Doing business in Mongolia – 2022 – Finance and Banking
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Huge mineral reserves, agricultural resources and proximity to vast Asian markets make Mongolia an attractive destination for medium and long-term foreign direct investment (FDI). Mongolia’s Gross Domestic Product (GDP) stands at US$10.4 billion as of September 2021 according to Mongolia National Statistics. Mongolia’s GDP value represents 0.01% of the global economy. Significant features and advantages of Mongolia include, but are not limited to, the following:
- A diverse and growing market exists in Mongolia;
- Technological innovation pole;
- Extensive mineral resource base that can be exploited for value-added processing;
- Development of industry and infrastructure;
- A bridge between the two economic powers that are Russia and China;
- Young and well-educated population;
- Private sector and privatization /privatize major state assets, list Mongolian conglomerates and exploration license aggregators on MSE/;
- PPP and infrastructure modernization;
- Rule of law & Regulatory quality & Transparency;
- Ensure the guarantee for investors /fiscal & non-fiscal/;
- Promising mega projects; and
- Booming telecommunications and IT sector.
International framework: Mongolia is constantly discussing to conclude bilateral and multilateral agreements and participates actively in the regional integration process. Mongolia has foreign investment protection and promotion agreement with 43 countries and double tax treaties with 26 countries. In addition, Mongolia is a member of the Seoul Convention establishing the Multilateral Investment Guarantee Agency and the Washington Convention on the Settlement of Investment Disputes. Therefore, in April 2014, Mongolia submitted its investment policy and law to the United Nations Conference on Trade and Development /UNCTAD/.
Mongolia has completed negotiations of the Economic Partnership Agreement/EPA/Mongolia-Japan, which has become the Mongolian Foreign Trade Agreement. Has also signed a bilateral mutual assistance agreement with 18 countries in civil, family and criminal matters.
Local legal framework: In 2013, the Mongolian Parliament passed a new Investment Law, which replaced both the old Investment Law of 1993 and the Law on Strategic Sectors. The new investment law enables an investment environment that is as open as possible for investors by focusing on:
- No permission is required to enter the market and buy a local business;
- No discrimination between foreign and local investors;
- Fast registration process;
- Stability guarantees – Provision of a tax stabilization certificate; and
- Flexibility and investor-friendly conditions.
In 2021, the Ministry of Economy and Development was established to replace the National Development Agency of Mongolia which was in charge of investment-related matters. The new ministry should, among other things, improve the integrated policy and planning of investments, as well as its legal environment, ensure and supervise the implementation of relevant legislation, attract, support and protect investments, implement comprehensive measures to develop the public-private partnership, define an integrated policy for a loan and draw up a national investment programme.
Type of investment:
- joint ventures, consortium;
- Mergers and Acquisition;
- Concession (PPP), Product sharing, management contract;
- bonds, securities and other assets;
- Leasing, Franchising; and
- Other types of investment.
Legal forms for doing business in Mongolia
Despite the fact that Mongolian law provides for a wide range of legal forms of business entities (limited liability company or LLC, joint stock company or JSC and joint venture), in practice private businessmen and investors foreigners generally prefer foreign-invested LLCs. The 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 aggregate capital of USD 100,000 or more (or MNT equivalent), where not less than 25% must be owned by (an) investor(s) ) foreigner(s)”. Investments in Mongolia can be made in the following ways:
- By establishing a sole or co-owned business entity;
- By purchasing shares, bonds and other types of securities of a Mongolian company;
- Through the merger or total acquisition of Mongolian and foreign companies;
- By setting up a franchise or leasing contract; and
- By other acceptable means not prohibited by law.
If two or more investors plan to form a foreign-funded LLC in Mongolia, each investor must invest USD 100,000 or MNT equivalent.
An LLC is the most frequently used form of a legal entity established by one or more natural or legal persons – founder/s/ or investor/s/ – who are not responsible for their obligations while bearing the risk of related losses. to the activity of the company to the extent of their personal contributions (participating interests). The liability of the company is limited to its assets.
The organs of a limited liability company are:
- the supreme body of a company is the meeting of shareholders (MoS). LLC has exclusive powers with respect to matters relating to the business, finance, management and structure of the company.
- The executive body of a company (individual or collective).
The day-to-day management of the company is carried out by the director (individual executive body) or the board of directors (collective executive body), who are elected at the MoS. Under the Company’s Charter, the authority of management or the management team must be clearly defined. The powers entrusted to the Board of Directors are specified in the company’s charter. 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 on the subject. Specialist advice should be sought regarding your particular situation.
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