MBD New Laws Spring 2015

1. LEGAL UPDATE
#2/2015
Legal Update #2/2015 by LexLoci LLP contains general information on selected Mongolian laws
adopted by the Parliament of Mongolia during the Spring Session 2015. The information contained
in this document is not for the purpose of providing legal advice, and should not be treated as
such. You must not rely on the information in this document as an alternative to legal advice from
your attorney or other professional legal services provider. If you have any specific questions
about any legal matter in respect of Mongolian laws and regulations, you may contact with us or
should consult your attorney or other professional legal services provider.
LEXLOCI LLP

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LIST OF SELECTED LAWS APPROVED BY THE PARLIAMENT OF MONGOLIA
(as of July 30, 2015)
The Parliament of Mongolia has adopted various new legislation including new laws and amendments to the
existing laws during its spring session held between April 6, 2015 and July 10, 2015, despite some politically
driven issues not resolved as expected, such as Election Law, Law on Political Party, Law on Financing of
Political Party, Amendment to the Constitution of Mongolia, as well as the Tavan Tolgoi Coal Project
Agreement. Overall, we consider that the new legislation would bring positive effects on the development
or improvement of Mongolian legal environment.
1. Law on Pledge of Movable Properties and Intangible Assets
The Parliament of Mongolia has approved the Law on Pledge of Movable Properties and Intangible Assets
which will be effective from September 1, 2016.
The Law is to enable present or future movable properties, all kinds of stocks, securities, right to demand,
industrial designs, trademarks, all creative works of sciences, arts and other movable properties and
intangible assets to be pledged, so that to increase market transactions, reduce the interest rates and
support small and medium enterprises.
Secured obligations under the pledge shall be any or combination of contractual obligations or obligations
imposed by the law and other related obligations to the same (loss or damages caused in connection with
the performance of the pledge, penalty interest, default penalties, stamp duties and court expenses) that
could be expressed in monetary form. Collateral Pledge Agreements must comply with the requirements
set by Article 10 of the Law.
Pledge shall be ensured and confirmed upon (i) transfer of possession of the collateralized item to the
Pledger according to the Collateral Agreement; (ii) registration of Pledge Notice in the Electronic Database of
Pledge or (iii) upon control over the account if a saving account is pledged. Particular collateral could be
pledged to several Pledgers, and the Pledgers’ right shall be satisfied according to sequence of the pledge
confirmation. However, if a Seller sold equipment or a vehicle on credit or a Creditor who financed the
equipment or vehicle purchase has registered the pledge with the Electronic Database within 10 days from
the date of transferring the equipment or the vehicle, then the Seller or Creditor shall have priority right
over the other confirmed Pledgers. Such Electronic Database is to be managed by the government agency in
charge of state registration and shall be open to public.
In event there is a default by the Pledgee, the Pledger is entitled to (i) have the possession of the collateral
or get a court order to receive the possession if the Pledger is not able to do so by itself and sell the
collateral and return the remaining amount to the Pledgee after satisfying the obligations in default, (ii)
receive the payment directly from the payer if an account receivable is pledged, (iii) directly proceed with
the rights entitled by the pledged bearer security held by the Pledger or (iv) satisfy the obligations in default
directly from the cash deposited in the pledged bank account that controlled by the Pledger.
The Law also provides detailed provisions on the rights and obligations of Pledgers and Pledgees,
registration procedure of Pledge Notice, the Electronic Database, etc.

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Separate Implementation Law effective from the same date has also been adopted in order to regulate the
pledges that occurred before the enactment of the Law on Pledge of Movable Properties and Intangible
Assets.
More study needs to be done on this newly adopted legislation, and more details are to be provided in a
separate memo at request.
2. Law on Value Added Tax (revised) (subject to official publication)
The Parliament of Mongolia has approved the revised version of the Law on Value Added Tax which is
coming into force on January 1, 2016. Principal changes on the existing VAT Law (2006) are, among others,
listed as follows:
- New definitions and provisions are introduced and the existing terms are revised or clarified.
- VAT threshold of MNT10 million was increased to MNT50 million.
- VAT Payer – is an individual person who purchases and imports goods, work and services only for
his/her personal use, but not for any forms of sales and business activities.
- VAT Withholder – is a legal entity responsible for imposing and withholding tax from the sales
amounted to MNT50 million and/or more, and transferring the withholding to the budget; VAT
Withholder shall include the sellers of the goods, work, and services within the territory of Mongolia,
the importers or the exporters of the goods, work, and services to/from Mongolia.
- ‘Sales’ under the newly approved Law is defined as ‘transfer of ownership of the goods, performance
of works and provision of services’, thereby removed the existing wording ‘… in exchange of
payments …’ from the definition.
- Electronic means of VAT slip and other financial documents are accepted and introduced.
- List of the goods, works and services that are subjected to VAT is expanded and clarified by adding
public notary service, penalty or interest received from others, asset appraisal service, state funding,
subsidy or allowance, factoring, forfeiting or similar transactions, legal service and all other services
not exempted from VAT to the List.
- Goods received under the soft loans from foreign governments or international organizations, loan
interest payable to non-banking financial institutions or savings and credit cooperatives and funeral
services are exempted from VAT.
Please consult your accounting and tax advisors for more details.
3. Accounting Law (revised)
The Parliament of Mongolia has approved the revised version of the Accounting Law which is coming into
force on January 1, 2016.
The Law requires that all business entities, organizations and permanent establishments of foreign
companies conducting business operation within the territory of Mongolia shall keep their accounting
bookkeeping in Mongolian language and in Mongolian national currency.
Under the newly approved Accounting Law (2015), reporting requirement is largely lessened by setting a
regulation on companies to file their financial statements electronically signed by the executive directors or

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the chief accountants once or twice a year (annual or semi-annual and annual) in electronic form to the
relevant finance departments. Actual submission deadlines are stated in Article 10 of the Accounting Law
(2015).
Financial documents in electronic form are also recognized by the law in addition to the documents in
written form. Financial source documents in written must be signed by relevant person who prepared,
approved or reviewed the same and stamped by the company, while electronic documents are required to
be confirmed by means of electronic signature.
The Law specifically listed out the international standards to be adhered by business entities and
organizations, namely IFRS, IFRS for SMEs and IPSAS.
4. Audit Law (revised)
The Parliament of Mongolia has approved the revised version of the Audit Law effective from January 1,
2016 with intent of improving legal and institutional framework of auditing activity in Mongolia and
effectively introducing the international standards.
Under the Audit Law (2015), an auditing entity who obtained the auditing license from the Ministry of
Finance may conduct (i) financial statement audit, (ii) verification of financial statements and (iv) other
confirmation work, and/or (iv) other related financial services, as well as (v) tax professional advisory
services (subject to additional license), (vi) asset appraisal work, (vii) accounting advisory services and (viii)
trainings under the relevant laws. The law restricts an auditing entity from providing auditing services for
five consecutive years to a single legal entity and prohibits the auditing entity to resume its services within
three years after its replacement upon such five consecutive years.
Foreign invested companies and other entities listed in Section 10.1 of the Audit Law (2015) are subject to
mandatory audit required to be completed by April 30th
each year in general.
Article 17 of the Audit Law (2015) provides provisions on owners’ entitlements in terms of auditing. For
instance, holder(s) of more than 10% of the issued shares of a public/listed company and shareholder(s) of a
closed company/Limited Liability Company has a right to request audit reports on the financial statement,
debt and equity, conflict of interest transactions and other transactions, financial stance and performance
results of the company.
The Law also set detailed regulations on independent characteristic of auditing services in Article 7 and
requires auditors be independent from their clients in terms of business and personal relationships, as well
as circumstances related to the past or present auditing services.
5. Law on Encouraging Manufacturing
On July 9, 2015, the Parliament passed the Law on Encouraging Manufacturing. The purpose of this new
legislation is to provide government support for the manufacturing of the competitive and environmental
friendly value added products that directed to be exported and substitute the imports. The state support
include, among others, allowances on the loan interests on the loan received from commercial banks for the

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purpose of technological improvement and revolving funds and compensation of up 75% of the expenses on
research and development of high-tech products.
The law, however, shall not apply to those companies with foreign investment and the companies entered
into the investment agreements with the state as described by the Investment Law (2013). To this extent,
the companies could enjoy the state support under the Law on Encouraging Manufacturing if less than 25%
of its shares issued are held by foreign individuals and entities.
6. Law on City Redevelopment
The newly passed Law on City Redevelopment provides legal basis for redeveloping constructed area and
public land, demolishing and reconstructing the buildings not qualified for normal use and reorganizing and
developing ‘ger’ (traditional tent) area of Ulaanbaatar city.
7. Legislation Law
Law on Legislation was approved on May 29, 2015. The Law shall become effective from February 10, 2016
and regulate law making procedures including initiation and drafting of laws and parliamentary resolutions
(laws and regulations), requirements on the draft laws, submission procedures, printing of newly approved
laws and regulations and monitoring and assessment of the laws and regulations. It should be noted that an
entire Chapter on the public discussion over the draft laws and regulations including receiving writing
opinions, organizing public debates and meetings, public surveys, online discussions et al. is added to the
Law.
8. Amendments to Investment Law
On April 9, 2015, the Parliament revoked Section 6.10 of the Investment Law (2013), so that the provision of
requiring two third (2/3) votes of the Parliament members on any amendments to this law is no longer
effective and the general application of majority votes shall apply. One may argue that the Amendment
(2015) weakened the stability of the Investment Law (2013).
On May 14, 2015, an amendment was made to the Investment Law for the purpose of clarifying the duties
of the government agency in charge in order to comply with the newly approved Government Cabinet
Structure. All powers of the Ministry of Economic Development (former) were transferred to the Investment
Agency including, among others, issuance of the government permission on the investment by foreign state
owned entities in mining, banking and finance, telecommunication and media industry in Mongolia.
9. Amendment to Minerals Law
An amendment to the Minerals Law (2006) effective from June 4, 2015 was approved by the Parliament of
Mongolia for purpose of removing conflicts between the General Taxation Law (2008) and the Minerals Law
(2006). By the Amendment (2015), mining companies are now required to pay mining royalties concerning a
particular quarter within the first 20 days of the first month in the following quarter instead of paying the
amount before the end of the next quarter.

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10. Amendment to General Taxation Law
On June 4, 2015, amendments were made to the General Taxation Law (2008) by which financial documents
in electronic form are permitted. The definition, requirement and storage of the electronic documents will
be further addressed by the regulation to be approved by the Finance Minister. The companies are now,
subject to the said regulation, allowed to keep their financial documents both in hard copies and in
electronic form and to provide the documents in hard copies or electronic form to the tax inspectors
conducting the tax assessments. Meanwhile, tax officers are entitled to access to tax payers’ computers,
applications or software for the purpose of the tax assessments.
In addition, the tax assessments are only conducted by providing 10 business day prior notifications to the
tax payers. The possibility of immediate assessment without notification is removed from the General
Taxation Law (2008). Overall, the Amendment (2015) is expected to reduce the burden caused to the
business entities during the state tax audit/tax assessment.
11. Amendment to Corporate Income Tax Law
In order to remove uncertainty over the deductible expenses concerning mining royalties and depreciation
and amortization expenses concerning long term fixed assets, an amendment was made to the Corporate
Income Tax Law (2006) on June 4, 2015. In particular, the mining royalties reported shall be treated as the
deductible expense from the gross taxable income. The new assets obtained by the tax payer during a
particular quarter shall be depreciated from the first day of the following quarter, while the calculation on
the fixed assets under construction shall be commenced when the assets (building or construction) are
commissioned to use.
12. Amendment to Energy Law
On June 19, 2015, a number of new provisions and revisions are made to the Energy Law (2001) with the
intent of improving institutional structure of the energy sector and address the free market needs in the
sector.
For instance, a definition of ‘Power Purchase Agreement’ is, among others, added to the Energy Law (2001)
and the Ministry of Energy shall issue the permission to enter into Power Purchase Agreement while the
draft Power Purchase Agreement is to be approved and the agreement is registered by the Energy
Regulatory Commission. The Energy Regulatory Commission is also entitled to approve the start-up tariff of
a power generator.
In connection with the introduction of ‘natural gas’ and ‘coal bed methane’ in the newly approved
Petroleum Law (2014), the ‘methane gas’ being supplied to the end-users is included in the definition of
‘energy’, and relevant regulations on gas and gas supply are stipulated in the Energy Law (2001).
The Amendment (2015) has also broadened and increased the liability of the law breach by making
amendments to the Article 37 of the Energy Law (2001).

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13. Amendment to Renewable Energy Law
The Parliament of Mongolia approved an amendment to the Renewable Energy Law (2007) on June 19, 2015.
By the Amendment (2015) new definition of ‘supporting tariff’ (renewable portfolio standard or renewable
obligation) is introduced. Energy Regulatory Commission is entitled to set the ‘supporting tariff’, as well as
setting the price and tariffs upon expiry of the Power Purchase Agreement of which term is set in line with
the payback period. The renewable energy price and tariffs shall be set by the Energy Regulatory
Commission in consideration of the payback period and within the limits set by the law. Price difference of
the electricity generated from renewables shall be compensated by the said ‘supporting tariff’.
End of the Document