Doing Business In Mongolia - 2021

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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 Corporate/Commercial Law
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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 16.20 billion US dollars in 2020. The GDP value of Mongolia represents 0.02 percent of the world economy. GDP in Mongolia averaged 4.44 USD Billion from 1981 until 2018, reaching an all the time high of 13.01 USD Billion in 2018 and a record low of 0.77 USD Billion in 1993. The significant features and advantages of Mongolia:

  • 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. Till to this day, 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/.

Analyzing the overall performance of Mongolia on a global level, international indexes of different type have shown the following results:

  • According to the World Bank's "Doing business – 2020" report, Mongolia is ranked 81st among 190 economies in the "Ease of doing business"; and
  • According to "Index of Economic Freedom 2021" by Heritage Foundation organization, Mongolia's economic freedom score is 62.4 and is ranked 86th among 178 countries. The scores in the categories such as Judicial Effectiveness and Government Integrity are low.

Law on Investment /2013/: 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.

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.

An 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.

Any amendment on Charter such as change of shareholder, address or business activity is required to be registered at the State Registration authority per relevant laws. The state registration certificate of the LLC with foreign investment has a term of 1 or 2 years. Prior to expiry date of the state registration certificate, the representative of the LLC with foreign investment shall apply for extension.

Joint-Stock Companies (JSC)

A JSC is a legal entity, which issues shares in order to raise capital for its activities. The types of JSC shall be open or closed. An "open JSC" is a company whose capital invested by the shareholders is divided into shares, which are registered at the securities trading organization and which may be freely traded by the public. A "closed JSC" is a company whose capital invested by the shareholders is divided into shares, which are registered at the securities depositing organization, and which are traded in the market in a closed extent outside of the securities trading organization.

The open JSC may have an unlimited number of shareholders. Shareholders are not liable for the obligations of the JSC, but bear the risks of losses within the value of their shares. A JSC has assets separated from the assets of its shareholders, and shall not be responsible for their obligations.

The JSC is managed by the Meeting of Shareholders (MoS), Board of Directors, and Executive Body. The MoS is the supreme management body of a JSC, which decides upon the most priority issues such as the company's management, administration, business policy, corporate structure, financial aspects, elections and some other issues.

The Board of Directors performs overall management of a JSC covering lower priority issues such as finances, policies development and implementation, etc., except for the issues referred by the Law and the Charter to the exclusive competence of the MoS.

The management of daily activities shall be performed by the Executive Body. The Executive body may be collective or individual. The Executive Body shall have the right to undertake decisions on the issues relating to the company's activities, which are not considered by the laws/legislative of Mongolia and the company's Charter as being the competence of other bodies and officials of the company.

Representative Office

Representative offices of foreign legal entities are not deemed to be legal entities, but legal entity, a representative office is not entitled to conduct business activity, which would result in income generation in Mongolia. As a subdivision of a foreign legal entity, a branch may fulfill all or a part of the functions of its parent company.

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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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