FOREIGN INVESTMENT LAW OF MONGOLIA

FOREIGN INVESTMENT LAW OF MONGOLIA


Chapter One
General Provisions
 Article 1. Purpose of the law
The
purpose of this law shall be to encourage foreign investment, to
protect the rights and property of foreign investors in Mongolia, and
to regulate matters relating to the foreign investment. /This paragraph
was rephrased by the Law of January 3, 2002/

 Article 2. Legislation on foreign investment

 1.The
legislation on foreign investment is comprised of the Constitution of
Mongolia, this law and other relevant legislation which is consistent
with those laws.

 2.If an
international treaty to which Mongolia is a party is inconsistent with
this law, then the provisions of the international treaty shall prevail.

Article 3. Definitions

 1.“Foreign
investment” means every kind of tangible and intangible property which
is invested in Mongolia by a foreign investor for the purpose of
establishing a business entity with foreign investment within the
territory of Mongolia or for the purpose of jointly operating with an
existing business entity of Mongolia.

 2.“Foreign
investor” means a foreign legal person or individual (a foreign citizen
or stateless person not residing permanently in Mongolia or a citizen
of Mongolia permanently residing abroad) who invests in Mongolia.

 3.“Mongolian
investor” means a Mongolian legal person or individual (a citizen of
Mongolia, immigrant or stateless person permanently residing in
Mongolia) who invests.

 4.”Investment
agreement" is an agreement and/or a contract on concession, product
sharing, marketing, management, financial leasing and franchise
investment concluded by foreign investors for implementation of
concrete project without having to establish a legal entity. /This
paragraph was added by the Law of January 3, 2002/

 5.“One
stop service” is a complex service including to receive applications
and other relevant materials on establishing a business entity with
foreign investment or a branch of foreign legal entity, issuing
certificate, license and special permission in order to start a
business activity, making a conclusion, appraisal at one place and to
organize activities to solve of these issues by relevant authorities,
and to provide investors with necessary information as well as
consultancy service.” /This paragraph was added by the Law of January
3, 2002/

Article 4. Areas for foreign investment

 1.Foreign
investment may take place in all areas of production and all services
other than those prohibited by the laws of Mongolia.

 2.Foreign
investment may take place in all parts of the territory of Mongolia
where the types of production to be undertaken or services to be
provided are not prohibited by the laws of Mongolia.

Article 5. Types of foreign investment

 A foreign investor may invest in the following:
1) freely convertible currencies and reinvestment of togrogs yielded by investments;
2) moveable and immovable property and property rights;
3) intellectual and industrial property rights.

Article 6. Forms of foreign investment
 Foreign investment shall be made in the following ways:
  1) by establishing wholly foreign-owned business entities or local branches or subsidiaries of foreign enterprises;
  2)  by establishing business entities jointly with Mongolian investors;
  3)
a foreign investor makes a direct investment by buying stocks, shares
and other securities of the Mongolian business entities under the
legislation of Mongolia; /This paragraph was rephrased by the Law of
January 3, 2002/
  4) by acquiring rights by law, concession and
product sharing contract to exploit and process natural resources.
/This paragraph was amended by the Law of January 3, 2002/
  5) Conclude a contract for marketing and management,
  6)
Make an investment through financial leasing and franchise. /The
paragraphs  5, 6 were  added by the Law of January 3, 2002/
 
Article 7.Purchase of shares or other securities

Foreign
investors may purchase shares or other securities in any business
entity which is operating within the territory of Mongolia in
accordance with the laws of Mongolia.

Chapter Two

Protection of Foreign Investment

Article 8. Legal guarantees for foreign investment

 1.Foreign
investment within the territory of Mongolia shall enjoy the legal
protection guaranteed by the Constitution, this law and other
legislation which is consistent with those laws and as guaranteed by
the international treaties to which Mongolia is a party.

 2.Foreign
investment within the territory of Mongolia shall not be unlawfully
expropriated. /The word “nationalized” was cancelled from this
paragraph by the Law of January 3, 2002/

 3.Investments
of foreign investors may be expropriated only for public purposes or
interests and only in accordance with due process of law on a
non-discriminatory basis and on payment of full compensation.

 4.Unless
provided otherwise in any international treaties to which Mongolia is a
party, the amount of compensation shall be determined by the value of
the expropriated assets at the time of expropriation or public notice
of expropriation. Such compensation shall be paid without delay.

 5.Losses
suffered by foreign investors due to a state of emergency or war in
Mongolia shall be treated equally with losses suffered by Mongolian
investors.

 Article 9. Treatment of foreign investors

Mongolia
shall accord to foreign investors no less favourable treatment in
respect of the possession, use, and disposal of their investments than
that accorded Mongolian investors.

Article 10.Rights and obligations of foreign investors

 1.Foreign investors shall enjoy the following rights:

              
1) to possess, use, and dispose of their property including the
repatriation of investments which contributed to the equity of a
business entity with foreign investment; This subparagraph was amended
by the Law of January 3, 2002/
  2) to manage or to participate in managing a business entity with foreign investment;
3) to transfer their rights and obligations to other persons in accordance with the law;
  4) Remit the following income, profit and payments to abroad without any barriers:
  (a) allotted stockholders income and share dividends;
  (b) allotted income after property and securities’ sale, transfer of property right to
           other party, completion of an investment agreement and liquidation of an entity;
  (c) principal and interest of debt or other identical payments;
  (d) compensation payment for confiscated property;
  (e)
other income gained under the legislation of Mongolia. /This
subparagraph was      re edited by the Law of January 3, 2002/
5) any other rights conferred by law.
2. Foreign investors shall have the following obligations:

1)  to observe the laws of Mongolia;
2)
follow commitments stated in the Agreement and Statute of the business
entity with foreign investment, branch of a foreign legal entity and in
Investment agreement; /This subparagraph was re-edited by the Law of
January 3, 2002/ 
3) to implement measures to ensure the protection and restoration of the natural environment;
4) to respect the customs and traditions of the people of Mongolia.

Chapter Three
Activities of a foreign entity and a branch of a foreign legal entity

Article 11. Business entities with foreign investment

 1.Business
entity with foreign investment is a entity, established in accordance
with the legislation of Mongolia, of which not less than 25 percent of
the equity is constituted with an investment of a foreign investor.
/This paragraph was re-edited by the Law of January 3, 2002/

 2.
A business entity with foreign investment shall become a legal person
of Mongolia from the date of its registration and shall conduct its
operations in accordance with the laws of Mongolia.
/The article 12 was annulled by the Law of January 3, 2002/
 
Article 13. Valuation of tangible and intangible property

 1.Investors
of a business entity with foreign investment shall negotiate on
evaluation of the property and intellectually valuable items invested
from them to form the equity of the entity following the same principle
sued for convertible currency and tugrug (local currency).  If investor
considers it as necessary, the evaluation can be done by either
Mongolian or foreign specialized company licensed to conduct asset
evaluation. /This paragraph was re-edited by the Law of January 3, 2002/

 2.
Conversion of togrogs into freely convertible currency shall be done at
the rate of exchange set by the Bank of Mongolia and applicable at the
time of valuation.

Article 14. Plenary rights of the state administrative body in charge of foreign investment

 1.
The State Central administrative body in charge of foreign investment
shall have the following plenary rights with respect to foreign
investment:
to formulate foreign investment policy in accordance
with the Government general action plan on development country’s
economy and society, and monitor its implementation; 
to ensure and supervise the implementation of legislation regard to foreign investment;
to work out a proposal on leading sectors and directions of foreign investment.

2. The State administrative body in charge of foreign investment shall have the following plenary rights:
 (1) to implement policies and legislation with respect to foreign investment;
 (2) to research possibilities to increase foreign investment, to organize investment
    promotional activities, to provide investors with relevant information, and to involve
    foreign investors to project tender;
 (3) to render foreign investors with complex “One-stop service”;
 (4) to prepare information on foreign investment statistics;
 (5) to approve and/or disapprove establishment of a business entity with foreign
    investment or a branch of a foreign legal entity;
 (6) to terminate, temporarily or completely, the activities of a business entity with foreign
    investment or a branch of a foreign legal entity;
 (7) other rights specified in legislation.

3. The State administrative body in charge of foreign investment issue shall render some of the
services
specified in the provision 3 of section 2 of this Article on charge
base. /This article was re-edited by the Law of January 3, 2002/

Article 15. Registration of Business entity with foreign investment, branch of a foreign legal entity and Investment agreement

 1.
A business entity with foreign investment and a branch of a foreign
legal entity that received a certificate from the State administrative
body in charge of foreign investment shall be registered by the
National General Taxation Office with state registration.

 2.
Any amendment to the Agreement or Statute of a business entity with
foreign investment and a branch of a foreign legal entity shall be
registered with the National General Taxation Office as approved by the
State administrative body in charge of foreign investment.

 3.
The State administrative body in charge of foreign investment will
register an Investment agreement based on an application to register an
investment agreement and a notarized copy of the investment agreement,
and will issue a certificate within 10 business days after the receipt
of the application. /This article was re-edited by the Law of January
3, 2002/

 Article 16.Terminating a foreign invested entity and branch of a foreign legal entity

 1.The
operations of business entities with foreign investment and a branch of
a foreign legal entity may be suspended or terminated on the grounds
provided in the laws of Mongolia. /This paragraph was amended by the
Law of January 3, 2002/

 2. /This paragraph was annulled  by the Law of November 30, 2001/

Article 17. Liquidating a foreign invested entity and a branch of a foreign legal entity

 1.
If a business entity with foreign investment or a branch of a foreign
legal entity resolve to suspend or terminate its operations it shall
submit that resolution to the State Central Administrative body in
charge of foreign investment and to the General Department of National
Taxation within 14 days of its adoption. /This paragraph was rephrased
by the Law of November 30, 2001 and was amended by the Law of January
3, 2002/

 2. An investment
agreement shall be removed from the registration and a certificate of
approval shall be revoked when duration of the investment agreement
expires and/or the investor annuals the agreement or violates laws of
Mongolia. /This paragraph was added by the Law of January 3, 2002/  
 3. /This paragraph was annulled by the Law of November 30, 2001/

 4.Upon
receiving the notice referred to in paragraph 1 of this article, the
General Department of National Taxation shall remove the business
entity with foreign investment or a branch of a foreign legal entity
from the State register and publish that fact. /This paragraph was
amended by the Laws of November 30, 2001 and January 3, 2002/

 5.
If the operations of the business entity with foreign investment or a
branch of a foreign legal entity cease in preparation for dissolution,
then the foreign investor concerned shall be entitled to transfer the
returns referred to in paragraph 4 of article 10 of this law upon
completion of the final accounts of the business entity concerned.
/This paragraph was amended by the Law of January 3, 2002/

Article 18. Taxation

 1.Business
entities with foreign investment and a branch of a foreign legal entity
shall be liable for tax under the tax laws of Mongolia.

 2.Tax
incentives and/or exemptions to a business entity with foreign
investment, branch of a foreign legal entity and an implementing entity
of an investment agreement will be subject to Income tax law of
Business entities and organizations1, Customs tariff law2, Value added
tax law3, Excise tax law4 and Land law5 of Mongolia. /This paragraph
was added by the Law of
      January 3, 2002/

Article 19. Stability Agreement

 1.
In the event of a request by the investor intending to undertake an
investment project of not less than US$ 2 million or equivalent amount
in Mongolian national tugrigs in Mongolia, the Cabinet Member
responsible for taxation policy issues as permitted by the Government
of Mongolia may sign an agreement with that investor on a stability as
a legal guarantee for a stable environment to conduct business
activities.

 2. A sample of
a stability agreement will be approved by the Government of Mongolia. 
This agreement sample shall contain provisions to ensure stable tax
conditions during certain period and state objectives and amount of the
investment, its implementation period and rationale to revoke the
agreement.

 3. If a
start-up investment amount of the project to be implemented by a
foreign investor is US$ 2.0-10.0 million or equivalent amount of
Mongolian national tugrigs a stability agreement can be signed for I0
years and if the amount is over US$ 10.0 million or its equivalent in
Mongolian national tugrigs for 15 years.

 4.
In the event of a termination of activities by sole initiative of an
investor before the period stated in the stability agreement when a
business entity with foreign investment and/or a branch of a foreign
legal entity was not bankrupted in accordance with the laws of Mongolia
or their activities were not stopped by the respective authorities or
the parties did not terminate the contract upon their mutual agreement
the amount of tax discounts and/or exemptions awarded to that investor
shall be compensated by the investor. /This article was added by the
Law of January 3, 2002/

Article 20. Conclusion of a Stability Agreement

 1.
An investor willing to conclude a Stability Agreement shall submit its
application and draft Stability Agreement to the State central
administrative body in charge of taxation policy issues.

 2.
The Government member in charge of taxation policy issues shall examine
the application and the draft agreement within 14 business days
following the receipt and shall conclude the Stability Agreement with
the applicant, if no clarifications are required. If additional
clarifications are required, the applicant shall be notified of it
within 7 business days.
 
 3. Relevant organizations shall be notified of such Stability Agreement. /This article was added by the Law of January 3, 2002/

 Note:
According to the Parliament Resolution of January 15, 1998, Article 18,
19 and 20 have been cancelled, and amended as the following to be come
into force from January 1-st 2001:

a/
The 1-st paragraph of the Article 19 has been amended to the Article
9.2 of the “Value Added Tax Law” and the Article 21.1 of the “Customs
Tariff Law” with the following alteration: “Technological equipment and
machinery brought into the country as part of share capital of a
foreign invested company in export-oriented production or the priority
sectors is exempted from customs (7%) and value added (15%) taxes. The
priority sectors are approved by the Government Decree”. 
b/ The
Article 20 has been amended to the Article 7 of the “Business Entity
and Organization Income Tax Law” with the exclusion of the concept of
“mineral resources (except precious metals)” in 1-st paragraph of
Article 20.

Article 21. Land utilization by a foreign invested entity and a branch of a foreign legal entity

 1.Business
entities with foreign investment and branch of a foreign legal entity
may acquire the right to use land by way of lease and subject to the
conditions and procedures set out in the legislation on land of
Mongolia. /This paragraph was amended by the Law of January 3, 2002/
 
 2.Any
lease shall include the terms and duration of use, measures required to
ensure the protection and restoration of the environment to its natural
state, the amount of annual ground rent, and the liabilities of the
lesser and lessee.

 3.A
lease for the business entities with foreign investment and branch of a
foreign legal entity shall be granted in accordance with the procedures
below: /This paragraph was amended by the Law of January 3, 2002/

 1)
a lease for the use of State-owned land by a wholly foreign-owned
business entity shall be entered into by the Mongolian landowner and
the foreign investor and shall be authorized by the relevant local
Hural of Representatives and its Presidium;
 2) a lease for the use
of State-owned land by a business entity with foreign investment in
which a Mongolian investor is a participant shall be entered into by
the Mongolian landowner and the head of the business entity concerned
and shall be authorized by the relevant local Hural of Representatives
and its Presidium;
 3) a lease for the use of private freehold land
by a business entity with foreign investment in which a Mongolian
investor is a participant shall be entered into by the Mongolian
landowner and the head of the business entity with foreign investment
and shall be authorized by the competent State authorities.

 4.The
obligations arising from the leases referred to in sub-paragraphs 2 and
3 of paragraph 3 of this article which are entered into by the head of
a business entity with foreign investment shall be borne by the
Mongolian and the foreign investor in proportion to their contributions
in equity of the business entity. /This paragraph was amended by the
Law of January 3, 2002/

 5.The
duration of any lease shall be determined by the duration of the
operations of the business entity with foreign investment and branch of
a foreign legal entity. The initial term of a lease shall not exceed 60
years. The lease may be extended once for a period of up to 40 years on
the same conditions as the original lease. /This paragraph was amended
by the Law of January 3, 2002/

 6.If
a business entity with foreign investment and branch of a foreign legal
entity are dissolved before the expiry of the lease, then the lease
shall terminate at the same time. /This paragraph was amended by the
Law of January 3, 2002/

 7.Leasehold
land may be substituted or taken back for a specific State purpose.
Decisions on that matter may be made only by the Government of
Mongolia. Compensation for losses suffered by foreign investors as a
result of such action shall be paid without delay. The amount of
compensation shall be determined on the basis of value at the time of
such substitution or transfer.

 8.If
leasehold land is used to the detriment of the public health, natural
environment or the interests of national security, then the lease shall
be cancelled.

Article 22. Finances, loans, accounts and inspections

 1.Business
entities with foreign investment and branch of a foreign legal entity
shall conduct their activities in respect of finances, loans, accounts,
and foreign currency operations in accordance with the laws of Mongolia.

 2.Business
entities with foreign investment and a branch of a foreign legal entity
shall keep account books and balance sheets in accordance with the laws
of Mongolia.

 3.The
accounts and financial and business transactions of business entities
with foreign investment and a branch of a foreign legal entity shall be
investigated by State financial inspectors or by chartered auditors in
accordance with the laws of Mongolia. Foreign auditing organisations
may be invited if required. /This paragraph was amended by the Law of
January 3, 2002/

Article 23. Insurance

Business
entities with foreign investment and branch of a foreign legal entity
may be insured by Mongolian insurance agencies in accordance with the
laws of Mongolia. /This article was amended by the Law of January 3,
2002/

Article 24. Labour and social security relations

 1.
Business entities with foreign investment and a branch of a foreign
legal entity shall primarily employ citizens of Mongolia. Foreign
citizens may be hired for jobs requiring special or high
qualifications. Issues on importing labour forces and experts shall be
regulated by the relevant legislation of Mongolia. /This paragraph was
amended by the Law of January 3, 2002/

 2.Matters
of labour and social security relating to citizens of Mongolia who are
employed by business entities with foreign investment and a branch of a
foreign legal entity shall be governed by the laws of Mongolia on
labour and social security. /This paragraph was amended by the Law of
January 3, 2002/

 3.Foreign
citizens who are employed by business entities with foreign investment
and a branch of a foreign legal entity shall be liable for income tax
in accordance with the laws of Mongolia and may transfer their income
abroad after paying tax. /This paragraph was amended by the Law of
January 3, 2002/

Chapter Four
Miscellaneous

Article 25. Settlement of disputes

Disputes
between foreign investors and Mongolian investors as well as between
foreign investors and Mongolian legal or natural persons on the matters
relating to foreign investment and the operations of the business
entities with foreign investment and a branch of a foreign legal
entity, shall be resolved in the Courts of Mongolia unless provided
otherwise by international treaties to which Mongolia is a party or by
any contract between the parties to the dispute. /This paragraph was
amended by the Law of January 3, 2002/

Article 26. Coming into force of the law

This law shall come into force on 1 July 1993.


Speaker of the State Ih Hural of Mongolia 
N.Bagabandi

Secretary General of the Secretariat of the State Ih Hural 
N.Rinchindorj

No votes yet
Archived Comments

News archive