Mongolian Parliament Adopts new Investment Law

Last week, the Mongolian Parliament adopted the long-anticipated “Investment Law” which replaces the former regime in place for foreign investors operating in Mongolia. In the same act of Parliament, the former “Foreign Investment Law” and “Strategic Entities Foreign Investment Law” (“SEFIL”) were both repealed. The SEFIL in particular had been widely blamed for the drop in foreign direct investment since its inception in May, 2012, and repealing it has brought about cautious optimism from many investors.

The SEFIL called for governmental or parliamentary approval in the event that a proposed transaction affected what the law deemed to be the “strategic sectors” of mining, banking and finance, and communications and media. This requirement of obtaining approval prior to a transaction taking place paralyzed a number of foreign investors who were keen to put their money into Mongolia but were nervous about the uncertainty which accompanied the SEFIL. The new Investment Law does not maintain the governmental approval requirement, with the exception of cases where a foreign state-owned entity (which is defined as an entity which has at least 50% of its shares owned by a foreign states) attempt to acquire 33% or more of the shares of a Mongolian legal entity operating in a strategic sector.

The primary purpose of the new Investment Law appears to be stabilizing the taxation rates for investors. The new law sets out a number of guidelines upon which an investor may request a tax stabilization certificate. The process for granting these certificates along with the substantive rights they contain will now be exclusively governed by law, as the Government of Mongolia will no longer be entering into investment agreements with investors.

The new Investment Law will dramatically change the legal landscape for foreign investors operating in Mongolia. It is still too early to tell whether the government’s objective of promoting investor confidence through stability will be achieved, but the new Investment Law (along with the repeal of the SEFIL) is certainly a step in the right direction.