Doing Business In Mongolia 2023

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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...
Mongolia Corporate/Commercial Law
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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). 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 legal framework:

Mongolia is persistently discussing to enter bilateral and multilateral agreements and actively participates in the process of regional integration. Currently, 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/.

Furthermore, 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:

n 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:

  1. No approval is required to enter into the market and buy a local company;
  2. No discrimination between foreign and local investors;
  3. Fast registration process;
  4. Stability guarantees- Provision of Tax stabilization certificate; and
  5. 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:

  1. Joint Ventures, Consortium;
  2. Mergers and Acquisition;
  3. Public-Private Partnership project, Product sharing, management contract;
  4. Bond, Securities and other assets;
  5. Financial leasing, Franchising; and
  6. Other investment types.


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:

  1. By establishing a solely or jointly owned business entity;
  2. Through the purchase of a Mongolian companies' shares, bonds, and other types of securities;
  3. Through merging or wholly acquiring Mongolian and foreign companies;
  4. Through the establishment of franchise or financial leasing agreement; and
  5. 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 supreme body of a limited liability company shall be the Meeting of Shareholders (MoS). The MoS has exclusive powers with respect to the issues covering business, finance, management, and structure of the company. The Board of Directors (the BoD) is the governing body of a company between shareholders meetings. An LLC is not required to have a BoD in place, on the other hand if it is decided to have the BoD, it must be stipulated in the company's charter.

The day-to-day management of the company is performed by the Executive Management (an individual or a team) who are elected at the MoS. Under Charter of the company, power of the director or management team shall be defined clearly.

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.

A representative office operates according to its Charter and is managed by an individual authorized by the parent company under a power of attorney. Representative offices are formed in essentially the same manner as legal entities.

The term of state registration certificate of the Representative office is granted for 1 to 2 years. Prior to expiry date of the state registration certificate, the representative office shall apply for extension of state registration certificate term.

Permanent establishment

In practice, there are cases where a foreign business entity operates in the territory of Mongolia on the basis of a contract to perform any work or provide services without establishing a legal entity in Mongolia. However, depending on the type of work performed and the period of work, there may arise an obligation to register the "Permanent establishment" with the respective Taxation Authority of Mongolia. 

As defined in the Law of Mongolia on Corporate Income Tax, the Permanent establishment include the following units and activities:

  1. A place of management;
  2. Branches and departments;
  3. Units responsible for training, seminars and exhibitions;
  4. Units responsible for warehousing, sale and services;
  5. Mines, oil or gas wells, and mines or places where minerals are explored;
  6. A factory;
  7. Units undertaking activities with regard to construction sites, buildings, assembling and installation facilities, and other related construction and supervisory works for a period of 90 days or more in the course of 12 consecutive months;
  8. Units providing technical, consulting, management, supervisory and other services to taxpayers residing in Mongolia, on its own or through hired employees, for period 183 days or more during the course of consecutive 12 months shall be deemed as permanent office.

Furthermore, units conducting the following activities in Mongolia on behalf of a taxpayer not residing in Mongolia shall be considered as a permanent establishment:

  1. The storage, sale and supply of goods and products;
  2. Conclusion of contracts in person, or an arrangement for concluding contracts on behalf of a non-resident taxpayer without altering the main conditions of the contracts. This contract contains one of the following features:
    1. To be established in the name of a non-resident taxpayer;
    2. To transfer a non-president taxpayer's asset which is owned by, or if not owned, used or possessed by him/her to others, or transfer the right to use and possess of such an asset to others;
    3. To transfer a non-president taxpayer's asset which is owned by, or if not owned, used or possessed by him/her to others, or transfer the right to use and possess of such an asset to others;

The term "Representative Office" used in the International agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and properties that has been ratified by the State Great Khural shall be considered as the "Permanent establishment".

A non-resident taxpayer who is earning income generated from Mongolia shall be qualified as or deemed to have a permanent establishment in Mongolia upon the date of the commencement of the activity or the date of the conclusion of the contract, whichever is earlier shall be considered.

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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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