Tag Archives: Compliance

Liability of a Mongolian Company for Non-Compliance



Posted by , , , ,

We have looked at the requirement for a Mongolian company to have an internal control body and discussed a little about the forms such body may take. Our readers may be interested to note that while having such body is mandatory for a Mongolian company under law, there isn’t actually any penalty for a company that does not establish an internal control process.

What this means is that while there is no penalty for not having the review body, the Company will be considered liable under Mongolian law for any compliance violation or audit irregularity caused by the actions of the company’s officers or staff, which result in legal penalties or civil damages. By making the company responsible to maintain the internal control and compliance committee, the law makes the company responsible for any failure of compliance. Such liability will be in effect even where the non-compliance was accidental or was caused by the unapproved actions of a single staff member. The theory is that these things would not happen if the company had established and followed an appropriate internal control process.

Mongolian companies should therefore take the legal requirement to establish a Internal Control and Audit Committee seriously. The internal control system will allow company management to better ensure proper operations of the company and identify and stop potentially non-compliant behavior before it results in a larger problem, potentially carrying legal penalty. Since the law makes the company liable for non-compliance in any case, it makes sense for the company to establish internal procedures to reduce this risk.

Compliance Options for Your Mongolian Company



Posted by , , , ,

We talked yesterday about the Internal Control or Auditing Committee every Mongolian company should have. The Committee should operate by a set of rules, which the company approves and implements for itself. Government regulations stipulate that each, “Entity or organization must have its own internal control and auditing procedure in compliance with this regulation and consistence with its activities.”

To comply with this rule, the company must establish the Internal Control or Audit Committee, or for larger companies a complete department devoted to compliance may be used. Smaller companies have the option to appoint a single company officer to be responsible for compliance. This individual office, committee or department will have responsibly to conduct internal compliance reviews and audits.

Internal Control and Audit Requirements for Your Mongolian Company



Posted by , , , ,

All types of legal entities, regardless of ownership or organization details, are required to comply with state inspection requirements. Each company is required to establish an Internal Control or Auditing Committee comprised of company officials responsible for monitoring internal company operations and compliance. Whether the company is locally owned or foreign invested, or operating in mining sector, industrial manufacturing or providing a service, the company must establish an internal audit committee.

The Internal Control and Audit Committee is responsible for internal compliance issues for the company, to ensure the company meets all of its obligations as set out elsewhere in Mongolian law. The Committee is broadly responsible for compliance as regards meeting environmental impact and conservation obligations; ensuring quality of products or services provided by the company; monitoring working conditions and workplace safety and health; ensuring the company meets all obligations regarding property registration, utilization, storage and finally, the committee is responsible to ensure accurate accounting of financial records.

If you are unsure if your Mongolian company’s internal compliance and control procedures meet requires of the law, contact your Mongolian legal counsel for a consultation.

Changes to Customs Tax and VAT Exemptions



Posted by , , , ,

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.

Expat Visa and Work Permits in Mongolia: Part III



Posted by , , , , ,

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



Posted by , , , , ,

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.

Expat Visa and Work Permits in Mongolia



Posted by , , , , ,

The Mongolian Government is known for generally enforcing a fairly flexible investment policy, with foreign investment well received in all sectors of the economy. So Many entrepreneurs seek partnership with foreign investors. Also, as there remains a notable shortage of skilled labor in Mongolia, foreign workers are therefore encouraged to fill these gaps. For entrepreneurs and companies considering inviting foreign investors/partners or employees to Mongolia, we will provide you a brief guide to Mongolia visa and work permits in several parts.

In this case there are three visa options available: business visa (B visa), foreign investor visa (T visa) and work permit visa (HG visa).

There are single-entry and multiple-entry B visas. Single-entry B visas are valid for a period of up to 90 days, and multiple-entry B visas are valid for either 6 months or 1 year. However, inviting company should take note that with multiple-entry B visas one time stay of a visitor should not exceed 30 days upon entry into Mongolia. In other words, visitor may enter Mongolia multiple times within the period of issued visa, but every stay may not exceed 30 days. Whereas visitors with single-entry B visa may enter Mongolia one time only and stay for a period of up to 90 days (depending on issued visa). B visa holders cannot legally work while in Mongolia – they may attend business meetings, conferences, exhibitions and other similar events. B visas may be sponsored only by a company duly registered in Mongolia. Therefore, B visas are generally intended for potential or current business partners and investors visiting Mongolia.

Company inviting a foreign partner or investor must first provide a visa invitation letter to such partner or investor. A request must be submitted along with required packet of documents 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 partner’s or investor’s country of residence, where he/she applies for B visa. Single-entry B visas are valid for 90 days upon its issuance until the entry into Mongolia, and multiple-entry B visas are valid for 183 days.

Inviting company is responsible for registering the visitor with the Immigration Agency within 7 days upon their entry into Mongolia.

Mongolia Set to revise Labor Law



Posted by , , ,

A recent meeting of the Cabinet reviewed and discussed a proposed draft of amendments to the Labor Law. It was decided by the Cabinet that the proposed amendments will be submitted to Parliament to be formalized in law, along with the addition of some proposals from Cabinet members.

The Labor Law was ratified in 1999 and has been amended several times since. The law governs employment relationships within Mongolia. The Law and sets standards as to health and safety requirements, minimum wage levels, maximum hours of work, collective employment agreements and bargaining and resolution of employment disputes. The law prohibits employment discrimination on the grounds of social or property status, race, color or nationality, sex, religion or political views as well as unwritten contracts of employment.

The latest changes introduced via the Amendment Law on 21 April, 2017 provide detailed regulations regarding previously unclear provisions of the Labour Law, such as probationary periods, internship/apprenticeship periods, and part-time employment. The amendment also increased the level of fines for violations of the Labour Law by employers, in order to ensure the protection of employees’ basic rights.

The working group which drafted the current proposed amendments believe that a number of the law’s articles are outdated and don’t meet the needs of the modern labor environment. The newly proposed amendments seek to cover relations between employers and employees, clarifying rights and obligations. The amendments also include articles that would place restrictions on the employment of minors, workplace discrimination, establishing employment agreements without time constraints for permanent employment, part-time employment regulations, remote working regulations, basing salaries on skills and abilities, annual vacation requirements, and new regulations for vacation days for mining sector employees who work far from home for extended periods.

Lehmanlaw Mongolia LLP will be update further progress of the amendments to the Law on Labour in timely.

Can Foreign Companies Acquire Land in Mongolia?



Posted by , , , ,

In this article we shall discuss what land rights are there for foreign citizens, foreign companies /foreign invested companies/ in Mongolia and is it prudent to invest.

Pursuant to laws there are three types of land rights in Mongolia: land ownership, land possession and land use right. All land, other than land granted for ownership to citizens of Mongolia, is owned and managed by the state. Thus, obviously aside from the state only citizens of Mongolia are entitled to land ownership. Therefore, restrictions on private foreign land ownership in Mongolia are absolute, meaning foreign citizens and companies are prohibited from outright land ownership. Domestic companies and Mongolian citizens may “possess” and “use” the land, where foreign companies and citizens may only “use” the land and only for purposes established by legislation.

Foreign citizens, who permanently reside (for more than 183 days) in Mongolia, may acquire land use right through open auctions for residential needs only. Foreign citizens may be given land for use up to 0.05 hectares for a residential lot, and up to 0.1 hectares – for gardening activities (such as cultivating vegetables, fruits and berries). Land may be given for use for up to 5 years through a contract and be extended by up to 5 years at a time.

For foreign companies or Mongolian companies with foreign shareholding the acquiring of land use rights is much more complicated process. Foreign companies may acquire land use rights through an open auction process similar to foreign individuals. However only the Parliament of Mongolia is entitled to make a decision on giving land for use to foreign companies (including or Mongolian companies with foreign shareholding); whereas, a decision on giving land for use to foreign citizens is made by governors of corresponding level. Land may be given for use to foreign companies under lease or concession contracts for up to 60 years and extended once for up to 40 years upon its initial term. The Government determines land borderlines and land use regulations.

Aside from restrictions on acquiring land use rights, there are a couple additional restrictions for foreign citizen and companies’ land rights. Foreign citizens and companies are prohibited to freely transfer, or pledge acquired land use rights. Such transfers and pledges may be undertaken only between Mongolian citizens, companies and organizations. Mongolian citizens and companies, who gave the land for utilization to foreign citizens and companies without proper prior approval from authorized state body, are liable to compensation of damages and termination of their land use rights. In other words, in order to acquire land use right from Mongolian citizens and companies, once again one must obtain approval from abovementioned authorized state bodies. Thus, it makes acquisition of land use right from domestic companies and citizens also complicated.

In conclusion, while the process for a foreign invested company is difficult, it is doable. For those foreign companies for which acquiring such land use rights is important, it will be important to obtain the advice and assistance of an independent Mongolian lawyer.

Requirements for Offering Tax Consulting Services in Mongolia



Posted by , , ,

Some activities must be conducted under a specialized license in accordance with Mongolian law. One of those activities is specialized tax consulting service. Tax consulting service is allowed to be conducted by a legal entity with a license granted by the appropriate government agency, similar to auditing. The Law on specialized tax consulting was adopted on December 27, 2012 and is the primary legislation to regulate this service.

According to the law, an authorized tax legal entity must satisfy a number of requirements, such as having a physical workplace, equipment and software necessary for the conduct of the required activities; having handbooks or manuals and methodology to be used in its operations; having archive for storage of work documents of consulting services; and ensuring confidentiality of a client information and information security.

In addition, there are specific human resources requirements. An authorized tax consulting company must have 3 and more specialized tax consultants and its founder must be a specialized tax consultant. License for specialized tax consultant is issued for 3 years term.

The specialized tax consulting service aims to provide a client with an opportunity to perform its duties to pay taxes and protect its rights and legal interests. The law stipulates that the tax consulting service includes following activities:

  • to provide advice on legislation on taxation and professional assistance regarding its implementation and promote;
  • to make tax estimation and adjustment, review primary and accounting documents, register tax influence and develop tax reports in accordance with approved template;
  • to communicate with taxation office and other relevant persons on behalf of a client.

As we mentioned in our earlier post, an auditing legal entity may carry out the auditing or review of financial statements and provide relevant financial services to the client. In addition, an auditing legal entity can engage in specialized tax consulting service after acquiring relevant license. If auditing legal entity provides the tax consulting service on the bases of additional license, it is not required to use a proper name which includes abbreviated letter of “STC” (Specialized tax consultant”) as an ordinary authorized tax legal entity does.

If a business offers tax consulting services without the required license, the company and personnel are subject to legal penalty.  A person may be fined for three hundred thousand tugrugs and a legal person is fined for three million tugrugs.