ESTABLISHMENT PROCEDURE OF A NEW BUSINESS ENTITY WITH FOREIGN INVESTMENT

The incorporate of new business entity with foreign investment (BEFI) in Mongolia takes place at the General Authority for State Registration /GASR/.

Below are key steps of incorporation a new company in Mongolia:

Check availability and register the company name /GAIPSR/

  1. Original ID of the founder (original passport if founder is foreign citizen)
  2. Incorporation via Power of Attorney /Original copy of letter of Attorney, original ID or passport/
  3. Document processing fee 500 MNT needs to be remitted to GolomtBank-1401001101

Open an account /any preferred commercial banks/

Make sure to bring the verification sheet of company. Banks might request additional documents.

Apply for certificate of incorporation at General Authority for State Registration of Mongolia / GASR/

List of documents to incorporate a Business entity with Foreign Investment:

  1. To fill UB-03 form
  2. Name verification of legal entity. /500 tugriks in 1401002649 Golomt bank /
  3. Receipt of paying state stamp duty. /750.000 tugriks in 1401002649 Golomt bank/
  4. Founder verdict /minutes of meeting if it has 2 or more shareholders/
  5. New rule. / 2 copies in Mongolian, certified translation 1 copy/
  6. The contract of cooperate / if it has 2 or more shareholders/
  7. Official address of company /certificate of immovable property (copy) or leasing contract/
  8. Evidence of investment. / According to Article 3.1.5 of the Investment Law, the amount of investment invested by each investor shall be above the US $ 100 000/
  9. Passport copy. /founder, shareholder and director/
  10. Other documents according to 11.5.1 and 11.5.2 of Law on state registration if necessary
  11. Remark: in case it is concluded in foreign country, contract to sell share, buy share, and endow must be denoted by Embassy and Consul Notary or Apostille.
  12. Proxy /not necessary if official to represent without proxy/

Obtain the company seal

Obtainable within 2 hours at Seal producing company

Foreign entities doing business in Mongolia

The Investment Law stipulates that a foreign entity must either be incorporated as a business entity with foreign investment (BEFI) or as a representative office in order to conduct any activity in Mongolia. A BEFI is defined as an entity that is incorporated in Mongolia and of which at least 25 percent of the equity is held by a foreign investor(s) whose minimum contribution to the entity is USD100,000, per such investor. A representative office is defined as an entity that is established in Mongolia solely to operate as a representative office of a parent foreign entity such representative office does not have the power to earn revenue from business activity in Mongolia.

All information related to the registration of the company provided on the website of the State Office in Mongolia www.burtgel.gov.mn

Other information:

  • The estimate time period of preparing registration documents, obtaining a company name, opening a bank account, translation of documents and possible agency delays of registering a new BEFI is approximately 2 weeks.
  • According to the laws of Mongolia, please note a BEFI must apply for a separate registration of social security with the Social Insurance Department of Mongolia as well as submit tax reports to the tax authorities within the prescribed time limit.
  • If future business activities of a BEFI require a special permit (license), the BEFI must first be registered with the GAIPSR and update registration information upon applying for and obtaining the permit (license) from respective authorities such as:
  • Ministry of Health
  • Ministry of Environment and Tourism
  • Ministry of Construction and Urban development
  • Ministry of Education, Culture, Science and Sport
  • Ministry of Road and Transportation development
  • Communications Regulatory Commission of Mongolia
  • Mineral Resources Authority of Mongolia
  • General Civil Aviation Authority etc.
  • If a foreign government owned legal entity holds more than 33 percent of the total shares in a legal entity of Mongolia with principal activities in the following sectors, such foreign government owned entity shall apply for and obtain permission from National Development Agency:
  • Mining
  • Bank and finance
  • Media and communication

ESTABLISHMENT PROCEDURE OF A REPRESENTATIVE OFFICE OF A FOREIGN LEGAL ENTITY

The establishment a new representative office of a foreign legal entity in Mongolia register at the General Authority for State Registration of Mongolia /GASR/.

List of documents needed for setting up a representative office of a foreign legal entity in Mongolia: /GASR/

  1. To fill UB-11 form
  2. Receipt of paying state stamp duty. /1.100.000 tugriks in 1401002649 Golomt bank/
  3. Introduction and rule copy of foreign legal entity /certified translation/
  4. Foreign legal entity certificate copy. /certified translation/
  5. Authentic verdict and regulation from parent company to establish representative office
  6. /1 copy/. must have to phone number and official address
  7. Passport copy
  8. Official address of Representative office /certificate of immovable property (copy) or leasing contract /
  9. Other documents according to 11.5.1 and 11.5.2 of Law on state registration if necessary
  10. Remark: in case it is concluded in foreign country, contract to sell share, buy share,and endow must be denoted by Embassy and Consul notary or Apostille.
  11. /not necessary if official to represent without proxy/

Other information:

  • A foreign legal entity, apart from the foreign government organization, Limited Liability partners and foreign non-governmental organizations, may establish its representative office within the territory of Mongolia.
  • A representative office shall not be deemed a legal entity. It is prohibited for a representative office to carry out any commercial activities for the profit earning purposes within the territory of Mongolia;
  • Upon obtaining the certificate of representative office from the GASR, the representative office must get a permission to open a bank account from the Tax office of Ulaanbaatar City.
  • The Information and related materials with the registration of the new representative office may be subject to change, therefore, please refer to the following website of the GASR www.burtgel. gov.mn

Contact information:

General Authority for State Registration of Mongolia

Police Street Sukhbaatar district Ulaanbaatar-14171 Tel: +976-1800-1890, +976-11-320502

E-mail: contact@burtgel.gov.mn

Website:  www.burtgel.gov.mn

TAX LEGISLATION

General tax law

The purpose of the General Tax Law (the Tax Law) in Mongolia is to:

  • Establish legal grounds for the introduction, establishment, imposition, reporting, payment, control and collection of taxes in Mongolia
  • Define the rights, duties and liabilities of taxpayers and tax authorities
  • Regulate relations arising between taxpayers and tax authorities

All other laws and regulations relating to taxation in Mongolia should be read in conjunction with the Tax Law.

The Mongolian tax system comprises of taxes, fees and payments and are categorizes as either state or local taxes. There are twelve types of state taxes and fourteen types of local taxes, controlled by regional Government.

General Tax Law
State taxes Local taxes
Economic entities income tax (i.e. corporate income tax) Individual income tax
Value-added tax (VAT Income tax on individuals engaged in work and services, income which cannot be immediately determined
Customs duty Immovable property tax
Excise tax State stamp duty (Others)
Stamp duty (Article 11.2 of the Stamp Duty Law of Mongolia) Tax on auto and self-propelling vehicles
Royalty tax Charges on permit to use natural resources other than minerals
Tax on petroleum and diesel fuel Charges on use of commonly occurring minerals
Fees for mineral exploration and mining licenses Land charges
Air pollution payment Gun duty
Water pollution payment Charges on use of natural resources
Tax on petroleum oil reserve usage Capital city tax (newly approved)
Fees for petroleum oil exploration and licenses Tax on dogs
Tax on inheritance and gifts
Charges on waste services

Rights and duties – taxpayers and tax authorities

The Tax Law sets out the responsibilities of taxpayers which include:

  • Registration with the tax authority
  • Providing required information and documentation to the tax authority
  • Accurately maintaining records
  • Withhold taxes
  • Timely payments and filings

In addition to the above, there are a number of specific requirements which a good Mongolian accountant should be aware of, such as the need to use a cash register that meets certain standards. The Tax Law also confers on taxpayers the right to carry out their activities without undue interference from the authorities and to have their confidentiality respected. However, information may be published by the tax authority in relation to taxpayers proven to have evaded taxes, violated tax legislation or who are being sought after in relation to such offences. Further, taxpayers have the right to:

  • Obtain information and advice from the tax authority
  • Demand refunds or deductions on overpaid taxes
  • Make complaints and obtain explanations from the authorities
  • Demand compliance from the authorities
  • Obtain advice and assistance from legal tax consultants

The tax authority and state tax inspectors are required under the Tax Law to assist taxpayers in their duties by providing services such as public information, instructions and training. The time limit for the tax office to impose taxes in arrears, fines and penalties is five years (however, this varies depending on the type of tax and when the return or payment was due).

Tax reporting and payments

The tax year is from 1 January to 31 December. Corporate income tax reporting deadlines are detailed in Figure 8. A taxpayer must accurately determine and self-assess its income and tax due based on quarter-to-date and year-to-date tax statements prepared under accrual accounting and make payments to the Mongolian Tax Authority (MTA).

Corporate income tax
Quarter ending Submission date
31 March 20 April
30 June 20 July
30 September 20 October
31 December (annual return) 10 February

For taxes other than corporate tax, specific reporting and payment requirements are established in the applicable legislation governing that tax type.

Tax audits

Once tax reports are submitted to the tax authority, they are reviewed for factors such as internal consistency, calculation errors, timely payments and compliance. Additionally, audits are conducted by the tax authority to test the accuracy and completeness of reporting. At least ten days’ notice should be given ahead of an audit. Taxpayers are required to grant tax inspectors full access during these audits. The owner of the property or business should also be present or represented.

Debt collection

Tax Law also prescribes tax registration and settlement, collection of overdue taxes and penalties for non-compliance. Essentially, the tax authority is responsible for registering all income and refunds due. Any late tax payments, penalties and fines are classified as ‘tax debts’ (which are required to be settled in a particular order). Fines are imposed on late tax payments, as well as overpayments made through the fault of the tax authorities. The fine rates are approved by the Government of Mongolia on an annual basis.

To settle ‘tax debts’ the tax authority may recover the amount owing from the taxpayer’s bank account, deduct from the taxpayer’s income or sell the taxpayer’s assets (or use them as collateral). Ultimately, the tax authority may file a claim with the courts.

The penalty for late payment is currently 0.1% of the outstanding balance per day. The penalty for concealing taxable income through negligence or fraud (where criminal charges are not brought) is 30% of the tax payable.

Licensee

For certain sectors, special licenses are required from line ministries or regulatory authorities. They are detailed below, along with relevant institutions.

Relevant documents

  1. Energy sector
  2. Tourism sector
  3. Banking sector
  4. Industrial sector
  5. Food and agriculture sector
  6. Infrastructure sector
  7. Labour sector
  8. Mineral resources sector
  9. Banking Law, 2010
  10. Drug Supply

Trade and Customs legislation

Customs duty

Imports

The MTA is responsible for administering import laws and regulations. The majority of imports do not require a special license or approval, but are required to be declared to Customs, along with a description and value of goods imported. Transaction value is the most commonly used method of valuation. Alternative valuation methods include:

  • Transaction value for identical merchandise
  • Transaction value for similar merchandise
  • Deductive method
  • Computed method

Based on this information, Customs will determine the amount of tariff to be paid on the import. Tariff rates are established and approved by the Government. Import tariffs can be regular, favored or preferential. As such, depending on the country in which a product is imported from, a favored and/or preferential tariff rate may apply in lieu of a regular rate.

Exports

Generally speaking, most exports are not subject to tax. In theory, an export tax exists but it is applied to a limited number of products only. Most exports do not require a special license or approval, however exporting the following items is restricted (amongst others):

  • Uranium
  • Firearms
  • Certain dangerous and poisonous chemicals

Employment regulations

Labour relations in Mongolia are regulated by the provisions established in the Labour Law of Mongolia (the Labour Law). The Labour Law provides general rules related to labour contracts, working conditions, labour disputes and other matters related to labour relations. The general provisions articulated in the Labour Law apply to all foreign and domestic parties entering into labour contracts within the territory of Mongolia, unless otherwise noted in subsequent articles and/or trade agreements with specific jurisdictions.

Labour contracts

The Labour Law provides that all employment contracts must be in writing and must contain the following information:

  • Name or title of the position of employment
  • Duties and work to be performed
  • Amount of compensation
  • Work conditions (e.g. any conditions that may impact an employee’s safety or ability to

perform work)

If the basic requirements listed above are not agreed upon during the course of a negotiation, the employment contract can be considered void. Additional terms and conditions may be agreed upon by the parties to be included in the contract, provided that the additional terms and conditions are compliant with existing laws and regulations of Mongolia.

Employment contracts can be for a fixed-term or permanent. For fixed-term employment contracts, the Labour Law establishes conditions where the employment contract may be lawfully terminated, prior to the end date of the contract. These conditions include situations where both parties agree to terminate an employment contract prior to the end date of the contract or if an employee is required to undertake active military service.

Severance pay

If an employment contract is lawfully terminated (in accordance with the Labour Law) or if an employee is required to partake in active military service, the employee is eligible for a severance payment.

The minimum severance payment is equivalent to the average salary currently received by the employee, unless otherwise stipulated in an employment contract. A default method for determining the average salary of an employee is established by the Minister of Social Welfare and Labor.

Working hours

The standard work week in Mongolia consists of a 40 hour week, typically treated as eight hours per day from Monday to Friday with Saturdays and Sundays treated as public days of rest. In addition, the Labour Law defines a work day as eight hours of work and requires at least 12 hours of uninterrupted rest between two work days. If an employee works beyond the standard eight hour day at the initiative of their employer, the additional work performed by the employee is considered overtime and should be compensated by either time in lieu or overtime pay. The employer is further restricted in the circumstances in which they can impose overtime on public holidays and weekends.

Salary

Employees are typically paid twice a month or more frequently if stipulated by the employment contract. Compensation consists of base compensation, extra pay, awards and bonuses. The Labour Law establishes a minimum compensation level which is currently set to MNT 192,000 per month for most jobs. However, there are higher compensation levels for the mining and transportation sectors. From 1 January 2017, the minimum compensation level will increase to 240,000 MNT per month.

Employers are required to provide extra pay in certain circumstances, including:

  • Overtime, which must be at a rate at least 50% greater than regular pay
  • Work performed over a public holiday, which must be double the amount of regular pay
  • Night shift work, which is at a rate established in the employment contract

Paid vacation

Annual paid vacation for employees in Mongolia is mandatory. First time employees become entitled to an annual vacation after 11 months of service, with vacation periods ranging from 15 days to 33 days, depending on the number of years served and the type of work performed. Annual paid vacation can be exchanged for payment if employees are unable to take their annual vacation.

Maternity leave

Under the Labour Law, new mothers are entitled to 120 days of maternity leave, during which state benefits are paid. State benefits are capped at ten times national minimum wage. This is typically taken for two months on either side of the expected delivery date. Additional days can be taken if there were any complications during delivery. In addition to taking days off, mothers with an infant of up to twelve months old are entitled to extra one or two hours of rest during a work day.

Social security

The Mongolian Social Security System (Social Security) provides pension, health, disability and unemployment, amongst others. Participation in Social Security is mandatory for all Mongolian nationals, foreigners and stateless persons who are employed within the territory of Mongolia.

Rates

Both employers and employees are required to pay social security contributions, at rates which are established by the Social Insurance Law of Mongolia. Employer contribution rates vary from 11% to 13%, depending on the industry. Employee contribution rates are 10% (from salary and similar income). However, employee monthly contributions are capped at the minimum wage (currently MNT 192,000). The recently revised Social Security legislation implied the introduction of a similar employer cap from 1 July 2015, however, the change will not become effective as yet until Government approves the cap amount, and until this has been agreed, the existing provisions prevail.

Employers are responsible for withholding social security contributions and transferring them to relevant authorities on a monthly basis.

Social security benefits

Workers who have contributed to Social Security are eligible for social security benefits. Pension benefits are paid to a worker or the worker’s family upon their retirement, disability or death. Similarly, aid benefits are paid to a worker or the worker’s family upon disability, pregnancy or death. The amount of benefit paid to a beneficiary can depend on a variety of factors, including the salary of a worker and the number of years he or she contributed to Social Security. Health benefits are paid in case of a worker’s illness.

To access healthcare at a state hospital, employees need to provide evidence of their contributions.

Investment law

In general, Mongolian law does not discriminate against foreign investors. In an effort to support Mongolia’s economic growth, the government of Mongolia ratified a new investment law effective from November of 2013, which encourages investors to participate in all sectors of the economy without any government approval by establishing a common legal guarantee for investors, supporting investment and stabilizing the tax environment, etc. This law applies to both foreign and domestic investors. The law provides incentives, such as tax exemptions, tax credits, longer terms to possess land, increased quota of foreign employees, simplified visa arrangements, and others. Only foreign state-owned entities (those with a minimum of 34% ownership of entities in the mining, media and communication, or financial sectors) must obtain approval from the newly established Invest Mongolia Agency, an official government representative. The Investment Law declares that a foreign state’s direct or indirect ownership exceeding 50% qualifies it as a foreign state owned entity.

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

  • By the establishment of a solely or jointly owned business entity
  • By the purchase of Mongolian companies’ shares, bonds, and other types of securities
  • By merging or wholly acquiring Mongolian and foreign companies
  • By establishment of franchises or by financial leasing
  • And by other forms acceptable, which are not prohibited by law.

Furthermore, foreign investors who incorporate companies and conduct business operations in Mongolia are offered “Stabilization Certificates,” which propose a stabilized amount and rate of taxes and other payments to the government during their business operation period in the country. The holder of a Stabilization Certificate is guaranteed stabilized tax rates for a period of five to eighteen years depending on the amount, industry, and geographic location of the investment in Mongolia, and should comply with the criteria stated in the law.

  • Corporate Income Tax;
  • Customs Duty;
  • Value-Added Tax; and
  • Mineral Royalty Tax.

For mining extraction, heavy industry and infrastructure sectors, the Stabilization Certificate conditions and grants the following:

Investment Amount (billion MNT) Valid Length of Stabilization Certificate (in years) Investment Completion Period (in years)
Ulaanbaatar Central Region Khangai Region Easter Region Western Region
30-100 5 6 6 7 8 2
100-300 8 9 9 10 11 3
300-500 10 11 11 12 13 4
500 & above 15 16 16 17 18 5

For other sectors, the Stabilization Certificate conditions and grants the following:

Investment Amount (billion MNT) Valid Length of Stabilization Certificate (in years) Investment Completion Period (in years)
Ulaanbaatar Central Region Khangai Region Easter Region Western Region
10-30 5-15 4-12 3-10 2-8 5 2
30-100 15-50 9 10 8 3
100-200 50-100 40-80 30-60 25-50 10 4
200 & above 100 & above 80 & above 60 & above 50 & above 15 5

Concession law

The purpose of this law is to regulate matters related to organization of tenders for granting investors concessions over state and local own property, the concession agreements, and the settlement of disputes.

Public-Private Partnership strategy:

  • To attract and support implementation of the projects of the projects that are prioritized by government
  • To intense the growth of the economy depending on the private sectors’ resources, technology and management abilities
  • To liberalize the economy by increasing the participation of the private sector in the government’s investment policy and strategy.

In September 2013, the Government of Mongolia has approved the Resolution number 317 on “List of the Concession/PPP projects”. The concession sectors are:

  • Infrastructure and Construction projects
  • Highway projects
  • Airport projects
  • Energy sector projects
  • Environment sector projects
  • Education projects
  • Health, art, sport and tourism projects
  • Railway projects

National Development Agency’s team is happy to
help you via its complimentary e-Consulting service.