Tag Archives: Foreign Direct Investment

Mongolia Employment Contracts: One Size Does Not Fit All

A longstanding client of the firm which operates a company in Mongolia posed a simple question to our Mongolian lawyers, asking the best way under Mongolian Employment law to fire an employee who has not lived up to performance expectations. The question is interesting because it requires first determining what type of employee is to be terminated. In Mongolian law, not all employment relationships are equal. There are two difference kinds of employment in Mongolia each with different rules and different processes for termination of the employee.

The Labor Law of Mongolia provides for 2 types of employment: (1) Employment pursuant to an “Employment Agreement” and (2) Employment pursuant to an “Employment Contract”. It is important to understand that that these are two distinct types of employment under Mongolian law, subject to different rules, not simply a difference in translation.

In Mongolia, most employment relationships are pursuant to an Employment Agreement, which is basically described as an agreement to be employed for general purposes. While the actual role the employee performs may vary, no particular or unique skills are required on the part of the employee. This type of employment is defined by an Employment Agreement.

However, under the Mongolia Labor law, when an employer hires someone specifically for his/her high skills or unique talents an Employment Contract may be concluded, rather than a simple Employment Agreement. The Mongolian government puts out a list which sets out the positions subject to an Employment Contract.  According to the list, an employer may conclude an Employment Contract with Directors, Chief Executive Officers, General Managers, Division (department) Managers, and Chief (head) of Divisions (departments).  Other types of employees may only be hired pursuant to an Employment Agreement.

There are several differences between an Employment Agreement and an Employment Contract. Generally, an Employment Agreement for a permanent position is concluded for an indefinite term or if the parties mutually agree for a specified term. In the latter case, at the expiration of the term of the Employment Agreement if the parties do not propose its termination, and the employee continues to perform his/her work, the Employment Agreement is considered to be extended for the initial term.

Whereas, an Employment Contract may be concluded for up to a maximum of 5 years. When concluding an Employment Contract, among other terms, the parties must specify in the Employment Contract a detailed procedure for the evaluation of performance of the employee under the Employment Contract. When this is included in the Employment Contract, it is relatively easy to conclude upon evaluation of the employment contract whether the employee has sufficiently performed his/her duties. If the employee as performed sufficiently, the Employment Contract may be extended.

An Employment Contract must specify in detail all duties, responsibilities, rights, privileges, benefits of the employee, including a description of assets to be given under employee’s responsibility, the rules of possession, the use and disposition of such assets, final results to be achieved by the employee, the liabilities of the employee. Because under an Employment Contract the employer hires the employee specifically for his/her high skills or unique talents, such employee has more responsibility, accountability, rights, privileges and benefits than a “regular” employee employed under an Employment Agreement.

Mongolia is Introducing E-Filing System for Intellectual Property

The Mongolian Government’s Action Plan for 2016-2020 aims that the state functions have been introduced the online system for establishing reliable, accessible and express public services based on paperless services. The most ultimate source is that the article 8 of Patent law sets forth the filing an electronic application for invention, industrial design or innovation.

 

In April 26, 2018 as the World Intellectual Property Day, IPOM publish (Online Data system) and E-Filing (Online Filing System) were introduced for developing the use of the intellectual property database and facilitating the filing process for IP rights.

 

Above-mentioned systems allow to register the invention electronically and obtain electronic information on patents and trademarks.

 

In today’s highly developed IT platform, the filing electronic application for IP rights and the obtaining of patent information for the research work are an important part of saving time and paper. Furthermore, the researchers, inventors and producers are able to find the similar researches with their research work in online Intellectual Property database. It will definitely helpful to develop more competitive way of creating the inventions as well as avoiding any risks in the future.

Issues with Effective IP Enforcement Actions in Mongolia

Several clients in recent months have contacted the firm requesting assistance in tracking down and stopping intellectual property infringers in Mongolia. After working closely on many of these cases, our Mongolian Attorneys and licensed Intellectual Property specialists are among the forefront of the Mongolian IP enforcement practice in Mongolia. Our team has a few key insights that those doing business in Mongolia should be aware of.

In Mongolia, the systems for investigation and resolution of IP infringement issues is relatively unsophisticated. IP infringement cases often are not able to be resolved or punished effectively due to a lack in the number of state inspectors and the resulting workload for those inspectors who are on the job. Only a few State Inspectors handle IP issues, and such inspectors are obliged to inspect shops or markets selling infringing goods throughout Ulaanbaatar in accordance with the specific demands of each case. It is often very difficult for the state inspectors to identify possible infringers. State inspectors will normally punish known infringers identified during an IP enforcement action by warnings, confiscation of infringing goods, and fines for repeat offenses. General lack of education in Mongolia account IP and the limited effectiveness of such examinations result in infringing products for which sales have been shut down at a particular market showing up again for sale elsewhere at a different shop or different market.

Another problem is that the estimation of intangible asset related damages caused by IP infringement is not clear and is not well defined or regulated under law. Though the law says such damages will be settled under applicable regulations and administrative acts, regulation applicable to estimation of intangible asset related damages caused by IP infringement is unclear in Mongolia. The complaint regarding intangible asset associated damages cannot be resolved properly under such procedure. In fact, it is very few cases which filed complaint concerning the said infringement with IP office and there is no good practice on this issue.

The Mongolian government needs to pay attention on eliminating violations of intellectual property rights and properly compensating damages caused by IP infringement.  Those seeking effective IP enforcement in Mongolia need to come prepared with a large amount of investigation preformed and research compiled ready to be presented in a complaint to the IP Office, and should have a clearly documented and easily calculatable claim for damages caused due to the alleged infringement.

 

Franchising in Mongolia: Licensing your IP

This is the third part of our look at the uses of intellectual property in Mongolian franchises. You can find the first part here, and the second part here. We will discuss the use of licensing agreements as part of franchise IP management.

While in general, franchisors do own their intellectual property, this is not always strictly the case. In many franchise businesses, trademarks and other intellectual property elements may instead be owned by a parent company or even an affiliated company. In such cases, intellectual property is usually licensed from the legal entity that owns it to the franchisor, which then has the right to sell franchises and sub-license the use of intellectual property to the franchisees.

If the franchise agreement has been properly drafted, then this licensing/sub-licensing relationship between parent company or affiliated entity and the franchisor will be reflected in the wording of the agreement. There are quite a few places in a franchise agreement where special care must be given to properly set out who actually owns trademarks and other intellectual property if the franchisor itself is not their owner.

Pursuant to the Law on Trademarks and Geographical Indications, any licensing agreement is subject to state registration with intellectual property authority, otherwise such licensing agreement is deemed invalid.

Whenever someone uses, without permission, a trademark (sometimes even a trade dress) that is the same as or confusingly similar to that of a franchise system, that is a case of trademark infringement. It is becoming increasingly common to find the look, feel and design of one franchise business being copied elsewhere. In some of these cases, there is clearly an intent to pass off the copycat operation as a franchise.

A strong franchise system depends on a strong brand and must therefore protect its trademarks, copyrights, trade secrets and trade dress. For these reasons, franchisors need to spend a lot of time, attention and money to maintain, improve and protect their intellectual property. Their franchisees, in turn, will benefit from a strong protection strategy, as it ensures the rights for which they have paid, over the stated term.

Franchising in Mongolia: Intellectual Property is More than Trademarks

In the first part of this series we have discussed about trademarks as part of franchise system. In this part we will discuss about other elements of intellectual property that may be utilized in franchise system.

Other critical element of intellectual property in franchise systems are copyrights. Pursuant to law copyright protects the fixation of the expression of an idea in a tangible form, whether written, verbal, graphical or other objective forms. Copyright exists in a variety of items commonly used by a franchise: training videos, marketing material, ads, websites, music, logos and software. There is significant value to the copyright-protected materials incorporated into a franchise system and, like trademarks, these elements are licensed by the franchisor to the franchisee for use in the franchised business. And, unlike trademarks, copyrights do not have to be registered in order to be protected.

Trade dress is what makes a franchise system unique and distinctive from others, including the overall visual look, feel and impression of a location. Some part of trade dress may be protected by copyrights.

Not all franchises involve trade secrets (i.e. confidential information), but it is typical to see franchise systems maintaining some aspects of their operations as strictly confidential and maintained as trade secrets. In Mongolia there is no law that regulates specifically trade secrets or business aspects of trade secrets. However pursuant to Law on Corporate secret, any corporate information, document, research, method, solution, project and etc. which holds economic value may be considered confidential corporate secret (trade secret) and may be protected from divulgence. In the context of the franchise arrangement, the need and desire to share information with franchisees competes with the legal necessity of limiting the distribution of true trade secret material. Reasonable steps to ensure the identification and protectability of trade secrets include: confidentiality or non-disclosure agreements and clauses; marking of claimed trade secret material, limiting the distribution to “need to know”, password protected computer systems and databases, and locks on cabinets and doors. In some cases, a franchisor’s trade secrets are not even divulged to the franchisee, such as the specific recipes or bulk ingredients required to create a quick-service restaurant chain’s signature sauces.

Patents are usually not included in franchise systems, but they can be. Patent registrations are intended to protect an inventor’s rights to specific inventions, such as a newly engineered product, medical device, drug or other innovation. Unless a franchise system has specifically developed its own equipment, it generally will not include any patents within its intellectual property.

It is very important for franchisor, as well as franchisee, to take the time to fully analyze and review any franchise agreement, disclosure document and respective attachments before signing them. While the above information serves as a general overview, as always, one should seek their own legal advice when reviewing a franchise agreement. Only then it is possible to obtain specific information and recommendations relevant to particular circumstances.

Establishing a Mongolian Franchise Business: Protect Your Intellectual Property

In a recent blog post we discussed the franchise business model and it’s rapid growth in Mongolia. In a new three-part article series, we will dive deeper into franchise agreements in Mongolia and look at intellectual property, which is one of the most important aspects of a franchise system, and its importance.

Intellectual property law and business law have many areas that overlap. Franchising, in particular, is a unique business model, with the franchisor’s intellectual property at its core.

As such, intellectual property is one of the most important elements of any franchise. Within the franchise agreement, one of the core assets and rights that franchisor will be granting to franchisees will be a license permitting a franchisee to utilize their intellectual property and, in turn, franchisor is declaring to a franchisee that franchisor owns the intellectual property and will protect and defend it. So, it is important for franchisor to make sure that they actually own and can protect intellectual property that they are purportedly licensing to franchisees. Especially, when entering into a franchise agreement with franchisee, who will operate in another country.

These days most people are familiar with the term “intellectual property”, but not everyone understands the differences between various types of it. Intellectual property may include trademarks, copyrights, trade secrets, trade dress (i.e. the look, feel and distinctive elements of a franchise system, such as the interior design, layout and other visual aspects of a franchise location) and sometimes patents under which franchise businesses operate.

Trademarks are perhaps the most commonly recognized and well-known element of intellectual property. The Mongolia Law on Trademarks and Geographical Indications defines trademarks as expressions with distinction, which are used by legal entity or individual in order to distinguish their products or services from that of others. Trademarks can include business names, taglines, service names, logo designs and specific color or color combinations, etc. They are among the visual components of a franchise business.

Just because franchisor has used their trademark for many years it does not mean that trademark is legally protectable nor that they own it. First, franchisor needs to properly register their trademark with intellectual property authority. Secondly, if franchisor is entering into franchise agreement with franchisee, who will operate in another country, franchisor needs to register their trademark in the country where franchisee will operate as well. This way franchisor asserts their ownership of trademark and ensures protection of their trademark from other infringers (such as copycats and confusingly similar marks).

Mongolia’s Double Taxation Treaties

Many countries have entered into tax treaties (also called double tax agreements, or DTAs) with other countries to avoid or mitigate double taxationDouble taxation is the levying of tax by two or more jurisdictions on the same declared income, asset or financial transaction. Double liability is mitigated in a number of ways, for example:

  • the main taxing jurisdiction may exempt foreign-source income from tax,
  • the main taxing jurisdiction may exempt foreign-source income from tax if tax had been paid on it in another jurisdiction, or above some benchmark to not include tax haven jurisdictions,
  • the main taxing jurisdiction may tax the foreign-source income but give a credit for foreign jurisdiction taxes paid.

Another approach is for the jurisdictions affected to enter into a tax treaty which sets out rules to avoid double taxation. In the all over the world, over 3000 double taxation agreement (DTAs) are in effect.

Mongolia has entered into “The Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital” with other 25 jurisdictions as of 2017. Namely,

Country In force since
1 The People’s Republic of China Jan 01, 1993
2 The Republic of Korea Jan 01, 1993
3 The Federal Republic of Germany Jan 01, 1997
4 The Republic of India Jan 01, 1997
5 The Socialist Republic of Vietnam Jan 01, 1997
6 The Republic of Turkey Jan 01, 1997
7 The United Kingdom of Great Britain and Northern Ireland Jan 01, 1997
8 The Republic of Hungary Jan 01, 1997
9 Malaysia Jan 01, 1997
10 The Russian Federation Jan 01, 1998
11 The Republic of Indonesia Jan 01, 1998
12 The Republic of France Jan 01, 1999
13 Czech Republic Jan 01, 1999
14 The Kingdom of Belgium Jan 01, 1999
15 The Republic of Kazakhstan Jan 01, 2000
16 The Republic of Kyrgyz Jan 01, 2000
17 The Republic of Poland Jan 01, 2002
18 The Republic of Bulgaria Jan 01, 2002
19 The Swiss Confederation Jan 01, 2002
20 Ukraine Jan 01, 2003
21 Canada Jan 01, 2003
22 The Republic of Singapore Jan 01, 2005
23 The Democratic People’s Republic of Korea Jan 01, 2005
24 The Republic of Austria Jan 01, 2005
25 The Republic of Belarus May 28, 2001

Mongolia’s double tax treaties with United Arab Emirates and Kuwait were terminated from 1 January 2015 and 1 April 2015 respectively. Mongolia’s double tax treaties with Luxembourg and The Netherlands were terminated from 1 January 2014 due to failure to provide for the balance and equity rights of parties.

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.

Expat Visa and Work Permits in Mongolia: Part III

We continue our guide to Mongolia visa and work permits. In this article we shall cover work permit visas (HG visa). (Don’t forget to also check out Part I and Part II)

Work permit visas (HG visa) are issued to foreign citizens, who work in Mongolia under labor contract. HG visas are valid for up to 1 year, depending on employer’s request. Holders of these visas are required to obtain residence card from Immigration Agency and work permit from Labor and Welfare General Agency.

There are several key considerations that employer should be aware of. A key influence is that a foreign employee quota is set by the Government of Mongolia every year for local and foreign companies in Mongolia. This usually ranges from 5% to 80% depending on the sector in question. Generally, however, the default quota for companies is 5%. Another key condition is that employer must pay a workplace fee. Employer must pay on monthly basis a workplace fee, equal to twice the minimum wage set by the Government, for every foreign employee they hired.

So, if you, an employer, have decided to hire a foreign employee then as usual you must first provide a visa invitation letter for your foreign employee. Firstly, employer must obtain a work permit letter from Labor and Welfare General Agency at least one month prior to employee’s arrival to Mongolia. Thereafter a request must be submitted along with required packet of documents (including a work permit letter) to the Immigration Agency. Once Immigration Agency permits to issue a visa, then a visa invitation letter must be forwarded to the embassy or consulate in foreign employee’s country of residence, where he/she applies for HG visa. HG visas are valid for 183 days upon their issuance until the entry into Mongolia.

Upon arrival of foreign employee to Mongolia, employer must register him/her with the Immigration Agency within 7 days, obtain a residence card within 21 days and obtain work permit within 10 business days.

If necessary employer may apply for a single exit-entry, two-time exit-entry or multiple exit-entry visas (valid for either six months or one year) depending on employee’s or employer’s needs. HG visas may be renewed.

Also, there are other visa options for those who seek to engage in other types of activities, such as employment in NGOs, religious organizations and other. Therefore, companies inviting foreigners should carefully choose what visa suit their purpose before applying for visa.

Expat Visa and Work Permits in Mongolia: Part II

Continuing our guide to Mongolia visa and work permits, in this article we shall cover foreign investor visas (T visa).

Foreign investor visas (T visa) are issued to individuals, who are foreign investors or chief executive officers of a foreign invested company, or its branch or representative offices. These are valid for either 6 months or 1 year. Unlike multiple-entry B visas, holders of T visas are required to obtain residence permit (residence card) and therefore may stay the full period of their visa.

Like B visas, company inviting a foreign investor (or chief executive officer) must first provide a visa invitation letter. A request must be submitted along with required packet of documents (including a foreign investor card previously obtained from General authority for intellectual property and state registration) to the Immigration Agency. Once Immigration Agency permits to issue a visa, then a visa invitation letter must be forwarded to the embassy or consulate in foreign investor’s country of residence, where he/she applies for T visa. T visas are valid for 183 days upon their issuance until the entry into Mongolia.

Inviting company must register the investor with the Immigration Agency within 7 days and obtain a residence card for the investor within 21 days upon their entry into Mongolia.

In case of need, inviting company may apply for a single exit-entry, two-time exit-entry and multiple exit-entry visas (valid for either 6 months or 1 year) during investor’s stay in Mongolia. T visas may be renewed.