Category Archives: Foreign Direct Investment

Obtaining a Mining LIcense is no Obstacle for Foreign Enterprises Operating in Mongolia



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It is well-known that the economy of Mongolia is largely dependent on mining sector by generating 24 percent of GDP and 94 percent of export income and comprising 64 percent of FDI.

The country is abundant with natural resources, and it is the Government of Mongolia that determines those areas for which a mineral exploration license or a mining license may be granted based upon the recommendation of the Ministry of Mining. The law provides that the size of an exploration area for one license shall not be less than twenty-five (25) hectares and shall not exceed one hundred fifty thousand (150 000) hectares.

The Mineral Resources and Petroleum Authority of Mongolia under the jurisdiction of Ministry of Mining and Heavy Industry is in charge for organizing the selection for granting the special licenses for the exploration area and any entities interested in obtaining the exploration license may submit their proposals online as well. Upon the selection of the company in tender process and granting the special license, the entity shall duly complete the exploration project and determine the natural reserve deposits. Importantly, only the exploration license holder shall be entitled to apply for a mining license in the exploration licensed area.

The “One license for one legal entity” rule applies pertaining to prospecting, exploration or a mining right. Mineral exploration and mining licenses shall be granted to a legal entity duly formed and operating under the laws of Mongolia, and such legal persons shall be duly registered as taxpayers. Foreign companies may establish a foreign invested legal entity in Mongolia directly or they may establish a joint venture in cooperation with Mongolian businesses. Where more than 25 percent of the total share capital of a Mongolian enterprise is held by a foreign investor the investment amount by each foreign investor equals must be at least USD $100,000.

As it is prohibited to transfer the special licenses to any other third parties as a whole and there are strict requirements of obtaining the exploration and mining licenses, some foreign business entities choose to simply buy an existing Mongolian company, which already has obtained the necessary licenses. In other words, in such case the foreign entities may buy a Mongolian company along with all its rights and duties, as well as its licenses, and may operate its mining operations under this company.

The Government of Mongolia is doing its best effort to establish a pleasant environment for all businesses and grant the equal rights for both domestic and foreign companies willing to benefit from natural resources of Mongolia, provided they do operate in good faith by respecting and adhering to applicable laws.

Obligation to Report Beneficial Owner



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Does a new Mongolia company have to register their beneficial owner’s information with Mongolian authorities?

Mongolia revised the General Tax Law in 2019, and the article 18 of the law regulates the exchange of taxpayer information with other countries that have the international agreement, treaty or convention (Agreement) concluded with Mongolia. Among those exchanges is information of the legal entity’s beneficial owner.

Therefore, Mongolia has implemented a policy to create database of beneficial owner’s information of companies in order to provide opportunities to enhance cooperation between the State Registration Authorities and the Tax Organization as well as to exchange information for tax purpose with other countries that have the agreement with Mongolia.

In this connection, additional amendments to the Law on State registration of a legal entity were adopted which requires all registered legal entities in Mongolia to register information about their beneficial owners at the Legal Registry of the General Registry of Mongolia. Also, new establishing companies is entitled to register the company on the basis of the requirement to register their beneficial owner’s information.

Under the Law on Combating money laundering and the financing of terrorism and the Law on State registration of a legal entity, a beneficial owner is a person who has a significant or controlling ownership interest solely or jointly with others of holds a management function of the legal entity or is represented by other persons or ultimately owns the legal entity earning benefit and profit by exercising control of the legal entity, its transactions and arrangements to implement the transactions.

To summarize the above, newly founded company is obliged to register beneficial owner’s information with the state registration authority with an application to register a company.

Avoid Risks in Foreign-Mongolian Cooperation Agreements



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Our Mongolian Lawyers regularly assist foreign investors in various forms of joint ventures and business cooperation with Mongolian partners. These partnerships are sometimes necessary to allow a foreign investor to participate where Mongolia law restrictions direct foreign ownership. For example, Mongolian law has certain restrictions on entities with foreign investment owning and using land. One client the firm has worked with, a European party engaged in property development entered into one such arrangement with a Mongolian partner for the development of land located in a special restricted zone of Ulaanbaatar.

The European side, and the Mongolian side entered into a “Cooperation Agreement” which described a cooperative business arrangement in which the European party contributed funding, while the Mongolian party contributed access to the land targeted for development. This type of cooperation, is common in Mongolia between foreign investors and Mongolian property owners, and has been upheld by Mongolian courts.

However, when entering into such an arrangement, a foreign investor should be aware of risks.  A few years into the partnership, relations broke down between the Mongolian party and the foreign investor resulting in extensive litigation over the validity of the Cooperation Agreement and ownership of the land.

Foreign participants in this kind of Cooperation Agreement should engage independent Mongolian legal counsel to review the agreement for compliance with Mongolian law, and to ensure the foreign party is protected. The agreement should be clear about the nature of the cooperation, and the contributions of each party. It is important specify that legal ownership of the land remains with the Mongolian party. To eliminate confusion, there are certain key phrases which should be avoided when describing the foreign investor’s relationship to the land. If the language of the Agreement is ambiguous the Mongolian side may latter attempt to challenge the validity of the Agreement alleging violation of Mongolian law.

The Mongolian Government Going Online



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Mongolia may have a reputation of a sparsely populated nomadic country, but the Mongolian government in increasingly adopting the technologies of the 21st century to reach and serve the people even in the furthest reaches of the steppe. Several major government agencies have implemented systems to provide services online with great success. Foreign investors are able to take advantage of these systems to make doing business in Mongolia more effective and efficient.

The tax authority is one example. In 2014 the tax authority implemented a new online tax filing and tax payment system. A digital signature issued by the tax office is required to access the online tax portal. An individual authorized by a company to sign financial statements and tax returns must apply for a digital signature in order to be able to access the online tax portal system. The online tax filing and tax payments have proven to be more cost and time saving. The social insurance office has taken inspiration from this system and is now also online.

Recently several government bodies, such as Ministry of Finance, Bank of Mongolia, General Tax Administration, National Transportation Department and others, have collaborated and launch a website www.smartcar.mn. Through this site vehicle owners, both individuals and organizations, can pay vehicle taxes, driver’s insurance payments, traffic tickets and receive other vehicle related services.

The General Authority for Intellectual Property and State Registration recently announced that they are in process of preparation and implementation of a “One citizen, one registration” project. According to officials, one of the main purposes of this project is to create a unified national registration database for ownership and property related information of natural personas and legal entities. This project aims to eliminate duplication and discrepancies in information over multiple platforms and create a unified national registration database. Such database is planned to accessible online both for internal access for government bodies as well as to general public with certain limitations. This project envisages the use of digital signatures by individuals to obtain online services from government bodies. Currently, digital signatures used only by legal entities for online tax filing and public tenders (bidding). While this project is in planning stages and has yet to be approved by the Government, we have high hopes for successful implementation. Officials claim that, if this project gets approved, this will decrease the amount of paperwork, will be cost and time saving both for general public and government bodies, government services will be easier, more accessible and closer to general public, and for foreign investors.

At such rate of increasing online government services, it looks like in coming years we should expect less bureaucracy and more accessibility from Mongolian government bodies, which should contribute to increasing economic activity in the developing nation.

Mongolia Introduces Investment Protection Council



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We would like to introduce the Investment Protection Council (IPC), one of the effective way to protect rights and interest of the investors and to resolve the disputes involving the foreign investors in Mongolia.

The Investor Protection Council needs to be established in concern with the facilitation of investment related dispute settlement and of favorable environment for the sustainable operation of investors. The Investor Protection Council is established based on an ordinance of the Prime Minister of Mongolia in Dec 2016. That council is composed of Chairman, 16 members, and Secretary. The main formation of the Council’s operation structure should be Council’s session. The decision will be made by majority of the Council members during the session.

The IPC’s Main Roles:

  • Preview and make preliminary prognosis on foreign investment related issues that will be discussed by Cabinet Session
  • Improve investment legal framework, remove duplications and breaches of laws, introduce investment related proposal that made by relevant organizations to Cabinet.
  • Make proposals on implementation of laws and resolutions related to investment, and introduce it to Cabinet. The council should be supernumerary and the Council’s operation should be permanent.

In addition above, one of the main roles of IPC is to protect investors’ right, and solve their grievance (except the cases examined under court or arbitrage). So far 83 compliant and claims submitted by investors to this Council’s Secretariat. As we have been classifying these complaint and claims, there are 40% of them was related to mining, 20% for road, transportation, construction, manufacturing, 10% for information, communication, space technology, 10% for bank, finance, tax, 5% for land, land proprietorship, utilization, 5% for national development, planning, and remaining percentage was claims related to fair competition, as well as supervision, pressure and burden, registration, and authorization activities of the law enforcement agencies.

For example, in relation to the dispute related to the termination of the license of Mobicom Corporation with 100% – a business entity 100% owned by Japan, by the Communications Regulatory Authority, it was further discussed at the Investor Protection Council Meeting and it supported to resolve the investor’s claim. In doing so, KDDI, the Japanese investor, will make additional investments to expand Mobicom’s operations, which indeed has not been resolved over the past 10 years.

LehmanLaw Mongolia LLP suggests our clients this amicable mechanism to resolve the disputes involving them in Mongolia.