1. Mongolian Law Updates: Recent Key
Changes (since 2013)
Ashid Advocates LLP
Suite #301, Ochir House Business Center, Peace Avenue 15A/5, 1st
Khoroo, Sukhbaatar District, Ulaanbaatar City - 14210, Mongolia
13 August 2015
2. New Laws and Amendments
• Law of Mongolia on Investment /3 October 2013/
• Laws of Mongolia on Amendments to the Minerals Law /between 2013 and 2015/
• Law of Mongolia on Amendments to the Petroleum Law /9 May 2015/
• Law of Mongolia on Amendments to the Energy Law /19 June 2015/
• Amended and Restated Law of Mongolia on Free Zone /12 February 2015/
• Law of Mongolia on Promotion of Industrial Manufacturing /19 July 2015/
• Law of Mongolia on Amendments to the General Tax Law /4 June 2015/
• Law of Mongolia on Amendments to VAT Law /12 February 2015/
• Law of Mongolia on Amendments to the Corporate Income Tax Law /12 February 2015/
• Law of Mongolia on General Administration /19 June 2015/
• Law of Mongolia on Amendments to the Legal Entities’ State Registration Law /19 January 2015/
• Law of Mongolia on Promotion of Economic Transparency /7 August 2015/
• Law of Mongolia on Construction /Legislation Bill has been submitted to the State Great Khural on 9 July 2015/
3. Law of Mongolia on Investment
(I)
• Law of Mongolia on Investment Law (the “Investment Law”) was approved on October
3, 2013.
• The purpose of the Investment Law is to boost Mongolian economy by increasing
foreign and domestic investment. Therefore, among others, tax and non-tax incentives
have been created for all investors in Mongolia under the Investment Law.
• The Investment Law provides an equal opportunity and
access for both foreign and domestic investors.
• The Stabilization Certificate has been created under the
Investment Law under which some taxes and fees are
stabilized for certain periods of time, depending on amounts
of investment and industrial sector, such as corporate
income tax, customs tariff, VAT and royalty.
4. Law of Mongolia on Investment
(II)
• The terms for land use right have been improved.
• The requirements for bringing foreign work force has been eased.
5. THE AMENDMENTS OF 2013, 2014 AND 2015
TO THE LAW OF MONGOLIA ON MINERALS (2006)
1. Major amendments to the Law of Mongolia on Minerals (2006) have been approved since 2013.
Stabilization certificate. The Investment Law was approved on 3 October 2013. Therefore, in
compliance with the Investment Law, the relevant amendments, among others, regarding the
Stabilization Certificate, were introduced and approved under the Law of Mongolia on Amending the
Minerals Law, which was approved on 3 October 2013.
Tax incentives. The Parliament of Mongolia enacted the Law of Mongolia on Amending the Minerals
Law on 24 January 2014 under which in the event the license holder sells the extracted gold to the
Bank of Mongolia or its authorized banks, the royalty rate will be decreased to 2.5%.
Strategically significant deposit. On 18 February 2015, the Parliament of Mongolia approved the
Law of Mongolia on Amending the Minerals Law that sets out that in the event the relevant parties
to the contract agree to transfer the percentage of the state share in minerals deposit of strategic
importance upon the approval of applicable authority in charge, the license holder who is receiving
the state share has to pay the royalty with percentage approved by Government of Mongolia.
6. THE AMENDMENTS OF 2014 TO
THE LAW OF MONGOLIA ON MINERALS
2. The main amendments, introduced under the Law of Mongolia on Amending the Minerals Law, which
was passed and came into effect on 1 July 2014. Under the initiation of the Government of Mongolia,
which formed as a result of 2012 election, to reform the certain laws in order to increase foreign
investment, therefore achieve the primary objective of stimulating the economy, the Parliament of
Mongolia approved the Law of Mongolia on Amending the Minerals Law on 1 July 2014, which came into
effect on the same day of approval (the “Amendment”). The Amendment includes some key changes,
which include, among others:
As for the common minerals, and its exploration and mining activities are now stipulated under the
separate law, therefore, it is no longer regulated under the Minerals Law;
The exploration and collection of non-ferrous metals and precious stones will now require a license
similar that of other common minerals;
The term for exploration licenses has been extended to 12 years, which was 9 years prior to the
Amendment;
The license holders have now obligation to give priority to business entities registered in Mongolia
when procuring goods, works or services and hiring subcontractors;
7. THE AMENDMENTS OF 2014 TO
THE LAW OF MONGOLIA ON MINERALS
In addition to above obligation, the license holders shall give priority to Mongolian
concentrator plants when selling its extracted, concentrated or semi-processed products;
A license holder whose licensed area has been confiscated as a result of the establishment
of a special purpose zone in accordance with the Law of Mongolia on Land must now be
compensated by the relevant authority who issued the confiscation decision within one year
of the approval of such decision. Therefore, the Minerals law specifically provides that in
the event that the compensation is not paid within the specified period, the license holder
may continue operating. Most significantly, the Amendment stipulates that in the event the
confiscated area is not treated anymore as a special purpose zone, such area will be
returned to the previous license holder;
Maximum area which may be licensed under a single exploration license has been reduced
from 400,000 hectares to 150,000 hectares.
8. Key Changes to the Law of
Mongolia on Petroleum
Law of Mongolia on Petroleum (the “Petroleum Law”) was
enacted on 1 July 2014. Under the Petroleum Law, the following
key changes have been introduced:
the powers of the Government in the petroleum sector are
clarified;
royalty fee rates are defined; and
regulated relationship of the Governmental authorities in
monitoring of imposition of a tax credit, acquisition and licensing,
suspend, revocation of oil prospecting, exploration and
exploitation licenses.
Law of Mongolia on Amendments to the Petroleum Law was
approved on 9 May, 2015 under which non-conventional oil
exploration drilling activity is permitted.
9. Law of Mongolia on Energy
• In accordance with business operations’ classification standards
adopted by the United Nations, "gas" and "gas supply
distribution" concept has been now reflected as the new energy
concept "gas“ in the Law of Mongolia on Amendments to the
Energy Law (the “Amendment”) on 19 June 2015.
• In the Amendment, the special permit holder for gas supply now
shall be classified into “non-regulated supplier”.
• A special permit for construction of energy facilities will now be
obtained from the Mongolian Ministry of Energy.
10. Amended and Restated
Law of Mongolia on Free Zone (I)
Amended and Restated Law of Mongolia on Free Zone (the “Amendment”)
was approved on 12 February 2015 by the State Great Khural (Parliament).
According to the Amendment, the investors in a Mongolian free zone will be
provided the following favorable conditions:
Free zone customs special regime
If goods are imported and exported into/from the territory of the free zone,
concessional and simplified clearance terms, which are more favorable than
terms specified under the Law of Mongolia on Custom tariffs and duties, are
applied.
11. Amended and Restated
Law of Mongolia on Free Zone (II)
Visa regimes
Citizens of bordering countries with the free zone are permitted up to 30 day
stay without a visa.
Registration management of legal entity
A free zone registered legal entity has selected special treatments during its
operations.
Special tax regimes
Tax discount and exemption will apply to income generating from business
activities and investment within the free zone.
12. Amended and Restated
Law of Mongolia on Free Zone (III)
Special tax regime applies in free zone:
1. goods, imported from abroad to Free Zone, are exempted from customs, excise and
value added taxes;
2. in the event that import customs, excise and value added tax are already paid when
goods are in the customs territory, such paid customs, excise and value added tax shall
be refunded;
3. in the event that Mongolian goods are imported into the free zone, “0” VAT shall be
imposed;
4. goods exported from free zone to abroad are subject to exemption of any tax; and
5. legal entity or citizens of free zone who engage in production activities and sale of goods,
works and services in the territory of free zone are subject to “non VAT payers”.
13. Amended and Restated
Law of Mongolia on Free Zone (IV)
The corporate income tax is exempted under the following conditions:
1. innovation and high-tech enterprises are exempted from corporate income taxes for a period of 5 years after profit
activities; or
2. constructed and registered construction facilities in the territory of free zone are now exempted from real estate tax.
14. Law of Mongolia on Promotion of
Industrial Manufacturing
According to the Law of Mongolia on Promotion of Industrial Manufacturing (the “PIM”), the Government of
Mongolia shall encourage and support the development of export industries through following forms:
Entities which export more than 30 percent of its production are refunded the interest rate gaps of loan granted from a
commercial bank under the following conditions:
a loan obtained for the purpose of technological innovation; and/or
a loan obtained for the purpose of increasing an investment and/or working capital of a company.
export manufacturing oriented entities, which engage in business activities with high efficiency with an advanced
technology or introduced or provided a high-technology, are refunded research and development costs up to 75 percent
from the State budget until production.
An eligible entity shall meet the following requirements:
based on Domestic raw materials and imported raw materials, the value of the network has been created;
joint stock company;
60 percent of main and auxiliary materials, other relief goods, work and services are sourced from domestic
manufacturing entities; and
technology is registered with the technology registration database.
15. Law of Mongolia on General
Taxation and Law of Mongolia
on VAT
Law of Mongolia on Amendments to the General
Taxation Law was approved on June 4, 2015.
• now financial receipts are accepted via an electronic form.
Law of Mongolia on Amendments to the VAT
Law was enacted on February 12, 2015.
• VAT for sale volumes of 50 million or more, the entities, which have
engaged the following activities, are responsible for payment of
withholding taxes:
1. Sales of goods, works and services in the territory of Mongolia;
2. Import of goods and services to Mongolia; or
3. Export goods and services from Mongolia.
16. Law of Mongolian on Corporate
Income Tax
In the event that enterprises invest in the Free Zone :
• incomes which are equal to 50 percent of the invested amount shall be
exempted from corporate income tax under the following conditions:
• infrastructure sector, investment amounts of 500.0 thousand US dollars or over,
• hotel and tourist complexes, and establishment of import-substituting and export oriented
factory, investment amounts of 300.0 thousand US dollars or over.
• Deficit shall be deducted from taxable incomes within 5 years following
after commencement and production.
A taxpayer’s newly purchased assets’ depreciation and
amortization shall commence on the first day of the next
quarter.
17. Law of Mongolia on
General Administration
The Law of Mongolia on General Administration (the “Legislation”) prevents any
uncertainty in decision making by the State authorities. Furthermore, it abolishes
limitless actions or inactions of the State authorities who infringe the legitimate
rights of investors, corporations and individuals under the ambiguity terms of
“protection of public interests, national security and national interests”.
The Legislation ensures that no bureaucracy exists in the State power, as well as
that decision making path is well regulated.
The Following principles are reflected in the Legislation.
Protection of Legitimate rights of individuals and entities;
Principle of Listening; and
Effective Administrative Decision Enforcement.
18. Law of Mongolia on Legal
Entities’ State Registration
The Parliament of Mongolia approved the Law of Mongolia on Legal
Entities’ State Registration (the “Legal Entities’ State Registration Law”)
on January 29, 2015, which came into force on 1 March 2015.
The purpose of adoption of Legal Entities’ State Registration Law is to provide
transparent and one-spot registration procedures which would ease the current
hurdles concerning the registration of legal entities in Mongolia. As such, since
the Legal Entities Registration Law is in place, services of state registration can
be acquired through electronic or written form. In addition, effecting the stamp
duty fee in an electronic form displaces the current problems, such as preparation
of many documentations and time consuming procedures, surrounding the
registration of the legal entities.
19. Law of Mongolia on Promotion
of Economic Transparency
Those, who have done the following before 1 April 2015:
1. not registered at the tax authority as taxpayers;
2. concealed significant amounts of taxable incomes;
3. not registered movable and immovable properties at the State
registration;
4. not registered the scope of business to the Legal Entities’ State
Registration Authority of Mongolia; and/or
5. reduced or concealed the wage funds for employees,
are required to
The Law of Mongolia on Promotion of Economic Transparency exempts such
entities from the following taxes:
1.corporate Income Tax;
2.personal income tax;
3.real Estate Tax;
4.VAT;
5.excise Tax; and/or
6.customs Tax.
Voluntarily:
Declare,
Report,
Register before 31
December 2015
Will be exempted from the
said taxes;
Will not be imposed any
criminal and
administrative sanctions,
Are waived from any
interests and penalties.
April 01, 2015 December 31, 2015
20. Law of Mongolia on
Construction
Bill of the Law of Mongolia on Construction (the “Bill”) has been submitted to the State Great Khural
on 9 July 2015.
The following key changes are in the Bill:
Construction activities are classified into 5 categories. Other than the first category, the remaining
categories are subject to construction work permits.
The requirements and procedures for construction work permits have been eased and clarified in
detail.
In the event the construction work permit holder transfers its shares in the amount more than 34
percent, such holder must re-apply for construction work permit.
The term for construction work permit has been extended for 5 and 10 years.
In the event the construction work permit holder has not engaged into construction activities for
consecutive 3 years, the construction work permit shall be revoked.
22. Contact details
For further clarification, please contact us at:
Ashid Advocates LLP
Suite #301, Ochir House Business Center,
Peace Avenue 15A/5, 1st Khoroo, Sukhbaatar District,
Ulaanbaatar City - 14210, Mongolia
Phone: +976 70147878
Fax: +976 70147878
Email: info@ashidadvocates.mn
