Category Archives: Uncategorized

Mongolian Free Trade Zones

In 2016, matters related to Free Trade Zones (FTZ) came under the power of the Deputy Minister. There are three FTZ in Mongolia: Zamiin-Uud, Altanbulag and Tsagaannuur. The Law on FTZ was revised in 2015 to enabled and promoted the cooperation between private entities and public authorities in developing FTZs.

Altanbulag Free Zone in Selenge province covers 500 hectares of land. Since the establishment of Mongolian FTZs, MNT 35 billion has been allocated by State Budget and 77 per cent of the budget was invested to the infrastructures of Altanbulag Free Zone. At the moment only Altanbulag has drawn investment from private entities, which totals MNT 6.2 billion.

Zamiin-Uud Free Zone in Dornogobi province covers 900 hectares of land. In 2010, Development of Zamiin Uud infrastructure project started with soft loan of the Government of China which totals USD 58.8 million. The project performance is 95 per cent. As of this day, 23.6 hectares of land are in possession of 13 private entities for the purposes of trade, service, hotel, manufacture, storage, logistics and gas station.

Tsagaannuur Free Zone in Bayan-Ulgii province covers 708.4 hectares. 115 hectares are in possession of 5 private entities.

The Deputy Minister Khurelsukh Ukhnaa has stated that the Free zones are in need of accelerated foreign and domestic investment and noted that the Parliament and the Government should start establishing joint FTZ areas with bordering countries. Deputy Minister Office and Ministry of Foreign Relations are working on research and assessment and negotiating with Chinese authorities about a potential new joint FTZ.

Mongolia Tax on Gasoline and Diesel Fuel

We continue to introduce various Mongolian taxes to be aware of. The Law on Gasoline and Diesel Fuel Tax was adopted on June 2, 1995, yet only came into force on  June 6, 1995.

According to this law, the tax is levied on all types of gasoline and diesel fuel whether produced within the territory of Mongolia, or imported into Mongolia. This tax is levied on every ton of fuel calculated as follows.

Gasoline up to 90 octane will be taxed at 20,350 MNT per ton, while gasoline with octane over 90 will be taxed at 25,700 per ton. Diesel fuel will be taxed at a substantially lower rate of 2,140 MNT per ton. This suggests the government recognizes the importance of diesel fuel in economic activities such as logistics and transportation of goods.

This tax is different and in addition to the tax levied on petroleum and diesel fuel in accordance with Law on Excise Tax. The purpose of the Excise Tax is to limit harm to the society or reduce the worst effect of the products as like as international standards. The excise tax on petroleum and diesel fuel is expected to be increased on July 1, 2017 and October 1, 2017 respectively.The tax on gasoline and diesel fuel produced on the territory of Mongolia is levied by the National tax offices and the tax on imported gasoline and diesel fuel is levied by the Customs offices in accordance with the amounts above.

Several changes to Mongolian taxes have been ratified recently by the Mongolian Parliament as a means to raise additional revenue in hopes of improving the state budget. The new implemented tax on gasoline and diesel fuel is primarily intended to raise revenue.

Mongolian Public Officers May Soon be Subject to Dismissal

We have already provided an overview of the new Law on Imposing Liability on Selected and Appointed High Ranking Government Officials, we would like to follow that with a closer look a few specific provisions in the new draft.

The law will set forth the legal basis and official procedures imposing disciplinary actions, political and moral accountability on officials including the President of Mongolia, the Parliament Speaker, the Deputy Speaker of Parliament, members of Parliament, the Prime Minister, Cabinet members, and officials appointed by the Parliament, or appointed by  provincial governors or Chairmen of local representative councils.

Officials in violation of legislation, oath or code of conduct or who fail to perform his/her duties will be subject to disciplinary actions depending on the nature of the violation committed. The said actions will be in form of warning the said official individually or warning among public. Furthermore, other disciplinary actions will be taken pursuant to other applicable legislations.

For the political accountability, officials in violation of the Constitution, legislation and code of conduct, will be dismissed or recalled, or his/her right to hold government high ranking position will be subject to 2 or 4 year restriction.

Furthermore, the law categorized ethics accountability as type of accountabilities in order to develop political culture in Mongolia, and aims to make officials feel greater regret for poor performance or taking advantage of their position and voluntarily assume accountability. However, if an official was subject to ethics accountability, he/she will be exempted from political accountability.

Chapter two of the law clearly states grounds for dismissal of President of Mongolia subject to overwhelming majority voting of members attended in Parliament session.

Chapter three states grounds and procedure for dismissal of the Parliament Speaker and the Deputy Speaker of Parliament and dismissal subject to overwhelming majority voting of members attended in Parliament session. Moreover, Parliament members elected from constituency will be dismissed according to majority voting of total members attended in Parliament session based on request by voters.

Chapter four includes wider grounds for dismissal of Prime Minister, Cabinet members and officials appointed by the Parliament, dismissal subject to discussion and majority voting of members attended in Parliament session and regulates other relevant issues. Furthermore, the chapter states basis for dismissal of aimag or city Governor.

Chapter five states basis for dismissal of chairman of the Citizen’s Representative Khural of aimags or city and issue on dismissal will be decided according to majority voting of total representatives attended in meeting.

Chapter six regulates matters regarding public statement, informing officials about dismissal, conducting investigation, discussing about dismissal, imposing liability on officials, reporting and informing public about compensation of damage incurred to state due to breach of law by officials.

This new law which clearly outlines procedures for dismissal of public officials will be a significant improvement over the current situation in which misdeeds by public officials are not adequately addressed. We expect this new law will go a long way to reduce or eliminate any feeling by public officials that the does not apply to them due to their position of authority.

Foreign Investors in Mongolia: Know the Immovable Property Tax

The Immovable Property Tax Law was adopted in 2000 by the Mongolian Parliament and has been effective since 2001, over 16 years. Under the law, tax is imposed on all kinds of immovable properties which cannot be used for their original purpose when they are separated from the land. All persons or legal entities, who own immovable property in the territory of Mongolia, are considered taxpayers.

Local governments at the provincial level, and in Ulaanbaatar, are responsible for imposing a tax on immovable property within their respective locality. The tax level may be .6 – 1.0 of the value of the property as calculated considering the location, intended use, size, and overall demand of the property in question.

For tax purposes, the value of immovable property excluding the underlying land is determined, firstly, by the valuation as registered with immovable property state registry. If there is no such registration, the value is determined by the valuation of insurance on the property. And if there is no registration or insurance valuation, the value will be established as the value that is written down in financial records of the property owner in accordance with the law.

According to the law, the following immovable property types are exempt from immovable property tax:

  • immovable property of legal persons financed by state and local budget (state owned or funded enterprises);
  • residential houses;
  • buildings and developments for public use;
  • management of industrial and technological parks, unit production, structures within technological parks and other immovable properties; and
  • buildings and facilities constructed and registered in a designated tax free zone.

A Mongolian company or other legal entity which owns taxable immovable property will pay equal amounts of tax on the immovable property before the 15th of last month of each quarter for their annual tax liability. An individual citizen of Mongolia, or a foreign citizen who owns immovable property, must pay a once annual tax on immovable property before the 15th of February.

We have encountered many clients which confuse the immovable property tax with the tax on income from the sale of immovable property, but these are not the same. The tax on income from sale of immovable property is a onetime tax assessed upon transfer of real estate, and will be equal to 2% of the transaction cost. In contrast the Immovable property tax is owed each year for the duration of ownership of the property.

Draft Law Seeks to Define Liabilities for Mongolian Government Officials

A new draft law has been submitted to the Mongolian parliament. Named the Law on Imposing Liability on Selected and Appointed High Ranking Government Officials, the proposed law seeks to define liability for certain high ranking government officials. The draft will first be reviewed and discussed by Parliament before a vote. We are very excited at the current draft and our Mongolian lawyers consider the proposed law, if adopted, to be hugely important to Mongolian public policy and society. The need for the law stems from a feeling among many in the Mongolian public that politicians in the country often to act “Above the Law.” The effects of this official lawlessness are seen and felt by the public through displays of misbehavior and misconduct. In the past, there has not been adequate legislation to clearly identify inappropriate actions by public officials, and impose liability. The new draft is an important attempt to remedy this through new legislation.

To give readers a better idea of the problems facing Mongolia and the provisions in the law which will address these issues, the following are several weak points, or grey areas which the draft law will address.

The disciplinary sanctions set forth in the current Law on Public Service address only the executive branch government hierarchy, while not mentioning Members of Parliament, or those officers directly appointed by and responsible to the Parliament (the Legislative Branch and auxiliaries). Legal grounds for imposing liability on politicians within (the Legislative Branch and auxiliaries) have been absent or unclear at best. However, even grounds for imposing liabilities to the politicians within the government hierarchy carries uncertainty.

While each of the Law on Public Service, the Law on Anti-Corruption, and the Law on Regulation of Public and Private Interests and Prevention of Conflict of Interest in Public Service outline legal grounds to impose liability on officials, these each function as separate stand alone laws without a unified or common approach.  For example, liability under the Law on Public Service only targets administrative, executive, and public service professionals, and specified public officials. Political officers are not included.

Because of these limitations there is no clear body of law to assist in establishing or imposing liability on high ranking “selected” and “appointed” (as opposed to Elected) government officials. Currently, wrongdoing by such officials may only be determined on a case by case basis through a decision of a court, which does not allow for regular and effective enforcement.

In practice there is no regulation providing for the recall of elected officials such as Members of Parliament. The President, the Parliament Speaker, and Members of Parliament may be dismissed or recalled, only where the Constitutional Court of Mongolian issues a ruling that that they have violated the Constitution of Mongolia and must be removed. This is exceptionally difficult as there is no clear standard for establishing such violations in the legal system.

Under current legislation, political liability and means to impose it has not been addressed. Such liability will increase overall levels of responsibility for public officials who may be forced to resign, face recall, or be restricted from nominations for future public office in the event clear guidelines of liability are established. By establishing real legal consequences, the draft law is expected to help promote a culture of greater responsibility for public officials, bringing greater prestige and international respect to Mongolia’s political institutions and public officers.

Political liability is intended to increase the level of responsibility for individual officers by setting clear provisions and requires for resignations, dismissals, recalls and restrictions on rights to be nominated as candidate for specific period for the elected and appointed high ranking officials. In this way the new draft law seeks to establish a culture of self-responsibility and accountability for politicians as an integral part of public service regulation in the well-developed democracy in other countries. To this end the draft law will help to established procedures and a foundation for imposing liability on politicians within (the Legislative Branch and auxiliaries).

By doing so it is hoped that government influence and interference in public society and operations of private companies will be greatly reduced or eliminated.  Come back for our next post which will have an overview of some important provisions in the new draft law.

Introduction to the Mongolian Excise Tax

The Excise Tax Law was adopted by the Mongolia Parliament on June 29, 2006 and became effective from January 1, 2007. The law has been amended several times and has been the subject of a Supreme Court interpretation in 2007.

The law’s purpose is to establish parameters with respect to imposing excise tax on goods, whether imported or locally manufactured, as well as on special purpose apparatuses and equipment utilized for individuals and legal entities engaged in the paid quiz or gambling games.

According to the law, following goods shall be subject to excise tax:

  • all kinds of alcoholic drinks;
  • all kinds of tobacco;
  • gasoline and diesel fuels;
  • passenger vehicles.

The excise tax is also imposed on activities of individuals and legal entities engaged in paid quiz or gambling games and on equipment used for such games, such as gaming tables or electronic wheels, automatic games, cashier devices or devices which calculate and display gaming results or keeps track of bids. The excise tax to be imposed on goods, other than spirits distilled in Mongolia, are due before 25th of each month, in advance.

Excise taxpayers are the individuals and legal entities which import and sell the goods as described above, and those which engage in activities of paid quizzes or gambling games. In the event goods subject to the excise taxes are donated or transferred to another party free of charge, as well as when used internally by an individuals and or legal entity, an excise tax shall be imposed.

An excise tax equal to MNT 36,250,000 (approximately US$ 14,800) per month, is imposed on the activities of individuals and legal entities which operate paid quizzes or gambling games via cyber, internet or mobile networks.

The some goods are exempted from excise tax under the law, such as goods produced within the territory of Mongolia solely for export; Mongolian traditional home-made liquor distilled from milk for household use; snuff tobacco; legally obtained and imported duty free alcohol and tobacco; dual-fuel cars; cars running on liquefied gas; and electric cars.

The recent amendments to the state budget include provisions to increase excise taxes on gasoline and diesel fuel. The excise tax on passenger cars will be increased based on the vehicle’s engine capacity. The excise tax on alcohol, excise tax on cigarettes, and customs tax on cigarettes will also increase. If the amendment is approved by the Parliament, these proposed excise tax increases to take effect on April 1, 2017.

Mongolia Anti-Corruption Law: Overview of Restricted Activity (Part II)

We have previously written about certain activities prohibited by Mongolian public officials according by Mongolia’s anti-corruption law. In this post we will summarize the activities which Mongolian officials may engage in, but which are subject to specific legal restrictions.

Mongolian public officials are generally prohibited from accepting or requesting from individuals or legal entity’s donations or other financial aid to address public needs, which may include funding assistance for their specific governmental department. However, officials and government organizations may accept donations and other financial aid for purposes such as improvement of staff training, organizational operations and structure, or in providing technical support, which will provide public benefits by increasing the capacity of that government organization to perform its responsibilities. When this is done, care must be taken to ensure it will not present a conflict of interest for officials. Officials must obtain permission from their management or the relevant government authority before accepting even an allowed donation or financial aid. In the event a donor provides such aid as described above for an official purpose, the government officials involved are legally prohibited from making any decision which concerns the donor for a period of two years following the receipt of the donation. This means a private donor may make a donation to a public agency, but the individuals at that agency which benefit from such donation will not be allowed to make regulatory decisions or approvals as regards the donor for at least two years.

 Public officials are restricted from concurrently holding any private employment or public office other than as specifically allowed by the law. The following are expressly allowed:

A member of the Parliament or Government of Mongolia may concurrently have or hold the following occupations or offices:

  • offices allowed by law and/or international treaties;
  • offices directed at public benefit activities;
  • occupations of a teacher, researcher or creative work;
  • if allowed by law, other offices in the Parliament or the Government;
  • if allowed by law, offices in international organizations.

Members of the Constitutional Court, judges of all levels, prosecutors, investigative officers are prohibited from holding concurrent offices or occupations except for a professor or a researcher.

An officer of the armed forces may perform work or exercise authority under a labour or work-performance contract concluded on the basis of a written permission by that officer’s superior officer.

Officials are restricted from certain actions which are considered fraught with conflict of interest, for at least two years after they leave public office:

  • take up employment with an legal entity or organization which close relationship to their former official duties;
  • conclude agreement or contract with former government employer or seeking/requesting a license issued by the former government employer;
  • lobby for any individual or a legal entity before the former government employer.

This restriction will not apply to an agreement, contract that had been concluded or extended prior to the official’s election or appointment to public office, or will it apply to an agreement or contract that has been awarded through public tender or that has a value with an annual income less than the amount equal to 12 million MNT (~$5,000).

Mongolian Government Introduces Positive Amendments to 2017 Budget

Mongolia Minister of Finance B. Choijilsuren presented to the Speaker of Parliament M. Enkhbold a set of planned amendments to the 2017 state budget. These amendments have been designed to better ensure the government’s ability to meet its obligations under the International Monetary Fund’s extended fund facility program from which the government will receive substantial loans.

The amendments are intended to stabilize the national budget and the fiscal outlook financial environment, by reductions in budget deficits, and imposing discipline.

The primary changes in the new budget include:

  1. Increasing taxes on alcoholic beverages and imposing tariffs on imported cigarettes;
  2. Increasing taxes on gasoline and diesel fuel;
  3. Increasing taxes on imported vehicles, in accordance with engine capacity;
  4. Dividing personal income taxes into three brackets and increasing personal income tax for people with higher incomes;
  5. Charging a ten percent tax on interest earned from savings accounts;
  6. Raising social insurance fees;

Of these, the biggest and the one that caught the attention of our China lawyers is the changes proposed for the personal income tax. The exact income levels which will be cut off points between the three tax tiers is not yet known, however it is likely that many expatriate employees in Mongolia may be affected by higher taxes on their income.

In addition to the above, the amended budget will impose several new measures intended to reduce the government’s overall operational sending levels and bring expenditures in line with government revenues.

  1. Increase the efficiency of tenders being carried out in the medical sector;
  2. Raise the retirement age every two years;
  3. Promote the Meat and Milk Campaign to develop Mongolian meat and dairy industry;
  4. Provide the state’s monthly welfare allowance of 20,000 MNT for children and other state assistance only to targeted groups;
  5. Repeal existing laws that put pressure on the state budget.

The government will aim to limit deficit spending to 10.6% of overall GDP, with revenue expected to be 23.1 percent of GDP, and overall spending to be 33.7% of GDP.

Of the above measures, LehmanLaw Mongolia is pleased to see efforts to promote the Mongolia meat and dairy industry included. Mongolia’s large expanse of green pasture land, clean water and fresh air should provide excellent opportunities for entrepreneurs and foreign investors seeking to establish meat and dairy production operations in the country. Exports of such products to China should find a willing market, as Chinese meat and dairy consumption is expected to continue rising trends.

The other good news is the general commitment to eliminate old laws that cause unnecessary financial strain on the government. This review process is necessary and is expected to help the government identify new areas where spending can be reduced by smart changes to the law. This is the kind of reform needed to stabilize the Mongolian economy and prepare for long term growth.

What is the Mongolia Capital City Tax?

As we have discussed in the past, the Law on Capital City Tax was approved by the Parliament and new law has come into valid since October 1, 2015. Regulations dealing with procedures to register a tax payer, removal from registration and receipt of information was also approved in order to implement the law.

According to the law, the Capital City Tax is imposed on entities providing four special services including bars, restaurants, hotels and resorts. Other type of entities are exempt from the Capital City Tax.

However, retailers of all types of alcoholic beverages (including vodka, wine, whiskey, cognac, champagne, beer and airag /horse milk/ etc) and cigarettes (cigar, pipe and tobacco), which are operating on the premises of the Capital City are also considered tax withholders under the law.

The tax rate can be determined around 0-1.0 percent by the Citizens Representative Khural of Capital City based on the location and concentration of the population of particular area in Ulaanbaatar. Thus, the Resolution No 29/19 of Citizens Representative Khural of Capital City, September 29, 2015, set the Capital City Tax at 1 percent for above mentioned services and products in Capital City.

As for improving the Capital City Tax and taxation system, the Mayor of Ulaanbaatar, S. Batbold, and Head of the General Taxation Department L. Zorig signed recently a memorandum of understanding (MOU) in 2017.

Under this document The General Taxation Department will collaborate with the Mayor’s Office to monitor the implementation of tax laws and regulations, and continue the implementation of the law on Capital City Tax and the VAT.

New Draft Mongolia Law on Investigation of Regulatory Infringment

One of the new drafts scheduled to be considered by Parliament during its next session later this year is a new Law on Investigating Infringement.

Currently in Mongolia, regulatory infringements are addressed by a range of different laws, each addressing specific subject matter. These laws range from the Customs law, Taxation laws, Competition law, Mineral law, Law on State inspection and supervision. In the current state of things, there are several overlapping areas of regulation, sometimes resulting on conflicting provisions. There are also gaps where specific sectors are without relevant regulations. The different laws also treat procedures and process of investigations of infringements differently, which as resulted in concerns about whether constitutional rights are appropriately upheld in each case. The new draft law to be discussed will be designed to cure such faults by protecting individual rights which establishing a uniform standard of official process and powers when resolving suspected regulatory infringements.

The draft to be proposed differentiates regulatory infringement from criminal offences and will adopt a systematic approach to unifying over 230 laws which pertain to various types of regulatory infringement.

Currently the various laws grant 26 different classes of official, ranging from police officer, to tax inspectors, state inspectors, prosecutors and others) ability to investigate suspected infringement and impose penalties. This new law will consolidate those procedures seek to apply uniform procedures.

Under the draft to be proposed all procedures for resolving infringements should take up to 30 days. Up to two extensions of 15 days each will be available if authorized by higher office where additional investigative measures are required.

Individuals or organizations which are the subject of a decision following the investigation of an infringement will be obligated to comply with the terms of the decision within 14 days. In the event there is no compliance, the official Court enforcement agency will have responsibility to enforce the decision.

Individuals or organizations challenging the results of an investigator may appeal the final decision to the prosecutor’s office, and will also have the opportunity to appeal the decision of the prosecutor to a court.