Hiring Foreign Nationals to Work in Mongolia



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In this blog, we will be introducing the concept of inviting foreign workers to work in Mongolia.

According to the revision of the Law on Labor Force Migration, when inviting a foreign worker for employment, the employer shall be delivering information about the vacancy and the requirements for the workplace to the aimag (provincial) and district employment agencies and applying for hiring employees. According to the law, aimag and district employment agencies shall immediately place the job information submitted by employer in the unified employment registry and database and make it accessible to the public. It is prohibited for the employer to set overly demanding benchmarks for the qualifications and professional skills required to perform the work when hiring an employee from a foreign country, or to unreasonably refuse to employ a Mongolian citizen who meets the workplace requirements.

An organization inviting a foreign citizen operating in Mongolia has the right to request an invitation to hire a foreign employee if it has not been able to find an employee from within 14 working days after the job announcement has been placed in the employment registry and database and starting an active search for an employee. (However, this does not apply to foreign nationals working in managerial positions, the employees and volunteers of the branches and representative offices of international and foreign non-governmental organizations, the specialists working in scientific, education, health, cultural and sports organizations under agreements between government and state organizations, the experts specialized in sectors determined by the Government of Mongolia, the medical specialists providing health care services, the highly qualified foreign engineers and equivalent employees working in Mongolia only for the period specified in the investment and development agreements).

The employer shall submit a request to hire an employee from a foreign country along with the following documents to the state administrative body in charge of employment:

1. A work plan defining the classifications, types, lists, locations and durations of workplaces requiring employing foreign employees;

2. The state registration certificate and the permit if it is related to a work or service requiring a license;

3. A document proving the professional skills and qualification of the foreign employee must be certified by a competent authority recognized by the concerned country;

4. A proof evidencing that the employer has the right to request an invitation to employ a foreign employee if the employer fails to hire a domestic employee within 14 working days after placing a job advertisement in the employment register and database and actively looking for an employee;

5. The receipt of service fee payment;

6. The reference on the payment of social insurance premium;

7. Others specified in the relevant legislation.

The term of an employment permits shall be up to one year depending on the term of the labor contract and it can be extended.

The employer who has obtained the permit from the state administrative body in charge of employment shall select a foreign employee and conclude an employment agreement with them and present it to the state administrative body in charge of employment matters along with other relevant documents.

After arriving in Mongolia, foreign workers must undergo a medical examination.

After obtaining a work permit, a foreigner must obtain a residence permit from the Immigration agency of Mongolia.

Employment of Foreign Nationals in Mongolia



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In this article, let’s provide a general understanding of issues related to employment in Mongolia.

According to the Law on Labor force migration, it aims to regulate the relations regarding the employment of foreign citizens and stateless persons in Mongolia, and the protection of their rights and legitimate interests.

Relations concerning visas and residence permits issued to foreign citizens holding employment permits shall be regulated by the Law on the Legal Status of Foreign Citizens.

The workplaces of foreign employees working in Mongolia shall be classified into the management, executive and supporting types.

The management positions shall include:

  • General Directors, the CEOs, the foreign investors, and the representatives of foreign investors of companies with foreign investment.
  • Chairmans or the members of the Board of Directors or the executive directors of business entities or other organizations.
  • Managers of the branches and representative offices of international and foreign non-governmental organizations.

The executive positions shall include:

  • Employees and volunteers of the branches and representative offices of international and foreign non-governmental organizations.
  • Specialists working in scientific, education, health, cultural and sports organizations under agreements between governments and state organizations.
  • Experts specialized in sectors determined by the Government of Mongolia (The list of specialized workplaces in the fields of economic activity shall be approved by the Government by the 1st day of October biannually)
  • Medical specialists providing healthcare services.
  • Highly qualified foreign engineers and equivalent employees working in Mongolia only for the period specified in the investment and development agreements.
  • Employees of scientific and research organizations and the teachers working at all levels of educational institutions having bachelor or higher degree.
  • Professional teachers, coaches and specialists working in cultural and sports organizations.
  • The supporting positions shall include:
  • Employees having a certificate, a diploma or a professional certificate issued by the competent authority of the concerned country, or recognized in Mongolia, proving that he / she has acquired specialized technical and vocational education.
  • Temporary employee working in Mongolia for a period of up to six months.

The number and percentage of foreign workers to be employed in Mongolia by the sector of economic activity shall be approved by the Government by the 1st day of October annually. Proposals forwarded by the state central administrative body in charge of national development

policy and planning and the National Employment Council, as well as the supply and demand status of the labor market shall be taken into account when determining the number and percentage.

In the next blog, I will write about inviting foreign workers for employment.

Obtaining a Mining LIcense is no Obstacle for Foreign Enterprises Operating in Mongolia



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It is well-known that the economy of Mongolia is largely dependent on mining sector by generating 24 percent of GDP and 94 percent of export income and comprising 64 percent of FDI.

The country is abundant with natural resources, and it is the Government of Mongolia that determines those areas for which a mineral exploration license or a mining license may be granted based upon the recommendation of the Ministry of Mining. The law provides that the size of an exploration area for one license shall not be less than twenty-five (25) hectares and shall not exceed one hundred fifty thousand (150 000) hectares.

The Mineral Resources and Petroleum Authority of Mongolia under the jurisdiction of Ministry of Mining and Heavy Industry is in charge for organizing the selection for granting the special licenses for the exploration area and any entities interested in obtaining the exploration license may submit their proposals online as well. Upon the selection of the company in tender process and granting the special license, the entity shall duly complete the exploration project and determine the natural reserve deposits. Importantly, only the exploration license holder shall be entitled to apply for a mining license in the exploration licensed area.

The “One license for one legal entity” rule applies pertaining to prospecting, exploration or a mining right. Mineral exploration and mining licenses shall be granted to a legal entity duly formed and operating under the laws of Mongolia, and such legal persons shall be duly registered as taxpayers. Foreign companies may establish a foreign invested legal entity in Mongolia directly or they may establish a joint venture in cooperation with Mongolian businesses. Where more than 25 percent of the total share capital of a Mongolian enterprise is held by a foreign investor the investment amount by each foreign investor equals must be at least USD $100,000.

As it is prohibited to transfer the special licenses to any other third parties as a whole and there are strict requirements of obtaining the exploration and mining licenses, some foreign business entities choose to simply buy an existing Mongolian company, which already has obtained the necessary licenses. In other words, in such case the foreign entities may buy a Mongolian company along with all its rights and duties, as well as its licenses, and may operate its mining operations under this company.

The Government of Mongolia is doing its best effort to establish a pleasant environment for all businesses and grant the equal rights for both domestic and foreign companies willing to benefit from natural resources of Mongolia, provided they do operate in good faith by respecting and adhering to applicable laws.

How to De-Register a Company in Mongolia?



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Get ready for an exciting journey through the process of company liquidation in Mongolia! Whether it’s initiated by a decision of the shareholders or an order of the court, the process is filled with twists and turns.

If the shareholders decide to liquidate the company, the Board of Directors (or the executive body in its absence) will prepare a draft Shareholders Resolution of Liquidation. This resolution must include the appointment of a liquidation commission, authorization of its powers, a timeline for liquidation, and a procedure for distributing the company’s remaining property among shareholders after creditors’ claims are satisfied. The resolution must be approved by an overwhelming majority of shareholder votes.

Once the resolution is approved, the company must notify the relevant state registration authority in writing within three working days and attach the original decision on liquidation. The executive authority of the company will then be terminated, and the liquidation commission will take over.

The liquidation commission is responsible for publicizing 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 commission must also complete several actions during the liquidation process, including officially handing in the State Registration Certificate of the company, closing the company’s bank accounts, handing over the company’s official seal to the police, and obtaining a form from the Customs Office to confirm no related taxation issues remain on behalf of the company.

The Tax authority will then examine and investigate the company’s tax records, and an auditor will be required to handle the closing financial statements. An accountant will issue the closing balance of the company. Once the Liquidation commission has submitted the required documents 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.

Mongolia to Take Action to Address Corruption



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During its regular session on March 14, 2024, the Cabinet of Mongolia made a significant step forward in the fight against corruption by supporting the submission of a draft Resolution to the State Great Khural of Mongolia for approval.

The draft Resolution outlines the implementation of an Action Plan for the Implementation of the National Anti-Corruption Program. the Resolution aims to establish an effective legal framework to combat corruption and encourage public trust in government. The newly proposed resolution for implementing the national anti-corruption program is a much-needed initiative to address the misuse of power and authority.

The draft Resolution outlines 290 measures to be implemented between 2023 and 2030, aimed at achieving the 11 goals and 48 objectives of the National Anti-Corruption Program, as set out in 2023 Resolution No. 59 of the State Great Khural. The success of this program hinges on the active participation and cooperation of all stakeholders, including the public and private sectors, civil society organizations, international organizations, the media, and citizens. The anticipated outcomes of this program are promising. A yearly decline in corruption levels is expected under the plan, leading to an expanded state budget, increased public trust in public organizations, rising citizen income, and a strengthened culture of zero tolerance for corruption. Furthermore, a more robust whistle-blowing system will be established, providing a crucial avenue for reporting and addressing corrupt activities.

Official corruption is a pervasive problem in many Asian countries, undermining the rule of law, hindering economic development, and eroding public trust in institutions. Corruption takes various forms, including bribery, embezzlement, nepotism, and cronyism. It affects all levels of government, from local administrations to national agencies, and can influence decision-making in areas such as business regulations, public procurement, and law enforcement.

The consequences of official corruption are far-reaching. It distorts markets, creating an uneven playing field for businesses and discouraging foreign investment. It also undermines the delivery of essential public services, such as education, healthcare, and infrastructure. Corruption can lead to inefficiencies, waste, and misallocation of resources, further exacerbating poverty and inequality. Moreover, it can fuel social unrest and political instability, as citizens become disillusioned with their governments and demand accountability.

The root causes of official corruption in Asian countries are complex and multifaceted. Some of the key factors include weak institutions, lack of transparency and accountability, and cultural norms that tolerate or even encourage corrupt behavior. In many cases, low salaries and inadequate resources for public officials create incentives for them to engage in corrupt activities. Additionally, complex regulatory systems and opaque decision-making processes can create opportunities for corruption to thrive.

What is the Capitalization Requirement for a new Foreign-Owned Company in Mongolia?



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Our team of Mongolian lawyers regularly field questions related to Mongolia’s capitalization requirements for the establishment of a new Mongolian company.

Mongolian law requires payment of at least USD $100,000 in capitalization funds per foreign shareholder when establishing a foreign owned company in Mongolia. This means a company established by a single foreign shareholder will be required to pay-in at least $100,000, while a company established by two foreign shareholders must pay at least $200,000. This requirement is the same whether the shareholder is a foreign individual person, or a legal entity.

A frequently asked question is what are the permitted uses of these funds after the company is successfully established. The good news is that once the company has been formally registered and operations commence, the initial capitalization funds will be available for normal use by the company in connection with the company’s expenses and liabilities incurred in the course of operations. The government of Mongolia, generally does not track how these capitalization funds are used. With the right contractual arrangements in place, the new Mongolian company will even be able to remit a significant portion of the initial capital back to the foreign shareholder/s.

Prospective investors should note however that in the event the Mongolian entity encounters difficulty, it will be legally liable up to the $100,000 threshold, regardless of whether that initial payment remains on the company’s books, or has been spent or remitted abroad.

It is important to note that where the total foreign ownership of a company is lower than 25% the company will not be considered foreign owned for the purposes of Mongolian law, and the $100,000 capitalization requirement per foreign shareholder will not apply. As a result, it is common for foreign investors interested in entering Mongolia to work with a local partner holding 76% of a new Mongolian entity, while the foreign side holds only a minority 24%. In some cases this arrangement works well, while in others differences in strategy or management style between the foreign investor and the Mongolian partner may lead to disagreements. When considering a prospective joint venture of this kind, care must be taken to structure the legal documentation appropriately to best protect the foreign shareholder.

Another model we have encountered is a “Nominee Shareholder” arrangement. In this structure, the foreign investor reaches an agreement with a Mongolian national individual or company to establish and hold the equity in a Mongolian entity while acting on behalf of the foreign investor. This model can be effective and is permitted by Mongolia laws, however this structure carries significant potential risk in the event the wrong Mongolian Nominee is selected. As the Nominee Shareholder will have full control over the Mongolian company operations and management care must be taken in the selection of the Mongolian side, as well as in putting in place the appropriate legal agreements to limit the Nominee Shareholder’s authority to act and to maximize the foreign investor’s rights to recover from the Nominee.

Setting up a Company in Mongolia



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Establishing a new company in Mongolia is relatively easy, however as with any country, there are unique legal and business practices which require careful consideration and planning.

There are four steps to establishing a company in Mongolia.  Firstly, a name for the new company must be formally registered, along with sector in which the company will operate.

This can be done via filing an application for reservation of the legal entity’s name with the Legal Entity Registration Office (LERO). LERO will verify and confirm the proposed name of the new company by checking it for similarities with other previously registered corporate names. LERO will confirm the name of the new company if it is not too similar to the name of an existing legal entity. A newly confirmed name will be reserved for 10 business days.

Secondly, a bank account must be established in the name of the new company. For a new company established by one or more foreign shareholders totaling at least 25% of ownership of the Company, USD $100,000 must be deposited into the account for each foreign shareholder. This is a legal requirement and not optional.

Thirdly, the company must be formally registered with the LERO. LERO will decide whether or not to register the new company 10 working days after receiving application documentation for a foreign invested company.

The final step will be to obtain a formal company seal (stamp) for the new company. The stamp will be used to execute contracts and official documentation. After each of these steps has been completed, the new company is ready to start operations.

Our Mongolian lawyers have successfully established companies in Mongolia for a variety clients in various business sectors. We are also able to provide registered address services, document management services, accounting and payroll services, tax preparation and reporting services.

What is the difference between Salary and Remuneration?



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Under the Labor Law, an employee’s remuneration consists of base salary, additions, additional pay, vacation pay, bonuses and incentives.  

Additions are paid to certain employees depending on specialty rank or degree, abnormal working conditions or responsibilities, as well as for utilizing the employee’s high professional skills or work experience in respect of Contract employees. Additions could also include similar additions provided by law, collective agreement or internal policies. 

Additional pay includes overtime pay, pay for performing work outside the scope of one’s job duties or job position (including simultaneously or in combination with the current job), pay for substitution of another employee, and other similar additional pay stated in law, collective agreement or internal policies (work rules). In respect of Contract employees, additional pay may be paid on the basis of work results.

Bonuses and incentives are paid for the employee’s work result or contribution to the company’s achievement, which include bonuses, one-time monetary incentive for completing a certain special task, and other monetary incentives paid pursuant to law, agreement or internal policy. The remuneration does not include the following: 

      - all types of statutory benefits, including for pregnancy and maternity leave, loss of working ability, unemployment, pension etc. 

      - reimbursements; and 

      - allowance income, including for transportation, fuel, housing and meal discounts.

The remuneration structure above applies to expats employees under contracts as well.

New Law on Social Insurance Comes Into Effect January



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The General Law on Social Insurance (“GSI law”) was approved by the Mongolian Parliament on July 7, 2023, and it will take the place of the Law on Social Insurance (1994) as of January 1, 2024. The law intends to enhance the administration and structure of the social insurance and pension systems , and control late payments and report resubmissions, among other things.

In this blog we will share an overview of key changes of the GSI Law and certain amendments to recognize for businesses and employers.

Under the new Law, the following amendments were made to expand the coverage of social insurance, to move from the distribution system to a semiconducting system, to reduce future losses in the insurance fund, and to initiate actual collection of pension insurance funds.

– From 2030, the insurer will be able to spend monetary asset from initial account on education, health care and mortgage repayments;

– A certain amount of the monetary assets from the initial account will be inherited by the insurer’s legal heirs;

– The government will pay for the insurance contribution of parents who has a child under medical supervision and permanent care;

– The maximum monthly income for voluntary social insurance is equivalent to an increase of 7 times that of the minimum wage rate.

Additionally, it should be noted that the following changes were made in relation to rights and obligations of the employers and businesses.

– the social insurance contribution to pay from an employer is slightly changed. The rate of manufacturing accidents and occupational-related disease insurance was reduced to 0.5-2.5 insurance and the rate of unemployment insurance increased as 0.5;

– An employer shall have the obligation to compensate and employee for social insurance contribution if it is found that an employer has not paid the income of social insurance for a period, has hidden, reduced rates, underpaid, and wrongly dismissed by employee.

– employees who are working for another employer under employment contract in addition to their full-time principal employer or under the contract shall be insured compulsorily for only pension insurance;

– foreign entities earning a source of income from Mongolia are obliged to pay and report social insurance contribution.

Basics of Agent/Principle Law in Mongolia



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A citizen or a legal entity may grant other another person authority to perform certain legal actions on his or her behalf, in accordance with law or on the basis of an appropriate authorization. The appointed representative, or “Agent”, has a duty to perform the designated activity on behalf of the entrusting party, the “Principal” within the authority delegated by the Principal, and the rights and obligations that arise from it belong only to the Principal.

Agent or representative of this kind may be a citizen or legal entity with full, partial, or limited civil law capability.

A written authorization must comply with certain legal requirements. A written authorization not meeting these requirements shall be invalid:

  • be signed by principal, and legal entity’s authorization shall be signed by executive and attached with chops or seal on it;
  • authorization entitling to receive, or transfer, or administer juristic person’s assets shall be signed by the accountant beside executive;
  • issued date shall be indicated;
  • if provided by law, it should be certified by notary;
  • if authorization was issued for certain period of time, the duration should be indicated.

Authorization shall be issued for a specific period of time or without a certain time. The power of authorization issued for a certain period of time must be no more than three years, authorization issued without a specified time shall be valid for up to one year period from the date of issuance.