Added Tax (VAT), but it has not been expanded to the concept equivalent to VAT. The tax is imposed on a wide range of goods and services produced and provided within Myanmar and imported goods. Basic tax rate is 5 %, but progressive rate from 5% to 100% is imposed, depending on the nature of the goods and services regulated under the Commercial Tax Law. No commercial tax is imposed on dairy products.

5) Accounting/Audit system Myanmar has adopted the Myanmar Financial Reporting Standards (MFRS), comparable to International Financial Reporting Standards (IFRS). For SMEs, MFRS for SMEs, comparable to IFRS for SMEs has been adopted. A Japanese subsidiary or branch is considered as a SME and is required to prepare the financial statement in accordance with MFRS for SMEs. All enterprises are subject to audit by an independent Myanmar Certified Public Accountants (CPA) holder. The financial statements audited by a CPA holder are submitted to DICA, the concerned ministry, local tax office, and MIC (if the enterprise is permitted under MIC). Audit year is from 1st of April to 31st of March. However, some enterprises fail to follow the standard due in part to the limited number of Myanmar CPAs. The government needs to address the urgent task of capacity building for Myanmar CPAs.

(4) Financial market and foreign exchange 1) Transformation of foreign exchange rate regime The Myanmar government has been making efforts to modernize the country‟s developing financial sector in 2012 onwards. The Foreign Exchange Management Law (2012) was enacted in August 2012 under supervision of the Central Bank of Myanmar, which repealed the previous Foreign Exchange Regulation Act (1947). This Law removed all exchange restrictions and eliminates multiple currency practices. The Central Bank of Myanmar changed the country‟s exchange rate system from a fixed exchange rate system to a managed market exchange rate with the IMF‟s technical assistance. The fixed exchange rate regime was abandoned in April 2012. As of May 2013, the Central Bank licensed 9 banks of the country‟s 20 private banks to offer foreign currency accounts, which can be used to remit foreign exchange abroad. Some restrictions remain on opening such accounts, including documentation requirements showing that account holders earn a salary in foreign exchange. The 9 banks were also allowed to exchange the major currencies such as Euro, Singapore dollar, Thai Baht and Chinese Yuan.

2) The Central Bank as an autonomous body The Central Bank of Myanmar Law was amended in July 2013 (amendment of the Central Bank of Myanmar Law, 2013), giving the Central Bank an autonomous status, independent from the Ministry of Finance and Revenue. The Central Bank has been preparing the Foreign Exchange Management Rule in order to allow foreign companies to repatriate foreign currency converted from Kyat generated in current accounts (profit, interest payment, payment settlement for import) abroad without permission of the Bank.

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The Bank has been also preparing to amend the existing Financial Institution of Myanmar Law (1990) in order to adopt rules and regulations governing the country‟s central monetary authority based on technical assistance from the World Bank. These regulations may give foreign banks opportunity to participate in Myanmar‟s banking industry by allowing foreign banks to operate in Myanmar through joint ventures. The Bank has also become the authority to control the new capital market, i.e. security exchange based on the Myanmar Securities Exchange Law newly enacted (July 2013).

3) Two Tiers System The Foreign Investment Law (FIL) (2012) still regulates foreign companies approved by Myanmar Investment Commission (MIC) in terms of remittance of foreign currency abroad. MIC requests them to report MIC a remittance plan in advance and get permission of MIC at the time of remittance. It indicates MIC‟s power to control foreign companies approved by MIC and implicates two tiers of regulatory approach, that is, FIL and the Foreign Exchange Management of Myanmar Law administered by the Central Bank.

4) Controlled financial transactions Despite the recent deregulation of domestic financial market towards the 2015 ASEAN Economic Integration, the Central Bank still controls financial transactions of foreign companies in the areas of i) capital transfer, ii) payment settlement for import, and iii) funding from domestic banks and capital market. The Foreign Exchange Management of Myanmar Rule under drafting now may stipulate that the Bank monitors/ regulates capital transfer, and payment settlement for import is subject to requirements from other ministries. In Myanmar, foreign companies have not been allowed to have immovable properties due to the 1987 Transfer of Immovable Property Restriction Law. This implicates that foreign companies are not able to borrow Kyat from domestic banks because no collateral can be provided due to the restriction. The newly enacted Securities Exchange Law (July 2013) is ambiguous about investment in domestic capital market by foreign companies, which may conflict with “Myanmar companies purchasing even one stock of foreign companies are categorized as foreign companies” stipulated in the old Burma Companies Act (1914).

(5) Trade and logistics 1) Overview of trade-related Laws and Regulations The Ministry of Commerce puts its efforts in the trade liberalization with the following policies: ・ To realize export and import procedures; ・ To lower technical barriers to trade and simplify export/import procedures towards trade facilitation and promotion; ・ To issue trade notifications by specifying necessary rules in conformity with the changing internal and external business environment; and ・ To reactivate the role of the Union of Myanmar Federation of Chambers and Commerce Industry (UMFCCI) and reorganize the promotion of trade and industries of the private sector.

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To promote foreign trade, the new Export and Import Law was enacted in September 2012, which is amendment of the Control of Imports and Exports Temporary Act 1947. Currently, the Ministry of Commerce is preparing the rules and regulations and by-laws for the new law together with related ministries and the private sector. Until the new rules and regulations and by-laws are endorsed by the Myanmar government, the procedures, regulations, by-laws, notifications, orders and directives issued under the 1947 Control of Imports and Exports Temporary Act might be applied in so far as they are not contrary to the new Law.

Table 3-2 Legal Structure on Trade Structure Law, Orders, Regulations, etc. Remarks Basic Law for The Export and Import Law Amended from the Control of Export/Import (The Pyidaungsu Hluttaw Law No. 17/2012), 7th September Imports and Exports (Temporary) 2012 Act 1947 Export/Import Control The Export / Import Rules and Regulations (2008) Currently the Rules and Regulations for the new Law are being drafted. The (Importers and Exporters) Registration Order (1954) Customs Clearance The Tariff Law 1992 The Sea Customs Act and Land Customs Act Sea Customs Act No. 8 of 1878 (as amended up to Act 1962) Tax Tax Exemption Office Order No.121/2012, 15th March 2012 Source: JICA Study Team: MOC, JETRO, Interview, ASEAN web, WIPO web

2) Export and import procedure a) Export and import business registration In Myanmar, export/import procedure require three registrations namely a company registration, a business registration for export/import and a registration to be a member of UMFCCI to start export and import. These three registrations prior to an application to export/import licenses is indispensable process of export and import. b) Export and import licenses In principle, as of November 1, 2013, there are four categories for export and import goods in Myanmar as: a. Goods with no license requirement (593 items); b. Goods with automatic license (152 items for export, 166 items for import27); c. Goods with license requirement; and d. Prohibited goods for export and import Prior to the Notification No.16 which was issued in February 2013, exporters and importers are required to apply for import license for almost all the commodities at the Department of Commerce and Consumer

27 MOC has further issued Notification No.72 in September 2013 to inform specific 1,928 HS Code for these 166 import items.

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Affairs of the Ministry of Commerce (MOC) in Na Pyi Taw or its Yangon Regional Office. However, since Myanmar has committed to comply with ASEAN Import Licensing Procedure (AILP) by 2015, MOC is implementing further deregulation on import and export license. According to the official from MOC, the government will increase the commodities for the category a. above (No license requirement) to 2000 items by the end of 2013. Export licenses are valid for three months for shipping and 1 month for air transport. Export licenses for rice are only valid for two months. Import licenses are valid for three months. Before applying import licenses, it is required to open foreign currency accounts at foreign exchange banks. For settlement, importers need to open irrevocable L/C or make payment by T/T. Basically, only CIF contract is allowed for import in Myanmar and importers need to pay licenses fee along with CIF contract amount.

3) Customs clearance In Myanmar, Customs Department under the Ministry of Finance and Revenue is responsible for customs for export and import goods by sea and land. The customs procedures are provided in the Sea Customs Act (originally enacted in 1887 and amended in 1962) and the Land Customs Act (1924). Both Acts cover i) valuation of products, ii) a clearing procedure for export and import, iii) goods with prohibition, control and restrictions, iv) duty payment procedure, v) licenses and warehouses and vi) clearance for passengers. The Tariff Law (1992) was enacted with a view to assisting the market economy in order to facilitate external trade. In accordance with the law, notifications were issued to regulate the classification of imported goods and assessment of duties. For modernization and standardization in line with international practice, the Harmonized Commodity Description and Coding System was introduced in 1992.

4) Logistics In Myanmar, there are no laws and regulations relating to bonded warehouses. Towards the ASEAN Economic Community in 2015, logistic services will be increasingly demanded in the country. The country will firstly need bonded system comprising bonded warehouses and transportation services between the different bonded areas without customs clearance. The Customs department is reported to be amending the exiting Tariff Law (1992) in which bonded system is to be legislated.

(6) Labor 1) Overview of Labor Laws Labor laws in Myanmar, like most other laws, have not been developed for modern enterprises. There is no single employment law, instead pieces of laws including the Leave and Holiday Act (1951), the Factories Act (1951), the Workman‟s Compensation Act (1923), the Employment and Training Act (1950) and others, are used. The Ministry of Labor recently passed the new Laws, which were i) the Labor Organization Law (October 2011) providing a framework for labor unions in Myanmar, ii) the Settlement of Labor Dispute Law (March 2012) providing a framework for how to settle labor disputes and its procedure and the Minimum Wage Law (2013) /the Minimum Wages Rules (Notification N.64/2013) providing a policy and rule for the rights of workers relating to the minimum wages.

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2) Labor Organization Law The Labor Organization Law stipulates the three important regulations, which are i) severance pay: the amount the employer must pay at the time of the employee‟s retirement, ii) labor unions giving workers the right to organize based on technical assistance from the ILO, and iii) a maximum number of hours that employees can work before they are required to be paid overtime. In particular, labor union is to be highlighted because currently labor unions have almost no collective bargaining power. These workers do not bring in labor union representatives but instead choose leadership from among their own ranks to negotiate. These kinds of strikes have happened at factories owned by foreigners. Most of them have been settled within a short period of time with factory management who agreed to raise wages. Foreign investors looking to capitalize on the low cost of labor in Myanmar will need to understand that strikes may occur in the future and should draft a contingency plan to deal with such issues.

3) Settlement of Labor Dispute Law The Settlement of Labor Dispute Law is interpreted as the Myanmar version of labor dispute settlement involving the conciliation body to be formed by the region/state government and the arbitration body to be formed by the Ministry of Labor. This law is intended to reinforce the Labor Organization Law in respect of the bargaining power of labor union for dispute settlement. Other ASEAN countries organize a consolidated labor union by sector, i.e. mining, utility, manufacturing and services, but Myanmar is not at such stage of a consolidated labor union formation. Instead the country has to rely on the government support for labor dispute settlement. This system will have to be monitored in respect of enforcement.

4) Minimum Wage Law The Minimum Wage Law provides a framework of protecting the minimum wages of workers as their right by i) establishing the National Committee , ii) stipulating the rights of workers relating to the minimum wages, iii) articulating duties of employers.

5) Employment of labors The FIL(2012) (Article 24) stipulates that Myanmar skilled workers‟ ratio by foreign companies approved by MIC should be more than 25% of total skilled workers within two years, 50% within 4 years and 75% within 6 years. The same Article also requires that a 100% of unskilled labor should be Myanmar workers. This regulation is unclear for definition of skilled and unskilled labors.

(7) Infrastructure (including PPP) 1) Infrastructure development The government promulgated the Myanmar Special Economic Zone Law in January 2011. This Law provides the land use for foreign investors to develop the economy of the country by establishing and operating the Special Economic Zones. To date, a special SEZ Law has been enacted for only one zone in Myanmar, namely, Dawei Economic Zone under the Dawei Special Economic Zone Law.

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The 2012 Foreign Investment Law (FIL) allowed foreign companies to enter into a developer business of commercial/office buildings with a 100% equity contribution if foreign companies adopt a BOT scheme. Other infrastructure such as power facilities, airports, and ports are also the target of PPP. Nevertheless Myanmar has not yet developed PPP related legal framework.

2) Energy sector Myanmar‟s energy policy framework centers on (i) maintaining energy independence, (ii) promoting wider use of new and renewable energy sources, (iii) promoting energy efficiency and conservation, and (iv) promotion of the use of alternative fuels in households. Seven ministries are responsible for energy matters. The two main energy-related line ministries are the Ministry of Energy (overall energy policy and the oil and gas sector) and the Ministry of Electric Power (hydropower, coal-fired power generation, gas-fired power generation, mini-hydro, and power transmission and distribution). The government established the National Energy Management Committee and the Energy Development Committee in January 2013 to strengthen coordination among the seven ministries with a view to improving resource planning for and oversight of investment in energy sector development. The power sector in Myanmar is governed by the Electricity Act 1948 (as amended in 1967), the Myanmar Electricity Law (1984), and the Electricity Rules (1985). This legislation needs revision to reflect current international best practices in power sector governance, which is now technically assisted by the Norwegian government. There is also a pressing need to develop grid codes and model power purchase agreements for small and large power generation projects. These rules and draft models do not exist in Myanmar and will have to be based on current international best practices with appropriate guidelines and requirements to allow private independent power producers to connect with the Myanmar national grid. The power sector in Myanmar is currently under the responsibility of Ministry of Electric Power (MOEP). The Ministry is responsible for policy and oversight as well as regulation of the power sector; and is vested with all planning, operating, and management responsibilities for the sector. In the absence of a distinct regulatory framework to support the functional unbundling that will need to take place soon, the MOEP will need clear directions on how this could be achieved through a revised electricity law. It creates a framework for licensing and contracting for new projects, and establishes an electricity regulatory authority (ERA) to regulate tariffs and investment programs and oversee the introduction of technical codes and standards. Initially, the ERA will be a division or department within the MOEP. The electricity law is expected to serve as the foundation for the regulatory framework.

3) Environment Myanmar is now almost at the final stage of preparation of the basic law called the Environmental Conservation Law, which was passed by the Ministry of Environmental Conservation and Forestry in March 2012 and now under assessment of the National Parliament. The Ministry has the power to create “guidelines for environmental administration, conservation and promotion in different sectors which includes ozone layer protection, the conservation of biodiversity, marine costal conservation, the effort to reduce and balance global warming and climate change, the fight against the increase of desert and waste management. The Ministry is responsible for enforcement of the policies stipulated in the Law and monitoring of environmental assessment. The Ministry is also preparing the Environmental Impact Assessment (EIA) Rule.

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Both the Environmental Conservation Law and EIA Rule just stipulate regulations and duties of the Ministry. They are not guidelines so that most of projects financed by donors and international organizations have to be relied on their own guidelines. The fundamental constraints are lack of scope and criteria for assessment, absence of standard value to assess environmental impact and more importantly to what extent EIA is given significance for decision of project implementation. The large number of economic activities presented in 2012 FIL is subject to results of environmental assessment study. Absence of such an EIA guideline could undermine the rule of the FIL.

(8) Others The introduction of a nation-wide policy and law towards the ASEAN Economic Committee by 2015 is a prerequisite for the ASEAN member states. The less developed member states such as Cambodia and Myanmar have been in the absence of both consumer protection law and competition law. The Ministry of Commerce has just passed the drafting two Laws.

1) Consumer Protection Law Consumer protection is an essential tool in building up a people-oriented ASEAN Community. Consumer protection law ensures fair competition and the free flow of correct information in the marketplace. Consumer protection is a new area of regional cooperation. Myanmar has been a member state of the ASEAN Committee on Consumer Protection (ACCP) established in 2007. Before enactment of the draft Consumer Protection Law by the Ministry of Commerce in September 2013, the ACCP provided the ASEAN member states including Myanmar with policy measures and priority actions with specific timeframes for implementation. The Consumer Protection Law covers a wide range of issues; i) consumer redress, ii) product safety and liability, iii) competition, iv) labeling, v) professional services, vi) consumer credit, and vii) advertising. Enforcement of consumer protection is, for example, that foods locally manufactured and imported need to be checked and approved by the Food and Drug Administration (FDA) under the Ministry of Health. Nevertheless the Law was just passed without ample protection guideline and criteria to check and approve the quality of products and services. Further the agency in charge of enforcement will develop rules and guidelines.

2) Competition Law The prime reasons for introduction of competition laws within the ASEAN member states are i) to promote cross border co-operation and openness in their economies, and ii) bilateral and regional trade agreements consistent with the WTO policies to limit anti-competitive practices. One of the objectives of the ASEAN Economic Committee by 2015 is to create a competitive economic region which fosters a culture of fair competition. The draft Competition Law has been prepared by the Ministry of Commerce with 22 other related ministries. The Law is made in accordance with the 2007 ASEAN Economic Blueprint to incubate a culture of fair business competition for enhanced regional economic performance.

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3.1.3. Donors‟ Cooperation Programs for Regulatory Reform/Private Sector Development

Political climate has played a decisive role in donors‟ approach to assistance to Myanmar. As the military regime had long reign over the country, potential donor countries as well as international organizations had serious concerns for Myanmar‟s political situation which prevented them from extending economic cooperation to the country. This has dramatically changed due to the recent positive developments in Myanmar‟s political circumstance. After 2012, multinational organizations and western countries, which had suspended or restrained the cooperation during sanction, reevaluated their positions to support the Myanmar reforms. The international organization like World Bank and ADB restarted its programs. The program objectives are various, not only the humanitarian aid but also political and regulatory reforms and sector development programs. World Bank started the cooperation program of MM-Reengagement and Reform Support Program in 2013, which including improvement of the investment climate. Recently, ADB also operates 35 projects only in 2012 and 2013. These projects cover the business climate and regulatory reforms, including trade policy development, fiscal assistance program, and financial sector reform. The followings are summary of the relevant project from international donors and JICA. ADB Support for Improving the Business Climate The Project was approved on 16 July, 2012 with amount of USD225,000. Its overall impact is improved business climate. The expected outcome is more efficient, less costly registration and investment process through 1) company registry upgraded and 2) roundtable discussion completed. Support for Trade Policy Development The Project was approved on 16 July, 2012 with amount of USD225,000. Its overall impact is increased trade and investment flows. The expected outcome is improved tax and trade policy framework for doing business through 1) trade policy strengthened and 2) trade facilitation strengthened. Support for Financial Sector Reforms The Project was proposed with amount of USD1 million. Its overall impact is focused on improved financial sector intermediation. The expected outcome is strengthened institutional and policy framework for financial sector development through 1) CBM institutional and staff capacity strengthened support and 2) framework for financial inclusion enhanced. Institutional Strengthening of National Energy Management Committee in Energy Policy and Planning ・ Support for Myanmar's Reforms for Inclusive Growth ・ Capacity Development and Institutional Support ・ Improving Fiscal Revenue Mobilization IFC IFC established the Myanmar Office in Yangon in August, 2012. It conducts investment climate survey, compiles Doing Business report, and offers advisory service. Investment climate survey involves a perception survey done by IFC and World Bank, in which 1,500 Myanmar enterprises are asked to assess the regulations in the area of trade and investment transactions, taxation, labour, and infrastructure. This project

3-20 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report plays an important role in assessing the reality of business environment in Myanmar. IFC will also have prepared the report for financial sector mapping survey by June, 2014.28 IMF IMF provides the assistance for development of fiscal revenue system by dispatching the tax experts from IMF to the Central Bank of Myanmar.29

USAID also conducts a regulatory reform project.30

Japan changed its policy to initiate new cooperation program in response to the political developments in Myanmar. Japan operates various programs through JICA, with a view to supporting the improvement of legal and regulatory reform, basic human needs, including agricultural development, rural area development, poverty alleviation, capacity building and reform efforts to support democratic governance, and infrastructure development.

JICA The Project for Establishing Legal System in Myanmar31 On 22 August, 2013, JICA signed „the Record of Discussion‟ regarding „the Project for Establishing Legal System in Myanmar‟ with the Union Attorney General‟s Office (UAGO) and the Supreme Court of the Union (SC). The Project aims at institutional and human capacity development through improving skills in preparing bills and an enable environment for human resource development in Nay Pyi Taw and Yangon for 3 years in cooperation with the Union Attorney General‟s Office (UAGO) and the Supreme Court of the Union (SC). The Project for Infrastructure Development Project in Thilawa Area (Phase 1)32 The objective of the project is to promote inflow of foreign direct investment in Thilawa area by developing necessary infrastructure such as port, electric power, in the area, which contributes to the development as well as job creation in the Greater Yangon, hence contributes to the economic development of Myanmar. The Project for Dispatching of an Expert to the Ministry of Finance and Revenue, Myanmar33 The objective of the Project is modernization of customs, and support for development of cargo clearance system of Myanmar Customs. Technical assistance is provided through a Japanese customs expert sent to Myanmar customs for two years The Project for Cooperation for IPR sector34

28 Interview survey from IFC on 20th, September, 2013. 29 Interview survey from Ministry of Finance and Revenue on 18th, October, 2013. 30 Interview survey from IFC on 20th, September, 2013.. 31 JICA website, http://www.jica.go.jp/press/2013/20130822_02.html, 2013/11/20 32 JICA website, http://www.jica.go.jp/activities/schemes/jisshiyotei/, 2013/11/20 33 JICA website,http://gwweb.jica.go.jp/km/ProjectView.nsf/fd8d16591192018749256bf300087cfd/a03ca30198c6e33b492579a30079d ad4, 2013/11/20

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The objective of the project is to develop the IPR system in Myanmar. A Support Team for Organizing Myanmar development as well as job creation in the Greater Yangon, hence cont and officials from related ministries and agencies, provides the technical support. Taking advantage of Japan ministries and agencies intellectual property (IP) system, the project aims to encourage Japanese companies to expand their business in the country. Feasibility Study of Foreign Investment Promotion Plan35 The objective of the project is to support DICA to formulate the long term investment promotion plan under the National Comprehensive Development Plan (NCDP) in 2011-2031.

Other related projects: ・ ODA Feasibility Study for VAT Collection and Management System36 ・ The Project for Inviting the Chief Justice of the Supreme Court of the Republic of the Union of Myanmar to Japan37 ・ The Project for Development of ICT System for Central Banking38 ・ The Project for Advisors for Development of Legal System and Institution for Special Economic Zone39 ・ The Project for Strengthening of Securities Market Surveillance40 ・ The Project for Training Program for Government Officials in charge of SMEs Policies in Myanmar.41 ・ The Project for Basic Information Collecting for the Establishment of International Trade Training Institute of Ministry of Commerce.42

3.2. Overview of the Current Legal and Regulatory System in Cambodia 3.2.1. Overall Legal System Because Cambodia was previously ruled by France, the legal system in Cambodia had been following French legal system (Civil Law) even after its independence in 1954. Khmer Rouge in 1975, however, destroyed the Cambodian legal system by killing massive number of judges and lawyers.

34 METI website, http://www.meti.go.jp/english/press/2013/1002_04.html, 2013/11/20 35 JICA website, http://www.jica.go.jp/chotatsu/program/ku57pq00001g3nj2-att/20130731_g.pdf, 2013/11/20 36 MOFA, website, http://www.mofa.go.jp/mofaj/gaiko/oda/seisaku/kanmin/chusho_h24/pdfs/en_a12.pdf, 2013/11/20 37 MOFA website, http://www.mofa.go.jp/files/000006668.pdf, 2013/11/20 38 MOFA website, http://www.mofa.go.jp/files/000006668.pdf, 2013/11/20 39 MOFA website, http://www.mofa.go.jp/files/000006668.pdf, 2013/11/20 40 MOFA website, http://www.mofa.go.jp/files/000006668.pdf, 2013/11/20 41 MOFA website, http://www.mofa.go.jp/files/000006668.pdf, 2013/11/20 42 MOFA website, http://www.mofa.go.jp/files/000006668.pdf, 2013/11/20

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Since the newly-born Kingdom of Cambodia in 1993, the RGC, with assistance from international organizations and other donor countries, has been developing a judicial and legal system along with the introduction of democracy and free market economy in the country. Currently, Cambodia developed most of the business related basic laws, including Investment Law, Commercial Enterprise Law, Labor Law, Taxation Law, Accounting Law, Land Law, Factory Management Law, Civil Code, and Code of Civil Procedure. The current Cambodian legal system can be characterized as a mixture of Japanese law, French law and Common law because of various projects on the development of the judicial and legal system implemented by various donors.

(1) Hierarchy of legal system In the current legal system in Cambodia, the hierarchy of laws and regulations is understood as shown in the table below. Table 3-3 Legal Hierarchy in Cambodia 1) The Constitution: The Supreme Law of the Kingdom of Cambodia 2) Treaties and Convention: According to Article 26 of the Constitution, the King shall sign and ratify international treaties, both multilateral and bilateral, and conventions, following the approval of the National Assembly and Senate. After such ratification, international treaties and conventions shall become laws and may be used as the basis for judicial decisions. 3) Laws (Chhbab): Laws adopted by the National Assembly 4) Royal Kram (Preah Reach Kram) and Royal Decree (Preah Reach Kret): To be issued under the name of the King for executing his constitutional powers 5) Sub-Decree (Anu-Kret): To be signed by the Prime Minister after adoption by the Council of Ministers‟ Meeting. In case the sub-decree has not been adopted by the Council of Ministers‟ Meeting, countersignature by the Minister(s) in charge shall be required. The Prime Minister can use this in exercising his own regulatory powers. 6) Ministerial Order (Prakas): To be issued by members of the government, usually the minister, in exercising their own regulatory powers. 7) Decision (Sechkdei Samrech): Individual decision of the Prime Minister and Decision (Prakas-Deika) of a Minister or a Governor, which is used in exercising his own regulatory powers. 8) Circular (Sarachor): In general, to be issued by the Prime Minister as head of government, and by a minister as an official of the ministry either to explain or clarify certain legal regulatory measures or to provide instructions 9) Provincial Deka (Arrete): To be used by a provincial governor within the geographical limits of his province

Source: Cambodia Investment Guidebook (2013)

(2) Legislation system The process of legislation by the National Assembly is shown in the flow chart below. After the adoption by the National Assembly, the Senate reviews the law, followed by the Royal Kram of the King to promulgate the Law. The preliminary review can be undertaken by a Private Sector Working Group, the Judicial Council and the Economic, Social and Cultural Council before the draft law is sent to the Council of Ministers for examination.

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Submission of Decision by draft law to Law drafting the Cabinet Examination inter-ministerial Vote on meeting the adoption

Reviewing Commission National Assembly

Submission of Submission of Examination Vote on draft law to the the ratification law to the King for Senate signature

Senate

Source: Cambodia Investment Guidebook (2013) Figure 3-3 Process of Legislation by Member of National Assembly

(3) Judicial system The 1993 constitution, amended in 1999 by NS/KRM/0399/01, defines the organization, authorities, and functions of the judiciary under the Article 128-135. Article 128 defines the judicial power as an independent power, which guarantees and upholds impartiality and protects the rights and freedoms of citizens. Also, the judiciary has jurisdiction over all lawsuits, including administrative ones and the authority of the judiciary is granted to the Supreme Court and to the lower courts of all sectors and levels (Article 128). Trials are conducted in the name of Cambodian people in accordance with the legal procedures and laws in force. The Constitution also states that only a judge has the rights to adjudicate and fulfills his duty with strict respect for the laws, wholeheartedly, and conscientiously (Article 129).

1) Supreme Council of the Magistracy In addition, Article 132-134 of the Constitution defines the King as the guarantor of the independence of the judiciary. To assist the King in this matter, the Supreme Council of Magistracy was established in 1994 (Law on the Organization and Function of the Supreme Council of Magistracy). It is composed of one Chairman (the King of Cambodia), five members (Minister of Justice, Chief of Supreme Court, General Prosecutor of Supreme Court, Chief of Appeal Court, General Prosecutor of Appeal Court), and 3 judges elected by the judges. According to the Law on the Organization and Function of the Supreme Council of Magistracy in 1994, the mission of the Supreme Council of Magistracy is to guarantee the independence of the judiciary, to maintain the discipline of judges, and to assure the good functioning of the courts of the Kingdom of Cambodia (Article 1). Its main functions are: i) to suggest and make recommendations on any proposed bills or draft laws pertaining to the organization and the functioning of the judiciary; ii) to decide and raise its recommendation to His Majesty the King about the appointments, transfers, disruptions from actual service, suspensions, demotions, and promotions for all judges and prosecutors; and iii) to meet and act as a Disciplinary Council for matters involving disciplinary actions to be taken

3-24 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report against the judges and/or prosecutors, under the Chairmanship of the Chief of the Supreme Court or the General Prosecutor to the Supreme Court, depending on whether such disciplinary actions involve judges or prosecutors (Article 10-12).

2) Courts According to the Royal Kram on the Organization of the Courts in 1993, adjudicate courts of the State of Cambodia consists of four types of courts; namely, provincial and municipal courts, military courts, appeals court, and the Supreme Court as illustrated below.

Supreme Court

Higher Courts

Appeals Court

Provincial and Municipal Military Court Lower Courts Court

Source: Royal Kram on the Organization of the Courts (1993) Figure 3-4 Structure of Courts

Provincial and municipal courts and military courts are lower adjudicating courts. Provincial and municipal courts are located in the provinces and municipalities, and have their jurisdictional competence, which is extended only to the territory of each of those provinces. They have competence to proceed with trials and to open access for appeals in all criminal, civil, commercial cases, and litigation of administrative or labor cases. Provincial and municipal courts consist of a chief judge/president, deputy chief judge/deputy president and judges, who are appointed to fulfill function, transferred, promoted or demoted by a Sub-decree (Anu-Kret), following the request of the Minister of Justice. Military courts are only located in the municipality Phnom Penh, and have their jurisdictional competence of the whole territory of the State of Cambodia. The procedure of the military court is the same as that of the provincial and municipal court. However, it is subjected to appeals only for those cases of military offenses. Military offenses are those committed by military members in the army and which concern military discipline or effect the properties of military armed forces. In cases where a military member committed a normal criminal offence, he/she shall be prosecuted by the provincial/municipal court. Appeals courts and the Supreme Court are higher courts. They are located in the Municipality of Phnom Penh and have their jurisdictional competence for the whole territory of the State of Cambodia. The Appeals Court has competence to proceed hearings of appeal complaints against judgments of the

3-25 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report provincial and municipal courts and military court. It has a Chief judge/ President of the Court, a Deputy chief judge/deputy president and judges, who are appointed to perform functions, transferred, promoted or demoted by Sub-decree (Anu-Kret), following a request from the Minister of Justice. The Supreme Court has competence to proceed hearings on appeal complaints against judgments of the Appeals Court by considering only on erroneous law but not matters of facts. The Supreme Court consists of a Chief Judge/President of the Court, deputy chief judge/deputy president and judges. In lawsuits where there is an appeal complaint submitted, however, such court proceeds with a hearing in joint groups, by considering at the same time both the erroneous nature of a law as well as facts. Composition, when in the hearing of the Supreme Court, consists of 5 judges, one of whom is the president. In case of proceedings with a hearing in joint groups, the composition of this court consists of 9 judges, in which one is president. Revision complaints may be made against judgments (of the lower courts) or final judgments of the Appeals Court that have already had authority. Royal Kram on the Statutes of the Profession of Lawyer in 1995 determines mainly two gateways to enter the legal profession in Cambodia. One is through the training at the Center for Training of the Legal Profession and the other is through two years of work experience in the legal field (Article 31 and 32).

3.2.2. Business Related Rules and Regulations After its independence in 1993, the Kingdom of Cambodia gradually developed business related laws and regulations. Especially after the accession to WTO in 2004, the RGC has been putting emphasis on updating laws and regulations and introducing new ones in the field of investment, trade, and business in order to comply with WTO regulations and to keep its promises. Currently, Cambodia developed most of the business related basic laws, including Investment Law, Commercial Enterprise Law, Labor Law, Taxation Law, Accounting Law, Land Law, Factory Management Law, Civil Code, and Code of Civil Procedure. Major laws and regulations are shown in the table below.

Table 3-4 Laws and Regulations Relevant to Business Environments Names of Laws and Regulations Enactment Date Investment (including incentives, limitation on foreign participation) Law on the Investment in the Kingdom of Cambodia August 1994 Law on the Amendment to the Law on Investment March 2003 Sub-Decree No.111 on the Implementation of the Amendment to the Law on Investment September 2005 Sub-Decree #148 on the Establishment and Management of the Special Economic Zone December 2005 Sub-Decree #147 on the Organization and Functioning of the CDC December 2005 Company law/Business license Law Bearing on the Commercial Regulations and Commercial Register 1995 Law on the Amendments of the Law on the Commercial Regulations and Commercial Register 1999 Law on Commercial Arbitration 2006 Law on Commercial Enterprises 2006 Law on Management of Factories and Handicrafts 2006 Law on Insolvency December 2007 Law on Standards June 2007 Law on Secured Transactions June 2007 Law Concerning Marks, Trade Names and Acts of unfair Competition February 2002

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Names of Laws and Regulations Enactment Date Tax/Accounting Law on Taxation 1997 Law on the Amendment to the Law on Taxation March 2003 Prakas on Functioning of Tax Department 2005 Prakas on the Tax on Profit (Amended) 2003 Prakas #3841 (MEF) on VAT Exemption for the Investors in the SEZ July 2009 Law on Corporate Accounting, Audit and Accounting Profession July 2002 Sub-Decree on the Kampuchea Institute of Certified Public Accountants and Auditors 2003 Sub-Decree on the Functioning of the National Accounting Council 2003 Financial market and foreign exchange Law on Banking and Financial Institutions 1999 Law on Foreign Exchange 1997 Law on Financial Lease June 2009 Law on the Issuance and Trading of Non-government Securities October 2007 Law on Combating Money Laundering and Terrorist Financing June 2007 Law on State Securities/Bonds January 2007 Trade and logistics Law on Customs July 2007 Prakas #288 (MEF) on Authorization to Use Schedule for Reducing Import Goods of Cambodia under March 2011 the ASEAN Trade in Goods Agreement Prakas #001 MOC/SM 2011 (MOC) on Modification of Certificate of Origin (CO) Issuance Procedure January 2011 Prakas #734 (MEF) on Special Customs Procedures for Implementing in Special Economic Zones September 2008 Prakas # 131 (MAFF) on Procedure for Inspecting Sanitation of slaughterhouses, animals, meat and April 2010 animal products. Sub-Decree on Sanitary Inspection of Animals and Animal Products 2002 Prakas #346 (MAFF) on Procedure for Plant Quarantine Inspection May 2010 Labor Law on Labor March 1997 Law on Amendment to Articles 139 and 144 of the Labor Law July 2007 Law on the Protection and the Promotion of the Rights of Persons with Disabilities August 2009 Sub-Decree #136 (RGC) on Adjustment to Commission for Solving Issues Related to All Strikes and September 2012 Demonstrations Sub-Decree # 16 (RGC ) on Creation of National Social Security Fund March 2007 Prakas #413 on Work Permit and Employment Card for Foreign Workers March 2005 Prakas #169 MoSALVY on Employment of Foreign Workers July 2001 Infrastructure/Energy/Environment (including PPP) Law on Land 2001 Law on Concession October 2007 Law on Expropriation 2010 Law on Water Resource Management June 2007 Law on Electricity 2001 Law on Civil Aviation 2008 Sub-Decree #126 on Management and Use of Co-owned Buildings 2009 Sub-Decree on the State Land Management 2005 Sub-Decree #146 on Economic Land Concessions December 2005 Law on Environment Protection and Natural Resource Management 1997 Sub-Decree #72 on the Environment Impact Assessment Process 1999 Others (consumer protection, competition etc) Law on Marks, Trade Names and Acts of Unfair Competition 2002 Law on Copyright and Related Right 2003 Law on the Patents, Utility Model Certificates and Industrial Design 2003 Law on the Implementation of the Civil Code 2011 Law on Amendment to Law on Anti-Corruption 2011 Law on Anti-Corruption 2010

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Source: JICA Study Team based on research from various sources

(1) Investment (including incentives and limitations on foreign participation) Laws and regulations governing FDI in Cambodia are basically designed to encourage investment. As the Law on Investment stipulates, FDIs are treated in a non-discriminatory manner except for land-ownership, which is limited by the Constitution, and allowed to invest freely in many areas. The investment license scheme was originally regulated by the “Law on Investment”, which was promulgated in August 1994. In March 2003, in order to make the licensing schemes simpler and more transparent, predictable, automatic and non-discretional, the original Law on Investment was amended substantially by the current “Law on the Amendment to the Law on Investment In Cambodia, FDI is free to be implemented except in those areas listed in Section 1 of ANNEX 1 (Negative List) of the Sub-Decree No. 111 on the Implementation of the Law on the Amendment to the Law on Investment, which are prohibited for both Cambodian and Foreign investors. An investment need only be registered at the Ministry of Commerce and obtain relevant operating permits. However, if foreign investors seek investment guarantees and/or incentives, they have to apply for the investment approval which would be approved by the Council for the Development Cambodia (CDC) or the Provincial-Municipal Investment Sub-Committee (PMIS). The investment approval is called a “Qualified Investment Project (QIP)” since the approval will be issued not to an investor or investing enterprise but to a project. The Figure 3-3 illustrates the application flow of QIP. If a company wants to invest outside of a Special Economic Zone (SEZ), the Cambodian Investment Board (CIB) under the CDC becomes the main point of contact. If a company wants to invest in a SEZ, Cambodian Special Economic Zone Board (CSEZB) becomes the point of contact. The application forms and fees are the same regardless of investment inside or outside of SEZs.43 After the submission of a QIP application, the applicant (investor) will receive a Conditional Registration Certificate (CRC) issued by CIB or CSEZB within three working days. Final Registration Certificate (FRC) is provided after completing all the procedures for necessary approvals and licenses listed below and the investor will then be allowed to start its operation.

 Ministry of Commerce (MOC) : registration certificate  General Department of Taxation (GDT): tax registration certificate, corporate tax holiday certificate  Ministry of Industry, Mining and Energy (MIME): start of operation approval  General Department of Customs and Excise (GDCE) : import tax holiday certificate  Ministry of Land Management, Urban Planning and Construction (MLMUPC): factory construction approval  Ministry of Environment (MOE): environmental acceptability certificate  Ministry of Labor and Vocational Training (MLVT) : work registration

43 In the case of investment which amounts less than USD 2 million, the Provincial-Municipal Investment Sub-Committee (PMIS) in each province will become the point of contact.

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Decide to penetrate the Cambodian Market

Invest within SEZs Invest outside of SEZs

Apply incentives Not apply for incentives

CSEZB CIB MOC

CRC (3 working days) CRC (3 working days)

FRC (28 working days) Company registration

Construction of a factory

Start of production

Source: Cambodia Investment Guidebook (2013) Figure 3-5 QIP Application Flow

However, the CDC shall submit for the approval of the Council of Ministers any of the following investment projects (Article 11, “Sub-Decree No.147 on the Organization and Functioning of the Council for the Development of Cambodia”).

 Capital investment of USD 50 million and above  Politically sensitive issues  Exploration and the exploitation of mineral and natural resources  Possible negative impact on the environment  Long-term development strategy  Infrastructure projects such as projects on the basis of Build-Own-Transfer (BOT), Build-Own-Operate-Transfer (BOOT), Build-Own-Operate (BOO) or Build-Lease-Transfer (BLT)

The following investment incentives are provided to QIPs. ① Profit tax exemption or Application of special depreciation Profit tax exemption (Selective): “Trigger period + 3 years + Priority Period” (Maximum total 9 years) Trigger Period (Maximum 3 years): Commencing on the issuance of the Final Registration Certificate and ending on the last day of the taxation year immediately preceding the earlier of: (a) if the QIP derives a profit, the taxation year that the profit is first derived; and (b) if the QIP derives income from the Investment Activity in respect of the sale of goods or services, the third taxation year after the taxation year in which the income is first derived.

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Priority Period (Maximum 3 years): To be determined according to the type of project and investment capital as shown below. A. Investment Project in Light Industry: - Investment capital amount below USD 5million: 0 year - Investment capital amount between USD 5million and USD 20miilion: 1 year - Investment capital amount more than USD 20miilion: 2 years B. Investment Project in Heavy Industry - Investment capital amount below USD 50million: 2 years - Investment capital more than USD 50million: 3 years C. Investment Project in Heavy Industry - Investment capital amount below USD 50million: 2 years - Investment capital more than USD 50million: 3 years D. Investment Project in Tourism Industry - Investment capital amount below USD 10million: 0 years - Investment capital more than USD 10million: 1 year E. Investment Project in Agriculture and Agro-industry - Short cycle agriculture project: 1 year - Long cycle agriculture project; 2 years F. Investment Project in Backbone Infrastructure - Investment capital amount below USD 10million: 1 year - Investment capital amount between USD 10million and US$30miilion: 2 years - Investment capital amount more than USD 30miilion: 3 years Special depreciation (Selective) 40% special depreciation allowance on the value of the new or used tangible properties used in the production or processing. Source: Cambodia Investment Guidebook (2013)

② Duty free import of production equipment, construction materials, etc. as shown below:

Domestically oriented QIPs Production equipment, construction materials and production input to be used in the production of exports goods Export oriented QIPs (except those which Production equipment, construction materials, raw materials, elect or which have elected to use the intermediate goods and accessories Customs Manufacturing Bonded Warehouse mechanism) Supporting Industry QIPs Production equipment, construction materials, raw materials, intermediate goods and production input accessories. In the case where the Supporting Industry QIP fails to supply 100% of its manufactured products to the export industry or directly export its products, the QIP shall pay the customs duties and taxes on production inputs for the quantity that has not been supplied to the export industry or directly exported

③ Exemption of export tax except for activities as stipulated in laws in effect ④ VAT exemption for QIP in SEZs Export oriented QIPs VAT exemption for Production equipment, construction materials and raw materials Domestically oriented QIPs VAT exemption for Production equipment and construction materials

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(2) Company law/business license The “Law Bearing upon Commercial Regulations and the Commercial Register” was first enacted in May 1995 and modified in November 1999. This law defines the meaning of “Merchant”, “Trade”, “Trading Activities”, etc. and stipulates the obligation of the companies, including the foreign business, to register and the procedures of commercial registration. The “Law on Commercial Enterprise” was adopted by the National Assembly on April 26, 2005, and promulgated on May 19, 2005, as the first comprehensive company law in Cambodia. There are mainly 3 forms for a foreign company to conduct business in Cambodia and each procedure to obtain an approval from RGC is summarized as follows:

Table 3-5 Forms of conducting business in Cambodia and its procedure 1. Subsidiary Activities allowed to be It continuously maintains a registered office and a registered agent, who is a legally competent undertaken natural person in Cambodia. The Law on Commercial Enterprise allows either: i) Private Limited Company (No public issue of stock, limited transfer of stock, and 2-30 shareholders); or ii) Public Limited Company limited company with approval for the public issue of stock). Also the law defines the minimum amount of capital as Riel 400 million (equivalent to USD 1,000). Point of contact The business registration office of MOC (for investment applications without any incentives) Necessary documents i) Registration application forms (A, A.2, and A.3) ii) Corporate charter (with certificate of English translation) iii) Police clearance (sign on a certain form) iv) Copy of passport v) Three photos of the representative vi) Bank certificate (to check the amount of deposit of capitals) Days to be approved 5 working days Other necessary Before submitting necessary documents, a company is required to complete the procedures, procedures namely verification and reservation of its company name, opening of banking account, and payment of capital. After obtaining an approval, registration for tax and VAT should be done at the tax authority. 2. Branch Activities allowed to be A branch may regularly buy and sell goods and services and engage in manufacturing, processing undertaken and construction as a local enterprise as long as it does not perform acts prohibited by law to a foreign physical or legal person. Like a local enterprise, a branch is liable to taxation (corporate tax rate is 20%), but the principal shall be liable for any obligation of the branch. Point of contact The business registration office of MOC Necessary documents i) Registration application forms (E, E.2, and E.3) ii) Corporate charter (translated in Khmer) iii) Business registration license in English (authentication at a notary office is required) iv) Original letter of appointment as a representative issued by the headquarter in Japan v) Copy of passport vi) Three photos of the representative vii) Copy of contract of office lease Days to be approved 5 working days Other necessary After obtaining the approval, tax registration at the Tax authority is required. procedures 3. Representative office Activities allowed to be A representative office of a foreign company is registered as a commercial representative office undertaken or commercial relations office. It may not regularly buy or sell goods, perform services or engage in manufacturing, processing or construction in Cambodia. The following acts can be performed in Cambodia:  Contact customers for the purpose of introducing customers to its principal  Research commercial information and provide the information to its principal  Conduct market research

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 Market goods at trade fairs and exhibit samples and goods in its office or at trade fairs  Buy and keep a quantity of goods for the purpose of trade fairs  Rent an office and employ local staff  Enter into contracts with local customers on behalf of the principal Point of contact The business registration office of MOC Necessary documents * Same as the documents needed to set up a branch. i) Registration application forms (E, E.2, and E.3) ii) Corporate charter (translated in Khmer) iii) Business registration license in English (authentication at a notary office is required) iv) Original letter of appointment as a representative issued by the headquarter in Japan v) Copy of passport vi) Three photos of the representative vii) Copy of contract of office lease Days to be approved 5 working days Other necessary After obtaining the approval, tax registration at the Tax authority is required. procedures Source: Comparison of Business Environments in Emerging Countries in Asia (2013, JETRO)

(3) Tax/Accounting

1) Tax The current taxation scheme of Cambodia is regulated by the Law on the Amendment to the Law on Taxation of 2003 (2003 Law on Taxation). The assessment of the Tax on Profit is made according to the taxation system of the real regime, simplified regime or estimated regime. The tax payers‟ regime is determined according to the form of the company, type of business activities and the level of turnover (Article 4, Law on Taxation). The table below shows the current taxes levied in Cambodia, a brief explanation of them, and their rates.

Table 3-6 Tax Scheme of Cambodia Tax Rates Profit Tax (Article 1 – 23, Chapter 1)  For legal person 20% (unless investment incentive rate of 9% or 0% are applied)  Oil and natural gas production sharing contract and the exploitation of natural 30% resource including timber, ore, gold, and precious stones.  Advance Tax on Dividend Distributions (Additional Profit Tax shall be paid 20/100: QIP of 0% Tax Rate upon the distribution of retained earnings or annual profit after tax if a firm 11/91: QIP of 9% Tax Rate distributes retained earnings or profit the in the amount of: 0: Firms of 20% Tax Rate Minimum Tax (Article 24, Chapter 1)  To be applied only for the real regime, except QIP 1% of annual turnover  If the profit tax amount exceeds 1% of annual turnover, the taxpayer pays only the tax on profit. Withholding Tax (Article 25 – 28, Chapter 1)  Income received by individuals for services such as management, consulting, 15% etc.  Payment of royalties for intangibles and interests in mineral resources  Payment of interest by a resident taxpayer carrying on business, other than domestic banks or financial institutions  Income from the rental of movable or immovable property 10%  Interest payment by domestic banks to residents with fixed term deposit account 6%  Interest payment by domestic banks to residents with non-fixed term deposit 4% account

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Tax Rates  Payment to non-residents : Interest, royalties, rent and other income connected 14% with the use of property, dividends, payment for management or technical services Tax on Salary (Article 40 – 54, Chapter 2) To be withheld monthly by employers  0 Riels – 500,000 Riels (Approx. USD 125 or less) 0%  500,001 Riels – 1,250,000 Riels (Over 125 - 312.5) 5%  1,250,001 Riels – 8,500,000 Riels (Over 312.5 - 2,215) 10%  8,500,001 Riels – 12,500,000 Riels (2,215 - 3,125) 15%  Over 12,500,000 Riels (Over 3,125) 20%  For fringe benefits 20% on market value  Non-residents Flat rate of 20% Value Added Tax (Article 55 – 84, Chapter 3)  Taxable person: Any person subject to the real regime system  Registration: All companies must complete registration for VAT before commencing business. Others must register within 30 days after their taxable turnover for the preceding consecutive three months exceeds; - 125 million Riel for goods - 60 million Riel for services  Taxable supply: - Supply of goods or services by a taxable person in Cambodia - Appropriation of goods for his own use by a taxable person - Making of a gift or supply at below cost of goods or services - Import of goods into Cambodia  Standard tax rate 10%  Tax rate for the goods exported from Cambodia and services executed outside 0% of Cambodia  Input tax credit is deductible against the output tax amount.  Monthly filing: The VAT declaration must be submitted on or before the 20th day of the following month. Other taxes (Article 85, Chapter 4) Specific Tax on Certain Merchandise and Services  Tickets for local and international air transportation 10%  Local and international telecommunication 3%  Beverage 20%  Tobacco, entertainment, large automobile, motorcycles from 125 cc upwards 10%  Petroleum products, automobile more than 2,000 cc 30% Property Transfer Tax  For the transference of ownership of real property and certain types of vehicles 4% on transfer value as a result of direct transfer or a contribution of share capital to an enterprise  Prohibited to issue certificates of ownership of property until the Property Transfer Tax has been paid. Tax on Unused Land  Committee for Evaluation of Undeveloped Land, in cooperation with municipal 2% on the assessed value of unused and provincial authorities, decides whether a plot is “unused” or not and the land amount of tax liability. Patent Tax  For annual business registration Approx. USD300-  If the type of business is different or located in different provinces/ municipalities shall be required to pay in accordance with respective type of business and provinces/ municipalities separately (Notice # 002.MEF on Obligation of Patent Tax Payment, January 19, 2007). Property Tax (Exempt for agricultural land, To be levied on property with value 0.1% of the evaluated value exceeding 100 million Riels) Import Duty Varies (4 bands – 0, 7, 15 and 35%)

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Tax Rates Export Duty Varies (Mostly 10%)

Source: Cambodia Investment Guidebook (2013)

2) Accounting Cambodia joined in the ASEAN Federation of Accountants (AFA) at the 76th AFA Council meeting in Yangon, Myanmar on the 11th January 2003 and. the Cambodian government also inaugurated in early 2003 the process for full implementation of a single set of high-quality accounting standards for both domestic and cross-border financial reporting. The “Law on Corporate Accounting, Audit and Accounting Profession” was enacted in July 2002, followed by the “Sub-Decree on the Kampuchea Institute of Certified Public Accountants and Auditors (KICPAA)” and the “Sub-Decree on the functioning of the National Accounting Council (NAC)” was issued in 2003. NAC is a regulatory body of the Ministry of Economy and Finance essentially dealing with the examination and revision of Cambodian Accounting Standards (CASs) and accounting regulations. KICPAA is a professional accounting body overseeing the organization and quality assurance of the private accounting profession. The outline of accounting and auditing standards in Cambodia is as shown below.

Table 3-7 Cambodian Accounting and Auditing Standards 15 Cambodian Accounting Standards (CAS) 10 Cambodian Standards of Auditing (CSA) 1. Presentation of Financial Statements 1. Objective and General Principles Governing and 2. Inventories Audit of Financial Statements 3. Cash Flow Statements 2. Term of Audit Engagements 4. Accounting Policies, Changes in Accounting Estimates and 3. Documentation Errors 4. Fraud and Error 5. Events After the Balance Sheet Date 5. Planning 6. Construction Contracts 6. Audit Materiality 7. Income Taxes 7. Audit Evidence 8. Property, Plant and Equipment 8. Subsequent Events 9. Leases 9. Going Concern 10. Revenue 10. The Auditor's Report on Financial Statements 11. The Effects of Changes in Foreign Currency Rates 2 Financial Reporting Standards (CFRS) 12. Borrowing Costs 1. Insurance Contracts 13. Related Party Disclosures 2. Financial Instruments: Disclosures 14. Consolidated and Separate Financial Statements 15. Provisions, Contingent Liabilities and Contingent Asset 16. Intangible Assets 17. Investment Property 18. Agriculture Source: The National Accounting Council

According to Prakas No. 643.MEF on the Obligation to Submit Financial Statements to be Audited Corporate Accounta, all enterprises in Cambodia, whether natural or legal entities, Cambodian or foreign, which fall in any two of the 3 categories below, have an obligation to submit their financial statements of respective financial year to independent auditors, who have been registered with KICPAA, for audit. All QIPs have the same obligation as well. - To have an annual turnover of 3,000,000,000 Riel upward;

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- To have total assets of 2,000,000,000 Riel upward pursuant to average price of assets available in the required year for audit; To have employees from 100 people upward pursuant to a number of average employees present in the required year for audit

(4) Financial market and foreign exchange Cambodia works towards the liberalization of the financial markets and foreign exchange. The situation of each sector is described as follows:

1) Banking There are 33 commercial banks (including branch offices), 7 Specialized Banks, 37 Micro-Finance Institutions in 2013 in Cambodia. Besides these, there are 5 representative offices of foreign banks. Although overseas capital transfer, issuances of letter of credit and foreign exchange services are available, capital borrowing is generally difficult without offering an immovable asset collateral, the term of lending is shorter and the lending rates are higher than those outside of Cambodia.

2) Financial Lease The “Law on Financial Leases” was promulgated on June 20, 2009. The purpose of the Law was to determine the rights and duties of all parties involved in financial lease operations and issue measures to protect their rights (Article 1). The scope of this law only covers the financial lease of movable properties within Cambodia (Article 3). The Cambodia Securities Exchange (CSX) was incorporated on 23 February 2010. In accordance with the Joint-Venture Agreement, CSX has been capitalized by MEF (55%) and Korea Exchange (KRX, 45%). CSX received approval license from Securities Exchange Committee (SEC) for the market operator, clearing and settlement facility and depository operator on 28 February 28 2011. The stock exchange market itself has been inaugurated on 11 July 2011 the actual stock trade began in April 2012 when Phnom Penh Water Supply Authority listed its shares.

3) Insurance “Insurance Law of Cambodia” was enacted on 20 June, 2000 with the purpose of regulating insurance, protecting the legitimate rights of the parties to insurance, strengthening supervision and control over the insurance business and contributing to the development of the insurance industry (Article 1). Only insurance companies, agents and brokers are eligible to carry out insurance business in Cambodia (Article 4).

4) Foreign Exchange The Law on Foreign Exchange allows any resident in Cambodia to open a bank account both in Riel and USD. It also permits any residents to hold foreign currencies without any restrictions (Article 7). The USD is widely used in Cambodian economy and the common mode of payment is by check.

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Based on the Law on the Foreign Exchange, foreign exchange transactions do not have any restrictions as long as such transactions are carried out through authorized intermediaries. However, one needs to report to the National Bank of Cambodia when more than USD 100 thousands is to be remitted. Borrowing funds in Riel can be done either from local or foreign banks. According to the Annual Report published by the National Bank of Cambodia, However, it is rare to do so because USD is widely used in Cambodia. As a result, it is common to borrow funds in foreign currencies from overseas banks. Also, the so-called "parent-subsidiary loan," where funds are provided to an overseas subsidiary from a mother company, are often used to avoid high interest rates of Cambodia from being applied.

(5) Trade and logistics In January 2000, “Prakas on Trading Activities of Commercial Companies” was issued by the Ministry of Commerce, and both Cambodian and foreign companies, which are registered with the Ministry of Commerce, came to be allowed to have the right to freely engage in trading activities. Under the Sub-Decree No. 111 on the Implementation of the Law on the Amendment to the Law on Investment, however, investment activities in all kinds of commercial activity, import, export, wholesale, retails and duty free shops, are stipulated not to be eligible for investment incentives. As for customs, “Law on Customs” was promulgated on 25 July 2007 for the following purposes: - To provide the right for the administration, control and collection of duties, taxes and fees on imported and exported goods; - To provide for the control and regulation of the movement, storage and transit of such goods; - To promote the prevention and suppression of fraud and smuggling; - To participate in implementing the international trade policy of the Royal Government of Cambodia; and - To promote the application of international standards and best practices regarding customs control and trade facilitation. Any foreign company can freely operate a trading business, as long as it is registered with the MOC. Import restrictions are abolished except for certain items (e.g. second-hand products such as tires, automobiles with right side steering). Import of medicines requires an import license. There are some export restrictions on antiques and drugs, but most of the items can be freely exported. Less than 10% export taxes are levied on some commercial products such as rubber. Also, MOC collects export management taxes on the export of garments. Foreign exchange is completely liberalized. However, all the transactions have to be carried out through authorized intermediaries operating in Cambodia. USD is widely used as a settlement currency and the main mode of payment regarding imports and exports is L/C. There is no regulation of NBC on the payment of imported products and foreign currency obtained through export can be freely held or transferred. Cambodia introduced the Automated System for Customs Data (ASYCUDA) and the Single Administrative Document (SAD) for simplify the procedures of trade and customs clearance. These were implemented at Customs Office at Sihanoukville Port and Phnom Penh International Airport. For customs clearance, import companies submit designated import application to the Customs Department.

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Then, they submit approved invoice (with an official seal and additional statements), packing list, B/L, Certificate of Country of Origin (if necessary) for customs clearance. Cambodia has been granted Most Favored Nation (MFN) status by the US, the EU and other developed countries. In addition, Cambodia has been approved tariff and quota free access to the EU market under the Everything-But-Arms Initiative (EBA), which is part of the EU‟s Generalized System of Preferences (GSP) program for LDCs. EBA was put in effect and applied to Cambodia in February 2001. Cambodia is also entitled to privileges under the US and Japan GSP programs.

(6) Labor Cambodian labor relations, employment and work terms and other labor-related matters are basically regulated by the Constitution and the 1997 Labor Law. The 1997 Labor Law, which was enacted in March 1997 and brought significant modification into the socialistic 1992 Labor Law, is quite liberal and protects the considerable rights of laborers and unions. Under the various labor-related laws, working hours are limited to 8 hours per day and 48 hours per week. Also, 1 day (24 hours) off should be provided per week. It is not allowed to work more than 6 days per week and an employee has a right to obtain 1.5-day paid leave per month. An employee is paid time and a half for overtime and twice for late-night work (22:00-5:00) and holidays. The monthly minimum wage is USD 81 including health allowance (USD 5) for garment, textile, and footwear sector. In addition, perfect attendance allowance (USD 10), commuting and housing allowance (USD 7), needs to be paid mandatorily. In case of limited term contracts, termination can be accepted if: i) an employee has serious faults; ii) both an employer and employee agree and sign a document with inspector‟s presence; or iii) unexpected circumstances such as sickness, death, and disaster occur. In case of unlimited term contracts, termination can be done because of capacity or skills of an employee with advance notice. However, it is difficult to prove lack of skills and capacity objectively. Representatives of a labor union need to be selected at all the organizations and companies with at least 8 full time employees. In practice, however, most organizations and companies select a representative of employees and many Japanese companies in Cambodia do not have a labor union. When a conflict between employers and employees occurs, it is desirable to ask the arbitration committee under the Ministry of Labor. When an arbitration decision is denied, the right to strikes is guaranteed.

(7) Infrastructure/Energy/Environment (including PPP) For Use, Development or Exploitation Concessions, the Law on Concession was promulgated on October 19, 2007. The Law has the purpose to promote and facilitate the implement privately financed projects in Cambodia in order to ensure the public interest and the fulfillment of the national economic and social objectives. Law on Concession governs Concessions as specified in Article 5 and a concession shall be granted by a Concession Contract.

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1) Electricity The Electricity Law was promulgated in February 2001 with the view to regulate the power sector and the Electricity Authority of Cambodia (EAC) was established as a legal public entity to act as the Regulator and the arbitrator of power sector business activities. In Cambodia, electricity is generated and/or distributed by the following entities:

 Electricite Du Cambodge (EDC), a government enterprise;

 Private entities including Independent Power Producers (IPP) in the provincial towns;

 Licensees in smaller towns; and

 Rural Electricity Enterprises (REE) in the rural areas.

2) Telecommunications The Ministry of Posts and Telecommunications (the MPTC) is a policy-maker and regulator in the field of telecommunications in Cambodia. The MPTC was also an operator of the fixed line network but, in January 2006, separated its telecom operation arm and established a new public enterprise called “Telecom Cambodia”, having provided its own assets equal to USD 40.3 million and 700 staff members, to provide fixed line service with the 023 prefix. Telecom Cambodia is said to have been instructed by the RGC to list on the Cambodian Stock Exchange in 2012. The regulatory functions were also separated from the MPTC through the establishment of an autonomous regulatory body called Telecommunication Regulator of Cambodia (TRC) on September 20, 2012 according to the “Royal Degree No.: ns/rkt/0312/175 on the Establishment of Telecommunication Regulator of Cambodia”. Therefore, the MPTC is currently responsible only for policy formulation, strategic development plan and international cooperation in telecommunication sector.

3) Aviation Currently, there are 11 airports in Cambodia. The regular flights have been available only at three airports, Phnom Penh International Airport (PPIA), Siem Reap International Airport (SRIA) and Sihanouk International Airport. “Société Concessionnaire des l‟Aéroports (SCA)”, which is a private consortium of French “Vinci” (70%) and Malaysian-Cambodian “Muhibbah Masteron” (30%) was given the 25-year BOT concession of PPIA in 1995 and of SRIA and Sihanouk International Airport (“Kang Keng Airport” at the time) in 2001 and 2006 respectively. Cambodia Airport Management Services Ltd. (CAMS), 100% controlled by SCA since 2005, operates these three airports. All other airports are under management of the State Secretariat of Civil Aviation (SSCA) except Kampong Chhnang Airport.

4) Special Economic Zones The examination of introducing the concept of economically promoted zone/area into Cambodia was originally started back in 1960s, and the SEZ scheme was finally introduced to Cambodia for the first time in December 2005. “Sub-Decree No.147 on the Organization and Functioning of the CDC” was issued on the 29 December 2005 to restructure the organization of the CDC and a new wing of the

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CDC called the “Cambodian Special Economic Zone Board (CSEZB)” was established to manage the SEZ scheme. To govern the SEZ scheme, “Sub-Decree No. 148 on the Establishment and Management of the Special Economic Zone” (the SEZ Sub-Decree) was issued on 29 December 2005. In addition, the “Law on the Special Economic Zones” has been drafted by the CDC in 2008 and is now under examination of the RGC. There are 25 approved SEZs in Cambodia and they are agglomerated: i) in the suburb of Phnom Penh; ii) near Sihanoukville; iii) around the border with Vietnam; and iv) around the border with Thailand. However, only 7 SEZs are operating as of December 2012.

5) Environment In 1996, the “Law on Environment Protection and Natural Resource Management (LEPNRM)” was enacted, followed by “Sub-Decree on Management of Solid Waste” (1999), “Sub-Decree on the Water Pollution Control” (1999) and “Sub-Decree on the Control of Air Pollution and Noise Disturbance” (2000). Numerical standards for environmental quality are set in each Sub-Decree but they are said to be very strict compared with neighboring countries. On the other hand, these laws have been not been sufficiently enforced as of yet.

(8) Others (consumer protection, competition, etc.) “Law on Standards of Cambodia” was promulgated on June 24, 2007 with the following purposes.  to improve the quality of products, services and management;  to raise and rationalize production efficiency;  to ensure fair and simplified trade;  to rationalize product use; and  to enhance consumer protection and public welfare. The scope of this Law shall cover all the activities related to standardization, quality assurance and related activities within the whole territory of Cambodia. The Cambodian Government has been passing series of laws and the regulatory frameworks to protect IPRs in Cambodia and has made considerable progress and come to soundly comply with WTO obligations. The laws which have been enacted so far include the following:  Law on Marks, Trade Names and Acts of Unfair Competition (2002);  Law on the Copyright and Related Rights (2003);  Law on the Patents, Utility Model Certificates and Industrial Design (2003); and  Law on Breeder Rights and Plant Variety Protection (2008). The following laws are currently under consideration for enactment:  Law on the Protection of Undisclosed Information and Trade Secret;  Law on the Protection of Layout Design of IC; and  Law on the Protection of Geographical Indications.

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3.2.3. Donors‟ Cooperation Programs for Regulatory Reform Various multi- and bi-lateral organizations have been implementing programs related to the legal and judicial sector. According to the Cambodian Rehabilitation and Development Board under the Council for the Development of Cambodia, there are 18 on-going projects. The major projects are shown as below.

Table 3-8 List of Projects related to Legal and Judicial Sector in Cambodia

Completion No. Donor Official Title Start Date Date 1 Australia Cambodia Community Justice Assistance Partnership (CCJAP) 1-Jul-2012 30-Jun-2016 2 Australia Law Enforcement Cooperation Program 1-Jan-2008 31-Dec-2015

3 Australia Support to Khmer Rouge Tribunal 24-Jun-2004 30-Jun-2013 4 Canada Strengthening Access to Justice through Legal Sector Development 1-Jul-2008 30-Jun-2014

5 EU/EC Building foundation for justice 1-Jan-2013 31-Dec-2014 6 EU/EC Child Rights Advisor to Ministry of Justice: Support to Strenthening the 22-Oct-2012 31-Mar-2013 capacity of ministry officials on child rights Establishment of a Database of Legal and Regulation Texts and 7 EU/EC Dissemination of Thematic Reports for the Strengthening of the Rule of 18-Dec-2009 18-Dec-2013 Law and Human Rights in Cambodia 8 EU/EC Improved protection for children in conflict with the law 1-Jan-2011 1-Jan-2014

9 EU/EC Prevent Torture and Improve Prison Conditions in Cambodia 1-Jan-2012 31-Dec-2013 10 EU/EC Promoting Voters' Voice in Remote and Indigenous Communes 1-Jan-2011 1-Jan-2013

Support to the Extraordinary Chambers of the Courts of Cambodia (ECCC) 11 EU/EC 23-Jul-2010 1-Jan-2012 -National contribution 12 EU/EC Working together to provide access to justice for the poor and vulnerable in 1-Jan-2013 31-Dec-2015 Cambodia, with a particular focus on land and women's rights 13 France Support to Khmer Rouge Tribunal 6-May-2005 31-Dec-2013 14 Germany Access to Justice for Women in Cambodia 1-Dec-2010 30-Jun-2014

15 Japan Legal and Judicial Development Project (Phase IV) 2-Apr-2012 31-Mar-2017 16 Republic Multi-year Training Program on Judicial for the Senior Judges (2012-2014) 1-Jan-2012 31-Dec-2012 of Korea 17 Sweden Parliamentary Institute of Cambodia 2011-2014 1-Oct-2011 31-Dec-2014 18 USA Improved Political and Economic Governance 13-Oct-2005 30-Sep-2013 Source: Cambodian Rehabilitation and Development Board

Besides the above projects, other donors, including the World Bank, IMF, UNDP and Canada, assist in the drafting of laws such as the Law on Commercial Contract, the Bankruptcy Law, and the Commercial Court Law. In addition, there are many studies and missions on the legal and judicial sector to promote legal and judicial reforms in Cambodia.

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(1) JICA‟s Studies and Projects related to Regulatory Reform JICA is one of the major donors that promotes regulatory reform in Cambodia. Major studies/projects related to business issues are shown below.

Table 3-9 List of JICA’s Studies/Projects related to Regulatory Reform Study/Project Name Type Implementation period Legal and Judicial Development (Phase 1) TA March 1999 – March 2003 Sihanoukville Port Special Economic Zone Development Project Loan March 2008 – July 2014 Legal and Judicial Development (Phase 2) TA April 2004 – April 2008 Legal and Judicial Development (Phase 3) TA April 2008 – March 2012 Cambodia-Japan Cooperation Center (Phase 2) TA April 2009 – March 2014 Project on Enhancing the Investment-Related Services of Council for TA December 2010 – March 2013 the Development of Cambodia Project for Educational Capacity Development of Institute of TA October 2011 – October 2015 Technology of Cambodia Capacity Development of General Department of Taxation (GDT) TA September 2011 – September 2014 under the Framework of PFM Reform Legal and Judicial Development (Phase 4) TA April 2012 – March 2017 Study for Collection and Confirmation of the Information on the Amendment of the Law on Investment and the Enactment of the Law Study May 2013 – February 2014 on Special Economic Zones in Cambodia Note: “TA” stands for “Technical Assistant Project” Source: JICA Study Team

Among the studies and projects, the two most relevant ones to this study, namely: 1) the Legal and Judicial Development ;nd 2) Study for Collection and Confirmation of the Information on the Amendment of the Law on Investment and the Enactment of the Law on Special Economic Zones in Cambodia, which are described below.

1) The Legal and Judicial Development Project To develop a legal system to accommodate the market-oriented economic reform of Cambodia, JICA set up the supporting groups on the Civil Code (CC) and the Code of Civil Procedure (CCP) and assisted the legislative-drafting process, especially laws in Cambodia‟s civil affairs field. Joint Cambodia-Japan efforts produced the CC and the CCP drafts in both Khmer and Japanese in the Phase 1 (March 1999 – March 2003). Then, JICA continued to promote the legislation and enactment of the draft CC and the CCP, and to draft associated implementing regulations and adjacent statutes (Phase 2: April 2004 – April 2008). In the Phase 2, JICA also worked to raise the proficiency of the counterparts with textbooks and clause-by-clause explanations from the Japanese advisory group. Phase 3 (April 2008 – March 2012) followed on where Phase 2 left off in drafting, establishment, and dissemination activities for laws associated with the CC and CCP. JICA continues supporting the capacity development of the Ministry of Justice. Currently, the Phase 4 (April 2012 – March 2017) is being implemented in order to develop the capacity of the Ministry of Justice to correspond appropriately to inquiries on the CC and the CCP both from the internal staff and other ministries. Also, the knowledge necessary for its proper implementation, including the concept of pledge and hypothec, is expected to be disseminated.

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2) Study for Collection and Confirmation of the Information on the Amendment of the Law on Investment and the Enactment of the Law on Special Economic Zones in Cambodia As the investment incentives provided under the Law on Investment 1994 were often provided discretionally, dissatisfaction and complaints among foreign investors increased. To cope with such a problem, the RGC decided to amend the Law on Investment and enacted the “Law on the Amendment to the Law on Investment (hereinafter called “Amended LOI”)” in March 2003 with assistance of the World Bank and International Monetary Fund (IMF). In addition, the RGC introduced “Special Economic Zone (SEZ)” scheme in December 2005 and established Cambodia Special Economic Zone Board (CSEZB) under Council for the Development of Cambodia (CDC) in order to have jurisdiction over the SEZ development and investment in SEZ. Currently, the RGC is aiming to further improve the investment environment and promote diversification of industry in Cambodia in order to prepare to compete with other neighboring ASEAN countries on FDI promotion, as the integration toward ASEAN Economic Community (AEC) is being scheduled in 2015. In line with this policy, CDC is planning to re-amend the “Amended LOI” to re-examine the investment incentives and investment approval procedures. In addition, the RGC is also required to work out more attractive promotional policies for inducing the foreign investment in SEZ. JICA decided to assist such amendment and enactment of the laws from May 2013 to February 2014. As of November 2013, CDC finalized the draft bill of both the amendment of the Amended LOI and the enactment of the Law on SEZ.

(2) ADB‟s Studies and Projects related to Regulatory Reform

1) Support for Public-Private Partnerships (PPP) in Cambodia” and “Public-Private Partnership Development Project” Cambodia faces substantial challenges providing new and improved infrastructure for its growing economy. At the current time, government and Official Development Assistance funding resources are insufficient to meet Cambodia‟s large infrastructure funding needs. As such, the management of ADB and AFD carried out “Support for Public-Private Partnerships (PPP) in Cambodia” from December 2011 to December 2013 to improve the enabling environment for PPP infrastructure investments. The project identified several gaps in the legal and regulatory framework for PPP and also identified the appropriate PPP institutional setup for Cambodia, along with the capacity constraints. These conditions suggest that PPP policy, legal, and regulatory framework; and institutional strengthening be the areas for future assistance. Based on the result, ADB decided to conduct “Public-Private Partnership Development Project” from December 2012 to September 2014. This project is currently being carried out to make a proposal for strengthening the enabling environment for PPP, with particular reference to the development of the PPP Unit, RMU, PDF, and VGF. Also, it establishes methods to identify viable PPP projects and framework for preparing and transacting, and managing the projects.

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2) Financial Sector Programs The Asian Development Bank (ADB) has supported reforms in Cambodia‟s financial sector since 1999, beginning with the diagnostic assessment of the financial sector. During its continuous support, the RGC developed a 10-year rolling finance sector development strategy (FSDS 2001-2010) and it was updated as the Financial Sector Development Strategy (FSDS) 2006-2015 later. Prepared within the framework of the updated FSDS, ADB implemented the Financial Sector Program (FSP) I from July 2001 to October 2007. The FSP I focused on: i) increasing bank intermediation and strengthening bank supervision; ii) establishing the legal and regulatory foundation to support insurance development; iii) promulgating laws necessary to underpin commercial and financial activities; iv) advancing accounting and auditing practices towards international standards and best practices within the financial sector; and v) establishing and developing the capacity of supporting institutions. Following the FSP I, the FSP II was carried out from September 2006 to September 2010. The expected impact of FSP II is a sound and market-based financial system that enhances resource mobilization and supports sustainable economic growth. The FSP II was implemented to: i) improve confidence and financial intermediation by upgrading the payments, clearance, and settlement system; ii) maintain stability in the financial sector by revising and updating the law on banking and financial institutions, and related regulations; and iii) promote good governance by implementing international initiatives on anti-money laundering and counter-financing of terrorism. The next program (FSP III: November 2011-September 2014) helps complete some of the reform programs that commenced during FSP II, strengthen the enforcement of completed activities, and commence reform activities in leasing, capital market, and pension fund.

3.3. Overview of the Current Legal and Regulatory System in Bangladesh 3.3.1. Overall Legal System

(1) Hierarchy of legal system The present legal system in Bangladesh is influenced by the legal structure both from Britain and India. Especially, it was strongly influenced in the period of the British India when its case law system was introduced. Some laws enacted in the period still remain in effect. The judiciary in Bangladesh also cites the precedents in Britain, India and Pakistan (only precedents with the judicial decisions of the Supreme Court are binding. (cf. Article 111 of the Constitution)). The 1972 Constitution is the supreme law in Bangladesh. There are Acts (laws in a narrow sense) established by the Parliament, Ordinances enacted by the government and Presidential Orders. Under these laws, Rules and Regulations specify detailing procedures. In addition to statute laws, as stated earlier, judicial precedents and customary laws are also considered sources of laws based on the Article 111 of the Constitution in Bangladesh. As many laws have been revised and repealed to respond to social, political and economic changes, there are strong legal obligations for the codification, translation and publication of laws, as section 6 of the Bangladesh Laws Act (Act no. VIII of 1973) provides that "all Acts of Parliament, Ordinances and President's Order in force in Bangladesh shall be printed in chronological order under the name and

3-43 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report style of Bangladesh Code.44 The Bangladesh Code Volumes I-XI came into effect to cover all the laws between 1836 and1938, and since then it has been neglected due to the lack of leadership, human resources and systematic support. Under the BNP administration in 2001-2007, the Bangladesh Code was compiled by the support of the Canadian International Development Agency (CIDA), which achieved results in creating acts, ordinances and presidential orders. However, it has not been updated often and until now many of subordinate rules and regulations have not been provided. All the laws in Bangladesh were prepared in English until 1987, when the Bangla Bhasha Procholon Ain, 1987 (Act No. 2 of 1987) [The Introduction of Bengali Language Act, 1987] was enacted. Since then, all the laws were to be written in Bengali and the Ministry of Law, Justice, Parliamentary Affairs (MOLJP) is in charge of publishing official translation into English only for specific laws.

(2) Legislation system The legislative body of the government is called Jatiyo Shangsad in Bengali, the House of the Nation in English and the Parliament commonly. The Parliament in Bangladesh is a unicameral legislature which is composed of 300 representatives elected in each election district and 50 female representatives elected through special procedures, in total, 350 representatives. The latter special quota for female representatives is supposed to last for 10 years since the 9th Parliament. The tenure of office for a member of the Parliament is 5 years and the President has the authority to dissolve the Parliament prior to the expiration of the tenure.45 The roles of the Parliament are; the establishment of laws, the consent regarding tax and public expenditures and the guarantee of the government‟s accountability. The legislative power of the Parliament for the establishment of fundamental laws is not absolute. The President enacts ordinances for a limited period and bills require the President‟s assent. Bills can be introduced by ministers or other parliament, and would be approved through 3 steps (introduction, consideration and passing). In the process, specific committees are often convened. The concrete procedures are shown in the below figure.

44 Md. Ershadul Karim (2013) A Research Guide to the Legal System of the Peoples‟ Republic of Bangladesh http://www.nyulawglobal.org/globalex/Bangladesh1.htm 45 Bangladesh Parliament web

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Figure 3-6 Legislative Procedures of the Parliament Source：Parliament of Bangladesh web, Legislative Process in Bangladesh Parliament

(3) Judicial system In Bangladesh, the lower courts and special courts are set up under the Supreme Court. Both lower courts and special courts examine civil and criminal cases. There are no higher courts in Bangladesh, but there are the Appellate Division and the High Court Division under the Supreme Court. The Appellate Division exercises jurisdiction over the hearing of and decision on a final appeal against the

3-45 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report decisions made in the High Court Division. The Appellate Division‟s decisions are legally binding upon subordinate courts. The High Court Division exercises jurisdiction over the hearing of an intermediate appeal from subordinate courts and warrant suits concerning the application of warrants issued by courts (cf. Act 102 of the Constitution). The lower courts are classified into 2 large courts: civil courts and criminal courts. The former has the legal basis by the Civil Courts Act of 1997 and the latter by the Code of Criminal Procedure, 1898 (V of 1898). As one of the other organizations related to legal and judicial systems, MOLJP takes on the responsibility of administrative work for legal organizations such as the Supreme Court, the lower courts, the special courts like the administrative courts, the attorney general bureau, the criminal investigation and the Bar Commission. The Law Ministry also has jurisdiction over the deliberation of all bills (inc. international laws) in the process of legislation, the issue of rules and regulations and the consultation on legal interpretation. Also, there are unofficial and traditional arbitration system called Salish in rural areas. This system is composed of representatives of each community and the size varies based on the cases. The local rules and circumstances peculiar to local areas can be taken into account under Salish and it is said that Salish solves 60-70% of disputes which arise in rural area.

3.3.2. Business Related Rules and Regulations

The policy framework for foreign investment in Bangladesh is based on the Foreign Private Investment (Promotion and Protection) Act (1980), which provides for non-discriminatory treatment between foreign and local investment; protection of foreign investment from expropriation by the State; and ensured repatriation of proceeds from sale of shares and profit. Such national treatment is also provided in bilateral investment treaties (BITs) – including BIT with Japan – for the promotion and protection of foreign investment. Other relevant acts and regulation in support of FDI include Export Processing Zones Authority Act (1980), Investment Board Act (1989), Private Export Processing Zones Authority Act (1996), Economic Zones Act (2010).

Regulatory mapping on business related laws and regulations in Bangladesh was conducted utilizing following sources: ･ Board of Investment (BOI) website on Business Laws, Rules and Regulations46 ･ Legislative and Parliamentary Affairs Division, Ministry of Law, Justice and Parliamentary Affairs website47 ･ Bangladesh Bank website48 ･ ILO website49

46 http://www.boi.gov.bd/?option=com_businesslaws 47 http://bdlaws.minlaw.gov.bd/index.php?page=html&language=english 48 http://www.bb.org.bd/aboutus/regulationguideline/guidelist.php http://www.bb.org.bd/fnansys/paymentsys/framework.php

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･ Inputs from the local law Firm

Laws and regulations as well as policies that could be of particular business interest identified in the study are mentioned in the table below. While regulations are in place, there are room for improvement in terms of enhancing clarity, predictability and transparency from the foreign investor‟s perspectives.

Table 3-10 Business Related Laws and Regulations Area Law Regulation/Policy/Plan  Foreign Private Investment (Promotion and 1 Investment Protection) Act (1980)  Export Processing Zones Authority Act (1980)  Private Export Processing Zones Authority Act (1996)  Economic Zones Act (2010)  Investment Board Act (1989)  BOI Guideline (2011)  BOI Handbook & Guidelines (2012)  Trade Marks Act (1940)  Patents and Designs Act (1911)  Copyright Act (2000)

 Land Registration Act (1908)

 Land Registration Amended Act (2004)  National Industrial Policy (2010)  Memo No. BOI/NI:OSH-1/Branch-Liaison/03/200 4/567 (1), dated 5th April, 2005 Company  Companies Act (1994) 2 Law/Business  Securities and Exchange Commission Act  Order of Security and Exchange License (1993) Commission (2001)  Security and Exchange Commission  Order of Security and Exchange Ordinance (1969) Commission (2004)  Notification on issue of capital related to conversion to public limited company and public offer (2013) Tax/Accounting  Value Added Tax Act (1991)  A Draft Plan for Implementing the New 3 Value Added Tax (2013)  The Uniform Customs and Practice for  UCPDC Guidelines 4 Financial Documentary Credits (UCPDC)  Foreign Exchange Transaction Market and  Foreign Exchange Regulation Act (1947) Guideline (2009) Foreign  Import Policy Order (2012-2015)  Bangladesh Bank, Guidelines for Exchange foreign exchange transactions  BOI, Procedure and Guidelines for approval of Foreign Private Loan  Notification No. BOI/R&IM1/4(39)/81(Part)/1209

49 http://www.ilo.org/global/about-the-ilo/media-centre/statements-and-speeches/WCMS_218067/lang--en/index.htm

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Area Law Regulation/Policy/Plan  Customs Act (1969)  Bonded Warehouse Licensing Rules 5 Trade and  Value Added Tax Act (1991) (2008) Logistics  Import and Exports (Control) Act (1950)  Import Policy Order (2012-2015)  Importers, Exporters and the Indentors (Registration) Order (1981) Labour  Bangladesh Labour Act (2006) 6  Bangladesh Labour Amended Act (2013)

 BOI Guideline (2011)  BOI Handbook & Guidelines (2012) PPP/Environme  Environment Conservation Act (1995)  Environment Conservation Rules 7 nt (1997)  Policy and Strategy for Public-Private Partnership (PPP) (2010) Others  Insurance Act (1938) 8  Insurance Act (2010)  Bangladesh Economic Zones Act (2010)  Consumer Rights Protection Act (2009)  Policy and Strategy for Public-Private Partnership (PPP) (2010)

Source: JICA Study Team based on the survey from various sources

(1) Investment (including incentives, limitation on foreign participation)

1) “Reserved Industries” and “Controlled Industries” National Industrial Policy 2010 stipulates “Reserved Industries” that are kept reserved for public investment due to national security or other reasons, and “Controlled Industries” in which enterprises enlisted cannot be registered unless attaining approval from the pertinent ministry/commission.

Table 3-11 Reserved Industries and Controlled Industries 1. Arms and ammunitions and other military equipment and machineries 2. Nuclear power 3. Security printing and minting 4. Forestation and Mechanized Extraction within the boundary of reserved forest

1. Fishing in the deep sea 2. Bank/financial institution in the private sector 3. Insurance Company in the private sector 4. Generation, supply and distribution of power in the private sector 5. Exploration, extraction and supply of Natural gas/oil 6. Exploration, extraction and supply of coal 7. Exploration, extraction and supply of other mineral resources 8. Large-scale infrastructural project (e.g. flyover, elevated expressway, monorail, economic zone, inland container depot/container freight station) 9. Crude oil refinery (recycling/refining of lube oil used as fuel)

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10. Medium and large industry using natural gas/condescend and other minerals as raw material 11. Telecommunication Service (mobile/cellular and land phone) 12. Satellite channel 13. Cargo/passenger aviator 14. Sea bound ship transport 15. Sea-port/deep sea-port 16. VOIP/IP telephone 17. Industries using heavy minerals accumulated from sea beach Source: National Industrial Policy 2010

2) Foreign Equity Participation50 In principle, there is no limitation on equity participation for foreign investment in Bangladesh. Foreign participation is allowed up to 100% under the existing laws in all areas except the “Reserved Industries” and “Controlled Industries”. As for “Controlled Industries”, the National Industrial Policy 2010 stipulates that relevant ministries are to fix conditions including cap on the equity rate of local-foreign investors. Investors have to go to the ministries in charge of / having jurisdiction over the sectors in case of need for inquiries/consultation, hence one stop service is not in place.

2-1) Manufacturing Industries In principle, 100% foreign equity (i.e., direct foreign investment) is allowed. For the purpose of establishing a production base, registration and approvals for setting up business is different between investments within and outside the Export Processing Zone (EPZ). While all companies must be registered with the Registrar of Joint Stock Companies and Firms (RJSC&F), if the business is to be set up in an EPZ or industrial estate, registration must take place with the Bangladesh Export Processing Zones Authority (BEPZA) or Bangladesh Small Cottage and Industry Corporation (BSCIC), and if the business is to be set up elsewhere, it must register with the Bangladesh Board of Investment (BOI).

2-2) Wholesale and Retailing Industries There is no provision in law/regulation and relevant guidelines regarding restriction/prohibition on entry of foreign capitals. Therefore, procedure wise, foreign investors are able to do wholesale and retail business so long as they obtain relevant licenses such as import registration. However, foreign investors intending to do wholesale or retail business through a company incorporated in Bangladesh must comply with requirement to employ locals.

2-3) Transport and Logistics Transport and logistics (cargo/passenger aviator, and sea bound ship transport) are listed under the “Controlled Industries”. There are restrictions in terms of the investment amount and ratio – share of foreign investment shall not be higher than the local participation (i.e., 49% foreign equity cap is established.)

3) Land Ownership Foreign national individuals may not acquire land but registered foreign companies and companies incorporated in Bangladesh whose shares are owned by foreign companies may do so. Companies

50 The study team made reference to various information from JETRO to compile in this section.

3-49 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report operating in EPZs are entitled to use the relevant plots for 30 years which may be extended for another 30 years.

4) Investment Facilitation and Promotion51 The Government of Bangladesh decided in the early 1980s to include investment facilitation and promotion in its policy framework. This move originated from the enactment of a Foreign Private Investment (Promotion and Protection) Act and an Export Processing Zones Authority Act in 1980. In line with the global economic trend, there was increased need to establish an agency specializing in the promotion of private sector investment, both from abroad and domestically. Accordingly, the government established a Bangladesh Board of Investment after formulating an Investment Board Act in 1989. Following are the 7 key investment promotion and facilitation agencies in Bangladesh.

Table 3-12 Investment Promotion and Facilitation Agencies Agency Areas of Concern Investment Type

(i) Bangladesh Small & Cottage Small and cottage industries Domestic Industries Corporation (BSCIC)

(ii) Bangladesh Export Export Oriented industries located in EPZs Domestic & FDI Processing Zones Authority (BEPZA)

(iii) Board of Investment (BOI) All other industries including promotion of the Domestic & FDI above

(iv) Bangladesh Economic Zones Established New Industrial Area Domestic & FDI Authority (BEZA)

(v) Privatization Commission Privatization of Public Enterprises Domestic

(vi) Public Private Partnership Partnership with National & International Domestic & FDI (PPP) Office Investment Community

(vii) SME Foundation Small & Medium Enterprises Promotion by Domestic Technical & Financial Support Source: Investing in Bangladesh, Handbook & Guidelines (BOI December, 2012)

4-1) BOI As enacted in 1989, BOI was established “to encourage investment in the industry in private sector and to provide necessary facilities and assistance in the establishment of industries”. Foreign direct investment projects which have been registered with the BOI are eligible for the following incentive benefits. Registered FDI projects are eligible for a tax holiday for 5-7 years. The terms of the corporate tax holiday differ among the zones.

51 The study team made reference to various information from JETRO as well as JICA, Final Report for Preparatory Study of Private Sector Development Programme in Bangladesh (2012) etc. to compile in this section.

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Table 3-13 Major Incentives and Facilities provided by BOI (i) EPZs in Dhaka and Chittagong districts (excluding Chittagong Hill districts) ・Term of tax holiday: 5 years 100% for the initial 2 years; 50% for the subsequent 2 years; and 25% for the subsequent 1 year (ii) EPZs in Khulna, Sylhet, Barisal, Rajshahi and Chittagong Hill districts ・Term of tax holiday: 7 years 100% for the initial 3 years; 50% for the subsequent 3 years; and 25% for the subsequent 1 year (iii) Private Electricity Companies ・Term of tax holiday: 15 years 100% throughout the term (iv) Sectors eligible for tax holidays in the regions cited in the above (i) and (ii): 1. Textile, 2. Medicine, 3. Melamine products, 4. Plastic products, 5. Ceramic products, 6. Iron and steel products, 7. Fertilizers, 8. Insecticides and pesticides, 9. Computer hardware, 10. Three-star and higher-ranked hotels, 11. Petrochemistry, 12. Pharmaceutical materials, 13. Agricultural machines, 14. Shipbuilding, 15. Boilers and compressors, 16. Manufacturing of textile machinery, 17. Jute products, 18. High value-added clothing, 19. Mild steel rods, 20. CI sheets, 21. Diamond processing, 22. Food processing, 23. Solar energy plants and 24. Physical infrastructure a. Sea and river ports; b. Container terminals, coastal container depots and consolidated cargo stations; c. LNG terminals and gas pipelines; d. CNG terminals and gas pipelines; e. gas pipelines; f. Elevated expressways; g. Large-scale water purification plans and water distribution pipes; h. Wastewater treatment plants; i. EPZs; j. Communication except mobile phones; and k. Monorails and subways (v) Special notes on the above (i) and (ii) (from the BOI and BEPZA websites): ・ No tax holiday shall be applicable to branch factories or extension units of the main businesses. ・ A tax holiday shall be applicable to industrial project companies established as separate companies. ・ Companies benefiting from tax holidays must reinvest at least 30% of income subject to the exemption or invest at least 10% surplus of profit in any of the companies listed on the Bangladeshi Stock Exchange in the last quarter of the accounting year. ・ Tax holidays will apply only to businesses registered with the BOI. ・ Tax holidays will be applicable only to the designated sectors. ・ Tax holidays will be applicable to companies whose eligibility has been approved and certified by National Board of Revenue (NBR) within 90 days of submitting the application. Source: JICA, Final Report for Preparatory Study of Private Sector Development Programme in Bangladesh (2012)

4-2) BEPZA BEPZA was established by the BEPZA Act of 1980 to set up and operate EPZs in Bangladesh. EPZs are export-oriented industrial enclaves that provide infrastructural facilities, administrative and support services to the investors along with incentives. Following are the major incentives and facilities provided by BEPZA.

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Table 3-14 Major Incentives and Facilities provided by BEPZA (i) One stop service: BEPZA provides one window same day service and simplified procedures such as Registration of companies, Trade Licenses, Export/Import Licenses, Work permits and customs clearance for EPZ factories. (ii) Incentives a. Corporate Tax Corporate Tax is exempted 100% for 10 years in the case that the company was established on and before 31st December, 2011. Now it has been changed as below: Corporate Tax is exempted 100% for a maximum of 5 years in the case that the company was established after 1st January, 2012: 100% for the first 2 years, 50% for the second 2 years and 25% for the last 1 year. b. Duty free import of construction materials c. Duty free import of machinery and equipment (office equipment and spare parts) d. Duty free import of raw materials and duty free export of finished goods. e. Relief from double taxation f. Exemption from dividend tax g. GSP（Generalized System of Preferences）facility is available h. Accelerated depreciation on machinery and plant i. Remittance of royalty, technical and consultancy fees allowed j. Duty and quota free access to EU, Canada, Norway, Australia etc. (iii) Providing Services a. Business: Bank, International parcel delivery, Fire station, Post Office, Forwarder service, Airline Agent, Shipping Agent b. Administration: Investors‟ Club, Medical Center, Duty free shop c. Others: Customs Office, Police station, Restaurant, Health Club, Sports Club etc. Source: JICA , Final Report for Preparatory Study of Private Sector Development Programme in Bangladesh (2012)

The first EPZ in Bangladesh was established in 1983 in Chittagong and the second one in Dhaka in 1993. There are following 8 EPZs in Bangladesh nationwide, all of which are now in operation: 1. Dhaka-EPZ, 2. Chittagong-EPZ, 3. Mongla-EPZ, 4. Ishwardi-EPZ, 5. Comilla-EPZ, 6. Uttara-EPZ, 7. Adamjee-EPZ, and 8. Karnaphuli –EPZ. Three types of ownership prevail in the EPZs – 100% foreign ownership (A-type), joint ownership (B-type) and local ownership (C-type).

4-3) BEZA BEZA was established in November 2011 to promote, administer and supervise special economic zones (SEZs) in Bangladesh. It is a new governmental body under the Prime Minister‟s Office. Currently, it is engaged in designing and planning projects to deploy in economic zones. BEZA has selected following 5 sites for establishing SEZ.  Mirsharai (Chittagong District)  Anwara (Chittagong District)  Sherpur (Moulavibazar District)  Mongla (Bagerhat District)

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 Belkuchi (Serajganj District) Feasibility study is going on for the first three sites with support from the World Bank. In response to the results of the F/S, BEZA will initiate international bidding for the selection of developers. Private investment (30 years) in the form of BOOT (Built, Own, Operate and Transfer) is expected.

4-4) PPP The PPP Office was established in 2010 under the Prime Minister‟s Office to take public private partnership initiatives. Its activities include policy-related assessment, consistency with higher-level policies, understanding of PPP projects proposed by ministers, assessment of project details (such as price, work schedule and profitability), advice, financial support for feasibility studies and procedures to submit appropriate and recommendable projects to the Cabinet Committee on Economic Affairs (CCEA). The PPP law in Bangladesh has not been enacted yet, but it has been under the process of preparation, by using British PFI law as a model.

(2) Company Law/Business License52

1) Structures for Doing Business Foreign investors have following options to establish business location in Bangladesh: ・ Operating as an incorporated company ・ Operating as a branch or liaison or representative office

Business in Bangladesh may be carried on by a company formed and incorporated locally or by a company incorporated abroad but registered in Bangladesh. In both cases, companies doing business must be registered with the Registrar of Joint Stock Companies and Firms (RJSC&F), pursuant to the provisions of the Companies Act 1994. Companies can be classified into the following categories.

Table 3-15 Company Classification (i) Limited Companies a. Company limited by shares i. Private limited company ii. Public limited company b. Company limited by guarantees (ii) Unlimited companies Source: BOI, Investing in Bangladesh, Handbook & Guidelines (December, 2012)

A private limited company is restricted in its shareholders‟ rights to transfer the shares and it is also limited in the number of its members. The following are the essential features of a private limited company: ・ It restricts the rights to transfer the shares; ・ It limits the number of its members to minimum 2 and maximum 50 excluding the persons

52 The study team made reference to various information from JETRO in addition to information sources stated in the report.

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employed in the company: ・ It has at least 2 directors; and ・ It prohibits any invitation to the public to subscribe for the shares or debentures of the company.

The features of a public limited company are as follows: ・ It may issue invitation to the members of the public to subscribe the shares and debentures of the company through a prospectus which complies with the requirements of the Companies Act 1994 and the Securities and Exchange Commission Act 1993 as amended from time to time; ・ It has minimum 7 members, but there is no maximum limit; ・ It has at least 3 Directors; and ・ A private company may be converted into a public company.

Unlimited companies and companies limited by guarantees may or may not have share capital.

2) Requirements for the Establishment of a Business – for Industrial Projects/Factories/Plants etc. (Note: formulation of a Private Limited Company is the general form for Japanese investors in this case) The process for the establishment of a business (including procedures for incorporation of a company) is summarized as follows.

Necessary Steps/Necessary Documents Responsible Organizations etc.

1. Name Clearance RJSC&F

2. Opening of bank accounts (for both foreign account and domestic Foreign commercial banks account)

3. Preparing and filing the Memorandum and Articles of Association (MA & AA)

4. Lease agreement

5. Joint venture agreement (optional)

6. Obtaining Incorporation Certificate RJSC&F

7. Obtaining permission of the Bangladesh Bank under Sections 18A Bangladesh Bank (through (restriction on agents) and 18B (restriction on foreign companies) of the foreign commercial banks) Foreign Exchange Regulation Act 1947

8. Obtaining Trade License City

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Corporation/Municipality/Union Council (Local Government Bodies) where the business exists

9. Registration of foreign investment BOI 10. Register with the tax authority (for Tax Identification Number Certificate: TIN Certificate) * On-line registration available National Board of Revenue (NBR)

11. Obtaining E-VISA (Employment VISA) / PI-VISA (Private Embassy of Japan / Investment VISA) Department of Immigration and Passport

12. Obtaining Work Permit BOI

13. Register with the VAT authority NBR * Manual based registration (on-line registration not available)

14. Registration with relevant Chamber of Commerce (optional)

15. Getting recommendation letter for obtaining import permit for capital BOI equipment

16. Getting Import Registration Certificate (IRC) and Export Office of the Chief Registration Certificate (ERC) Controller of Imports & Exports

Figure 3-7 The Process for the Establishment of a Business (for Private Limited Company) Source: Modification made to the information obtained from the Embassy of Japan in Bangladesh

3) Opening of Branch or Liaison or Representative Office To open or seek extension of Branch or Liaison or Representative Office of a foreign company, the company has to submit prescribed Application Form to BOI along with following documents:

Table 3-16 The Process for Opening of Branch or Liaison or Representative Office ・ Prescribed Application Form duly filled in, signed and stamped ・ Memorandum and Articles of Association (MA & AA) of Principal Company

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・ Certificate of Incorporation of Principal Company ・ Name and Nationalities of the Directors/Promoters of the Principal Company ・ Board Resolution to open a Branch/Liaison/Representative Office in Bangladesh ・ Audited Accounts of the last financial year ・ Proposed organization of the office ・ List of activities of the proposed office Source: BOI, Investing in Bangladesh, Handbook & Guidelines (December, 2012)

(3) Tax/Accounting

1) Income Tax Income tax in Bangladesh is administered under the Income Tax Ordinance 1984 and the Income Tax Rules 1984, as well as notifications made under the Ordinance. Currently, Direct Taxes Code 2013, which will replace the existing Ordinance, has been drafted (the draft is accessible in NBR website53).

For the purpose of computation of total income and charging tax thereon, sources of income can be classified into following 7 categories: ・ Salaries ・ Interest on securities ・ Income from house property ・ Income from agriculture ・ Income from business or profession ・ Capital gains ・ Income from other sources

1-1) Corporate Income Tax No distinction is made for the purposes of corporate income tax between foreign owned companies and Bangladeshi-owned companies, although some firms may qualify for a tax holiday in the initial years after entering Bangladesh. Following is the list of corporate income tax rates by type of company (assessment year: 2012-2013).

Table 3-17 Corporate Income Tax Rates by Type of Company (assessment year: 2012-2013) Publicly Traded Company * If any publicly traded company declares more than 20% dividend, tax rate would be 27.5% 24.75% and if declares less than 10% dividend tax rate would be 37.5%.

Non-publicly Traded Company (Note: most Japanese-affiliated companies fall into this category) * If any non-publicly traded company transfers minimum of 20% shares of its paid-up 37.5% capital through IPO (Initial Public Offering) it would get 10% rebate on total tax in the year of transfer.

53 http://www.nbr-bd.org/incometax_circulars/Direct_Tax_Code-2013_Draft_March-13.pdf

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< For specific categories of business> ・ Bank, Insurance & Financial Company (Except merchant bank) 42.5% ・ Merchant bank ・ Cigarette manufacturing company 37.5% ・ Publicly traded cigarette company 42.5% ・ Mobile Phone Operator Company 35% ・ Publicly traded mobile company 45% 35% Source: NBR (http://www.nbr-bd.org/IncomeTax/income_tax_at_a_glance_2012-13.pdf)

1-2) Non Corporate / Individual Tax Anyone stays in the taxable territory for 182 days or more in the income year or 365 days at a time or consecutively within 4 years immediately before the income year just preceding the assessment year plus a minimum of 90 days in the income year, is deemed to be a resident, otherwise, a non-resident. Non-resident having income in Bangladesh except a Bangladeshi non-resident has to pay tax at the maximum rate of 25% irrespective of total income. Following is the list of non-corporate / individual tax rates (assessment year: 2012-2013).

Table 3-18 Non Corporate / Individual Tax Rates (assessment year: 2012-2013) For individuals other than female taxpayers, senior taxpayers of 65 years and above and retarded taxpayers, tax payable for the ・ First 2,00,000/－ Nil ・ Next 3,00,000/－ 10% ・ Next 4,00,000/－ 15% ・ Next 3,00,000/－ 20% ・ Rest Amount 25% For female taxpayers, senior taxpayers of age 65 years and above and , tax payable for the ・ First 2,25,000/－ Nil ・ Next 3,00,000/－ 10% ・ Next 4,00,000/－ 15% ・ Next 3,00,000/－ 20% ・

Rest Amount 25% Source: NBR (http://www.nbr-bd.org/IncomeTax/income_tax_at_a_glance_2012-13.pdf)

2) Tax Incentives As regards tax incentives within 8 EPZs, see “Table 3-14: Major Incentives and Facilities provided by BEPZA”.

There are tax holidays for newly established industrial undertakings (manufacturing) for industries engaged in the production of the following. ・ Active pharmaceutical ingredients industry and radio pharmaceuticals industry ・ Barrier contraceptives and rubber latex

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・ Basic chemicals or dyes and chemicals ・ Basic components of the electronic industry (e.g. resistors, capacitors, transistors, integrator circuits) ・ Bio-fertilizer ・ Biotechnology ・ Boilers ・ Compressors ・ Computer hardware ・ Energy efficient appliances ・ Insecticide or pesticide ・ Petro-chemicals ・ Pharmaceuticals ・ Processing of locally produced fruits and vegetables ・ Radio-active (diffusion) application industry (e.g. developing quality or decaying polymer or preservation of food or disinfecting medicinal equipment) ・ Textile machinery ・ Tissue grafting ・ Any other category of industrial undertaking as the government may, by notification in the official Gazette, specify.

For the undertakings eligible for tax holiday set up in Dhaka and Chittagong Divisions (excluding Dhaka, Narayanganj, Gazipur, Chittagong, Rangamati, Bandarban, and Khagrachari districts) income tax exemption takes place for a period of five years beginning with the month of commencement of commercial production of the said undertaking: 100% for the first 2 years, 60% for the third year, 40% for the fourth year and 20% for the last 1 year.

For undertakings set up in Rajshahi, Khulna, Sylhet and Barisal divisions and Rangamati, Bandarban and Khagrachari districts,– income tax exemption takes place for a period of seven years beginning with the month of commencement of commercial production of the said undertaking: 100% for the first 2 years, 70% for the third year, 55% for the fourth year, 40% for the fifth, 25% for the sixth year and 10% for the last 1 year. This exemption shall be applicable to the industries set-up in Bangladesh between the first day of July, 2011 and the thirtieth day of June, 2015.

3) Value Added Tax (VAT) and Supplementary Duty Bangladesh introduced VAT in 1991 by supplementing the Sales Tax. The New VAT Law, which will revise the current VAT Act 1991, is going to be implemented by July 1, 2015. The updated draft VAT Act (as of 2011) and the Implementation Plan of the New VAT Act are accessible in the NBR website.54 The current VAT Act stipulates following points. ・ VAT is imposed on goods and services at import stage, manufacturing, wholesale and retails levels;

54 ・The updated draft VAT Act (as of 2011): http://www.nbr-bd.org/vat_pdf/Updated_Draft_on_VAT_Act_2011_English.pdf ・The Implementation Plan of the New VAT Act: http://www.nbr-bd.org/vat_pdf/New_VAT_Act_Implementation_Plan.pdf

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・ A uniform VAT rate of 15% is applicable for both goods and services; ・ 15% VAT is applicable for all business or industrial units with an annual turnover of Taka 2 million. and above; ・ Turnover tax at the rate of 4% is levied where annual turnover is less than Taka 2 million.; ・ VAT is applicable to all domestic products and services with some exemptions; ・ VAT is payable at the time of supply of goods and services; ・ Tax paid on inputs is creditable/adjustable against output tax; ・ Export is exempt; ・ Cottage industries (defined as a unit with an annual turnover of less than Taka 2 mil. and with a capital machinery valued up to Taka 3 mil.) are exempt from VAT; ・ Tax returns are to be submitted on monthly or quarterly or half yearly basis as notified by the Government. ・ Supplementary Duty (SD) is imposed at local and import stage under the VAT Act, 1991. (SD is imposed on luxury goods imported into Bangladesh, non-essential and socially undesirable goods produced and supplied in Bangladesh and similar service rendered in Bangladesh.) Existing statutory SD rates are as follows:  On goods: 20%, 35%, 65%, 100%, 250% & 350%  On services: 10%, 15% & 35%.

4) Withholding Tax Based on the tax treaty between Japan and Bangladesh, deduction or collection of tax at source is applicable for the following.55 ・ Outward remittance for dividend: 15% ・ Interest on security: 10% ・ Royalty or Technical - know how fees: 10%

(4) Financial Market and Foreign Exchange56

1) Opening of Bank Account by a Foreign Investor57 According to the Foreign Exchange Regulation Act, 1947 and Guidelines for Foreign Exchange Transactions, a non-resident may open Non-Resident Taka Account (NRTA) in the name of the proposed company/enterprise of foreign investors contemplating to invest in Bangladesh without prior approval of Bangladesh Bank. Such accounts may be credited with inward remittances received from abroad only. Upon registration/commencement of the business, a new account in the name of the company may be opened following usual procedure. If, for any reason, the proposed investment/incorporation does not take place the balance of the account, after meeting the required expenses, may be allowed to be repatriated without prior approval from Bangladesh Bank. However, account opened previously should be closed immediately and balances lying therein shall be transferred to the new Foreign Currency (FC) accounts and Non-resident Foreign Currency Deposit (NFCD) accounts with foreign exchange brought in from outside. Balances of these accounts are freely transferable abroad. A foreign investor may also open and operate Taka account freely with any bank

55 Source: Information from JETRO 56 The study team made reference to various information from JETRO in addition to information sources stated in the report. 57 Source: BOI, Investing in Bangladesh, Handbook & Guidelines (December, 2012)

3-59 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report while he is a resident. A non-resident can open a Non-Resident Investor‟s Account (NITA) with any authorized dealer (AD) bank in Bangladesh with foreign exchange remitted from abroad through normal banking channel or by transfer of funds from the non-resident investor‟s foreign currency account for portfolio investment in Bangladesh.

2) Remittance of Dividend and Sales Proceeds According to information from JETRO, outward remittance in the form of dividend is the most general means to transfer profit in practice. According to the Foreign Exchange Regulation Act, 1947 and Guidelines for Foreign Exchange Transactions, ADs are allowed to remit dividends to the non-resident shareholders on receipt of the application in the prescribed form duly certified by the auditors with supporting documents including the audited financial statement for the year to which the dividend relates. Prior permission of Bangladesh Bank is not required for: ・ Remittance of dividend income to non-residents in respect to their investments in Bangladesh; ・ Remittance of dividend declared out of previous year‟s accumulated reserves; and ・ Dividend and sale proceeds (including capital gains) of shares of companies listed in a Stock Exchange in Bangladesh.

3) Remittance of Royalty/Technical Fees According to the Foreign Exchange Regulation Act, 1947 and Guidelines for Foreign Exchange Transactions, industrial enterprises may enter into agreements for payment of royalties, technical knowhow/ technical assistance fees abroad without prior permission if the total fees and other expenses connected with technology transfer which do not exceed (i) 6% of the previous year‟s sales of the enterprises as declared in their tax returns, or (ii) 6% of the cost of imported machinery in the case of new projects. These agreements, however, need to be registered with BOI. Agreements not in conformity with these general guidelines require prior permission of the BOI. ADs may remit the royalties, technical know-how/technical assistance fees payable as per agreements registered with/approved by BOI, without prior approval of Bangladesh Bank.

4) Repatriation of Salary of Foreigners Employed in Bangladesh58 According to the Foreign Exchange Regulation Act, 1947, Guidelines for Foreign Exchange Transactions and its amendment, foreigners employed in Bangladesh with the approval of the Government may remit 75% of salary/net income, actual savings and admissible retirement benefits through an AD. Net salary of foreign nationals payable for the period of leave admissible to them as per their service contract duly approved by the Government will be remittable.

5) Foreign Borrowings59 Foreign Borrowings: According to the Foreign Exchange Regulation Act, 1947 and Guidelines for Foreign Exchange Transactions, borrowing from abroad in foreign currency requires prior BOI approval. In examining the approval request for foreign borrowing proposals, BOI shall attach priority mainly to medium and longer term borrowing. Scrutinized fully proposals will be submitted to the committee headed by

58 Ibid. 59 Ibid.

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Governor, Bangladesh Bank, for approval. Repayment of principal and interest of approved foreign currency borrowing may be made through AD bank as per agreed terms. 100% foreign owned and joint venture units in EPZs may, however, obtain foreign currency loans from overseas banks and financial institutions without prior BOI or Bangladesh Bank approval. Joint ventures in EPZ cannot, however, create charge on their assets favoring non-residents.

(5) Trade and Logistics

1) Trade Promotion Policy The Ministry of Commerce is responsible for the delineation of trade policy, and the Export Promotion Bureau (EPB) is functioning as one of its implementation agencies. The major objectives of trade policy may be summarized as: the promotion of free-trade policy in conformity with the rules and regulations set by WTO and the phenomena of economic globalization taking in recent years; promotion of labor-intensive industries and development of export-oriented commodities; development of higher-end quality products capitalizing on the most-modern technologies and designs; diversification of international markets; promotion of backward and forward linkage for the development of new products for Export, and so on.

2) Trade License60 Trade License is being introduced in Bangladesh under the City Corporation Taxation Rules, 1983. It is issued when any entrepreneur applied through the license form. The process is managed by the City Corporation or city council where the business exists. A license is issued exclusively in the name of the licensee and such license is not transferable. The licensee shall not use the license for any other purposes, except for the purpose and nature of profession, trade or calling it was issued. A renewed Trade License is provided by the concerned staff of the zonal taxation office.

3) Import Registration Certificate (IRC) and Export Registration Certificate (ERC)61 An importer having IRC and an exporter having ERC may import and export any permissible item without any value and quantity restrictions and without obtaining any permission from any authority. The Office of the Chief Controller of Imports & Exports (CCI&E) issues IRC/ERC upon receipt of the necessary documents. The functions of the CCI&E are governed by the Imports and Exports (Control) Act 1950, the Importers, Exporters Indentors (Registration) Order, 1981, and Review, Appeal and Revision Order 1977. Documents required to obtain IRC and ERC are as follows. ・ Trade License; ・ Membership Certificate from recognized Chamber/Trade Association; ・ Tax Identification Number (TIN); ・ Bank Certificate; ・ Memorandum and Articles of Association and Certificate of Incorporation (in case of Limited Company).

4) Bond License62

60 Information from national web portal of Bangladesh: (http://www.bangladesh.gov.bd/index.php?Itemid=27&id=30&option=com_content&task=category) 61 Information from Office of the Chief Controller of Imports & Exports website: (http://www.ccie.gov.bd/index.php?cmd=about_ccie&id=10#)

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Bond License is issued and maintained by Bonded Warehouse Licensing Rules, 2008. Bonded Warehouse benefits are provided for wide range of industries to expedite the export. A 100% export oriented manufacturing unit in certain industries including garments, leather and shoes may get bonded warehouse. Customs Bond Commissionerate, Dhaka is responsible to look after the 100% export oriented industries located in Dhaka Administrative Division.

5) Trade Payments According to information from JETRO, Documentary Letter of Credit (L/C) has been widely used as a method of trade payment in Bangladesh for both exports and imports. As regards imports, L/C settlement has become a de facto obligation. An importer having IRC may open L/C at the AD where it opened its account.

6) Customs Pre-Shipment Inspection (PSI) system for imported cargo assessment and taxation was abolished from July 1, 2013. PSI system was introduced to ease delivery process of goods and increase revenue, however, it rather created more complexities in giving delivery of goods. 63 NBR has introduced internationally recognized web-based ASYCUDA (Automated Systems for Customs Data) so as to facilitate customs valuation or assessment of imported cargo to be made online.64

7) Import Tax (6 Types)65 The valuation method is CIF (Cost, Insurance and Freight), which means that the import duty and taxes payable are calculated on the complete shipping value, which includes the cost of the imported goods, the cost of freight, and the cost of insurance. In addition to Customs Duty, imports are also subject to 5 other import tax: Regulatory Duty, Supplementary Duty, VAT, Advanced Income Tax, and Advance Trade Tax.

(6) Labour 1) Bangladesh Labour Act and Working Conditions Bangladesh Labour Act 2006 has been amended to some extent by Bangladesh Labour Amended Act 2013. Bangladesh Labour Act 2013 is a fundamental law covering most of the labour-related issues in Bangladesh. In the export processing zones (EPZ), „the EPZ Workers Welfare Association and Industrial Relations Act, 2010‟ was enacted under the Labor Act and thus, the rules and regulations in EPZ are different from those of the Labor Act.

62 Information from Customs Bond Commissionerate website: (http://www.cbc.gov.bd/index.php?option=com_content&view=article&id=82&Itemid=72) 63 Information obtained from interview with the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) on 22nd October, 2013. 64 Information from National Board of Revenue website (http://www.nbr-bd.org/customs.html) 65 Information from National Board of Revenue website (http://www.nbr-bd.org/customs.html) and JETRO.

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In regard to the wages, there are no prescribed-wage structures in the private sector and the minimum wage varies, depending on whether employees work within EPZ or not. The current standards for the minimum wages are 3,000 Bangladeshi Taka (approx. 37 US dollars) for unskilled laborers in the garment industry in the general zones, but are 39 US dollars (in the sewing industry) - 41 US dollars (electronic, electricity, etc.) for apprentices in EPZ.

2) Issues on visa and work permit Work permit is mandatory for foreign nationals for employment in any industrial/commercial/ educational/sports/government entity and private sector or for investors residing and operating business in Bangladesh. Before applying for work permit, foreign nationals must obtain proper visa from the concerned Bangladesh mission with the recommendation of BOI. BOI is responsible for the issuance of E-Visa Recommendation letter and Work permit under the Rules 5 to 8 of BOI Guideline 2011. The following instructions and process have to be followed for approval of work permits: In case of BOI registered companies (i.e., companies outside EPZ), work permit in Bangladesh means 1) obtaining work permit and 2) obtaining working visas. The process is as follows66: a. Enter Bangladesh with a business visa and go through the registration procedure of corporations or offices. b. Apply with registration certificates to BOI for issuing a letter of recommendation to the Embassy of Bangladesh in Japan to obtain an E visa (multiple entry is possible and valid for 6 months.). c. Apply with a letter of recommendation issued by BOI to the Embassy of Bangladesh in Japan for an E visa d. Enter Bangladesh with an E visa and go through the application procedure for work permit in BOI within 14 days. Normally, 4-6 weeks are required to obtain work permit. e. Once a copy of work permit is sent to the Ministry of Home affairs, background references will be done by the Special Branch of Bangladesh Police under the jurisdiction of the Ministry of Home Affairs and the National Security Intelligence under the jurisdiction of the military service. At most 45 days are required for background references and thus, applicants should press them. f. In case there is no problem with background references, the Ministry of Home Affairs will issue the Letter of No Objection, which requires approximately 5 months. g. Apply with „the Letter of No Objection‟ and „work permit‟ obtained as above to the Department of Immigration & Passport for a Working Visa (valid for 1 year and multiple entries are possible.). h. In case of families, long-term resident permit may be issued as dependents of persons with E visas or working visas.

As mentioned above „e‟, once work permit is issued, BOI will endorse a copy of the permission letter for establishing a branch, liaison or representative office and a copy of work permit of foreign national along with a set copies of the application to the Ministry of Home Affairs with a request to issue necessary security clearance. The Ministry of Home Affairs will issue security clearance within 45 days of investigation by concerned authorities as Bangladesh Police and National Security Intelligence. If any objection is not received within this period, security clearance would be deemed to have been given67.

66 Source: JETRO 67 Rule 11 of BOI Guideline 2011

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Regarding duration of work permit68, foreign nationals will be given work permit for two years initially. But in case of chief executive/managing directors, work permit can be given for up to 3 years with the permission of Inter-Ministerial Committee. Extension of work permit will normally be allowed for two years after proper examination of implementation status of every terms and conditions given in the work permit approval letter and on the basis of availability of security clearance from the Ministry of Home Affairs. On expiry of the duration of the work permit, it shall stand cancelled automatically, if not renewed before expiration date. And the period of work permit of an expatriate working in any Branch, Liaison and Representative Office will not remain valid if the validity of that Office permission expires. If any foreign employee of an organization leaves the country without paying income tax, the organization will have to pay such unpaid income tax on behalf of the employee. For extension of work permit, required documents are Income Tax Payment for the previous working period, as mentioned on the Rule 9 (c) of BOI Guideline 2011.

3) Employment In the process of recruitment, BOI Guideline requires releasing recruiting advertisement prior to application for work permit of foreign employees (except in cases of expatriate CEOs of a Company, registered in Bangladesh)69. Under the Rule, advertisements at least in one of the national daily newspapers or websites have to be published before applying for work permit by the applicant company mentioning the name of the post, expertise, salary and allowances to find out whether appropriate local people are available or not with the appropriate experience, skill and academic background. Also there is a requirement under the BOI Guideline for local employees mandating employment of extraneous local workers (five local workers per one expatriate in the case of commercial sector and twenty local workers per one expatriate in the case of manufacturing sector).70

(7) Infrastructure (including PPP) 1) Infrastructure Lack of electric power is the most serious bottleneck related to economic development and foreign investment in Bangladesh. The volume of electric supply in total is approximately 38 thousand GWH which is less than half of supply in Vietnam. Overseas cargo transport depends on the Chittagong port (90% of freight for import and export). Inland transportation depends on land route due to low reliability of railway and water transportation. Taking the above mentioned situation into account, Bangladeshi government has formulated some related policies and guidelines regarding infrastructure (including energy sector) as listed below.

68 Rule 7 of BOI Guideline 2011 69 Rule 8 (g) of BOI Guideline 2011 70 Rule 6 (c) of BOI Guideline 2011. For an industrial undertaking in a project implementation period, different ratio of 10:1(local: foreign) will apply.

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Table 3-19 Principal policies on Infrastructure (list extracted by BOI) Name Year Contents Bangladesh Private Sector Infrastructure 2004 Guideline for the improvement of infrastructure in Guidelines 200471 the private sector Private Sector Power Generation Policy 2004 Policy on power generation industry in the private Of Bangladesh 1996 and revised 200472 sector Policy Guidelines for Enhancement of 2008 Policy on the entry of private enterprises to power Private Participation in the Power generation industry Sector, 200873 Renewable Energy Policy of 2009 Policy on renewable energy Bangladesh 200974

Source: BOI

2) PPP While Policy and Strategy for Public-Private Partnership (PPP) 2010 has been issued, prospect for enacting the PPP Act is unclear though Cabinet has approved the draft of this Act. Under the PPP policy 2010, the following institutions have been established: (i) Public-Private Partnership Advisory Council (PPPAC): PPPAC will advise on PPP policy, accelerates PPP Projects, and coordinates public institutions for PPP projects. (ii) Cabinet Committee on Economic Affairs (CCEA): (iii) PPP Office under the Executive Office of the Prime Minister : PPP Office under the Executive Office of the Prime Minister supports the line ministries in identifying, formulating, selecting, contracting, and monitoring implementation of PPP projects; coordinates various government and private agencies, fast tracking PPP projects and is headed by a CEO who reports directly to the Prime Minister of Bangladesh. (iv) PPP Office under the finance division in the Ministry of Finance: PPP Office under the Ministry of Finance examines PPP proposals and, amongst other functions, arranges for the annual allocation for VGF for PPP projects; appraises and approve funds for VGF for the selected projects as per concession agreement and organizes funds for infrastructure financing.

The initiation of any procedure for selecting private enterprises for a PPP is subject to the approval of the CCEA. Before the CCEA approves a selection procedure for a PPP, the PPP office determines (i) if the PPP provides value for money, (ii) if the PPP allocates risks in an appropriate manner, (iii) the public contribution to the PPP and finally, (iv) checks the overall economic and financial implications of the project. Under The PPP Policy 2010, PPP projects are categorized into 3 groups by total investment: (i) Large, for those exceeding BDT 2.5 billion (>$31 million)

71 BOIweb：http://www.boi.gov.bd/index.php/component/businesslaws/?view=lawdetails&law_id=1141 72 BOIweb：http://www.boi.gov.bd/index.php/component/businesslaws/?view=lawdetails&law_id=1134 73 BOIweb : http://www.boi.gov.bd/index.php/component/businesslaws/?view=lawdetails&law_id=1135 74 BOIweb：http://www.boi.gov.bd/index.php/component/businesslaws/?view=lawdetails&law_id=1133

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(ii) Medium for project between BDT 500 million and 2.5 billion (~$6 to 31 million) (iii) Small for projects less than BDT 500 million (<$6 million)

Three types of public financial participation in PPP projects are possible: (i) Technical Assistance Financing: concerning feasibility studies and tender documents (ii) Viability Gap Financing: this can be a capital grant or annuity payment or both. VGF is only possible if the private party has provided equity contribution (iii) Infrastructure Financing: is public injection into the PPP projects infrastructure in the form of debt or equity through the Bangladesh Infrastructure Finance Fund (BIFF) and/or the Infrastructure Development Company Limited (IDCOL)

3.3.3. Donors‟ Cooperation Programs for Regulatory Reform/Private Sector Development In Bangladesh, More than 50 donors including multilateral and bilateral aid agencies and NGOs provide assistance. About 40 bilateral donors and multilateral donors such as the World Bank (WB), International Monetary Fund (IMF), Asian Development Bank, and the United Nations, hold meetings periodically to promote aid coordination among donors. These meetings provide opportunities to coordinate assistance among donors and information sharing at practical officer level. In private sector development assistance area of Bangladesh, comprehensive cooperative program “Private Sector Development Support Project (PSDSP)” has been prepared by donor cooperation since 2004, and with DFID and WB‟s initiative and having regulation reform for private sector development, EZ development and capacity building of governmental organizations as major issues, concrete cooperation was initiated with a parallel issue for cooperation, sub-sector assistance and trade promotion. Followed by the PSDSP, Bangladesh Investment Climate Fund (BICF), which is financed by DFID and EU and managed by IFC, is specialized for regulatory reform and EZ development. Also, in market facilitation using Business Development Service (BDS), Katalyst has been central, which DFID, SDC and CIDA have been implementing.

Table 3-20 The major cooperation programs are mentioned in the following chart:

Project Objective Donors

Bangladesh Investment Climate

Fund (BICF) Relaxation of regulations of private sector, maintenance of DFID, EU, IFC Phase 1 (2007-2010) legal systems of special EZ

Phase 2( 2010 – 2015)

Improve competitiveness of small to medium-sized Katalyst companies in selected sectors through improving market Phase 1 (2003-2008) DFID, SDC, CIDA access, management and technical skills, quality control Phase 2( 2008 – 2013) and production method.

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Project Objective Donors

Contribute to economic development and poverty Better Work and Standard mitigation of Bangladesh by improving quality of fishery Programme (BEST) EU, UNIDO, NORAD、GTZ products, fiber and garment to expand export to the world (2010 – 2014) market.

Assistance in small to medium-sized financial organizations, access improvement to business service and South Asia Enterprise business environment improvement in South Asian region Development Facility (SEDF) IFC, DFID, NORAD (Bangladesh, Bhutan, North East India, Maldives, Nepal, (2002-) Sri Lanka), with special focus on agriculture, RMG, light industry and IT sector.

Technical and Vocational Establish market-oriented and flexible technical vocational Education and Training education training system to provide skills that match the ILO/ EU (TVET) needs from modern industry and to respond the needs of

2007 – 2015 underprivileged young working population.

Source: Report for Preparatory Study of Private Sector Development Programme in Bangladesh ,2011

Each donor‟ cooperation activities related to Private Sector Development and Regulatory Reform in Bangladesh are as follows;

(1) JICA To assist the government of Bangladesh in attaining its objective of becoming a middle-income country by 2021, JICA has been providing assistance to Bangladesh to achieve sustainable economic growth and poverty alleviation. In the area of supporting economic growth, JICA continues to provide cooperation in building transportation, electric power and other infrastructures, and is also assisting in stimulating the private sector. To overcome the vulnerabilities of society, JICA is providing assistance in areas such as basic education, health care, rural development, governance and disaster management. In private sector development, JICA has been providing various assistances targeting for acceleration of economic growth. Priority areas and focuses are as follows: In the area of industrial development, JICA has been providing technical cooperation through its assistance scheme of dispatch of experts, training for human resources and support for development studies such as master plans. Especially for policy support and institutional reform in advancement and promotion of industries, JICA takes the approach of capacity development by dispatching advisors related to improvement of investment climate and development of industrial policies. JICA also has conducted the Preparatory Study of Private Sector Development in Bangladesh to identify prioritized issues for development, high potential industrial sectors and assistance strategies for its future cooperation for private sector development in Bangladesh. For improvement of business environment, JICA has supported the establishment of a special economic zone (SEZ) through „Data Collection Survey on SEZs in Bangladesh‟. The SEZ is expected to

3-67 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report attract foreign direct investment for the development of Bangladesh's both export-related and import-related industries, which can generate employment opportunities particularly for the youth. The SEZ will also strengthen functions for attracting investments at many levels. Major assisting projects are listed below;

・ „Industrial Policy Advisor‟75 The Project aims at promoting priority/promising industries in Bangladesh through formulation of policies/plans toward development of (priority/promising) industries by the Ministry of Industry and other relevant agencies. The Project is being implemented for July 2013-June 2015.

・ „The Preparatory Study of Private Sector Development in Bangladesh‟76 The Private Sector Development Program in Bangladesh aims at boosting competitiveness of private enterprises through development of SMEs, improvement of investment climate, vocational training, cooperation with JETRO, which eventually contribute to promotion of investment and export. The Program was implemented for 2011-2012. ・ „The Project for Survey into Development of EZ and Capacity Development of BEZA‟77 The project aims at supporting the government of Bangladesh through formulation of a master plan related to EZ at the request of BEZA. JICA implemented basic information gathering related to EZ for January 2013-June 2013 and also conducted research on formulation of detail plans for October 2013-November 2013. ・ „Capacity Building on ITEE Management Project‟78 The Project aims at increasing the number of qualified ICT engineers who pass the Information Technology Engineers Examination (ITEE) through establishing sustainable and proper ITEE examination system in Bangladesh. The Project is being implemented for October 2012-December 2015 through the Bangladesh Computer Council.

75 http://gwweb.jica.go.jp/km/ProjectView.nsf/6b17ef20fa4d2dc649256bf300087d0a/cda1cbd946813a2749257ab00079dc52 76 http://www.bd.emb-japan.go.jp/jp/bdmodel/002.pdf 77 http://www2.jica.go.jp/ja/announce/pdf/20130911_130927_4_02.pdf 78 http://gwweb.jica.go.jp/km/ProjectView.nsf/VIEWALL/7B22CAEAF8C65BAB49257A1B0079E46E?OpenDocument

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Chapter 4 Current Issues in Business Related Rules and Regulations in Myanmar, Cambodia and Bangladesh

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

CHAPTER 4 Current Issues in Business Related Rules and Regulations in Myanmar, Cambodia and Bangladesh 4.1. Overview of Business Related Issues in Myanmar, Cambodia, and Bangladesh As it has been mentioned earlier, the Target Countries of this Study, Myanmar, Cambodia and Bangladesh recently have been getting hot attention from international investors as high potential frontier countries. These countries used to be paid lower attention as they had been lagging behind more advanced ASEAN main countries like Thailand, Indonesia and Vietnam as well as Asia‟s major power like China and India. However, the recent sharp rise of wages in China, India, Indonesia and Vietnam has impacted on the large increase of FDI in these countries. As illustrated in the table below, the Target Countries have been recognized as potential countries for mid-term business investment from Japanese companies. Particularly, their “low labor cost,” “diversification of business risk” and “its strategic location as export hub to third-countries” have attracted considerable attention. Table 4-1 Ranking on the potential countries for mid-term business investment Country 2009 2010 2011 2012 Myanmar 35th 20th 19th 10th Cambodia － 24th 16th 17th Bangladesh 28th 15th 16th 19th

Source: JBIC, “Survey Report on Overseas Business Operations by Japanese Manufacturing Companies” in 2009, 2010, 2011, 2012

On the other hand, Ease of Doing Business Index, which is surveyed and published by the World Bank, shows that the rank of the Target Countries are still low compared with neighboring countries like Thailand and Vietnam, which indicates considerable constraints and impediments exist in relation to business environment. As far as legal system is concerned, throughout the Target Countries, the aspects of enforcement of contracts, registering property and resolving insolvency are very problematic due to weak judicial system. In addition, Myanmar and Cambodia in particular have problems with starting business (eg. company registration) and dealing with business license like construction permit. Bangladesh has the worst track record on getting electricity.

Table 4-2 Comparison of Ranking of Doing Business of the Target Companies

Field/Area Thailand Vietnam Indonesia Myanmar Cambodia Bangladesh Starting a business 91(-5) 109(-2) 175(-4) 189 184(-3) 74(9) Dealing with 14(-1) 29 88(-11) 150(-10) 161(4) 93(-13) construction permits Getting electricity 12 156(-1) 121 126(-3) 134 189 Registering property 29(-2) 51(-3) 101(-4) 154(-5) 118(-6) 177 Getting credit 73(-3) 42(-2) 86(-4) 170(-3) 42(10) 86(-4) Protecting investors 12(0) 157(12) 52(-1) 182 80 22(-1) Paying taxes 70(27) 149(-4) 137(-5) 107(6) 65(1) 100(-2)

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Trading across borders 24(1) 65(1) 54(-2) 113(1) 114(1) 130(-4) Enforcing contracts 22 46 147(-1) 188 162(1) 185 Resolving insolvency 58 149(1) 144(-2) 153(-2) 163(-2) 119(2) Ease of Doing Business 18 99(-1) 120(-4) 182 137 130(2) Note 1): The figure shows the ranking among 189 countries/economic regions and the figure in bracket shows the change of ranking from the previous year Note 2): Highlighted part means the ranking is lower than the 150th. Source: IFC/World Bank, Doing Business 2014

As far as Myanmar is concerned, recently it has experienced the most dramatic economic, social and political transformation in a number of decades. After general election was conducted in November 2010, the government has changed from military regime to democratically elected administration. The new government has implemented various economic liberalization measures such as deregulation on import license, reduction of export duty, deregulation on import of used cars, etc. In addition, the New Foreign Investment Law was promulgated in November 2012 to attract foreign direct investment. However, as the Study result in this Chapter will address, Myanmar‟s investment climate has full of uncertainties and complexities which constitute de facto investment barrier in many business sectors due to the government‟s lack of consolidated approach to investment policy and excessive discretionary power. In addition, the assessment of corporate tax and customs duty by the authorities often tends to be arbitrary and not consistent with international practice. Furthermore, lack of legal system for Bonded Facility restricts efficient global supply chains, which will eventually decrease competitiveness of private sector in Myanmar. On the other hand, taking advantage of geographical advantage located between Thailand and Vietnam, Cambodia has worked seriously to attract foreign investment by implementing open economic policy and introducing various fiscal incentives. New SEZs have been established in some areas such as suburb of Phnom Penh and border areas with Thailand Vietnam, which has attracted investment from Asian countries including Thailand, Vietnam, Japan, Korea, and China. However, as far as business related legal system is concerned, although the fundamental business-related laws such as Civil Code, Investment Law, Commercial Enterprise Law, Labor Law, Taxation Law, Accounting Law, Land Law, and Factory Management Law have already been enacted and implemented, the enforcement of these laws is rather problematic in Cambodia. The Study identified many issues related to the inconsistency among laws and regulations of different ministries concerned and arbitrary interpretation of rules and regulations due to the lack of clear procedural guidelines. In Bangladesh, although political conflict between the current administration, Awami League and opposition party, Bangladesh Nationalist Party (BNP) has cast a long shadow against economic activities, the country has attracted domestic as well as foreign investment from labour intensive sectors such as garment and textile industries by establishing EPZs in various locations all over the country. In addition, recently foreign investment have been realizing not only for such export oriented industries by taking advantage of low labour cost, but also for domestic consumption oriented industries by exploring potentially huge consumer market. Japanese companies are not exception for this trend. Despite this favorable investment trend, however, as this report points out in the following section, some important issues should be addressed in terms of unclear policies for allowing foreign investment in service and

4-2 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report garment sectors. In addition, interview with private sector in Bangladesh also revealed some constraints on foreign currency borrowing and outward remittance on service fee and royalty, which has been hindering smooth business operation there. Furthermore, registering property is also problematic and particularly identifying the chain of title and ownership of land is difficult due to inefficient scattered land registration system.

4.2. Current Issues in Business Related Rules and Regulations in Myanmar 4.2.1. Method and Source of Issues Identification The JICA Study Team on Myanmar conducted the document research in Japan and the field surveys in Myanmar on legal systems, rules, regulations and their operations which are regarded as constraints for Japanese firms in business activities in Myanmar. Document research done in Japan draws from earlier studies published by Japanese government ministries and related agencies (JICA, JETRO and JBIC), as well as international organizations (World Bank, ADB and IFC) focusing on business environment in Myanmar. The most up-to-date identification of issues relevant to Japanese firms doing business in Myanmar has been attempted, through the analysis of the most recent media reports as well as the comprehensive report found in “Issues and Requests Relating to Foreign Trade and Investment in 2012” published by Japan Machinery Center for Trade and Investment. The Team conducted the first field survey in Myanmar based on the findings of the document research in Japan and compiled the issues relevant to Japanese firms today. The process included the interviews with the Japanese firms in Yangon, which provided insights into the reality of investment environment they faced, particularly in regard to selected topics identified under the Japan-Myanmar Joint Initiatives in 2013, which reflects the views of the Japanese firms in Myanmar and the Japanese government agencies (Table 4-1).

Table 4-3 Interviewed Japanese Firms Business Sector Accounting (1) Airline (1) Banking (3) Construction (1) Construction and real estate (1) Maritime service (1) Logistics (1) Trading business (2)

Source: JICA study team

In the second field survey, the Team interviewed the Myanmar government officials in Naw Pyi Taw and in Yangon, and discussed with them the problematic issues identified through the first field survey, with emphasis on legal, procedural, and policy aspects of those issues. The interviews yielded some new outlook on the policy direction that the government of Myanmar is planning to proceed. The Team also sought and received the opinions of a law firm with expertise in the field. The Team furthermore

4-3 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report gathered information on technical assistance provided by international organization as well as on the approaches taken by other donor countries. On the basis of these findings, the JICA Study Team on Myanmar has identified and proposed, from among the selected topics of the Joint Initiatives, the priority issues --- issues which are hindering entry of Japanese firms in the Myanmar market and which can be effectively addressed through improvement in the legal system (Table4-2).

Table 4-4 Interviewed Myanmar Government Agencies Government Agencies Legal Systems in General Office of the Attorney General, Union of Myanmar Legal Systems related to Investment Directorate of Investment and Company Administration (DICA), Ministry of National Planning and Economic Development Myanmar Investment Commission (MIC) Companies Act and Business License Directorate of Investment and Company Administration (DICA), Ministry of National Planning and Economic Development One-stop-service office in Yangon, DICA Legal Systems related to Trade Directorate of Trade, Ministry of Commerce (MOC), Customs House in Yangon Legal Systems related to Finance and Foreign Exchange Central Bank of Myanmar Legal Systems related to Tax Internal Revenue Department, Ministry of Finance and Revenue (MFR) Legal Systems related to Custom Clearance and Tariff Customs Department, MFR Legal Systems related to Labor Ministry of Immigration and Population Legal Systems related to Environmental Protection Ministry of Environmental Conservation and Forest Legal Systems related to Infrastructure Development with PPP Ministry of Construction Ministry of Telecommunication, Posts and Telegraphs

Source: JICA study team

4.2.2. Current Major Issues in Business Environment

(1) Investment (including incentives, limitation on foreign participation) Issue 1-1 Category Investment Sub-Category Restrictions on Foreign Investment by cross sector Lack of transparency in the criteria and requirements for investment Issue license approved by MIC: Lack of predictability Description Investment may be allowed in regulated areas by Myanmar Investment Commission 1)Description of (MIC) on case by case basis, even in the restricted and prohibited business, makes the the Problem investment criteria ambiguous for investors. Regarding the limitation for foreign participation, Foreign Investment Rules-Ministry of

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National Planning and Economic Development Notification No. 11/2013, pursuant to The Foreign Investment Law, stipulates that the maximum foreign investment capital ratio should not exceed 80 (eighty) percent of the total investment amount if the foreigner has formed joint-venture with the Myanmar citizen to carry out prohibited or restricted businesses. However, the types of prohibited or restricted business are not stipulated in the Notification, therefore it is unclear which prohibited or restricted business is subject to the limitation for foreign participation. Myanmar Investment Commission Notification No.1/2013, provides the List of Prohibited Economic Activities, List of Economic Activities allowed in the form of Joint Venture with Myanmar citizens and List of Economic Activities which shall be allowed under the specific circumstances, covering 237 business activities in total79. However, the detailed requirement is not stipulated in the Notification, and it may be deemed that the investment approval is provided at discretion of line ministry and union government. The detailed requirements for investment license by MIC are not clearly stipulated in relevant laws and regulations, therefore requirements from MIC for investment license 2)Reasons become unclear. behind the Furthermore, the detailed requirements for investment license are not clearly stipulated in Problem the related Notifications, therefore it may be deemed that the investment approval is provided at the line ministry and union government. 3)Current Status This issue is raised on the 2rd Meeting of “Myanmar-Japan Joint Initiative”(May,2013) · Myanmar Investment Commission 4)Authorities · Ministry of National Planning and Economic Development Concerned · Relevant ministries 5)Related Law The Foreign Investment Law(2012) · Foreign Investment Rules-Ministry of National Planning and Economic Development 6)Related Rules Notification No. 11/2013 · Myanmar Investment Commission Notification No.1/2013 7)Donors’ IFC advised on negative lists of Myanmar Investment Commission Notification No.1/2013. Involvement

Issue 1-2 Category Investment Sub-Category Restrictions on Foreign Investment by cross sector Issue Investment Barrier on Trading Business Description The government of Myanmar has suspended the issuance and the renewal of the permit to trade for “Trading” since 2003. Foreign trading company is not allowed to trade on import 1)Description of and export as well as wholesale in domestic market. Foreign manufacturing company is also the Problem not allowed to import and sell the finished products of its own manufactured in other countries, and is required to contract with local wholesaler in Myanmar, except for import of raw material or components for manufacturing its own products in Myanmar. 2)Reasons The criteria for issuing and renewing the permit to trade for “Trading” by DICA is not behind the stipulated in any laws and rules. The requirements from DICA are unclear. Problem The resumption of the issuance of the permit to trade for “Trading” by 2015 is now under consideration in the commission of the government composed of NPED (MIC, DICA), 3)Current Status MOC and other relevant ministries. This issue is raised on the 2rd Meeting of “Myanmar-Japan Joint Initiative”(May,2013) · Myanmar Investment Commission 4)Authorities · DICA Concerned · Ministry of Commerce 5)Related Law The Burma Companies Act (1914)>27A 6)Related Rules -

79 It can be understood that sectors not so stipulated in the Law are open to investment at 100% by foreign investors.

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7)Donors’ - Involvement

Issue 1-3 Category Investment Sub-Category Barriers to entry by sectors Issue Investment Barrier on Retail Service Description The “List of Economic Activities permitted with Other Conditions (List)” of “MIC Notification No.1/2013: Classification of Type of Economic Activities” sets out the provisions regarding the 5 categories of retail businesses. It is difficult to clearly understand the requirements or conditions to be applied to each category due to the complicated 1)Description of description. the Problem While, the number 19 of the list of permitted with other conditions, stipulates its condition of “at least 40% local investment must be included in joint venture” in an official translation version, the same condition is described as „if conducted in joint venture” in an original Myanmar version. It is not clear whether the joint venture is required or foreign participation is limited up to 60%, or investment with 100% of foreign capital is possible. 2)Reasons The provisions considering to be related to retail service are stipulated in relevant laws and behind the regulations. However, the requirements from MIC and MOC are unclear. Problem Medium and small size of retail service is totally prohibited. Franchising service is allowed 3)Current Status in some cases. This issue is raised on the 2rd Meeting of “Myanmar-Japan Joint Initiative”(May,2013) · Myanmar Investment Commission 4)Authorities · DICA Concerned · Ministry of Commerce · The Foreign Investment Law(2012) 5)Related Law · The Burma Companies Act(1914) 6)Related Rules Myanmar Investment Commission Notification No.1/2013 7)Donors’ - Involvement

Issue 1-4 Category Investment Sub-Category Barriers to entry by sectors Issue Investment Barrier on Banking Business Description Foreign banks are currently allowed to establish a representative office in Myanmar, not subsidiary or branch office in order to protect domestic banks. The permit to banking business is to be issued by the Central Bank of Myanmar (the 1)Description of Central Bank of Myanmar regulations 41.d revised in 2013), and the Bank (which is the Problem autonomous body) has been also preparing to amend the existing Financial Institution of Myanmar Law (1990). While this coming regulation may give foreign banks opportunity to participate in Myanmar‟s banking industry by allowing foreign banks to operate in Myanmar through joint ventures, the detail of the provision is not published. 2) Reason behind the The revised law or rules regarding the foreign-owned banks' entry is not issued yet. problem 3)Current Status The revised law or rules is under the process. 4)Authorities Central Bank of Myanmar Concerned 5)Related Law · The Central Bank of Myanmar Law(2013)>article41(d)

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· Financial Institution of Myanmar Law(1990)＞article13 6)Related Rules - The Bank has been also preparing to amend the existing Financial Institution of Myanmar 7)Donors’ Law (1990) in order to adopt rules and regulations governing the country‟s central monetary Involvement authority based on technical assistance from the World Bank.

Issue 1-5 Category Investment Sub-Category Barriers to entry by sectors Issue Investment barrier to insurance business for foreign companies Description The insurance businesses have long been monopolized by the Myanmar Insurance Enterprise under the 1989 State-Owned Economic Enterprise Law. The possibility of foreign companies‟ participation in local insurance business is 1)Background of interpreted to be legally in conflict with the exiting 1989 State-Owned Enterprise Law. The the Problem 2012 Foreign Investment Law (FIL) does not stipulate clearly that foreign companies are totally prohibited to participate in local insurance business while the old 1988 FIL clearly prohibited foreign companies entering into local insurance market. Legal condition of foreign companies‟ participation in local insurance business 2)Reason behind (conditional or totally prohibited) is not clearly spelled out in the 2012 FIL. Which law the problem constrains foreign insurance companies‟ participation in local insurance market is not clear accordingly. Liberalization of domestic insurance industry for foreign companies is expected to take 3)Current Status place towards ASEAN economic integration in 2015. This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities · Ministry of Finance and Revenue Concerned · The Insurance Business Supervisory Board of Myanmar · The Foreign Investment Law (2012) 5)Related Law · The State-Owned Economic Enterprise Law(1989) 6)Related Rules - 7)Donors’ - Involvement

Issue 1-6 Category Investment Sub-Category Barriers to entry by sectors Issue Investment barrier to security business Description The Central Bank of Myanmar drafted a "Securities Exchange Law", which authorizes the Yangon Stock Exchange (YSE). President signed the Securities Exchange Law on July 31, 2013. The Myanmar Stock Exchange Center is a 50-50 joint venture between state-owned 1)Background of Myanmar Economic Bank and Daiwa Institute of Research Ltd. The entry of foreign the Problem companies into local stock security business may be allowed in the form of a branch office or a joint venture while a 100% equity contribution by a foreign company may not be allowed. A permit to trade for stock security business for foreign companies will be dependent on DICA‟s discretion. 2)Reason behind DICA‟s rule for business permit for foreign companies is unclear. the problem 3)Current Status The relevant parties are preparing a stock exchange starting in 2015. 4)Authorities · Central Bank of Myanmar, Concerned · DICA · The Securities Exchange Law (2013) 5)Related Law · The Burma Companies Act (1914) , Article 27 A

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6)Related Rules - 7)Donors’ JICA has implemented the study on development of a stock exchange. Involvement

Issue 1-7 Category Investment Sub-Category Barriers to entry by sectors Issue Investment barrier to construction business Description Japanese construction companies so far have established the representative or local branch offices where they are allowed to do engineering services only. A permit to trade for 1)Background of construction business is entirely dependent on DICA‟s discretion. Myanmar Investment the Problem Commission Notification No.1/2013 stipulates construction of infrastructure allowed for foreign companies in the form of a joint venture. · DICA‟s rule for business permit to trade for construction business for aliens is not clear. 2)Reason behind · Myanmar Investment Commission Notification No.1/2013 does not stipulate the the problem detailed condition for a joint venture by nature/kind of projects. 3)Current Status This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) · DICA 4)Authorities · MIC Concerned · Ministry of Construction 5)Related Law The Burma Companies Act, Article 27 A 6)Related Rules - 7)Donors’ - Involvement

Issue 1-8 Category Investment Sub-Category Investor protection Issue Reform of Domestic Arbitration after New York Convention Description In July 2013, Myanmar formally acceded to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). The New York Convention obliges Myanmar‟s Courts to give effect to contractual provisions 1)Background of which provide for disputes to be resolved by arbitration and enforce foreign arbitral awards. the Problem The question will be the enforceability of foreign awards by Myanmar courts even once new enabling legislation is passed. Responsibility for enforcement will rest with local judiciary Myanmar legal system still regards the judiciary as the primary forum for the resolution of disputes and has not incorporated the legal development in arbitration. 2)Reason behind The Arbitration Act (1944) is not reformed so as to comply with the New York Convention the problem · The government recognizes necessity of reform of domestic arbitration after accession 3)Current Status to the New York Convention. · This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities · The Union Assembly Concerned · The Union Attorney General‟s Office · The Arbitration Act (1944) 5)Related Law · The Geneva Convention on the Execution of Foreign Arbitral Awards (1927) 6)Related Rules - 7)Donors’ - Involvement

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Issue 1-9 Category Investment Sub-Category Investor protection Issue Allowing Freedom of Corporate Charter Description The Burma Company Act (1914) stipulates the standard corporation charter 1)Background of (memorandum of association) and by laws (articles of association). DICA requests to draft a the Problem simpler and standardized form. DICA sometimes intervenes with contracts made by members of a joint venture. 2)Reason behind Freedom of corporate charter also depends on DICA‟s discretion which is unclear. the problem · This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 3)Current Status · DICA is currently improving the Company Act and to be finalized in the end of 2013. 4)Authorities DICA Concerned 5)Related Law The Burma Companies Act (1914) 6)Related Rules - 7)Donors’ - Involvement

Issue 1-10 Category Investment Sub-Category Investor protection Issue Enforcement of Intellectual Property Law under Preparation Description There have been no laws in the areas of patents, design, plant varieties right, and traditional art. No IP right-related law does not necessarily mean that intellectual property (i.e. patent) is not protected. The 1908 Registration Act protects ownership of IP once IP is registered at the Office of Registrar of Deeds and Assurances, Settlement and Land Records 1)Background of Department, Ministry of Agriculture). the Problem The Ministry of Science and Technology, Ministry of Commerce, and the Office of the Attorney General have collaborated with the World Intellectual Property Organization (WIPO). The proposed law covering patents, design, trademark, copyright, would replace legislation that dates to the colonial period and fill a legal void. The Ministry of Science and Technology is the prime agency for preparation of the draft 2)Reason behind intellectual property law, but the Ministry appears to not have capacity managing the the problem different kinds of IP right. · The draft IP law is now under preparation. 3)Current Status · This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) · Ministry of Science and Technology 4)Authorities · Ministry of Commerce Concerned · The Union Attorney General‟s Office · The Merchandise Marks Act (1889) 5)Related Law · The Myanmar Copyright Act (1914) 6)Related Rules - 7)Donors’ JICA is preparing technical assistance Myanmar in establishment of the Myanmar Involvement Intellectual Property Office.

Issue 1-11 Category Investment Sub-Category Investor protection Issue Urgency of entering bilateral investment agreement between Japan and

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Myanmar Description Due to no bilateral investment agreement between Japan and Myanmar, both countries 1)Description of have no system protecting investors and informing each other about alteration/revision of the Problem laws and rules affecting investment environment. 2) Reason behind the BIT does not exist in the first place. problem 3)Current Status This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities · Attorney General Concerned · Ministry of Foreign Affairs 5)Related Law - 6)Related Rules - 7)Donors’ - Involvement

Issue 1-12 Category Investment Sub-Category Investor protection Issue Registration for building and factory Description Foreign companies are difficult to borrow Kyat in domestic financial market since the 1987 Law on the Transfer of Immoveable Property Restriction stipulates that foreign company is prohibited to own immovable property including land and building. This 1)Description of interrupts foreign company to register and protect their own buildings and factories the Problem constructed on the land of lease agreement. In Myanmar, buildings on the land are regarded as part of land so that a lease (a building and land) can be registered and treated as collateral according to the 2012 Foreign Investment Law. 2) Reason The difficulty in Kyat borrowing by foreign companies is ascribed to several reasons: not behind the only scarcity of collateral but also absence of Kyat lending policy of domestic financial problem institutions and absence of foreign banks. 3)Current Status This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities Relevant ministries (The Transfer of Immoveable Property Restriction stipulates no Concerned definition of “relevant ministries”.) 5)Related Law The Transfer of Immoveable Property Restriction 6)Related Rules - 7)Donors’ - Involvement

Issue 1-13 Category Investment Sub-Category Service for investors Issue Lack of publicity of laws and regulations in English Description Although the government currently publishes the information of laws and regulations related to business and investment on website through DICA and MIC, it doesn‟t include all information concerning business and investment related laws and regulations, and procedures for investment permission. 1)Description of On the other hand, Attorney General's Office publishes the newly enacted laws on the Problem website. However, it is not focused on business related laws, therefore it is not easy for foreign investors to find the relevant laws. Because relevant ministries often manage their own website and decide to publish the press-release of the authorizing laws and regulations by their own decision, not all information related business and investment are provided on

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these website. Therefore, there being no centralized government website providing one-stop access to all the information on business related laws, makes it difficult for foreign investors to access integrated information. 2) Reason Fragile services for centralization of laws and regulations and for providing relevant behind the information in English on website. problem 3)Current Status This issue is raised on the 2rd Meeting of “Myanmar-Japan Joint Initiative”(May,2013) 4)Authorities ・ Attorney General Office Concerned ・ DICA 5)Related Law - 6)Related Rules - 7)Donors’ - Involvement

Issue 1-14 Category Investment Sub-Category Service for investors Issue Establishment of investment consultation Description Although the attempt to one-stop service system has already started in Yangon, foreign 1)Description of companies are often needed go to Naw Pyi Taw head office to complete the process for the Problem company registration. In fact, one-stop service system is unfunctionable. Furthermore, the further expansion of service is expected with anticipating further increase of investment. 2) Reason behind the The fragility of one-stop service system problem 3)Current Status - 4)Authorities ・ Myanmar Investment Commission Concerned ・ Related ministries 5)Related Law - 6)Related Rules - 7)Donors’ - Involvement

(2) Company law/business license Issue 2-1 Category Company Law/Business License Sub-Category Formulation of a Company Complexities in renewal of Company Registration for MIC approved Issue Foreign enterprise Description The Renewal of Company Registration for foreign enterprises which have already 1)Description of received a long-term investment license issued by MIC is required and its process takes time the Problem and cost. 2) Reason behind the The inappropriate renewal system of company registration problem 3)Current Status - 4)Authorities DICA Concerned 5)Related Law The Burma Companies Act(1914) 6)Related Rules -

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7)Donors’ - Involvement

Issue 2-2 Category Company Law/Business License Sub-Category Formulation of a Company Issue Complexities in Company Registration and Permit Description Foreign Investors are required to obtain a company registration and a permit when they do business in Myanmar, according the Burma Companies Act(1914). The same requirement applies to establishment of not only a subsidiary or a joint venture company but also a branch. Both an application for a permit (for which the proposed business type will be reviewed) 1)Description of and an application for a company registration (for the purpose of registering identification of the Problem each company) are to be submitted to DICA. The temporary permit is issued in a short period, however, investors are required to submit many kinds of documents for a permanent permit and a company registration with DICA. It normally takes 2 to 6 months to complete all process, keeping investors waiting for a long time to obtain the business commit. 2) Reason ・ Although laws and regulations exist, implementation/enforcement does not take place as behind the stipulated. problem ・ Complexities of system of company registration and business permit 3)Current Status - 4)Authorities DICA Concerned 5)Related Law Burma Companies Act(1914) 6)Related Rules Myanmar Company Rule(1940) 7)Donors’ - Involvement

Issue 2-3 Category Company Law/Business License Sub-Category Liquidation of business Issue Complexities in liquidation of business Description The rule of liquidation of business is not regulated by laws or regulations. It normally 1)Description of takes three years to liquidate a business due to the bureaucratic procedures for tax clearance the Problem at Tax office. 2) Reason Issues at stake cannot be referred in relevant laws and regulations since there is no such behind the stipulation in any rules and regulations, therefore administrative discretions become unclear problem 3)Current Status - 4)Authorities DICA Concerned 5)Related Law Burma Companies Act(1914) 6)Related Rules Myanmar Company Rule(1940) 7)Donors’ - Involvement

(3) Tax/accounting Issue 3-1 Category Taxation/Accounting Sub-Category Corporate income tax Issue No application of corporate income tax rate for "Resident" to foreign

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company branch (Discriminated corporate income tax rate between locals and foreigners) Description Different corporate and withholding tax rates are applied to resident companies on one hand and non-resident companies on the other. Corporate tax payers are classified into resident companies and non-resident companies 1)Description of under the Amending Income Tax Law revised in 2011. Companies incorporated in Myanmar the Problem under the Burma Companies Act and enterprises operating under the Foreign Investment Law are treated as resident companies, and are applied corporate income tax rate of 25%. Non-resident companies such as a branch of foreign company are applied corporate income tax rate of 35%. 2) Reason The provisions of the Amending Income Tax Law related to the application of corporate behind the income tax to the branches of foreign-owned enterprises are inappropriate. problem ・ Policy decision in 2013 ・ Draft revised law by March 2014 3)Current Status ・ Approve law and implementation in FY 2014 ・ This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities Ministry of Finance and revenue, Inland Revenue Department Concerned 5)Related Law The Amending Income Tax Law (2011) 6)Related Rules Notification 7)Donors’ Other development partners (US Department of Treasury, IMF) will dispatch tax advisor, to Involvement be expected to collaborate JICA Expert to DICA.

Issue 3-2 Category Taxation/Accounting Sub-Category Corporate income tax Issue Ambiguous taxable calculation basis on corporate income tax Description The progressive tax rate system for corporate income tax was introduced under the Amending Income Tax Law revised in 2011. However, the detail for non deductable expense or the provision for off-set/reverse system applied to advance payment of corporate income 1)Description of tax is not stipulated in any rules. the Problem Additionally, limited availability of CPA who has ability to produce proper financial statement following the audit standard hinders proper functioning of audit system. The deemed-taxation system which levies the corporate tax at 5% of sales for branch is still prevailing. Therefore, the progressive tax rate system is not fully implemented. ・ Although laws and regulations exist, implementation/enforcement does not take place as stipulated. 2) Reason ・ Rules of non deductive expenses in corporate tax are not clearly defined. behind the ・ The Amending Income Tax Law which was revised in 2011 has not been implemented problem as provided due to the lack of CPA and common knowledge to all personnel in tax office. ・ Policy decision in 2013 3)Current Status ・ Implementation in FY 2014 ・ This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities Ministry of Finance and revenue, Inland Revenue Department Concerned 5)Related Law The Amending Income Tax Law (2011) 6)Related Rules Notification 7)Donors’ Possibility of JICA T/A (tax administration advisor). Involvement

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Issue 3-3 Category Taxation/Accounting Sub-Category Corporate income tax Review, expansion and modernization of useful lives for depreciation of Issue fixed assets Description Rules of the depreciation expense calculation (assets categories and useful lives/depreciation rates) in corporate tax seem to become obsolete and differ from actual useful lives of the assets. For example, they stipulate only 2 types of building (factory and others), 16 year useful life for most of machine. They do not stipulate modern fabrication 1)Description of and manufacturing machines. the Problem Government is requested to review drastically such rules on asset life by providing in detail. Or, as in Thailand, it can stipulate only general provision (i.e. minimum useful life for the assets other than building should be more than 5 years) and refer to the company‟s judgments in accordance with the generally accepted accounting standards. 2) Reason behind the The provisions of the Income tax Law regarding the life of fixed assets are inappropriate. problem ・ Policy decision in 2013 3)Current Status ・ Implementation in FY 2014 ・ This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities Ministry of Finance and revenue, Inland Revenue Department Concerned 5)Related Law The Amending Income Tax Law (2011) 6)Related Rules Notification 7)Donors’ Possibility of JICA T/A (tax administration advisor). Involvement

Issue 3-4 Category Taxation/Accounting Sub-Category Corporate tax Complexities in rules of off-set withholding tax to final corporate tax Issue payable and refund of withholding tax in case of over payment of tax Description Withholding tax is supposed to be withheld upon payment of compensation and thus paid to Internal Revenue Department. However, due to ambiguous provisions on deals subject to withholding, there seems to be difficulties in practice. Also, even though withholding tax should be viewed as prepayment of corporate tax, 1)Description of procedures of compensation with declared amount of corporate tax at the end of fiscal year the Problem or procedures of refund are much complicated and operation are not standardized in administration. In actuality, amount withheld during period was not yet refund at the end of fiscal year even for deficit-ridden company. Government is hence requested to review such cases and improve relevant rules. 2) Reason ・ The provisions of the offset between withholding tax and corporate tax are not clear. behind the ・ The transaction of off-set between withholding tax and corporate tax is not properly problem implemented. ・ Policy decision in 2013 3)Current Status ・ Implementation in FY 2014 ・ This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities Ministry of Finance and revenue, Inland Revenue Department Concerned 5)Related Law The Amending Income Tax Law(2011) 6)Related Rules Notification 7)Donors’ Possibility of JICA T/A (tax administration advisor). Involvement

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Issue 3-5 Category Taxation/Accounting Sub-Category Corporate Income Tax Issue Inappropriate tax rate on capital gain tax Description 1)Description of The capital gain tax rate is applied at from 40% to 50% of capital gain on progressive rate. the Problem Non-resident enterprise is also levied on 40% of capital gain. 2)Root of the Inappropriate tax rate on capital gain tax Problem 3)Current Status - 4)Authorities Ministry of Finance and revenue, Inland Revenue Department Concerned 5)Related Law The Amending Income Tax Law (2011) 6)Related Rules - 7)Donors’ - Involvement

Issue 3-6 Category Taxation/Accounting Sub-Category Corporate income tax Issue Absence of Tax treaty Description 1)Description of Due to the absence of tax treaty between Japan and Myanmar, the Japanese enterprises are the Problem not allowed to deduct foreign tax. 2) Reason behind the The tax treaty is not concluded. problem 3)Current Status - 4)Authorities Ministry of Finance and revenue, Inland Revenue Department Concerned 5)Related Law - 6)Related Rules - 7)Donors’ - Involvement

Issue 3-7 Category Taxation/Accounting Sub-Category Personal Income Tax Issue Ambiguous taxable scope of welfare expenses of individual income tax Description Taxable scope of welfare expenses of personal income tax is broad and ambiguous, so that items of fringe benefits (or non-salary benefits, such as tuition fees for child, company car provided to individual employee, home leave allowance, etc.), which shall be incorporated in to taxable items, and their calculation rules are not thoroughly implemented. And answers 1)Description of from tax authorities are not always coherent. For instance, Government‟s notification the Problem provides that in case of rental of furnished apartments with allowance of employer, smaller amount of either such actual rental rate or 12.5% of employment income will be added to taxable income. However, authority instructs to incorporate the bigger amount. Government is requested to specify rules on those welfare expenses in order to ensure fairness and transparency of computation of tax liabilities of resident businessmen. 2) Reason behind the Ambiguous taxable scope of welfare expenses of personal income tax problem ・ Policy decision in 2013 3)Current Status ・ Implementation in FY 2014

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・ This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities Ministry of Finance and revenue, Inland Revenue Department Concerned 5)Related Law The Amending Income Tax Law (2011) 6)Related Rules Notification 7)Donors’ Possibility of JICA T/A (tax administration advisor). Involvement

Issue 3-8 Category Taxation/Accounting Sub-Category Commercial tax Issue Ambiguous regulation on commercial tax Description Complexities in dual tax rate of commercial tax(shifting to Value Added tax with single tax rate) Commercial tax system has currently several tax rates to be applied to each schedule of listed goods and services. Such schedule lists up more than 400 items and those application is not clearly implemented. For instance, division between taxable transaction and non-taxable transaction are not clearly defined for such professional service as accountants and lawyers as well as construction services. Shifting to Value Added Tax system with single tax rate (not excluding individual taxation against designated items) is to be expected.

Ambiguous rule of input tax credit 1)Description of Currently, rules of “input tax credit” (tax calculation to set off commercial tax amount paid the Problem in purchasing goods with those gained in selling them) are not clear. In particular, rules are not defined in service industries and such industries as manufacturing and selling both taxable items and non-taxable ones, so that input tax credit is not allowed in those industries. Also, even in case input tax credit allowed, complicated procedures requesting a lot of documents pose impediments in business practice.

Taxation on importing tax-exempt products Under the Amending Income Tax Law appendix, while the products such as groceries, garments and medicinal products are tax-exempt on sale of the finished products, 5% of commercial tax is still levied import of raw materials. 2) Reason ・ The inappropriateness of commercial tax system behind the ・ Although laws and regulations exist, implementation/enforcement does not take place as problem stipulated, ・ Policy decision in 2013 3)Current Status ・ Implementation in FY 2014 ・ This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities Ministry of Finance and revenue, Inland Revenue Department Concerned 5)Related Law The Commercial Tax Law(1990) 6)Related Rules Notification 7)Donors’ Possibility of JICA T/A (tax administration advisor). Involvement

Issue 3-9 Category Taxation/Accounting Sub-Category Property Tax Issue Unspecified criteria on property taxable base in Yangon City Description Property tax is computed based on assessment on assets made by YCDC, but such 1)Description of assessment is not clear. YCDC spends certain time to respond upon inquiries, and will not the Problem reply without submission of detailed information by questioner, which adversely affects, in particular, survey of economic viability of real-estate development.

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Government is requested to make public assessment rules, i.e. standard value or range value of each area/township. 2) Reason behind the The standards for property tax are unclear. problem ・ Implementation in harmony with announcement of land price by YCDC 3)Current Status ・ This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities YCDC Concerned 5)Related Law - 6)Related Rules - 7)Donors’ Possibility of JICA T/A (tax administration advisor). Involvement

Issue 3-10 Category Taxation/Accounting Sub-Category Audit system Issue Fragile Audit System on Corporate Accounting Description All enterprises are subject to audit by an independent Myanmar CPA holder under the Burma Companies Act. The financial statements audited by a CPA holder are submitted to 1)Description of DICA, line ministry, local tax office, and MIC (if the enterprise is permitted under MIC). the Problem However, some enterprises fail to follow the standard due in part to the limited number of Myanmar CPAs. The government needs to address the urgent task of capacity building for Myanmar CPAs. 2) Reason ・ Although laws and regulations exist, implementation/enforcement does not take place as behind the stipulated problem ・ Lack of appropriate legal audit system and of capacity of CPA. 3)Current Status Government is considering the measure for improvement by 2015. 4)Authorities Auditor General Office Concerned 5)Related Law The Burma Companies Act(1914) 6)Related Rules - 7)Donors’ - Involvement

(4) Financial market and foreign exchange Issue 4-1 Category Finance/Foreign Exchange Sub-Category Repatriation of Foreign Currency MIC‟s Permission to Remit Foreign Currency Converted from Kyat Issue Revenue Description The Central Bank is now undertaking preparation of the Foreign Exchange Management Rule and will provide removing all current account restrictions. By the Foreign Exchange Management Rule, foreign companies not operating under foreign investment incentives 1)Background of granted by the 2012 Foreign Investment Law will be allowed to repatriate foreign currency the Problem converted from Kyat revenue covering i) profit, ii) repayment of interest and principals, and iii) payment for imports without the approval of the Central Bank. On the contrary, foreign companies under foreign investment incentives under the 2012 FIL are requested to submit a repatriation plan and get approval of MIC each time they repatriate foreign currencies. Though the authority (the Central Bank of Myanmar) conducts a thorough liberalization 2)Reason behind of current account restrictions, MIC still retain its power against foreign companies the problem approved by the 2012 FIL. This implicates the two tires system over foreign exchange management system.

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Though the government recognizes the two tires system, the government has little 3)Current Status intention of eliminating the said system. 4)Authorities ・ MIC Concerned ・ Central Bank of Myanmar ・ The Foreign Investment Law(2012) 5)Related Law ・ The Foreign Exchange Management Law (2012) ・ The Amendment of the Foreign Exchange Management Law (2012) 6)Related Rules The Foreign Exchange Management Rules( drafting) 7)Donors’ - Involvement

Issue 4-2 Category Finance/Foreign Exchange Sub-Category Borrowing of Domestic Currency Issue Restriction on Borrowing of Domestic Currency by Foreign Residents Description The law that used to directly restrict on borrowing of domestic currency by foreign companies used to be the Foreign Exchange Regulation Act (August 1, 1947) (the Act), which was repealed in 2012. The Transfer of Immovable Property Restriction Law (1988) is 1)Background of supposed to be the reason behind this issue that foreign companies are difficult to borrow the Problem domestic loans because of no collateral. Nevertheless solution of this issue can be made by introduction of parent-subsidiary loan and liberalization of local financial market for foreign banks. This issue is to be discussed. The Transfer of Immovable Property Restriction Law (1988) makes it for foreign 2)Reason behind residents to borrow domestic loans from local banks because foreign residents have no the problem collateral. 3)Current Status This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities Central Bank of Myanmar Concerned 5)Related Law Transfer of Immovable Property Restriction Law (1988) 6)Related Rules - 7)Donors’ - Involvement

Issue 4-3 Category Finance/Foreign Exchange Sub-Category Payment Settlement Issue Import Deposits Requirement Description Non-tariff barriers constitute of the different variants such as i) licenses, ii) quotas, iii) agreement on a voluntary export restraint, iv) import deposits, and v) foreign exchange restrictions. Myanmar is now undertaking liberalization of licenses and foreign exchange restrictions, but still retains import deposit at the time of opening letter of credit (L/C). The deposit amount is usually stipulated as a percentage of the value of imports, but usually 1)Background of commercial banks imposes a 100% deposit requirement. The Banks being able to open L/C the Problem are the Myanmar Foreign Trade Bank and the Myanmar Investment and Commercial bank, both of them are the State-Owned Banks. The deposit is held in a bank which in turn must transfer it to a special account in the Central Bank of Myanmar. The deposit is held for a defined period of time, at the end of which it is returned to the importer. Advance import deposits help the country control their currency values. 2)Reason behind Until now, non-tariff barriers have been oriented toward Myanmar traders. The government the problem imposes non-tariff barriers to them because some of them take illegal actions. ・ The government currently establishes inter-agencies-based special committees (26 3)Current Status ones) to improve business environment of the country. A payment settlement for trade is one of issues tackled by one of these committees.

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・ This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities ・ Deposit requirement: Central Bank of Myanmar, Myanmar Foreign Trade Bank Concerned ・ Procedure: Ministry of Commerce, Myanmar Foreign Trade Bank ・ The Financial Exchange management Law (2012) 5)Related Law ・ The Import and Export Law (2012 still under improvement) 6)Related Rules - 7)Donors’ - Involvement

Issue 4-4 Category Finance/Foreign Exchange Sub-Category Payment Settlement Issue Deferred Payment for Imports Description Myanmar‟s international trade has been highly restricted for decades by a wide range of administrative measures on both transactions and payments. In the past the government tightened the “export first policy” under which only those who gained export earnings are allowed to import. In a CMP business in which garment manufacturers using the imported materials and re-export the goods to overseas buyers, the only payment required in this process is the processing charge from overseas buyers to garment industries in Myanmar. It was possible to import raw materials without any export earnings. In those days, import of equipment by deferred payment was permitted. However the government suddenly prohibited import of equipment by deferred payment in 2001. This was supposed to be attributed the situation that some entrepreneurs entered the garment business to illegally 1)Background of import materials that have nothing to do with the garment industry. the Problem In the contemporary Myanmar, some references say that the deferred payment system for imports is not permitted, while others say that deferred payment with the three months‟ period is applicable to some imports. The period of three months is equivalent to validity period of import licenses. Myanmar is a member state of the Asian Clearing Union (Bangladesh, Bhutan, Iran, Myanmar, Nepal, Pakistan, Sri Lanka) which was established in 1974 in order to facilitate payments among the member countries for eligible transactions on a multilateral basis. The deferred payment for imports has been recognized as the payment system for eligible transactions among the member states. It is now that the government reconsiders deferred payment for small and medium sized of manufacturers who import raw materials and export semi-finished or finished goods to other countries. Although the sudden ban on deferred payment (2001) was not clearly announced by the 2)Reason behind government, the reason behind this issue was traced back to actual situation that some the problem manufacturers imported illegally using the CMP arrangement for goods. ・ The government currently establishes inter-agencies-based special committees (26 ones) to improve business environment of the country. A deferred payment is one of issues 3)Current Status tackled by one of these committees. ・ This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities The Central Bank of Myanmar Concerned 5)Related Law - 6)Related Rules - 7)Donors’ - Involvement

(5) Trade and logistics Issue 5-1 Category Trade/Logistics Sub-Category Trade Issue Ambiguity of Assessment of a Taxable Amount of Imports Description

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The Customs Department declares that customs duty (import duty) is levied based on assessment value of import goods rather than invoice price of them according to the Sea 1)Background of Customs Act (1962). The assessment value is usually set out higher than the invoice the Problem (market) price, which makes importers pay more import duty. This leads to higher price of goods in domestic market. ・ There are two reasons for this issue. One is the government intention of increasing 2)Reason behind customs duty since customs duty shared by national revenue is only 3 percent. the problem ・ Another reason is that some invoices deviate from the real market prices so that customs use the “real value” to assess a taxable amount of import goods. ・ The Ministry of Finance and Revenue is now passing a draft amendment version of the Sea Customs Act (1961), by amending that a taxable amount f imports will be based on 3)Current Status the WTO Guidelines, that is, invoice prices of imports. ・ This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities Customs Department, Ministry of Finance and Revenue Concerned 5)Related Law The Sea Customs Act(1962) 6)Related Rules - 7)Donors’ - Involvement

Issue 5-2 Category Trade/Logistics Sub-Category Import/Export License Issue Deregulation of Trade license Description The Ministry of Commerce announced the Notification No.16 in March 2013, and regarding 152 export commodities and 166 import commodities (equivalent to 593 commodities in HS Codes), exporters and importers are allowed to export and import those commodities without applying for an export and import license with the Ministry of Commerce. Nevertheless Customs Department does not follow the Notification. As a result, 1)Background of customs still request exporters and importers to submit licenses. On September 9, the the Problem Ministry further announced the more detailed classification of 166 import commodities in HS Cord, 1928 items. Until the end of the year 2013, the number of commodities without licenses will increase up to 2,000 items according in line with the ASEAN‟s Guideline on Procedure of Acquiring Import Licenses. The more important thing is that a list of sensitive goods should be informed in advance. 2)Reason behind The sudden announcement of Notification No.16 by the Ministry of Commerce was not the problem well informed to the Customs Department. ・ The Department of Trade, Ministry of Commerce and Customs Department, Ministry 3)Current Status of Finance and Revenue established a coordinating committee to handle the issue. ・ This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities ・ Department of Trade, Ministry of Commerce, Customs Department Concerned ・ Ministry of Finance and Revenue 5)Related Law The Export and Import Law (2012) ・ Notification No.16 issued by the Ministry of Commerce and Notification No.77 6)Related Rules ・ WTO Agreement on Import Licenses ・ ASEAN‟s Guideline on Procedure of Acquiring Import Licenses 7)Donors’ - Involvement

Issue 5-3 Category Trade/Logistics Sub-Category Import License Issue Validity Period of Import License Description

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The validity period of import licenses is just three months, which has been long argued by domestic traders since 2005. The Ministry of Commerce extended validity period from 3 to 1)Background of 5 or 6 months particularly for medical equipment and construction machinery, but the the Problem government‟s response over this issue was not deregulated as a whole. The problem of this issue is that the period of three months is much shorter than actual period for importing process required under the present procedure. ・ Many of domestic traders took illegal transactions, distributing import goods into 2)Reason behind domestic market, and the problem ・ The Ministry of Commerce did not issue any notification over this matter so that the government‟s policy over this issue has not been clear. The Ministry‟s policy over this issue remains unchanged, but after permit to trade is given 3)Current Status to foreign traders, the Ministry would be flexible to validity period of import licenses. 4)Authorities Department of Trade, Ministry of Commerce Concerned 5)Related Law - 6)Related Rules - 7)Donors’ - Involvement

Issue 5-4 Category Trade/Logistics Sub-Category Border Trade Issue Transshipment at Border Description Border trade usually requires a lengthy time of transshipment and brings about damages 1)Background of of goods at the time of transshipment. To avoid theft of goods transshipped, there will need the Problem the system of border trade without transshipment (change of truck head), which is observed in the other ASEAN countries. ・ National roads extending to the border between Myanmar and Thailand are not paved and developed so that heavy trucks coming from Thailand are not able to pass the 2)Reason behind national roads on Myanmar territory. the problem ・ Border trade needs a one-stop customs service of Myanmar and the neighbor country to speed up customs at border. Myanmar and the neighboring country (i.e. Thailand) did not make such an agreement about customs system at border. 3)Current Status The government does not recognize that this issue is urgent. 4)Authorities ・ Department of Trade, Ministry of Commerce, Customs Department Concerned ・ Ministry of Finance and Revenue 5)Related Law Cross Border Trade Agreement (2003) 6)Related Rules - 7)Donors’ - Involvement

Issue5-5 Category Trade/Logistics Sub-Category Industrial Standards Issue Absence of Industrial Standards Description 1)Background of There is no law on industrial standards in Myanmar so that the country will face difficulty the Problem exporting in respect of quality of export products. 2)Reason behind The Ministry of Industry has no section responsible for Myanmar industrial standard. the problem ・ No legal action 3)Current Status ・ This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities Ministry of Industry Concerned

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5)Related Law - 6)Related Rules - 7)Donors’ - Involvement

Issue 5-6 Category Trade/Logistics Sub-Category Food Sanitation Issue Absence of Food Sanitation Act and Rules Description There is no law and rules on food sanitation in Myanmar so that there are no guidelines or 1)Background of criteria to check food safety of foods from abroad in respect of sanitation. Likewise the Problem domestic foods manufacturers are obliged to produce foods product without sanitation guidelines so that those products can not be exported. 2)Reason behind The Food and Drug Department, the Ministry of Health has no section responsible for the problem food sanitation. 3)Current Status No legal action 4)Authorities Food and Drug Department, Ministry of Health Concerned 5)Related Law - 6)Related Rules - 7)Donors’ - Involvement

Issue 5-7 Category Trade/Logistics Sub-Category Logistics Issue Bonded System Description There are bonded areas available in Myanmar, but there is no bonded system transporting 1)Background of goods from seaports without making customs clearance from a bonded area to another the Problem bonded areas or factories. There is no warehousing system either in the country.  Manufacturing industry in Myanmar has not been developed so as to require a bonded 2)Reason behind system so far, and the problem  Customs Department recognizes necessity of bonded warehouses, but does not extend its recognition to bonded system. Customs Department is reported to prepare a drafting amendment of the 1992 Tariff Law, in 3)Current Status which bonded system is to be incorporated. 4)Authorities Customs Department, Ministry of Finance and Revenue Concerned 5)Related Law The Amendment of Tariff Law(1992) 6)Related Rules - 7)Donors’ - Involvement

(6) Labour Issue 6-1 Category Labor Sub-Category Visa Rules of Visas, Inefficiency in Visa Application and Foreign Certificate Issue Registration Description

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In Myanmar, the government policy and rules for foreigners has been administered by the Registration of Foreigners Act (1940) and the Registration of Foreigners Rules (1948). As a whole, rules applied to foreigners in Myanmar are based on the government strict control of them. The followings are the issues relating to visa issuance and foreigners registration certificates for foreign residents, which were raised by the third Joint-Initiative of Myanmar-Japan (Oct 2, 2013): The current visa issuance process for stay permit of foreign residents is a three months‟ permit at 1st application, a six months‟ permit at 2nd application and one year‟s permit at 3rd 1)Background of application. The rule of three steps‟ application appears to be not investors‟ friendly. the Problem The Ministry of Commerce does not prepare recommendation letters to the families of foreign residents. The Ministry of Immigration and Population requires recommendation letters from respective ministries in the process of visa issuance. It takes two months more due to delay of preparation of letters by respective ministries. Foreign residents are requested to submit Foreign Registration Certificates (FRC) at international airports when leaving abroad, which impedes mobility of business travelling around region because they should pick up their FRCs at immigration offices. ・ Unclear rule of visa issuance 2)Reason behind ・ Unnecessary requirement of recommendation letters from ministries the problem ・ Unclear rule of FRC ・ The Ministry of Immigration and Population appears to not change the current rules for 3)Current Status visa issuance. ・ This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) ・ Department of Immigration and National Registration, Ministry of Immigration and 4)Authorities Population Concerned ・ Department of Trade, Ministry of Commerce ・ The Registration of Foreigners Act (1940) 5)Related Law ・ The Registration of Foreigners Rules (1948) 6)Related Rules - 7)Donors’ - Involvement

Issue 6-2 Category Labor Sub-Category Employment Issue Duty of Employing Skilled labor Description The Article 24 of the Foreign Investment Law (2012) requires to increase the minimum 1)Background of level of employment of skilled labor/technical workers, i.e. 25% of all employees within two the Problem years after establishment of a company 50% within 4 years, 75% within 6 years. The said Article does not make clear of differentiation of skilled/unskilled labor. ・ The Article 24 seems to be neither a rule nor a regulation. It appears to be the government‟s request to foreign companies. 2)Reason behind ・ The Article 24 does not match with actual labor requirements based on the market the problem economy. ・ As a whole, the FIL should focus on regulations at entry stage of foreign investment, but the 2012 FIL covers many articles relating to stages after entry. 3)Current Status - 4)Authorities ・ MIC Concerned ・ Ministry of Labor 5)Related Law The Foreign Investment Law (2012) 6)Related Rules - 7)Donors’ - Involvement

Issue 6-3

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Category Labor Sub-Category Labor Dispute Issue Establishment of Settlement of Labor Dispute Description The Settlement of Labor Dispute Law (2012) spelled out the settlement methods of labor disputes by establishing a Labor Dispute Settlement Committees by district administered by 1)Background of region/state governments. Nonetheless actual condition is: the Problem  Labor union is still weak with little bargaining power,  Labor dispute settlement committee by district has not been established yet, and  Ministry of Labor is continuously involved in settlement of labor disputes.  There are no labor unions by industry yet in Myanmar. It implicates that the 2)Reason behind government (state/region) has to be involved in labor dispute settlement as a supporting the problem system.  Enforcement of the settlement methods will be the key issue afterward. 3)Current Status This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities Ministry of Labor, State/Region governments Concerned 5)Related Law The Settlement of Labor Dispute Law(2012) 6)Related Rules - 7)Donors’ - Involvement

(7) Infrastructure/energy/environment (including PPP) Issue 7-1 Category Infrastructure/Energy/Environment Sub-Category Infrastructure Issue Absence of PPP Related Laws Description There are no laws and regulations on the public-private-partnership. Although the government announces introduction of PPP for infrastructure development, the government 1)Background of does not recognize importance of PPP related laws which makes clear responsibilities of the the Problem government and various incentives for facilitation of private sector into infrastructure development. ・ Absence of donors-assisted study of why PPP is necessary and PPP law-making would 2)Reason behind be the primal reason for the current level of the government understanding of PPP. the problem ・ There is no leading institution promoting PPP related laws and regulations. ・ Ministry of Construction recognizes significance of PPP related laws. 3)Current Status ・ This issue is raised on the 2rd Meeting of “Myanmar-Japan Joint Initiative”(May,2013) 4)Authorities Ministry of Construction, National Planning and Economic Development Concerned 5)Related Law - 6)Related Rules - 7)Donors’ - Involvement

Issue 7-2 Category Infrastructure/Energy/Environment Sub-Category Environment Issue Absence of Environmental Criteria and Standards Description The Environmental Conservation Law passed by the Ministry of Environmental Conservation and Forestry in 2012 is just the government policy stipulating the power of the 1)Background of Ministry to create guidelines in different sectors. The Environment Impact Assessment the Problem (EIA) Rule under preparation is also stipulating regulations and duties of the Ministry in the area of EIA. Both of the Law and the Rule does not cover environmental criteria and

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standards, i.e. waste water standard from a factory, effluent standard from an industrial estate, dioxin emission standard, and environmental control value over air pollution, which are to be used for EIA of various projects and enforcement of these criteria for private sector. ・ Myanmar is almost at the initial stage of preparation of the basic laws and rules for 2)Reason behind environmental conservation, the problem ・ The Ministry has little records relating to the relation between effluent and environmental damages so that it is difficult to set up standard or criteria. ・ Basic law and rules are prepared. 3)Current Status ・ This issue is raised on the 2rd Meeting of “Myanmar-Japan Joint Initiative”(May,2013) 4)Authorities Ministry of Environment Conservation and Forestry Concerned 5)Related Law The Environmental Conservation Law (2012) 6)Related Rules The Environmental Impact Assessment Rule (to be prepared) 7)Donors’ - Involvement

Issue 7-3 Category Infrastructure/Energy/Environment Sub-Category Infrastructure/Construction Issue Consortium/JV Agreement by project basis Description A Consortium/JV formed by a contract or Unincorporated JV is a different legal arrangement from the incorporated or equity joint venture in which parties concerned do not set up a separate legal entity. 1)Background of Such a Consortium/JV will be necessary for many of infrastructure projects the country the Problem needs. The concept of JV formed by a contract has not been well understood among the relevant ministries. At present, there is no guideline or rule over JV formed by a contract so that foreign companies have to establish a JV company by project. ・ There are no laws and guidelines over a joint venture so that the concerned ministries is 2)Reason behind not used to the term of unincorporated or contractual joint venture. the problem ・ The contractual JV is not presented in the 2012 FIL. ・ No legal action 3)Current Status ・ This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) · Ministry of Construction 4)Authorities · The Attorney General‟s Office Concerned · DICA 5)Related Law The Foreign Investment Law(2012) 6)Related Rules - 7)Donors’ - Involvement

(8) Others (consumer protection, competition, etc.) Issue 8-1 Category Others Sub-Category Pricing for Foreigners Issue Abolition of Pricing for Foreigners Description Dual pricing of utilities such as electricity, water and telecommunication is set out against foreigners and foreign companies. Local company is charged at the rate of 18 MMK/sqft 1)Background of (residential building) and 36 MMK/sqft (commercial building) for granting permit on the Problem commencement of construction, foreign companies are charged at 2USD/sqft for both types of buildings (respectively 100 times and 50 times more than local company). This affects competitiveness of foreign construction companies. ・ There are no rules or regulations specifying dual pricing of products and services 2)Reason behind against foreigners and foreign companies.

4-25 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report the problem ・ The government takes it for granted that dual pricing is the necessary tool to increase revenue collection. No legal action 3)Current Status This issue is raised on the 3rd Meeting of “Myanmar-Japan Joint Initiative”(Oct,2013) 4)Authorities ・ Ministry of Construction Concerned ・ Various utilities institutions 5)Related Law - 6)Related Rules - 7)Donors’ - Involvement

Issue 8-2 Category Others Sub-Category Administrative Procedures Issue Ambiguity of Administrative Procedure In the Government Institutions Description Foreign companies approved by the Foreign Investment Law are required to get approval from MIC in respect of their business plan, repatriation of profits and others. Some 1)Background of companies received MIC‟s instruction regarding change of plan without any explanation the Problem written in form. Foreign companies sometime face payment of additional costs other than licenses fees for facilitation of procedures at customs and state-owned companies. ・ There are no rules or regulation or laws on anti-corruption in Myanmar. 2)Reason behind ・ The 2012 FIL provides MIC with the authority of controlling foreign companies the problem approved under the 2012 FIL. ・ No legal action, i.e. enactment of anti-corruption law 3)Current Status ・ This issue is raised on the 2rd Meeting of “Myanmar-Japan Joint Initiative”(May,2013) 4)Authorities ・ MIC Concerned ・ Related ministries 5)Related Law - 6)Related Rules - 7)Donors’ - Involvement

Issue 8-3 Category Others Sub-Category Consumer Protection Issue Absence of Guidelines and Criteria to Check Quality of Products Description The Consumer Protection Law just passed by the Ministry of Commerce, covers a wide range of issues, i.e. consumer redress, product safety and liability, competition, labeling, professional services, consumer credit and advertising. Enforcement of consumer protection 1)Background of is, for instance, that foods locally manufactured or imported need to be checked and the Problem approved by the Food and Drug Administration. But the Law is just rules and regulations on consumer protection without guidelines and criteria to check and approve the quality of products and services. 2)Reason behind Myanmar is just at the initial stage of preparation of the basic law. the problem 3)Current Status Consumer Protection Law just passed 4)Authorities Ministry of Commerce Concerned 5)Related Law The Consumer Protection Law(2013) 6)Related Rules - 7)Donors’ -

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Involvement

4.3. Current Issues in Business Related Rules and Regulations in Cambodia (in relation to regulatory development and enforcement) 4.3.1. Method and Source of Issues Identification Since various studies and technical cooperation projects have already been implemented in Cambodia mainly through JICA, JETRO, and Chamber of Commerce in order to support Japanese companies to expand their business in Cambodia, the JICA Study Team firstly identified issues through reviewing relevant studies and projects as well as existing literatures as shown in the below table.

Table 4-5 List of Main Studies/Projects/Literatures on Business Environments in Cambodia Study/Project/Literature Organization Implementation Period Study for Collection and Confirmation of the Information on the Amendment of the Law on Investment and the Enactment JICA May 2013 – February 2014 of the Law on Special Economic Zones in Cambodia Investment Environments in Cambodia JBIC April 2013 The Legal and Judicial Development Project (Phase 3) JICA April 2008 – March 2012 Cambodia Investment Guidebook CDC/JICA January 2013 Comparison of Business Environments in Emerging Asian JETRO March 2013 Countries Comparison Analysis on Investment Related Cost in the Major JETRO December 2012 – January 2013 Cities and Area in Asia and Oceania Study on Japanese Companies‟ Activities in Asia and Oceania JETRO December 2012 Study on Overseas Manufacturing Business Development JBIC July 2012 – December 2012 Doing business 2013/2014 WB/IFC October 2012/October 2013 Source: JICA Study Team

In addition to the above literature review, the JICA Study Team utilized the information from i) “Japan-Cambodia Public and Private Sector Joint Meeting”80, which aims to discuss main issues on economic legal systems and operations between the Cambodia and Japan, and ii) the Cambodia‟s Government-Private Sector Forum (G-PSF)81, which is an opportunity to have dialogues between the Cambodian government and the private sector on the outstanding business related issues that remain unsolved from the Working Groups82. Also, the JICA Study Team, with support from the local law firm, collected laws and regulations related to the identified issues and made interviews with ministries, Chamber of Commerce, private companies when further information was necessary.

80 The meetings have been held 8 times by Japanese embassy, JICA, JETRO, and Japan Business Association of Cambodia (JBAC), based on the Japan-Cambodia Investment Agreement which went into force in August 2008. The 9th “Japan-Cambodia Public and Private Sector Joint Meeting” will be held in November 2013. 81 The forum was established in 1999 and is held bi-annually under the chairmanship of the Prime Minister of Cambodia 82 The 8 Working Groups are comprised of 1) Agriculture and Agro-Industry, 2) Tourism, 3) Manufacturing and SMEs, 4) Law, Tax and Governance, 5) Banking and Finance Services, 6) Export Processing and Trade Facilitation, 7) Energy, Transport and Infrastructure, and 8) Industrial Relations.

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4.3.2. Current Major Issues in Business Environment

(1) Investment (including incentives, limitation on foreign participation) Issue 1-1 Investment (including incentives and limitations on foreign Category participation) Sub-Category QIP Issue QIP for expansion/ additional investment Description Because a QIP status must be provided to an investment project, not a company, under the current LOI, additional application for QIP registration shall be required if 1)Description of the company wishes to implement additional investment to the original project. It the Problem would be more investor friendly if a company could register all the prospective future projects as one QIP at the beginning. 2)Reasons behind There is no article stipulating the expansion and additional investment of QIP in the the Problem related laws and regulations. The issue also has been raised during the Government Private Sector Forum. 3)Current Status Council for the development of Cambodia (CDC) is currently considering the interpretation of this issue. 4)Authorities Cambodia Investment Board of Council for the Development of Cambodia Concerned 5) Related Law Law on the Amendment to the Law on Investment (March 2003) Sub-Decree No.111 on the Implementation of the Amendment to the Law on 6)Related Rules Investment (Sep.2005) 7)Donors’ JICA is currently assisting to amend Law on the Amendment to the Law on Involvement Investment and to enact the SEZ law.

Issue 1-2 Investment (including incentives and limitationa on foreign Category participation) Sub-Category QIP Issue Difference between QIP and non-QIP Description Incentives provided for the QIP are not much different from those for non-QIP (during the period receiving incentives, 20% of Advanced Tax in addition to 14% of withholding tax on the dividend distribution, which makes the total tax rate 32.2%.) 1)Description of This the equivalent of paying 20% corporate tax even if incentives are approved in the Problem case profits are recovered through dividends. Also, the corporate tax holiday is too short. Because tariffs within ASEAN countries will be mostly abolished in 2015 when ASEAN Economic Community (AEC) starts, the effects of incentives regarding tariff exemption will be very limited. The issue is the concept of investment incentives as an implementation of 2)Reasons behind investment policy in Cambodia. Appropriate incentives are necessary to be created of the Problem to compete with other ASEAN countries for preparing AEC in 2015. The issue has been raised during the Government Private Sector Forum. Council for 3)Current Status the development of Cambodia (CDC) is internally discussing the appropriate investment incentives. 4)Authorities Cambodia Investment Board of Council for the Development of Cambodia Ministry Concerned of Economy and Finance Law on the Amendment to the Law on Investment (March 2003) Article 14.1, 14.5, 5) Related Law 14.6, 14.7 Law on Taxation (January 2004) Article 23 6)Related Rules Sub-Decree No.111 on the Implementation of the Amendment to the Law on

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Investment (Sep.2005) Article 15 7)Donors’ JICA is currently assisting to amend the Law on the Amendment to the Law on Involvement Investment and to enact the SEZ law.

Issue 1-3 Investment (including incentives and limitations on foreign Category participation) Sub-Category QIP Issue Abuse of QIP Description A misuse of incentives should be prevented. For example, one company closes a QIP 1)Description of at the end of the tax exemption period and re-applies for another QIP using the same the Problem facilities with a different name for the investor/company. 2)Reasons behind This is a case of exploiting a current incentive program of QIP. There is no article of the Problem avoiding the misuse of the incentives in the related laws and regulations. The issue has been raised during the Government Private Sector Forum. Council for 3)Current Status the development of Cambodia (CDC) is currently considering how to solve the issue. 4)Authorities Cambodia Investment Board of Council for the Development of Cambodia Concerned 5) Related Law Law on the Amendment to the Law on Investment (March 2003) Sub-Decree No.111 on the Implementation of the Amendment to the Law on 6)Related Rules Investment (Sep.2005) 7)Donors’ JICA is currently assisting to amend the Law on the Amendment to the Law on Involvement Investment and to enact the SEZ law.

Issue 1-4 Investment (including incentives and limitations on foreign Category participation) Sub-Category QIP Issue Tax exemption Period Description The current exemption period of the corporate tax are defined as "Trigger Period (year of profit declaration or maximum 3 years) + 3 years + Priority Period (decided 1)Description of based on investment sector and amount of investment)”. However, it is difficult to the Problem understand. Thus a clearer definition of the tax exemption period (number of years) needs to be introduced. 2)Reasons behind Interpretation of tax exemption period is unclear. of the Problem The issue has been raised during the Government Private Sector Forum. Council for 3)Current Status the development of Cambodia (CDC) is currently considering how to solve the issue. 4)Authorities Cambodia Investment Board of Council for the Development of Cambodia Concerned 5)Related Law Law on the Amendment to the Law on Investment (March 2003) Article 14.1 6)Related Rules Sub-Decree No.111 on the Implementation of the Amendment to the Law on Investment (Sep.2005):Article 15 7)Donors’ JICA is currently assisting to amend the Law on Investment and to enact the SEZ Involvement law.

Issue 1-5 Investment (including incentives and limitations on foreign Category participation)

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Sub-Category QIP Issue Rate of tax on profits after the period of tax holiday Description Under the current Law on the Amendment to the Law on Investment, 20% of 1)Description of corporate tax will be levied right after the expiry of tax exemption period for QIPs. the Problem The rate of tax on profits should be raised gradually like the case in Thailand and Laos. 2)Reasons behind Rules of imposing tax after the expiry of the tax exemption period may not be of the Problem appropriate compared to the situation in other neighboring countries. The issue has been raised during the Japan Cambodia Coordinating Meeting. 3)Current Status Council for the development of Cambodia (CDC) is currently considering how to solve the issue. 4)Authorities Cambodia Investment Board of Council for the Development of Cambodia, MEF Concerned 5)Related Law Law on the Amendment to the Law on Investment (March 2003) Article 14.3 Sub-Decree No.111 on the Implementation of the Amendment to the Law on 6)Related Rules Investment (Sep.2005) 7)Donors’ JICA is currently assisting to amend the Law on Investment and to enact the SEZ Involvement law.

Issue 1-6 Investment (including incentives and limitations on foreign Category participation) Sub-Category QIP Issue Definition and Classification of Industry Description Priority Period, which is a part of corporate tax holiday period, is determined based on the amount of investment (total operation cost) and type of industry. However, 1)Description of light industry must be further segmented. Currently, high technology motor the Problem manufacturing and toothpick manufacturing are classified as light industries and provided the same tax holiday period. There are two causes for this issue as below: i) Inappropriate conditions for providing investment incentives; and ii) Unclear definitions on the terminology. The former should be solved under the investment incentives as an implementation 2)Reasons behind of the investment policy in Cambodia. of the Problem More appropriate definitions, according to the current situation, should be considered to solve the latter cause. These issues occurred because the business situation in Cambodia has changed compared to the time when the related laws and regulations were set. The issue also has been raised during the Japan Cambodia Coordinating Meeting. 3)Current Status Council for the development of Cambodia (CDC) is currently considering how to solve the issue. 4)Authorities Cambodia Investment Board of Council for the Development of Cambodia Concerned Ministry of Economy and Finance (MEF) Financial Management Law 2006 (December 2005): Chapter 2 "Priority Period 5) Related Law Definition for the Tax on Profit of the QIP" Law on the Amendment to the Law on Investment (March 2003) Sub-Decree No.111 on the Implementation of the Amendment to the Law on 6)Related Rules Investment (Sep.2005) 7)Donors’ JICA is currently assisting to amend the Law on Investment and to enact the SEZ Involvement law.

Issue 1-7 Category Investment (including incentives and limitations on foreign

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participation) Sub-Category QIP Issue Definition and Classification of QIP Description Definitions of “Export oriented QIP” and “Domestically oriented QIP” are not 1)Description of clearly separated. Definition of “Supporting QIP” in 25 of Section 2, Annex 1 the Problem Negative List, and Sub-Decree #111 is obscure. Redefinition of Export QIP, Domestic QIP and Supporting QIP is necessary. This is an issue caused by unclear terminology. The issue should be solved through 2)Reasons behind the creation of appropriate definitions according to the current situation. The issue of the Problem has occurred because the business situation in Cambodia has changed compared to the time when the related laws and regulations were set. The issue has been raised during the Government Private Sector Forum. Council for 3)Current Status the development of Cambodia (CDC) is currently considering how to solve the issue. 4)Authorities Cambodia Investment Board of Council for the Development of Cambodia Concerned 5)Related Law Law on the Amendment to the Law on Investment (March 2003) Article 2 Sub-Decree No.111 on the Implementation of the Amendment to the Law on 6)Related Rules Investment (Sep.2005):Article 3 7)Donors’ JICA is currently assisting to amend the Law on Investment and to enact the SEZ Involvement law.

Issue 1-8 Investment (including incentives and limitations on foreign Category participation) Sub-Category QIP Issue Improvement of One-stop Service Description The Law on the Amendment to the Law on Investment stipulates the CDC shall obtain all necessary licenses from relevant ministries-entities listed in the CRC on behalf of an applicant within 28 working days after issuance of a CRC. In fact, the applicant (investor) visits each related ministry and obtains the necessary license by him/herself. Most of the time, the members of SEZ Administration who are being stationed in 1)Description of SEZs do not have enough detailed knowledge of the related laws and regulations the Problem regarding the permits, authorizations and/or registration to be issued or handled in a SEZ. Therefore, it can be concluded that the one stop service, which provides all necessary licenses at a focal point, as the Law describes, has not been realized in Cambodia. Furthermore, "One-stop Service" in SEZ Administration is not functional as foreign investor expect. It still needs time, efforts, and expenses to be improved.

The following three reasons might be the causes of this issue:  There is a discrepancy between the provisions of the Amendment Law on 2)Reasons behind Investment and the Sub-Decree No.111. of the Problem  The coordination among CDC and the related authorities is poor.  Capacity of the staff of the related authorities is poor. The issue has been raised in both the Government Private Sector Forum as well as 3)Current Status the Japan Cambodia Coordinating Meeting. Council for the development of Cambodia (CDC) is currently considering how to solve the issue. 4)Authorities Cambodia Investment Board of Council for the Development of Cambodia Concerned 5)Related Law Law on the Amendment to the Law on Investment (March 2003) Article 7 6)Related Rules Sub-Decree No.111 on the Implementation of the Amendment to the Law on

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Investment (Sep.2005):Article 7.1 7)Donors’ JICA is currently assisting to amend the Law on Investment and to enact the SEZ Involvement law.

Issue 1-9 Investment (including incentives and limitations on foreign Category participation) Sub-Category QIP Issue Issuance of tax exemption certificate Description GDT requires QIPs to obtain the Tax Exemption Certificate from GDT, even though it is clearly stipulated that "the tax rate is 0% for the profit of QIP during the tax 1)Description of exemption period as determined by CDC" in Clause 4, Article 20, Section 4 of the the Problem Law on Taxation. The requirement for obtaining Tax Exemption Certificate seems to be a duplication of an administrative procedure. Implementation/enforcement does not take place as stipulated although laws and 2)Reasons behind regulations exist. The duplication of an administration procedure has been occurred of the Problem between CDC and GDT. 3)Current Status The issue has been raised during the Government Private Sector Forum. 4)Authorities General Department of Taxation, MEF Concerned Cambodia Investment Board of Council for the Development of Cambodia 5)Related Law Law on the Amendment to the Law on Taxation (2003) Article 20.4 Sub-Decree No.111 on the Implementation of the Amendment to the Law on 6)Related Rules Investment (Sep.2005) 7)Donors’ N.A. Involvement

Issue 1-10 Investment (including incentives and limitations on foreign Category participation) Sub-Category QIP Issue Submission of master list Description QIP-approved companies need to submit a master list (valid for 1 year) for the duty-exempted imports and to report the actual import record quarterly. If a product on the master list hasn't been imported or imported more than planned during the 1)Description of designated period, the master list has to be modified and submitted at a time of each the Problem modification (valid for 1 year). One Japanese company is said to have submitted 6 modified master sheets. This process has been improving, but the period of the validity of the master list and frequency of submitting the master list is not consistent yet, which confuses investors. Implementation/enforcement does not take place as stipulated although laws and 2)Reasons behind regulations exist. The period of the validity of the master list and frequency of the of the Problem submission are instructed differently to the applicants. The issue was raised and has been being considered at Garment Manufacturers 3)Current Status Association in Cambodia (GMAC). 4)Authorities Cambodia Investment Board of Council for the Development of Cambodia Concerned Law on the Amendment to the Law on Investment (March 2003) Article 14.5, 14.6, 5)Related Law 14.7 Sub-Decree No.111 on the Implementation of the Amendment to the Law on 6)Related Rules Investment (Sep.2005):Article 16.4 7)Donors’ N.A. Involvement

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Issue 1-11 Investment (including incentives and limitations on foreign Category participation) Sub-Category SEZ Issue Bonded warehouses Description Although the Law on Customs admits the private sector to operate Bonded 1)Description of Warehouses, QIP status shall not be provided to such operations. High value-added the Problem warehousing by using bonded warehouse or high-tech warehouses should be provided with QIP status. This is the issue caused by unclear definition of the terminology “Warehouse facilities” listed as investment activities not eligible for incentives in Annex 1 of Sub-Decree No.111 on the Implementation of the Amendment to the Law on 2)Reasons behind Investment (Sep.2005). The issue should be solved through the creation of of the Problem appropriate definitions according to the current situation. The issue was occurred because the business situation in Cambodia has been changed compared to the time when the related laws and regulations were set. The issue has been raised during the Japan Cambodia Coordinating Meeting. 3)Current Status Council for the development of Cambodia (CDC) is currently considering how to solve the issue. 4)Authorities General Department of Customs and Excise Concerned 5)Related Law Law on the Customs (July 2007) Article 44 Sub-Decree No.111 on the Implementation of the Amendment to the Law on 6)Related Rules Investment (Sep.2005):Annex 1 7)Donors’ N.A. Involvement

Issue 1-12 Investment (including incentives and limitations on foreign Category participation) Sub-Category SEZ Issue Expansion/Additional investment in a SEZ Description Currently, incentives to expand a QIP are not clearly defined. When a company in a SEZ considers manufacturing different products in different process (e.g. plastic 1)Description of making) from originally approved QIP (e.g. garment), it needs to incorporate a new the Problem company with a new factory and additional investments. It is necessary to take measures to allow a company to have QIP1 and QIP2, etc. 2)Reasons behind There is no article stipulating the expansion and additional investment of QIP in the of the Problem related laws and regulations. The issue has been raised during the Japan Cambodia Coordinating Meeting. 3)Current Status Council for the development of Cambodia (CDC) is currently considering how to solve the issue. 4)Authorities CSEZB of Council for the Development of Cambodia, MEF Concerned Law on the Amendment to the Law on Investment (March 2003) Article 6 5)Related Law Law on the Amendment to the Law on Taxation (2003) Article 101, 102, 103 Sub-Decree #148 on the Establishment and Management of the Special Economic 6)Related Rules Zones (December 2005) 7)Donors’ JICA is currently assisting to amend Law on the Amendment to the Law on Involvement Investment and to enact the SEZ law.

Issue 1-13 Category Investment (including incentives and limitations on foreign

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participation) Sub-Category SEZ Issue Issuance of Certificate of Origin (COO) in a SEZ Description 1)Description of Certificate of Origin has not been issued by the SEZ Administration in SEZ. the Problem Although laws and regulations exist, implementation/enforcement does not take 2)Reasons behind place as stipulated. The Article 4.3.5.c, Sub-Decree #148 on the Establishment and of the Problem Management of the Special Economic Zone stipulates that the issuance of a COO is one of the obligations of SEZ administration. The issue has been raised during the Japan Cambodia Coordinating Meeting. 3)Current Status Council for the development of Cambodia (CDC) is currently considering how to solve the issue. 4)Authorities CSEZB of Council for the Development of Cambodia Concerned 5)Related Law Law on the Amendment to the Law on Investment (March 2003) Sub-Decree #148 on the Establishment and Management of the Special Economic 6)Related Rules Zone (December 2005) Article 4.3.5.c 7)Donors’ N.A. Involvement

Issue 1-14 Investment (including incentives and limitations on foreign Category participation) Sub-Category SEZ Issue Issuance of Certificate of Origin (COO) in a SEZ Description 1)Description of Certificate of Origin has not been issued by the SEZ Administration in SEZ. the Problem Although laws and regulations exist, implementation/enforcement does not take 2)Reasons behind place as stipulated. The Article 4.3.5.c, Sub-Decree #148 on the Establishment and of the Problem Management of the Special Economic Zone stipulates that the issuance of a COO is one of the obligations of SEZ administration. The issue has been raised during the Japan Cambodia Coordinating Meeting. 3)Current Status Council for the development of Cambodia (CDC) is currently considering how to solve the issue. 4)Authorities CSEZB of Council for the Development of Cambodia Concerned 5)Related Law Law on the Amendment to the Law on Investment (March 2003) Sub-Decree #148 on the Establishment and Management of the Special Economic 6)Related Rules Zone (December 2005) Article 4.3.5.c 7)Donors’ N.A. Involvement

Issue 1-15 Investment (including incentives and limitations on foreign Category participation) Sub-Category Sector Issue Construction permit Description While a project-base construction license is provided to a foreign construction 1)Description of company in Thailand and Vietnam, only a legal person established in Cambodia may the Problem engage in the construction business in Cambodia. Moreover, such legal person (company) must obtain the construction business license from Ministry of Land

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Management, Urban Planning and Construction. 2)Reasons behind This is the issue of the entry regulations for foreign construction companies in order of the Problem to protect domestic construction companies. 3)Current Status N.A. 4)Authorities Ministry of Land Management, Urban Planning and Construction Concerned 5)Related Law Sub-Decree #86 ANK/BK/ on Construction Permit (December, 1997) Prakas #75 MLMUPC on the Regulation of Architectural and Construction Companies and Enterprises (September 1999), 6)Related Rules Instruction #002 MLMUPC On Registration of Architectural and Construction Enterprises, Companies and Foreign Legal Entities (July 2000) 7)Donors’ N.A. Involvement

Issue 1-16 Investment (including incentives and limitations on foreign Category participation) Sub-Category Protection of Investors (IPR) Issue Protection of trade name and trademark Description A lot of faked brand products are sold in Cambodia, since the regulations regarding the protection of trade name and trademark rights have not been implemented 1)Description of sufficiently. Many foreign traders feel difficulties in carrying out investments, being the Problem afraid to infringe the international compliance by being involved in the trade of fake products. The supply of original products with brand names is also difficult, being affected by the fake products. 2)Reasons behind Although laws and regulations exist, implementation/enforcement does not take of the Problem place as stipulated. 3)Current Status The issue has been raised during the Japan Cambodia Coordinating Meeting. 4)Authorities Ministry of Commerce Concerned Law Concerning Marks, Trade Names and Acts of unfair Competition (February 5)Related Law 2002) 6)Related Rules N.A. 7)Donors’ N.A. Involvement

(2) Company law/business license There are no significant issues related to the Company Law and Business License in Cambodia.

(3) Tax/accounting Issue 3-1 Category Tax/Accounting Sub-Category Tax Registration Issue Improvement of tax registration Description The Law on the Amendment to the Investment permits incentives by project. 1)Description of However, the tax registration at the Taxation Bureau is made on the basis of “one the Problem registration per one company” and the Tax authority does not approve for one company to carry out more than one QIP (for a different product) at the same time.

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Thus, the company has to establish a new company in case of additional investment for manufacturing different product.

The contents of laws and regulations are unclear. Therefore, interpretation by 2)Reasons behind relevant officers varies. There is a discrepancy between LOI and interpretation by of the Problem GDT on tax registration. The issue has been raised during the Japan Cambodia Coordinating Meeting. 3)Current Status Council for the development of Cambodia (CDC) has recognized the concept of the issue. 4)Authorities General Department of Taxation, MEF Concerned Council for the Development of Cambodia Law on the Amendment to the Law on Investment (March 2003) Article 6 5)Related Law Law on the Amendment to the Law on Taxation (2003) Article 101, 102, 103 Sub-Decree #148 on the Establishment and Management of the Special Economic 6)Related Rules Zones (December 2005) 7)Donors’ JICA and GDT are currently conducting a technical cooperation entitled “Project for Involvement Capacity Development of General Department of Taxation (GDT)”

Issue 3-2 Category Tax/Accounting Sub-Category Advance Tax Ruling System Issue The Establishment of Advance Tax Ruling System Description In Cambodia, if a company makes an inquiry on taxation matters to General Department of Taxation, clear answers cannot be obtained in most cases. An 1)Description of advanced ruling system such as public disclosure of interpretation on tax-related the Problem regulations needs to be established in GDT and appropriate information services should be started.

The following three reasons cause the issue:  There is no system for providing Advance Tax Rulings. 2)Reasons behind  There are no laws and regulations stipulating the establishment and of the Problem implementation of Advance Tax Ruling System.  The GDT officials do not have necessary knowledge and skills to introduce Advance Tax Ruling System in GDT. 3)Current Status N.A. 4)Authorities General Department of Taxation, MEF Concerned 5)Related Law Law on the Amendment to the Law on Taxation (2003) 6)Related Rules N.A. 7)Donors’ JICA and GDT are currently conducting a technical cooperation so called “Project Involvement for Capacity Development of General Department of Taxation (GDT)”.

Issue 3-3 Category Tax/Accounting Sub-Category Tax audit Issue The establishment of a proper system of tax audits Description Whenever the tax officer in charge changes, a tax survey is implemented retroactive 1)Description of to the past. To be specific, although a tax re-assessment carried out in 2009 the Problem confirmed 2007 tax return was sound, it was notified that a tax re-assessment will be implemented again back to 2002. 2)Reasons behind According to Article 117 in Tax Law, the tax administration can re-assess the tax: (i)

4-36 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report of the Problem within 3 years after the date the tax declaration was submitted; (ii) within 10 years after the date the tax declaration was required to be submitted if there is evidence of the obstruction of the implementation of tax provisions; and (iii) at anytime with the written consent of the taxpayer. Therefore, this issue is not exactly illegal under the current Law on Taxation. The real reason behind the problem is the fact that the law permits to conduct tax re-assessment irregularly and/or for long time as the case of (ii) and (iii). In the case of Japan, the retroactive period on tax audit is from 5 to 7 years. The issue has been raised during the Japan Cambodia Coordinating Meeting. The 3)Current Status Cambodian side has recognized the concept of the issue. 4)Authorities General Department of Taxation, MEF Concerned 5)Related Law Law on the Amendment to the Law on Taxation (2003) Article 116 & 117 6)Related Rules N.A. 7)Donors’ JICA and GDT are currently conducting a technical cooperation so called “Project Involvement for Capacity Development of General Department of Taxation (GDT)”.

Issue 3-4 Category Tax/Accounting Sub-Category Tax audit Issue Overdue Tax Description The tax re-assessment has been implemented for several months and no reason for a continuous re-assessment has been disclosed yet. Thus, the tax payers cannot take 1)Description of any actions. If additional tax is levied, it is not fair for the taxpayer to be left the Problem uninformed for a long time because the amount of overdue tax is expensive (2% per month). The stipulation on overdue tax is insufficient. In particular, the stipulation on 2)Reasons behind maximum payment amount of overdue tax to be levied is not incorporated into the of the Problem related laws and regulations. The issue has been raised during the Japan Cambodia Coordinating Meeting. The 3)Current Status Cambodian side has recognized the concept of the issue. 4)Authorities General Department of Taxation, MEF Concerned 5)Related Law Law on the Amendment to the Law on Taxation (2003) Article 116 & 117 6)Related Rules N.A. 7)Donors’ JICA and GDT are currently conducting a technical cooperation so called “Project Involvement for Capacity Development of General Department of Taxation (GDT)”.

Issue 3-5 Category Tax/Accounting Sub-Category Tax audit Issue Tax Payment by Bank Transfer Description 1)Description of Additional tax found during a tax re-assessment is required to be paid directly to the the Problem officer in charge, which is not transparent. It should be paid through a bank account. Although laws and regulations exist, implementation/enforcement does not take 2)Reasons behind place as stipulated. According to the GDT, all tax payment is required to be done of the Problem through bank transfer. The issue has been raised during the Japan Cambodia Coordinating Meeting. The 3)Current Status Cambodian side has recognized the concept of the issue. 4)Authorities General Department of Taxation, MEF Concerned

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5)Related Law Law on the Amendment to the Law on Taxation (2003) Article 116 & 117 6)Related Rules N.A. 7)Donors’ JICA and GDT are currently conduct a technical cooperation so called “Project for Involvement Capacity Development of General Department of Taxation (GDT)”

Issue 3-6 Category Tax/Accounting Sub-Category Advanced payment of Tax on Dividend Abolishment of “advance tax payment for the dividend during tax Issue exemption period” Description Under the current tax collection system in Cambodia, 14% of withholding tax is levied on dividends, which shall be distributed from the net profit after the payment of 20% tax on profit, when companies send the dividend to overseas. In the case of QIP, 20% of Advanced Payment of Tax on Dividend Distributions are 1)Description of still levied additionally on the dividend even it is entitled for the incentive of tax the Problem exemption and 14% of withholding tax is deducted from the dividend (actual tax rate: 0.2+(0.80*0.14)=0.312, 31.2%), when they send the dividend to overseas. If dividends carry forward after the tax holiday period in order to avoid paying the tax, investment recovery would be delayed and the tax exemption would lose much of its meaning. 2)Reasons behind There is a discrepancy between investment policy explaining tax exemption and of the Problem current tax system levying the advance payment of tax on dividend. The issue also has been raised during the Japan Cambodia Coordinating Meeting as 3)Current Status well as Government Private Sector forum. The Cambodian side has recognized the concept of the issue. 4)Authorities General Department of Taxation, MEF Concerned 5)Related Law Law on the Amendment to the Law on Taxation (2003) Article 23 6)Related Rules N.A. 7)Donors’ N.A. Involvement

Issue 3-7 Category Tax/Accounting Sub-Category Loss Issue Carry forward of loss Description Article 17 in the Law on Taxation permits to cancel out deficits and profits for the 1)Description of calculation of corporate tax up to 5 years since the start year of taxation. However, the Problem carrying forward of such deficits are not allowed during the tax exemption period even though there is no such clear rule in the Law on Taxation. There is an unclear interpretation due to the lack of stipulation. In general, it can be 2)Reasons behind considered that the carry forward of loss will be allowed during the tax exemption of the Problem period unless there is the stipulation prohibiting the carry forward of loss. The issue has been raised during the Government Private Sector forum. The 3)Current Status Cambodian side has recognized the concept of the issue. 4)Authorities General Department of Taxation, MEF Concerned Council for the Development of Cambodia Law on the Amendment to the Law on Investment (March 2003) 5)Related Law Law on the Amendment to the Law on Taxation (2003) Article 17 6)Related Rules N.A. 7)Donors’ N.A.

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Involvement

Issue 3-8 Category Tax/Accounting Sub-Category Profit tax Issue Advanced payment of profit tax Description Even though profit tax is exempted from QIPs, Taxation Bureau charges advanced 1)Description of payment of corporate tax on sales in domestic markets. Otherwise, it could incur a the Problem penalty. Although laws and regulations exist, implementation/enforcement does not take 2)Reasons behind place as stipulated. According to the Law on the Amendment to the Law on of the Problem Investment, the export oriented QIP is not required to pay tax on sales in domestic markets. The issue has been raised during the Japan Cambodia Coordinating Meeting. The 3)Current Status Cambodian side has recognized the concept of the issue. 4)Authorities General Department of Taxation, MEF Concerned 5)Related Law Law on the Amendment to the Law on Investment (March 2003) 6)Related Rules N.A. 7)Donors’ N.A. Involvement

Issue 3-9 Category Tax/Accounting Sub-Category VAT VAT exemption on raw materials procured from domestic market by Issue Export QIPs Description According to Prakas #3725 (MEF) on Continuation of Temporary Suspension of VAT for the Investors in the SEZ (June 2010), VAT is exempted on production machinery, raw materials and factory construction materials imported by Export QIPs within SEZs. Meanwhile, the products including raw materials and/or services 1)Description of procured at the domestic market are levied a VAT except products and/or services the Problem provided by Supporting Industry or Contractors for the export of Garment, Textile and Shoe Products. If the products and/ or services procured on the domestic market by Export oriented QIP in SEZs is exempt from VAT, their international competitiveness will be strengthened. In Cambodia, VAT is not exempted from domestic procurement for Export oriented 2)Reasons behind QIPs since the Cambodian government has no proper way to monitor/control of of the Problem products procured on the domestic market, which results in the rampant illegal sales. Lack of monitoring/controlling system on domestic procurement causes this issue. The issue has been raised during the Japan Cambodia Coordinating Meeting. The 3)Current Status Cambodian side has recognized the concept of the issue. 4)Authorities General Department of Taxation, MEF Concerned 5)Related Law Law on the Amendment to the Law on Taxation (2003) Prakas #3841 (MEF) on VAT Exemption for the Investors in the SEZ (July 2009), 6)Related Rules Prakas (MEF) #3725 dated 17 June 2010 7)Donors’ N.A. Involvement

Issue 3-10

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Category Tax/Accounting Sub-Category VAT Issue Different interpretations of VAT on land lease Description When a foreign company enters a SEZ, it is forced to make a long-term lease contract (most of the cases perpetual lease contract) on land with a SEZ developer because the Cambodian Constitution and Land Law do not allow foreigners to own land. (Civil Code of Cambodia stipulates the period of the perpetual lease to be maximum 50 years). Section 1 and 2 of Article 56 in Law on Taxation defines "goods" as "tangible property other than land or money" (section 1) and "services" as "the provisions of something of value other than goods, land, or money" (section 2). Based on these definitions, VAT is not levied on the purchase of land (4% of property transfer tax is 1)Description of levied). On the other hand, the General Tax Department (GDT) interprets that VAT the Problem of 10% shall be levied on the land lease within SEZ because they think the land leasing is a “service” and GDT is currently drafting a Circular aiming to announce this interpretation officially to the public. As a result, Cambodian citizens can purchase the land with property transfer tax of 4%, while foreigners have to pay 10% VAT in order to lease the land. This is against the principle of non-discriminatory treatment of domestic and foreign investors adopted in the Law on the Amendment to the Law on Investment and may infringe the basic spirit defined in “Agreement for the Liberalization, Promotion and Protection of Investment” made between Cambodia and Japan on June 14, 2007.

There is a discrepancy on the interpretation of VAT on land lease between current tax 2)Reasons behind collection system and investment policy on equal treatment of domestic and foreign of the Problem companies. General Tax Department (GDT) interprets that 10% of VAT is levied on land lease 3)Current Status within SEZ because lease is a service and GDT is currently drafting a Circular aiming to announce officially this interpretation to the public. 4)Authorities General Department of Taxation, MEF Concerned 5)Related Law Law on the Amendment to the Law on Taxation (2003) Article 56 6)Related Rules N.A. 7)Donors’ N.A. Involvement

Issue 3-11 Category Tax/Accounting Sub-Category Minimum Tax Issue Abolition of Minimum Tax Description 1)Description of Cambodia has still imposed minimum taxes which have been abolished in the Problem neighboring ASEAN countries. The business situation in Cambodia has changed compared to the time when the related laws and regulations were set. This is the issue related to both tax policy and 2)Reasons behind investment policy. The possible solution will be discussed while considering terms of the Problem for securing government revenue as well as enhancing competitiveness in international business. 3)Current Status N.A. 4)Authorities General Department of Taxation, MEF Concerned 5)Related Law Law on the Amendment to the Law on Taxation (2003) 6)Related Rules N.A.

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7)Donors’ N.A. Involvement

(4) Financial market and foreign exchange Issue 4-1 Category Financial Market/Foreign Exchange Sub-Category Security Issue Land collateral Description Under the Civil Code, land can be used as security in the form of a Pledge or Hypothec. However, Cambodian Financial Institutions still use the old system 1)Description of called Gage where the land registration certificate and land title are submitted to the the Problem Financial Institution. This is because a Pledge over land and Hypothec cannot be used under the current situation where the land registration is completed with only around 40% of land. 2)Reasons behind Although the laws and regulations exist, implementation/enforcement does not take of the Problem place as stipulated. Ministry of Justice has completed 40% of land registration with assistance from 3)Current Status ADB and the World Bank. 4)Authorities Ministry of Justice Concerned Civil Code 5)Related Law Book Six real Rights, Chapter 19 Pledge, Chapter 20 Hypothec 6)Related Rules N.A. JICA has been assisting the legislative-drafting process, especially laws in 7)Donors’ Cambodia‟s civil affairs field. Involvement ADB and the WB are supporting “Legal Administration Sub-program”.

Issue 4-2 Category Financial Market/Foreign Exchange Sub-Category Security Issue Collateral perpetual lease Description Under the Civil Code, the perpetual lease can be established over the building and 1)Description of this perpetual lease can be used as security. However, in reality, many people still the Problem believe that the owner of the land is the owner of the building over such land and using perpetual leases as a security is not sufficiently practiced. 2)Reasons behind The concept of mortgage has not been well recognized in Cambodian society. of the Problem The concept of mortgage along with other new concepts in the Civil Code has been 3)Current Status being promoted by the Ministry of Justice. 4)Authorities Ministry of Justice Concerned Civil Code 5)Related Law Book Three: Real Rights, Chapter 4 Perpetual Lease 6)Related Rules N.A. JICA has been assisting the legislative-drafting process, especially laws in 7)Donors’ Cambodia‟s civil affairs field, and is conducting the promotion of the Civil Code in Involvement cooperation with the Ministry of Justice.

Issue 4-3

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Category Financial Market/Foreign Exchange Sub-Category Security Issue Collateral perpetual leases Description Because a perpetual lease is only for the long term lease (longer than 15 years), for 1)Description of small investments (such as a restaurant) cannot use perpetual leases and therefore the Problem cannot use perpetual lease as security. 2)Reasons behind Although laws and regulations exist, implementation/enforcement does not take of the Problem place as stipulated. 3)Current Status N.A. 4)Authorities Ministry of Justice Concerned Civil Code 5)Related Law Book Three: Real Rights, Chapter 4 Perpetual Lease 6)Related Rules N.A. 7)Donors’ JICA has been assisting the legislative-drafting process, especially of laws in Involvement Cambodia‟s civil affairs field.

(5) Trade and logistics Issue 5-1 Category Trade, Tariff, Customs Clearance, and Logistics Sub-Category Advance ruling system Issue Introduction of an advance ruling system (country of origin) Description An advance ruling system is a ruling (or advice) provided by Customs administration upon traders‟ request on: i) tariff classification; ii) custom valuation; and iii) country of origin before the traders import goods. The introduction of the system is expected to contribute to activation of international trade by realizing smooth trade facilitation. In Cambodia, however, foreign companies, which plan to invest in Cambodia, are 1)Description of not able to obtain information on tariff classification, customs valuation for the Problem importing parts or products, and country of origin, since the advance ruling system has not been fully utilized in Cambodia. As for the tariff classification, the instruction No. 345 GDCE on Implementation of Advance Ruling for Tariff Classification, which stipulates the implementation procedure to provide services for customs valuation, was pledged in April 2013. GDCE is currently developing a software program to provide the tariff classification information through on line under the assistance of JICA.  Organizational structure and staff allocation have not been established in GDCE to provide advance ruling services for custom valuation and the country of 2)Reasons behind origin. of the Problem  The capacity of GDCE staff members is still too weak to provide advance ruling services for custom valuation and the country of origin. The issue has been raised during the Japan Cambodia Coordinating Meeting. The 3)Current Status Cambodian side has recognized the concept of the issue. 4)Authorities General Department of Customs and Excise Concerned 5)Related Law Law on Customs (July 2007) Prakas #002 MEF. BK on Advance Ruling for Tariff Classification, Origin and Customs Valuation 6)Related Rules Instruction #345 GDCE on Implementation of Advance Ruling for Tariff Classification 7)Donors’ A JICA expert was sent to GDCE for improvement of the trade facilitation services

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Involvement of GDCE.

Issue 5-2 Category Trade, Tariff, Customs Clearance, and Logistics Sub-Category Import duty & Export tax Issue Export tax Description 1)Description of QIP is approved, which means export taxe should be exempted. However, when the Problem wood chips were exported, export taxes were levied. Although the laws and regulations exist, implementation/enforcement does not take 2)Reasons behind place as stipulated, unless the wood chips are not listed as export restricted items in of the Problem other laws and regulations. The issue has been raised during the Japan Cambodia Coordinating Meeting. The 3)Current Status Cambodian side has recognized the concept of the issue. 4)Authorities General Department of Taxation, MEF Concerned 5)Related Law Law on the Amendment to the Law on Investment (March 2003) Artcile14.10 6)Related Rules N.A. 7)Donors’ N.A. Involvement

Issue 5-3 Category Trade, Tariff, Customs Clearance, and Logistics Sub-Category Customs Clearance Issue Customs Business Law Description In Thailand, Customs Business Law was enacted in 2007 aiming to stipulate conditions to start a business as customs brokers and the roles of customs specialist so that customs offices may control the activities of customs clearance. Meanwhile, 1)Description of even though Article 31, 32, and 33 of the customs law and Prakas No. 115 stipulate the Problem the rules for customs brokers, the description is not detailed nor unclear. The human resources for customs specialists who can carry out the customs clearance are also still weak. 2)Reasons behind There are no laws/ regulations on customs business. A qualification system for of the Problem registered customs specialists has not been established. 3)Current Status N.A. 4)Authorities General Department of Customs and Excise Concerned 5)Related Law Law on Customs (2007) Article31,32,33 6)Related Rules Prakas #115 on Establishment and Functioning of Customs Brokers 7)Donors’ A JICA expert was sent to GDCE for improvement of trade facilitation services of Involvement GDCE.

Issue 5-4 Category Trade, Tariff, Customs Clearance, and Logistics Sub-Category Trade Administration Procedure Issue Submission of Certificate of Origin (COO) Description 1)Description of Certificate of Origin (COO) is required only when importing countries apply the Problem preferential duties, but Cambodia Government requires COO for all export cargoes. 2)Reasons behind In Cambodia, there are two regulations related to the issuance of Certificate of

4-43 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report of the Problem Origin: ASEAN/FTA and domestic laws. The issuance of COO depends on each country if export products do not request preferential duties under the ASEAN/FTA laws, while domestic laws (Prakas) mandate to obtain COO from the view of increase in revenue of fees. The issue has been raised during the Japan Cambodia Coordinating Meeting. The 3)Current Status Cambodian side has recognized the concept of the issue. 4)Authorities Ministry of Commerce Concerned 5)Related Law N.A. Prakas #1437 MOC on Formality for the Issuance of Certificate of Origin, Commercial Invoice, Export License (August 2004) Article 6 6)Related Rules Joint Prakas #985 S.H.V.BrK/MOC on the Provision of Public Services of the Ministry of Commerce (December 2012) 7)Donors’ N.A. Involvement

Issue 5-5 Category Trade, Tariff, Customs Clearance, and Logistics Sub-Category Trade Administration Procedure Issue Inspection and procedures of animal products Description Based on the Prakas No. 131 MAFF on Procedure for Inspecting Sanitation of slaughterhouses, animals, meat and animal products (April 2010), Animal Department MAFF should issue a certificate to prove the safety of product 1)Description of compositions in order to export animal products. However, it took a long time to get the Problem the approval because the persons in charge of the department could not define the category of the product (it was the first products for them to treat), and the function of laboratories is still weak due to the insufficient testing equipment to execute the inspections. 2)Reasons behind Facilities and equipments for conducting necessary inspections are insufficient. of the Problem Capacity of human resources who are involved in the inspections is weak. The issue has been raised during the Japan Cambodia Coordinating Meeting. The 3)Current Status Cambodian side has recognized the concept of the issue. 4)Authorities Department of Animal Health and Production, MAFF Concerned 5)Related Law Sub-Decree on Sanitary Inspection of Animals and Animal Products (2002). Prakas # 131 (MAFF), 8 April 2010 on Procedure for Inspecting Sanitation of 6)Related Rules slaughterhouses, animals, meat and animal products. 7)Donors’ N.A. Involvement

Issue 5-6 Category Trade, Tariff, Customs Clearance, and Logistics Sub-Category Trade Administration Procedure Issue Inspection and procedures for agricultural products Description When exporting agricultural products, exporters are required to obtain a sanitation certificate from General Department of Agriculture (GDA), MAFF. However, the facilities and equipment for the laboratory of inspection as well as skilled human 1)Description of resources are not sufficient. Therefore, MAFF can conduct only simple inspections the Problem such as inspection of adhesion of the export products, but cannot conduct an inspection of residual agricultural chemicals. Some exporters order sample inspection to laboratories overseas to respond to requests from importers.

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2)Reasons behind Facilities and equipment for conducting necessary inspections are insufficient. of the Problem Capacity of human resources who are involved in the inspections is weak. The issue has been raised during the Japan Cambodia Coordinating Meeting. The 3)Current Status Cambodian side has recognized the concept of the issue. 4)Authorities General Department of Agriculture, MAFF Concerned 5)Related Law Cambodian GAP (Good Agricultural Products) 6)Related Rules N.A. The World Bank supported MAFF for conducting plant quarantine and issuing a 7)Donors’ phytosanitary certificate. Involvement JICA conducted a Study on export promotion of processed food

Issue 5-7 Category Trade, Tariff, Customs Clearance, and Logistics Sub-Category Logistics Development of simplified procedures for cross border transportation Issue (to Thailand or Vietnam, etc.) and strict implementation of cargo reshipments. Description Transportation of products from Thailand/Vietnam to Cambodia is partially implemented based on CBTA (Cross Border Transportation Agreement) signed by 1)Description of each country. Currently, only 10 buses and 30 trucks from both Thailand and the Problem Cambodia operate, and Vietnam and Cambodia can register only 150 cross border transports. However, it is expected that the number of registratable transports will increase soon. 2)Reasons behind This is an issue for bi-lateral agreement among Cambodia and neighboring of the Problem countries. The issue also has been raised during the Japan Cambodia Coordinating Meeting. 3)Current Status The Cambodian side has recognized the concept of the issue and has discussed with Thailand and Vietnam. 4)Authorities N.A. Concerned 5)Related Law Bi-lateral Agreement of CBTA 6)Related Rules N.A. 7)Donors’ N.A. Involvement

(6) Labor Issue 6-1 Category Labor Sub-Category Work permit Issue Work permit for foreigners Description The period of work permit should be extended from one year to three years as in the case of Vietnam. At present, medical examination is required for the applicants at 1)Description of hospitals designated by Ministry of Labor and Vocational Training (MLVT). It is the Problem desired that MLVT allow the applicants to have medical examinations in other hospitals at the level of international standard or increases the number of designated hospitals. The current rules and regulations for providing work permits for foreigners have 2)Reasons behind been pledged before the increase in foreign direct investment. Therefore, the rules of the Problem and regulations do not match current demand for foreigners working in Cambodia.

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The issue has been raised during the Japan Cambodia Coordinating Meeting. The 3)Current Status Cambodian side has recognized the concept of the issue. 4)Authorities Ministry of Labor and Vocational Training Concerned 5)Related Law N.A. Prakas #169 MoSALVY on Employment of Foreign Workers (July 2001) Prakas #555 Prakas on the Management of Foreigner Work Permit (1995) Prakas #413 on Work Permit and Employment Card for Foreign Workers (March 6)Related Rules 2005) Prakas #1191 on Tax on Employment Card, Work Book and Health Check Up Fee (November 2006) 7)Donors’ N.A. Involvement

Issue 6-2 Category Labor Sub-Category Strike Issue Strict response to illegal strikes Description Labor Law admits the right for labor unions to strike under the provisions such as prior notice for strike at least seven working days before to the enterprises and the Ministry in charge of labor (Article 324), implementation of strike in a peaceful manner in the workplace (Article 320), strike protection for non-strikers against all 1)Description of forms of coercion or threat (Article 331). However, illegal strikes which do not the Problem comply with these provisions are happening frequently since these provisions are not known well among workers. Poor working conditions at factories, excluding Japanese factories, are also the cause of frequent strikes. Strict responses to the illegal strikes are required. Although laws and regulations exist, implementation/enforcement does not take 2)Reasons behind place as stipulated. Dissemination of the laws and regulations to workers is of the Problem insufficient. The issue has been raised during the Japan Cambodia Coordinating Meeting. The 3)Current Status Cambodian side has recognized the concept of the issue. 4)Authorities Ministry of Labor and Vocational Training Concerned 5)Related Law Law on Labor (1997) Section 2 (Procedures prior to the Strike) Sub-Decree #136 (RGC) on Adjustment to Commission for Solving Issues Related 6)Related Rules to All Strikes and Demonstrations (September 2012) 7)Donors’ N.A. Involvement

(7) Infrastructure/energy/environment (including PPP) Issue 7-1 Category Infrastructure/energy/environment (including PPP) Sub-Category Sector (Construction) Issue Building Standard Law Description A construction permit issued by Ministry of Land Management, Urban Planning and Construction is required in order for an investor to build a factory. However, the 1)Description of judgment of building standards is made at the discretion of the officer of MLMUPC the Problem in charge of the issuance of permit, since the laws and regulations regulating building specification, building coverage and volume ratio, building height

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limitation, etc. have not been enacted in Cambodia. 2)Reasons behind There are no laws and regulations to stipulate building standards in Cambodia of the Problem 3)Current Status N.A. 4)Authorities Ministry of Land Management, Urban planning and Construction Concerned 5)Related Law N.A. 6)Related Rules Sub-Decree #86 MLMUPC on the Construction Permit 7)Donors’ N.A. Involvement

Issue 7 -2 Category Others (Consumer Protection, Competition etc.) Sub-Category PPP Issue Legislation of PPP Law Description The PPP projects in Cambodia are relatively small and the amount of funds being 1)Description of raised through PPPs is still limited. There is virtually no PPP investment in social the Problem sectors such as health and education while there are many PPP projects on power and water supply. Cambodia is not yet ready to conduct PPP because not only the laws and regulations 2)Reasons behind related to PPP but also the institutions for PPP have not been established at this of the Problem moment. ADB is conducting “Public-Private Partnership Development Project”. This project is currently being carried out to make a proposal for strengthening the enabling 3)Current Status environment for PPP, with particular reference to the development of the PPP Unit, RMU, PDF, and VGF. 4)Authorities Ministry of Economic Finance Concerned 5)Related Law Law on Concession (2007) 6)Related Rules N.A. 7)Donors’ ADB is currently conducting a technical assistance called “Public-Private Involvement Partnership Development Project”.

(8) Others (consumer protection, competition, etc.) Issue 8-1 Category Others (Consumer Protection, Competition etc.) Sub-Category Administration Procedure Issue Administrative complaint Description 1)Description of There is no administrative complaint system. the Problem 2)Reasons behind There is no Administration Procedure Law in Cambodia. of the Problem 3)Current Status JICA Expert of Ministry of Justice 4)Authorities Ministry of Justice Concerned 5)Related Law N.A. 6)Related Rules N.A. 7)Donors’ N.A. Involvement

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4.4. Current Issues in Business Related Rules and Regulations in Bangladesh (in relation to regulatory development and enforcement) 4.4.1. Method and Source of Issues Identification Business issues identification and regulatory matching in Bangladesh were conducted through following methods: ･ Interviews with relevant authorities in Bangladesh (including Board of Investment (BOI), Bangladesh Bank, Bangladesh Economic Zones Authority (BEZA), National Board of Revenue (NBR)), the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), BGMEA, Embassy of Japan, Japanese companies doing business in various sectors in Bangladesh, Japan Commerce & Industry Association in Dhaka (JCIAD), JETRO and development partners including the World Bank and the IFC; ･ Review of the results of the meetings of “Task Force”, a framework for the dialogue between relevant parties from Japanese side and Bangladesh side, chaired by the BOI to tackle with some common challenges for Japanese investors to Bangladesh; ･ Review of the relevant materials and reports made by the government of Bangladesh, international organizations, various research institutes as well as JICA and JETRO. Website information of the relevant authorities was also utilized.; and ･ Intensive review and discussion among the JICA study team – consisting of Japanese consultants, Japanese lawyers and Bangladesh lawyers – were conducted.

4.4.2. Current Major Issues in Business Environment

(1) Investment (including incentives, limitation on foreign participation) Issue 1-1

Category Foreign Investment

Sub-Category Restrictions on Foreign Investment

Concrete conditions for entry of foreign investment by industry sector (including Issue service sector) are unclear

Description ・ National Industrial Policy (2010) identifies 17 Controlled Industries subject to restrictions on foreign investment, however, their concrete conditions have not been clarified sufficiently. There is no single guideline issued by the government which clarifies concrete restrictions for all the Controlled Industries in a comprehensive 1)Description of the manner and foreign investors would have difficulties in understanding conditions Problem applicable to the industries in which the foreign investors consider investment. ・ In addition, industries which are not included under the Controlled Industries, for example in wholesale industry and retailing industry, there is no detailed and compiled law/regulation and guidelines regarding restrictions on entry of foreign capitals. ・ Issues at stake cannot be referred in relevant laws and regulations since there is no 2)Reasons behind such stipulation in any rules and regulations, therefore administrative discretions become unclear and discretional.

4-48 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report the Problem ・ Even in cases where relevant laws and regulations are enacted, contents of such laws and regulations are not necessarily clear and sometimes confusing, therefore interpretation by relevant officers varies. In this case, the petitioner, a Bangladesh local, alleged that BOI failed to implement the directives of the Executive Chairman of the BOI under memo, dated 5th April 2005, discouraging 100% foreign or joint venture companies within certain commercial service 3)Current Status industry in Bangladesh. In response to the petition, the High Court ordered relevant regulatory authorities, including BOI, Bangladesh Bank, Registrar of Joint Stock Companies & Firms (RJSC&F) and Ministry of Commerce not to grant any registration, licenses or permits. The High Court Order is still valid until the final decision is made by the Court or until the implementation of the directives by BOI. ・ Ministry of Industries 4)Authorities ・ Ministry of Commerce Concerned ・ BOI, Prime Minister‟s Office 5)Related Law N.A.

Issue 1-2

Category Foreign Investment

Sub-Category Restrictions on Foreign Investment

Virtual restrictions exist on entry of foreign capitals for garment manufacturer Issue (issuance of UD by the BGMEA)

Description ・ Bangladesh Garment Manufacturers & Exporters Association (BGMEA), a textile business association, plays a very strong role to lead the industry in concurrence with the government, and has been authorized by the government to issue Utilization Declaration (UD) which is vital for garment manufacturers to engage in exports of their products or imports of raw materials from abroad, and to obtain Generalized System of Preferences (GSP) benefits. 1)Description of the ・ The fact is that foreign garment manufacturers established outside an EPZ are Problem unable to obtain the UD, unless they become a member of the BGMEA. ・ The core problem lies on the fact that an official certificate (i.e., UD), which is imperative to import/export business activities, is handled by a private association, BGMEA which represent the interest of domestic garment manufacturers to a greater extent. In our views, such BGMEA‟s recent practice has amounted to one of non-tariff barriers for foreign garment manufacturers (including potential foreign investors).

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2)Reasons behind The situation for which BGMEA, a private institution, has been delegated to issue an the Problem official certificate is not appropriate.

As a result of the third meeting of “Task Force”, held on 9th July 2013 and chaired by Dr. S. A Samad, Executive Chairman of the BOI to tackle with some common concerns 3)Current Status for Japanese investors to Bangladesh, decision of the meeting was as follows:  “BOI will request the Ministry of Commerce to assign Foreign Export Promotion Bureau to be authorized to issue UD for the foreign investors in the relevant sector.”

4)Authorities/ ・ BGMEA Organizations ・ Ministry of Commerce ・ Foreign Export Promotion Bureau Concerned

5)Related Law To be confirmed.

6)Related Rules To be confirmed.

7)Donors’ N.A. Involvement

Issue 1-3

Category Foreign Investment

Sub-Category Foreign Investment Policy

Securing consistency between industrial policy and investment promotion Issue measures (provision of various incentives etc.) is necessary

Description The Foreign Private Investment (Promotion and Protection) Act (1980) is related to the promotion and protection of foreign private investment in Bangladesh. The Act stipulates matters including the opening of permanent premises by foreign investors in Bangladesh and its procedures, details on various investment incentives, monitoring and control of 1)Description of the foreign exchanges, provision of fair and equitable treatment to foreign investors etc. The Problem Act further defines various investment incentives to foreign investors investing in Bangladesh including tax holidays, concessionary duty on imported capital machinery, tax exemption on intellectual property rights, and tax exemption on export-oriented companies. In fact, tax incentive is applied to following 23 industries, which is not necessarily consistent with Industrial Policy, prepared by the Ministry of Industries. 2)Reasons behind Policy coordination among relevant ministries and agencies in charge of industrial the Problem policy and investment promotion is weak. Coherence between industrial policy and investment promotion measures has not been 3)Current Status secured. ・ Ministry of Finance (including NBR) ・ Bangladesh Bank 4)Authorities ・ Ministry of Industries Concerned ・ Ministry of Commerce ・ Agencies of investment promotion policy including BOI, Bangladesh Export Processing Zones Authority (BEPZA), BEZA and PPP Office

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・ Foreign Private Investment (Promotion and Protection) Act (1980) ・ Export Processing Zones Authority Act (1980) 5)Related Law ・ Investment Board Act (1989) ・ Private Export Processing Zones Authority Act (1996) ・ Economic Zones Act (2010) 6)Related ・ Industrial Policy 2010 Rules/Policy ・ Policy and Strategy for Public-Private Partnership (PPP) (2010)

7)Donors’ Comprehensive support to BOI, BEPZA and BEZA are provided through a joint Involvement initiative of the IFC-managed and DFID and EU-funded BICF.

Issue 1-4

Category Foreign Investment

Sub-Category Investor Relations

Publicizing relevant laws and regulations in English through centralized system Issue is important

Description Most Foreign investors cannot read or write existing laws, Notifications/SROs/Orders/Policies and other relevant regulations because most of which are printed in Bengali. Furthermore, save for limited cases, notifications of enactment/amendment of laws and regulations are notified and published only in Bengali 1)Description of the without English translation, in the form of "Notification" and "Official Order" even in Problem cases where such laws and regulations have impact on foreign investors. As a result, foreign investors may not be able to update themselves on the enactment or amendment of new laws and regulations and would discover the regulatory changes later on when they would be required to spend much time and cost to make necessary corrections and to accommodate new laws and regulations. 2)Reasons behind Adequate measures have not been taken by the government to ensure sufficient the Problem dissemination of the changes/establishment in legislative system. As a result of the third meeting of “Task Force”, held on 9th July 2013 and chaired by Dr. S. A Samad, Executive Chairman of the BOI to tackle with some common challenges for Japanese investors to Bangladesh, decision of the meeting was as follows. 3)Current Status  “BOI will publish the materials in English to the extent practically possible and will request relevant agencies to follow suit the matter related to foreign investment.” 4)Authorities ・ BOI, Prime Minister‟s Office Concerned ・ Relevant Ministries of Bangladesh

7)Donors’ N.A. Involvement

Issue 1-5

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Category Foreign Investment

Sub-Category Investor Relations

There are delays and insufficient service in development and overhaul of Export Issue Processing Zone (EPZ) and Special Economic Zone (SEZ)

Description ・ The followings are problems faced by foreign funded enterprises in EPZ and SEZ:  Development of SEZ is still at an early stage.  Information on the status of SEZ development is not sufficiently available to the general people and physical shortage exists in the industrial zones outside 1)Description of the EPZ. Problem  Lack of one-stop function at BEPZA. ・ It is expected that coordination between SEZ and EPZ would duly take place -- institutional settings to support facilitate business transactions among those enterprises in EPZ and SEZ is expected. Enhancement of one-stop function is strongly desired. 2)Reasons behind Delay in finalizing and enacting the rules and regulations of the Bangladesh Economic the Problem Zones Act (2010) is affecting the progress of EPZ development to some extent. ・ BEZA has selected following 5 sites for establishing Special Economic Zones:  Mirsharai (Chittagong District)  Anwara (Chittagong District)  Sherpur (Moulavibazar District)  Mongla (Bagerhat District) 3)Current Status  Belkuchi (Serajganj District) ・ Feasibility study is going on for the first three sites with support from the World Bank. The study is expected to be completed by the end of 2013. In response to the results of the F/S, BEZA will initiate international bidding for the selection of developers. Private investment (30 years) in the form of BOOT (Built, Own, Operate and Transfer) is expected. 4)Authorities ・ BEPZA, Prime Minister‟s Office Concerned ・ BEZA, Prime Minister‟s Office ・ Export Processing Zones Authority Act (1980) 5)Related Law ・ Private Export Processing Zones Authority Act (1996) ・ Economic Zones Act (2010) 6)Related Rules N.A. ・ The World Bank in cooperation with DFID and IFC is supporting the government to 7)Donors’ develop new economic zones in Bangladesh through the Private Sector Development Support Project (PSDSP). Involvement ・ JICA is also conducting Pre-Feasibility Study for the development of new economic zones in Bangladesh.

Issue 1-6

Category Foreign Investment

Sub-Category Investor Relations

Issue Strengthening BOI‟s one-stop service functions is critical

Description

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As an investment promotion organization, BOI is expected to provide a one-stop service to support investors. Its facilitation role includes assistance in approval and registration of all industrial projects in the private sector involving local and foreign capital which includes clearance of necessary documentation and licenses for setting up projects, with the provision of work permits, entry visas and so on. However, in reality, BOI could not play an effective role to provide one-stop service because of a lack of expertise and inability to cut through bureaucratic red tape. Because of 1)Description of lack of coordination between BOI and other relevant authorities, foreign investors have to the Problem obtain necessary clearances separately from each of the agencies which create duplication of efforts, time loss, harassment and unofficial payments. In addition, regulatory issues also exist – foreign investors are required by respective laws and regulations to acquire relevant permits and licenses from different authorities in charge. Investors also face difficulties in delays in acquiring all sorts of permissions/licenses for starting up business, limited information and data of investment statistics, and persistent problems in obtaining E-VISA and work permit, which raises investment cost and creates hassle of investors significantly. ・ BOI‟s administrative weakness (insufficient institutional capacity) and insufficient manpower (insufficient capacity of BOI officers) to function as “one-stop service” in 2)Reasons behind overall investment procedures. the Problem ・ BOI‟s restriction of power to obtain related permissions/licenses from relevant authorities on behalf of foreign investors. ・ Laws requiring issuance of permissions/licenses from different authorities. As a result of the third meeting of “Task Force”, held on 9th July 2013 and chaired by Dr. S. A Samad, Executive Chairman of the BOI to tackle with some common challenges for 3)Current Status Japanese investors to Bangladesh, decision of the meeting was as follows.  “BOI will request agencies concerned to depute their officers to sit in BOI so that the investors‟ needs can be addressed from BOI‟s end.” 4)Authorities ・ BOI, Prime Minister‟s Office Concerned ・ Ministries and agencies concerned for issuing related licenses and permits

Issue 1-7

Category Foreign Investment

Sub-Category Investor Protection

The processes of registration of intellectual property rights need to be streamlined, Issue and the process need to be speeded-up

Description The offices of the Registrar of Trade Marks, Patents and Designs, and the Copyrights 1)Description of Registry lack the capacity to administer the laws and tackle the issues emerging in today‟s much faster moving world of commerce and technology. They do not have the requisite the Problem expertise, personnel or technological resources to provide a fast, efficient and transparent system of registration, protection and enforcement of these rights. 2)Reasons behind Although laws and regulations exist, implementation/enforcement does not take place as the Problem stipulated.

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Currently, registration of a trademark may take up to 2-3 years. Even after registration is completed, enforcement of punishment of infringement of intellectual properties are weak 3)Current Status and non-preventative. In the case of infringement, injunctions may be obtained against offending products, but these are difficult to enforce. Piracy of a design is punishable offence in Bangladesh though it is a long and costly procedure in suit in the civil courts. ・ Department of Patents, Designs and Trademarks, Ministry of Industries 4)Authorities ・ Copyright Office, Ministry of Cultural Affairs Concerned ・ Courts of Bangladesh ・ Trade Marks Act (1940) 5)Related Law ・ Patents and Designs Act (1911) ・ Copyright Act (2000) 6)Related Rules N.A. EU is providing support on the legal and institutional framework in the area of 7)Donors’ conformity assessment and intellectual property rights through Trade and Private Sector Involvement Programme (2007-2013).

Issue 1-8

Category Foreign Investment

Sub-Category Land Registration System

Issue Difficulty exists in identifying the chain of title and ownership of land

Description ・ Limited availability of lands suitable for manufacturers is one of major constraints for foreign investment in Bangladesh. As the EPZs nearby Dhaka or Chittagong are almost fully occupied and development of SEZ is still at an early stage, foreign investors, especially, foreign manufacturers are having trouble in finding suitable 1)Description of lands. ・ Even if they can find suitable lands, identifying ownership of the lands is another the Problem issue. The ownership of lands tends to become fragmented as lands are inherited equally among male descendants as per Islamic laws. Further, due to complexity and insufficiency of the land registration system in Bangladesh, identifying the chain of title and ownership of the land in question is almost always complicated and difficult task. 2)Reasons behind Although laws and regulations exist, implementation/enforcement does not take place as the Problem stipulated.

Land Records are kept manually and there is no centralized administration system dealing with land records. There are 63 Sub-Registrar Offices in Bangladesh of which 5 3)Current Status are located in Dhaka. For registering a property, the Party purchasing the land has to go to several Sub-Registrar Land Offices as the district boundary is not entirely clear. ・ Land Survey Tribunal 4)Authorities ・ Land Office or Land Revenue Office, Ministry of Land Concerned ・ Sub- Registrar Office, Ministry of Law, Justice and Parliamentary Affairs ・ Land Registration Act (1908) 5)Related Law ・ Land Registration Amended Act (2004) 6)Related Rules N.A.

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Asian Development Bank (ADB) is providing TA (“Improving Public Administration and 7)Donors’ Services Delivery through e-Solutions”) to Heads of Departments of Ministry of Land to Involvement prepare ICT Strategy and roadmap development for computerized land administration and integrated land information system.

(2) Company law/business license Issue 2-1

Category Company Law, Business License

Sub-Category Formulation of a Company

Acquiring necessary licenses after establishing a company is time consuming and Issue cumbersome

Description In order to commence a business in Bangladesh, obtaining various licenses, permits and 1)Description of approvals are required. Potential investors may find it extremely burdensome to obtain them from different authorities. Furthermore, procedures are vexatious and complex for the Problem filing and obtaining licenses, permits and approvals after completion of foreign company registration. Although laws and regulations exist, implementation and enforcement do not take place 2)Reasons behind as stipulated. the Problem Contents of regulations are improper as they require too many licenses, permits and approvals, some of which seems redundant. A company needs to obtain various licenses, permits and approvals (including without limitation, trade license, import registration certificate (IRC), export registration certificate (ERC), approval on environmental measures, TIN number, factory audit number, fire 3)Current Status license, VAT registration, bonded factory license, various business licenses, certification of products, tax exemption permit, becoming a membership of industry groups etc.) prior to commencement of operation which is time consuming and cumbersome. ・ BOI, Prime Minister‟s Office ・ Registrar of Joint Stock Companies and Firms (RJSC&F), Ministry of Commerce 4)Authorities ・ NBR, Ministry of Finance Concerned ・ Ministry of Commerce ・ Different concerned Authorities 5)Related Law Various laws in relation to acquiring necessary licenses, permits and approvals

Issue 2-2

Category Company Law, Business License

Sub-Category Formulation of a Company

Issue Online filing system by the Registrar of Joint Stock Companies & Firms

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(RJSC&F) needs streamlining and standardization

Description

1)Description of the RJSC&F has recently started online filing system which is not very standard system and therefore potential investors find a lot of difficulties for company registration and Problem other incidental matters

2)Reasons behind The system has been initiated recently by RJSC&F and the standardization process is the Problem under development.

・ There is a restriction, imposed by the RJSC&F that the object clauses of the Memorandum of Association of the company cannot be more than four hundred words though there is no statutory restriction to keep the object clauses within four 3)Current Status hundred words. ・ There are some prescribed headings for Articles that are to be incorporated in Articles of Association of a Company and the Parties cannot include their preferred Article Headings in the Articles of Association though the aforesaid Articles are not contrary to the law. 4)Authorities RJSC&F, Ministry of Commerce Concerned

5)Related Law N.A.

6)Related Rules N.A.

7)Donors’ Through IFC‟s advisory program83, support for automation of the RJSC&F is taking Involvement place in line with government‟s agenda for a “Digital Bangladesh”.

Issue 2-3

Category Company Law, Business License

Sub-Category Formulation of a Company

Description BSEC, the supervisory authority of the capital markets and listed companies established by the Securities and Exchange Commission Act 1993, imposes certain obligations when a company‟s paid up capital exceed prescribed amount. 1)Description of the ・ BSEC‟s approval is required when a private company‟s paid up share capital Problem exceeds BDT 100 million. ・ Conversion to a public company is required when the paid up share capital exceeds BDT 400 million. ・ IPO is required when the paid up share capital exceeds BDT 500 million. 2)Reasons behind Contents of regulations are improper as these limit/restrict the foreign investors‟ freedom to inject capitals upon or after incorporation of a private company without the Problem government intervention.

83 IFC‟s advisory program is supported from the UK Government, EU, Norwegian Agency for Development Cooperation, Dutch and other donor financiers.

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The BSEC regulations unduly hinder foreign investors‟ freedom to decide the amount 3)Current Status of share capital they inject. Especially for foreign manufacturers, having paid up share capital of BDT 500 million is not unusual case. 4)Authorities BSEC, Ministry of Finance Concerned ・ Securities and Exchange Commission Act (1993) 5)Related Law ・ Security and Exchange Commission Ordinance (1969) ・ Order of Security and Exchange Commission (2001) ・ Order of Security and Exchange Commission (2004) 6)Related Rules ・ Notification on issue of capital related to conversion to public limited company and public offer (2013) ADB has provided support to develop capital market in Bangladesh through Capital Market Development Program. The program components include (i) strengthened market stability by enhancing BSEC‟s role to develop the market, promoting financial stability 7)Donors’ through joint supervision of the financial system, strengthening regulatory measures, and developing a market surveillance system; (ii) enhanced market facilitation by developing Involvement a long-term vision for capital markets, upgrading accounting and auditing standards, expediting adjudication of enforcement actions, improving governance of listed companies, and pursuing demutualization of the stock exchanges; (iii) enhanced supply of equities and bonds; and (iv) enhanced demand for equity and debt securities.

Issue 2-4

Category Company Law, Business License

Sub-Category Closing Business

Issue Necessary procedures to close business are unclear

Description The Companies Act provides procedures for voluntary winding up of a company 1)Description of the including necessity to obtain extraordinary resolution at a shareholders meeting and appointment of liquidator. However, there is no prescribed detailed guideline, issued by Problem other relevant authorities such as BOI or Bangladesh Bank in dealing with winding up procedures of a company. ・ Issues at stake cannot be referred in relevant laws and regulations since there is no 2)Reasons behind such stipulation in any rules and regulations, therefore administrative discretions become unclear. the Problem ・ Guidelines to obtain a No Objection Certificate from Bangladesh Bank in order to close down the branch or liaison office do not exist in the first place. Except the Companies Act which stipulates basic procedures for winding up, there are 3)Current Status not detailed guidelines regarding closing down the foreign businesses which has been made in Branch Office or Liaison office in Bangladesh. 4)Authorities BOI, Prime Minister‟s Office Concerned

5)Related Law Companies Act (1994)

6)Related Rules N.A.

7)Donors’ N.A. Involvement

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(3) Tax/accounting Issue 3-1

Category Taxation, Accounting

Sub-Category Value Added Tax

NBR requirements for prior registration of “selling price” for goods to be sold in Issue domestic market need reconsideration

Description National Board of Revenue (NBR) requirement for prior registration of “selling price” 1)Description of the for goods to be sold in domestic market is regarded as one of critical business obstacles. This is because VAT is calculated based on the registered “selling price” regardless of Problem actual price sold in the market. This situation places limitations on the freedom of setting strategic selling prices by companies selling products in Bangladesh. 2)Reasons behind Onerous requirement imposed by the NBR to register “selling price” which shall be the Problem used as the base for calculating VAT. The new VAT law, which will replace the current VAT Act (1991), is now under 3)Current Status preparation with the IMF support and the new law is expected to be implemented by July 1, 2015. 4)Authorities NBR, Ministry of Finance Concerned

7)Donors’ The IMF is providing Technical Assistance to the NBR in drafting a plan for Involvement introducing and operationalizing the new VAT law.

(4) Financial market and foreign exchange Issue 4-1

Category Finance, Foreign Exchange

Sub-Category Foreign Currency Loan

Prior approvals from BOI and Bangladesh Bank for foreign currency borrowings Issue need reconsideration

Description Non-EPZ industrial enterprises (local, foreign or joint venture) need prior approval for foreign currency borrowings, which is cumbersome. It is very difficult to fulfill following borrowing terms in which approval for foreign currency borrowing can be 1)Description of the granted relatively easy from the Scrutiny Committee: ・ Problem The effective rate of interest should not exceed LIBOR+ 4% (effective interest is the sum of the stated annual rate of interest and the annualized fees such as commitment fee, syndication fee, front-end fee, project appraisal fee etc.) ・ The down payment, if any, in case of suppliers‟ credit should not exceed 10% of the

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credit amount ・ Repayment period should not be less than 7 years. 2)Reasons behind Criteria for acquiring prior approval for foreign currency borrowings are unclear since the guidelines are not entirely clear and, therefore, decision by the Scrutiny Committee the Problem may become discretionary. The issue is expected to be taken up for discussion in the forthcoming “Task Force”, 3)Current Status with the aim to tackle with some common concerns for Japanese investors to Bangladesh. 4)Authorities ・ BOI, Prime Minister‟s Office Concerned ・ Bangladesh Bank

Issue 4-2

Category Finance, Foreign Exchange

Sub-Category Foreign Currency Loan

Restrictions on foreign currency borrowing for the purpose of securing necessary Issue working capital need reconsideration

Description As per stipulated in the BOI‟s Procedure and Guidelines for approval of Foreign Private 1)Description of the Loan, “utilization of foreign loan proceeds is not permitted exclusively for working Problem capital purpose and investment in capital market by corporate.” Such restrictions would become significant obstacle for foreign investors to do business in Bangladesh. ・ Criteria for acquiring prior approval for foreign currency borrowings are unclear 2)Reasons behind since the guidelines are not entirely clear and, therefore, decision by the Scrutiny Committee may become discretionary. the Problem ・ Onerous requirement imposed by the BOI which restrict foreign investors‟ usage of foreign currency borrowing. The issue is expected to be taken up for discussion in the forthcoming “Task Force”, 3)Current Status with the aim to tackle with some common concerns for Japanese investors to Bangladesh. 4)Authorities ・ BOI, Prime Minister‟s Office Concerned ・ Bangladesh Bank

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7)Donors’ The World Bank, co-financed with DFID, provided assistance to the BOI for its institutional strengthening through Enterprise Growth & Bank Modernization Project Involvement implemented from June 2004 to December 2010.

Issue 4-3

Category Finance, Foreign Exchange

Sub-Category Restrictions on Outward Remittance

Restrictions on outward remittance from branch offices in Bangladesh to parent Issue companies in home country need reconsideration

Description ・ Outward remittance from branch offices to parent companies is restricted except obtaining waiver from the Bangladesh Bank through BOI. ・ There is no such prescribed guideline, issued by BOI that suggests the procedure for obtaining such waiver from BOI. However, practice suggests the criterion to obtain 1)Description of the waiver as stated below:  Whether the branch has made profit legally; and Problem  Whether there is an actual amount for remittance. ・ Once the waiver is obtained, the branch office can make outward remittance a number of times without prior approval by the Bangladesh Bank as long as the branch status is maintained. After the remittance has been made, the Bangladesh Bank conducts post factor check. 2)Reasons behind Onerous requirement placed on branch offices imposed by BOI to obtain waiver of the the Problem condition. The issue is expected to be taken up for discussion in the forthcoming “Task Force”, 3)Current Status with the aim to tackle with some common challenges for Japanese investors to Bangladesh. 4)Authorities BOI, Prime Minister‟s Office Concerned

5)Related Law N.A.

6)Related Rules N.A.

Issue 4-4

Category Finance, Foreign Exchange

Sub-Category Restrictions on Outward Remittance

Restrictions on non-trade remittance in foreign currency (service fees etc.) need Issue reconsideration

Description The government restricts outward remittance for non-trade transactions. Foreign 1)Description of the Exchange Transaction Guideline (2009), Chapter 10, Rule 25 regulates “remittance of

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Problem royalty and technical fees” as follows. No prior permission of the Bangladesh Bank or BOI is required by the enterprises for entering into agreement involving remittance of royalty, technical knowhow or technical assistance fees, operational services fees, marketing commission etc. if the total fees and other expenses connected with technology transfer do not exceed the following limits: (a) for new projects, not exceeding 6% of the cost of imported machineries; (b) for ongoing concerns, not exceeding 6% of the previous years' sales as declared in the income tax returns. These agreements, however, need to be registered with BOI. Foreign investors consider the upper limit percentage (6%) of remittance very strict and would like this bar to be raised. Foreign startup companies in Bangladesh often receive technical assistance from their parent company or other group companies. However, especially during the start up period, most companies‟ sales tend to be low and hence the above 6% ceiling would not be sufficient to cover the value of technical services provided by the parent company or other group companies. In addition, some banks do not allow remittance of royalty and technical fees even for cases which comply with the 6% ceiling requirement without providing clear reasons. ・ Contents of the regulation are improper as to the fact that it is hindering outward 2)Reasons behind remittance. the Problem ・ Operational issues exist since some banks do not allow remittance of royalty and technical fees even for cases which comply with the 6% ceiling requirement. The issue is expected to be taken up for discussion in the forthcoming “Task Force”, 3)Current Status with the aim to tackle with some common concerns for Japanese investors to Bangladesh. 4)Authorities BOI, Prime Minister‟s Office Concerned

Issue 4-5

Category Finance, Foreign Exchange

Sub-Category Restrictions on Outward Remittance

Restrictions on outward remittance from a company incorporated in Bangladesh Issue to its parent company abroad need reconsideration

Description ・ Outward remittance from a company incorporated in Bangladesh to its parent company is controlled by the Bangladesh Bank except for payment of dividend. Outward remittances are permitted either in its entirety or up to a certain limit set by the Bangladesh Bank. However, except a otherwise prescribed in the Guidelines for Foreign Exchange Transactions, the limit may be set on a case to case basis, using a 1)Description of the wide discretionary power and it leads to gross uncertainty for the investors. For Problem example, it is difficult to reimburse salaries of expatriates which have been advanced by the parent company. ・ Furthermore, foreign nationals can remit out of their current savings up to 50% of their net income to cover their commitments abroad which is creating a problem for the expatriates who are intending to remit more than 50% of their net income out of

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their current saving. 2)Reasons behind Onerous requirement on incorporated companies imposed by Bangladesh Bank. the Problem The issue is expected to be taken up for discussion in the forthcoming “Task Force”, 3)Current Status with the aim to tackle with some common concerns for Japanese investors to Bangladesh. 4)Authorities ・ Bangladesh Bank Concerned ・ BOI, Prime Minister‟s Office

Issue 4-6

Category Finance, Foreign Exchange

Sub-Category Settlement

Issue Import settlement requiring only on L/C base needs reconsideration

Description ・ For non-EPZ companies, all import bills except for a few special cases must be 1)Description of the settled by L/Cs. Only At Sight L/Cs can be issued in principle while Usance L/Cs Problem are allowed to be issued for some items. ・ Deferred payment is not allowed for import settlement depending on import items. 2)Reasons behind Contents of regulations are improper as to the fact that it is hindering foreign the Problem investment. The issue is expected to be taken up for discussion in the forthcoming “Task Force”, 3)Current Status with the aim to tackle with some common concerns for Japanese investors to Bangladesh. 4)Authorities ・ Office of Chief Controller of Imports and Exports (CCI&E), Ministry of Commerce Concerned ・ Bangladesh Bank ・ Foreign Exchange Regulation Act (1947) 5)Related Law ・ Import Policy Order (2012- 2015) 6)Related Rules ・ Foreign Exchange Transaction Guideline (2009) Through a joint initiative of the IFC-managed and DFID and EU-funded BICF, BUILD was launched jointly by the DCCI in partnership with the MCCI and the SMEF in 7)Donors’ October 2011. BUILD is a PPD platform established to facilitate structured dialogues Involvement between the public and the private sectors under an institutional framework. It features on four thematic areas – tax, SMEs, financial sector and trade and investment, backed by rigorous analysis and advocacy.

Issue 4-7

Category Finance, Foreign Exchange

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Sub-Category Settlement

Issue Chronic delays take place in L/C negotiation

Description There has been a chronic delay in L/C negotiation irrespective of the amount. Problems 1)Description of the in the enforcement of Uniform Customs and Practice for Documentary Credits (UCPDC) Problem Guidelines exist on the part of the ADs. Delays in bank negotiation take place even with a clean L/C without discrepancy. Interest on late payment has not been paid as well. 2)Reasons behind Practice oriented problems exist for ADs. the Problem

3)Current Status N.A.

4)Authorities N.A. (Issues in relation with ADs) Concerned ・ The Uniform Customs and Practice for Documentary Credits (UCPDC) 5)Related Law ・ Import Policy Order (2012-2015) 6)Related Rules UCPDC Guidelines

7)Donors’ N.A. Involvement

(5) Trade and logistics Issue 5-1

Category Trade, Logistics

Sub-Category Import license

Issue Obtaining Import Registration Certificate is lengthy and cumbersome

Description While guidelines are in place, implementation is the issue. The representatives of the 1)Description of the regulatory authority who issues Import Registration Certificate (IRC) do not have Problem necessary technical and legal knowledge and hence coherent process does not take place which results in delay of issuance of the licenses. 2)Reasons behind Although laws and regulations exist, implementation/enforcement does not take place the Problem as stipulated. As a result of the second meeting of “Task Force”, held on 20th March 2013 and chaired by Dr. S. A Samad, Executive Chairman of BOI to tackle with some common challenges 3)Current Status for Japanese investors to Bangladesh, decision of the meeting was as follows.  “BOI will write to Ministry of Commerce to take necessary action at their end to shorten and rationalize the IRC issuing process.” 4)Authorities Office of the Chief Controller of Imports and Exports, Ministry of Commerce Concerned

6)Related Rules N.A.

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Through a joint initiative of the IFC-managed and DFID and EU-funded BICF, BUILD was launched jointly by the DCCI in partnership with the MCCI and the SMEF in 7)Donors’ October 2011. BUILD is a PPD platform established to facilitate structured dialogues Involvement between the public and the private sectors under an institutional framework. It features on four thematic areas – tax, SMEs, financial sector and trade and investment, backed by rigorous analysis and advocacy.

Issue 5-2

Category Trade, Logistics

Sub-Category Bonded Warehousing System

Bonded warehousing system (strict restrictions on the percentage of domestic Issue sales allowed) need reconsideration

Description A majority of the bond license is issued by the Customs Bond Commissionerate (CBC), an agency under the purview of the National Board of Revenue (NBR). The license 1)Description of the allows industries outside the EPZs to enjoy duty-free incentives through these bonded Problem warehouses, as long as imported materials are used for producing exported goods. Bond license is approved to 100% export oriented companies but only in limited industries including garments, leather and shoes. 2)Reasons behind Contents of regulation are strict in the first place. the Problem As part of the incentives to 100% export oriented industries, following measures are allowed: ・ Enterprises located in both public and private EPZs are allowed to sell up to 10% of 3)Current Status their products to enterprises located outside EPZs (i.e., domestic tariff area) against foreign currency L/C subject to payment of applicable duties and taxes; and ・ 100% export-oriented companies outside EPZs are allowed to sell up to 20% of their products in the domestic market subject to payment of applicable duties and taxes. 4)Authorities ・ NBR, Ministry of Finance Concerned ・ Customs Bond Commissionerate, Dhaka ・ Customs Act (1969) 5)Related Law ・ Value Added Tax Act (1991) 6)Related Rules Bonded Warehouse Licensing Rules (2008) An Administrative Barriers Review was conducted in 2006 as one components of a 7)Donors’ larger series of joint SEDF-FIAS projects which were completed as part of the design Involvement phase of the planned World Bank-led, multi-donor-funded Bangladesh Private Sector Development Support Project (PSDSP).

Issue 5-3

Category Trade, Logistics

Sub-Category Customs Valuation

Customs valuation tends to be based on market value which is higher than the Issue real value

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Description There seems little consistency in import duty (as regards the applicable rate, HS Code and assessed taxable value) in Bangladesh. Although an automatic calculation system for valuation of customs duty on every product that is imported into Bangladesh was 1)Description of the introduced, the assessable value set by the customs officers are being determined at their discretion without referring to reliable sources. While there is a system to make an Problem objection to the decision of the customs, it would not be a practical option – it takes long time and huge cost to appeal to the competent tribunal. As such, investors have pointed out issues related with customs valuation as serious bottleneck to their business and emphasized the necessity to tackle the issues urgently. ・ 2)Reasons behind The provisions of the laws and regulations are not clear and hence administrative discretion applies. the Problem ・ Sometimes it is practice oriented problem. Customs Valuation and Internal Audit Commissionerate is updating valuation database to improve the accuracy of customs valuation and to meet purposes including the following. 3)Current Status  To monitor usage of valuation database;  To respond field level queries about valuation database; and  To prepare guideline about usage of valuation database. ・ 4)Authorities Customs Valuation and Internal Audit Commissionerate under the NBR, Ministry of Finance Concerned ・ Office of the Chief Controller of Imports and Exports, Ministry of Commerce ・ Customs Act (1969) 5)Related Law ・ Import and Exports (Control) Act (1950) ・ Import Policy Order (2012-2015) 6)Related Rules N.A.

7)Donors’ The IMF is providing Technical Assistance to the NBR in drafting a plan for Involvement introducing and operationalizing the new VAT law which includes customs valuation.

(6) Labour Issue 6-1

Category Labour

Sub-Category VISA and Work permit

Criteria for acquiring E-VISA and issuance of work permit is unclear, and the a Issue series of process is lengthy and cumbersome

Description Foreign investors often face problems in obtaining E-VISA, work permits and security clearance – a series of process is lengthy and cumbersome and difficult to push through the system. It is pointed out that transparency on the enforcement is lacking. Therefore, clear standards and procedures should be in place to maintain fairness and transparency 1)Description of the for acquiring work permit and E-VISA. It is also pointed out that there is a lack of coordination within BOI for the issuance of E-VISA recommendation letter and work Problem permit, which is contributing to delayed process. After work permit is issued by BOI, Ministry of Home Affairs (MOHA) takes some time in giving security clearance. Without clearance from MOHA, the Department of Passport and Immigration cannot extend the VISA of the investors, and in many cases, VISA of the investors expire before obtaining clearance. 2)Reasons behind ・ Although laws and regulations exist, implementation/enforcement does not take

4-65 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report the Problem place as stipulated. ・ Contents of regulations are unclear/confusing, therefore interpretation by relevant officers varies. Discretion is basically exercised as the law leaves a room for those officials to exercise discretion. As a result of the second meeting of “Task Force”, held on 20th March 2013 and chaired by Dr. S. A Samad, Executive Chairman of BOI to tackle with some common concerns for Japanese investors to Bangladesh, decision of the meeting was as follows.  “BOI will make its best effort to shorten the VISA recommendation procedure. Any shortcoming of the documents will be informed to the client instantly to 3)Current Status reduce the burden of paperwork and time.”  “BOI will not ask for documents that are already provided. Also BOI will not ask for documents after decision on an application has been taken.”  “BOI requests the concerned to be properly updated about the process, possible time taken so that realistic expectation can be made.” 4)Authorities ・ BOI, Prime Minister‟s Office Concerned ・ Ministry of Home Affairs (for obtaining Security Clearance)

Issue 6-2

Category Labour

Sub-Category Employment

Requirement of recruiting advertisement prior to application for work permit of Issue foreign employees (except in cases of expatriate CEOs of a company, registered in Bangladesh)

Description There is a requirement to place a newspaper advertisement at least in one daily newspaper in Bangladesh, advertising the post in which the foreign employee is to be employed. This rule of BOI is to ensure that the establishment in Bangladesh should give 1)Description of the first preference to the local personnel, with the same level of skill and experience for any Problem vacant post and only after exhausting this option, they can recruit the foreign national. This rule is a burdensome requirement on foreign investors since publicizing recruiting advertisement for local staffs to the mass people is inefficient, although recruiting of local staffs are appropriately taking place. 2)Reasons behind Onerous requirement imposed on investors who intend to employ foreign national. the Problem As a result of the second meeting of “Task Force”, held on 20th March 2013 and chaired by Dr. S. A Samad, Executive Chairman of BOI to tackle with some common concerns for Japanese investors to Bangladesh, decision of the meeting was as follows. 3)Current Status  “BOI would accept any advertisement made in print or electronic media. BOI would consider a case of exceptional nature to exempt it from advertisement requirement.”

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4)Authorities BOI, Prime Minister‟s Office Concerned

Issue 6-3

Category Labour

Sub-Category Employment

Requirements for local employees mandating employment of extraneous local Issue workers need reconsideration

Description BOI Guideline (2011), Rule 6 (c) provides the following instruction that have to be followed for approval of work permits. “Employment of expatriate in an industrial undertaking should not exceed the ratio of 10:1(local: foreign) project implementation period and 20:1 (local: foreign) during regular operational period. In case of a commercial enterprise & educational institute, including the top management, the ratios should not exceed 5:1 (local: foreign) & 10:1 1)Description of the (local: foreign) respectively. But this provision can be relaxed on a case by case basis if Problem there is enough justification. Investors however will not be bound by this constraint.” The requirement for obtaining post registration approval in this regard is to some extent clear, however, it is sometimes burdensome for the investors to follow the guideline. While the guideline mentions possibility of relaxing the requirement on a case by case provided that enough justification is made, specific criteria are not stipulated in the guideline. This leaves room for BOI‟s discretion, creating unclear enforcement on the ground. ・ 2)Reasons behind Onerous requirement imposed on investors who intend to employ foreign national. ・ Contents of regulation are unclear, therefore creating room for administrative the Problem discretions. ・ As a result of the second meeting of “Task Force”, held on 20th March 2013 and chaired by Dr. S. A Samad, Executive Chairman of BOI to tackle with some common concerns for Japanese investors to Bangladesh, decision of the meeting was as follows. 3)Current Status  “BOI can follow the existing rules/principles as discussed. All rules cannot be changed or abandoned simply to suit the conveniences of one party. Those doing business in Bangladesh have to submit to the valid regulations of the state. This is a universal norm.” 4)Authorities BOI, Prime Minister‟s Office Concerned

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Issue 6-4

Category Labour

Sub-Category Labour dispute

Issue Occurrence of illegal strike (seldom the case for Japanese companies)

Description Labours are not well aware of the legal provisions in relation to strikes. As such without 1)Description of the exhausting the requirement to consult with the relevant authority, they indulge themselves into damaging private and public property to ensure that their demands are Problem met at the earliest opportunity. Hence it turns into an illegal strike thereby hindering the production process. 2)Reasons behind Practice oriented problems exist. the Problem Bangladesh Labour Act provides procedures for amicable consultation between labours and employers as well as the right of labours. However, due in part to labours‟ lack of knowledge of their right, once conflicts with employers arise, labours tend to rely on illegal strike. In case of industrial disputes, both employers and workers can seek 3)Current Status resolution through negotiation, followed by conciliation and eventually arbitration if negotiation fails. However, the right to strike is not widely recognized by workers at their workplaces. Very few workers get the opportunity to take legal measures concerning conflicts with employers. As to disputes elevated outside the plant, the process of dispute settlement is complex, time consuming and expensive for the workers. 4)Authorities Ministry of Labour and Employment Concerned ・ Bangladesh Labour Act (2006) 5)Related Law ・ Bangladesh Labour Amended Act (2013) 6)Related Rules N.A.

7)Donors’ N.A. Involvement

(7) Infrastructure/energy/environment (including PPP) Issue 7-1

Category Infrastructure/Energy/Environment/PPP

Sub-Category Public Private Partnership (PPP)

Issue PPP Law has not been developed yet

Description

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In August 2010, the Government of Bangladesh issued the Policy and Strategy for 1)Description of the Public Private Partnership (PPP) to facilitate the development of core sector public infrastructure and services vital for the people of Bangladesh. However, prospect for Problem enacting the PPP Law is unclear and thus the environment for private investment for infrastructural development has not been instituted. 2)Reasons behind Laws do not exist in the very first phase. the Problem The cabinet approved draft PPP Law (2013) on 28th October 2013. However, prospect 3)Current Status for the enactment is unclear given the expected general election. 4)Authorities PPP Office, Prime Minister's Office Concerned

5)Related Law N.A.

7)Donors’ The draft PPP Law was developed with the support of the Asian Development Bank Involvement through the TA for the operationalization of the PPP Program.

Issue 7-2

Category Infrastructure/Energy/Environment/PPP

Sub-Category Environment

Proper enforcement as well as development of laws and regulations regarding Issue environmental protection are necessary

Description ・ The Bangladesh Environment Conservation Act (ECA) was enacted in 1995 and it is administrated by the Ministry of Environment and Forest, Department of 1)Description of the Environment (DOE). It is pointed out that contents of the ECA are improper as well Problem as implementation/enforcement does not take place as stipulated. ・ Bangladesh does not have any laws and regulations that solely address waste water pollution, solid waste, and air pollution and their management and control. ・ 2)Reasons behind Contents of the ECA (1995) are improper. ・ Laws and regulations regarding waste water, sold waste management and air the Problem pollution do not exist in the first place. ・ Bangladesh does not have any laws that solely address waste water pollution. ・ There is no independent law in Bangladesh to address the problems of solid waste. 3)Current Status ・ Bangladesh does not have any laws that specifically address air pollution and its management and control. 4)Authorities Department of Environment, Ministry of Environment and Forest Concerned

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Involvement

(8) Others (consumer protection, competition, etc.) Issue 8-1

Category Others

Sub-Category Consumer protection and food safety

Issue Consumer protection and food safety have not been ensured sufficiently

Description The Consumer Rights Protection Act (2009) provides that in case of criminal allegation 1)Description of the only competent government officers are entitled to institute a case against the culprit for Problem violation of such laws. It is pointed out that contents of the Act are improper as well as implementation/enforcement does not take place as stipulated. 2)Reasons behind Contents of the Consumer Rights Protection Act (2009) are improper. the Problem The existing District Committee named as District Consumer Rights Protection 3)Current Status Committee chaired by the Deputy Commissioner, under the Consumer Rights Protection Act (2009) is dysfunctional due to their overburdened administrative functions. 4)Authorities Department of National Consumer Rights Protection, Ministry of Commerce Concerned

6)Related Rules N.A.

7)Donors’ N.A. Involvement

Issue 8-2

Category Others

Sub-Category Implementing rules and regulations

A long time is required in drafting subordinate regulations after the relevant laws Issue are in place

Description

1)Description of the A long time is required for subordinate regulations implementing laws coming into Problem force after enactment of laws.

2)Reasons behind Lack of capability of relevant ministries of drafting subordinate regulations in a timely the Problem manner.

3)Current Status ・ Under the Insurance Act of 2010, the authority of drafting detailed regulations for the implementation of certain provisions is vested on the relevant ministry and the

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Insurance Act of 2010 itself does not have sufficient clarity on those matters. However, those regulations have not been drafted as of yet. As a consequence, in some cases, when foreign investors approaches officials of the Insurance Development Regulatory Authority, they simply rely on guidelines which were enacted under the Insurance Act of 1938 and not inconsistent with the Insurance Act of 2010 while, in other cases, the government officials made discretionary decision. ・ Rules and regulations of the Bangladesh Economic Zones Act (2010) have not been finalized. BEZA was instructed by the Ministry of Law, Justice and Parliamentary Affairs to obtain approval on the draft EZ rules and regulations from the Central Procurement Technical Unit (CPTU)84 based on the Public Procurement Act (2006) and Public Procurement Rule (2008), hence, the draft was submitted to the CPTU through the Prime Minister‟s Office for its review but the rules and regulations are still not in force. 4)Authorities Ministries and authorities concerned (Insurance Development and Regulatory Concerned Authority, BEZA) ・ Insurance Act (2010) 5)Related Law ・ Bangladesh Economic Zones Act (2010) 6)Related N.A. Rules/Policy

7)Donors’ ・ IFC provided support to the BEZA in drafting the EZ rules and regulations through a Involvement joint initiative of the IFC-managed and DFID and EU-funded BICF.

84 The CPTU was established in April 2002 as a unit within the Implementation Monitoring and Evaluation Division of the Ministry of Planning.

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Chapter 5 Selections of Prioritized Rules and Regulations for Enabling Business Environment

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

CHAPTER 5 Selections of Prioritized Rules and Regulations for Enabling Business Environment 5.1. Overview and Evaluation Method As mentioned earlier, JICA Study Team has conducted intensive interviews with Japanese companies, the government officials in relevant organizations, business associations and development partners including the ADB, World Bank and IFC in the Target Countries, and developed “Long Lists” by identifying regulatory and enforcement issues for doing business in these countries. After filing Long Lists, each issue has been re-evaluated and screened to make “Short List” by the JICA Study Team in terms of magnitude of impacts on private business in particular foreign investors. The candidates for short listed issues have been analyzed after intensive discussion within the JICA Study team. Qualitative assessment was made based on the following five criteria in order to come up with the short list.  Restrictions/constraints on foreign investment, entry/expansion of business are extensive (eg. restriction on service/trading sector, foreign currency loan, remittance, import restriction, etc.)  Cost (including time) of doing business is high (eg. Compliance cost for business license, taxation, customs, import license, financial cost, etc.）  No concrete steps have been identified/undertaken to establish/improve relevant institutional structures and/or revise related laws and regulations.  Even if relevant institutional structures, laws and regulations exist, implementation/enforcement does not take place due to lack of knowledge, capacity or standardized procedures etc. on the ground  Establishing/improving relevant institutional structures, laws and regulations are not unrealistic. In other words, the regulatory or enforcement improvement is not against the fundamental policy of the government of the Target Countries.

5.2. Selections of Prioritized Rules and Regulations in Myanmar (Short list) 5.2.1. Overview of Short Listed Issues The following twelve (12) issues were identified as shortlisted and prioritized issues for Myanmar: Table 5-1 Short List of Prioritized Issues Category Sub-Category ID Issues 1-2 1) Relaxing the investment conditions in Barriers to entry by trading business sectors 1-7 2) Relaxing the investment conditions in construction business Investment 1-1 3) Increased specificity of the criteria and Restrictions on requirements for investment license approval by Foreign Investment MIC and related issues by cross sector

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Category Sub-Category ID Issues 1-13 4) -1 ） Strengthen the publicity of laws and Service for investors regulations in English -2）Strengthen the One-Stop Service system 2-2 5) Improving the procedures for Permit and Company Law, Formulation of a Company Registration Business Company License

6) Difference in treatment of Myanmar incorporated Corporate Income 3-1 companies and foreign companies Taxation, Tax Accounting 3-2 7) Establishing a self-assessment tax system 3-11 8) Introduction of VAT system Commercial Tax 4-1 9) Improvement of foreign remittance Finance, Repatriation of procedures Foreign Foreign Currency Exchange 5-2 10) Improvement of import/export license system Import/Export 5-3 Trade, Logistics License 5-7 11) Introduction of the Bonded System Logistics 7-3 12) Establishment of the Special JV System Infrastructure/E Infrastructure/Const nergy/Environm ruction ent

5.2.2. Description of Prioritized Issues Foreign Investment Framework of Myanmar

The foreign investment framework of Myanmar comprises the following three main components: 1) Foreign investment regulation based on Myanmar Companies Act and other related laws and business procedures; 2) Foreign investment-preferential policy based on Foreign Investment Law; and 3) Foreign investment-preferential policy for foreign companies investing in Specialized Economic Zone based on SEZ law.

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Therefore, Foreign Investment Law and SEZ law not only provide preferential treatment to foreign investors but also facilitate access to areas where foreign investments are otherwise restricted due to traditional government policy85.

Issue1): Relaxing the investment conditions in trading business (1) Background/Contents/Reasons Behind According to article 27A of the Myanmar Companies Act, foreign companies must obtain a business license called a “Permit to Trade” upon starting business in Myanmar. A Permit to Trade is issued in different categories, including the “Trading” business (which most likely includes retail, wholesale and import and export trading), service business and manufacturing business. However, the government of Myanmar has suspended the issuance and the renewal of Permits to Trade for “Trading” to a foreign company since 2003. In the current scheme, even a company with as little as one percent foreign participation is treated as a foreign company.

Therefore, a foreign trading company cannot engage in “trading business”, namely, buying or selling of finished products, including imports and exports. A foreign manufacturing company can import raw materials or components to manufacture its own product in Myanmar. However, it is not allowed to import and sell its own finished products or those of its affiliate companies manufactured elsewhere, and must appoint the local wholesaler in Myanmar for such transactions.

According to the Classification of Types of Economic Activities, MIC Notification No. 13/2013, some wholesale and retail businesses are applicable for investment under MIC permit. Once approved for an MIC permit, a foreign company is automatically eligible for MIC tax incentives, while domestic suppliers cannot leverage this advantage. The domestic suppliers have insisted that such preferential treatment for foreign companies is unfair. Consequently, the issuance of MIC permits for foreign companies which involve granting incentives has been suspended for the time being under MOC policy. (Retail service for large size permits investment under MIC permits under specific conditions.)

The resumption of the issuance of the Permit to Trade for “Trading” by 2015 is now under consideration within the government commission comprising NPED (MIC, DICA), MOC and other relevant ministries86. The ministry responsible for implementing this policy measure, MOC, is considering the relaxation step by step, beginning with commodities such as sport shoes. 87 However, since it will require alignment of interests with domestic wholesalers and retailers, the final decision on the above relaxation will likely take some time.

(2) Description of the Relevant Regulations  The Burma Companies Act (1914)>Article27A

85 Study of Ministry of Justice, Japan, ” Foreign Investment Laws and Regulations in Myanmar”Chapter6, p.220 86 Interview with NPED, Oct. 22, 2013. 87 Interview with MOC, January 8, 2014

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Article 27A of the Myanmar Companies Act stipulates that a foreign company needs to obtain a Permit to Trade. The government of Myanmar, in implementing the Myanmar Companies Act, has suspended the issuance and renewal of the Permit to Trade for “Trading” since 2003 in accordance with the Trade Council Order of MOC.

(3) Risk and Impact on Business “Trading” business, which involves importing, wholesaling and retailing of commodities, is essential for all foreign companies and the staple of business, particularly for trading companies. Therefore, the ban on “Trading” business not only has a detrimental impact on business models of large manufacturing companies but also hinders efforts to establish a supply chain system incorporating small- and medium-scale manufacturers and trading companies. Furthermore, Japanese manufacturing companies in particular have an interest; not only in selling their products in Myanmar but also undertaking responsibility to provide after-sales services. Therefore, they wish to establish a direct-sales system to customers rather than going through local agents.

(4) Concerned Ministries Myanmar Investment Commission Ministry of National Planning and Economic Development Relevant ministries

(5) Donor Involvement Nothing special.

(6) Recommendations for Improvement Measures  Short-term Solution Consideration of the protection of domestic suppliers hinders the complete and immediate relaxation of the suspension of Permit to Trade for “Trading”, whereupon a partial relaxation, involving resumption of certain modes of business, is recommended.

In this regard, as a first step, it is recommended to establish priority sectors to enhance business activity with due consideration of the impact on domestic traders. The business activity for a set of commodities within these priority sectors should first be ascertained.

Trading companies play key roles in Japanese companies‟ business models. Japanese trading companies typically engage in cross-border trade and establish a supply chain system incorporating companies of various sizes by dealing in a set of commodities of a sector and its supporting sector. Relaxation of trading restrictions should thus be considered based on collective rather than individual commodities, to stimulate the intra-sector trade.

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The second recommended step is to introduce a phased liberalization, prioritizing export business for foreign companies, to avoid any negative impacts on domestic traders. Allowing export trading business for foreign companies first, followed by import business later, could be a practical solution, similar to examples elsewhere such as Indonesia.

 Medium to Long-term Solution Foreign investment should be regulated under the Foreign Investment Law, rather than the Myanmar Companies Act. Under the umbrella of this Foreign Investment Law, specific rules and regulations should be specified in Notification or other legal forms if necessary. Under the above proposed system, the Permit to Trade for “Trading” should be automatically issued to qualified foreign companies, just as for the permit for Company Registration.

If the legal system is changed in that way, the Foreign Investment Law will no longer function as a conduit for overcoming restricted areas of foreign investment, but will serve its originally intended function, namely to incentivize qualified foreign companies in prioritized business areas. If, as a result of such change, “Trading” business might be allowed without obtaining an MIC permit under certain conditions, the concerns on the part of domestic traders that they are discriminated against foreign investors in terms of tax incentive will be solved.

The resumption of the issuance of the Permit to Trade for “Trading” by 2015 is now under consideration in the government commission comprising DICA and MOC and other relevant ministries88.

【Other country‟s practice】 Please refer to the Medium- to Long-term Solution in issue 3.

Issue2): Relaxing the investment conditions in construction business (1) Background/Contents/Reasons Behind In the area of construction, investment through an investment permit under the Myanmar Companies Act had allowed been only for engineering services and generally not for construction services. However, according to a high-ranking DICA official, they have started issuing such permits for construction services since the end of 2013. According to the Myanmar Investment Commission Notification No.1/2013, foreign construction companies are allowed to enter i) in the form of a joint venture with Myanmar companies, or ii) subject to the recommendations from the Ministry of Construction. However, certain provisions are not clearly stipulated, which raises uncertainties about their interpretation. For another provision of building constructions, [Establishment of factories to manufacture structural metal framework for buildings and girders, and prefect and precast concrete] (#27 in List of Economic Activities to be allowed only in the form of Joint Venture with Myanmar Citizens) is stipulated.

88 Comment from DICA in the workshop, Sep. 13, 2014.

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According to the Notification of the official English translation, [Establishment of factories to manufacture structural metal framework for buildings and girders, and prefect and precast concrete] is not considered related to the construction business. In contrast, according to the Notification of the Myanmar original version, it can be read as [Construction of building and manufacturing of structural metal framework and prefect and precast concrete]. Therefore, in the Myanmar original version, all constructions must seemingly invest via joint ventures. This interpretation of the provision is vaguely worded and raises questions about its interpretation.

To provide construction for buildings, [Establishment and lease of office /commercial buildings] (#11-1 in the List of Economic Activities Permitted with the recommendations of the Relevant Ministry) is stipulated. In these economic activities, 100% of foreign investment is allowed under BOT if foreign investor obtains the recommendation letter from the Ministry of Construction. However, the term of [Establishment] seems to refer to the real estate business, so it is unclear whether this provision also encompasses the construction business.

To provide infrastructure, foreign construction companies are allowed to participate in the form of joint ventures in [Construction related to develop rail/road links such as bridges, highways, bypass, subways etc.](#28 in List of Economic Activities to be allowed only in the form of Joint Venture with Myanmar Citizens) (see the 2) in the chart below.) Moreover, according to the provision of [Construction of buildings and other related business (related to water transport-related services)](#23 in the List of Economic Activities Permitted with the recommendations of the Relevant Ministry), foreign construction companies are allowed to invest in the form of joint ventures with the State. (see the 6) in the chart below.)

These infrastructure businesses are only allowed as joint ventures. However, since the construction industry remains in a developmental stage, it is still difficult for Japanese construction companies to find a qualified partner with sufficient technical experiences in Myanmar, which hinders the efforts of foreign construction companies to enter Myanmar via joint ventures.

Table 5-2 Regulation for Construction Services in Notification No.1/2013 Economic Activities Requirement for Joint Requirement for venture recommendation from the relevant ministry 1 ） Establishment of factories to manufacture structural metal framework for buildings and girders, and prefect and precast  - concrete（List of Economic Activities Permitted with the recommendations of the Relevant

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Ministry#27）

2 ） Construction related to develop rail/road links such as bridges, highways, bypass, subways etc.（construction service related to  - infrastructure ）（List of Economic Activities Permitted with the recommendations of the Relevant Ministry 28）

3）Establishment and lease of office /  commercial buildings. （ List of ・If a BOT system, it can be Economic Activities Permitted with implemented with the recommendations of the Relevant 100% Foreign Investment Ministry 「 11. Ministry of ・The land shall be returned to 」） Construction 1 the owner upon expiry of the permitted - business term; ・In case of urban heritage buildings, to utilize according to the Conservation Management Plan, without affecting the original design. 4）Construction of factories, ・To implement according to installation of machinery and the specification of equipment and test run. （ List of ASEAN Mutual Recognition Economic Activities Permitted with - Arrangement the recommendations of the Relevant (MRA) and Myanmar Ministry 「 11. Ministry of National Building Codes, Construction」3） Rules and Regulations. 5）Construction of natural disaster ・To implement according to resistant buildings and related the specification of infrastructure using high/modern ASEAN Mutual Recognition technology. （ List of Economic Arrangement - Activities Permitted with the (MRA) and Myanmar recommendations of the Relevant National Building Codes, Ministry 「 11. Ministry of Rules and Regulations. Construction」

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6）「（Water transport-related services）  ・ To be allowed Joint Construction of buildings and other Venture with the State. related business （ List of Economic - Activities Permitted with the recommendations of the Relevant Ministry「7. Ministry of Transport」23） Source: JICA Study Team

(2) Relevant Rules and Regulations  The Foreign Investment Law (2012)  Myanmar Investment Commission Notification No.1/2013>List of Economic Activities Permitted with the recommendations of the Relevant Ministry, List of Economic Activities to be allowed only in the form of Joint Venture with Myanmar Citizens

(3) Impact/Risks on the Private Sector With the construction industry in its current undeveloped state, limiting foreign participation to joint ventures discourages new foreign companies from entering Myanmar. It will adversely impact on the local construction sector. Myanmar local companies alone cannot cope with the growing need to develop infrastructure, which would delay the implementation of many infrastructure projects. Foreign construction companies are unsure which sector of the construction field they are allowed to enter due to the lack of clarity in the provision of Notification No. 1/2013.

(4) Concerned Ministries  DICA  Myanmar Investment Commission  Ministry of Construction

(5) Donor Investment Nothing special

(6) Recommendations for Improvement Measures  Short-term Solution The definition of the provision of a construction-related business in Notification No. 1/2013 should be specified. First, address the discrepancy between Myanmar original and English translation in the [Establishment of factories to manufacture structural metal framework for buildings and girders, and prefect and precast concrete](#27 in List of Economic Activities to be allowed only in the form of Joint Ventures with Myanmar Citizens)

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Second, the provision of [Establishment and lease of office /commercial buildings] (#11-1 in the List of Economic Activities Permitted with the recommendations of the Relevant Ministry) should be defined for the real estate business. New provision of construction business for construction of commercial building and resident building, etc,. should be stipulated.

 Medium-Long term Solution To provide infrastructure business, [Construction related to develop rail/road links such as bridges, highways, bypass, subways etc.](#28 in List of Economic Activities to be allowed only in the form of Joint Venture with Myanmar Citizens).(see the 2) in the chart above.) Moreover, foreign construction companies are allowed to invest via joint ventures with the State according to the provision of [Construction of buildings and other related business (related to water transport-related services)](#23 in the List of Economic Activities Permitted with the recommendations of the Relevant Ministry).(see the 6) in the chart above.)

Because the infrastructure business is normally conducted as contract work, foreign construction companies need qualified Myanmar partners. However, the underdevelopment of the construction industry makes it difficult to find the right partner in Myanmar. At least until the fundamental construction industry is developed, these companies should be allowed to participate at 100% foreign ownership, rather than forced into joint ventures.

Issue3): Increased specificity of criteria and requirements for investment license approval by MIC and related issues (1) Background/Contents/Grounds The Myanmar Investment Commission (MIC), which was established under the Foreign Investment Law, is empowered to authorize and grant investment permission to foreign and domestic investors. As described in issues 1) and 2), investment may be allowed in regulated areas by MIC on a case-by-case basis, even for restricted and prohibited businesses, which makes the investment criteria ambiguous for investors.

Regarding the limitation on foreign participation, Foreign Investment Rules-Ministry of National Planning and Economic Development Notification No. 11/2013, pursuant to The Foreign Investment Law, stipulates that the maximum foreign ownership ratio should not exceed 80 (eighty) percent of the total capital if the foreigner has formed a joint venture with Myanmar citizens to carry out prohibited or restricted businesses. However, the types of prohibited or restricted business are not stipulated in the Notification, making it unclear which prohibited or restricted businesses are subject to limitations on foreign participation.

The Myanmar Investment Commission Notification No.1/2013, provides the List of Prohibited Economic Activities, List of Economic Activities allowed in the form of Joint Venture with Myanmar

5-9 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report citizens and List of Economic Activities which shall be allowed under the specific circumstances, covering 237 business activities in total89.

According to the Notification above, while entries in the form of joint ventures are mandated in the manufacturing sector such as pulp, beverage, construction materials, and chemicals, foreign participation is allowed up to 80%, which is relatively high.

Conversely, for economic activities requiring the recommendations of the relevant ministry, no detailed criteria or requirements are stipulated in the Notification, and negotiation on business conditions with line ministries is required every time. Additional business conditions or foreign participation may also typically be required on a case-by-case basis.

As described in the medium- to long term solution to issue 1), foreign investment law not only provides preferential treatment for foreign investors but also facilitates access to areas where foreign investments would otherwise be practically restricted. Conversely, in combination with other laws, the MIC permit becomes a requirement for foreign investors.

Under the Transfer of Immovable Property Restriction Act, no foreign companies are allowed to acquire immovable property exceeding one year. According to this law, foreign companies establishing local subsidiaries under the Myanmar Companies Act are not allowed to lease the land. Consequently, foreign companies, particularly manufacturing companies, and even those not requiring an MIC permit under Foreign Investment Law, are still required to obtain an MIC permit to become eligible for the incentive to lease the land for the long term. Here, MIC the permit, which was intended to encourage foreign investment by offering incentives, has actually become a de facto entry requirement.

(2) Relevant Rules and Regulations  The Foreign Investment Law (2012)  Foreign Investment Rules-Ministry of National Planning and Economic Development Notification No. 11/2013  Myanmar Investment Commission Notification No. 1/2013  Transfer of Immovable Property Restriction Act>Chapter 2 Restrictions on Immoveable Property>Article 3. No person shall sell, buy, give away, pawn, exchange or transfer immovable property by any means with a foreigner or foreign-owned company.  Article 4. No foreigner or foreign-owned company shall acquire immovable property via purchase, gift, pawn, exchange or transfer.  Article 5. No person shall grant a lease of immovable property, for a term exceeding one year:  (a) To a foreigner or foreign-owned company.

89 It can be understood that sectors not so stipulated in the Law are open to investment at 100% owned by foreign investors.

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 (b) No foreigner or foreign-owned company shall receive a lease of immovable property, for a term exceeding one year.

(3) Impact/Risks on the Private Sector The lack of transparency of investment criteria is critical, as it adversely impacts on foreign investors‟ decision-making over investments in Myanmar. Since practically almost all foreign investment in the manufacturing sector requires MIC permission, regardless of the need for incentives, this will increase the cost and time required for investment applications.

(4) Concerned Ministries  MIC  DICA  Relevant ministries

(5) Donor Investment IFC advised for the MIC Notification No. 1/2013. The World Bank Group (including IFC) and OECD are assisting in the Notification to unify the current Foreign Investment Law and the Myanmar Citizens Law.

(6) Recommendations for Improvement Measures  Short-term Solution As mentioned earlier, since the types of prohibited or restricted business are not stipulated in the Notification to allow maximum 80% foreign ownership for prohibited or restricted businesses in the case of joint ventures with Myanmar citizens, details of such business subject to limitations on foreign participation should be specified.

The detailed criteria or requirements for investment to be allowed such as additional condition or percentage of foreign participation should be stipulated in the List of Economic Activities which shall be allowed under the specific circumstances of the Myanmar Investment Commission Notification No. 1/2013.

The Myanmar Investment Commission Notification No. 1/2013, lists Prohibited Economic Activities, Economic Activities allowed in the form of Joint Ventures with Myanmar citizens and Economic Activities which shall be allowed under specific circumstances, covering 237 business activities in total. The economic activities include both investment-prohibited and investment-preference economic activities, which confuses investors. Therefore, the Notification should be reorganized with prohibited-economic activities and investment-preference economic activities listed separately.

【ASEAN‟s practices】

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In the case of other ASEAN counties, targeting investment-preference sectors are regulated in the Notification, with the content of incentives adjusted flexibly sector by sector.

 Medium-Long term Solution Please refer the Medium-Long term Solution of issue 1). Table 5-3 Regulation for Promoting Foreign Investment in ASEAN countries Thailand Activities Eligible for Promotion (7 sections, 129 sectors in total), Projects designated as property activities (tax exemption, regardless of zone) (5 sectors), Activities classified as of special importance and benefits to the country (tax exemption, regardless of zone, not subject to the corporate income tax exemption cap) (4 sectors) Based on Board of Investment Announcement No. 10 /2552, Types, Sizes and Conditions of Activities Eligible for Promotion http://www.boi.go.th/index.php?page=eligible_activities&language=en

Philippines 13 lists of preferred economic activities are stipulated in the Investment Priorities Plan (IPP) 2012. Another 9 preferred economic activities are regulated under each specific law or regulation. These preferred economic activities are divided into 3 categories based on 1) types of economic activities, 2) economic activities in special zone, 3) types of companies. http://www.jetro.go.jp/world/asia/ph/invest_03/

Malaysia Tax incentives are regulated by sectors in various laws; the Promotion of Investment Act 1986, Income Tax Law 1967, Distribution Tax Law 1972, Product Tax Law 1976, Free Area Law 1990. The list of promoted activities and products eligible for consideration of Pioneer Status and Investment Tax Allowance (ITA) are provided in the Promotion of Investment Act. http://www.jetro.go.jp/world/asia/my/invest_03/ Souce:JICA Study Team

Issue4-1): Strengthen the publicity of laws and regulations in English (1) Background/Contents/Grounds Although the government currently publishes information on the general economic situation, industry, foreign investment laws and regulations, tax law, labour, and list of related ministries on the DICA website of “Myanmar Investment Guide”, it is difficult for foreign investors to search this information readily because information in English and Myanmar languages are found mixed on the top page.

Although there is the link to the Ministry of Finance website on the DICA website, other links to other relevant ministries providing sectoral information concerning business- and investment-related laws and regulations, and procedures for investment permission are omitted. Because the relevant ministries often manage their own websites and publish press releases on authorizing laws and regulations at their own discretion, not all information related to business and investment is provided on these websites.

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Conversely, the Attorney General‟s Office publishes the newly enacted laws and rules on its website. However, it is not focused on business-related laws, so it excludes easy access for foreign investors to find the relevant laws. Besides, AGO‟s website does not provide laws and rules before 2012, access to which is limited.

(2) Description of the Relevant Regulations Nothing special

(3) Risk and Impact on Business The investors cannot obtain the investment information from a single source and efficiently, which hinders foreign investors and increases business cost. The government should improve the centralized system for this purpose.

(4) Concerned Ministries  Attorney General‟s Office  DICA

(5) Donor Involvement Nothing special

(6) Recommendations for Improvement Measures  Short-term Recommendation Improve the DICA website (http://www.dica.gov.mm/Investment%20Guide.htm) to a hierarchical structure and post the information in an investor-friendly way.

Language: Distinguish the English and Myanmar pages on the website, and include a language switch bottom on the top page.

Hierarchical structure: 1) Display the information stratified by each category such as tax, labour, registration procedure, etc.,. on the top page, and display each topic information such as summary, details of each process, and laws and regulations on a new page moving from the top page, which enables users to move to a new page by stages and search and select the necessary and unnecessary information efficiently. 2) Set the search function to find the necessary information. 3) Set a bread crumbing function on each page to guide users properly. 4) Provide a compact PDF file. Latest information:

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Update the new and revised laws and regulations on the website as far as possible.

 Medium- to Long-term Recommendations Translation of Myanmar laws and regulations into English is crucial to promote investment in Myanmar and facilitate international business. For this purpose, the government should establish a database system, storing exhaustive laws and rules related to all ministries, and a functional website to provide these exhaustive and updated laws and regulations which have been translated into English to the public.

【Japan‟s practice】 Example: Japanese Law Translation system by the Ministry of Justice The Japanese MOJ establishes a Japanese Law Translation website http://www.japaneselawtranslation.go.jp/?re=02 This website includes mainly search and other functions.

In Myanmar, the government should address the need to develop a database system, and develop related infrastructure. Since human resource must translate documents into English, building capacity and a training system should be undertaken.

Issue4-2): Strengthen the One-Stop Service system (1) Background/Contents/Grounds Under the current regime, the One-Stop Service (OSS) office in Yangon handles two kinds of MIC investment permit procedures under the Foreign Investment Law and the Permit to Trade and Company Registration under the Myanmar Companies Act.

Process for the MIC investment permit: According to DICA, the OSS office in Yangon handles all steps; checking the proposal, referring to relevant ministries and permitting investment. During these steps, the DICA section of the OSS office assumes the role to perform the procedure as a single contact point. As investors can access the relevant ministries through the DICA section of the OSS office in Yangon, investors need not go directly to the relevant ministries in Naw Pyi Taw. (However, for the natural resource-based investment business and investment under the State-owned Economic Enterprises Law, investors must submit the proposal to the relevant ministry in Naw Pyi Taw before submitting it to DICA, pursuant to article 35 of the Foreign Investment Rule.) 5 ministries currently open the section of the OSS office in Yangon; the Ministry of Immigration and Population, the Ministry of National Planning Economic Development, the Ministry of Commerce, the Ministry of Finance (Customs), the Ministry of Labour, carrying the procedures for Visa and working permit, investment permit, customs, etc. This means investors can directly access the office of each ministry in the OSS office in Yangon for continuous transactions after investment permit.

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Consequently, the process for MIC investment permit is mostly carried out in the OSS office in Yangon, which thus assumes a role as a certain level of OSS function.

Regarding the processing period, article 20 of the Foreign Investment Law stipulates that the MIC commission may accept or refuse the proposal within 15 days of submission, and may allow or deny the proposal within 90 days once the proposal is accepted. Under the law, the deadline is strictly supervised by the head office of DICA in Naw Pyi Taw.

Process under the Myanmar Companies Act: Conversely, via a procedure for a Permit to Trade and Company Registration under the Myanmar Companies Act, the function of the OSS office in Yangon is rather limited. The proposal is automatically submitted to the Naw Pyi Taw office of DICA after the DICA section of the OSS in Yangon checks the application form. Investors, particularly foreign, must often go to the head office of DICA or relevant ministries in Naw Pyi Taw to explain and negotiate the conditions of foreign participation to DICA or relevant ministries, which often happens during foreign investment cases. The lack of human resources in the DICA section of the OSS office as well as the decision-making process between DICA and the relevant ministry causes problems. In this context, the OSS office in Yangon has a limited function as a single contact point.

Furthermore, all related information, including the outline of transactions, required documents, fees and lead-time for investment permission should be published in a guidebook and provided to the public in the OSS office in Yangon.

(2) Description of the Relevant Regulations  Foreign Investment Law>CHAPTER (IX) APPLICATION FOR PERIT>article20 20. The Commission: (a) may accept or refuse the proposal within 15 days of the necessary scrutiny if the proposal submitted under section 19 is received; (b) shall allow or refuse the proposal within 90 days by discussing with the person who submits the proposal if accepted;

 Notification No. 11/2013> Chapter XIX Departmental Cooperation Team> Article 153 153. The Commission shall form the Departmental Cooperation Team comprising officials from the following departments to enhance foreign investment business, to facilitate and enable field inspections of business operations and provide one-stop service in accordance with section 14 of the Foreign Investment Law: (a) Central Bank of Myanmar; (b) Relevant Department from the Ministry of Electric Power; (c) Directorate of Investment and Company Administration;

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(d) Customs Department; (e) Directorate of Trade; (f) Department of Labour; (g) Department of Immigration and National Registration; (h) Directorate of Industrial Supervision and Inspection; (i) Internal Revenue Department;

(3) Risk and Impact on Business While the OSS office in Yangon occupies a certain role under the process of the MIC permit, its service under the process of Permit to Trade and Company Registration under the Myanmar Companies Act remains insufficient. Consequently, foreign investors often visit Naw Pyi Taw for the application process in urgent cases, not using the OSS office in Yangon. This does not always result in a reduction in costs for foreign investors.

(4) Concerned Ministries  DICA

(5) Donor Involvement Nothing special

(6) Recommendations for Improvement Measures  Short-term Recommendation Under the current regime, the One-Stop Service (OSS) office in Yangon handles process before and after investment permits for MIC investment permits under the Foreign Investment Law and for Permits to Trade and Company Registration under the Myanmar Companies Act. The process after investment permit includes taxes, visas and work permits and import/export licenses. The OSS office in Yangon should publish the above related information as well as a guidebook for investors. Furthermore, the OSS office in Yangon also should provide the status of the ongoing process and promptly provide information to investors.

 Medium- to Long-term Recommendation DICA should expand the scope of service for the Permit to Trade and Company Registration process to achieve a service level equivalent to the MIC permit process. All steps for checking the proposal and allowing investment, with reference to the relevant ministries, should be included. In particular, foreign investors are often required to provide additional explanations to DICA or the relevant ministries. Explanations to relevant ministries and negotiation for business conditions (see the gray part of the chart below.) should be performed in the OSS office in Yangon. During these steps, the DICA section of the OSS office takes care of the procedure as a single contact point. Besides, there is a need to increase the number of officers and building capacity.

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Table 5-4 Process for Permit and Company Registration

Temporary permit process

Explanation to line Application for Form Payment for DICA to issue Temporary

ministry A etc. registration fee Permit

Permanent permit process

Explanation to line Review by DICA DICA to indicate the Investors to confirm and ministry business condition for agree with business permit to trade by DICA condition

Payment of 50% of minimum foreign capital Recommendation Letter

Payment for stamp duty

DICA to issue

Permanent Permit

Souce: JICA Study team

Issue5 ): Improving the procedures for Permit and Company Registration (1) Background/Contents/Grounds Foreign Investors must obtain a company registration (article 4 (1)) and permit (article 27A (1)) when doing business in Myanmar, according to the Burma Companies Act (1914). The same requirement applies when establishing not only a subsidiary or joint venture companies but also a branch. Both the application for a permit (for which the proposed business type will be reviewed) and that for company registration (to register the identification of each company) are to be submitted to DICA.

Under the current procedure, a temporary permit and temporary company registration90 are issued before a permanent permit is issued and a permanent company registration is completed. The temporary permit and temporary company registration are valid for 6 months, and issued by DICA within 2 days of investors‟ paying the registration fee (for foreign company: USD2,500, for domestic company: Kyat1,000,000). As soon as the temporary permit and the temporary company registration are issued, investors may open a banking account and start their business in Myanmar.

90 It is also called a “temporary certificate”.

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After obtaining the temporary permit and company registration, investors must continue the procedures for a permanent permit and company registration with DICA. The actual steps involved are as follows: DICA reviews the application documents and issues a Condition Letter. Investors indicate acceptance of the conditions, pay 50% of the minimum capital and stamp duty and the relevant ministry issues a Recommendation Letter. During these steps, obtaining the letter of recommendation from the line ministry takes longest. Consequently, it normally takes 2 to 6 months to complete all processes, despite the need to complete all processes within 90 days (or 3 months), keeping investors waiting for a long time to obtain business authorization. Besides, the required documents differ in each case, which means the enforcement of transactions is changeable.

The IFC survey, “Doing Business 2014” (http://doingbusiness.org/data/exploreeconomies/myanmar） shows that Myanmar is ranked worst out of 189 countries in terms of ease of going into business. For company registration: 11 points* (average of ASEAN countries: 5 points), Transaction period: 72 days (same: 37.8 days), cost 176.7% (same: 29.8%), minimum capital fee per personal income: 7016.0% (same: 293.3%). *point: A procedure is defined as any interaction of the company founders with external parties (for example, government agencies, lawyers, auditors or notaries).

According to a high-ranking DICA official, the Myanmar Companies Act is scheduled to be revised by March 2014. The availability of online company registration is scheduled for October 2014.

(2) Relevant Rules and Regulations  The Burma Companies Act (1914)>PART II. CONSTITUTION AND INCORPORATION Foreign Companies and Companies Carrying on International Trade*> Article 27 A *27A. (1) Every foreign company or company engaging in international trade shall, before its memorandum and articles, if any, are filed with the Registrar, obtain a permit from the President of the Union. (2) An application to issue a permit shall be in the form prescribed, and the President of the Union may grant the permit under such conditions and subject to such regulations, if any, as may be prescribed; and the permit shall be in Form I in the Third Schedule containing the particulars set out therein. (3) No foreign company shall engage or continue to engage in its business in the Union of Burma unless it has obtained a permit under sub-section (1) within such time as may be prescribed. (4) (i) No company engaging in international trade shall establish a subsidiary or branch overseas unless it has obtained a permit under sub-section (1). (ii) A company engaging in international trade having a subsidiary or branch overseas as of the date of commencement of the Burma Companies (Amendment) Act, 1955, shall obtain a permit from the President of the Union within such time as may be prescribed. If a foreign company or company engaging in international trade defaults on compliance with the requirements of this section, the company, and every officer or agent shall, on conviction, be liable

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to a fine not exceeding five hundred kyats or, for a continuing offence, fifty kyats for every day during which the default continues.

 The Myanmar Company Rule (1940)

(3) Risk and Impact on Business The above-mentioned situation imposes serious time and cost penalties on foreign investors attempting to start business in Myanmar. The temporary permit and company registration system does not exist in other ASEAN counties. Because this temporary system does not provide any assurance for the continuance of business, it hinders foreign investors from engaging in and starting business in Myanmar. Foreign investors must be able to obtain the permanent permit and company registration within a few months to engage in stable investment.

Temporary permit and temporary company registration do not give investors complete status for continuous business in Myanmar. Investors remain in an uncertain status pending permanent status. Moreover, the slow transaction further adds to the investment cost.

(4) Concerned Ministries  DICA

(5) Donor Involvement Nothing special

(6) Recommendations for Improvement Measures  Short-term Recommendation Under the current regime, foreign investors must often submit the additional document to DICA in the process of Permit to Trade and Company Registration. Investors and government officials should be informed of the required documents in advance, which makes the procedure more routine. According to DICA, Online company registration will start in October, 2014 on schedule. After the process is completed under the online system, the permit process will be finished in 24 hours and is expected to provide convenience and rapidity to users.

 Medium- to Long-term Recommendation According to DICA, obtaining the letter of recommendation from the line ministry is the step taking longest, because DICA and the line ministry decide to accept or refuse the proposal and issue the Permit to Trade in this step. According to the recommendation for the long-term solution of issue 3), the process for Permit to Trade and Company Registration must be separated from the foreign investment permit procedure.

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The foreign investment law may stipulate the sector in a minimum area to require a letter of recommendation from ministries, and minimize the procedures concerned as far as possible.

According to the local media in Myanmar regarding the company registration procedure, the government announced that permanent permit and permanent company registration will be issued within 24 hours of submitting an application, except for special cases. This new policy is widely considered to apply only to Myanmar companies and not foreign entities. However, a provision in a bilateral agreement between Japan and Myanmar, “AGREEMENT BETWEEN THE GOVERNMENT OF JAPAN AND THE GOVERNMENT OF THE REPUBLIC OF THE UNION OF MYANMAR FOR THE LIBERALISATION, PROMOTION AND PROTECTION OF INVESTMENT”, signed on December 15, 2013 provides that the permanent permit and permanent company registration shall be issued within 24 hours of submitting an application. This suggests willingness on the part of the government to expedite the process for foreign companies. However, there is no report to prove this company registration process has actually been expedited.

Conversely, DICA mentioned in the workshop in February 2014 that the MCA will be revised by the end of FY2013.

Issue6 ): Difference in treatment of Myanmar incorporated companies and foreign companies (1) Background/Contents/Grounds Residency of companies in Myanmar From a Myanmar income tax perspective, companies‟ tax residency is determined by the place of incorporation. In this context, companies incorporated in Myanmar would be tax resident in Myanmar while all other companies incorporated elsewhere would be treated as non-resident for Myanmar tax purposes.

Corporate income tax Generally speaking, Myanmar resident companies are subject to Myanmar income tax on a worldwide basis. However, non-resident companies are only subject to tax on their income earned in Myanmar. In this context, the ordinary corporate tax rate of 25% would apply to Myanmar resident companies and non-resident companies would be subject to tax at the rate of 35%91. Further, on the premise that the Myanmar incorporated company was established under the Foreign Investment Law (“FIL”) and obtained a Myanmar Investment Commission (“MIC”) permit, it would be able to exploit various tax incentives such as the corporate tax exemption for the first 5 years of business operations. These incentives are generally not open to foreign incorporated companies with branches in Myanmar except under very limited circumstances.

Capital Gains tax

91 Refer to Income Tax Law, Notification No. 111/2012

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Generally, capital gains tax would apply to proceeds on the disposal of capital assets exceeding MMK 5,000,000 (approximately US$5,000). Under the Myanmar Foreign Investment Law, capital assets would include shares, fixed assets, titles and company benefits. The ordinary tax rate applying to such capital gains would be 10%. However, a significantly higher capital gains tax rate of 40% would apply to non-resident companies making similar gains92.

Withholding tax As with many other developing economies, in addition to withholding taxes on interest, dividend and royalties, Myanmar has adopted a broad-based local withholding system to assist in the advance collection of taxes for local procurement.

Broadly speaking, payments for contracts for goods and services in the country would be subject to Myanmar withholding tax, while those made to resident companies for such goods and services would be subject to withholding taxes at the rate of 2%. However, payments made to non-resident companies, i.e. non Myanmar incorporated companies would be subject to a higher withholding tax rate of 3.5%, notwithstanding the fact that the non-resident company may have established /registered a branch in Myanmar and have been filing corporate tax returns.

Table 5-5 Summary of Corporate Tax Rates in 2013 Jurisdiction Prevailing Tax rate for Notes corporate branch of tax rate foreign companies

Myanmar 25% 35% -

Cambodia 20% 20% Profits from oil or natural gas production sharing contracts and exploitation of natural resources taxed at a rate of 30%

China 25% 25% Special rates apply to small-scale enterprises (20%) and state-encouraged new high-technology enterprises (15%)

92 See income Tax notification No. 120/2006 for details.

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Jurisdiction Prevailing Tax rate for Notes corporate branch of tax rate foreign companies

Indonesia 25% 25/20% Nonresident companies also liable for branch profits tax of 20% on taxable income after corporate income tax. Exemption may be applicable if reinvested in Indonesia.

Malaysia 25% 25% Resident SME companies (i.e. companies capitalized at MYR 2.5 million or less) taxed at 20% on first MYR 500,000, with balance taxed at 25% rate. Labusan company engaging in Labusan business activity may elect to pay MYR 20,000 or be taxed at 3% of audited accounting profit.

Philippines 30% 30/15% Regional operating headquarters taxed at 10%. Minimum income tax of 2% applies to gross income, unless regular corporate income tax is greater, and 10% surtax levied on improperly accumulated earnings. Additional 15% tax imposed on remittances by branch to foreign head office (unless reduced by treaty)

Singapore 17% 17% 75% of first SGD 10,000 of chargeable income (excluding Singapore franked dividends) and 50%of next SGD 290,000 of chargeable income (excluding Singapore franked dividends) exempt. Concessionary rate available under certain incentive regimes.

Vietnam 25% 25% Reduced rates (10, 15 or 20%) apply to investments in certain preferential projects. Corporate rate applicable to enterprises conducting prospecting, exploration and exploitation of petroleum and gas and other rare and precious natural resources is 32-50%, depending on project. Source: JICA Study Team

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Table 5-6 Summary of capital gains tax in region Jurisdiction Capital gains tax rate Notes

Myanmar 40/10% Capital gains tax rate of 40% for non-resident taxpayers and 10% for resident taxpayers

Cambodia 20% Taxed as part of assessable income at corporate tax rate

Indonesia 25% Taxed as part of assessable income at corporate tax rate

Malaysia NA No capital gains tax regime. However, there is real property gains tax.

Singapore NA No capital gains tax regime.

Vietnam 25% Generally at the same rate as corporate tax rate. Transfer of securities (bonds, shares of public joint stock companies, etc.) by a foreign entity are subject to CIT on a deemed basis of 0.1% of total disposal proceeds. Source: JICA Study Team

(2) Relevant Rules and Regulations  Income Tax Law 1974. Income Tax Law was revised in 2011. According to the revised law, progressive rate for corporate income tax was introduced.  Income Tax Law, Notification No. 111/2012. Regulation for corporate income tax rate  Income Tax Law, Notification No. 120/2006. Regulation for capital gain tax rate

(3) Risk and Impact on Business The difference in treatment of Myanmar incorporated companies and foreign incorporated companies are likely to impact on the private sector.

From a foreign investor perspective, the most common entity types used for investing in Myanmar would be to establish a Myanmar incorporated subsidiary or a branch of the head office. Therefore, it is clear that a significant portion of the investment vehicles (i.e. branches) available to foreign investors would be disadvantaged from a corporate income tax perspective. For example, there are many construction-related companies that took on long contracts that were registering their branches as it was administratively easier to set up and would probably be easier to deregister when their contracts were completed. These foreign companies would voluntarily register themselves to file tax returns in

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Myanmar and pay their taxes accordingly. In this context, it is unfair for the foreign branches to be discriminated against when they have been fully compliant with the tax laws in Myanmar. This is going to be one of the factors that investors would consider as further hindering business in Myanmar.

The difference in capital gains treatment is likely to cause investors to adopt more complex holding structures to manage their potential capital gains tax exposure in future. Such unnecessarily complex structures not only make doing business in Myanmar costlier but are also likely to distort the economic decision-making process.

With foreign investors‟ generally good tax-compliance profile, such broad-based withholding is a largely unnecessary cash trap for foreign investors during the year and also represents an unwarranted discriminatory practice. With some better regulations to address the authorities‟ concerns, this difference could be addressed without a significant loss in the Myanmar tax base.

(4) Concerned Ministries  Ministry of Finance, Inland Revenue Department

(5) Donor Involvement Other development partners (US Department of Treasury, IMF) will dispatch tax advisors, which are expected to collaborate with the JICA Expert to DICA.

(6) Recommendations for Improvement Measures  Short-term Recommendations Adopting a level playing field Since branches of foreign companies and companies registered under the Myanmar Companies Act are both bodies recognized within the confines of the Myanmar legislation, there should be no disparity in terms of treatment between branches and Myanmar companies.

With increasing efforts being placed on foreign companies having to register their presence in Myanmar through either a branch or local company (if required under other regulations such as the FIL), it should not be necessary to establish a difference in treatment on a taxation front. Vehicles that are allowed under operational regulations should be treated equally, which would also provide investors with greater confidence that they would enjoy flexibility in structuring their businesses as they normally do elsewhere in the world.

Issue notification to adopt changes quickly Notwithstanding the above, it is fully expected that comprehensive changes to legislation will take place. However, significant time and effort on the part of lawmakers will be required to review and amend all the relevant legislation.

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As such, it is suggested that notifications be issued to clarify that a Myanmar branch of a foreign company would be treated the same as a company registered in Myanmar in all aspects of the MITL, subject to certain caveats that would provide reassurances that such treatment would not erode the Myanmar tax base.

 Medium- to Long-term Recommendation Introduction of guidelines to determine the taxable presence within and improved registration system for businesses To achieve the above, we do recognize that some changes may be required to provide reassurances that the Myanmar tax base would be protected whilst addressing the disparity issue.

One such area would be to legislate on what would constitute a taxable presence in Myanmar. Such legislation would provide guidance (notwithstanding the definition of permanent establishment under tax treaties concluded by Myanmar) to how and when local legislation would deem foreign entities to be subject to the Myanmar tax net. Thereafter, it would be the branches‟ obligation to ensure they filed their tax returns just like a Myanmar company.

As a safeguard, it may be suggested that if they would like to avoid paying additional withholding tax, the parent company will need to provide a guarantee that the branch will file all their tax returns before they are deregistered. However, as with any adoption of new legislation, there will need to be supporting systems to ensure the new legislation is administered appropriately. Whilst the current system of getting branches to register with DICA is a good start, it would be helpful if such branches were also issued with unique tax identification numbers so that they could be easily identified by their customers as registered for filing taxes in Myanmar.

Issue7 ): Establishing a self-assessment tax system in Myanmar (1) Background/Contents/Grounds Weaknesses in the formal assessment system The formal assessment system in Myanmar normally takes the tax administration almost entirely out of the hands of most taxpayers. In such systems, the common assumption would be that taxpayers do not possess the necessary knowledge to complete their tax returns appropriately. Under the formal assessment system, there are also many widely known weaknesses to such a system in Myanmar:-

 Low compliance level. As tax administrator resources are often devoted to assessing tax returns filed, there may be fewer resources available for tax investigations /audits;  The above may also means less effective tax officials, since they are often overwhelmed by the number of tax returns requiring assessment. In this context, the attention paid to each taxpayer‟s return would be greatly reduced; and  Lack of transparency, taxpayer grievances and perception of unfairness as the assessment system would be heavily reliant on tax officials to raise assessments. A good example of such situation would be the use of the deemed taxable income method of assessment on certain branches of

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foreign companies. Under such circumstances, the assessment on the branch would not be based on its tax returns filed, but a deemed taxable income representing 5% of its total sales would be used to calculate its tax payable. Such practices are not based on any current tax legislation but are an arbitrary basis of estimating the tax payable of the branch, regardless of its audited financial statements, thus leading to taxpayer grievances.

As such, a self-assessment system should be established to overcome some of the structural issues raised above; particularly to address the issue of manpower shortages within the respective tax authorities.

(2) Relevant Rules and Regulations  Income Tax Law (1974)

(3) Risk and Impact on Business Whilst a well-developed tax administration is being created in Myanmar, a self-assessment system is also going to strain the resources available to the tax administration. Many basic tax administrative tools such as a unique tax identification number (TIN) or the availability of an electronic tax database have yet to transpire.

To ensure taxpayers do not abuse the self-assessment system, tax officials will often need to audit some of them. Thereafter, penalties and interest charges would apply for inaccurate information provided and the quantum of penalties would often depend on the nature of the offence.

As resources are diverted to tax audits and taxpayer education in the self-assessment system, the quality of ongoing services provided by the tax administration is likely to suffer, which would invariably compound the difficulties perceived by investors for doing business in Myanmar.

A self-assessment system without clear legislation and regulations is likely to create an environment of uncertainty for investors, which, in turn, is likely to significantly hinder the speed at which investments can be made. It is also likely to increase the amount of reserves that investors would have to provide in terms of taxes in case their interpretation of the tax laws does not match that of the tax administrators. Such reserves are likely to distort the economic decisions that investors have to consider whilst planning investments in Myanmar.

(4) Concerned Ministries  Ministry of Finance, Inland Revenue Department

(5) Donor Involvement Nothing special.

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(6) Recommendations for Improvement Measures  Short-term Recommendation Introduction of unique tax identification numbers With a unique tax identification number, a central record of a taxpayer‟s history can be sorted and consistent treatment for similar issues can be ensured, even for taxpayers dealing with distant tax officials. To illustrate, we have included a summary of the uses of unique tax identification numbers within the region.

Table 5-7 Use of unique taxpayer identifiers for information reporting and matching Country Employers Government Financial Companies: Government Prescribed : wages agencies: institutions: dividends agencies: contractors pensions and interest asset sales : payments benefits and to purchases sub-contrac tors

Australia √ √ √ √ X X

Japan X X X X X X

Korea √ √ √ √ √ √

China √ √ √ √ √ √

Indonesia √ X X X √ √

Malaysia √ √ X X X X

Singapore √ √ X X X √

Source: JICA Study Team

Provision of advice /assistance by tax office With the advent of the Internet, many tax authorities are placing public rulings and practice notes online and making them widely available to both tax professionals and taxpayers. This is also increasingly

5-27 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report becoming the platform where authorities inform key stakeholders of their interpretation of current legislation.

Taxpayers choosing to rely on such interpretation should be protected from penalties and interest in the event that the interpretation by the tax authorities of a certain issue changes. This would not only provide certainty to taxpayers who are choosing to be compliant but also provide an avenue for feedback where taxpayers disagree with the interpretation of the tax administrators. Where necessary, lawmakers can then leverage the feedback provided to discuss whether changes to the tax law would be necessary.

Over time, this will form a publicly available repository of tax information and practice that has been agreed upon by all levels of the tax administration. This would not only enhance the level of expertise available for all key stakeholders, but also go some way toward ensuring more consistent treatment by various tax officials within each township. You should note that some countries also provide scope to obtain private rulings. Under some circumstances, it may not be commercially viable to publicly disclose all facts of the situation and corresponding tax treatment due to commercial sensitivities. Private rulings provide taxpayers with an avenue to understand the tax administrator‟s opinion on a transaction and take the necessary economic evaluations before undertaking the investment. This would provide greater upfront certainty in terms of tax treatment and further incentivize investors to make long-term investments.

Table 5-8 Selected countries in region with rulings issued by tax authorities Public rulings Private rulings

Country Rulings are Rulings are Rulings are Time limits Fees are issued binding on binding on exist for imposed for revenue body revenue body giving rulings giving rulings

Australia √ √ √ √ X

Japan √ √ X X X

Korea √ X √ √ X

China √ √ √ X X

Indonesia √ √ √ X X

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Public rulings Private rulings

Country Rulings are Rulings are Rulings are Time limits Fees are issued binding on binding on exist for imposed for revenue body revenue body giving rulings giving rulings

Malaysia √ √ √ √ X

Singapore √ √ √ √ √

Source: JICA Study Team

Voluntary tax compliance program and use of tax agents In addition to better education of taxpayers on tax laws as well as closer cooperation between taxpayers and tax administrators, there is also a key role to be provided by professional service providers. In some jurisdictions such as Singapore93 and Japan, voluntary compliance programs exist, which utilize tax professional services to ensure taxpayers‟ tax returns comply with guidelines set by the tax authorities. If so, various exemptions from routine audits for several years or a lower rate of penalties may be applied. However, to ensure the high quality of the review undertaken, investments must be made in both time and resources by professional services firms as well as the tax authorities. Over time, this also helps develop the amount of tax expertise available in the market.

 Medium- to Long-term Recommendation Providing greater education for taxpayers, tax professionals and tax administrators on tax laws and regulations Drawing on the experience of various countries that have established self-assessment systems, some proposals for immediate means of bringing the various stakeholders up to speed can be suggested as follows:-  Offering toll-free lines to offer taxpayer advisory services;  Free publications offered as hard copies and online;  Physical service counters; and  Mobile unit operations to assist for remoter locations.

In addition, greater long term formal education for the three key stakeholders (taxpayers, tax professionals and tax administrators) on tax laws and regulations would pay longer term dividends in terms of more consistent tax administration but also fewer future errors in tax returns, which will be costly (due to penalties and interest charges) in a self-assessment system.

93 Singapore tax authorities proposed the use of external professionals to examine/audit VAT processes to ensure a lower rate of error in VAT returns. If the audit results are positive, exemptions from audits by tax authorities may be granted for several years.

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Addressing the shortage of audit and tax resources To address concerns about audit and tax resources, some proposals that can be considered are as follows:-  Audit exemption for smaller companies. Singapore, the United Kingdom, Australia and Canada no longer mandate that all companies have to have their financial statements audited. Some other countries in the region may also consider instituting a similar exemption despite some resistance from local audit firms, bankers and tax administrators.  Comprehensive road map to increase the number of CPAs and training scope available to CPAs in Myanmar. Whilst a new generation of local CPAs are being educated and groomed, local regulatory bodies may also wish to augment the numbers of CPAs currently available with foreign CPA resources under a set of criteria with which they will be comfortable. Further, it would also help local CPAs to have internship opportunities with large accounting practices to ensure younger CPAs have the opportunity to be exposed to best practices within the accounting firms.

Issue8 ): Introduction of Value Added Tax (“VAT”) (1) Description of the Relevant Regulations Conventional sales/turnover taxes and their weaknesses Broadly, there were 2 main types of conventional indirect taxes aside from customs duties, which were sales and turnover taxes. Conventional sales tax was normally collected as a final tax on sales to consumers. As such, revenue is only raised at a single point of the entire economic production process. Conversely, turnover taxes tax all sales, whether final or intermediate, which is often problematic, since it taxes sales of inputs of other processes. This often creates circumstances of cascading taxes, i.e. tax on tax incurred when tax is charged on the input of some process and also on the output of the same.

Difficulties facing the commercial tax system in Myanmar There are several issues when dealing with the commercial tax system in Myanmar, as follows:-  Low threshold regarding turnover. It is currently set at MMK 10 million which roughly translates to US$10,00094, which would mean most companies collecting commercial tax on behalf of the authorities and could represent a significant administrative cost for many smaller and medium businesses.  Multiple commercial tax rates. The commercial tax rates are set out in Schedules 1 to 7 of the Commercial Tax Law and range from 5 to 100%, which imposes many administrative costs on businesses as they will need to set their systems to record multiple rates rather than one across-the-board rate as recommended for VAT systems.

Having such a long list of products and services on which commercial tax is applicable rather than a VAT system which relies on principles rather than a long list means businesses will always need to look for an ever expanding list to refer to which rates would apply to them.

94 Commercial tax law, Notification 118/2012

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Difficulty in crediting all or most input taxes. For example, it is currently permissible for manufacturers of goods to claim input commercial taxes on raw materials purchased. However, it is almost certain that such manufacturers are also likely to consume services when operating their business. It is uncertain whether claiming such input taxes on services would be allowed95.

Table 5-9 Summary of indirect tax rates Jurisdiction Tax system Standard Reduced Other Rate Rate

Cambodia VAT 10%

China VAT / 17% 3%/4%/6 Exempt and exempt with credit Business Tax %/13%

Indonesia VAT 10% NA Zero-rated for exports and some exemptions available

Malaysia Sales Tax 10% GST to be introduced on 1 April 2015 at a standard rate of 6%

Myanmar Commercial 5% Some exemptions available. Also has rates Tax between 8% - 100%

Philippines VAT 12% Zero-rated for exports and some exemptions available

Singapore VAT (GST) 7% Zero-rated for exports and some exemptions available

Vietnam VAT 10% 5% Zero-rated for exports and some exemptions available

Source: JICA Study Team (2) Description of the Relevant Regulations

95 Section 42 of the Commercial Tax Law

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The Commercial Tax Law The Commercial Tax Law, Notification 104/2012 Regulation for detail rules regarding commercial tax including paying tax, sending declaration registration, and intimation of the commencement of the business. The Commercial Tax Law, Notification 118/2012. Regulation for low threshold regarding turnover

(3) Risk and Impact on Business The commercial tax system in Myanmar creates several difficulties such as the low threshold regarding turnover and multiple commercial tax rates, which imposes many administrative costs on businesses as they will need to set their systems to record multiple rates rather than one across-the-board rate as recommended for VAT systems.

A VAT system is meant to be a tax on final consumption. Thus, a VAT system takes many of the strengths of the above conventional indirect tax systems and improve upon the many of the shortcomings of conventional indirect tax system.

(4) Concerned Ministries  Auditor General Office

(5) Donor Involvement Nothing special.

(6) Recommendations for Improvement Measures  Short-term Recommendation Multiple rates are used in commercial tax systems. This use of a long list of products and services to determine applicable commercial rates is not only administratively cumbersome but makes it increasingly expensive in terms of both time and effort to apply the system, as the scope of products and services offered in Myanmar expands.

One way in which the current commercial tax system can be made administratively easier would be to condense Schedules 1 to 7 into a single schedule. This schedule would then explain that all goods and services imported, rendered or sold in Myanmar would be subject to 5% commercial tax unless provided in the list within the schedule. Further, this list would contain the goods and services, such as basic public transportation and foodstuffs that would not be subject to commercial tax for social reasons.

Under such circumstances, this would allow the 8 to 100% rates to be eliminated and then compensated for by increasing the corresponding customs duties and applying commercial taxes to goods and services in Myanmar more broadly.

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The above proposal can be further enhanced by allowing all commercial taxes on goods and services used for businesses to be creditable, which would help prevent or reduce the chances of a commercial tax cascading (tax on tax) scenario.

Setting up of VAT system To improve the design of a VAT system in the shorter term, it would be worth referrig to the international guideline. For example, IMF has suggested some practical recommendations:-  The VAT system should adopt a single rate rather than multiple rates;  The VAT system should adopt a single, relatively high threshold regarding turnover;  The VAT system should be apply to a broad base of goods and services with minimal exemptions;  The VAT system should use the destination principle whereby exports are zero rated and imports are taxed;  The VAT system should use the invoice credit method; and  Installing strict control of invoices / credit and debit notes as this would be the primary source of documentation to support the input and output claims. Thus, as a basic rule, they should at least include the following information:-  Running invoice number;  Name and tax registration number of taxpayer;  Declaration of tax invoice / credit or debit note;  Time of supply;  Amount of taxable supply;  Amount of VAT applicable;  Reason for issue of credit / debit notes;  Number and date of original invoice (for credit and debit notes)

 Medium- to Long-term Recommendation To establish a successful VAT system, the following aspects would be included:- As most VAT systems would i essentially constitute “self-assessment” transaction-based tax systems, most countries that have adopted the VAT system would also have an audit system in place to ensure high taxpayer compliance rates and support the prosecution of fraud cases.

As can be imagined, with the potential for VAT refunds, particularly in export-oriented businesses, there have been many cases of abuse by taxpayers where taxpayers or their employees have defrauded the tax authorities and absconded with VAT refunds. Due to the nature of the VAT as a highly repetitive tax for most businesses and the need for a method to swiftly detect fraud, the process lends itself to monitoring by the tax authorities using technology-based analytics; namely using algorithms/statistics of past filings and other data sources to establish the expected pattern of filings for a specific type of business. Any deviations can then be flagged for further review by VAT audit professionals and a determination can be made if a field audit will be necessary.

However, prior to setting up any audit system a few requirements must be met.

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As mentioned before, because VAT is transactional in nature, systems for record-keeping must be stringent, particularly bookkeeping records. Due to the numerous repetitions of similar transactions affecting the outcome of a VAT return, a single judgmental mistake may lead to a very large tax over- or underpayment if the mistake is not detected early.

In this context, external service providers have played an increasingly important role in assisting tax authorities to review how the controls within the taxpayer are established and thus prevent such mistakes from happening. An example is Singapore, where the tax authorities have co-funded a program whereby qualified tax advisors can undertake a review program set up by the tax authorities for taxpayers. Taxpayers are then graded based on their results and may be granted exemptions from the tax authorities‟ review and also benefit from a lower penalty rate should mistakes be discovered during the course of the review.

Issue 9) Improvement of foreign remittance procedures (1) Background/Contents/Grounds Basically, repatriation of foreign currency by foreign companies in Myanmar used to be subject to strict restrictions, but deregulation has progressed; particularly since the Foreign Exchange Management Law (2012), aimed at modernizing the financial sector, was enacted in August 2012. As regards foreign remittances by foreign companies, although the law states that foreign companies, regardless of whether MIC companies (operating under MIC incentives) or those established under the Company Law (non-MIC companies), they are still obliged to request and report capital account transactions. However, the Central Bank of Myanmar has stipulated a policy to eliminate restrictions on foreign remittances involved in current account transactions, particularly the duty to report, and a notification to this effect has been circulated to private banks.

Based on interviews with the Central Bank of Myanmar and private sector companies, the current procedures for MIC companies to repatriate foreign currency can be summarized as shown below.

Table 5-10 Restrictions for Foreign Remittance in Myanmar Kind of foreign remittance MIC Companies

Foreign capital When applying for MIC approval: Submit financial plans to MIC When making a payment: Notify Central Bank

Principal repayment When borrowing: Permission of Central Bank through private bank is required When repaying: Prior approval of Central Bank

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Kind of foreign remittance MIC Companies

(Transfer of shares /Profit Advance permission from MIC is required (once a year) sharing /Salaries /Dividends, Permission of the Central Bank is not required etc.)

Dividends

Interest No restrictions

Payment for imports No restrictions

Royalties (Technology, No restrictions know-how, trademark rights, etc.) Source: JICA Study Team

As no rules based on the Foreign Exchange Management Law (2012) have been announced, it is unclear whether any detailed rules applicable to non-MIC foreign companies registered under the Company Law exist or not. However, in view of the fact that most non-MIC companies are small-scale domestic enterprises, it is likely that the Myanmar government does not envision non-MIC foreign companies repatriating currency abroad, which means there are no clear rules setting out provisions governing the repatriation of foreign currency. Hence, the understanding that foreign companies that have acquired MIC status are permitted to repatriate foreign currency better reflects the actual situation.

Should a non-MIC company repatriate foreign currency, it is likely that the procedures will be more or less the same as for MIC companies, whether the transactions involve capital or current accounts. However, as there are virtually no past examples of repatriation of foreign currency by non-MIC foreign companies, even private banks in cities tend to look at the provision of remittance services unfavorably, and in fact it is extremely difficult for foreign companies to do so.

To resolve this situation, with the support of the IMF, the Central Bank of Myanmar has already drafted Foreign Exchange Management Regulations, which shall constitute the detailed rules of the Foreign Exchange Management Law (2012). This draft is currently under consideration by the Attorney General‟s Office, and once approved by the President‟s Office, will be enacted and enforced by around March 2014. According to the Central Bank, under detailed rules, all foreign companies, including MIC, non-MIC and SEZ companies are expected to be able to repatriate foreign currency related to current account transactions such as profit sharing, repayment interest and payment for imports without reporting to or obtaining the approval of the Central Bank.

However, with regard to the remittance of dividends, if an MIC company (operating under MIC incentives) repatriates foreign currency, it must report its intention to do so in advance to MIC and obtain approval (Foreign Investment Law, 2012). More precisely, it cannot obtain permission

5-35 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report comprehensively to repatriate dividends when applying to MIC for permission for foreign investment, and must apply to MIC for permission each time, appending corporation tax payment certificates and other tax payment certificates for each annual closing of accounts. According to MIC, prior approval is implemented so that MIC can ensure appropriate monitoring of fund management by MIC companies. The fact that such applications to MIC for prior approval are only accepted at the ministry in Nay Pyi Daw and not in Yangon is also a great burden on foreign companies.

In addition, the fact that regulations governing repatriation of foreign currency as described above have not been clearly communicated to foreign companies is also an issue. One possible cause is the vagueness of the descriptions of foreign currency repatriation by MIC companies stipulated in the detailed rules of the Foreign Investment Law (2012). More precisely, for example, the descriptions do not correspond to the types of foreign currency repatriation, and the requirement, or lack thereof, for prior approval by MIC depending on the type of remittance is not well defined. Other causes include poor English translation of the regulations and inadequate provision of information. Although the Central Bank provides English-language information at legal level, such as the Foreign Exchange Management Law, on the website, it has not made the detailed rules available in English. Further, some banks still have a duty to report to the Central Bank of Myanmar, or require Central Bank approval for remittance requests involving current account transactions, such as dividends, interest or payment for exports, which must be obtained through the bank. There is a difference in the degree of response to notifications from the Central Bank. Consequently, when actually repatriating foreign currency, the documents required by the banks vary depending on the type of remittance, but as this is not clearly defined, it is difficult for foreign companies to know.

(2) Description of the Relevant Regulations  Foreign exchange control in Myanmar was long defined by the 1947 Foreign Exchange Regulation Act.  The management of foreign exchange was administered by the Controller of Foreign Exchange in the Foreign Exchange Department of the Central Bank of Myanmar and the Exchange Management Board. Since 2012 the Myanmar government has been striving to modernize the financial sector and August 2012 saw the enactment of the Foreign Exchange Management Law 2012. Detailed rules under the law have been established, but are not yet available in English.  Foreign currency repatriation by MIC companies is regulated by Chapter 16 Article 39 of the Foreign Exchange Management Law (2012) and Chapter 17 Articles 142 and 143 of the Foreign Investment Rules (2013): Notification No. 11/2013.

(3) Risk and Impact on Business Having to apply to MIC every year for permission to repatriate foreign currency is an additional burden on foreign companies. Given the lack of clearly defined regulations on foreign currency repatriation by non-MIC foreign companies and the negative attitude of banks toward remittances, it is difficult for non-MIC foreign companies to transfer money legally.

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(4) Concerned Ministries  MIC  Central Bank of Myanmar

(5) Donor Involvement The IMF supports the Central Bank on foreign exchange reform and also supports the drafting of detailed rules under the Foreign Exchange Management Law.

(6) Recommendations for Improvement Measures  Short-term Recommendation The text or detailed rules of the Foreign Investment Law (2012) relating to foreign currency repatriation should be revised, or guidelines on foreign currency remittance procedures should be created and presented.

Since the descriptions relating to foreign currency repatriation by MIC companies provided in the detailed rules of the Foreign Investment Law (2012) are vague, they should be changed into descriptions according to type: capital account transaction, current account transactions or foreign currency repatriation, and whether or not prior approval is required depending on transfer type should be clearly indicated. However, as it is assumed that it will take time to revise the actual text, it is worth starting to consider efforts to establish and publish guidelines on foreign currency repatriation procedures.

A system should be established for translating laws and detailed rules on foreign exchange into English and providing information via websites and publications.

Providing accurate information on important laws and regulations to foreign companies conducting business in Myanmar will not only support the business activities of the relevant companies, but will also enhance the appeal of Myanmar as an investment destination for foreign companies thinking of investing there and help earn trust. Laws and regulations on foreign exchange and important detailed rules directly linked to business should be translated into English and communicated clearly to foreign companies via websites and publications.

Procedures for applying to MIC for permission to transfer dividends, etc. should be made available at the Yangon office. At present, foreign companies wishing to undertake the procedures for MIC approval of transfer of dividends, etc. must go to Nay Pyi Daw. Prior approval from MIC for MIC companies wishing to repatriate foreign currency should be obtainable in Yangon.

 Medium- to Long-Term Recommendations Prior permission from MIC for MIC companies transferring dividends, etc. should be abolished, or consideration given to relaxing the approval criteria.

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Foreign currency repatriation should be monitored by the Central Bank. Looking at the neighboring countries around Myanmar, there are almost no examples where authorities with jurisdiction over approving and permitting company registration or foreign investment have jurisdiction over foreign currency repatriation. To ensure competitiveness in trade and investment in the region after the realization of the ASEAN Community in 2015, consideration should start to be given to abolishing prior applications to MIC for permission to transfer dividends, etc.

Table 5-11 Country-by-country comparison of regulations on overseas remittance of dividends, etc. Country Regulations

Myanmar For capital account transactions, MIC companies must declare capital remittances at the time of settlement, and for principal repayments, they must obtain the approval of the Central Bank in advance. They are also required to obtain the prior approval of the Myanmar Investment Committee for overseas remittance of dividends, etc.

Thailand Prior approval of the Central Bank is not required for the transfer of royalties or dividends, repayment of loans or return of profit (restitution of capital accompanying settlement, return of dividends or capital reduction, etc.) etc.

India There are no restrictions on the transfer of dividends or royalties for use of technology, and no obligation to obtain prior approval.

Cambodia Based on Article 5 of the Foreign Exchange Law, provided that the transaction goes through an authorized bank, there are no restrictions on foreign exchange transactions. However, the Central Bank of Cambodia must be notified of transfers exceeding $100,000.

Bangladesh Technical fees, royalties and service fees of up to 6% of turnover (or project costs) in the previous year can be remitted. If they exceed 6%, permission must be obtained from the Central Bank or Board of Investment in advance. Source: JETRO website, interviews with Central Bank of Myanmar and local financial institutions

However, since the current administration was established in 2010, business laws and regulations in Myanmar have been rapidly introduced. However, as this is still a transition period, if it is necessary for MIC or DICA to monitor remittance of dividends, etc., an ex post facto reporting system could be introduced instead of prior application.

Issue 10) Improvement of the import/export license system (1) Background/Contents/Grounds The Myanmar Ministry of Commerce‟s Department of Trade imposed strict regulations on export and import management. Problems among importers and exporters included: i) complicated import/export

5-38 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report procedures, ii) difficulty in obtaining import licenses, iii) sudden suspension of trade licenses for foreign companies, iv) short validity of import licenses, and v) changes in government policy on issuance of import licenses.

Since 2011 the Myanmar import/export control system has gradually been deregulated as part of the progress of economic liberalization and democratization, but issues still remain to be resolved. For example, in Notification No. 16, the Ministry of Commerce announced the abolition of import and export licenses for 152 and 166 export and import commodities (593 commodities in HS Codes) from March 2013. However, failure to note the HS Codes for items exempt from import/export licenses in the notification temporarily resulted in confusion in actual customs procedures; particularly surrounding the interpretation of imports. The Ministry of Commerce then issued Notification No. 72 in September 2013 in which it published a list of 1,928 import commodities with HS Codes. However, as no major procedural confusion occurred in regard to the 152 export commodities, no list with HS Codes was issued. With the realization of the ASEAN Community, although an increase in commodities not requiring a trade license is expected, a system for providing information is required to prevent confusion at customs and other trade procedure sites, such as publication of future notifications including HS Codes.

As Myanmar had originally imposed strict restrictions on import/export commodities, it has announced tax-exempt items, but there are already close to 2,000 relevant items with HS Codes and it has become difficult for importers and exporters to understand. In addition, as shown in the table below, in neighboring countries the descriptions in provisions relating to import/export regulations adopt the form of disclosing restricted items.

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Table 5-12 Import/Export Regulations and Description Method in ASEAN countries Country Import/Export Regulations and Description Method

Cambodia Import Controls: In principle, controls were abolished in 1994, but prohibited imports and items requiring an import license (pharmaceuticals, medical supplies, live livestock, weapons, etc.) are listed. Export Controls: Prohibited exports (timber) and items requiring an export license (wooden processed products, weapons, military vehicles, equipment, medical and pharmaceutical supplies, cultural assets, etc.) are listed.

Thailand Import Controls: Prohibited exports, items requiring an import license (19) and other import restrictions are listed. Export Controls: Prohibited exports (10) and restricted exports: i) items requiring an export license (20), ii) items that can be exported under certain conditions (10) are listed.

Malaysia Import Controls: Totally prohibited imports, ii) items requiring an import license (automobiles, etc.), iii) items requiring an import license due to protection measures, etc., iv) items with import method requirements (conduct of compliance inspection, etc.) are listed by category. Export Controls: Totally prohibited exports, ii) items requiring an export license, iii) items with export method requirements are listed by category. Source: JETRO

The validity period of import licenses was originally set to a short length to prevent illegal imports by domestic importers. In principle, the period is three months, extendable twice (first extension: 2 months, second extension: 1 month) for up to six months. However, imports to Myanmar are expected to grow in future, raising the issue of importing products that require an extended period from order receipt until manufacture, such as medical equipment and construction equipment, and there is concern that the existing validity period will not be long enough. In addition, each renewal incurs a handling fee and licenses must be renewed in March when the government ministries and agencies‟ budgets are renewed. Such costs and procedures are a major burden on importers.

In Indonesia, for example, re-registration is required once every five years, but once registered, importers are free to import registered products for as long as they exist. Further, the validity period of import licenses in Malaysia is two years. Compared with neighboring countries, although it is

5-40 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report recognized that Myanmar is striving toward deregulation policies aimed at import licenses, competitiveness is lacking.

Further, the procedures for obtaining an import license could only be taken in Nay Pyi Daw, which was a heavy burden on importers. At present, licenses can be obtained for some commodities at the Ministry of Commerce Yangon Office and there is a gradual tendency toward relaxation, but with licenses for many commodities still only available in Nay Pyi Daw, there is room for improvement in future. As of January 2014, import licenses were available for the commodities shown below:

Products manufactured by cutting, making and packaging (CMP), pharmaceuticals, medical equipment, chemical fertilizers, agricultural chemicals, office supplies (including paper), packaging materials, plastic goods, livestock feed, medical materials, film and film goods, sports goods, plastic resin and polyester bags, sweetened condensed milk/milk, train carriages and parts, bicycles and parts, airplanes and parts, soap materials, electrical appliances, asphalt, agricultural seeds, glass products, foods, veterinary drugs and equipment

At present, only domestic companies hold import/export business licenses, but the Ministry of Commerce has announced in the press that it will issue import licenses within 24 hours of receipt of application. Information is also available stating that if the participation of foreign companies in trade business is allowed in future, the same steps will be taken, particularly for Japanese companies, when they sign a Japan-Myanmar Investment Agreement, and measures equivalent to those for domestic companies are expected to be taken.

(2) Description of the Relevant Regulations Myanmar Export/Import Rules and Regulations for Private Business Enterprises (1998) establish the rules for private companies on import/export procedures in Myanmar. Notification No. 16/2013 specifies items not requiring a license and is issued for private companies (in English). Notification No. 33/2013 contains content equivalent to Notification No. 16/2013 and was issued for the government (in Burmese). Notification No. 72/2013 sorts the content of Notification No. 16/2013 into each HS Code (in Burmese). Concerned Ministries

Myanmar Export/Import Rules and Regulations for Private Business Enterprises (1998) establish the rules for private companies on import/export procedures in Myanmar. Notification No. 16/2013 specifies items not requiring a license and is issued for private companies (in English). Notification No. 33/2013 contains content equivalent to Notification No. 16/2013 and was issued for the government (in Burmese). Notification No. 72/2013 sorts the content of Notification No. 16/2013 into each HS Code (in Burmese).

(3) Risk and Impact on Business

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Progress is being made in the direction of deregulation of goods requiring an import/export license toward realization of the ASEAN Economic Community in 2015. Although relevant rules and regulations have been established, if they are not properly applied or the burden on companies doing business in conformity with the short validity period provided in the rules and regulations increases, this will impede Myanmar‟s competitiveness as an investment destination.

(4) Concerned Ministries  Ministry of Commerce (Department of Trade)  Ministry of Finance and Revenue (Customs Department)

(5) Donor Involvement Nothing special.

(6) Recommendations for Improvement Measures  Short-term Recommendation Notification of commodities requiring an import/export license should contain the HS Codes and not just a list of the commodities. In addition, the system for sharing information (dissemination to and enlightenment of customs personnel) on import/export licenses between the Ministry of Commerce and the Customs Department and for providing information to private companies should be strengthened.

The Ministry of Commerce notification on commodities exempt from import/export licenses applied from March 2013 did not contain the HS Codes for the exempt items, causing confusion in the interpretation of imports during customs procedures. In future, all notifications issued should contain the HS Codes. Further, the notifications are made available on the Ministry of Commerce and Customs Department websites, but the information cannot be said to adequately reach the relevant persons. A system should be established for disseminating information at responsible staff level and import/export company level by, for example, distributing guidelines to the staff in charge in the Ministry of Commerce and Customs Department, or displaying the guidelines prominently in the Ministry of Commerce and Customs Department, and publicizing the websites and other information sources. The Ministry of Commerce currently plans to establish a trade information center in its Yangon office. When the center launches its services, it is expected to improve the system for providing information to private companies.

Commodities for which an import/export license can be obtained at the Ministry of Commerce Yangon Office should be further increased.

The acquisition of the import/export licenses at Nay Pyi Taw is a major burden on import/export companies. Items for which an import/export license can be obtained at Yangon should continue to be increased while maximizing the utilization of existing Ministry of Commerce facilities.

 Medium- to Long-term Recommendation

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Deregulation of commodities requiring an import/export license should continue in the run-up to ASEAN economic integration. The description in the provisions on commodities affected by import/export licenses should be changed from the current commodities not requiring a license to export-restricted commodities

The Myanmar government originally imposed strict import and export regulations, but as trade items among the various countries can be expected to increase in future and the competitive environment is expected to intensify in the run-up to ASEAN economic integration, deregulation of commodities requiring an export/import license that is currently underway should be further pursued. In addition, as the deregulated commodities have soared, to communicate the regulations to companies in an easily understandable manner, the description of commodities affected by import/export licenses should be changed from the current commodities not requiring a license to export restricted commodities.

In future, based on the increasing import/export commodities, extension of the validity period of import licenses should be considered. Further, if participation in the trade business is granted to foreign companies, as far as possible, import licenses should be issued within 24 hours, as for domestic companies.

The current validity period of the import/export licenses was set aiming to prevent abuse of import licenses by domestic companies (buying and selling of import qualifications, etc.). However, assuming a flexible response to increased import/export commodities in the run-up to ASEAN unification in 2015 and from the perspective of ensuring trade competitiveness with neighboring countries, an appropriate validity period should be set for export/import licenses based on examples elsewhere. In addition, if import/export licenses can be issued to domestic companies within 24 hours, should foreign companies be allowed to participate in the export and import trade, the same service must be applied to them.

Issue 11) Introduction of the Bonded System (1) Background/Contents/Grounds Contract manufacturing type work (importing the raw material, processing it and exporting the finished product) often seen in the sewing industry, called cutting, making and packing (CMP), generally takes place in a bonded area with a bonded period of between 60 and 90 days. In most cases, the period can be extended. However, as there is no so-called bonded system of bonded warehouses, bonded factories, transportation in bond, etc. in Myanmar, although CMP products are subject to tax exemption, they actually clear customs as duty-free imports and are processed as domestic freight, incurring extra time and costs for the importer and manufacturer. Further, in recent years the volume of freight handled by Yangon Port, which is a river port, has soared and is expected to continue growing in future. In Yangon Port alone, it is feared that the volume handled will exceed the limits in the near future. The introduction of a bonded system is under consideration as a means of resolving this situation. Under the bonded system, when imported cargo arrives from abroad, it can be stored in a warehouse as foreign cargo before approval of imports without payment of customs duties or other taxes, processed and

5-43 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report manufactured in a factory, displayed and transported within the country. The system has been adopted in several countries; not only as a means of facilitating merchandise trade but also as an investment incentive. With regard to regulations pertaining to the bonded system, under current laws permission may be granted by bonded warehouses and duty free shops to the public and private sectors under the 1962 Sea Customs Act (Articles 14, 15 and 16). The existence and management of bonded warehouses and duty free shops in the port and airport and on national borders (two locations on the border with Thailand and China) are as shown in the table below.

Table 5-13 Bonded warehouse and Duty free shop in Myanmar Facility Bonded Warehouse Duty Free Shop (Temporary storage for customs purposes)

Port Yes: Directly run by Customs No Department

Airport Yes: Run by private company Yes: Run by private company (Parts storage by airline company)

Border Yes: Directly run by Customs No: Business permit will be granted to (two Department private company in future locations) Source: JICA Study Team

However, the bonded warehouses shown in the table above are warehouses constructed at the airport and port to temporarily store cargo before it undergoes customs clearance, and they do not qualify as bonded warehouses within the framework of the bonded system described above where they are granted as an investment incentive. Therefore, the bonded system could reasonably be regarded as not yet having been introduced. In discussions with JICA and other donors and logistics providers, interest in officially introducing the bonded system has also grown inside the Myanmar government. Some Myanmar government officials effectively understand the nature of the bonded system, but there are differences in understanding overall; either they have heard the term „bonded system‟ but confuse it with the temporary storage warehouses mentioned earlier, or have no idea about the system itself.

Actually, the 1992 Tariff Law and 1962 Sea Customs Act are currently undergoing revision by the Myanmar Customs Department of the Ministry of Finance and Revenue. There was talk of incorporating the introduction of the bonded system in the revision, but an attempt was made to replace bonded system with the text relating to bonded warehouses described earlier as is, and this was pointed out by experts dispatched from the World Customs Organization (WCO). Further consideration is anticipated in future.

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In addition, the Customs Department suffers an overall shortage of manpower and is unable to supervise import procedures for companies that have acquired CMP licenses or dispatch staff to monitor bonded warehouses and duty free shops at ports, airports and national borders.

(2) Description of the Relevant Regulations The main laws governing customs procedures in Myanmar are the Sea Customs Act (1962) and the Land Customs Act (1924), which collectively regulate customs valuation, customs procedures for imports and exports, prohibited, controlled and restricted commodities, procedures for payment of customs duties, bonded warehouses and duty free shops, and customs declarations by tourists. Further, the Tariff Law (1992) was enacted in line to facilitate foreign trade by introducing market economics. The detailed rules in these laws were established by notifications from the Ministry of Finance and Revenue. Further, the Myanmar government is currently working to enact the SEZ law, in which it plans to incorporate regulations on bonded areas in the SEZ.

(3) Risk and Impact on Business If a bonded system is not introduced, the various transaction costs incurred by importers and exporters will increase and competitiveness will decline. An increase in the frequency of use of Yangon Port in future is anticipated and it is feared customs procedures will take longer. In addition, there is a limit to areas where cargo can be stored in Yangon Port which is a river port, and given the limited additional volume that can be handled, promotion of international trade in Myanmar in future may be obstructed.

(4) Concerned Ministries  Ministry of Commerce (Department of Trade)  Ministry of Finance and Revenue (Customs Department)

(5) Donor Involvement JICA has currently dispatched an expert to the Customs Department and is promoting the introduction of a Myanmar version of NACCS (Nippon Automated Cargo Clearance System) and implementing technical transfer to the staff of the Customs Department. An overview of NACCS is given below.

Overview of NACCS NACCS is a system for online electronic processing of customs procedures for import/export cargo. It comprises air- and sea cargo systems. Both link a host computer with terminals installed in customs offices and private users offices (airlines, shipping brokers, etc.) via communication lines and process procedures for import/export cargos etc. online. Appropriately selecting high-risk cargo (cargo with a high likelihood of being imported or exported illegally) and low-risk cargo has had a major effect on appropriate and speedy customs clearance. Resource: Customs Department

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Further, the World Customs Organization (WCO) supports the formulation of a revised draft of the Sea Customs Act 1962 and Tariff Law 1992, and ADB experts have been dispatched using ADB funds on a business trip basis.

(6) Recommendations for Improvement Measures  Short-term Recommendation An outline of the bonded system must be presented to the Myanmar Customs Department and other government officials and moves toward realizing the introduction of the system must be accelerated.

To facilitate the introduction of MACCS and the bonded system, an overview of the system and its merits (facilitation of customs procedures, easing of complexities in ports, strengthening of corporate competitiveness, etc.) must be explained while presenting examples from other countries, and obtaining understanding. It will be effective to actually visit places where the systems have been introduced in Japan and neighboring ASEAN countries.

 Medium- to Long-term Recommendation To ensure trade competitiveness in the region based on the realization of the ASEAN Economic Community in 2015 and promote smoother customs procedures in Yangon Port as a river port, the bonded system should be introduced and the necessary legal system established.

There are two types of the Bonded System: the bonded area system where foreign cargo can be stored, processed, manufactured or exhibited etc. in specific places or facilities, and the bonded transportation system where foreign cargo can be transported as is between bonded areas, ports or airports etc. Introducing the bonded system will not only facilitate current customs procedures, but is also expected to strengthen international competitiveness in trade. The types and functions of bonded areas are shown in the table below.

Table 5-14 Functions of Bonded warehouses Type Main Functions

Designated bonded area Loading and unloading, transportation and temporary storage of foreign cargo

Bonded warehouse Loading and unloading, transportation and long-term storage of foreign cargo

Bonded factory Processing and manufacturing with foreign cargo as the raw materials

Bonded exhibition hall Exhibiting and use of foreign cargo

Comprehensive bonded Loading and unloading, transportation, long-term storage, processing area and manufacturing, and exhibition of foreign cargo Source: Customs Department website

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Further, as the provisions pertaining to bonded warehouses in the current Sea Customs Act 1962 do not cover the content of the bonded system in the table above, if legislation relating to the introduction of the bonded system is introduced, it must not be interpreted in existing provisions, but the necessary provisions must be separately added.

The introduction and establishment of a Myanmar version of NACCS (popularly known as MACCS: Myanmar Automated Cargo Clearance System) based on Japan‟s NACCS is currently being debated by the Japanese and Myanmar governments. In introducing MACCS, the Myanmar government has promised to establish the necessary legal system. Further, as the main functions of MACCS include business relating to the bonded system, introducing MACCS is expected to promote the establishment of a legal system relating to the introduction of the bonded system.

Bonded areas should also be established in ports and industrial parks other than SEZ.

When introducing the bonded system, bonded areas may be established under the SEZ Law in the SEZ to be developed in future, but to ease the volume handled by Yangon Port, industrial parks outside the SEZ must be given bond functions. It will be worth considering establishing a bonded area on a pilot project basis as a dry port etc. in an industrial park with the assumed functions of a bonded area, such as Mingaladon Industrial Park, and verifying the effects.

An implementation plan for introducing MACCS, including a bonded system, should be drawn up, and a plan for developing the human resources necessary for achieving the same should be formulated and executed.

With the current number of staff in the Customs Department, it is not possible to dispatch the necessary manpower to monitor the existing bonded warehouses. When introducing MACCS, it is important to marshal the necessary personnel and required abilities, formulate a human resources development plan and transfer the appropriate technologies.

Issue 12) Establishment of the Special JV System (1) Background/Contents/Grounds In Myanmar, the construction of basic infrastructure such as roads, bridges, electric power, water supply and sewage systems is an urgent issue for establishing socioeconomic infrastructures. Further, with the development of SEZ in future, many manufacturing companies are expected to move in and construction demand in the country has soared. In particular, with regard to basic infrastructure building and SEZ development, construction projects of such large scale or requiring such advanced technologies that foreign and domestic construction companies cannot address them alone are expected to be implemented and there will be a need to establish a framework that allows strengthening and supplementing in terms of funding, technology and business risk.

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The Myanmar government has requested the establishment of a joint venture of foreign and domestic companies for each project in the construction program; aiming to protect and nurture nurturing domestic construction companies. In establishing joint ventures, there are no particular standards for capital ratio. For example, it is sometimes said that even a local construction company to foreign construction company capital ratio of 1:99 is acceptable, but such practices are not documented in writing. Establishing a joint venture and promoting joint construction projects will ensure business opportunities for domestic constructors, while at the same time, the domestic company will absorb the technologies and management know-how of the foreign construction company, which will help Myanmar construction companies develop.

For the foreign construction company, however, if a joint venture is set up, choosing a partner that satisfies certain standards in terms of capital, business scale, technologies possessed, management policy, etc. will be the most important matter. Myanmar constructors, conversely, generally have a small capital base, no experience of large-scale construction work, and lack capital strength or technical and management know-how to undertake large-scale construction work. Further, if a joint venture is established, the relationship will be such that the joint venture partner will continuously own equity interest in the joint venture, with the likelihood of disputes should the business operation not succeed. Under these circumstances, realistically it is difficult for a foreign construction company to establish a joint venture with a domestic company to undertake a construction project, which will hinder the participation of foreign construction companies in construction projects in Myanmar. If this situation continues, there are fears that it will hinder infrastructure building and factory construction in Myanmar and the growing construction demand will not be met.

To promote the participation of foreign construction companies in terms of technology and capital power in large-scale construction projects that are expected to increase in future, the establishment of a system to participate in projects without being subject to the legal system pertaining to foreign investment restrictions or expansion into Myanmar is urgently needed.

A special JV System, a joint venture formed for each construction work such as consortium and JV agreement by project basis that is ordered, could be adopted as a system that eliminates obstacles to establishing joint ventures in the overseas construction industry and provides opportunities for joint projects with foreign construction companies in the domestic construction industry. Under Japan‟s Special JV System, the joint venture that receives the work order exists until the contract amount is billed after completion of the work, but joint ventures that fail to get orders are disbanded after the opening of the tenders. Therefore, the scope of responsibility when forming a joint venture is only the relevant construction work, lowering the risk of establishing a joint venture. The state of introduction of the Special JV System in various countries is shown in the table below.

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Table 5-15 Current situation regarding Special JV system in three countries Country Situation

Japan Special JV is formed for each construction work ordered and generally comprises two or three companies. JV that fail to receive orders for the relevant work are disbanded after opening of the tenders, and the JV that receives the order remains in existence until the contract amount is billed after completion of the work.

Thailand JVs are not recognized as legal organizations under Thailand‟s Civil and Commercial Code, but there are no particular restrictions on JVs. Special JVs correspond to unincorporated JVs. No legal registration is required, but they are treated as corporations subject to tax collection under the Revenue Code.

Indonesia Indonesia has a system called Foreign Construction Service Representative Offices. Foreign construction companies that have established a Foreign Construction Service Representative Office may undertake construction work jointly with an Indonesian construction company (without establishing an Indonesian company). Source: JICA Study Team

Many individual infrastructure projects are expected to be implemented under the joint venture system in Myanmar in future, but there is no system for exemption from establishing an incorporated joint venture by adopting the form of a Special JV (unincorporated JV or JV formed by a contract) that does not require the establishment of a joint venture.

More precisely, there is no clear definition of how Special JV formed on a project basis as against incorporated joint ventures requiring registration as an entity should be treated regarding restrictions on foreign investment, qualification for construction work bidding or relationship with the Company Law.

Therefore, the Myanmar government, including DICA, must stipulate Special JV as a joint venture in the Foreign Investment Law or its operation rules, and clearly define the setting up of a bank account, taking out of insurance, operation and profit sharing, and applicable corporate tax rate, etc., but there is a lack of understanding that incorporated JV under the current Foreign Investment Law and Special JV (so-called in Japan‟s construction industry) are separate concepts.

(2) Description of the Relevant Regulations Partnership contracts based on common law can be concluded, but there is no clearly defined position on how a system, such as Special JV System, for participating in each project without being subjected to restrictions on foreign investment, or laws and regulations pertaining to expansion into Myanmar should be treated regarding restrictions on foreign investment, qualification for construction work bidding or relationship with the Company Law.

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(3) Risk and Impact on Business There is concern that the sole current system, which requires foreign construction companies to establish an incorporated joint venture with a domestic construction company, will end up not leading to the nurturing of Myanmar‟s domestic construction companies by not promoting the participation of foreign construction companies in construction projects. Further, there are fears that failure to meet the growing demand for large-scale construction will hinder the development of Myanmar‟s infrastructure and the construction of various factories in future.

(4) Concerned Ministries  Attorney General‟s Office  DICA  Ministry of Construction

(5) Donor Investment Nothing special.

(6) Recommendations for Improvement Measures  Short-term Recommendation Promotion of and enlightenment in Special JV System in the relevant ministries and agencies in Myanmar and the Myanmar construction industry should be undertaken and the groundwork laid to introduce the Special JV System.

Workshops should be held on a continuing basis with the aim of introducing the concept and merits of the Special JV System, the state of introduction in neighboring countries and position on legal grounds, and examples of introduction in Japan. At the same time, visits should be made to neighboring countries to learn from case studies.

 Medium- to Long-term Recommendation A Special JV System that allows the formation of joint ventures without incorporation for each overseas construction project should be introduced and operation guidelines with the necessary legal grounding should be created.

Large-scale projects or projects requiring advanced technologies that cannot be handled by foreign or domestic construction companies alone are expected to be undertaken in the development of Myanmar‟s basic infrastructure in future. To maximize the technical and management know-how and fund-raising capabilities of foreign construction companies while nurturing and strengthening the domestic construction industry, a Special JV System that allows the formation of joint ventures for each overseas construction project should be introduced.

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In Japan, for example, demand for large-scale construction work arose due to post-war reconstruction, but in implementing the work, the JV system was introduced to promote the funding ability of the construction companies and diversification of risk and receive technical support from foreign construction companies. Examples of the transitions in Japan‟s JV system are shown below.

Table 5-16 History of the Special JV System in Japan Year Descriptions

1951 To facilitate investment in growing domestic construction in particular, the nurturing of domestic contractors was a matter of urgency. The merits of the Special JV System such as increased financing power, diversification of risk, expansion, enhancement and complementing of technologies, and enhanced experience, were presented and popularization and enlightenment activities were conducted.

1953 Utilization of the Special JV System was promoted and operation guidelines and agreements were prepared; targeting the smooth execution of relatively large-scale or technically difficult construction work and the development of small and medium enterprises.

1977 Rational use of JV was promoted in basic policies to promote the construction industry.

1987 The basic policy on JV utilization was shown and efforts made to promote proper utilization, Regulations for Joint Venture Operation to be followed by the contracting institutes when prescribing the Standards for Operation were formulated. Source: JICA Study Team

In Myanmar, Special JV regulations must be added to the revised Foreign Investment Law together with the creation of operation guidelines. It is desirable for the guidelines to include order receipts, opening of a bank account, taking out of insurance, enforcement, profit sharing and tax rates applicable to Special JV.

5.3. Selections of Prioritized Rules and Regulations in Cambodia (Short list) 5.3.1. Overview of Short Listed Issues Foreign direct investments in Cambodia has been gradually increasing based on advantages as an investment destination (i.e., strategic location linking Bangkok with Ho Chi Minh, open-door investment promotion policy, cheap and abundant labor force, application of Generalized System of Preference (GSP)) as well as the recent change in investment trends by foreign investors represented as “China plus one”. After the integration of ASEAN Economic Community in 2015, it is expected that trade and investment activities in the ASEAN region by global enterprises will become more and more active. However, at the same time, international business competition among ASEAN countries also will be more intense. In order to become a base in the ASEAN Supply Chain, Cambodia is required to continuously improve its business environment in terms of both hard and soft infrastructure including

5-51 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report legal systems, while being compared to other neighboring countries on their advantages and disadvantages. The table below is a short list of prioritized issues that were selected from the issues in a long list described in Chapter 4. As described in the Chapter 3.3.2, in general, the fundamental business-related laws such as Civil Code, Investment Law, Commercial Enterprise Law, Labor Law, Taxation Law, Accounting Law, Land Law, and Factory Management Law have already been enacted and implemented in Cambodia. However, various issues are being pointed out when it comes to the enforcement of those laws. For example, the detailed implementation procedures are sometimes not available or unclear. Also, some point out that the interpretation of the provisions of laws and regulations sometimes vary among the officials in charge. Moreover, there may be inconsistency among the laws and regulations of different ministries because they have been drafted under assistance of different donors. Furthermore, poor legal skills could be problematic. For instance, there is the case where government officials in charge of enforcing the laws and regulations do not understand the provisions properly. Sometimes it takes time to disseminate new regulations to relevant government officials and they may misjudge or make wrong decisions in the meantime. Against this background, to solve or improve the selected prioritized issues listed below mainly requires only the modification of the existing laws and/or regulations, clarification of detailed rules, or capacity development of the officers in charge, rather than the enactment of new laws and regulations.

Table 5-17 Short List of Prioritized Issues Category Sub-Category ID Issues 1) Improvement of support services for Qualified Investment Investment 1-8 investment approval and other licenses/ Project (QIP) permissions Tax Registration 3-1 2) Improvement of tax registration 3) Introduction of advance ruling systems and Advance Ruling on 3-2 establishment of an individual consultation Tax counter on tax 4) Establishment of standards on levying overdue Tax, Overdue tax 3-3 tax Accounting Tax on dividend 5) Abolishment of tax on tax-exempted dividend 3-6 distributions 6) Introduction of interest on refund system for VAT 3-9 VAT VAT 3-10 7) Different interpretations of VAT on land lease Trade, Tariff, Advance Ruling on 8) Introduction of advance ruling system on 5-1 Customs customs customs Clearance, and 9) Amendment of existing rules and regulations of Customs Clearance 5-3 Logistics customs brokers and agents

5.3.2. Description of Prioritized Issues

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Issue 1): Improvement of support services for investment approval and other licenses/ permissions

(1) Background/Contents/Reasoning The Law on the Amendment to the Law on Investment (2003) stipulates the CDC shall obtain all of necessary licenses from relevant ministries-entities listed in the CRC on behalf of an applicant within 28 working days after issuance of a CRC. However, Sub-Decree No. 111 stipulates in Article 7.1 that "after issuing the CRC, the CDC or the PMIS, on behalf of the Applicant, assist with the issuance of the approvals, authorizations, licenses, permits or registration listed in a CRC by the relevant ministries departments, authorities, entities of the provinces/municipalities or agencies of the Royal Government". Due to the current complicated bureaucratic relationship among ministries, however, it is almost impossible for CRC to obtain those necessary documents on behalf of the applicant within 28 working days from the issuance of CRC. Therefore, in practice, the QIP applicants should obtain all necessary licenses from related ministries by themselves. CDC set up an investment information desk for investors at Cambodia Investment Board (CIB) and Cambodia Special Economic Zone Board (CSEZB) to provide information and consultation on QIP approval procedure. The applicant for QIP can obtain information on necessary documents from officials of related ministries at the investment information desk. However, the offices of each official from related ministries are far from the information desk and officials are mostly out of office because of meetings, which takes time to arrange a consultation. While the provision of aftercare services for existing investors such as renewal of a QIP license is very important, there are no support services for them for their daily business issues. Introduction of an advance ruling service on investment approval providing written answers by CDC to potential and existing investors who made inquiries on investment also will contribute to improving CDC‟s consultation services. CSEZB establishes a one-stop-service office at major SEZ and the officials from ministries shown below are positioned.

Table 5-18 Composition of One Stop Service Offices in SEZs Ministry Provided Services CDC Manage and coordinate various services provided at SEZ Ministry of Commerce Issue country of origin of final export products GDCE Support import and export procedure Cam Control Inspect cargos from/to SEZs Ministry of Labor, Respond to issues related to labor Vocational Training Provincial government Manage security

Source: CDC

Services for various procedures are supported, but information provision and individual consultation services are not yet sufficient. Particularly, it is expected that officials from GDT who can advise from the view of taxation management should be sent.

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Also, although an investment project less than 2 million USD can apply at PMIS under a regional government, the number of officials stationed is not sufficient and those who are at the office do not have sufficient knowledge on application procedures. As a result, PMIS is not fully utilized.

(2) Description of the Relevant Regulations  Law on the Amendment to the Law on Investment (March 2003): Article 7  Sub-Decree No.111 on the Implementation of the Amendment to the Law on Investment (Sep.2005): Article 7.1  Sub-Decree No.148 on the Establishment and Management of the Special Economic Zone (December 2005): Article 4.3

(3) Risk and Impact on Business In order for foreign companies to promote investment and re-investment in Cambodia, each related ministry needs to coordinate and generate structures to provide integrated information provision and individual consultation services. By doing so, the credibility for foreign investors in Cambodia will increase.

(4) Concerned Ministries  Cambodia Investment Board of Council for the Development of Cambodia  Other related authorities

(5) Donor Involvement JICA is currently conducting the Study for Collection and Confirmation of the Information on the Amendment of the Law on Investment and the Enactment of the Law on Special Economic Zones in Cambodia

(6) Recommendations for Improvement Measures 1) Recommendations for Short-Term Improvement Measures i) Revision of description of one stop service on the Law on the Amendment to the Law on Investment or the Sub-Decree No. 111 In order not to lose the credibility of Cambodia as a destination of foreign investment, description of one stop service on the Law on the Amendment to the Law on Investment or the Sub-Decree No. 111 should be urgently revised to keep them consistent.

2) Recommendations for Mid-Long Term Improvement Measures ii) Establish an information provision center related to each application and strengthen the center An information provision center should be established to support not only QIP application but also other applications for approval and license obtained from related ministries. Also, the position of

5-54 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report officials sent to CDC should be promoted so that they can make necessary decision making at the center. iii) Establish a aftercare service unit providing support services to existing investors The Establish a customer service window providing consultation services as the aftercare for existing investors so that they are able to obtain necessary advice from CDC to solve their daily business issues on investment. iv) Introduction of Advance Ruling System for responding investor‟s inquiries Advance ruling system is individual consultation service where a company inquiries about unclear procedures on investment and obtain written responses within a certain weeks. Each company can obtain official clear interpretation of CDC by introducing the system. Also, the service can be more efficient if CDC announce such answers on its website. v) Strengthen the function of information provision and individual consultation services at one-stop-service offices in major SEZs and enhance more customer-oriented after care services In order for companies in SEZs to receive various administrative services and individual consultation within SEZs, functions of one stop service offices at SEZs (e.g. information provision and individual consultation services) should be strengthen. Especially, individual consultation related to customs and taxation is essential. vi) Implement training courses to develop the capacity of regional governmental officials In order to enable an applicant to apply for QIP in regions, it is necessary to implement training courses of regulations and application procedures for QIP to develop the capacity of regional governmental officials in charge. Also, it is important to strengthen information sharing network between CDC and PMIS.

Issue 2): Improvement of Tax Registration

(1) Background/Contents/Reasoning The Law on the Amendment to the Investment (2003) permits incentives by project. Therefore, if a company with QIP plans to establish another factory for another product, it needs to apply for another QIP. On the other hand, a foreign company needs to do company registration at Ministry of Commerce and tax registration at GDT to obtain tin number (tax registration number). According to the Law on Taxation, the tax number is provided at company level. Therefore, a company applying a QIP will be registered as a company at GDT. In case a company with QIP applies for another QIP for additional investment, the company is requested to establish a new company by GDT. Under the principle of tax registration is “one

5-55 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report registration per one company”, GDT sees a company with a QIP as a company and another QIP needs another company. Because the Law on the Amendment to the Law on Taxation (2003) does not clearly regulate such principle, this seems to be the issue on interpretation of the law. Perhaps, Article 101 of the law “tax registration should be done within 15 days after company registration” is widely interpreted. In practice, however, a company obtains several QIPs because QIP should be provided at project level. If a new QIP requires establishing a new company, there will be a huge amount of costs to manage the company and factory, which put heavy burden on the company. Because most of the Japanese manufacturing companies start the business at small scale and gradually expand it along with growth, they will be discouraged and might reduce their investments in Cambodia if these additional costs are required to them for their additional investment. Foreign investments made by Japanese manufacturing companies have been increasing since 2011 and it is expected that there will be more companies to do additional investments, which means additional QIPs. Therefore, it is important to discuss between CDC and GDT and take necessary measures (e.g. approve one company to hold more than one QIP) to solve current discrepancy between the policies of QIP and tax registration.

CDC A Foreign Company Tax registration GDT of QIP 1 as a QIP 1 Manufacturers have company 1 According to the Law on According to the Law on tendency to start small Taxation, the tax number the Amendment to the investment at the initial is provided at company Investment (2003) stage and expand level. permits incentives by gradually their project. additional investment. Tax registration Under the principle of of QIP 2 under tax registration is “one the company 1 A company needs to QIP 2 If a company with QIP registration per one apply for another QIP to plans to establish company”, GDT sees a make additional another company with a QIP as investment. factory … it needs to apply for a company and another another QIP. QIP needs another TaxX registration company. of QIP 2 under + the company 2 -Confuse foreign companies! GDT requests to establish a new -Increase in management costs! Establish a new company by GDT. -Lead to the decrease in their company investment in Cambodia. Source: JICA Study Team Figure 5-1 Schematic image of the concept of the issue on tax registration

(2) Description of the Relevant Regulations  Law on the Amendment to the Law on Investment (March 2003): Article 6  Sub-Decree #148 on the Establishment and Management of the Special Economic Zones (December 2005)：There is no stipulation on the expansion project of a QIP in the Law on the Amendment on the Law on Investment.  Law on the Amendment to the Law on Taxation (2003): Article 101, 102, 103

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(3) Risk and Impact on Business Foreign investors, in particular Japanese manufacturers, have tendency to start small investment at the initial stage in one product and expand gradually investment in the manufacture of other products. If the investors must establish a new company every time they invest in new QIP, they have to prepare several financial statements of those companies and so their administrative work will become complicated and the time and cost for such administrative works may become obstacle for induce further investment.

(4) Concerned Ministries  Cambodia Investment Board of Council for the Development of Cambodia  General Department of Taxation, MEF

(5) Donor Involvement JICA and GDT are currently conducting a technical cooperation called “Project for Capacity Development of General Department of Taxation (GDT)” aiming to strengthen the tax collection system of GDT through the promotion of tax payment by self-assessment. In particular, improvements to the tax survey in order to know the self assessed taxpayers and service provision to taxpayers are the focus of the main activities of the Project.

(6) Recommendations for Improvement Measures 1) Recommendations for Short-Term Improvement Measures i) Establish a committee to revise tax registration for a company with QIP The increase in investment from Japanese manufacturing companies since 2011 and improvement of basic infrastructure (e.g. East-West corridor connecting Thailand and Vietnam) may bring more investment to Cambodia. This issue has also been discussed as one of the most important issues for Japanese manufacturing companies at Japan-Cambodia Meeting. Therefore, it is necessary to establish a committee mainly between CDC and GDT and to take necessary actions.

2) Recommendations for Mid-Long Term Improvement Measures ii) Modify tax registration from “one registration per one company with a QIP” to “one registration per one company with more than one QIP” and clearly regulate so through laws and regulations If the investors must establish a new company every time they invest in new QIP, they have to prepare several financial statements for those companies and so their administrative work will become complicated, and the time and cost for such administrative works may become obstacle to further investment. Therefore, it is necessary to modify the current system and clearly regulate a new system through laws and regulations (e.g. allow a company to hold one account for each QIP and integrate the accounts when applying for tax returns).

Issue 3): Introduction of advance ruling systems and establishment of an individual consultation counter on tax

(1) Background/Contents/Reasoning

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When GDT receives an inquiry on taxation law and the tax system from a company, the Director General decides which department is in charge and the department answers the inquiry on a case-by-case basis. However, answers to an inquiry are provided on a ad-hoc basis and there are many unclear answers to the inquiry. Furthermore, it takes a long time for officials at GDT to answer the inquiry. Also, there is a high possibility that GDT receives many similar inquiries because answers to an inquiry are not made public. Advance ruling on tax is a system wherein tax authorities provide written answers to taxpayers who made inquiries on tax levies for a business transaction to the authority. It is expected that the introduction of the advance ruling system will increase the transparency of the interpretation of the related laws and regulations by the responsible government officials. Also, it is expected that an inquiry and its answer be made public on the website of GDT so that other companies which have similar inquiries do not need to ask the same inquiry to GDT. GDT has not introduced the advance ruling system yet and there are no laws or regulations stipulating the establishment and implementation of advance ruling systems on tax. It is expected that GDT establishes a service system to provide clear answers to each inquiry from a company and disclose the answer to such inquiries to the public through the introduction of an advance ruling system. Also, because GDT does not provide consultation services in a systematic manner, each company finds the department in charge of its inquiries on its own in order to obtain basic information on tax through visits. While GDT has set a cal center which receive a inquiry on the phone, the existence of the center has not been well known to the public. Therefore, it is necessary to establish a consultation service counter at GDT as a single window for providing information and consultation services to companies. At the same time, it is also necessary to improve information provision services through updating the interpretation on taxation of law and taxation on the GDT website.

(2) Description of the Relevant Regulations  Law on the Amendment to the Law on Taxation (2003)

(3) Risk and Impact on Business If companies receive unclear answers or instructions on the interpretation of related laws and regulations on tax from GDT, their trust in GDT decrease. Furthermore, these unclear situations will lead to murky transactions among the persons in charge of GDT and the companies, which eventually increases business costs by creating states of unpredictability.

(4) Concerned Ministries  General Department of Taxation, MEF

(5) Donor Involvement JICA and GDT are currently conducting a technical cooperation called “Project for Capacity Development of General Department of Taxation (GDT)” aiming to strengthen the tax collection system of GDT through the promotion of tax payment by self-assessment. In particular, improvement of tax surveys in order to know the self assessed taxpayers and service provision to taxpayers is focused on the main activities of the Project.

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(6) Recommendations for Improvement Measures 1) Recommendations for Short-Term Improvement Measures i) Disseminate the concept and function of advance ruling system and individual consultation services to GDT It is necessary to explain and introduce the overview and merits of the system by using examples in other countries for officials from related ministries so that the system and individual consultation services can be introduced smoothly. It is beneficial to visit other ASEAN countries and Japan to observe such systems and services. The following figure shows the advance ruling system in Japan.

Predictability !!

Request of advance ruling (Submit an application with Publish on Website necessary documents to the appropriate tax office) National Tax Authority Key points Issue advance ruling on tax  Answer in writing  Confirm validity period of the answer  Sharing information to public through website

Source: JICA Study Team Figure 5-2 Schematic image of advance ruling system on tax in Japan

The advance ruling system has been introduced in other ASEAN countries such as Indonesia, Malaysia, the Philippine, Singapore, Thailand and Vietnam. The outline of each country is summarized as below.

Table 5-19 List of advance ruling system in other ASEAN countries Country Description Indonesia A taxpayer may request a confirmation from the DGT if the application of the tax law and procedure is unclear. However, there is no timeframe for the DGT to respond to such a request. Also, a tax ruling applies only to the taxpayer that filed the request and generally can be used only to support that taxpayer‟s position in the event of a tax audit or tax objection. Such a ruling may not be used by other taxpayers.

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Country Description Malaysia With effect from 1 January 2007, the Inland Revenue Board Malaysia (IRBM) may issue advance rulings on the interpretation and application of the income tax provisions under the Income Tax Act 1967 [Act] upon request by any person. A taxpayer needs to fill in and submit the prescribed form (Borang KA [1/2007]) with all the relevant documents. The Director General Inland Revenue Board Malaysia (DGIR) will ensure that the advance ruling will be issued within a stipulated time frame of 60 days from the date a complete application is submitted. All information in an advance ruling is treated as confidential and will not be published in public in any form. If there are found to be similarities in issues of concern, then the DGIR may produce a public ruling to address the issues. The advance ruling will only be issued to the applicant after all fees payable are paid (i.e. (1) application fee of RM500, (2) RM150.00 per hour after the first 4 hours taken to provide the advance ruling, including any time spent by the DGIR in consulting with the person, and (3) reimbursement fees in respect of i) any external professional advice sought by the DGIR with prior consent from the applicant; or ii) any other reasonable costs incurred by the DGIR) Philippines The tax authorities will issue an advance ruling on the tax consequences of a contemplated transaction at the request of a taxpayer, except for transfer pricing and certain transactions that the tax authorities have declared as no-ruling areas. Singapore The IRAS introduced a formalized advance ruling system for income tax matters and requests for advance rulings must satisfy some conditions. Provided the request is not complex, and the taxpayer has paid the prescribed fees and complied with the application procedure, the IRAS is expected to provide a ruling within eight weeks of receiving the application. The advance ruling is binding on the particular arrangement for a specified period of time. However, the ruling may be withdrawn in some circumstances. The ruling is final without an option to appeal against it. However, in the event that a taxpayer disagrees with the advance ruling, they are still permitted to complete the tax return without applying the ruling, provided they make the necessary disclosures in respect of the ruling in the tax return. If an assessment is made by the IRAS based on the ruling, the taxpayer is allowed to appeal against the assessment in accordance with the normal objection process. Thailand Advance private rulings are available at the request of the taxpayer. The status of a private tax ruling in Thailand is not legally binding on the Thailand Revenue Department. There are several past tax rulings that are available for reference on the website of the Thai Revenue Department. Vietnam A taxpayer can request a tax ruling from the local or the national tax authorities to clarify its specific tax concerns. Source: Tax Highlight (Deloitte) and Treasury Management Profile (HSBC)

2) Recommendations for Mid-Long Term Improvement Measures ii) Enact the laws or regulations which stipulate the establishment and implementation of advance ruling system (such as public disclosure of interpretation on tax-related regulations). Advance ruling system is individual consultation service where a company inquiries about unclear tax system and obtain written responses within a certain weeks. Each company can obtain official clear interpretation of taxation from GDT by introducing the system. Also, the service can be more efficient if GDT announce such answers on its website. The following figure shows a schematic image of advance ruling system on tax. As can be seen from the figure, confirmation to provide answers in writing, confirmation of validity period of the answer and sharing information to public through website are key points to introduce advance ruling system successfully.

5-60 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report iii) Set up an individual consultation counter at GDT and provide information and consultation services related taxation to each company In the individual consultation counter, answers to an inquiry and interpretation at the counter and/or by telephone (announce on website is included) are provided to companies. Establishment of consultation services enables each company to obtain clear and official interpretation of GDT. Furthermore, if such interpretations are announced on website, the information is shared among other companies efficiently. iv) Conduct capacity development training to the staff at GDT for introducing the services on advance ruling system and the individual consultation counter It is necessary to secure sufficient number of staff and to conduct capacity development training to the staff at GDT in order to operate advance ruling system and provide consultation services at the individual consultation counter. Also, it is beneficial to make guidelines and manuals.

Issue 4): Clarification of rules for levying overdue tax

(1) Background/Contents/Reasons Behind There are three types of tax audit in Cambodia, i.e., i) desk audit, ii) limited audit and iii) comprehensive/ final audit. The type of audit is decided by the size of tax payer as below.

Table 5-20 Tax audit system in Cambodia Large taxpayer Large taxpayer Department Conduct either Desk audit or Limited audit monthly. The audit will be conducted for only VAT and some specific taxes based on the tax declaration. Enterprise Audit Department Conduct Comprehensive audit on final tax return. The audit will be conducted for all the taxes (including VAT and withholding tax) except for advance tax of earnings Middle size taxpayer (those who are not large taxpayers) Tax Branch Conduct either Desk audit or Limited audit monthly. The audit will be conducted for only VAT and some specific taxes based on the tax declaration. Enterprise Audit Department Conduct Comprehensive audit on final tax return. The audit will be conducted for all the taxes (including VAT and withholding tax) except for advance tax of earnings Source: GDT

The above two tax audit is implemented for different taxes by different departments. Also, there is no link between Limited audit and Comprehensive audit, rather they are conducted separately. Comprehensive/ final audit is conducted in a comprehensive manner to inspect all the items on tax targeting the tax period of 2- 3 years. If the comprehensive/ final tax audit was completed, the taxpayers can apply for the issuance of Certificate of Tax Situation (CTS) to GDT as evidence ensuring no arrears and omission of report on tax payment.

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However, such tax audit system and flows are not well understood by especially foreign companies. As a result, they receive impression that tax audit is implemented retroactive to the past whenever the tax officer in charge is reshuffled or even after completing a tax audit. Normally, it is important to re-construct the current implementation structure by integrating or connecting Desk audit/limited audit and Comprehensive audit, but GDT seems to continue the current implementation structure at this moment. Also, a tax audit is usually conducted without any prior notice in order to prevent tax evasion and/or concealment, which normal procedure. However, sudden supplementary penalty is charged after no follow up contact for a few months with overdue tax at 2% per month. Interest rate increases after the notice even if GDT does not make any contacts for long time, which result in the increase in only the amount of overdue tax. This situation will become a huge business risk for companies. This is mainly because there is no clear regulation on the standards of current overdue tax. Therefore, it is requested to make standards of levying overdue tax (e.g. set the maximum amount) especially in case there is a problem at GDT side (e.g. no follow-up for a certain time).

(2) Description of the Relevant Regulations  Law on the Amendment to the Law on Taxation (2003) Article 116 and 117

(3) Risk and Impact on Business Unclear information on implementation structure and procedure of tax audit may induce the improper implementation on tax audit which resulted in the lost of the credibility of tax payers in tax authority and increase their business costs and unpredictability of business operation. Also, unclear regulations on overdue tax are unfavorable companies. If the current situation goes unchanged, companies‟ interest in additional investment in Cambodia may decrease.

(4) Concerned Ministries  General Department of Taxation, MEF

(5) Donor Involvement JICA and GDT are currently conduct a technical cooperation so called “Project for Capacity Development of General Department of Taxation (GDT)” aiming to strengthen the tax collection system of GDT through the promotion of tax payment by self-assessment.

(6) Recommendations of Improvement Measures 1) Recommendations for Short-Term Improvement Measures i) Make the current implementation structure and procedure clear and inform the structure and procedure to companies by announcing on website and/or making and distributing leaflets.

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The current tax audit is complicated for companies to understand in details. In order not to lose the creditability of GDT, it is necessary to make the structure and procedure clear and firmly announce them.

2) Recommendations for Mid-Long Term Improvement Measures ii) Regulate clear standards of levying overdue tax which is not unfavorable to taxpayers (companies) It is essential to regulate clear standards of how to levy overdue tax in order to prevent companies‟ risk to be charged unreasonable penalty because of delay of GDT to inform the result of a tax audit. The below can be considered: ① Set the longest period of time to audit, highest tax rate, and/or maximum amount of tax ② Clarify the period to levy overdue tax (e.g. Change the starting point from occurrence of misconduct to start of tax audit) ③ If GDT does not make any contacts for a certain period of time, tax audit needs to be considered to be completed. ④ Regulate the rule that GDT needs to repot the current status of the tax audit to the company regularly, and overdue tax should not be levied in case GDT does not follow the rule.

Issue 5): Abolishment of Tax for the Dividend Distributions during Tax Exemption Period”

(1) Background/Contents/Reasons Behind Under the current tax collection system in Cambodia, 14% of withholding tax is levied on dividend, which shall be distributed from the net profit after the payment of 20% tax on profit (APTDD: Advanced Payment of Tax on Dividend Distributions) is detected, when companies send the dividend to overseas. In the case of QIP, 20% of Advanced Payment of Tax on Dividend Distributions are still levied additionally on the dividend even it is entitled for the incentive of tax exemption and 14% of withholding tax is deducted from the dividend (actual tax rate: 0.2+(0.86x0.14)=0.312, 31.2%), when they send the dividend to overseas. The advanced tax on the dividend during tax holiday period has been set by the Cambodian government aiming to encourage re-investment into Cambodia by the companies. However, if a company tries not to pay APTDD and to send dividend after tax exemption period, original intention of tax exemption would be reduced because delay of sending dividend makes investment recovery late. Therefore, the tax for dividend during tax exemption period should be abolished.

(2) Description of the Relevant Regulations  Law on the Amendment to the Law on Taxation (2003) Article 23

(3) Risk and Impact on Business While CDC appeals the tax exemption as an investment incentive to investors when they apply for QIPs, 20% of the advanced tax on the dividend is levied when the investor sends the dividend to

5-63 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report overseas during tax exemption period. This discrepancy may increase business cost and eventually lead the investors to lose the trust in the investment promotion policies of Cambodia.

(4) Concerned Ministries  General Department of Taxation, MEF  Council for the Development of Cambodia

(5) Donor Involvement This issue has been raised and discussed in the Japan Cambodia Coordinating Meeting as a business issue to be addressed by the Cambodian government.

(6) Recommendations of Improvement Measures 1) Recommendations for Short-Term Improvement Measures i) Establish a committee to abolish tax on the dividend distributions among CDC and GDT The enforcement of the advanced tax on the dividend has both an advantage and a disadvantage, in short, the former is the increase in re-investment in Cambodia and the latter is an issue to create the feeling of discredit among the investors about the investment incentive scheme of Cambodia. It is required to have discussions among related ministries on this issue and direct to the abolishment.

2) Recommendations for Mid-Long Term Improvement Measures ii) Abolishment of tax on dividend distributions While the tax exemption is appealed as an investment incentive to investors when they apply for QIPs, 20% of the advanced tax on the dividend is levied when the investor sends the dividend to overseas during tax exemption period. Such tax on dividend distributions should be abolished in order not to lose the trust in the investment promotion policies of Cambodia.

Issue 6): VAT Exemption on Raw Materials Procured from Domestic Market by Export QIPs

(1) Background/Contents/Reasons Behind According to Prakas #3725 (MEF) on Continuation of Temporary Suspension of VAT for the Investors in the SEZ (June 2010), VAT is exempted on production machinery, raw materials and factory construction materials imported by Export QIPs within SEZs. However, the products including raw materials and/or services procured at the domestic market are levied VAT except the products and/or services provided by Supporting Industry or Contractor for the export of Garment, Textile and Shoe Products. If the products and/ or services procured at domestic market by Export oriented QIPs in SEZs become exempt from VAT, their international competitiveness will be strengthened. From the point of view of the development of domestic suppliers in Cambodia, there is a possibility that such domestic suppliers will have more opportunities to work with foreign global

5-64 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report companies. However, the Cambodian government has no proper monitor/control way of products procured at domestic market which may result in the rampant illegal sale. On the other hand, originally, VAT which is levied when purchased in Cambodia for export products is supposed to be refunded because final consumers of such products are not in Cambodia. In practice, however, the refund system is not functioning well (e.g. the VAT is never refunded, or it took more than one year to be refunded). Therefore, it is important to construct the system for VAT refund in addition to VAT exemption as an incentive.

(2) Description of the Relevant Regulations  Law on the Amendment to the Law on Taxation (2003) Article 23  Prakas #3841 (MEF) on VAT Exemption for the Investors in the SEZ (July 2009),  Prakas #3725 (MEF) on Continuation of Suspension of VAT for the Investors in the SEZ (June 2010)  Letter #2128 (MEF) on Request to Continue the Temporary Suspension on VAT for investors in Special Economic Zones (March 2010)

(3) Risk and Impact on Business The adoption of VAT exemption on products/ services procured at domestic market by Export oriented QIPs will contribute to the development of domestic industries and increase in the competitiveness of Export QIP. Also, VAT which is levied when purchased in Cambodia for export products is supposed to be refunded because final consumers of such products are not in Cambodia, but if such system is not properly implemented, Cambodia may lose its creditability from investment companies.

(4) Concerned Ministries  General Department of Taxation, MEF  Council for the Development of Cambodia

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In order to introduce interest on refund smoothly, it is important to get understanding of the concept from related ministries including GDT by explaining the concept and advantages and showing examples in other countries. Also, observatory trip to Japan and other ASEAN countries is beneficial. Also, it is essential for CDC and other related ministries to establish a committee to discuss how to control/manage domestic and international procurement by using Free Trade Zone in SEZs in order to strengthen international competitiveness of companies in SEZs.

2) Recommendations for Mid-Long Term Improvement Measures ii) Introduce interest on refund (the system in which GDT pay interest to the taxpayer when the due date for GDT to pay refund is expired. Originally, VAT which is levied when purchased in Cambodia for export products is supposed to be refunded to export companies because final consumers of such products are not in Cambodia. Therefore, interest on refund system (e.g. 2%) should be introduced in order to prevent unnecessary extension of refund. In case of Japan, Article 58 of General Act of National Taxes (GANT) regulates to add interest on refund in line with overdue tax on the delay of tax payment. According to the Article 58, the interest on refund is calculated for the period from base date to payment day/appropriation day using the lower rate between 7.3% per annual and special provision rate.

Table 5-21 List of Base Date to Calculate Interest on Refund Classification of interest on refund Base date on interest on refund １ A refund and any of the following overpayments (1) An overpayment arising from the national tax for which The day on which the national tax causing the refund or the tax amount payable has been determined by overpayment was paid (if such day precedes the statutory due reassessment or determination, etc. (excluding the date for payment of the national tax, said statutory due date for overpayment set forth in the following item) (GANT payment) (GANT Article 58 (1) (i)) Article 58 (1) (i) (a)) (2) An overpayment arising from the national tax for which the payable amount shall be determined without any special procedure upon the establishment of the tax liability, and for which notice of tax due has been given (GANT Article 58 (1)(i) (b)) (3) An overpayment arising from the income tax for which the tax amount payable has been reduced (Decree on GANT Article 24 (1) (i)) ２ An overpayment arising from the national tax for which the the day on which three months have elapsed from the day payable tax amount has decreased due to a reassessment following the day on which the request for reassessment was (GANT Article 58 (1) (ii)) made, or the day on which one month has elapsed from the day following the day on which said reassessment was made, whichever comes earlier (GANT Article 58 (1) (ii)) ３ An overpayment or other payment made by mistake arising from other than listed in the preceding two items (1) An overpayment or other payment made by mistake the day on which one month has elapsed from the day following arising from the national tax for which the payable tax the day specified by Cabinet Order as the day on which such amount has decreased not due to reassessment but due to overpayment or payment by mistake occurred (GANT Article structure (Decree of GANT Article 24 (2) (i)) 58 (1) (iii), Decree of GANT Article 24 (2) (i)) (2) An overpayment or other payment made by mistake the day on which one month has elapsed from the day on which arising from payment of a withholding tax made without such overpayment or payment by mistake occurred (GANT receiving notice of tax due (Decree of GANT Article 24 Article 58 (1) (iii), Decree of GANT Article 24 (2) (i))

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(2) (ii)) (3) Other overpayment or payment made by mistake the day on which one month has elapsed from the day on which overpayment or payment by mistake was paid (if such day precedes the statutory due date for payment of the national tax, said statutory due date for payment) (GANT Article 58 (1) (iii), Decree of GANT Article 24 (2) (v)) Source: National Tax Agency Japan

7.3 ％ or special Amount to be From the day determined × provision rate × by the Law until the ＝ Amount of interest on refunded determined or appropriate refund 365 day

Round down less than 10,000 Yen Round down less than 100 Yen (Decree of GANT Article 120 (4)) Round down less than 1,000 Yen (Decree of GANT Article 120 (3))

Source: National Tax Agency Japan Figure 5-3 How to Calculate Interest on Refund iii) Amend rules and regulations related to VAT exemption on domestically purchased products and services by Export QIP companies in SEZ. The adoption of VAT exemption on products/services procured on the domestic market by Export oriented QIPs will contribute to the development of domestic industries and increase the competitiveness of Export QIP. Because the Cambodian government has no proper monitor/control method for products procured on the domestic market, which may result in the rampant illegal sales, such VAT levied on Export QIP companies is currently not exempted. However, there is a way to enhance VAT exemption. For example, the Establishment of Free Trade Zone in SEZs enables companies to procure domestic products/services in the zone, which further makes it possible for the government to monitor and control such procurements and to exempt VAT in the zone.

Issue 7): Different interpretations of VAT on Land Lease

(1) Background/Contents/Reasoning When a foreign company enters a SEZ, it is forced to make a long-term lease contract (most of the cases are perpetual lease contracts) on land with a SEZ developer because the Cambodian Constitution and Land Law do not allow foreigners to own land. (Civil Code of Cambodia stipulates the period of the perpetual lease to be maximum 50 years). Section 1 and 2 of Article 56 in Taxation Law defines "goods" as "tangible property other than land or money" (section 1) and "services" as "the provisions of something of value other than goods, land, or money" (section 2). Based on these definitions, VAT is not levied on the purchase of land (4% of property transfer tax is levied). On the other hand, the General Tax Department (GDT) interprets that VAT of 10% shall be levied on the land lease within SEZ because they think the land leasing is a “service”.

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As a result, Cambodian citizens can purchase land with a property transfer tax of 4%, while foreigners have to pay 10% VAT in order to lease the land. This is against the principle of non-discriminatory treatment of domestic and foreign investors adopted in the Law on the Amendment to the Law on Investment and may infringe the basic spirit defined in “Agreement for the Liberalization, Promotion and Protection of Investment” made between Cambodia and Japan on June 14, 2007. The GDT thinks VAT on the land leasing should be levied because it is a “service”. However, the long-term land lease has to be treated in different manner than short-term rent. The perpetual lease contract is permitted to last a maximum 100 years by Civil Code. The perpetual lease right is much firmer than the temporary rent-right and is very close to ownership as far as the use-right is concerned. For this reason, the long-term land lease fees asked by the SEZ developers tend to be close to the land price for purchasing. In addition, the payment of such land lease fee shall be made in lump-sum in most of cases, not by the installments for the case of usual service fees. In this regards, it is doubtful that the provision of perpetual lease right is also merely a provision of „services‟. The period of a land lease for QIPs is long-term and even the lease contract is terminated during the originally scheduled period, the lease for the rest of the period will not be paid back if the contract is based on a perpetual lease. Therefore, it is not reasonable to treat such land leases the same as a normal lease (e.g. residential or shop lease) and levies VAT on it. (In the normal lease contract, the tenant does not need to pay the rest of the originally scheduled period even if it terminates the contract in the middle of it). Therefore, there is a discrepancy on the interpretation of land lease between the current taxation system and investment policy regarding the equal treatment of domestic and foreign companies.

Foreign Company Cambodian Company

Land Cambodian citizens can purchase the The Cambodian Constitution and Land Acquisition Law do not allow foreigners to own land land with property transfer tax of 4% When a foreign company enters a SEZ,

VAT of 10% shall be levied on the land 4% of property transfer tax is levied. But lease within SEZ VAT is not levied on the purchase of land

TOL defines "service" The GDT as "the provisions of interprets the Discrepancy on the interpretation of something of value land leasing is a VAT on land lease b/w current taxation other than goods, “service”. system and investment policy land, or money”

Source: JICA Study Team Figure 5-4 Structure of the Issue on different Interpretations of VAT on Land Lease

(2) Description of the Relevant Regulations  Law on the Amendment to the Law on Taxation (2003) Article 56, 57

(3) Risk and Impact on Business

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When foreign companies build their factories in Cambodia, they have no other choice except making a lease contract to obtain the necessary land with land owners or SEZ developers. Since the land lease contract may last for a period of 50 years or 100 years in case of the perpetual lease, the lease fees asked by the SEZ developer tend to be as high as the purchasing price. If Cambodian tax authority deems the provision of such perpetual lease right as a provision of „service‟ and levy 10 % VAT on the land lease fees, total land cost becomes very high and may place high business cost burden on the investors.

(4) Concerned Ministries  General Department of Taxation, MEF

(6) Recommendations of Improvement Measures 1) Recommendations for Short-Term Improvement Measures i) Establish a committee to introduce interest on refund or enforce VAT exemption for land leasing among CDC and/or GDT It is essential to explain and let the relevant organizations understand the fact that if land leasing is considered as service, Cambodian citizens can purchase the land with property transfer tax of 4%, while foreigners have to pay 10% VAT in order to lease the land, which is against the principle of non-discriminatory treatment of domestic and foreign investors and may infringe the basic spirit defined in “Agreement for the Liberalization, Promotion and Protection of Investment” made between Cambodia and Japan on June 14, 2007. In order to introduce interest on refund smoothly, it is important to get understanding of the concept from relevant ministries including GDT by explaining the concept and advantages and showing examples in other countries. Also, observatory trip to Japan and other ASEAN countries is beneficial.

2) Recommendations for Mid-Long Term Improvement Measures ii) Add land leasing on the list of Non Taxable Suppliers under Article 57 of Taxation Law. If that is difficult, at least land leasing within SEZ should be considered as non taxable suppliers. Under the condition that foreign companies are not allowed to have ownership to hold land, it is reasonable to consider land leasing as practically ownership right and it is not reasonable to consider land leasing as service. Therefore, it is land leasing should be added to the list of non taxable suppliers under Article 57 of Taxation Law. If that is difficult, it is worth discussing to consider at least land leasing to foreign companies within SEZs as ownership right, which can be seen as one of the investment incentives.

5-69 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report iii) Introduce interest on refund (the system in which GDT pay interest to the taxpayer when the due date for GDT to pay refund is expired). Originally, VAT which is levied when purchased in Cambodia for export products is supposed to be refunded to export companies because final consumers of such products are not in Cambodia. Therefore, land leasing should be considered as one of the items for VAT exemption and interest on refund system (e.g. 2%) should be introduced in order to prevent unnecessary extension of refund.

Issue 8): Introduction of Advance Ruling System (Country of Origin)

(1) Background/Contents/Reasons Behind An advance ruling system is a ruling (or advice) provided by Customs administration upon traders‟ request on the i) tariff classification, ii) custom valuation and iii) country of origin before the traders import goods. The introduction of the system is expected to contribute to activation of international trade by realizing smooth trade facilitation. However, foreign companies, which plans to invest in Cambodia, is not able to obtain information on tariff classification, customs valuation for importing parts or products, and country of origin, since the advance ruling system has not been fully utilized in Cambodia. GDCE has just started providing services on the advance ruling system through on line under the assistance of Japan Customs and JICA. Firstly, Prakas #002 MEF on Advance Ruling for Tariff Classification, Origin and Customs Valuation was pledged in January 2013 in order to introduce the advance ruling system in Cambodia. As for the tariff classification, there is the instruction No.345 GDCE on Implementation of Advance Ruling for Tariff Classification, which stipulates the implementation procedure to provide services for customs valuation andas for the customs valuation, there is an instruction No. 346 on Implementation of Advance Ruling for Custom Valuation, which stipulates the implementation procedure to provide services for customs valuation,. Both of them were pledged in April 2013. Currently, GDCE has developed a software system to manage information on tariff classification and customs valuation with assistance from JICA. As for the country of origin, the instruction, which will be similar to those for tariff classification and customs valuation, has been under a draft and ADB and Japan Customs are considering to assist it. Since the advance ruling on the country of origin requires the persons in charge to have specific knowledge and skills for its calculation, it will requires sufficient amount of training on its introduction for officers. The capacity of staff at GDCE to provide such information is not sufficient enough. Therefore, it is necessary to construct implementation structure and conduct capacity development of staff along with software development in order to actually implement advance ruling system. Moreover, an approval on customs valuation and other related laws and regulations from the headquarters in Phnom Penh needs to be obtained first then other import and export procedures are conducted even in a case of proceeding the procedure at regional offices. Such work put more time and cost on importers and exporters. It is desirable to delegate authority to regional offices, but such offices

5-70 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report do not have sufficient skillful staff. Therefore, it is equally important to construct an implementing structure not only in Phnom Penh but also regional offices.

(2) Description of the Relevant Regulations  Law on Customs July 2007, Article 18  Prakas #002 MEF. BK on Advance Ruling for Tariff Classification, Origin and Customs Valuation  #345 GDCE on Implementation of Advance Ruling for Tariff Classification

(3) Risk and Impact on Business After ASEAN economic integration in 2015, international trade among ASEAN countries is expected to drastically increase in terms of both types of products and quantity. If the advance ruling system were not introduced in a rapid manner, the competitiveness of trade facilitation in Cambodia will be reduced, which resulted in the decrease in international trade and investment.

(4) Concerned Ministries  General Department of Customs and Excise

(5) Donor Involvement A JICA expert is dispatched to GDCE for modernization of customs offices including improvement of trade facilitation services. .

(6) Recommendations of Improvement Measures 1) Recommendations for Short-Term Improvement Measures i) Active utilization of the advanced ruling system on tariff classification and customs valuation assisted by JICA and Japan Customs to private companies An advance ruling system of tariff classification and customs valuation seems to have strong needs from private companies. However, it is important to promote the system to private companies and have them understand the concept and advantages of the system. Therefore, it will be requested to disseminate the system (e.g. holding seminars).

2) Recommendations for Mid-Long Term Improvement Measures ii) Develop human resources in order to provide and officially introduce and smoothly implement a advance ruling system (tariff classification, customs valuation, and country of origin) In order to introduce advance ruling system, it is essential to construct an implementation structure (e.g. organizational structure and staff positioning), have the staff in charge understand each contents of the services, and keep conduct necessary trainings for capacity development of staff. Below is an example of Japan as a reference:

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Table 5-22 Advance Ruling System on Customs in Japan Advance ruling is an advice provided by Japan Customs for an inquiry on tariff classification, country of origin, customs valuation by importers or relevant businesspeople before actual import. Knowing tariff classification etc in advance helps to calculate cost estimation more accurately when import or sales plans are made. Also, it will be more accurate and quicker to pass the Customs, which results in receiving cargoes faster. In advance ruling, an applicant generally needs to make an inquiry with written documents and the Customs provides an answer with written documents. The answer is effective for 3 years from the date of issuing the ruling and it is applied only to the applicant‟s goods which are inquired.

Application for advance ruling (tariff classification): An applicant for advance ruling (tariff classification) must fill in one prescribed form (C-1000), which should be submitted to the customs where the applicants will import (or in case it is difficult, nearest customs) accompanied by the other necessary documents/information (picture, design etc). The customs received the application determines the appropriate tariff number or tariff rate based on the information provided by the applicant and pass the answer to the advance ruling to the applicant.

Application for advance ruling (customs valuation): An applicant for advance ruling (customs valuation) must fill in one prescribed form (C-1000-6), which should be submitted to the customs where the applicants will import (or in case it is difficult, nearest customs) accompanied by the other necessary documents/information (sales contract etc). The customs received the application determines customs valuation on the cargoes to be imported based on the information provided by the applicant and pass the answer to the advance ruling to the applicant.

Application for advance ruling (country of origin): An applicant for advance ruling (country of origin) must fill in one prescribed form (C-1000-2), which should be submitted to the customs where the applicants will import (or in case it is difficult, nearest customs) accompanied by the other necessary documents/information (breakdown of raw materials, manufacturing schedule, sample, picture, design etc). The customs received the application determines country of origin for the cargoes to be imported based on the information provided by the applicant and pass the answer to the advance ruling to the applicant.

Japan Customs sets standard for issuing the advance ruling (tariff classification and country of origin) within 30 working days and for issuing advance ruling (customs valuation) within 90 working days of the receipt o the application and all the necessary information Source: Japan Customs iii) Formulate a master plan of advance ruling system and human resource development in order for other customs than Phnom Penh to introduce the advance ruling system When it comes to the introduction of advance ruling system in regional offices, it is important to prioritize plans based on current organizational structure and staff positioning and amount of import and export in each regional office. It is necessary to consider how to expand human resource development (e.g. firstly introduce and smoothly implement the advance ruling system in Phnom Penh and develop human resources, then develop capacity at regional offices with instruction of staff from Phnom Penh).

Issue 9): Customs Business Law

(1) Background/Contents/Reasons Behind In Cambodia, there is the lack of human resources of customs agents and customs specialists who can carry out the customs clearance works sufficiently. One of the main causes is that a customs business law which stipulates the conditions to start business as customs agents, the roles of customs agents / customs clearance specialists has not been formulated in Cambodia. Even though Article 31, 32, and 33 of Law on Customs and Prakas #115 stipulate the rules of customs brokers, the description is not in detailed and unclear. In Thailand, Customs Business Law was enacted in 2007 aiming to improve the customs clearance of cargos and declaration of tariff payment so that the customs office may control the activities of customs clearance.

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Another cause is the weak system of qualification examination to develop professional human resource on customs clearance. In Japan there is a qualification system of registered customs specialist and those who have the qualification contributed to custom clearance works in Japan. The following table shows the comparison of the rules on customs brokers and customs specialists in Cambodia and Customs Business ACT in Japan.

Table 5-23 Comparison Table of the Customs Business Act in Japan and the Rules of Customs Brokers in Cambodia Customs Business Act Japan Japan Cambodia General Provisions Purpose Article 1 Definition Article 2 Customs Business Permission of customs business Article 3 Article 32, 33 Application of the permission Application Article 4 Praka 4 Standard of the permission Article 5 Praka 4,6 Disqualification reason Article 6 Praka 4, 5,6 Related Business Article 7 Praka 19 New establishment of the branch office Article 8 Limit of business area Article 9 Praka 19 Extinction of the permission Article 10 Cancellation of the permission Article 11 Reports such as changes Article 12 Praka 16, 19 Allocation of the customs specialists Article 13 Praka 6 Examination of the customs specialists Article 14 Hearing of the opinion about the constitution Article 15 Notice of Inspection Article 16 Prohibition of the name lending Article 17 Notices of the rate Article 18 Duty to keep a secret Article 19 Prohibition of the trust loss act Article 20 Effect such as sealing Article 21 Praka 18 Bookkeeping, notification, report etc. Article 22 Praka 20 Customs specialists Examination of customs specialists Article 23 Praka 5, 7 Some exemptions of the test subjects Article 24 Qualification to become customs specialists Article 25 Praka 10 Examination fee Article 26 Execution of examination Article 27 Praka 8 Examination committee Article 28 Cancelation of the pass Article 29 Commission to a departmental order Article 30 Praka 7 Confirmation of qualification as customs specialists Article 31 Loss of qualification as customs specialists Article 32 Praka 11 Prohibition of the name lending Article 33 Responsibility of such as customs specialists Supervision disposal for customs brokers Article 34 Disciplinary measure for customs specialists Article 35 Proposal of the investigation Article 36 Procedure of the disposal Article 37 Report collection Article 38 Miscellaneous provisions Examination committee Article 39 Limitation of usage of name Article 40 Penal rules Article 41~ Praka 12, 21 Source: Japan Customs, GDCE Cambodia

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(2) Description of the Relevant Regulations  Law on Customs (2007) Article31,32,33  Prakas #115 on Establishment and Functioning of Customs Brokers

(3) Risk and Impact on Business After integration of AEC in 2015, international trade among ASEAN countries may drastically increased in terms of both types of products and quantity. If the necessary laws and regulations and qualification system for specialists are not introduced in a rapid manner, the quality of logistic as well as customs clearance services in Cambodia will be reduced, which will eventually degrade Cambodia‟s position in the supply chain in ASEAN countries.

(4) Concerned Ministries  General Department of Customs and Excise

(5) Donor Involvement A JICA expert is dispatched to GDCE for modernization of customs offices including improvement of trade facilitation services..

(6) Recommendations for Improvement Measures 1) Recommendations for Short-Term Improvement Measures i) Build consensus among related ministries for the importance of customs business law including a qualification examination system for customs specialists in Cambodia It is necessary to explain and introduce the overview and merits of the customs business law and customs specialist qualification by using examples in other countries for officials from related ministries so that the legislation of the law and the qualification system can be introduced smoothly. It would be beneficial to visit other ASEAN countries and Japan to observe such systems and services.

2) Recommendations for Mid-Long Term Improvement Measures ii) Legislate the customs business law in order to realize more smooth customs clearance in Cambodia by appropriate customs brokers including the human resources who are qualified as customs specialists Customs business law which stipulates the expected roles and qualifications required for customs brokers as well as the qualification examination for customs specialists needs to be legislated in order to improve customs clearance in Cambodia so that Cambodia will be able to remain abreast with international competitiveness on trade facilitation among ASEAN countries. iii) Establish a qualification examination system for customs specialists in Cambodia for developing human resource who are familiar with customs clearance

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In order to foster human resource that have enough skills and knowledge on customs clearance in Cambodia, it is necessary to establish a qualification examination system for customs specialists so that trade facilitation in Cambodia will be improved.

5.4. Prioritized Rules and Regulations in Bangladesh (Short list)

5.4.1. Overview of Short Listed Issues Following thirteen (13) issues have been identified for short listed prioritized issues for Bangladesh.

Table 5-24 Short List of Prioritized Issues Category Sub-Category ID Issues 1-1 1) Concrete conditions for entry of foreign investment by Restrictions on industry sector (including service sector) are unclear Foreign 1-2 2) Virtual restrictions exist on entry of foreign capitals for Investment garment manufacturer (issuance of UD by the BGMEA) 1-4 3) Publicizing relevant laws and regulations in English through Foreign centralized system is important Investor Relations 1-6 4) Strengthening BOI‟s one-stop service functions is critical Investment

1-8 5) Difficulty exists in identifying the chain of title and Land Registration ownership of land System

Company 2-3 6) Issues related with approval requirements by the BSEC Law, Formulation of a (Bangladesh Securities and Exchange Commission) need Business Company reconsideration License 3-1 7) NBR requirements for prior registration of “selling price” Taxation, Value Added Tax for goods to be sold in domestic market need Accounting reconsideration Foreign-currency 4-2 8) Restrictions on foreign currency borrowing for the purpose of securing necessary working capital need reconsideration Finance, Loan Foreign Restrictions on 4-4 9) Restrictions on non-trade remittance in foreign currency Exchange Outward (service fees etc.) need reconsideration Remittance Bonded 5-2 10) Bonded warehousing system (strict restrictions on the Warehousing percentage of domestic sales allowed) need reconsideration Trade, System Logistics 5-3 11) Customs valuation tends to be based on market value which Customs Valuation is higher than the real value

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Category Sub-Category ID Issues 6-3 12) Requirements for local employees mandating employment Labour Employment of extraneous local workers need reconsideration

Infrastructure PPP 7-1 13) PPP Act not in place

5.4.2. Description of Prioritized Issues Issue 1): Concrete conditions for entry of foreign investment by industry sector (including service sector) are unclear (1) Background/Contents/Reasons Behind National Industrial Policy (2010) identifies Reserved Industries and 17 Controlled Industries that are subject to restrictions on foreign investment. However, in the first place, whether the list of Reserved Industries and Controlled Industries is comprehensive (i.e., negative list) or indicative is not clear. Second, while the National Industrial Policy (2010) stipulates that the government will fix conditions including cap on the shareholding ratio of foreign investors applicable to the Controlled Industries. In fact, there are industries such as transport and logistics (cargo/passenger aviator) for which relevant ministry enacted regulations setting the equity cap of 49% on foreign investment. However, relevant ministries have not yet fixed equity cap on, or conditions applicable to, certain Controlled Industries. In those industries where applicable conditions have not yet fixed, relevant Ministries would have wider discretion as to the approval of the foreign direct investment. Lastly, there is no single guideline issued by the government which clarifies concrete restrictions for all the Controlled Industries in a comprehensive manner and foreign investors would have difficulties in understanding conditions applicable to the industries in which the foreign investors consider investment. Insurance company is one of the 17 Controlled Industries which illustrates such complexities. The Insurance Act of 1938 which was then in force was repealed and the Insurance Act of 2010 was enacted in 2010. Under the Insurance Act of 2010, the authority of drafting detailed regulations for the implementation of certain provisions is vested on the relevant ministry and the Insurance Act of 2010 itself does not have sufficient clarity on those matters. However, those regulations have not been drafted as of yet. As a consequence, in some cases, when foreign investors approaches officials of the Insurance Development Regulatory Authority, they simply rely on guidelines which were enacted under the Insurance Act of 1938 and not inconsistent with the Insurance Act of 2010 while, in other cases, the government officials made discretionary decision. In addition, industries which are not included under the Controlled Industries, for example in wholesale industry and retailing industry, there is no detailed and compiled law/regulation and guidelines regarding restrictions on entry of foreign capitals. Therefore, procedure wise, foreign investors are able to do wholesale and retail business so long as they obtain relevant licenses such as import registration. However, in case the firm is going to be an incorporated company with 100% foreign capital, consideration of local employment may be emphasized and therefore, issues may arise

5-76 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report in acquiring various business licenses including registration with the BOI if the main activity of the firm is going to be sales which do not generate much local employment.96 Furthermore, restrictions may exist on even industries not included in the 17 Controlled Industries. A good example is a High Court Order of injunction dated 26th September 2012 in Writ Petition no. 12303 of 2012. In this case, the petitioner, a Bangladesh local, alleged that BOI failed to implement the directives of the Executive Chairman of the BOI under memo, dated 5th April 2005, discouraging 100% foreign or joint venture companies within certain commercial service industry in Bangladesh. In response to the petition, the High Court ordered relevant regulatory authorities, including BOI, Bangladesh Bank, Registrar of Joint Stock Companies & Firms (RJSC&F) and Ministry of Commerce not to grant any registration, licenses or permits. The High Court Order is still valid until the final decision is made by the Court or until the implementation of the directives by BOI while it was clarified by another High Court‟s decision dated 27th November 2012 that the restrictions imposed by the High Court Order of 26th September 2012 apply only to new investments and existing investments have been since then construed to be grandfathered. This issue greatly hampered industries related to the concerned service sectors.

The reason behind the problem:  Issues at stake cannot be referred in relevant laws and regulations since there is no such stipulation in any rules and regulations, therefore administrative discretions become unclear and discretional.  Even in cases where relevant laws and regulations are enacted, contents of such laws and regulations are not necessarily clear and sometimes confusing; therefore interpretation by relevant officers varies.

(2) Description of the Relevant Regulations  National Industrial Policy (2010) – refer to Table 3-11 for the list of Reserved Industries and Controlled Industries  Memo No. BOI/NI:OSH-1/Branch-Liaison/03/2004/567 (1), dated 5th April, 2005 (Not available – the Memo is still in drafting stage and has not been finalized yet.)

(3) Risk and Impact on Business The above mentioned situation creates a lot of confusion for foreign investors when they intend to invest in Bangladesh. Since concrete conditions for FDI have not been clarified sufficiently, restrictions prevailing in different sources make the investors confused. Unless otherwise tackled urgently, the situation would be aggravated and raise investment risk to the point it discourages foreign companies to invest in Bangladesh.

(4) Concerned Ministries  Ministry of Industries  Ministry of Commerce

96 Source: Information from JETRO.

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 BOI, Prime Minister‟s Office

(5) Donor Involvement / Other Initiatives Through a joint initiative of the IFC-managed and DFID and EU-funded Bangladesh Investment Climate Fund (BICF), Business Initiative Leading Development (BUILD) was launched jointly by the Dhaka Chamber of Commerce and Industry (DCCI) in partnership with the Metropolitan Chamber of Commerce and Industry (MCCI) and the Small and Medium Enterprise Foundation (SMEF) in October 2011. BUILD is a Public Private Dialogue (PPD) platform established to facilitate structured dialogues between the public and the private sectors under an institutional framework. It features on four thematic areas – tax, SMEs, financial sector and trade and investment, backed by rigorous analysis and advocacy.

(6) Recommendations of Improvement Measures  Clarification of conditions applicable to FDIs In relation to 17 Controlled Industries for which the government is supposed to fix applicable conditions but relevant Ministries have not yet done so (e.g., Insurance Industry), relevant Ministries should enact applicable rules and conditions as soon as possible so as to reduce the room for discretion. Also, if there are such internal criteria based on which the BOI review the application for registration of retail sector FDI or any other sectors, the same should be published so as to give foreign investors greater predictability.

 Comprehensive Guidelines In Bangladesh, Reserved Industries and Controlled Industries are specified in the National Industrial Policy 2010, detailed conditions applicable to such industries are not provided for in the National Industrial Policy 2010. Therefore, foreign investors are not able to accurately understand conditions applicable to the industry in which they contemplate to invest by simply reviewing the National Industrial Policy. Therefore, a single guideline consolidating all conditions made by the government in relation to the Controlled Industries is strongly desired. For example, in India, Department of Industrial Policy & Promotion, Ministry of Commerce & Industry (“DIPP”) published “Consolidated FDI Policy” once a year which consolidates and specifies controlled industries as well as applicable conditions thereto. In case of any amendment in between publication of the Consolidate FDI Policy, DIPP timely issues a press note which details the amendment to ensure predictability of foreign investors. Of course, continuous review of the list of Controlled Industries and applicable conditions may be necessary and amendment thereof would be possible taking into changes of Bangladeshi economic, social situation into considerations. In case of amendment of applicable conditions, however, timely announcement in English is highly desired.

 Clarification as a Negative List

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“Negative List” is a list which stipulates all industries in relation to which conditions, restrictions may apply. If an industry is not included in the Negative List, that means there exist no conditions, restrictions applicable to that industry. While the National Industrial Policy 2010 lists 17 Controlled Industries, it is not clear whether this is a negative list or not. In fact, as mentioned above, there are industries which are not listed in the National Industrial Policy but restrictions may exist. Such a situation would raise concern of foreign investors as to the predictability and certainty of implementation of their investment plan. Therefore, the government could consider clarifying that the list of industries in the National Industrial Policy is a Negative List. In these days, in South and Southeast Asian countries, a majority of countries adopt Negative List. Those countries include India, Indonesia and the Philippines. (India: http://dipp.nic.in/English/Investor/FDI_Policies/FDI_policy.aspx Indonesia: http://www.bkpm.go.id/file_uploaded/PPres-36-2010.pdf Philippines: http://www.sec.gov.ph/download/Forms/foreign/6th%20FINL%20-%20sep%202013.pdf) Should Bangladesh clarifies that the list of industries included in the National Industrial Policy is a Negative List and ensures no restrictions exist in other industries, that would give greater predictability for foreign investors.

Issue 2): Virtual restrictions exist on entry of foreign capitals for garment manufacturer (issuance of UD by the BGMEA)

(1) Background/Contents/Reasons Behind The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) is the apex trade body that represents the export oriented woven, knit and sweater garment manufacturers and exporters of the country. BGMEA plays a very strong role to lead the industry in concurrence with the government, and has been authorized by the government to issue Utilization Declaration (UD) which is vital for garment manufacturers to engage in exports of their products or imports of raw materials from abroad, and to obtain Generalized System of Preferences (GSP) benefits. The fact is that foreign garment manufacturers established outside an EPZ are unable to obtain the UD, unless they become a member of the BGMEA. Required documents for application of BGMEA membership are as follows.

Table 5-25 Required Documents for Application of BGMEA Membership 1. Application for Provisional Membership 2. Membership Form 3. Registration of DOT (Department of Textile) 4. Specimen Signature of Shareholders/Proprietor with 2 Copy Photos 5. Memorandum of Articles & Incorporation Certificate 6. National ID/Passport Photocopy 7. Trade License 8. L/C of Machinery 9. Commercial Invoice

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10. Bill of Lading 11. Two Stairs & Child Labour Free Declaration (On Letter Head Pad) 12. Tin Shed Free Declaration on the Roof (On Letter Head Pad) 13. Fire License 14. TIN (Tax Identification Number) Certificate 15. Factory Deed Agreement/Land Owners Papers 16. Building Approved Plan 17. Structural Design by MIEB (Member of Institution of Engineers, Bangladesh) Certified Engineer 18. Soil Test Report 19. Factory Lay-Out Plan 20. Engg. Certificate 1. Application for Permanent Membership 2. VAT (Value Added Tax) Certificate 3. ERC (Export Registration Certificate) 4. IRC (Import Registration Certificate) 5. Worker Group Insurance Certificate 6. Bond License Source: Information obtained from BGMEA

This policy has become a burning issue when BGMEA started denying membership of foreign investors97 interested in investing garments industry – BGMEA‟s action as such has been considered as discriminatory by foreign garment manufacturers. The core problem lies on the fact that an official certificate (i.e., UD), which is imperative to import/export business activities, is handled by a private association, BGMEA which represent the interest of domestic garment manufacturers to a greater extent. In our views, such BGMEA‟s recent practice has amounted to one of non-tariff barriers for foreign garment manufacturers (including potential foreign investors).

Historical Background Between 1994-1995, UD was issued by the office of the Customs Bond Commissionerate of National Board of Revenue. However, to expedite the UD granting process, the government decided to transfer the authority of granting UD from Customs Authority to BGMEA. For reference, similar with BGMEA, Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) is also given the authority to issue UD. BKMEA takes the same position as BGMEA, denying membership of foreign investors in knitwear industry, imposing virtual restriction of entry of foreign capitals. The reason behind the problem:  The situation for which BGMEA, a private institution, has been delegated to issue an official certificate is not appropriate.

97 According to BGMEA, BGMEA welcomes foreign garment manufacturers specializing high-end products which do not compete with domestic garment manufacturers. (Source: meeting with BGMEA on 24th October, 2013.)

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(2) Description of the Relevant Regulations Not available – particular regulation/notification/order could not be identified by NBR nor BGMEA.

(3) Risk and Impact on Business The above mentioned situation has amounted to one of non-tariff barriers for foreign investors which impose virtual restrictions on their entry – without UD, foreign garment manufacturers intending to export their products while importing raw materials cannot do business in Bangladesh. The situation needs to be tackled urgently, otherwise foreign investors will be eventually excluded from garment manufacturing in Bangladesh.

(4) Concerned Ministries/Organization at stake  BGMEA  Ministry of Commerce  Foreign Export Promotion Bureau

(5) Donor Involvement / Other Initiatives The “Task Force”, a framework between Japan and Bangladesh established to tackle with concerns of Japanese investors about business environment in Bangladesh, has taken up this issue for discussion, and the Japanese side pointed out that all the rules and regulations of business should be taken and controlled by the governmental authority, not by a private institution. As a decision of the third meeting held on 9th July 2013, BOI responded that it will request the Ministry of Commerce to delegate Foreign Export Promotion Bureau the authority to issue UD for foreign investors in the relevant sector.

(6) Recommendations of Improvement Measures Short term solutions  Conduct a study of criteria regarding acceptance and rejection of BGMEA membership and clarify whether there is in fact such discretionally treatment between foreign owned companies and local enterprises. If so, the government should order BGMEA to stop such discretionally treatment or, as an interim measure, implement new regulations which authorize the Ministry of Commerce, Export Promotion Bureau to issue UD. Mid-Long term solutions  Transferring the authority to issue UD from BGMEA to the Ministry of Commerce, Export Promotion Bureau and the Export Promotion Bureau shall have authority to enact and implement such matters as may be relevant to UD.

Issue 3): Publicizing relevant laws and regulations in English through centralized system is important (1) Background/Contents/Reasons Behind Most Foreign investors cannot read or write existing laws, Notifications/SROs/Orders/Policies and other relevant regulations because most of which are printed in Bengali. Furthermore, save for limited cases, notifications of enactment/amendment of laws and regulations are notified and published only in

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Bengali without English translation, in the form of "Notification" and "Official Order" even in cases where such laws and regulations have impact on foreign investors. As a result, foreign investors may not be able to update themselves on the enactment or amendment of new laws and regulations and would discover the regulatory changes later on when they would be required to spend much time and cost to make necessary corrections and to accommodate new laws and regulations. The website of Board of Investment, being the key organization for the foreign investors; does not provide English version of all the laws/regulation that should be taken into consideration by the foreign investors. Moreover, the website does not contain all the relevant laws, which are of the interest of the foreign investors.

The reason behind the problem:  Adequate measures have not been taken by the government to ensure sufficient dissemination of the changes/establishment in legislative system.

(2) Description of the Relevant Regulations Enforcement related problem and hence not applicable.

(3) Risk and Impact on Business In the absence of English translation of existing relevant laws and regulations, foreign investors may not accurately understand the contents of applicable laws and regulations. In addition, if foreign investors are not updated on the enactment or amendment of laws and regulations in a timely manner, they would be required to spend much time and cost to readjust with new laws and regulations when they realize them. This would be disadvantageous to foreign investors in comparison with Bangladeshi competitors who could timely accommodate to new laws and regulations and increase uncertainty and unpredictability on the side of foreign investors. All of these factors would adversely affect their future business development in Bangladesh. If the situation does not improve and cost of doing business becomes too high, foreign investors may ultimately withdraw from Bangladesh in search of more investor friendly business environment.

(4) Concerned Ministries  BOI, Prime Minister‟s Office  Relevant ministries and authorities of Bangladesh

(5) Donor Involvement / Other Initiatives The “Task Force” has taken up this issue for discussion, and the Japanese side requested timely and effective circulation of important notification in English. As a decision of the third meeting held on 9th July 2013, BOI responded that it will publish the materials in English to the extent practically possible and will request relevant agencies to follow suit the matter related to foreign investment.

(6) Recommendations of Improvement Measures Short term solutions  Publicize all the important Laws/Regulations/Rules/Notifications/SROs/Orders/Policies (both English and Bengali) on BOI‟s website so that foreign investors could use BOI‟s website as a

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single reference point. Any update on the website could be marked as “new” for the ease of reference. Updating Bills or public comments for Bills would be appreciated. If timely translation is not feasible, at least publicizing outlines of such regulations would be highly appreciated. Mid-Long term solutions  Creation of a database which is easily accessible by foreign investors and contains all Laws/Regulations/Rules both in English and Bengali as part of BOI‟s website could be considered. Search function by name of laws, keywords, year of enactment and topic would be highly appreciated. Because development of these systems requires personnel who has translation skills or IT skills, reinforcing BOI‟s ability would be preferable.  Following examples show the idea of such database: Japan: (administered by the Ministry of Justice) http://www.japaneselawtranslation.go.jp/?re=02 Singapore: (administered by Attorney General‟s Chambers) http://statutes.agc.gov.sg/

Issue 4): Strengthening BOI’s one-stop service functions is critical (1) Background/Contents/Reasons Behind BOI was established by the Investment Board Act of 1989 to promote and facilitate investment in the private sector both from domestic and overseas sources with a view to contributing to the socio-economic development of Bangladesh. As an investment promotion organization, BOI is expected to provide a one-stop service to support investors. Its facilitation role includes assistance in approval and registration of all industrial projects in the private sector involving local and foreign capital which includes clearance of necessary documentation and licenses for setting up projects, with the provision of work permits, entry visas and so on. The aim was to bring all the agencies related to investors under one roof to ensure that the decisions with regard to investment that concern several different ministries would be completed by BOI itself. However, in reality, BOI could not play an effective role to provide one-stop service because of a lack of expertise and inability to cut through bureaucratic red tape. Because of lack of coordination between BOI and other relevant authorities, foreign investors have to obtain necessary clearances separately from each of the agencies which create duplication of efforts, time loss, harassment and unofficial payments. In addition, regulatory issues also exist – foreign investors are required by respective laws and regulations to acquire relevant permits and licenses from different authorities in charge. Investors also face difficulties in delays in acquiring all sorts of permissions/licenses for starting up business (such as obtaining trade license, import/export registration certificate, environmental clearance, TIN registration, factory license, fire-safety certificate, VAT registration, bond license, tax exemption certificate, etc.), limited information and data of investment statistics, and persistent problems in obtaining E-VISA and work permit, which raises investment cost and creates hassle of investors significantly.

The reason behind the problem:  BOI‟s administrative weakness (insufficient institutional capacity) and insufficient manpower (insufficient capacity of BOI officers) to function as “one-stop service” in overall investment

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procedures.  BOI‟s restriction of power to obtain related permissions/licenses from relevant authorities on behalf of foreign investors.  Laws requiring issuance of permissions/licenses from different authorities.

(2) Description of the Relevant Regulations

Investment Board Act (1989)

Functions of BOI: Among the functions of the BOI are: a. providing all kinds of facilities for the investment of local and foreign capital for rapid industrialization in the private sector b. implementation of government policy relating to investment of capital in industries in the private sector; c. approval and registration of all industrial projects in the private sector involving local and foreign capital; d. creation of infrastructural facilities for industries in the private sector; e. determination of terms and conditions for employment of foreign officers, experts and other employees necessary for industries in the private sector; f. providing necessary assistance in the financing of important new industries in the private sector; g. collection, compilation, analysis and dissemination of all kinds of industrial data and establishment of a data bank for this purpose; and h. doing such other acts and things as may be necessary for the performance of its functions.

(3) Risk and Impact on Business New foreign investors as well as existing investors are always puzzled by variety of permissions/licenses under different authorities due to BOI‟s insufficient capacity (institution and human resource), BOI‟s restriction of power to obtain related permissions/licenses from relevant authorities as well as regulatory issues requiring different authorities to issue permissions/licenses. Bangladesh will eventually lose its attractiveness as an investment destination from foreign investors if such high cost of doing business cannot be reduced. Therefore, BOI must be made more effective in order to attract more FDI and to retain the existing investors.

(4) Concerned Ministries  BOI, Prime Minister‟s Office  Ministries and Agencies concerned for issuing related licenses and permits

(5) Donor Involvement / Other Initiatives The “Task Force” has taken up this issue for discussion, and the Japanese side requested BOI to strengthen one-stop service function for important/major permissions granted by respective authorities for starting up business by foreign business entities. As a decision of the third meeting held on 9th July 2013, BOI responded that it will request agencies concerned to depute their officers to sit in BOI so that the investors‟ needs can be addressed from BOI‟s end.

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Comprehensive support to BOI is provided through a joint initiative of the IFC-managed and DFID and EU-funded BICF. BOI is also taking initiative to have a representative of Ministry of Home Affairs in their office in order to expedite the process of obtaining security clearance for the expatriate which is necessary to obtain work permit.

(6) Recommendations of Improvement Measures Short term solutions  Develop one stop service center within BOI – bringing in officers of relevant ministries and authorities under one roof to expedite services required by foreign investors (information gathering, consultation, application/update of approvals and licenses). Representatives from following ministries and authorities could be the first candidates to be stationed in BOI: - Ministry of Home Affairs (Security Clearance) * Note: As mentioned above, BOI is taking initiative to have a representative of Ministry of Home Affairs in their office - NBR (Taxpayer Identification Number , VAT Registration Certificate, Bond License) - Department of Environment (Environmental Clearance Certificate) - Chief Controller of Imports and Exports (Import Registration Certificate, Export Registration Certificate)  For reference, in Myanmar, Directorate of Investment and Company Administration (DICA) opened one-stop service for foreign investors in Yangon in April 2013. DICA provides consultation and advice to investors, and help them with company registration and investment proposals. Representatives from relevant ministries and departments are stationed at the center. These include the Ministry of National Planning and Economic Development, Ministry of Commerce, Customs Department, Department of Immigration and National Registration, and Ministry of Labour, Employment and Social Security. Mid-Long term solutions  Introduce online central registration system for foreign investment related approvals/licenses.  Streamline/simplify necessary documentation for application of foreign investment related approvals/licenses.  Develop BOI‟s administrative capacity and human resources to strengthen coordination mechanism with relevant ministries and authorities.

Issue 5): Difficulty in identifying the chain of title and ownership of land (1) Background/Contents/Reasons Behind Limited availability of lands suitable for manufacturers is one of major constraints for foreign investment in Bangladesh. As the EPZs nearby Dhaka or Chittagong are almost fully occupied and development of SEZ is still at an early stage, foreign investors, especially, foreign manufacturers are having trouble in finding suitable lands.

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Even if they can find suitable lands, identifying ownership of the lands is another issue. The ownership of lands tends to become fragmented as lands are inherited equally among male descendants as per Religious laws. Further, due to complexity and insufficiency of the land registration system in Bangladesh, identifying the chain of title and ownership of the land in question is almost always complicated and difficult task. For instance, the service of Land offices is very poor, slow and sometimes corrupted. In other words, the activities of Land offices in Bangladesh are not conducted in accordance with the due procedures as should be followed. Land Records are kept manually and there is no centralized administration system dealing with land records. Manual registration system would worsen the corruption issue. There are 63 Sub-Registrar Offices in Bangladesh of which 5 are located in Dhaka. For registering a property, the Party purchasing the land has to go to several Sub-Registrar Land Offices as the district boundary is not entirely clear.

Table 5-26 Land Purchasing Process Steps Task Office Required time Step 1: Verifying the title and Tashil Office or Assistant Approximately 60 Searching ownership of the Land. Commissioner (Land) Office. days (If verification cannot be done then the applicant may go to relevant Office of the District Commissioner) Verifying the tax related Land Revenue Office. information concerning the land. Verifying the Deed of the Sub- Registry Office. Land to confirm the authenticity of the Deed, itself; and also to check whether there is any lien or mortgage on the Land. To check if the concerned  Rajdhani Unnayan Land is under any Kartripakkha (RAJUK) development project of any  National Housing Authority of the three authorities NHA  Municipality Office Step 2: To register the earnest money Land Registry Office 1 day. Earnest contract (known as Baina) Money where the parties enter into Contract an initial contract paying an amount of the purchasing price in advance Step 3: To register the transfer deed Land Registry Office 1 day. Transfer of the purchased property. deed

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Steps Task Office Required time Step 4: Mutation Tashil Office No time period can Updating be specified. Record Revenue record update by Land Revenue Office No time period can way of registration. be specified. To update the record of the  Rajdhani Unnayan No time period can concerned Land, if the land is Kartripakkha (RAJUK) be specified. under any development  National Housing Authority project of any of the three NHA authorities.  Municipality Office

The reason behind the problem:  Although laws and regulations exist, implementation/enforcement does not take place as stipulated.

(2) Description of the Relevant Regulations Land Registration Amended Act (2004) not publically available in English.

(3) Risk and Impact on Business The above mentioned situation creates a lot of confusion for foreign investors when they seek to purchase/lease lands outside industrial estates. In particular, given the fact that there is virtually no plot available in EPZs near Dhaka or Chittagong and SEZs still need a long development process, the transparent and efficient land registration system should be urgently established so that foreign investors can easily access the proper and accurate information of land ownership.

(4) Concerned Ministries  Land Survey Tribunal  Land Office or Land Revenue Office, Ministry of Land  Sub- Registrar Office, Ministry of Law, Justice and Parliamentary Affairs

(5) Donor Involvement / Other Initiatives Asian Development Bank (ADB) is providing TA (“Improving Public Administration and Services Delivery through e-Solutions”) to Heads of Departments of Ministry of Land to prepare ICT Strategy and roadmap development for computerized land administration and integrated land information system.

(6) Recommendations of Improvement Measures Short term solutions  An on-going Technical Assistance Project conducted by ADB: Improving Public Administration and Services Delivery through E-Solutions (April 2013-March 2015), can be referred. This ADB TA supports government‟s initiative to promote “Digital Bangladesh”

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through developing an ICT master plan for a digital land management system (DLMS) guided by international experience. The TA will (i) support extending e-services with last mile connectivity in a selected district, (ii) pilot several e-services in selected unions and public institutions, (iii) improve the grievance redress system (GRS), and (iv) develop an ICT master plan for a DLMS.98 It is expected that concrete strategy will be in place that will become basis for introducing online central land registration system. Mid-Long term solutions  Mobilize following inputs/resources in order for introduce online central land registration system: ･ Develop/deploy necessary facilities and systems. ･ Strengthen institutional capacity of Land offices. ･ Develop capacity of Land officers.

Issue 6): Issues related with approval requirements by the BSEC (Bangladesh Securities and Exchange Commission) need reconsideration (1) Background/Contents/Reasons Behind The Companies Act (1994) recognizes three types of companies: companies limited by guarantee, companies limited by shares and unlimited companies. Companies limited by shares are divided into private limited companies and public limited companies. BSEC, the supervisory authority of the capital markets and listed companies established by the Securities and Exchange Commission Act 1993, imposes certain obligations when a company‟s paid up capital exceed prescribed amount as follows.  Requirement to obtain approval from the BSEC For private companies, there is no restriction on the amount of the paid up share capital nor requirement to obtain approval from the BSEC. However, if the paid up share capital exceeds BDT 100 million, BSEC approval is required.  Conversion to Public Limited Company When the paid up share capital of a private company exceeds BDT 400 million, such private company must be converted to public company unless it obtains waiver for a certain period from the BSEC.  Initial Public Offering (IPO) Requirement Once the paid up share capital of a public company exceeds BDT 500 million, then the public company is required to list their shares on the stock exchange of Bangladesh. Again, if waiver is obtained by the BSEC, then listing shares on the stock exchange (i.e. IPO) is not required.

These unique regulations, have been criticized and considered as irrational by foreign investors as they restrict their freedom to inject additional capitals while maintaining the status as private company. In light of the fact that the said policy seems to have lost rational behind it and BSEC in fact granted waiver in a number of cases, BSEC should revisit the rational of this policy and reconsider regulations as such that would obstruct free economic activities of foreign investors.

98 Source: ADB Technical Assistant Report

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Historical Background The regulations of BSEC were introduced as part of BSEC‟s effort to reinforce their policy that once a company grows to a certain level, that company should go public and if required, should go for IPO. This requirement of obtaining an approval from the Securities and Exchange Commission (Bangladesh) facilitates having a control mechanism on the company governance of the Private Companies.

The reason behind the problem:  Contents of regulations are improper as these limit/restrict the foreign investors‟ freedom to inject capitals upon or after incorporation of a private company without government intervention.

(2) Description of the Relevant Regulations  Securities and Exchange Commission Act (1993) – refer to the above information for the description

(3) Risk and Impact on Business The BSEC regulations unduly hinder foreign investors‟ freedom to decide the amount of share capital they inject. Especially for foreign manufacturers, having paid up share capital of BDT 500 million is not unusual case. While waiver has been granted in a number of cases in practice, if there is a possibility of listing shares in Bangladesh however slight, foreign investors would be reluctant to invest in Bangladesh. Equally, unwanted conversion to public companies would raise cost of doing business to a significant extent.

(4) Concerned Ministries  BSEC, Ministry of Finance

(5) Donor Involvement / Other Initiatives ADB has provided support to develop capital market in Bangladesh through Capital Market Development Program. The program components include (i) strengthened market stability by enhancing BSEC‟s role to develop the market, promoting financial stability through joint supervision of the financial system, strengthening regulatory measures, and developing a market surveillance system; (ii) enhanced market facilitation by developing a long-term vision for capital markets, upgrading accounting and auditing standards, expediting adjudication of enforcement actions, improving governance of listed companies, and pursuing demutualization of the stock exchanges; (iii) enhanced supply of equities and bonds; and (iv) enhanced demand for equity and debt securities.

(6) Recommendations of Improvement Measures Short-term solutions Bangladesh could immediately abolish the relevant regulations which mandate a) BSEC‟s approval when a private company‟s paid up share capital exceeds BDT 100 million, b) converting a private company to a public company when the paid up share capital exceeds BDT 400 million and c) mandating listing shares on stock exchanges when its paid up share capital exceeds BDT 500 million.

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Those regulations were introduced as part of BSEC‟s effort to reinforce their policy that once a company grows to a certain level, that company should go public. Substantial investments by foreign investors in the form of share-capital would encourage more capital investment and therefore preferable to Bangladesh. While the above regulations allow exemptions by BSEC of the application of those regulations, as the criteria for giving such exemptions are not clear, foreign investors may not able to inject capital in a timely manner even in cases where substantial amount of fund raising (for instance, construction of a factory) is necessary. In addition, in light of the fact that BSEC has generally given exemptions in a number of cases unless extreme circumstances involve, revisit of the rational of this policy and reconsideration of such policy would be necessary. Even if BSEC abolishes said regulations, it may continue to implement policies to develop the capital market in Bangladesh by, for instance, establishing another section for emerging venture companies, exemption of listing regulations to emerging companies. In terms of governing a company which grows to a certain level, in case of a private company with a limited number of shareholders, management and shareholding is not separated. Therefore, the need of protecting shareholders is not as high as the case of public companies and protection of employees could be done through labor laws. These unique regulations, however, have been criticized and considered as irrational by foreign investors as they restrict their freedom to inject additional capitals while maintaining the status as private company. In light of the fact that the said policy seems to have lost rational behind it and BSEC in fact granted waiver in a number of cases, BSEC should revisit the rational of this policy and reconsider regulations as such that would obstruct free economic activities of foreign investors.

Issue 7): NBR (National Board of Revenue) requirements for prior registration of “selling price” for goods to be sold in domestic market need reconsideration (1) Background/Contents/Reasons Behind Value Added Tax Act (1991) 14. (4) (a) stipulates following as “Obligations of registered persons.” A registered person who manufactures goods shall, in the manner and mode prescribed by the NBR, submit to the Divisional Officer sufficient information to enable the officer to ascertain at any time while the person is registered—the current price at which the person sells the products it manufactures. The linkage with the VAT Act (1991) in this connection is not confirmed as of yet but interviews with foreign manufacturers operating in Bangladesh have revealed that the NBR requirement for prior registration of “selling price” for goods to be sold in domestic market is regarded as one of critical business obstacles. This is because VAT is calculated based on the registered “selling price” regardless of actual price sold in the market. This situation places limitations on the freedom of setting strategic selling prices by companies selling products in Bangladesh.

Historical Background For the VAT purposes it is required to register the selling price of the goods or services at the NBR. VAT is calculated on that registered selling price. Such requirement of registering the “selling price” facilitates the NBR Authority to keep a record for the purpose of anticipation of future income from

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VAT. Besides, it helps the NBR Authority to verify and scrutinize whether anyone is avoiding the VAT payment.

The reason behind the problem:  Onerous requirement imposed by the NBR to register “selling price” which shall be used as the base for calculating VAT.

(2) Description of the Relevant Regulations  Value Added Tax Act (1991) – refer to the above information for the description

(3) Risk and Impact on Business The above mentioned situation creates a lot of confusion for foreign investors selling products in Bangladesh as to how the investors should determine the strategic pricing of their products. In case the actual selling prices deviate from the registered selling prices, discrepancy in the accounting system would be created and effective VAT tax rate would be much higher than the nominal VAT tax rate, and investors would have to bear unintended loss of profit.

(4) Concerned Ministries  NBR, Ministry of Finance

(5) Donor Involvement / Other Initiatives The new VAT law, which will replace the current VAT Act (1991), is now under preparation with the IMF support (IMF‟s Technical Assistance to the NBR), and the new law is expected to be implemented by July 1, 2015.

(6) Recommendations of Improvement Measures Short term solutions  Conduct studies on: i) standard international practices, and ii) current business practices in neighboring countries / ASEAN countries for VAT calculation to understand their actual situation. For reference, following table shows the current VAT calculation arrangements in Thailand, Philippines and Vietnam:

Table 5-27 VAT Calculation Arrangements in Thailand, Philippines and Vietnam Country VAT Arrangements VAT Remark (basis for calculation) Rate

Thailand Tax invoice for each transaction 7%

Philippines Total sales price 12%

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Country VAT Arrangements VAT Remark (basis for calculation) Rate

Vietnam Sales price/purchase price 10% 5% for daily necessities, offsetting shown in the invoice possible against purchase price

Source: JETRO

Mid-Long term solutions  Amend the VAT Act (1991), reflecting standard international practices for VAT calculation so that the expected new VAT law will include provision(s) to ensure VAT is calculated based on actual price sold in the market.  Consider possibility to incorporate in the new VAT law regarding VAT arrangement to allow offsetting sales against purchase as in the case in Vietnam.  Strengthen capacity of tax officers for VAT calculation for them to understand the principles of VAT system in terms of legal, administrative and technical aspects in line with standard international practices.

Issue 8): Restrictions on foreign currency borrowing for the purpose of securing necessary working capital need reconsideration (1) Background/Contents/Reasons Behind Non-EPZ industrial enterprises (local, foreign or joint venture) need prior approval for foreign currency borrowings, which is cumbersome. BOI Handbook & Guidelines (2012) 4.5 (c) provides, “Entrepreneurs in the private industrial sector arranging foreign credit in the form of loan, suppliers’ credit, PAYE scheme etc. are required to obtain prior approval from the Scrutiny Committee headed by Governor of Bangladesh Bank. However, all necessary processes are completed by an Inter-Ministerial Committee with representative of Prime Minister’s Office, Ministry of Finance and Ministry of Industries.” It is very difficult to fulfill following borrowing terms in which approval for foreign currency borrowing can be granted relatively easy from the Scrutiny Committee:  The effective rate of interest should not exceed LIBOR+ 4% (effective interest is the sum of the stated annual rate of interest and the annualized fees such as commitment fee, syndication fee, front-end fee, project appraisal fee etc.)  The down payment, if any, in case of suppliers‟ credit should not exceed 10% of the credit amount  Repayment period should not be less than 7 years. As per stipulated in the BOI‟s Procedure and Guidelines for approval of Foreign Private Loan, “utilization of foreign loan proceeds is not permitted exclusively for working capital purpose and investment in capital market by corporate.” Such restrictions would become significant obstacle for foreign investors to do business in Bangladesh.

Historical Background

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The reasons why Bangladesh Bank restricts foreign currency borrowing are to prevent exchange rate risks, control inflation rate and also to help the local banks.

The reason behind the problem:  Criteria for acquiring prior approval for foreign currency borrowings are unclear since the guidelines prescribed in Notification No. BOI/R&IM1/4(39)/81(Part)/1209 of BOI are not entirely clear and, therefore, decision by the Scrutiny Committee may become discretionary.  Onerous requirement imposed by the BOI which restrict foreign investors‟ usage of foreign currency borrowing.

(2) Description of the Relevant Regulations  BOI, Procedure and Guidelines for approval of Foreign Private Loan: 10. Foreign Borrowing Procedures and Guidelines – refer to the above information for the description

(3) Risk and Impact on Business The above mentioned regulatory uncertainty reduces foreign investors‟ predictability of doing business in Bangladesh. In addition, it will hamper quick decision making and response to ever changing market situation. Such business environment would raise investment risk and discourage foreign investment to the point where Bangladesh will lose its attractiveness as an investment destination from foreign investors.

(4) Concerned Ministries  BOI, Prime Minister‟s Office  Bangladesh Bank

(5) Donor Involvement / Other Initiatives The issue is expected to be taken up for discussion in the forthcoming “Task Force”, with the aim to tackle with some common constraints for Japanese investors to Bangladesh. The World Bank, co-financed with DFID, provided assistance to the BOI for its institutional strengthening through Enterprise Growth & Bank Modernization Project implemented from June 2004 to December 2010.

(6) Recommendations of Improvement Measures Short term solutions  Clarify the criteria for acquiring prior approval for foreign currency borrowings.  Relax borrowing terms in which approval for foreign currency borrowing can be granted relatively easy. Mid-Long term solutions  Relax restrictions on foreign currency borrowing for the purpose of securing necessary working capital s – especially, for loans from parent company abroad should be allowed.

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 For reference, Reserve Bank of India (RBI) has liberalized the end-use provisions of External Commercial Borrowing (ECB) and permitted ECB for general corporate purpose under approval route subject to conditions. < ECB Norms Eased in India >  ECB Guideline modified and came into force from 4th September, 2013  Eligible Indian borrowers can avail ECBs under the approval route from their foreign equity holder company with minimum average maturity of 7 years for general corporate purposes subject to the following conditions:99 - Minimum paid-up equity of 25% should be held directly by the overseas lender; - Such ECBs would not be used for any purpose not permitted under extant the ECB guidelines (including on-lending to their group companies/step-down subsidiaries in India); and - Repayment of the principal shall commence only after completion of minimum average maturity of 7 years. No prepayment would be allowed before maturity.

Issue 9): Restrictions on non-trade remittance in foreign currency (service fees etc.) need reconsideration (1) Background/Contents/Reasons Behind The government restricts outward remittance for non-trade transactions. Foreign Exchange Transaction Guideline (2009), Chapter 10, Rule 25 regulates “remittance of royalty and technical fees” as follows. No prior permission of the Bangladesh Bank or BOI is required by the enterprises for entering into agreement involving remittance of royalty, technical knowhow or technical assistance fees, operational services fees, marketing commission etc. if the total fees and other expenses connected with technology transfer do not exceed the following limits: (a) for new projects, not exceeding 6% of the cost of imported machineries; (b) for ongoing concerns, not exceeding 6% of the previous years' sales as declared in the income tax returns. These agreements, however, need to be registered with BOI. Foreign investors consider the upper limit percentage (6%) of remittance very strict and would like this bar to be raised. Foreign startup companies in Bangladesh often receive technical assistance from their parent company or other group companies. However, especially during the startup period, most companies‟ sales tend to be low and hence the above 6% ceiling would not be sufficient to cover the value of technical services provided by the parent company or other group companies. In fact, there are occasions where more than 6% is allowed on a case by case basis, however, their specific conditions are not made clear. In addition, some banks do not allow remittance of royalty and technical fees even for cases which comply with the 6% ceiling requirement without providing clear reasons.

Historical Background

99 Source: JETRO

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The reason why Bangladesh Bank does not encourage non-trade remittance in foreign currency or imposes strict requirements is essentially to enhance its foreign currency reserves and to prevent money laundering activities.

The reason behind the problem:  Contents of the regulation are improper as to the fact that it is hindering outward remittance.  Operational issues exist since some banks do not allow remittance of royalty and technical fees even for cases which comply with the 6% ceiling requirement.

(2) Description of the Relevant Regulations  Foreign Exchange Transaction Guideline (2009): Chapter 10, Rule 25 – refer to the above information for the description

(3) Risk and Impact on Business The above mentioned situation restricts business activities of foreign investors. In particular, it is hampering smooth technical support activities from group companies which should be encouraged as means to transfer cutting edge technology to Bangladesh, which would eventually raise investment risk and discourage foreign investment. Unless otherwise flexible measures are introduced, Bangladesh will lose its attractiveness as an investment destination from foreign investors.

(4) Concerned Ministries  BOI, Prime Minister‟s Office

(6) Recommendations of Improvement Measures Short term solutions  Strengthen monitoring and guidance to commercial banks to avoid operational issues.  Strengthen coordination between BOI and Bangladesh Bank. Mid-Long term solutions  Relax provisions in the Foreign Exchange Transaction Guideline by raising the upper limit percentage of remittance for royalty and technical fees  For reference, as practices in other countries, India, Thailand and Malaysia do not have restriction on outward remittance.

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Issue 10): Bonded warehousing system (strict restrictions on the percentage of domestic sales allowed) need reconsideration (1) Background/Contents/Reasons Behind Bonded Warehouse Licensing Rules (2008) stipulates rules for providing bonded warehouse licenses, its supervision and matters related therewith. A majority of the bond license is issued by the Customs Bond Commissionerate (CBC), an agency under the purview of the National Board of Revenue (NBR). The license allows industries outside the EPZs to enjoy duty-free incentives through these bonded warehouses, as long as imported materials are used for producing exported goods. Bond license is approved to 100% export oriented companies but only in limited industries including garments, leather and shoes. Required documents for application of bond license are as follows.

Table 5-28 Required Documents for Application of Bond License 1 Application on Standard Format with appropriate revenue stamp 2 BOI/BSCIC Registration 3 Company TIN and Certified copy of wealth statement issued by Income Tax Department (IT-10B) for all directors/owner 4 Updated Trade License 5 Updated Fire License 6 Value added tax (VAT) Registration certificate (Business Identification Number- BIN) 7 Recommendation by concerned business association (if applicable). If applicant is not member of association, he can apply without recommendation for Bond License. 8 Name, Designation, present and permanent address, signature and photo attached/put on non-judicial stamp of value BDT 300/- of owner/directors. It should be duly notarized by competent authority and be attested by the lien bank(s). 9 Boiler certificate (if applicable) 10 One original copy of Memorandum and Article of Association and Certificate of Incorporation issued by RJSC&F (if applicant is a company) 11 Purchase document for machinery. Invoice and Bills of Entry for import and VAT invoice (Challan) for local purchase. 12 Two copies of layout plan of factory. It could be ammonia printed and duly signed by registered engineer. 13 Deed of land/space ownership or Duly notarized Rental deed (in case of rental space) 14 Affidavit (Halafnama) to follow the law, rules and procedures on non-judicial stamp of value BDT 300/- by Managing Director/Proprietor/Sole Partner. It could be duly notarized by competent authority. 15 Certificate from lien bank(s) that the applicant has financial strength to submit General Bond of appropriate amount of money. 16 License fee of BDT 10,000/- Source: CBC website (http://www.cbc.gov.bd/images/document/required%20documents_en1.pdf)

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It is apparent that a large number of documents is required to be submitted in order to obtain a license. Many of the documents are time consuming to obtain. Recommendation from BOI is time consuming as well. Further, the requirement to renew license annually is cumbersome and costly.

As part of the incentives to 100% export oriented industries, following measures are allowed:  10% products of the enterprises, located in both public and private EPZs are allowed to be exported to domestic tariff area (DTA) against foreign currency L/C on payment of applicable duties and taxes.  100% export-oriented industry outside EPZs is allowed to sell 20% of their products in the domestic market on payment of applicable duties and taxes. However, foreign investors consider these percentage caps very strict and would like them to be relaxed so that they are allowed to sell more products in the domestic markets while taking advantage of the duty-free bonded warehouse system. Further, more industries should be eligible for bonded warehouse so as to attract more foreign investments. Since domestic sales made by companies utilizing the bonded warehouse system are always subject to duties and taxes, the government would be able to increase its tax revenues by relaxing the restrictions.

The reason behind the problem:  Contents of regulation are too strict in the first place.

(2) Description of the Relevant Regulations  BOI Handbook & Guidelines (2012) stipulates incentives to export-oriented and export-linkage industries including abovementioned measures.

(3) Risk and Impact on Business The above mentioned situation will discourage potential foreign investors, who intend to explore business in both domestic and foreign market, to come to Bangladesh for manufacturing and sales of their products. ASEAN countries such as Indonesia, Thailand and Malaysia allow higher proportion of sales to domestic market for companies utilizing bonded facilities. In these countries, not only foreign investors but also domestic industries reap the benefit of economic growth.

(4) Concerned Ministries  NBR, Ministry of Finance  Customs Bond Commissionerate, Dhaka

(5) Donor Involvement / Other Initiatives An Administrative Barriers Review was conducted in 2006 as one components of a larger series of joint SEDF-FIAS projects which were completed as part of the design phase of the planned World Bank-led, multi-donor-funded Bangladesh Private Sector Development Support Project (PSDSP).

(6) Recommendations of Improvement Measures

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Short term solutions  Conduct studies on bonded warehousing system in neighboring countries/ASEAN countries to understand the actual conditions for accessing the facilities, from investment promotion perspective.  For reference, following table shows the required percentage of export eligible to access bonded warehousing facilities in Indonesia, Philippines, Thailand and Malaysia:

Table 5-29 Required Percentage of Export Eligible to Access Bonded Warehousing Facilities Country Required Percentage of Export Remark

Indonesia 75% or more

Philippines 70% or more

Thailand Bank guarantee not required

Malaysia 80% or more

Source: JETRO, ASEAN Center

Mid-Long term solutions  Gradually relax percentage cap for domestic sales for 100% export oriented companies.  Relax the percentage cap only to export oriented companies with excellent track record.  Consider easing conditions on bank guarantee to access the facilities as in the case in Thailand.  Further relax percentage cap for domestic sales for enterprises in SEZ (in connection with SEZ law under preparation).  Expand the types of industries eligible for accessing bonded warehouse facilities (open up to industries other than garments, leather and shoes).

Issue 11): Customs valuation tends to be conducted based on market value which is higher than the real value (1) Background/Contents/Reasons Behind The effectiveness and efficiency of the customs may significantly affect the cost of doing business for foreign investors. Customs valuation should always be fair, uniform, accurate and transparent so that it does not become a non-tariff barrier to international trade. However, there seems to be little consistency in import duty (as regards the applicable rate, HS Code and assessed taxable value) in Bangladesh. Although an automatic calculation system for valuation of customs duty on every product that is imported into Bangladesh was introduced, the assessable value set by the customs officers are being determined at their discretion without referring to reliable sources. While there is a system to make an objection to the decision of the customs, it would not be a practical option – it takes long time and huge cost to appeal to the competent tribunal. As such, investors have pointed out issues related with customs valuation as serious bottleneck to their business and emphasized the necessity to tackle the issues urgently.

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The reason behind the problem:  The provisions of the laws and regulations are not clear and hence administrative discretion applies.  Sometimes it is practice oriented problem.

(2) Description of the Relevant Regulations Customs Act (1969)

25. (1) Whenever customs-duty is leviable on any goods by reference to their value, the actual price, that is, the price actually paid or payable, or the nearest ascertainable equivalent of such price, at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in course of international trade under fully competitive conditions, where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for sale or offer for sale, shall be the value.

(3) Risk and Impact on Business Inconsistent customs valuation entails huge risk to become non-tariff barrier for foreign investors, which will also impose higher business cost to investors. Unless otherwise tackled urgently, Bangladesh will eventually lose its attractiveness as an investment destination from foreign investors.

(4) Concerned Ministries  Customs Valuation and Internal Audit Commissionerate under the NBR, Ministry of Finance  Office of the Chief Controller of Imports and Exports, Ministry of Commerce

(5) Donor Involvement / Other Initiatives The IMF is providing Technical Assistance to the NBR in drafting a plan for introducing and operationalizing the new VAT law which includes customs valuation. (The new VAT law is expected to be introduced by July 1, 2015.) Customs Valuation and Internal Audit Commissionerate is updating valuation database to improve the accuracy of customs valuation and to meet purposes including the following:  To monitor usage of valuation database;  To respond field level queries about valuation database; and  To prepare guideline about usage of valuation database.

(6) Recommendations of Improvement Measures Short term solutions  Strengthen capacity of front-line customs officer for them to understand the principles of customs system in terms of legal, administrative and technical aspects in line with standard international practices. Mid-Long term solutions

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 Based on the new VAT law, prepare and enact rules/orders/technical guidelines specifically for customs valuation in line with WTO customs valuation.  For reference, Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 stipulates as follows:  Basis for valuation of goods for customs purposes should, to the greatest extent possible, be the transaction value of the goods being valued  Customs value should be based on simple and equitable criteria consistent with commercial practices and that valuation procedures should be of general application without distinction between sources of supply  Establish a comprehensive database of market values based on reliable sources and update timely to reduce room for administrative discretion.

Issue 12): Requirements for local employees mandating employment of extraneous local workers need reconsideration (1) Background/Contents/Reasons Behind BOI Guideline (2011), Rule 6 (c) provides the following instruction that have to be followed for approval of work permits. “Employment of expatriate in an industrial undertaking should not exceed the ratio of 10:1(local: foreign) project implementation period and 20:1 (local: foreign) during regular operational period. In case of a commercial enterprise & educational institute, including the top management, the ratios should not exceed 5:1 (local: foreign) & 10:1 (local: foreign) respectively. But this provision can be relaxed on a case by case basis if there is enough justification. Investors however will not be bound by this constraint.” The requirement for obtaining post registration approval in this regard is to some extent clear, however, it is sometimes difficult for foreign investors to follow the guideline. While the guideline mentions possibility of relaxing the requirement on a case by case provided that enough justification is made, specific criteria are not stipulated in the guideline. This leaves room for BOI‟s discretion, creating unclear enforcement on the ground.

The reason behind the problem:  Onerous requirement imposed on investors who intend to employ foreign national.  Contents of regulation are unclear, therefore creating room for administrative discretions.

(2) Description of the Relevant Regulations  BOI Guideline (2011): Rule 6 (c) – refer to the above information for the description

(3) Risk and Impact on Business Liaison offices are not always possible to maintain the 5:1 ratio of foreign and local staff depending on the nature of work of an office. A rigid application of the regulation will increase business cost for investors, thereby discourage FDI to Bangladesh in the long run.

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(4) Concerned Ministries  BOI, Prime Minister‟s Office

(5) Donor Involvement / Other Initiatives The “Task Force” has taken up this issue for discussion, and the Japanese side requested for relaxation of the requirement depending on the nature of work especially for liaison offices. As a decision of the second meeting held on 20th March 2013, BOI responded that it can follow the existing rules/principles. BOI also replied that all rules cannot be changed or abandoned simply to suit the conveniences of one party, and that those doing business in Bangladesh have to submit to the valid regulations of the state. Through a joint initiative of the IFC-managed and DFID and EU-funded BICF, BUILD was launched jointly by the DCCI in partnership with the MCCI and the SMEF in October 2011. BUILD is a PPD platform established to facilitate structured dialogues between the public and the private sectors under an institutional framework. It features on four thematic areas – tax, SMEs, financial sector and trade and investment, backed by rigorous analysis and advocacy.

(6) Recommendations of Improvement Measures Mid-Long terms solutions  Proper and closer attention to employment of locals itself should be respected, but the reasonableness of the measure to implement such policy by way of equally applicable mandatory local employment requirement could be revisited. In certain industries, there may be a situation where a foreign investor may not able to contribute to the enhancement of local employment but could contribute to Bangladesh as a whole in a difference way such as transfer of technology. Therefore, to give flexibility, following amendments could be considered. - Abolish the minimum local employment requirement. Instead, give incentives depending on the number of local employees such as allowing greater amount of deduction of employee training expenses from taxable income than usual and thereby facilitate local employment and transfer of technology. - Exempt certain foreign employees who satisfy certain criteria such as the amount of monthly salary, knowledge, experience and expertise in certain area from local employment requirement. This would facilitate bringing more competent foreign workers to Bangladesh and transfer knowledge, experience and expertise from those foreign workers to Bangladeshi locals. - For instance, in India, there used to be a regulation that the ratio of foreign employees should be less than 1% of the total employees and shall not exceed 20% of all of the employees. However, such regulation was abolished and now any foreign employees whose annual salary exceeds 2 million USD may be employed without such restriction. - To take another example, in Singapore, labor laws categorize employees depending on industries, position, expertise and monthly salary. The government of Singapore relaxes regulations on employment of those who has knowledge, experience and expertise and whose salary is not competitive with local workers and thereby facilitates employment of skilled foreign employees. On the other hand, it balances the interest of locals by

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imposing foreign worker levy and contributes to Skills Development Fund depending on the number of foreign unskilled workers. These measures may be considered by Bangladesh. - Strengthen government sponsored industrial and engineering training institutions, improve skills of locals and thereby increase the number of locals who have knowledge, expertise that is in need by foreign investors. In doing so, contribution by foreign investors could be considered. Short term solutions  Clarify requirement to be exempted from the local employment requirement or give examples where the BOI granted exemptions to give predictability to foreign investors.

Issue 13): Public-Private Partnership (PPP) Act not in place (1) Background/Contents/Reasons Behind The government has been suffering from structural budget deficit for a long time. Although the government has been trying to invest in infrastructure such as transportation, power and water sector, it is very difficult to finance by the government itself. On the other hand, economic and business activities have been constrained by the bottle neck of shortage of electricity and gas as well as chronic congestion in large cities such as Dhaka and Chittagong. The PPP law in Bangladesh has not been enacted yet, but it has been under the process of preparation, by using British PFI law as a model. As for the executing agency in the government, PPP Office has been established in Prime Minister Office in 2010. It has been engaging in reviewing of PPP project proposed by each Ministry, consulting and supporting of finance. As far as priority sector is concerned, 18 sectors such as various types of infrastructure, environmental protection, tourism, and ICT. However, up to now, only two elevated expressways in Dhaka and JATRIBALI-GULISHTAL have been completed. Although other projects such as Deep Sea Port, International Airport, Padma Bridge, Mongla Sea Port, and Shonadia LNG Plant have been listed as candidates, private investors have been hesitating to participate because of unforeseen risks due to insufficient development of PPP related law and regulations. In addition, since the government has decided that it would not develop Export Processing Zones (EPZs) further and determined to develop Special Economic Zones (SEZs) by PPP scheme instead. Therefore, it is urgently required to develop PPP law to enhance SEP development by private sector.

Historical Background The Private Sector Infrastructure Guidelines (PSIG) which has been issued in 2004 by the Cabinet Division in Bangladesh used to be the guideline for implementation of the PPP Projects. However, since it was not an enacted legislation of the Parliament and as it was in contradiction with some of the provisions of Public Procurement Act 2003 (PPA), in 2006, the Public Procurement Act 2006 was enacted to formulate a separate PPP Guideline. Rule 129 of Public Procurement Rules 2008 (PPR 2008) and section 66 of PPA 2006 (provision regarding concession contracts) act as the basis for PPP project implementation and contract execution.

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Section 66 of PPA 2006 and Rule 129 of PPR 2008 both form part of the miscellaneous section of the respective Act and Rule. Thus to ensure a broader guideline, Policy and Strategy for PPP, 2010 was developed.

The reason behind the problem:  No Act of Parliament exists which solely deals with the PPP issues

(2) Description of the Relevant Regulations Policy and Strategy for Public Private Partnership (PPP) (2010)

Guideline for Viability Gap Financing(VGF) for Public Private Partnership (PPP) Project (2012)

Applicability of PPP: a. Applicability of PPP: Any project that generates public goods and services may be considered under the public-private partnership, if at least one of the following circumstances exists for the project: i. The implementation of the project is difficult with the financial resources or expertise of the government alone; ii. Private investment would increase the quality or level of service or reduce the time to implement compared to what the government could accomplish on its own; iii. There is an opportunity for competition, where possible, among prospective private investors, which may reduce the cost of providing a public service; iv. Private investment in public service provides an opportunity for innovation; v. There are no regulatory or legislative restrictions in taking private investment in the delivery of public service. b. Non-applicability of PPP: The following action/activities will not fall under the PPP purview : i. Outsourcing of a simple function of a public service; ii. Creating a government owned enterprise (State Owned Company); and iii. Borrowing by government from the private sector.

(3) Risk and Impact on Business If PPP law will not be enacted, structure of risk sharing between public and private continues to be unclear, which will discourage private investment to infrastructure development, thereby infrastructure shortage issues remain unresolved and may give negative impact on economic growth of the country.

(4) Concerned Ministries  PPP Office, Prime Minister‟s Office  PPP Unit, Finance Division,

(5) Donor Involvement / Other Initiatives World Bank and ADB have been supporting the capacity development of PPP Office and PPP law.

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(6) Recommendations of Improvement Measures As mentioned above, it has become critical to develop PPP related law to facilitate private sector‟s finance and knowhow by reducing investment risks.

Short-term Solutions  First of all, the government needs to study the PPP‟s legal system and case studies of good practices in Asian countries. For example, the government‟s support measures for PPP (BOT) projects in some countries are shown in the table below.

Table 5-30 Government’s Support Measures for PPP (BOT) Projects in Some Asian Countries Category Gov’t support Vietnam India Philippines Finance Maximum financial 30% (PPP) +-50% (No 50% （ only support (proportion to the written rule) 50% (BOT) limited to total cost） facilities） Subsidiary (ex. VGF) ○ ○ ○ Equity investment ○ ？ △ Public finance ○ Tax Exemption of income tax, ○ ○ △ Incentive import duty, VAT s Sharing MRG ○ Risks Review demand ○ ○ Response to inflation ○ Others Facilitate road ○ development rights Source: Infrastructure Development Institute-Japan, “PPP Scheme in Asian Countries”

In addition to the government support programs, important issues are mentioned as follows:  Risk Sharing between government and private sectors（Land, market risk, response to Force Majeure, VGF, etc.）  Measures to select contractors（Pre-qualification, evaluation of bidding documents）

Mid-Long terms solutions  After conducting comparison of PPP legal systems and case studies, the government shall develop PPP law and regulations in accordance with the practical situation in Bangladesh.  To review VGF scheme in terms of improving appraisal for financing and establish infra-fund by raising fund from international donors and investors.

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Chapter 6 Conclusion and Recommendations: From the Perspective of Each Legal System and Enforcement

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

CHAPTER 6 Conclusion and Recommendations: From the Perspective of Each Legal System and Enforcement 6.1. Conclusion: Comparison of the Legal Systems in Each of the Target Countries and Implications for their Future Legislative Development 6.1.1. Comparison of the Legal System in each of the Target Countries As has been analyzed earlier, each legal system of the Target Countries in this Study has its own unique characteristics derived from its historical and cultural background. In addition, the regulatory issues identified by the Study are problems specific to each country. In this regard, it is not appropriate to generalize in relation to the legal systems of the Target Countries nor to recommend a single common future direction of their legislative development. On the other hand, based on the survey results and information obtained through this study, it is possible to identify some common and contrasting features of the Target Countries legal systems and to explore the main issues and implications for future legislative development. In this final chapter, the JICA Study Team attempts to give some comparative analysis of the Target Countries legal systems and to recommend the future directions of legislative development.

First, it is helpful to identify the position of the Target Countries legal systems from two perspectives: ① How comprehensive is the legal system? ② How consistent and coherent is the legal system?

If we look at Bangladesh and Cambodia from the perspective of ① above, both countries have relatively comprehensive legal systems. By contrast, Myanmar does not have a comprehensive legal system, as can be seen from the absence of Intellectual Property Law and the lack of proper recognition and enforcement mechanisms for Foreign Arbitration Awards. However, as has been pointed out in Chapters 4 and 5, this does not mean that Bangladesh and Cambodia have satisfactory legal systems in terms of their laws or their enforcement,

As far as ② above is concerned, Bangladesh has a relatively consistent and coherent legal system, which is the legacy of British/Indian Law. By contrast, the degree of consistency and coherence in Cambodia is very low because of “patchwork legislation” created by international donors‟ assistance in an uncoordinated manner.

As for Myanmar, it has a legacy of British/Indian Law like Bangladesh, but its legal system has unique characteristics derived from the changes made during the period of the socialist and military regime. For example, government has frequently made de facto legislation. Also the main mission of the courts is to interpret and apply the laws and regulations to actual cases, which is a feature of civil law systems (in common law systems, judges develop laws through their judgments). Therefore the consistency and coherence of the Myanmar legal system can be positioned mid-point between Bangladesh and Cambodia on this axis. The following diagram summarizes the position of the Target Countries on both axes:-

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o cnitn ad oeet s h legal the is system? coherent and consistent How High

Bangladesh

Myanmar

Cambodia

High How comprehensive is the legal system?

Figure 6-1 Positioning of Legal System in Target Countries

6.1.2. Implications for Future Legislative Development The JICA Study Team identifies the following implications for future legislative development in each Target Country.

Bangladesh As mentioned earlier, due to the legacy of British/Indian Law, Bangladesh has a relatively comprehensive legal system and a certain level of consistency and coherence in its legal system can be observed. The challenge remains to improve the content, implementation and enforcement of that legal system.

Cambodia Like Bangladesh, Cambodia has a relatively comprehensive legal system. The challenge is also the same, to improve the content, implementation and enforcement of the legal system. In addition, the country needs to focus on maintaining consistency and coherence in its legal system. However, in the current political situation, comprehensive legal reform may be difficult in the short term; a more realistic approach would be to minimize inconsistency in the existing legal system as far as possible.

Myanmar Myanmar needs to develop legislation in several areas. The Japanese Government has been supporting this in areas such as Intellectual Property Law and Securities Law. In developing new legislation, like Cambodia, the country needs to focus on maintaining consistency and coherence in its legal system. Myanmar is currently at a critical point in its development as to whether it can achieve consistency in

6-2 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report its legal system. Therefore, a high level of legal knowledge and expertise is necessary in order to support legislative development in Myanmar.

Finally, future legislative development in the Target Countries needs to be consistent, not only with internationally accepted rules such as WTO agreements, but also with their own domestic laws and regulations. In order to avoid the risk of an ad hoc or “patchwork” approach to legislative development by the involvement of various donors, it is recommended that each of the Target Countries appoints a program manager or chief advisor to coordinate with the relevant Ministries as well as international donors. In addition, when developing business related laws and regulations, extensive consultation with the private sector is essential to create an investor friendly business environment.

6.2 Recommendations for Enabling Business Environment in Myanmar 6.2.1. Overview As mentioned earlier, Myanmar‟s legal system is facing a crossroads toward coherent development to respond to the ever-changing business environment. Since the start of the democratization process in 2011, it has regarded foreign investment as a catalyst for transformation from the former central planned economy to a market-oriented system. To encourage the active participation of foreign investors, the Myanmar government has implemented regulatory reform in the area of business law in the past few years, amending such important laws of direct relevance as the Foreign Investment Law, the Central Bank of the Myanmar Law, and the Income Tax Law. Many more laws and regulations are currently under consideration for reform. It is expected that the Myanmar government will continue to seriously pursue regulatory reform, given the presidential election and participation to AEC, both of which scheduled in 2015.

Although many donors have been assisting regulatory reform, the complexity of the legal system remains a major impediment to doing business in Myanmar. Therefore, there is an urgent need for an appropriate legal system reform that can accelerate the economic development of Myanmar.

Having analyzed the shortlisted issues in Chapter 5, the JICA Study Team has classified them into three categories in terms of underlying cause of problems as follows: 1) The issues rooted in structural problems of the legal system itself. Examples of this category mainly relate to the investment barrier issues of the Foreign Investment Law and an import/export licensing system. 2) Issues attributed to the lack of capacity of administrative implementation. Examples in this category include a self-assessment system of income tax, commercial tax and investors‟ service issues. 3) Issues that resulted from the absence of institution or concept. Typical examples in this category include the absence of a concept for bonded system and Special JV scheme.

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6.2.2. Recommendations for Regulatory Improvement Measures

 Structure of Foreign Investment Law The foreign investment framework of Myanmar comprises the following three main components: 1) Foreign investment regulation based on Myanmar Companies Act and other related laws and business procedures; 2) Foreign investment-preferential policy based on Foreign Investment Law; and 3) Foreign investment-preferential policy for foreign companies investing in Specialized Economic Zone based on SEZ law.

In the absence of any laws and regulations prohibiting foreign investment in Myanmar in general terms, foreign investors may invest freely in Myanmar in areas that are not regulated by the Myanmar Companies Act. Foreign investors may invest in areas regulated by the Myanmar Companies Act to the extent allowed pursuant to the foreign invest-preferential policy identified in the above 2) and 3). Therefore, the Foreign Investment Law and SEZ law not only provide preferential treatment to foreign investors but also facilitate access to areas otherwise practically restricted to foreign investments under traditional government policy.

To overcome the above situation, foreign investment should be regulated under Foreign Investment Law, rather than the Myanmar Companies Act. Under the umbrella of this Foreign Investment Law, specific rules and regulations should be specified in Notifications or other legal forms if necessary. Under the above proposed system, for example, the Permit to Trade for “Trading” should be automatically issued to qualified foreign companies, just the same as the permit for Company Registration.

If the legal system is changed in that way, the Foreign Investment Law will no longer function as facilitation for overcoming restricted areas of foreign investment, but will serve its originally intended function, namely to incentivize qualified foreign companies in prioritized business areas. For example, under the foreign investment system in Indonesia, foreign investment applications are approved by BMPM, the Investment Coordinating Board. BKPM judges 1) whether the foreign investment proposal is accepted in terms of providing foreign investment status as the first step by referring to Negative List.100 Subsequently, in the next step, BKPM decides 2) whether fiscal and non-fiscal incentives should be permitted under the clarified rules of the Foreign Investment Law (See Figure 6-2) If Myanmar‟s foreign investment approval system were to adopt such two-step process with clear conditions, it would make the foreign investment approval procedure more transparent and predictable for investors.,

The detailed requirements in providing incentives under the MIC permit should depend on consideration of whether foreign investment with incentives should be permitted, and which conditions are appropriate; both elements of which to be considered with due attention to domestic industries. The target sectors to provide incentives should be stipulated by sectors, and the foreign participation

100 Presidential Decree, 2010, No. 36

6-4 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report requirement or other specific conditions to provide incentives should be stipulated for each sector. (See Figure 6-3)

BKPM (Investment Coordinating Board) Approval of Foreign Investment Status (PMA)

Ministry of Law & Human Right BKPM Company Registration • Duty Exemption Permission (Capital goods)

• Duty Exemption Permission (Raw material) Without Municipal Government • Expatriate Employment Permission Incentives • Locational Permission • Construction Permission • Importer Registration Certificate • Environmental Permission, etc.

With Incentives BKPM Submission of Investment Activity Report

BKPM Permanent Business Permit (IUT) Source: JICA Study Team based on various source Figure 6-2 FDI Approval Flow in Indonesia

Source: JICA Study Team Figure 6-3 Recommended FDI System

Responding to the recommendation mentioned above, DICA made the following comments in the workshop conducted on February 13, 2014 at Naypyitaw (Refer to “Appendix-2” for detail):

・The notification No.2/2014 has been issued in January 2014 to disseminate the detailed investment procedures to investors.

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・Restrictions on Trading Business for foreign companies has been under discussion by MNPED and related Ministries and it is expected to allow foreign companies to do Trading Business in the future. ・Amendment of Myanmar Company Act has been under preparation by its Task Force consisting of DICA, MNPED,UAGO, Central Bank of Myanmar, MoF, MoC, UMFCCI, Public Law Firms as well as ADB. ・Merging Foreign Investment Law and Myanmar Citizen Investment Law is expected with the advices and assistance from IFC. The process of merging these two laws is targeted to be finalized by the end of 2014. ・Japan-Myanmar Bilateral Investment Treaty has been concluded in December 2013.

 Import/Export License System The import/export license system is another example of a structural problem of the relevant regulation related importation and exportation. The current regulations on import/export licenses are specified in its list in terms of commodities for which licensing is not required. Instead, the license system should indicate commodities that require a license to import or export, as other ASEAN neighboring countries have adopted, for more transparency and predictability in import and export activities.

 Bonded system and Special JV Finally, as mentioned in the case that there are no laws or regulation under the current legal system in 6.2.1 Overview, a new legal system should be introduced in some areas, examples of which are a bonded system and Special JV system. In the absence of a concept behind the system under existing laws, a new concept must be introduced and corresponding rules and regulations facilitated. Furthermore, disseminating the understanding of the new concept and supporting the operation of government officials and related private sectors would constitute a key for proper implementation

6.2.3. Recommendations for Regulatory Enforcement Improvement Measures

 A Self Assessment Tax System and Commercial Tax Some issues are attributed to a lack of capacity of administrative implementation. For example, as it is mentioned in the issue of a self-assessment tax system, a lack of detailed rules and administrative capacity of enforcement of such rules are the root causes of problems. The transition from the current administrative assessment system to one of self-assessment will require establishing clear and detailed tax assessment rules; including non-deductible expenses, building capacity of tax officers, and cooperating with the Certified Public Accountants.

In the case of commercial tax, the current scheme is not implemented properly due to the complexities of transactions not reflecting the realities of business. Introducing a widely accepted sales tax system will help facilitate tax collection, bringing more revenue to Myanmar. To do so will also require capacity building on tax officers in terms of establishing detailed rules on administrative procedures of a

6-6 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report sales tax system by referring to the good practices of other ASEAN countries.

 Investor Service System Services for investors such as information access of laws and regulations in English and the One-Stop Service (OSS) system have already been established in Myanmar and provided to a certain extent. Improved services should be provided to enhance transparency and predictability to investors by building the capacity of relevant ministries such as the Union Attorney General Office necessary for updating portal sites by translating laws and regulations into English and establishing a legal database system, which includes a regulatory search function. In addition, DICA‟s OSS system should be further improved to accelerate the investment approval process by strengthening coordinating capacities with the relevant ministries.

To improve these enforcement measures, long-term efforts to build capacity are essential to support regulatory reforms. JICA have been already assisting in many training programs by dispatching experts into legal, trading and logistics and other business fields. In this context, it is recommended to strengthen links among private sector development cooperation programs in investment, trade, finance, tax, customs, labor, infrastructure, etc.

6.3 Recommendations for Enabling the Business Environment in Cambodia 6.3.1. Overview Currently, most of the business related basic laws, including Investment Law, Commercial Enterprise Law, Labor Law, Taxation Law, Accounting Law, Land Law, Civil Code, and Code of Civil Procedure has been developed in Cambodia. In general, the laws and regulations in Cambodia are fairly open to foreign investors; as stipulated in the Investment that Cambodia, and foreign companies have equal treatment except for land ownership. In addition, since these laws and regulations are disclosed on the websites of the related ministries, potential and existing foreign companies can easily access the information though some laws are only written in Khmer. Therefore, it can be said that the business environment in Cambodia on collecting information for laws and regulations has been gradually improved and becoming user friendly. On the other hand, actual enforcement of the laws and regulations still has room to improve in terms of the consistency among laws, interpretation of laws, and knowledge level of government officials as described below.

Stage of applying investments (during permission and application process)  Investors have to visit each related ministry/department several times to apply permissions and licenses.  Investors just have to wait for the application process without knowing its duration. Stage of after investments (during operation)

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 Investors receive different advice from different ministries on the same issue.  Investors receive different advice from previous one.  Investors receive unclear or unnecessary information and advice.  Investors receive no advice or advice after a long wait.

In this JICA Study, the background and reasons behind the 9 issues shown on the short list in the Chapter 5 of this report are analyzed and the analysis reveals that the causes of the issues can be categorized into 3 groups: (1) unclear rules and regulations; (2) lack of accurate and clear information provision; and (3) different interpretations of rules, regulations; and policies among ministries. Characteristics of each category and applicable issues are described as below.

(1) Unclear rules and regulations Issues caused by no stipulation as to rules or insufficient stipulation of standards for further details in existing laws and regulations. Issues:  Establishment of standards on levying overdue tax  Amendment of existing rules and regulations of customs brokers and agents

(2) Lack of accurate and clear information provision Issues caused by the lack of accurate and clear information sharing services to private sectors mainly due to the lack of capacity of government officials even though rules and regulations or procedures exist. Issues:  Establishment of investment approval and support services in line with the current situation  Introduction of an advance ruling systems and establishment of tax consulting services  Introduction of advance ruling systems (tariff classification, customs valuation, country of origin) and establishment of such services

(3) Different interpretations of rules, regulations, and policies among ministries Issues caused by different interpretations on laws and regulations among ministries/ departments, especially between investment law/investment policy and tax law/taxation policy. Issues:  Improvement of tax registration  Abolishment of tax on tax-exempted dividend  Introduction of interest on refund system for VAT  Different interpretations of VAT on land lease

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6.3.2. Recommendations for Regulatory Improvement Measures As explained earlier, the business related laws and regulations are well developed at a fundamental level. However, the following recommendations are proposed for further improvement of the legal system in Cambodia:

Recommendation 1: Secure consistency among related laws when a new law is enacted or an existing law is amended. The legal system development in Cambodia has been rapidly carried out with assistance from various donors. However, since each donor had assisted in the enact of laws based on their own legal system, two legal systems (i.e., Common Law and Civil Law) are mixed in Cambodia at the present. While this issue of inconsistency between different laws are not touched in depth upon in this JICA Study, since this study used a problem-solving approach to present recommendations for the legal system in the country from the angles based on the issues that investors are facing, it is necessary to keep consistency among related laws with attention to such a mixture when a new law is enacted or an existing law is amended. Therefore, it is essential to analyze the structures among business related laws from a cross-cutting viewpoint and to minimize the inconsistency among them.

Recommendation 2: Continue support of the amendment of the Law on Investment (2003) and the enactment of the Law on Special Economic Zones The JICA Study has been conducted in collaboration with another JICA Study in Cambodia called “Study for Collection and Confirmation of the Information on the Amendment of the Law on Investment and the Enactment of the Law on Special Economic Zones in Cambodia”, which was implemented from May 2013 to March 2014. The study assists the Council for the Development of Cambodia (CDC), a counterpart organization of the study, to draft the amendment of the Law on Investment and the Law on Special Economic Zones. The draft made by the team members was well received by CDC and the investment environment in Cambodia is expected to be further improved after the amendment and enactment. Speaking in relation to this study, team members of that study discussed the “Establishment of investment approval and support services in line with the current situation” and “Different interpretations of VAT on land lease” with CDC in the process of the amendment and enactment, and some articles are to be modified and/or added as a solution to these issues. Therefore, the passage of these laws will solve some of the issues raised in this JICA Study. The draft will be finalized by CDC after coordination meetings with other related ministries and public hearings with private sector and donors. Then, CDC will submit the finalized bill to the Council of Ministers. During the process, it is expects to have many discussions based on not only investment promotion but also Cambodian macro economics and trends forecast of trade and industrial agglomeration due to the future regional economic integration and receive various questions and opposition from related ministries and donors, which requires for CDC to provide more detailed explanation to those stakeholders and to modify the drafts and/or the bills. However, it will be difficult for only staff at CDC to deal with such modifications as well as responses to donors. In this regard, assistance from the experts on investment promotion and legal advisor is still necessary to accurately

6-9 Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report reflect on what to be discussed with related ministries and donors. In addition, this Study shed s light on the issues on enforcement of laws in Cambodia and indicates the necessity of continuous assistance on rules and regulations after amendment of the Law on Investment and enactment of the Law on Special Economic Zones.

6.3.3. Recommendations for Regulatory Enforcement Improvement Measures As explained earlier, the causes of the issues on enforcement of laws in Cambodia were divided into three categories. The recommendations are to be presented as below in order to solve such issues.

Recommendation 1: Clear clarification of rules and regulations which enable both investors and government offices to make consistent interpretation Unclear articles and insufficient standards is the major cause of discrepancy among related ministries and their officials in charge. Therefore, it is important to set clear rules and regulations which enable both investors and government officials to make consistent interpretation. A clear clarification of rules and regulations dissolves vagueness of laws and regulations, and minimizes extended interpretations, which make law enforcement more transparent (if a law is unclear, it is still possible to present consistent interpretation by making a guideline). It is necessary to understand the current issues on enforcement by utilizing the opportunities of policy discussion between the government and private sector (e.g. Government Private Sector Forum and Cambodia-Japan Public Private Joint Meeting). Also, continuous efforts to seek a solution to improve transparent enforcement by clarifying articles in cooperation with Ministry of Justice and law professionals are requested.

Source: JICA Study Team Figure 6-4 Clear clarification of Rules and Regulations

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Recommendation 2: Provision of information and consultation services throughout investment based on customer oriented approach Structure of provision of information and consultation services by the Cambodian government is gradually improving. Information on the general business environment (e.g. business related laws and procedures to obtain various permissions and licenses), which foreign investors needs to know before they expand their businesses in the country, is basically maintained. However, consultation services which need to be available to foreign companies when they actually come and operate are not sufficiently provided. One possible reason is a lack of capacity of the governmental officials in charge. As a result, the current operational situation gives negative impressions (“this is not what I hear”, “this is not what I read”) to foreign companies. In order to improve this situation, it is essential for the Cambodian government as a whole to establish a comprehensive and continuous consultation service system to support foreign companies throughout the investment stages, (i.e., before, during, and after investments). To be specific, an investment information center where CDC and governmental officers from related ministries can provide inclusive assistance for various permissions and licenses in addition to investment approval should be established and strengthened for foreign companies to invest. Then, as after-care services after investment and individual consultation service centers can be set up at each ministry and/or an advance ruling systems on tax and customs can be introduced. In order to carry forward such services, technical cooperation projects assisted by donors will be requested to strengthen organizational capacity as well as the capacity of governmental officials.

Source: JICA Study Team Figure 6-5 Comprehensive and continuous provision of accurate and clear information

Recommendation 3: Coordination among related ministries in order to provide consistent interpretation of laws and regulations

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The JICA Study revealed the issues related to discrepancies in the interpretation and/or laws/policies among the ministries (e.g. different interpretations of VAT on land lease, interpretation of QIP and tax registration). As such discrepancies directly contribute to a sense of distrust by foreign companies towards the Cambodian government, it is important to create consistent interpretations of laws and regulations and to establish a system for all the related ministries to provide unified information and advice to the private sector by making explanation documents together.

Source: JICA Study Team Figure 6-6 Coordination among related ministries in order to provide consistent interpretation among laws and regulations

By implementing the three recommendations on enforcement of laws as presented above, transparency, predictability, and clarity will be improved, which will strengthen legal enforcement in Cambodia. As a result, such implementation will contribute to further improvement of the business environment in Cambodia.

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Source: JICA Study Team Figure 6-7 Future Direction of Improvement of Legal System in Cambodia

6.4 Recommendations for Enabling Business Environment in Bangladesh 6.4.1. Overview Foreign Direct Investment (FDI) is considered a crucial ingredient for economic development of developing countries and Bangladesh is no exception. However, various foreign investors doing business in Bangladesh have been pointing out that they would like to see its government committed to more proactive measures to promote FDI; not only within the EPZ but also outside it. In fact, foreign investors have also been pointing out the fact that longer term FDI policy is unclear to them. Such unclear and ambiguous government policy may have been revealed in business-related legal and regulatory environment. For example, issues such as “concrete conditions for the entry of foreign investment by industry sector are unclear”, “virtual restrictions exist on the entry of foreign capital for garment manufacturers”, “relevant laws and regulations related to foreign investment issues are not appropriately disseminated to foreign investors”, “the Board of Investment (BOI) needs to strengthen its one-stop service functions” and so on were identified as priority issues to be tackled. Conversely, the government has prepared the Outline Perspective Plan of Bangladesh 2010-2021 (Vision 2021), which manifests Bangladesh‟s aim to join middle income countries by 2021. In this context, promotion of FDI is crucial for the country to strengthen its international competitiveness by upgrading technical quality and exploiting foreign resources in terms of skills, products or services and capital. In parallel with FDI promotion, strengthening domestic demand-oriented industries, including retail and service sectors, is important. Accordingly, a balanced approach – promoting both domestic and external demand – would be the expected direction for Bangladesh to achieve an economic leap. In this respect, efforts to improve issues on bonded warehousing systems – gradually relaxing the percentage cap for domestic sales for 100% export-oriented companies – are considered vital.

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Furthermore, considering the fact that Bangladesh is located in a strategically and geographically important area between ASEAN and India, the country has vast potential for participating in global value chains. Exploiting its strategic location, it is expected that the government will facilitate free cross-border movement of human resources, goods, and capital, which will help expand business opportunities. In light of this, easing restrictions on financial transactions such as outward remittances and foreign currency loans, particularly among group companies will facilitate the transfer of technology, skills and knowledge to affiliated companies in Bangladesh. It is strongly desired that the government will continue striving to develop an investor-friendly business environment in terms of enhancing the certainty, predictability and transparency of doing business, which will help reduce the cost of doing business. Accordingly, compliance with international business practices in the area of taxation (calculation of Sales Tax) and trade (customs valuation) are highly crucial. The direction of regulatory reform should facilitate FDI; targeting a win-win situation for both the country‟s economy and foreign investors‟ business activation. Improvement measures for regulatory perspectives as well as regulatory enforcement perspectives should be implemented as inseparable actions to achieve a better regulatory environment.

Enhancing certainty, predictability and Reducing cost of transparency of doing doing business business

Strengthening Attracting business more FDI competitiveness Facilitating free cross-border Increasing movement of human business chance resource, goods, and capital

Source: JICA Study Team Figure 6-8 Future Direction of Regulatory Reform to Facilitate FDI

In view of the above mentioned context, crucial factors for Bangladesh to attract FDI can be summarized as follows:  Improving clarity, predictability and transparency of FDI regulations  Improving existing regulations in compliance with international business rules/practices  Easing restrictions on financial transaction among group companies  Promoting both domestic and foreign demand in a balanced manner

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Recommendations for regulatory improvement measures are provided in the next section, taking into consideration of the above four points.

6.4.2. Recommendations for Regulatory Improvement Measures

 FDI Regulations in Bangladesh (Refer to Issue 1 of “5.4 Prioritized Rules and Regulations in Bangladesh” for detail) As regards FDI regulation in Bangladesh, to secure clarity, predictability and transparency of doing business for foreign investors, it is crucial to enact relevant laws and subordinate regulations to clarify the conditions applicable to Controlled Industries and other industries on which certain conditions applicable to FDI exist. In fixing applicable conditions, a cap on equity participation, local procurement conditions, and minimum investment conditions should be specified and a clear and comprehensive guideline, which consolidates all conditions made by the government in relation to the Controlled Industries, is desired. Such guideline should be updated periodically, and changes announced in a timely manner. Furthermore, the government could consider clarifying that the list of industries in the National Industrial Policy is a Negative List to ensure no restrictions exist in other industries. It should be noted that taking the above-mentioned improvement measures will create a mutually beneficial situation for Bangladesh and its people and foreign investors.

 Companies Act (1994) (Refer to Issue 6 of “5.4 Prioritized Rules and Regulations in Bangladesh” for detail) As regards the Companies Act (1994), Bangladesh is recommended to immediately abolish the relevant regulations which mandate: a) BSEC‟s approval when a private company‟s paid up share capital exceeds BDT 100 million, b) converting a private company to a public company when the paid up share capital exceeds BDT 400 million and c) mandating listing shares on stock exchanges when its paid up share capital exceeds BDT 500 million. Abolishing such relevant BSEC regulations will enable private companies to inject their capital in a timely manner, and encourage more capital investment thereby contributing to the development of the security market as a whole.

 VAT Calculation (Refer to Issue 7 of “5.4 Prioritized Rules and Regulations in Bangladesh” for detail) With respect to NBR requirement for the prior registration of “selling price” of goods to be sold in the domestic market, the VAT Act (1991) should be amended so that the expected new VAT law will include provision(s) to ensure the VAT is calculated based on the actual price sold in the market. In so doing, the potential to incorporate in the new VAT law regarding VAT arrangements to allow offsetting of sales against purchases could be considered. Improving such regulation unique to Bangladesh in compliance with international business practices will increase the freedom of doing business and reduce business cost, which may contribute to FDI attraction from global companies.

 Financial Issues (Refer to Issues 8 and 9 of “5.4 Prioritized Rules and Regulations in Bangladesh” for detail) In relation to finance, restrictions on foreign currency borrowing to secure the necessary working capital should be relaxed – particularly, loans from parent companies abroad should be allowed. Regarding non-trade remittances in foreign currency, the relevant provisions in the Foreign Exchange

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Transaction Guideline should be eased by raising the upper limit percentage (i.e. 6%) of remittances for royalties, technical fees and service fees. Relaxing these restrictions will increase the commitment and support from parent companies as well as the mobility of doing business.

 Bonded Warehousing System (Incentives to Export-Oriented and Export-Linkage Industries) (Refer to Issue 10 of “5.4 Prioritized Rules and Regulations in Bangladesh” for detail) With respect to the bonded warehousing system, the percentage cap for domestic sales for export-oriented companies should be gradually relaxed. In addition, the percentage cap for domestic sales for enterprises in the prospective SEZs should be further relaxed since SEZs deal with both export and domestic markets. Taking such measures will increase the business opportunities for export-oriented companies in the domestic market, and help expand the domestic market, create jobs and fuel the transfer of technology, skills and knowledge, thereby promoting both domestic demand as well as exports.

6.4.3. Recommendations for Regulatory Enforcement Improvement Measures

 Strengthening BOI’s One-Stop Service Functions (Refer to Issue 4 of “5.4 Prioritized Rules and Regulations in Bangladesh” for detail) Strengthening BOI‟s one-stop service functions is critical to promoting and facilitating investment in Bangladesh. Possible short-term improvement measures would include developing a one-stop service center within BOI – by physically bringing in the officers of relevant ministries and authorities under one roof to expedite services required by foreign investors (information gathering, consultation, application/update of approvals and licenses). The One Roof Service in Myanmar would be a relevant example to which Bangladesh can make reference. As for mid- to long-term measures, introducing an online central registration system for foreign investment-related approvals/licenses, streamlining/simplifying the documentation required for application of foreign investment-related approvals/licenses, and developing BOI‟s administrative capacity and human resources to strengthen the coordination mechanism with relevant ministries and authorities would be possible solutions. BOI has a crucial role to facilitate private sector-led, robust and sustainable economic growth of Bangladesh.

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Better Regulatory Environment NBR Bangladesh TIN, VAT Registration, BOI Bank Bonded License Finance, Foreign Exchange

DoE CCIE MoHA Import Registration Certificate, Env. Clearance Security Clearance Export Registration Certificate Certificate Other Investment Related Authorities

Source: JICA Study Team Figure 6-9 Recommendations to BOI for Better Regulatory Environment

 Publicizing Relevant Laws and Regulations in English through Centralized System (Refer to Issue 3 of “5.4 Prioritized Rules and Regulations in Bangladesh” for detail) Together with strengthening BOI‟s one-stop service functions, improving BOI‟s website for publicizing all relevant business Laws/Regulations/Rules/Notifications/SROs/Orders/Policies (both English and Bengali) is important so that foreign investors could use BOI‟s website as a single reference point. A searchable database consolidating all Laws/Regulations/Rules/Notifications/SROs/Orders/Policies is strongly desired. Any update on the website could be marked as “new” for ease of reference. Updating Bills or public comments for Bills would be useful. If a timely translation is not feasible, at least publicizing outlines of such regulations would be expected.

The abovementioned regulatory enforcement improvement measures have been taken up in the “Task Force”, a framework between Japan and Bangladesh established to tackle concerns of Japanese investors about the business environment in Bangladesh. Consequently, some progress has been seen to date, and continued dialog for further improvement is expected. The achievements from this initiative will benefit not only Japanese investors but also a wide range of investors, regardless of nationality and industries, since the achievements can be utilized as “common goods” for all relevant investors. In this context, it is also recommended that the above Task Force further augment regulatory review capacities by inviting more legal experts.

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Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

Appendices

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

Appendices 1. Outline of Seminar in Myanmar

Workshop on Enabling Business Environment in Myanmar

 Objective: To share the finding of JICA Study on Legal System and Procedure for Promoting Enabling Business Environment regarding the major issues on FDI and Company Establishment and discuss the possible improvement measures  Participants: DICA, Union Attorney General Office(UAGO)  Organizer: JICA, DICA  Date: Thursday February 13, 2014  Venue: Conference Room at Thingahar Hotel, Nay Pyi Taw

Opening Remarks by 9:30-9:45 - Mr. Naoshi Sato, Senior advisor, Attorney-at-law of JICA

Study Framework and Myanmar‟s Business Environment from Japanese Investors‟ Perspective 9:45-10:00 - Mr. Takuji KAMEYAMA, Study Team Leader, Chief Consultant, International Business Division, Mitsubishi UFJ Research and Consulting Co., Ltd.

Legal Issues, Challenges and Recommendations on FDI and Corporate Establishment in Myanmar (tentative) 10:00-10:45 －Mr. Takeshi Mukawa, Legal System Analyst Leader, Partner, Singapore Office Co-Representative Attorney at Law Admitted in Japan and California, Mori Hamada & Matsumoto Law Office

10:45-11:00 Coffee Break

11:00-12:00 Q & A session (including comments from DICA, UAGO)

Closing Remark 12:00-12:10 - Ms. Daw Tin Aye Han, Director of DICA for Investment Promotion

12:20-13:30 Lunch

 Participants The participants who attended the workshop are as follows:

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- DICA (Directorate of Investment and Company Administration, Ministry of National Planning and Economic Development-MNPED) (16) - UAGO (Union Attorneys‟ General Office)(5) - JICA (3) - Japanese Embassy(1) - JICA Study Team (9)

During the workshop, participants did have the chance of sharing the findings of JICA Study on Legal System and Procedures for Promoting Enabling Business Environment regarding the major issues on FDI and Company Establishment and discuss the possible improvement measures.

 Q&A In the Q&A session of the workshop, the participants discussed the related issues on current and future trends.

Comments from DICA ・The notification No.2/2014 for detailed investment procedures has been issued. ・Restrictions on Trading Business for Foreign Companies and it has been under discussion by MNPED and related Ministries now and it would be expected to allow foreign companies to do the Trading Business in the future. ・The notification 1/2013 for liberalizations on Company registrations and validity periods. ・Amendment of Myanmar Company Act and its Task Force of DICA, MNPED,UAGO, Central Bank of Myanmar, MoF, MoC, UMFCCI, Public Law Firms as well as ADB, etc. ・Merging Foreign Investment Law and Myanmar Citizen Investment Law with the Advices and Assistance from IFC. The process of merging these two laws is targeted to be finished by the end of 2014. ・Japan-Myanmar Bilateral Agreement.

Question from UAGO ・Equal opportunity for Immovable property Response from JICA Study Team ・Explanation for the example of HDB in Hong Kong and Construction there. Suggestions by UAGO regarding the foreign investments in Myanmar ・To be clear guidelines for Environmental Issues ・Feasibility Study ・Transparency for the General Public.

Question from JICA Study Team ・the Repatriation of foreign companies

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Response from DICA ・the Central Bank of Myanmar now allows the Bank-to-Bank transfer for the remittances for foreign companies.

2. Outline of Seminar in Cambodia

Seminar on Enabling Business Environment in Cambodia: For further strengthening of international competitiveness in ASEAN

 Time/Date: 8:30 – 12:20/Tuesday, February 18, 2014  Venue: Empress Room, Raffles Hotel Le Royal  Organizer: Japan International Cooperation Agency (JICA)  Target participants: JICA, Relevant ministries (CDC, GDT, GDCE)  Participants: Approximately 40-50 people from the above organizations  Language: English and Khmer (Simultaneous translation)  Agenda: See below

Agenda 8:00-8:30 (30 min) Registration 8:30-8:40 (10 min) Opening Speech: Mr. Naoshi Sato, Senior Advisor, JICA 8:40-8:50 (10 min) Overview of the Study and the Objective of The Seminar - Mr. Takuji Kameyama, Team Leader, JICA Study Team 8:50-9:30 (40 min) Recommendation for Improving Business Environment in Cambodia －Mr. Akihiko Morinaga, Business Environment Analyst, JICA Study Team 9:30-9:50 （20 min） Characteristics and Challenges of the FDI System in Cambodia －Ms. Kana Manabe, Legal System Analyst, JICA Study Team 9:50-10:10 (20 min) Coffee Break 10:10-12:20 (130 min) Group Discussion 10:10-10:20 (10 min) Explanation how to conduct Group Discussion 10:20-11:20 (60min) Group Discussion (participants will be divided into 3 groups) 11:20-11:50 (30 min) Presentation by each group (10 min for each group) 11:50-12:20 (30min) Questions and Answers Session/ conclusion 12:20-12:30 (10 min) Closing Speech: Mr. Hiroshi Takeuchi, Senior Representative, JICA Cambodia Office 12:30-13:30 (60 min) Networking Lunch

 Overview of the Seminar:

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Although Foreign Direct Investments (FDI) in Cambodia have been a tendency to increase, it is expected that regional trade will much more increase and very competitive among neighboring countries after ASEAN integration in 2015. Under such situation, both public and private sector in Cambodia needs to play a role of the global supply chain in the ASEAN region to ensure its international competitiveness. This seminar aims to provide an opportunity for related ministries to understand the issues that investment companies are currently facing and to discuss how to generate win-win situation to strengthen the international competitiveness of Cambodia with consideration of positions of each ministry. It also intends to share the results of discussions on future directions of improvements among participants.

 Overview of Each Session: “Overview of the Study and the Objective of the Seminar” provides brief overview of the study and explains main objectives and agenda of this seminar. “Recommendations for Enabling Business Environment in Cambodia” reviews the three-step foreign companies‟ business expansion flow in Cambodia: (1) before expansion, (2) during expansion, and (3) after expansion. It also enables participants to understand the type of services which foreign companies need. After that, the session introduces the issues that foreign companies are facing. Finally, recommendations of improvements by analyzing such issues from the views of (1) clarification of rules and regulations, (2) provision of accurate and clear information, and (3) resolution of the different interpretations of rules, regulations, and policies. “Trends of a Business Law System in Emerging Asian Countries and Characteristics and Issues of Legal System in Cambodia” introduces characteristics of a business law system in neighboring countries around Cambodia and recent activities in the process of ASEAN integration. The session explains the characteristics of the legal system in Cambodia based on characteristics and trends of legal system in other countries, and makes recommendations for future directions. In general, the fundamental business-related laws such as Civil Code, Investment Law, Commercial Enterprise Law, Labor Law, Taxation Law, Accounting Law, Land Law, and Factory Management Law have already been enacted and implemented in Cambodia. However, amendment of existing rules and regulations, clarification of detailed regulations and operational issues need to be pointed out. Especially, it will be emphasized that inappropriate operations under appropriate legal system give less favorable impression to foreign companies than the situation with lack of appropriate legal system does. In “Group Discussion and Presentation”, the participants will be divided into three groups and each group discusses how to (1) provide accurate and clear information services and (2) solve different interpretations among laws and policies. One moderator will be provided to each group and one of the group members will keep records using PC. The below JICA Experts will go around each group and provide advice and instructions if necessary. After discussing the issues at each group, a leader of each group will make a brief presentation on the results of the discussion. Then, questions and answers will follow. This session will be concluded with summarizing the achievements of the group discussions.

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 Results of the Group Discussions: 1. Group A (1) Establishment of investment approval and support services in line with the current situation All the members of the group A agreed on the importance of the establishment of one stop service offices at SEZs and concluded that they need to stipulate and enforce laws and regulations to determine the function of such offices. Then, the group discussed which governmental organizations should be included in such one stop service offices. At first, GDT was considered not to be included at the office because GDT does not need to know daily operations of each company at SEZs but only need to be provided company information for a tax registration by companies. After a discussion among the group members, however, they realized the one stop service offices can be more beneficial for investors to obtain various permissions and licenses if all the related governmental officials are at one place. Therefore, the group A concluded that the three organizations (CDC, GDT, and GDCE) need to cooperate and coordinate to make a law/regulation in related with the establishment and function of one stop service offices at SEZs. In addition, they mentioned corporation from the private sector is also needed to implement one stop service offices at SEZs.

(2) Improvement of tax registration At the beginning of the discussion, each organization (CDC, GDT, and GDCE) presented the implementation procedure for QIP and/or tax registration at each organization and tried to seek a way for future cooperation among organizations. Then, the group members realized that they do not know what kind of procedures are necessary at each organization. Therefore, the group A concluded that they should start with learning and understanding implementation procedures taken at each organization. They agreed that clear understanding of such procedures has to come first in order to seek a way to cooperate each other in near future.

2. Group B (1) Introduction of advance ruling systems and establishment of tax consulting services Although the presentation at the seminar pointed out that advance ruling system is not available in Cambodia, GDCE already have such service at the Large Taxpayer Department. With regard to CDC, it also has the department of information which provides information related to investments. Also, some information related to tax can be obtained tax registration offices. Furthermore, GDT established call centres which can provide answers to relatively easy and simple questions over the phone. Although these services are available to investors, it seems that they are not aware of such services and some of the service systems are not clear to them. Therefore, the group B concluded that each organization needs to create clearer mechanism of the services and to publicize such services to the private sector. Also, they agreed to the idea of putting the answers to questions from companies on their website.

(2) Introduction of interest on refund system for VAT

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A refund system for VAT does exist and requires involvement of three organizations, namely GDT, MEF, and General Department of National Treasury (GDNT). GDT has a Prakas to determine the procedure as follows: i) a tax payer request VAT refund to GDT, ii) GDT check all the necessary documents and send a request for approval to MEF if everything is fine, then iii) GDNT will refund VAT if MEF approves it. Also, Taxation Law has an article to state that if the tax payer thinks that the implementation of the Taxation Administration causes him a lost, he has the right to put the complaint to the court within 3 years. However, since the introduction of interest on VAT refund is a new concept, there may be a necessity to have a inter-ministerial meeting to discuss the topic.

3. Group C (1) Introduction of advance ruling systems (tariff rates, customs valuation, country of origin) and establishment of such services At the beginning of 2013, the advanced ruling system for customs (country of origin) was introduced at the Department of Technical Planning and International Affairs (DTPIA). Customs brokers were also introduced 4 years ago and DTPIA has been developing human resources with assistance from JICA and Japan Customs. In addition, GDCE introduced Unit of Public Relations where 6-7 officials answer any questions on customs from importers/exporters. We are also trying to implement AEO program under which some reliable companies can pick up goods first and clear customs later. Therefore, though we may still need more effort to increase the number of custom brokers and customs officials with proper knowledge and skills, we can say that we are moving forward to catch up with international standards.

(2) Different interpretations of VAT on Land Lease Cambodia has a notification No.605 of the General Department of Taxation on the resolution to implement withholding tax in the agreement of sub-sentence in SEZs. If a SEZ developer is the owner of the land and rent it to an investor, the investor have to deduct 10% of withholding tax from the payment amount of the land lease to the SEZ developer. The deducted withholding tax of 10% would be paid by the investor to GDT. On the other hand, since the VAT 10% is charged on the payment of land lease, the investor should pay the land lease fee by adding 10% of VAT to the SEZ developer. The VAT 10% would be paid to GDT by the SEZ developer. Therefore, it can be said that the VAT will be burdened by the SEZ developer not burdened by the investor.

 Questions & Answers and Comments: There were no questions but comments from participants are as follows. (1) Investors make many requests on laws and regulations at our organizations and it is true that some laws and regulations are not clear enough. This seminar was very fruitful to learn such issues systematically.

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(2) We needed more time to discuss and know what other organizations are doing. (3) It would be appreciated if the participants can be shared the presentation materials in soft copy. (4) The issue on “one company with multiple QIPs are not allowed” shown on slide 30 of the presentation on Recommendation for Improving Business Environment in Cambodia can be clearer.

3. Outline of Seminar in Bangladesh Seminar on Enabling Business Environment in Bangladesh -For Better Regulatory Environment to Attract FDI -

 Objective: To share the finding of JICA Study on Legal System and Procedure for Promoting Enabling Business Environment and discuss improvement proposals by stakeholders  Organizer: JICA, Board of Investment (BOI), The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI)  Cooperation: The Japan External Trade Organization (JETRO Dhaka), Japan Commerce & Industry Association in Dhaka (JCIAD)  Date: February 10, 2014 (Monday)  Venue: Conference Room „Ballroom-3‟ at Westin Dhaka (Main Gulshan Avenue, Plot 1, CWN (B), Glushan 2, Dhaka 1212)

Program

9:30-9:45 Welcome Speech by - Senior Representative of JICA Bangladesh Office (Chairman of the Seminar) Inauguration Speech by - Chairman, Board of Investment (BOI) (Chief Guest of the Seminar)

9:45-10:00 Study Framework and Business Macro-Environment of Bangladesh - Mr. Takuji KAMEYAMA, Study Team Leader, Chief Consultant, MURC

10:00-10:30 Characteristics and Challenges of Legal System on FDI and Company Incorporation in Bangladesh －Mr. Kenichi SEKIGUCHI, Legal System Analyst, Attorney at Law, MHM

10:30-11:15 Recommendation for Improving Business Environment in Bangladesh － Ms. Masumi SHIMAMURA, Business Related Analyst, Chief Consultant, MURC

11:15-11:30 Coffee Break

11:30-12:30 Panel Session (Seeking for Better Regulatory Environment to Attract FDI） Chaired by Mr. Takuji Kameyama, Study Team Leader - Dr. Khandoker Azizul Islam, Director, BOI - Mr. Abdul Haque, Director, FBCCI

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- Mr. Alamin Rahman, Partner, FM Associates (Legal Firm) - Ms. Nahoko Sako, Deputy Representative, JETRO Dhaka - Mr. Hiroyuki Watabe, President, JCIAD 12:30-13:10 Q & A session

13:10-13:20 Closing Remarks by - Secretary General of FBCCI

13：30-14：30 Networking Lunch

** MURC : Mitsubishi UFJ Research and Consulting ** MHM : Mori Hamada & Matsumoto Law Firm

 Participants

The participants who attended the workshop are as follows: - Government of Bangladesh (15) (Prime Minister‟s Office (1), BOI (6), Ministry of Planning (1), Customs Bond Commissionerate (1), Ministry of Foreign Affairs (MOFA) (1), Export Promotion Bureau (EPB) (1), Ministry of Finance (MOF) (3), Registrar of joint Stocks and Firms (RJSC) (1)) - JICA (5) - Co-organizers (JETRO・FBCCI) (5) - Japanese private companies (9) - Bangladesh private companies (14) - JICA Study Team (10) - Others (5)

 Q&A

Q. Private company in Bangladesh

 Can Bangladesh become a member of RCEP?  What it is the plan of Japan regarding skills development in Bangladesh?  A high level task force needs to set up to implement the recommendation in an urgent basis.

 JETRO Dhaka Office: Being the member of RCEP depends on the decisions of 16 member countries; however, JETRO is hopeful that Bangladesh might become a member in future.  Mr. Kameyama, Team Leader: Capacity building is an important issue though not dealt under the report. The study team will try to include this in the final report.  BOI: BOI has already set up a task force for JICA which includes member of Ministry of Homes, Ministry of Commerce, and National Board of Revenue.

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Q. BOI

 In the presentation of Mr. Kameyama, the FDI inflow in 2012 is not correctly displayed; it is only from January to September. The actual FDI is more than what is presented in the material.  Regarding technical know-how and royalties fees, India calculates the net total whereas in Bangladesh it is only calculated only up to 6%. If it is higher than 6%, then investors can apply to Bangladesh Bank for considerations.

 Mr. Kameyama, Team Leader: The study team has noted the issue regarding FDI inflow.  Ms. Shimamura, Study Team: The final report shall reflect the comment regarding 6% royalty‟s fees.

Q. BOI

 The report suggests that registration is done by case to case basis, which is not true. If the investment is within the industrial policy there is no scope for discretion.  The controlled sector doesn‟t mean that they are not open for investors rather for investing in controlled sector one has to go through the regulated body. There is no discrimination is between foreign and local investors, hence no room for discretion.

 Mr. Kameyama, Team Leader: The study team is hopeful that once the High Court order is resolved, investors shall have easier access in registering.  Mr. Sekiguchi, Study Team: It is understandable that controlled sector industries are very sensitive. However, it depends upon the relevant ministries to decide whether they may invest or not. Therefore it is difficult for foreign investors to invest when a subjective decision is taken rather than an objective decision as there are no clear criteria. There are some sectors in which no guidelines are provided.

Q. Bureau of Statistics

 What plan BOI have in mind for capacity building in relation to ICT training?

 BOI: BOI offers several trainings on capacity building and ICT training for the staffs of BOI both in-house and outside training. Until 2012, BOI received JICA training program on investment-related issues.

Q. Private company in Bangladesh

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 The executive summary of JICA report 1995, displays a triangle on Asian industries which explains micro visions more clearly.

 Mr. Kameyama, Team Leader: Noted with Thanks.

Q. Small and Medium Enterprises Foundation

 In Global Value Chain, SME has an important role to play. It is requested to Japanese investors to consider SME as an option for investment as Japan appreciate SME and has enacted SME laws.

 Mr. Kameyama, Team Leader: SME shall be considered in the recommendations of the report.

Q. Ministry of Foreign Affairs

 How, in real terms, cheap is Bangladeshi labor considering the productivity, skills as skilled labor is not that cheap in Bangladesh?  The report should reflect the finance and accounting sectors (real value or the annual return)

 Mr. Kameyama, Team Leader: The productivity of the labor was not discussed in this report specifically. Moreover, the study team agrees that financial reporting should be a part of this report, however, it was not a prioritized issue as during the interview it didn‟t come up as a serious issue.  JETRO Dhaka Office: JETRO studies suggest that cost of skilled labor is not very much comparative with other countries such Myanmar. So, in future it should be challenge to overcome this labor issue.

Q. Private participant

 All reports suggest that Myanmar is a close competitor of Bangladesh. However, Bangladesh has longer democratic history than Myanmar, then why Myanmar is a better option than Bangladesh?

 Mr. Kameyama, Team Leader: Myanmar is a frontier and that‟s could be one of the reason why investors are attracted to this country. In terms of infrastructure, Bangladesh of course is in a better position.

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 Mr. Al Amin Rahman, Partner, FM Associates: Myanmar and it‟s economy has just opened up, that‟s could be the reason the big industries to invest there as there could be an opportunity of a big market.

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Reference

Study on Legal System and Procedures for Promoting Enabling Business Environment Final Report

Reference 1. List of Regulations in Myanmar Area Law/Act Source Language URL

Investment The Foreign Investment Website of DICA English http://www.dica.gov.mm/includes/ Law(2012) FIL%20English%20Version_%202 9-1-2013_.pdf Development Notification Website of President Office English http://www.president-office.gov.m No.11/2013 (2013) m/en/?q=briefing-room/notification s&page=1 Myanmar Investment Website of President Office English http://www.president-office.gov.m Commission Notification m/en/?q=briefing-room/notification No.1/2013 (2013) s&page=1 The State-owned Website of Online English http://www.burmalibrary.org/docs1 Economic Enterprises Burma/Myanmar Library 5/1997-SLORC_Law1997-06-The_ Law(1989) Law_Amending_the_State-owned_ Economic_Enterprises_Law-en.pdf The Myanmar Special Website of Union Attorney English http://www.oag.gov.mm/sites/defau Economic Zone General Office lt/files/legislation/2013/11/myanma Law(2011) r_special_economic_zone_law.pdf The Burma Copyright Website of WIPO English http://www.wipo.int/wipolex/en/tex Act(1914) t.jsp?file_id=180315 Intellectual Property Website of WIPO English - Right Law, including Trade Mark Law, Industrial Design Law, Patent Law, Copy Right Law(under drafting) Company/Bu The Burma Companies Website of DICA English http://www.dica.gov.mm/includes/ siness Act(1914) The%20Burma%20Companies%20 Act.pdf The Special Company - English - Act(1950) Taxation/Acc The Law Amending Website of President Office English http://www.president-office.gov.m ounting Income Tax Law(2011) m/en/sites/default/files/laws/07-201 2/20110929-Amending%20Income %20Tax%20Law%20_No-4_%20- %20Copy_0.pdf The Auditor General Website of Union Attorney English http://www.oag.gov.mm/sites/defau Law(2010) General Office lt/files/legislation/2013/12/auditor_ general.pdf The Commercial Tax Website of President Office English http://www.president-office.gov.m Law(1990) m/en/sites/default/files/laws/07-201 2/20110929%20The%20Law%20A mending%20Commercial%20Tax %20Law%20-%20Copy.pdf Finance/Forei The Financial Institution Website of Central Bank of English / http://www.cbm.gov.mm/sites/defa gn exchange of Myanmar Myanmar Burmese ult/files/pdf/fiml_1990/The_Financ Law(1990)(revision is ial_Institutions_of_Myanmar_Law. under parliament process) pdf The Foreign Exchange - English - Management of Myanmar Law(2012) The Central Bank of Website of Central Bank of English http://www.cbm.gov.mm/sites/defa Myanmar Law(2013) Myanmar ult/files/cbm_law_unofficial_transl ation_29-7-2013_1.pdf

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Area Law/Act Source Language URL

The Transfer of Website of Displacement English http://displacementsolutions.org/wp Immovable Property Solutions -content/uploads/THE-TRANSFER restriction Act(1947) -OF-IMMOVABLE-PROPERTY- RESTRICTION-ACT-1948.pdf The Myanmar Securities - English - Exchange Law(2013) Trade/Logisti The Import / Export Law - English - cs (2012) The Land Customs Website of blc-burma English http://www.blc-burma.org/sites/def Act(1924) ault/files/THE%20LAND%20CUS TOMS%20ACT.pdf The Tariff Law (1992) Website of Customs English http://www.myanmarcustoms.gov. Department mm/traifflaw.aspx The Sea Customs Website of WIPO English http://www.wipo.int/wipolex/en/tex Act(1962)( revision is t.jsp?file_id=182262 under drafting) Labor The Settlement Labor Website of ILO English http://www.ilo.org/wcmsp5/groups/ Dispute Law(2012) public/---asia/---ro-bangkok/---ilo- yangon/documents/genericdocume nt/wcms_185550.pdf The Leave and Holiday Website of Online English http://www.burmalibrary.org/docs1 Act(1951) Burma/Myanmar Library 5/2006-SPDC_Law2006-06-Law_ Amending_the_Leave_and_Holida ys_Act-1951-en.pdf Arbitration Act (1944) Website of Online English http://www.burmalibrary.org/docs1 Burma/Myanmar Library 5/1944-Arbitration_Act-en.pdf The Labor Organization Website of Online English http://www.burmalibrary.org/docs1 Law(2011) Burma/Myanmar Library 2/Labour_Organization_Law%20N o.7-2011-ocr-red(en).pdf Workman's Compensation Website of Online English http://www.burmalibrary.org/docs1 Act(1923) Burma/Myanmar Library 5/2005-SPDC_Law2005-04-Law_ Ameniding_the%20Workmen's%2 0Compensation_Act-1923-en..pdf The Registration of Website of Online English http://www.burmalibrary.org/docs0 Foreigners Act (1940) Burma/Myanmar Library 9/Registration_of_Foreigners_Act- 1940.pdf Infrastructure The Environmental Website of Online English http://www.burmalibrary.org/docs1 /PPP Conservation Law(under Burma/Myanmar Library 5/2012-environmental_conservatio the assessment of the n_law-PH_law-09-2012-en.pdf National Parliament) The Employment and - English - Trading Act(1950) The Myanmar Electricity Website of Online English http://www.burmalibrary.org/docs1 Law (1984) Burma/Myanmar Library 1/Electricity-Law-1984.pdf The Building Code (2013) - English - Others The Competition - English - Law(under drafting)

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2. List of Regulations in Cambodia

Area Name Source Language Overview Remarks (URL)

Foreign Law on the http://www.cambodiain Investment Investment in the vestment.gov.kh/ja/law- Kingdom of on-investment-august-0 Website Cambodia (1994) English Law which stipulates investment 5-1994-and-law-on-the- of CDC amendment-to-the-law- on-investment_030324. html

Law on the http://www.cambodiain Law which amended the Law on the Amendment to the vestment.gov.kh/ja/law- Investment in 1994 to simplify and Law on Investment on-investment-august-0 Website transparent the investment licence (2003) English 5-1994-and-law-on-the- of CDC procedure. It stipulates the definition amendment-to-the-law- of QIP, QIP application, investment on-investment_030324. incentives etc. html Sub-Decree No.111 http://www.cambodiain on the Sub-decree which defines negative vestment.gov.kh/content Implementation of Website English list, QIP application procedure, /uploads/2011/10/Sub-D the Amendment to of CDC formats, other incentives for QIPs. ecree-111-on-Implemen the Law on tation-LOI_050927.pdf Investment (2005)

Sub-Decree #148 on http://www.cambodiain the Establishment vestment.gov.kh/ja/sub- Sub-decree which stipulates and Management of decree-148-ankr-bk-on-t Website procedures of establishing SEZ, the Special English he-establishment-and-m of CDC management structure, investment Economic Zone anagement-of-the-speci incentives. (2005) al-economic-zone-final_ 060314.html

Sub-Decree #147 on http://www.cambodiain the Organization Sub-decree which determines the vestment.gov.kh/ja/sub- Website and Functioning of English organization and functioning of the decree-147-on-the-orga of CDC the CDC (2005) CDC nization-and-functionin g-of-cdc_051229.html

Company Law Bearing on the http://www.cambodiain Act Commercial vestment.gov.kh/ja/law- Regulations and Website Law related to commercial bearing-upon-commerci English Commercial of CDC regulations and commercial register al-regulations-and-com Register (1995) mercial-register_950503 .html Law on the Law which amend the Law on the Amendments of the Commercial Regulations and http://www.cambodiain Law on the Commercial Register and defines vestment.gov.kh/ja/law- Commercial Website concepts including traders, trade, on-amendment-to-law-o English Regulations and of CDC trading business and stipulates duties n-the-commercial-regul Commercial of a company (including foreign ations-and-commerce-re Register (1999) companies) and procedures of gister_991118.html commercial register.

Law on Commercial Law which promotes equal and fast http://www.cambodiain Arbitration (2006) resolution of commercial arbitration, vestment.gov.kh/content Website English which protects legal rights and profits /uploads/2012/03/Law-o of CDC of concerned parties and promote n-Commercial-Arbitrati smooth economic growth. on_full-text_060306.pdf

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Area Name Source Language Overview Remarks (URL)

Law on Commercial http://www.cambodiain Enterprises (2006) The first inclusive law on commercial vestment.gov.kh/content Website English enterprises in Cambodia, which /uploads/2012/03/Law-o of CDC stipulates company forms. n-Commercial-Enterpris es_English_050517.pdf

Law on http://www.cambodiain Management of vestment.gov.kh/content Factories and Website Law which determines management /uploads/2011/09/Law-o English Handicrafts (2006) of CDC of factories and handicrafts n-Administration-of-Fac tory-and-Handicraft_En glish_060623.pdf

Law on Insolvency http://www.cambodiain (2007) vestment.gov.kh/content Website English Law which deals with insolvency /uploads/2012/03/Law-o of CDC n-Insolvency_full-text_ 071016.pdf

Law on Standards http://www.cambodiain (2007) Website vestment.gov.kh/ja/law- English Law which defines various standards of CDC on-standards-of-cambod ia_070624.html

Law on Secured http://www.cambodiain Transactions (2007) Website Law which stipulates secured vestment.gov.kh/ja/law- English of CDC transactions on-secured-transaction_ 070523.html

Tax and Law on Taxation http://www.cambodiain Account (1997) Website vestment.gov.kh/ja/law- English Law related to taxation of CDC on-taxation_970108.htm l

Law on the http://www.jica.go.jp/ca Amendment to the Website Law which amended the Law on mbodia/english/office/to English Law on Taxation of JICA Taxation pics/pdf/14_Appendix-2 (2003) .pdf

Prakas on the Tax http://www.tax.gov.kh/f Website on Profit Khmer Prakas related to tax on profit iles/P1059_20031212.p of GDT (Amended) (2003) df

Law on Corporate http://www.cambodiain Accounting, Audit vestment.gov.kh/ja/law- and Accounting Law which defines corporate on-accounting-law-on-c Website Profession (2002) English accounting, audit and accounting orporate-accounts-their- of CDC profession audit-and-the-accountin g-profession_020708.ht ml

Finance and Law on Banking http://www.cambodiain Foreign and Financial vestment.gov.kh/ja/law- Website Law for banking and financial Exchange Institutions (1999) English on-banking-and-financi of CDC institutions al-institutions_991118.h tml

Law on Foreign http://www.cambodiain Exchange (1997) Website vestment.gov.kh/ja/law- English Law related to foreign exchange of CDC on-foreign-exchange_97 0822.html

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Area Name Source Language Overview Remarks (URL)

Law on Financial Law which stipulates rights and http://www.cambodiain Lease (2009) Website duties of concerned parties of vestment.gov.kh/ja/law- English of CDC financial lease and defines measures on-financial-lease_0906 to protect such rights. 20.html

Law on the Issuance http://www.cambodiain and Trading of vestment.gov.kh/ja/law- Non-government Website Law on the issuance and trading of on-the-issuance-and-tra English Securities (2007) of CDC non-government securities ding-of-non-governmen t-securities-the-securitie s-law_071019.html

Law on Anti-Money Law which requests not to disturb http://www.cambodiain Laundering and application of this law because of vestment.gov.kh/content Combating the Website confidentiality of banks and /uploads/2011/09/Law-o English Financing of of CDC professions and not to deny providing n-Money-Laundering-T Terrorist (2007) related information on alleged errorist-Financing_Full- transactions Text_070624.pdf

Law on http://www.cambodiain Government Website Law which defines government vestment.gov.kh/ja/law- English Securities (2007) of CDC securities on-government-securitie s_070110.html

Trade and Law on Customs http://www.cambodiain Logistics (2007) Website vestment.gov.kh/ja/law- English Law which stipulates customs of CDC on-customs-_full-text_0 70720.html Prakas #734 (MEF) on Special Customs Website http://www.customs.gov Procedures for Prakas on special customs procedures of English .kh/SubDegreeEN/Praka Implementing in for implementing in SEZs GDCE s734EN.pdf Special Economic Zones (2008)

Labor Law on Labor http://www.cambodiain Law which stipulates labor related (1997) Website vestment.gov.kh/ja/the-l English issues including labor relations, of CDC abor-law-of-cambodia_ employment, labor condition. 970313.html

Law on Amendment http://www.ilo.org/dyn/t to Articles 139 and ravail/docs/702/Labour 144 of the Labor Website Law which amended article 139 and %20Law%20-%20Ame English Law (2007) of ILO 144 of the Law on Labor ndments%20of%20Arti cles%20139%20and%2 0144.pdf

Sub-Decree # 16 Sub-decree on creation of national http://www.social-prote (RGC ) on Creation social security fund, which is a public ction.org/gimi/gess/Sho Website of National Social English organization to operate social security wRessource.action?ress of ILO Security Fund system, to provide appropriate ource.ressourceId=1089 (2007) security, and to collect insurance. 2

Infrastructu Law on Land (2001) http://www.cambodiain Website re, PPP, and English Law related to land issues vestment.gov.kh/ja/land of CDC Environme -law_010430.html nt Law on Concession http://www.cambodiain (2007) vestment.gov.kh/content Website Law for use, development or English /uploads/2011/09/Law-o of CDC exploitation concessions n-Concessions-Full-Tex t_071019.pdf

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Area Name Source Language Overview Remarks (URL)

Law on http://ppp.worldbank.or Expropriation Website g/public-private-partner English Law which defines expropriation (2010) of WB ship/library/cambodia-la w-expropriation

Law on Water http://www.cambodiain Resource vestment.gov.kh/ja/law- Website Management (2007) English Law on water resource management on-water-resource-mana of CDC gement-full-text_07062 9.html

Law on Electricity http://www.cambodiain (2001) Website vestment.gov.kh/ja/law- English Law on electricity of CDC on-electricity_010202.ht ml

Law on Civil http://www.cambodiain Aviation (2008) Website vestment.gov.kh/ja/law- English Law on civil aviation of CDC on-civil-aviation_08011 9.html Sub-Decree #146 on Sub-decree which determines the Economic Land criteria, procedures, mechanisms and Concessions (2005) institutional arrangements for initiating and granting new economic http://www.cambodiain land concessions, for monitoring the vestment.gov.kh/ja/sub- Website English performance of all economic land decree-146-on-economi of CDC concession contracts, and for c-land-concessions_051 reviewing economic land concessions 227.html entered into prior to the effective date of this sub decree for compliance with the Land Law of 2001

Law on http://www.cambodiain Environment vestment.gov.kh/content Protection and /uploads/2011/09/Law-o Website Law on environment and natural Natural Resource English n-Environmental-Protec of CDC resource management Management (1997) tion-and-Natural-Resour ce-Management_96122 4.pdf

Sub-Decree #72 on http://www.cambodiain the Environment vestment.gov.kh/ja/sub- Impact Assessment Website Sub-decree on the environment decree-72-anrk-bk-on-e English Process (1999) of CDC impact assessment process nvironment-impact-asse ssment-process-pdf_990 811.html

Others Law on Marks, http://www.cambodiain Trade Names and vestment.gov.kh/ja/law- Website The first law in Cambodia to protect Acts of Unfair English on-marks-trade-names-a of CDC the intellectual Property Right Competition (2002) nd-acts-of-unfair-compe tition_020207.html Law on Copyright Law which provides authors and and Related Right performers with rights with respect to http://www.cambodiain (2003) their works to protect the works of vestment.gov.kh/ja/law- Website English literature, cultural performance, on-the-copyright-and-re of CDC performers and phonogram producers lated-rights_030213.htm and broadcasts by broadcasting l organizations.

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Area Name Source Language Overview Remarks (URL)

Law on the Patents, http://www.cambodiain Utility Model vestment.gov.kh/content Law which provides the protection Certificates and /uploads/2011/09/Law-o Website for granted patents, utility model Industrial Design English n-Patents-Utility-Model of CDC certificates and registered industrial (2003) -Certificates-and-Indust designs in Cambodia. rial-Designs_English_0 30122.pdf

Law on Amendment http://www.cambodiain to Law on vestment.gov.kh/ja/law- Website Law which amended the Law on Anti-Corruption English on-amendment-to-the-la of CDC Anti-Corruption. (2011) w-on-anti-corruption_-1 10801.html Law on Law which aims to combat corruption Anti-Corruption through taking measures of education, http://www.cambodiain (2010) Website prevention, and law enforcement to vestment.gov.kh/ja/anti- English of CDC suppress offences of corruption with corruption-law_100417. public participation and support and html international cooperation.

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3. List of Regulations in Bangladesh

Category Regulations Information Source language Website

Foreign Foreign Private Investment http://www.boi.gov.bd/index.p Website of Board of Investment, Investment (Promotion and Protection) English hp/component/businesslaws/?vi Bangladesh Act (1980) ew=lawdetails&law_id=705

http://www.boi.gov.bd/index.p Export Processing Zones Website of Board of Investment, English hp/component/businesslaws/?vi Authority Act (1980) Bangladesh ew=lawdetails&law_id=79

http://www.boi.gov.bd/index.p Private Export Processing Website of Board of Investment, Bengali hp/component/businesslaws/?vi Zones Authority Act (1996) Bangladesh ew=lawdetails&law_id=108

http://www.boi.gov.bd/index.p The Bangladesh Economic Website of Board of Investment, hp/component/businesslaws/?vi Bengali Zones Act(2010) Bangladesh ew=lawdetails&law_id=1140& task=law

http://www.boi.gov.bd/index.p Investment Board Act Website of Board of Investment, English hp/component/businesslaws/?vi (1989) Bangladesh ew=lawdetails&law_id=184

http://www.boi.gov.bd/index.p Website of Board of Investment, hp/component/businesslaws/?vi Trade Marks Act (1940) - Bangladesh ew=lawdetails&law_id=215&t ask=law

http://www.boi.gov.bd/index.p Patents and Designs Act Website of Board of Investment, English hp/component/businesslaws/?vi (1911) Bangladesh ew=lawdetails&law_id=516

http://www.boi.gov.bd/index.p Website of Board of Investment, The Copyright Act (2000) Bengali hp/component/businesslaws/?vi Bangladesh ew=lawdetails&law_id=220

http://www.boi.gov.bd/index.p Website of Board of Investment, The Registration Act (1908) English hp/component/businesslaws/?vi Bangladesh ew=lawdetails&law_id=68 Website of Legislative and Land Registration Amended Parliamentary Affairs Division English N.A. Act (2004) Ministry of Law, Justice and Parliamentary Affairs

Company http://www.intax-info.com/pdf/ Law Companies Act (1994) Website of INTAX INFO English law_by_country/Bangladesh/C ompanies%20Act.pdf Website of Legislative and http://bdlaws.minlaw.gov.bd/ba Securities and Exchange Parliamentary Affairs Division Bengali ngla_pdf_part.php?id=775&vol Commission Act (1993) Ministry of Law, Justice and =29&search=1993 Parliamentary Affairs Website of Legislative and The Securities and Parliamentary Affairs Division http://bdlaws.minlaw.gov.bd/pr English Exchange Ordinance(1969) Ministry of Law, Justice and int_sections_all.php?id=355 Parliamentary Affairs

Taxation, http://www.boi.gov.bd/index.p Value Added Tax Act Website of Board of Investment, Accounting Bengali hp/component/businesslaws/?vi (1991) Bangladesh ew=lawdetails&law_id=20

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Category Regulations Information Source language Website

Finance, Website of Legislative and Foreign Foreign Exchange Parliamentary Affairs Division http://bdlaws.minlaw.gov.bd/pr English Exchange Regulation Act (1947) Ministry of Law, Justice and int_sections_all.php?id=218 Parliamentary Affairs

Website of Ministry of http://www.mincom.gov.bd/Pol Import Policy Order Commerce English ices.php (2012-2015) Website of Office of the Chief Bengali http://www.ccie.gov.bd/index.p Controller of Imports & Exports hp?cmd=acts_order&id=6 Trade, Website of Legislative and Logistics Parliamentary Affairs Division http://bdlaws.minlaw.gov.bd/pr Customs Act (1969) English Ministry of Law, Justice and int_sections_all.php?id=354 Parliamentary Affairs

http://www.boi.gov.bd/index.p Value Added Tax Act Website of Board of Investment, Bengali hp/component/businesslaws/?vi (1991) Bangladesh ew=lawdetails&law_id=20 Website of Legislative and Import and Exports Parliamentary Affairs Division http://bdlaws.minlaw.gov.bd/pd English (Control) Act (1950) Ministry of Law, Justice and f_part.php?id=236 Parliamentary Affairs

Import Policy Order Website of Office of the Chief http://www.ccie.gov.bd/index.p Bengali (2012-2015) Controller of Imports & Exports hp?cmd=acts_order&id=6

http://www.google.co.jp/url?sa =t&rct=j&q=&esrc=s&frm=1& source=web&cd=1&cad=rja&v ed=0CCUQFjAA&url=http%3 Importers, Exporters and A%2F%2Fwww.ccie.gov.bd% Website of Office of the Chief the Indentors (Registration) English 2Fdownload.php%3Fcmd%3D Controller of Imports & Exports Order (1981) download_acts_order%26id%3 D8&ei=gKkFU9KFIYrukgW4 oIGIAg&usg=AFQjCNGm9JZ mdNOBZOqwMmrkfaygGuVl Vg

Labour http://www.boi.gov.bd/index.p Bangladesh Labour Act Website of Board of Investment, Bengali hp/component/businesslaws/?vi (2006) Bangladesh ew=lawdetails&law_id=24

http://www.mole.gov.bd/index. Bangladesh Labour Website of Ministry of Labour Bengali php?option=com_content&task Amended Act (2013) and Employment =view&id=475&Itemid=543

Environmen Environment Conservation Website of Ministry of http://www.moef.gov.bd/html/l English t Act (1995) Environment and Forest aws/env_law/153-166.pdf Others Website of Legislative and Parliamentary Affairs Division http://bdlaws.minlaw.gov.bd/pd Insurance Act (1938) English Ministry of Law, Justice and f_part.php?id=175 Parliamentary Affairs

http://www.boi.gov.bd/index.p Website of Board of Investment, Insurance Act (2010) Bengali hp/component/businesslaws/?vi Bangladesh ew=lawdetails&law_id=1129

Bangladesh Economic Website of Bangladesh Economic http://www.beza.gov.bd/act.ph English Zones Act (2010) Zones Authority (BEZA) p

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Category Regulations Information Source language Website

http://www.dncrp.gov.bd/image Government of the People's s/contents/whc5215b4cecbc15. Consumer Rights Protection pdf Republic of Bangladesh English Act (2009) http://www.boi.gov.bd/index.p Website of BOI hp/component/businesslaws/?vi ew=lawdetails&law_id=1113

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