Tag Archives: Foreign Direct Investment

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.

Personal Data Protection in Mongolia



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In the 26 years since the Personal Secrets Law was enacted in 1995, legal revise and reform for personal data protection was required due to changes in social interactions and digital transition. Therefore, on December 17, 2021, the Parliament adopted a new Law on the Personal data protection (PDPL), which began to be implemented on May 1, 2022.

This law applies to all individuals, legal entities and organizations without legal status collecting, processing, using and protecting personal data in Mongolia. Under the previous Personal Secrets Law, only the data subject was responsible for the security of his/her information but now the PDPL provides that the data controller and collector are obliged to ensure information security and protect personal data as well.

Personal data protection is categorized as personal information and sensitive information and it is defined as below.

  • Personal data means sensitive data, first and last name, date and place of birth, residence address, location, ID number, assets, education, membership, online identifier, and other information that directly or indirectly identifies a person or makes it identifiable;
  • Sensitive data encompasses a person’s race, ethics origin, religion, beliefs, health, correspondence, genetic and biometric information, digital signature private key, information on whether an individual is serving or served any sentence, sexual orientation, gender identity, expression, and information about sexual intercourse.

When governmental authorities or legal entities collecting, processing, and using personal data, the data owner’s consent must be obtained in writing or electronically. Unless otherwise allowed by law or a convention to which Mongolia is a party, it is forbidden to transfer personal data outside of Mongolia without the consent of the data subject. Transferring personal data from one group company to another in oversees would be considered a personal data transfer because the legislation does not allow an exception to this rule of permission.

The data processors and controllers are required to undertake data security assessment. When data is collected, processed, and used electronically, it is especially important to conduct a data security assessment in the following situations:

  • when making decisions that have an impact on the rights, freedoms, and legitimate interests of the data subject;
  • when processing sensitive data on a regular basis.

the National Human Rights Commission (NHRC) is responsible to review and recommend for assessment whether data shall be collected, processed and used using electronic data processing technology.

Moreover, data controller shall keep a record of the response taken to eliminate the violation and its negative consequences. The record shall be submitted to the NHRC in January of each year or as requested.

Protection of Newly Created Plant Varieties in Mongolia



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Following a process of technical consultations with the Food and Agriculture Organization of the United Nations and the International Union for the Protection of New Varieties of Plants, Mongolian Parliament enacted the Law on Seeds and Varieties of Plants on October 15, 2021 to regulate issues related to supporting the development of the sector of crop seeds, stimulating research and innovation in the seed sector, establishing fair trade of seeds, protection and sustainable use of plant genetic resources, creation of new plant varieties, protection of breeder’s rights and ensuring food safety.

In specifically, this law regulates the registration of a new plant varieties and the protection of the breeder’s rights. Any person who produces, sell, export and import a registered and protected plant varieties is required to obtain permission from a breeder. The protection of breeder’s right is valid for 20 years for plants and 25 years for trees and climber plants.

Ministry of Food, Agriculture and Light Industry is entitled to register a new variety plant in Mongolia and to protect breeder’s right. In determining whether or not the breeder is entitled to apply a new variety plant registration, the Minister of Food, Agriculture and Light Industry should identify that the plant is new, various, identical and stable by doing necessary field experiments and laboratory tests. These four requirements are described as below.

New – the seed and plants variety are considered new if it is not sold or distributed throughout a certain time prior to the request date:

  • 1 year ago, in the territory of Mongolia;
  • four years ago, in the territory of other countries and six years ago for trees and shrubs.

Various – if the newly created variety differs clearly from other popular varieties at the time of the request, it is considered to be different.

Identical – if the basic characteristics of the variety are sufficiently maintained during changes that may depend on the characteristics of the reproductive structure, then the seed is considered an identical variety.

Stable – After repeated reproductive cycles, if the basic characteristics of the seed do not change at the end of a specific cycle, the seed is considered a stable variety.

Therefore, it is significant to first clarify whether a plant variety can be considered as a new variety plant in Mongolia, whether breeder’s plant variety sold or distributed before in Mongolia and oversees during period mentioned above.

Obligation to Report Beneficial Owner



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Does a new Mongolia company have to register their beneficial owner’s information with Mongolian authorities?

Mongolia revised the General Tax Law in 2019, and the article 18 of the law regulates the exchange of taxpayer information with other countries that have the international agreement, treaty or convention (Agreement) concluded with Mongolia. Among those exchanges is information of the legal entity’s beneficial owner.

Therefore, Mongolia has implemented a policy to create database of beneficial owner’s information of companies in order to provide opportunities to enhance cooperation between the State Registration Authorities and the Tax Organization as well as to exchange information for tax purpose with other countries that have the agreement with Mongolia.

In this connection, additional amendments to the Law on State registration of a legal entity were adopted which requires all registered legal entities in Mongolia to register information about their beneficial owners at the Legal Registry of the General Registry of Mongolia. Also, new establishing companies is entitled to register the company on the basis of the requirement to register their beneficial owner’s information.

Under the Law on Combating money laundering and the financing of terrorism and the Law on State registration of a legal entity, a beneficial owner is a person who has a significant or controlling ownership interest solely or jointly with others of holds a management function of the legal entity or is represented by other persons or ultimately owns the legal entity earning benefit and profit by exercising control of the legal entity, its transactions and arrangements to implement the transactions.

To summarize the above, newly founded company is obliged to register beneficial owner’s information with the state registration authority with an application to register a company.

Establishing a Branch of Foreign Company in Mongolia



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A foreign company may establish a branch in Mongolia as a secondary establishment of the parent company. Legally, such a branch is considered a part of the parent company, and as such, it is able to perform the principal functions of the company, however it is dependent on the foreign parent company. This type of branch will not be deemed to be a unique legal entity and must conduct its activities on behalf of the foreign company that established it. The foreign parent company will be responsible for the activities of the branch.

A branch of a foreign legal entity in Mongolia shall be registered with the registration authority. An executive director, founder, a person to represent without the power of authority or other persons authorized by the company will apply an application to the state registry and will include the following documents:

  • Foreign company’s registration certificate and the Charter. (copy)
  • Shareholders resolution to establish a branch in Mongolia.
  • Shareholders resolution to appoint a director of a foreign company’s branch and to provide an address and contact details where a branch will be.
  • A branch’s rule which includes branch address, contact information and conducting activities.
  • If a director of a branch is a foreign resident, a copy of the citizen’s passport.
  • Evidence of the branch office address such as rental agreement or an immoveable property certificate.

All the documents made in foreign language should be translated. Also, documents issued in a foreign country should be apostilled.

Obtaining an Apostille in Mongolia



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Recently we have been asked by one of our clients about an apostille service and how to get documents to be apostilled in Mongolia.

An apostille is a specialized certificate used to verify original public document’s legitimacy and authentication so that they can be accepted in one of the other nations who are signatories to the 1961 Hague Convention Treaty also known as the Hague Apostille Convention.

Since December 31, 2008, Mongolia has been part of the 1961 Hague Apostille Convention. It allows that any official document destined for Mongolia requires an apostille from the Secretary of State. As a result, documents will be valid in 121 countries that are member of the Hague Apostille Convention without requiring any further confirmation.

Apostilles authenticate the seals, stamp, the signatures and the capacity of signer on public documents such as birth certificates, court decisions or any other documents issued by government agencies, the administrative body, court, prosecutor or educational organizations at all level. The documents will be issued by the consulate of Ministry of Foreign Affairs.

Things to consider for apostille application:

  1. All seals and signatures must be originals. Copies are not acceptable unless they are true certified copies from a notary.
  2. Notarize each document. The signature of document and signature of the notary who certified the original copy of the document should be clearly visible.
  3. All documents that handed over with application must be translated with certified translator, and notarized as a true translation.