22 February 2022

Doing Business In Mongolia - 2022

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Tremendous mineral reserves, agricultural endowments, and proximity to Asia's vast markets make Mongolia an attractive destination for medium to long-term foreign direct investment (FDI).
Mongolia Finance and Banking
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Business Climate

Tremendous mineral reserves, agricultural endowments, and proximity to Asia's vast markets make Mongolia an attractive destination for medium to long-term foreign direct investment (FDI). The Gross Domestic Product (GDP) in Mongolia is worth 10.4 billion US dollars as of September 2021 according to the national statistics of Mongolia. The GDP value of Mongolia represents 0.01 percent of the world economy. The significant features and advantages of Mongolia include, but not limited to the following:

  • Diversified and growing market exists in Mongolia;
  • Technology Innovation Hub;
  • Large mineral resource base that can be leveraged for value added processing;
  • Developing Industry and Infrastructure;
  • A bridge between the two economic powerhouses of Russia and China;
  • Young, well-educated population;
  • Private Sector & Privatization /privatize major state assets, list Mongolian conglomerates and exploration license aggregators on MSE/;
  • PPP & Modernizing Infrastructure;
  • Rule of law &Regulatory Quality &Transparency;
  • Ensuring guarantee for investors /tax & nontax/;
  • Promising mega projects; and
  • Thriving Telecoms & IT sector.

International framework: Mongolia is persistently discussing to enter bilateral and multilateral agreements and actively participates in the process of regional integration. Mongolia has established Foreign Investment Protection and Promotion Agreement with 43 countries and Double Taxation treaties with 26 countries. Moreover, Mongolia is the member of the Seoul Convention establishing the Multilateral Investment Guarantee Agency and Washington convention on the Settlement of Investment Disputes. Consequently, in April, 2014, Mongolia has introduced its investment policy and the law to UN Conference on Trade and Development /UNCTAD/.

Mongolia has completed Mongolia-Japan Economic Partnership Agreement /EPA/ negotiations, which became the Foreign Trade Agreement of Mongolia. Also executed bilateral mutual assistance agreement with 18 countries on civil, family and criminal matters.

Local legal framework: In 2013, the Parliament of Mongolia passed a new law on investment, which replaced both the old Investment law of 1993 and the Law on Strategic sectors. The new Investment law enables as open as possible investment environment for investors focusing on:

  • No approval is required to enter into the market and buy a local company;
  • No discrimination between foreign and local investors;
  • Fast registration process;
  • Stability guarantees- Provision of Tax stabilization certificate; and
  • Flexibility and friendly conditions for investors.

In 2021, the Ministry of Economy and Development was established newly and replacing the National Development Agency of Mongolia that had been in charge of investment-related matters. The new Ministry is to, among other things, improve integrated investment policy and planning, and its legal environment, ensure and oversee the implementation of relevant legislation, attract, support, and protect investment, implement comprehensive measures to develop the public and private partnership, define integrated policy for a loan, and develop national investment program.

Investment types:

  • Joint Ventures, Consortium;
  • Mergers and Acquisition;
  • Concession (PPP), Product sharing, management contract;
  • Bond, Securities and other assets;
  • Financial leasing, Franchising; and
  • Other investment types.

Legal forms for doing business in Mongolia

Despite the fact that Mongolian legislation provides for a wide range of legal forms of commercial entities (limited liability company or LLC, joint-stock company or JSC and joint venture), in practice, private businessmen and foreign investors mostly prefer with foreign invested LLC. Representative office of foreign legal entities is also common.

Limited Liability Company (LLC) with a foreign investment:

According to the law, a foreign invested company is defined as "a business entity with an overall equity of US$100,000 or more (or MNT equivalent), where not less than 25% must be owned by (a) foreign investor(s)". Investments into Mongolia can be made in the following ways:

  • By establishing a solely or jointly owned business entity;
  • Through the purchase of a Mongolian companies' shares, bonds, and other types of securities;
  • Through merging or wholly acquiring Mongolian and foreign companies;
  • Through the establishment of franchise or financial leasing agreement; and
  • In other ways acceptable and not prohibited by law.

If two or more investors are planning to incorporate a foreign invested LLC in Mongolia, each investor must invest 100,000 USD or MNT equivalent.

A LLC is the most frequently used form of a legal entity established by one or more individuals or legal entities – founder/s/ or investor/s/ – who are not liable for its obligations while bearing the risk of losses related to the company's activity to the extent of their personal contributions (participatory interests). The liability of the company is limited to its assets.

The bodies of a limited liability company are:

  1. the supreme body of a company shall be the Meeting of Shareholders(MoS). LLC has exclusive powers with respect to the issues covering business, finance, management, and structure of the company.
  2. The executive body of a company (individual or collective).
    The day-to-day management of the company is performed by the Director (individual executive body) or Board of Directors (collective executive body), who are elected at the MoS. Under Charter of the company, power of management or management team shall be defined clearly. The authorities entrusted to the Board of Directors shall be specified in the Charter of the company. The company may also have a Supervisory Board, which is, however, not mandatory.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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