Updates to Mongolia Money Laundering Law Under Review



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The Law on Fighting Money Laundering and Financing of Terrorism was first ratified by the Parliament of Mongolia on July 8, 2006. The Asia-Pacific Organization of the Financial Action Task Force on Money Laundering (FATF) has conducted a mutual evaluation of Mongolia’s anti-money laundering and financing of terrorism system in 2007 and 2017.

Mongolia was included in the FATF’s grey list of Strategically Deficient Countries in Combating Money Laundering and Terrorism Financing in October 2019. Therefore, Mongolia needs to be implemented the work plan in comply with the FATF’s recommendations.

The Working Group was set up with representatives of multilateral state organizations which is responsible to coordinate the implementation of relevant measures to exclude Mongolia from the FATF’s grey list by order No.172 of the Prime Minister of Mongolia dated December 11, 2019. The Working Group is responsible to provide the certain actions for amending the relevant legislation.

Within the framework of the FATF’s recommended mandatory work plan for Mongolia, it is necessary to ensure the coherence of laws which are an integral part of Mongolia’s responsibility system for combating money laundering and financing of terrorism, and to create conditions for a unified, non-duplicated sectoral system by taking remedial action.

Therefore, the amendments in concerning with the legislations, namely, Law on Combating Money Laundering and Financing of Terrorism, the Law on Accounting, the Criminal Code, the Law on Legal Status of the Financial Regulatory Commission and relevant bills have been developed for purpose of the eliminating duplication  and violations of the relevant legislations, as well as the abovementioned  legal and practical needs within the framework of combating money laundering and financing of terrorism.

The drafting of the amendment was based on a common international requirement, which was to strengthen Mongolia’s system for combating money laundering, financing of the terrorism and the spreading of weapons of mass destruction.

In particularly, the draft of amendments of the relevant legislation states that to determine clearly the some legal terminologies stipulated in the Law on Money Laundering and financing of terrorism, to ensure/provide the authorized person who are entitled to perform the monitoring, to create a legal environment for monitoring in purpose of the implementation of the legislation, to report electronically by the obliged person to the Financial Information Agent, to include the tighten of sanctions for crimes and offenses related to the money laundering, to intensify the investigation and to eliminate the duplication and violation between the relevant legislations.

These amendments to the above-mentioned legislation are expected to be discussed by the State Khural of Mongolia (the Parliament of Mongolia) for the adaptation.

Tax Reform for Mongolia



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As you all aware that the Parliament of Mongolia ratified the amendments to laws on taxation and related legislation during the irregular session held on 22 March 2019 in order to the submission of Government’s tax reform packages.

The new tax laws require the Cabinet, Ministry of Finance and Mongolian Tax Authority to release a number of implementing guidelines. As these regulations largely play an important role to set the tone of the taxing rules, we encourage you to monitor these developments in a timely manner.

The newly adopted tax laws, including the General Tax Law, the Corporate Income Tax, Value Added Tax and Personal Income Tax Laws and tax implementation guidelines and regulations came into force on 1 January 2020.

A number of important changes that may have a material impact on taxpayers, requires taking appropriate actions to comply with the new requirements. There are following main revisions introduced to the tax reform: new amendments include increased supervision on suspicious tax activities, tax deductions for environmentally friendly product purchases and rehabilitation expenses by companies.

Furthermore, the higher tax refunds—up to 6 million MNT-for new apartment owners if the deed is issued in 2020. Independent contractors such as artists will pay taxes from their net income, not from their income as before. Shareholders’ dividends will be taxed at 5 percent, and individuals and organizations who make less than 50 million MNT in sales income, will be taxed 1 percent of their total sales income, and small traders will be charged 1 to 50 percent of the minimum wage, depending on their sales volume.

BROADCASTING FOREIGN TV CHANNELS IN MONGOLIA



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We would like to post a blog in concerning with the foreign TV channels practice in Mongolia. Today, there are over 130 foreign TV channels broadcasting within Mongolia through the licensed TV multi-channel transmission service providers as their basic package service. One of our clients was recently seeking our assistance on clarifying whether a foreign TV channel is required to obtain any license for broadcast within Mongolia.

Under the currently effective legislation of Mongolia, there is no requirement for a foreign channel operator, or distributor to obtain licences for broadcast within Mongolia. The Communications Regulatory Commission of Mongolia (CRC), a government agency, is entitled to grant a licence to following activities in concern with broadcasting:

  • Digital terrestrial television network provider;
  • TV& radio and channel broadcasting service.
  • TV& radio multi-channel transmission service; and

However, this licensing requirement applies only to Mongolian legal entities, not to foreigners. In practice, a licensed Mongolian legal entity providing TV multi-channel transmission service, entered into an agreement with the foreign channel operator or distributor for broadcasting such foreign channel within Mongolia. TV multi-channel transmission service providers have a responsibility on the contents of foreign TV channel what shall be compatible with Mongolian laws and regulations.

Nowadays, a new legislation in related to the broadcasting is in the process of review. The draft law on broadcasting is currently under review by the parliament. According to the draft, the foreign channel would be required to be register with CRC before entering into the agreement with licensed Mongolian broadcast company.

Auditing Annual Financial Statements



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With the start of a new fiscal year, many Mongolian companies will be concerned with finalizing annual audited financial statements.

In Mongolia, a legal entity is entitled to conduct auditing activities only after obtaining a license to engage in auditing activities. At the moment, there are approximately 130 auditing entities which have a valid license to perform auditing services.

Licensed auditing legal entities shall carry out the auditing of financial statements, review of financial statements, and relevant financial services. Furthermore, these licensed companies may engage in specialized tax consulting service, asset valuation, financial and accounting consulting service and training after acquiring relevant licenses.

All of you may aware that legal entity’s financial statement is required to be audited in compliance with the legislation of Mongolia. The following business entities or organizations is required to have mandatory auditing of financial statements:

  • business entities or organizations to follow the International financial standard;
  • business entities or organizations develop consolidated financial statements;
  • business entities or organizations going under reorganization or liquidation or selling all their properties through auction;
  • foreign invested business entities or organizations;
  • fund; and
  • other business entities or organizations required to have mandatory auditing of their financial statements under the international treaties which Mongolia is a party.

Most business entities or organizations, except joint venture company and banks, are obliged to have their annual financial statements within April 30 of the following financial year. As for business entities or organizations going under reorganization and liquidation or selling all their properties through auction, their financial statement is required to be audited one month prior to implementation of such activities.

The  legal entity that is responsible for mandatory auditing shall be liable to impose a fine in the amount of MNT 1, 000,000 and to compensate a damages for failure to performing audit on its annual financial statement or not fulfilling its obligation to perform audits in its annual financial statements within timeframe set by the legislation.

Basics of Mongolian VAT



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Introduction of VAT

The Value-Added Tax Law came into effect on 1 January 2016. 

The VAT Law increased the threshold for requirement to register as a VAT payer from 10 million MNT to 50 million MNT in an effort to support small and medium sized enterprises. Voluntary registration as a VAT payer is possible if the income of the entity reaches 10 million MNT.

The Law also introduced a system of incentivizing taxpayers with the possibility of recovering up to 20 per cent of the taxes paid if certain conditions are met. Its further attempts to improve the system and procedure for collating, processing and reporting data relating to the payment of VAT by creating a consolidated registration system.

Who is the taxpayer?

Taxpayer will be individual and legal entity.

In connection with individual, a person who purchases goods, works or services in any form or otherwise purchases, for the purpose of own use regarded as a taxpayer.

With regard to legal entity, legal entity sold, imported, exported goods, works, services and whose operational sales income value reached to 50 or more million tugrugs and obligated to impose and withhold taxes and pay to budget shall be a withholder.

For individuals who work permanently or temporarily under the labor contract is not subject of VAT levy.

What kind of goods and services will be subject of VAT?

  • Imported, exported and sold all goods, works and services;
  •  sale of rights;
  •  closing of any debts through barter such as goods, work and service
  • Sold, performed or rendered goods, works, services by foreigner to Mongolian
  • electricity, heat, gas, water supply, sewerage, post, communication and other services;
  • leasing of goods or granting rights to possess or use in other manner;
  •  renting of accommodation in a hotel or similar establishment or granting of rights to possess or use in other manner;
  • renting of immoveable or moveable properties, or granting of rights to possess or use in other forms;
  • transfer, lease and sale of intellectual property;
  • lottery, quiz and gambling;
  •  mediation trade representation, commission service;
  •  interests, fine or forfeiture;
  •  asset evaluation service;
  • budget financing, subsidy or promotion by government;
  • funding through acquiring right to demand (factoring, forfaiting and transactions similar to them);
  • legal service
  • all types of services including hairdresser, beauty salon, repair, washing and dry cleaning.

VAT Rate

The current VAT rate is 10 per cent, however, there have been some changes in the types of goods, work and services that are exempted from value-added tax and those that are subject to zero (“0”) per cent VAT.

10 percentages value added taxes will be imposed on the all types of goods, works and services sold within Mongolia and imported from abroad to Mongolia. No valued added tax will be imposed on export goods. 0-10 percent rate of tax will be imposed on the amount of imported, manufactured and sold petrolium and dissiel, however, Government of Mongolia will determine the rate of tax within the frame.  

Zero Tax Rate

Zero tax will be imposed on the goods exported and declared with the customs office; passenger and cargo services rendered from Mongolia to foreign countries, from foreign countries to Mongolia, as well as transiting through Mongolia according to the international treaties of Mongolia; any services rendered outside of Mongolia and rendering services to non residents  /”including non-taxable services”/;  any services of air navigation management, technical and fuel, catering, cleaning services provided for both foreign and domestic airplanes conducting international flight, state medals, currencies or coins manufactured domestically by order of Government or Bank of Mongolia; final mining products.

Requirements of Official Financial Statements



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As we mentioned in our previous post, The Board of Directors is obliged to submit the report with respect to the financial statements to the annual shareholders meeting of a company for approval. In this post, we would like to call your attention to a company’s official financial statement, its scope and requirements.

Companies and other organizations operating in the territory of Mongolia are required to submit financial statements electronically to the local Ministry of Finance. These statements must be maintained in Mongolian language and reported in the national currency of Mongolia, the Tugrug.

The financial statements of company must include the following: (1) A record of the current balance, (2) the income statement, (3) statement of shareholders’ equity, (4) cash flow statement, (5) financial statement clarifications.

The financial statements must be approved by the company’s highest authority and financial officer and submitted by July 20, with completed annual financial statements due by February 10 of the following year. Mongolia has implemented a electronic filing system for submission of the statements. The accounting files and financial statements of the company are required to be maintained for at least 10 years.

The Ministry of Finance is responsible to monitor banking and financial markets and is entitled to request additional explanation and clarification from a company with regard to a submitted financial statement. In this case, the company is obliged to provide accurate and complete explanation and clarification as requested.

The highest authority of the company is responsible for managing and organizing the accounting. The company may engage contracted accountant’s service or professional accounting consulting service.

Some organizations, in particularly foreign invested companies are subject to mandatory auditing of financial statements. We will provide the more information related to these mandatory audits in an upcoming post.

Calling A Shareholder Meeting



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We have posted several blogs consecutively in connection with the governance of company in particularly, Authorities of Shareholders Meetings and Board of Directors’ meetings and Secretary of Board of Directors.,etc.

This time, we would like to raise the procedures of calling regular and special shareholders meetings under the recent legislation in Mongolia. It may take an interest of the foreign investors or businessmen who cooperate with the legal entity of Mongolia thought the company operations in Mongolia.

As we all aware that the shareholders meeting is the highest governing authority of a company. The shareholders meeting can be either regular or special.

The regular shareholders meeting shall be called by the Board of Directors and held within four (4) months following the end of each fiscal year of a company. If there is no Board of Directors in the limited liability company, the executive body will in charge of this obligation. The authority of the Board of directors shall terminate whether a regular shareholder meeting is not called and held within the period abovementioned. It means that any agreements or transactions entered into after the termination of the authority of the Board of Directors shall be invalid.

As for the special shareholders meetings, The Board of Directors shall call the special shareholders meeting in the following cases:

  • more than 50 percent of the Board of Directors not to work or not possible to work;
  • two (2) or more independent members of the Board of Directors, shareholder(s) of 10 or more percent of voting rights has issued a proposal or demand;
  • the losses incurred by the company exceeds 30 percent of the owner’s equity at the time of the last financial report;
  • the company debt has exceeded the owner’s equity two (2) years in a year, and is a negative figure;
  • the Board of Directors has issued a decision;
  • the audit committe has demanded to convene a special session of the shareholders meeting;
  • all other cases specified in the company charter.

The Board of Director makes a decision whether or not to call such special shareholder meeting within ten (10) business days following the date that they receive the demand by shareholder(s) who owned 10 or more percent of voting rights of the limited liability company. In the case, the Board of Directors decides to call the special meeting demanded by the shareholders; such meeting shall be called within forty-five (45) days following receipt of the demand.

If the decision of the Board of Directors to refuse to call a special shareholders meeting, the shareholder making such proposal or demand are entitled to appeal to a court against the Board of Directors’ resolution.

THE SECRETARY OF THE BOARD OF DIRECTORS



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The Secretary of the Board of Directors is deemed as the company’s eligible person.

Because he/she is involved in the official decision of the company in both direct or indirect ways. This is regulated in Article 84.1 of the Company code. The Secretary of the Board of Directors shall be appointed by the BoD upon the suggestion submitted by the Head of BoD.

Any person of the state and regional administrative bodies, military, police, court and prosecutor’s authority, or any person currently convicted to criminal penalty are prohibited to act as the Secretary of the Board of Directors.  (Article 84.3 of the Company Code)

The Article 75.8 of the Code also provides the Secretary of the Board of Directors to be enrolled in the corporate governance training and to have received the Certificate thereof. This requirement applies to the members and secretaries of the BoDs of joint stock and limited liability companies.

Articles 82.2, 97.5, 98.2 of the Company code specifically state the duties to be performed by the Secretary of the Board of Directors. This shall include:

  • to be responsible for the administration of the internal operation of the Board of Directors;
  • to take notes of and administer the shareholders’ meeting and the board of directors meeting, and to convey inform to the shareholders;
  • to be in charge for the preparation of the shareholders’ meeting and the board of directors meeting, to prepare the information related to the announcement of the meetings and discussion topics, and the drafting and delivery of the draft of the resolution to be approved and other documents in accordance with the relevant procedures;
  • to take meeting minutes of the shareholders’ meeting and the board of directors meeting, to verify the decisions and resolution in accordance with the relevant procedures, and to ensure the implementation thereof;
  • to coordinate the activities of the shareholders’ meeting, the board of directors, the executive director and other participants.

Legal Opportunities to Defer an Arbitration Hearing



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As provided in the Procedure for Arbitration proceeding of the Mongolian Chamber of Commerce and Industry, the Parties are entitled to submit the request on the deferral of the hearing only on the grounds stated in law or justified reasons.

The Law on Arbitration does not provide an interpretation on what occasions shall be deemed as the justified reasons. However it may include the instances such as being sick, getting a medical treatment, taking care of a sick person, having a business travel inland or abroad, taking part in the training, joining the public mobilization, to be imprisoned in zone of public quarantine due to serious contagious disease, sudden fire and natural dangers or force majeure events (flood, drought, zud, dangerous snow and dust storms, earthquake, etc.).

Moreover, pursuant to the Procedure for Arbitration proceeding stipulated, if the Arbitration composition may defer the arbitration hearing if they deem that new evidences are required. On the other side, the Parties may also file the request to the appoint an expert for the case, and in such case the arbitration composition may assign an expert if they deem it is inevitable for the accurate detection of the arbitration case.

Finally, one shall also note that it is almost impossible to defer the hearing by means of challenging the arbitrator once the hearing has already taken place. This right to challenge is granted to the Parties only for 7 days after the receipt of the statement on the neutrality of the arbitrator and this way you can defer the hearing.

Documents Required for Obtaining the Construction Permit



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According to the Law on Construction of Mongolia, “the permit for the commencement and continuation of the construction work” or simply “the construction work permit” shall represent the decision from the competent entity approving a particular company to perform specific construction work. In order to commence and/or continue the construction work, a company is required to submit their request to the Governor of the province or city. For such purpose, the following documents shall be provided along with the application:  

  • The verified decision on the location, design drawings, technical terms of the construction;
  • The expertise of the comprehensive drawing of the construction and the conclusion of the expertise;
  • The introduction and the copies of the state registration certificate and special license of the legal entity in charge for the development of drawing;
  • The construction assessment report required for the environmental assessment in accordance with the environmental laws and regulations;
  • If covered by insurance for sudden accident and/or liability, the certificates of such insurance.

In addition to the above-stated documents, certain special licenses such as licences for architectural design, as well as the comprehensive planning for the monitoring of the construction project shall be attached to the request.

Upon the receipt of the request, the Governor of the province or city shall issue the construction permit within 10 business days and verify the permit by means of a certificate.