Following our recent post on foreign exchange trading in Mongolia, we had several inquiries regarding trade of crypto-currencies, such as Bitcoin. While there are no specific regulations in Mongolia addressing use or trade of crypto-currency, both Foreign Exchange and electronic payment and remittance services are allowed under the current regulatory framework, with only a permit required.
A Bitcoin trading (or mining) operation can be established in Mongolia relatively easily. One will only need to establish a Mongolian corporation. Then application must be made to the Financial Regulatory Commission of Mongolia for the appropriate permit.
Parliament has recently passed a bill to amend the Mongolia Criminal Code. The Amendments will create new liabilities for adviser’s of corporate CEOs, whose actions result in offenses such as money laundering, terrorism, bribery, environmental abuse, actions that threaten the nation’s economic security, or the abuse of state property.
Under previous law, only the CEO his or herself could be held liable in such cases. The amendments will hold those around the CEO, who advised or pressured a certain course of action to also take responsibility.
These changes will apply not only to private corporations, but also to state owned enterprises. It is interesting to note that while the Criminal Code previously contained over 80 items imposing certain legal liabilities on legal entities such as companies, the amended Code now has less than 30.
This is in general expected to make it easier to establish and operate a new company in Mongolia. The intention of the law appears to be to make it easier for companies to do business by providing more free dome of operation, while at the same time increasing liability for offenses at the top levels.
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.
The Parliament of Mongolia nullified the Law on Sanitation adopted on May 07, 1998 and passed the Law on Hygiene on Feb 04, 2016. The laws warrant the Constitutional right of a citizen to live in healthy and safe environment.
According to the new law, organizations and employers shall have the following duties:
- to demand employees and customers to comply with hygiene legislations;
- to impose a penalty on employee who is in breach of hygiene legislations;
- to comply with the order issued by a competent official or an authority with respect to standards and legislation on hygiene and to take all necessary actions to eliminate the offences and to respond;
- to comply with the norms and requirements of labor safety and hygiene during all stages of activities;
- to keep the public road and square free of garbage, puddle, snow or ice, to broaden green area and to keep stairs, walls and fences intact;
- to prevent infectious and non-infectious diseases, occupational disease, industrial accident and injuries;
- to include the employees to medical exam and screening;
- to employ a personnel who is in charge of labor safety and hygiene in accordance with rules adapted by State Central administrative authority in charge of Health and Labor related matters if the organization and legal entity in production and service business employs 50 people or more. If the organization in manufacturing and service business employs 50 people or less, it may employ the personnel on the basis of a contract;
- to approve annual expenses to spend on hygiene safety;
Also the organization and the employer is required to cooperate with the relevant professional NGOs in organizing hygiene trainings and shall support by providing accommodation and other expenses related to the training.
According to the law, following activities shall be prohibited:
- to take any actions and activities that has adverse impacts to human health and environment;
- to sell open food and operate production and service on public streets, squares, points or places where such activities were prohibited by the competent authorities;
If the organizations or persons do not comply with the law authorities shall impose the following administrative sanctions i.e. fine if the violation does not constitute a criminal offence.
As we posted previously, the newly adopted Mongolia Value-Added Tax (VAT) law has come into effect since January 1, 2016.
According to the VAT law, “Any citizen and legal person, who is engaged in the import and export of goods as well as the sale and manufacturing of any goods, performance of work and rendering of services in the territory of Mongolia, shall be value-added taxpayers.” VAT shall be applicable for the following goods, works and services where operational income value reaches 50 or more million tugrugs:
- all types of goods, works and services sold within the territory of Mongolia;
- all types of goods, works and services imported from abroad to Mongolia; and
- all types of goods, works and services exported from Mongolia;
Furthermore, the VAT shall apply to the representative office of a foreign legal entity whose revenue of sold goods, performed works and rendered services in the territory of Mongolia, has reached 50 million tugrugs or more.
In almost all cases, the value-added tax shall be imposed at the rate of 10 percent of the taxable amount of imported, manufactured or sold goods, performed works and rendered services. However, some certain types of goods, work and services can be subject to zero (“0”) percent VAT. The payment of VAT must be within the first ten days of the following month.
The newly adopted law also creates an incentive system with the possibility of recovering up to 20 percent of paid taxes if certain conditions are met. Initial such tax returns are expected to refund in the first quarter of this year.
A conference with our Mongolian Tax Law specialists can help you determine whether your company may be able to take advantage of the 0% VAT, or the VAT recovery.
Mongolia resident economic entities are taxable on aggregate annual income earned worldwide. Non-resident economic entities carrying out business activities in Mongolia are taxable on the income earned within the territory of Mongolia and otherwise from Mongolian sources.
According to the Law on Corporate Income Tax enacted in 2006, taxable corporate income includes income from activities, properties and sale of property.
The general tax rate for an economic entity incorporated in Mongolia is ten percent (10%) for the first 0-3.0 billion MNT and 300 million MNT, plus twenty-five percent (25%) for all income exceeding 3.0 billion MNT.
Dividend income, royalty income and interest income are taxed at ten percent (10%), income from the sale of a right at thirty percent (30%) and income from the sale of immovable property at two percent (2%).
A representative office of a foreign economic entity that transfers its own profit overseas is taxed at twenty percent (20%). Similarly, the following income of a taxpayer who does not reside in Mongolia but generates income in Mongolia shall be taxed at twenty percent (20%):
- dividend income received from an economic entity that is registered and operates in Mongolia;
- loan interest and payment for issuing a guarantee;
- royalty income and interest on a finance lease, payment for administrative expenses, rent, management expenses and lease, and income from the lease of tangible and intangible assets; and
- income from goods sold, work performed and services provided in the territory of Mongolia.
Payment of corporate income tax is on a quarterly basis with the payment for the first three quarters to be paid between the 1st and the 20th of the first month for the following quarter, and for the fourth quarter between January 1st and February 10th of the following year.
LehmanLaw Mongolia employs Mongolian Tax Attorneys and Accountants and can take care of all your Mongolia taxation needs!
A new draft law to amend to the company law was submitted to the Mongolia Parliament recently. The purpose of the proposed amendments is to improve the regulation of liability limited companies with majority state ownership. There have been problems which have occurred with corporate governance of such majority state owned companies, in areas such as shareholder and board meetings and selecting members of the Board and executive management.
The amendment aims to improve legislation concerning proposals to call regular and irregular meetings of shareholders of these companies and improve the effectiveness of the regular Board of Directors meeting so as to aid is role as decision maker and to ensure normal operations of these companies.
The draft amendment includes the regulations clarifying procedures for to the call of regular and irregular meetings of shareholders of and the effectiveness of Board of Directors meetings.
Once the draft law enacted, rights, obligations and liabilities associated with the liability limited companies dominated by state ownership shall be clear and no additional funding from state budget shall be required for enforcement of this law. We see this as a positive step to encourage independent decision making among leadership of key state owned enterprises, which are the primary vehicles by which Mongolia facilities and draws profits from several of its major mining operations.
As with most countries, Mongolia provides special benefits for expecting and new mothers. The law provides for a period of “Maternity Leave” as well as a period of “Baby Care Leave.” Understanding the differences of each of these leave periods is critical for foreign companies operating in Mongolia.
Maternity Leave is designated under Mongolian law as a required period of 120 days. This Maternity Leave period is intended to cover 60 days prior to birth and 60 days after delivery. During this legal Maternity Leave period, the Mongolian Social Insurance system is responsible for payments to the new mother. Maternity Leave is not available for male employees.
The Baby Care Leave is granted to all mothers (and single fathers) with children under 3 years, and is optional at the employee’s discretion. During the leave period, the Employer is obligated to pay required monthly Social Insurance payments to the Social Insurance Fund on behalf of the employee. The employer is obligated by law to accept the employee in the same employment position or in a new position when the employee returns to work at the end of the leave.
Mongolian law recognizes “Specified Term” and “Permanent” employment. A Specified Term agreement states a definite starting date, and ending for the employment, or a condition that ends the employment when and if it occurs.
Mongolian law stipulates that a Specified Term agreement will be automatically extended for the duration of the initially stated term if termination of the agreement is not proposed by the parties, and the employee continues to work in the position.
For a valid Specified Term agreement, the employment automatically ends at the end of the specified term, or upon the occurrence of an event, such as return to work of an original employee. In this case, a termination notice from the employer should be utilized so as to avoid the situation described above in which the Specified Term agreement automatically renews under Mongolian law.
To qualify as a “Permanent” position under Mongolian law, the employment agreement must be concluded for an indefinite term. This means no stated ending date, and no stated event or condition upon the occurrence of which the employment ends.
If a Specified Term agreement is terminated before the term expires, or a Permanent position is terminated, the termination provisions of the Agreement and of Mongolian Law will apply.
Per Mongolian law, for a Specified Term agreement, the requirements and reasons requiring Specified Term employment, and any conditions in connection with the same must be clearly stated in the Employment Agreement. Such requirements, reasons or conditions will typically be the need for temporary or seasonal employment for the replacement of an employee that is taking some kind of hiatus from work, but whom the employer expects to return.
In Mongolia company liquidation proceedings may be started by either a decision of the shareholders, or order of a court.
If the company is liquidated by decision of the shareholder’s, the Board of Directors (or in its absence, the executive body), will submit a draft Shareholders Resolution of Liquidation of the company. The shareholders resolution must include appointment of a liquidation commission and authorization of its commission, a liquidation timeline and if necessary, a procedure for the distribution of the company’s remaining property among shareholders after creditors` claims are satisfied. The shareholder resolution must be approved by an overwhelming majority of votes of shareholders.
The company/legal entity is obliged to notify the relevant state registration authority in writing within 3 working days and attach the original decision on liquidation.
Upon appointment of the liquidation commission, the company’s executive authority will be terminated and such authority is transferred to the liquidation commission. From then on, the liquidation commission has final authority over the company.
The liquidation commission is required to publicize the pending liquidation of the company via the media. If the company has any licenses, the commission will request that they are canceled and returned to the relevant authority.
The following actions must also be completed over the course of the liquidation. The State Registration Certificate of the company must be officially handed in. The company’s bank accounts closed, the company’s official seal must be handed over to the police. Finally a form must be obtained from the Customs Office to confirm no related taxation issues remain on behalf of the company.
The Tax authority will examine and investigate the company’s tax records, and an auditor will be required to handle the closing financial statements. Then an accountant will issue the closing balance of the company.
Once the Liquidation commission has submitted the required documents such as the Shareholders Resolution, completion report of the liquidation, report or reference by the tax inspector and reference by court decision enforcement agency on debt obligations to the State Registration Office (SRO), the SRO will remove the legal entity from the state register. The registration body will announce publicly the deletion of the company from the State Register. It will likely take 6 months to 1 year to complete the company liquidation process.