Tag Archives: Economy

Employment Termination by Mutual Agreement

Yesterday we looked at termination of a Mongolian Employment Agreement due to an employee’s failure to meet disciplinary standards. In this post, we will look at another option for ending an Employment Agreement – termination by mutual agreement.

Where a company is not satisfied with an employee’s work performance but is not able to point to a series of breaches of discipline or an occurrence of serious breach and does not have procedures in place for a review Commission, the company has the option to directly negotiate with the employee, via a proposal to the employee to terminate employment. Mongolian law allows for termination of an Employment Agreement at any time if both parties agree. Often the agreement will entail some amount of severance compensation for the employee. Such severance compensation is not legally required but is required as a practicality to obtain the voluntary departure of the employee. Where a mutual agreement on termination is reached, it will legally be considered termination under the initiative of the employee, and the company’s risks of rulings against it at court are greatly diminished.

If employee agrees to such proposal, an employee must provide employer with written termination notice and may leave his/her workplace 30 days after presenting termination notice, unless the parties agree otherwise.

An employee’s written termination notice should come solely from employee’s own will and without improper influence or pressure from employer. So, if client will choose to negotiate with the employee, it is best to make sure the dismissed employee is happy with the termination deal and has no reasons to go to court against the employer. This is obviously most easily achieved by offering the employee generous terms of departure.

Basics of Initial public offering (IPO) in Mongolia

In recent years several Mongolian private companies have gone public, or conducted an initial public offering (IPO), very successfully. This shows that interest and knowledge about IPO is growing both among companies (businesses) and public (investors).

As you may know, an IPO is when a private company or corporation raises investment capital by offering its stock (shares) to the public for the first time. Initial public offerings are often issued by growing companies seeking capital to expand, but they can also be done by large privately-owned companies or corporations looking to become publicly traded. Prior to an IPO the company is considered private, with a relatively small number of shareholders made up primarily of early investors (such as the founders) and professional investors. The public, on the other hand, consists of everybody else – any individual or institutional investor who wasn’t involved in the early days of the company and who is interested in buying shares of the company. The Law on Securities Market requires that to conduct an IPO the issuer must offer its stock to at least 50 and more investors.

In an initial public offering, the issuer, or company raising capital, procures the assistance of an underwriting firm (underwriter), to help determine the offering price, amount (number) of shares and timeframe for the market offering. When a company initiates the IPO process, a very specific set of events occurs. The chosen underwriter facilitates all of those steps. Primarily, an external IPO team is formed, consisting of an underwriter, law firm, audit company, appraiser company, and other experts if required. The external IPO team compiles information and documentation regarding the company (issuer), including financial performance and financial statements, expected future operations, corporate governance and corporate documents, and prepares IPO prospectus, legal opinion, audit report, asset valuation report and other necessary documents respectively that are to be filed to Financial Regulatory Commission of Mongolia (FRC). After the company files its prospectus and other necessary documents with the FRC, it sets a date for the offering.

Going public can be a great way to raise money, increase your company’s profile. However, there are number pros and cons in going public. So, when considering conducting an IPO, one must do all proper researches, calculations and analysis. In doing so we advise to seek professional advice and services from FRC listed underwriters, law firms, audit companies and appraiser companies.

Our law firm is FRC listed. Here at LehmanLaw we have FRC certified lawyers, who will provide you with qualified legal assistance.

Changes to Customs Tax and VAT Exemptions

During Parliament’s regular session on May 10, a final review of amendments to the Value-Added Tax Law and Customs Tax Exemptions Law were conducted and approved with a majority vote from Parliament members in attendance.

According to the amendments, all imported wood construction materials except oriented strand board (OSB), standardized pre-fabricated wood building structures, and logs will be exempt from customs duty. Other imported wood products, except those related to forestry and horticulture, will be exempt from value-added tax until 2022.

The Amendments to Value-Added Tax Law and Customs Tax Exemptions Law will be effective from January 1, 2018.

Mongolia Deliberates Major Tax Revamp

Under the leadership and coordination of the Ministry of Finance, consultations on the Ministry’s proposed tax amendments started on March 5. The first session was held with business sector representatives regarding tax law reforms and amendments at the Mongolian National Chamber of Commerce and Industry.

Ministry of Finance is conducting a public discussion on revising 24 tax-related laws, including General Taxation Law of Mongolia, Laws on Corporate Tax, Personal Income Tax and Value Added Tax, in order to hear voices of taxpayers and collect best proposals from the relevant parties. The Government noted that no fundamental changes and revisions were made to tax laws in the last decade and the taxation law ‘package’ was created to improve tax environment and decrease some taxes. The taxpayers expect favorable environment from this tax reform.

According to the proposed tax law amendment, if the annual revenue of enterprises operating in Mongolia is lower than MNT 1.5 billion, the government will return 90 percent of paid taxes. Furthermore, small and medium sized enterprises which have MNT 50 million of annual revenue, will be able to pay only one percent tax from sale revenue. The proposed amendments would also reduce the number of reports required from SMEs. Companies with an annual income of over three billion MNT would be required to issue tax reports four times a year, and those with less than three billion MNT in annual income would be required to file reports twice per year. The amendments include major changes to the VAT law.

The proposed amendments expect to be discussed and voted on during the spring parliamentary session and, if approved, will come into force on  January 1, 2019.

Mongolia Introduces Investment Protection Council

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.

Changes to Mongolian Central Bank Guarantee Independent Operation

Finishing our series (part one here, part two here) reporting on changes to the operations of the Mongolian Central Bank we present here the new provisions which will work to solidify and encode in the law the bank’s operations as an independent entity, not directly under the control of the executive branch of the government.

Independence of the Central bank from Government.

The amendments explicitly provide for the independence of the Central bank from the government. It is clear that the government should not provide any direction to the Central Bank regarding the agreements and transactions the bank enters into or in any other matter unless explicitly provided for in the law. The Central Bank of Mongolia should not directly or indirectly grant credit to the Government of Mongolia and may only purchase long and short-term securities of the Government from primary or secondary market except where explicitly provided for in the law.

Granting Credit to the Government

Under the new law, the Central bank of Mongolia may grant temporary credit or buy a short- term Government Bond in order to meet seasonal liquidity needs of the government, subject to repayment before the end of the financial year. If the Central Bank of Mongolia bought bond/securities issued by the Government, it will be added to the credit balance of the Government. In the frame of open market operation, the long -term securities of Government purchased by the Central Bank of Mongolia contingent upon repayment in short terms will not be included in the total amount of the balance of temporary credits.

Supervision of Bank Activities

The Central Bank of Mongolia will have authority to establish procedures, regulations and instructions, and make decisions, and carry out supervision and enforcement activities relating to the licensing to establish banks and operating activities of banks. This includes matters relating to the maintenance of adequate paid in capital and liquidity of bank assets, improving the security of the banking system, and regulation of banking activities for the purpose of protecting the interests of depositors and customers.

New amendment also updated the range of Central Bank’s activities.

In order to implement its objectives, the Central Bank of Mongolia will conduct the following activities:

  • issuing and regulating currencies into transaction;
  • formulation and implementation of monetary policy;
  • acting as the Government’s fiscal intermediary;
  • supervision of banking and entities specified in the law activities;
  • organizing, reconciling and supervising of local/national payments and settlements system;
  • holding and management of the State’s reserves of foreign currencies;
  • protecting right and interest of customer, depositor;
  • implement balanced/proper macro policy.

Changes to Mongolia Central Bank Managment

New Amendments to the Law of Mongolia on Central Bank

In our previous post, we introduced changes to the law on the governance of the Mongolia Central Bank. In this post, we will take a closer look at the most important changes.

Monetary Policy Committee

According to the new amendments to the Law of Mongolia on Central Bank, major changes are coming for the management committees’ roles. For instance, the Monetary Policy Committee will consist of 7 members including 4 adjunct members, and members will be appointed in terms of 6 years. Monetary Policy Committee will discuss and decide following matters: a) a draft of state monetary policy; b) determine interest of instrument of monetary policy; c) determine required reserves amount of bank, requirement of proper balance of percentage and amount. Form/ Formula of Monetary policy committee’s activity will be meeting.

The Monetary Policy Committee will decide matters via a majority vote of members participating in the meeting and the chairman will make a final decision in case of a tie. The meeting of the monetary policy committee will be held no less than 4 times a year. If President of Central bank of Mongolia or not less than 3 members of committee proposed to hold a meeting, special meeting will be conducted. Monetary policy committee’s decision will be issued by resolution type/form/format and certified by the signature of the chairman of meeting.

Monetary Policy Instrument

The Central Bank of Mongolia will use the following instruments to implement the state monetary policy.

1) Setting of the amount and proportion of compulsory reserves to be maintained by banks;

2) Grant a credit to the banks and use financial instruments;

3) pursuing a unified policy on interest rate;

4) conducting open market operations;

5) imposing a ceiling on credit outstanding to be granted by banks.

The Central bank will develop/draft the procedure for the determination, assessment, supervision of the required compulsory reserves of banks.

Supervision Committee of Bank:

Supervision Committee of Bank will discuss and issue recommendations on the following matters regarding to implement power of Central Bank to supervise on the banks.

  • To implement to supervise banks, regulate bank’s activity pursuant to the law, a draft of resolution, methodology, procedure, guidance, rule in connection with enforcement measure to the bank;
  • Report on the supervision of the banks;
  • Proposal to grant credit to the bank, Corporation of Savings Insurance in order to stabilize banking and financial system under the law.

The composition and rule of Supervision committee of Bank will be approved by the President of Central Bank of Mongolia.

Parliament Confirms Changes for Central Bank of Mongolia

The Parliament of Mongolia has approved amendments to the law governing the Central bank of Mongolia. The changes will effect the legal status of the bank and its independence. The Bank’s decision making process has been adjusted based on the standards, practices and principles implemented by central banks in other countries so the operations of the Central bank of Mongolia will comport with the international standard. The amendments will enter into force from the April 1, 2018.

One big change coming is that the bank’s involvement and influence with matters such as the state budget will be circumscribed, making the bank more independent from the Government. At the same time, there will be a mechanism in place to ensure clear lines of communication between the government and the bank.

This amendment will contribute to the increase of independence of the Central Bank, proper development of monetary policy, improvement of implementation of legal circumstance, promotion of further price stability at the macroeconomic level and will help to provide greater financial stability, and to maintain and promote long term economic stability for the slowly growing Mongolian economy

Most of world’s Central banks are responsible for balancing inflation and price level, and such responsibilities are clearly provided for in relevant laws. However, the Mongolian Central bank’s mission had been to balance and stabilizing the National currency. The new amendments help to more clearly define the Central Bank’s goal. The amendment defines the Central bank’s objective as the “Price Stability”, this objective and goals is meeting and complying with international level and standard.

This is undoubtedly a positive development for the Mongolian economy. We will keep you updated and will have a more detailed discussion regarding the exact nature of the new amendments in an upcoming blog.

Major New Mongolia Wind Energy Project Secures Funding

An international conglomerate has now closed a deal on financing to construct and manage a new 55 MW wind energy facility in Mongolia.

Located in Dornogobi province, the project will be Mongolia’s third and eventually its largest ever wind energy park. Turbines to power the park of 25 V110-2.0 MW turbines in 2.2 MW power-optimized mode, will be supplied by Danish company Vestas. European Investment Bank and the European Bank for Reconstruction and Development provide financing.

Traditionally Mongolia’s energy industry has been dominated by coal. Now, Mongolia’s wide open spaces and abundant wind allow for greater reliance on wind energy.

The new wind energy project will help Mongolia meet its energy needs resulting from higher demand, increased industrialization and urbanization trends.

Political Unrest in Mongolia Threatens IMF Review of Funding

The Executive Board of the International Monetary Fund (IMF) on May 24, 2017 approved a three-year extended arrangement under Extended Fund Facility (EFF) for Mongolia to support the country’s economic reform program. Other financing partners, including the Asian Development Bank, the World Bank, Japan, and Korea, have also committed to provide budgetary and project support, and the People’s Bank of China has agreed to extend its swap line with the Bank of Mongolia. In sum, the total financing package amounts to about $5.5 billion. The Board’s approval of the arrangement enabled the immediate disbursement of about $38.6 million. Addition of these funds to reserve currency of Bank of Mongolia had positive impact on the country’s economy and improves outlook for foreign investment.

Prior to each quarterly disbursement, IMF staff monitors and reviews if the country’s progress in meeting the conditions under the program justifies the continuation of disbursement. By this standard IMF staff team visited Ulaanbaatar from July 19 to August 2, 2017 to conduct discussions on the first review of the EFF arrangement. At the end of the visit the IMF staff team concluded that performance under the program has been good, with all quantitative targets on track. According to Bank of Mongolia’s report, the IMF staff’s positive conclusion enabled subsequent funding from above mentioned financing partners within the EFF arrangement. The IMF staff conclusion is subject to review by the management and Executive Board of the IMF. The Board is expected to consider the first review in late September, and this could lead to a disbursement of about $37.82 million.

In the midst of this positive news, Mongolian politics remains unwieldy. On August 23, 2017 thirty members of Mongolian People’s Party (MPP) group in the parliament signed and submitted a petition to dismiss the Prime Minister J.Erdenebat, and consequently, the Government. This is likely to cause some level of political destabilization. History of some countries (e.g. Argentina, Greece) shows that political destabilization may cause IMF to suspend or even cancel its financial aid altogether. Though we have high hopes that these political issues will not escalate to that point in Mongolia.

It is critical that this happens not long after the stir occurred during the Presidential election, in connection with payout of children’s money by the Government. The IMF staff team disapproved such action by the Government. Therefore the Government committed itself to target the Children’s Money Program to less affluent families, which partially led to overall positive preliminary findings of the IMF staff team. Thus any kind of political destabilization may not only affect the further implementation of EFF arrangement, as well as country’s further economic well-being.

According to the Constitution of Mongolia, the petition to dismiss Prime Minister should be discussed and resolved by the parliament within 15 days. We will keep you informed here of the outcome, and potential consequences.