Tag Archives: Foreign Direct Investment

What Rights to Land Does a Foreign Invested Company Enjoy in Mongolia?



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Articles 27-44 of the Law of Mongolia on Land regulates granting land for possession or use. In this blog we will discuss difference between the right to possess and use land in Mongolia as well as the right of foreign investment company in this field.

The right to use and possess land are different by the subjects, purpose of its use, size and duration under the Law of Mongolia on Land. For instance, in regards with the subject, the land possession shall be given only to Mongolian citizens, companies and organizations.

Under Mongolian legislations, foreign investment company is considered as Mongolian legal entity. However, according to Article 44 of the Law of Mongolia on Land, there is only right to use the land not to possess for foreign investment company. Also, the article 6.5 of the Constitution of Mongolia specifically state that “the State may allow foreign nationals, legal persons, and stateless persons to use land for a specified period of time under conditions and procedures as provided by law”.

This is related to the concept “Land relations are the basis of national heritage and independence” of the Constitution of Mongolia. Therefore, granting land possessing rights to foreign invested company is contrary to the concept of the Constitution of Mongolia.

Foreign invested economic entities can use land for specific purposes, terms and conditions set forth in the Law of Mongolia on Land and the Government shall set the relevant term and duration to use land.

A Mongolian perspective on Public-Private Partnerships Development



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Since the Law of Mongolia on Concessions was adopted in 2010, it has established a legal framework for public-private partnership by granting concessions to private investors to use existing infrastructure facilities owned by the state, and to construct new infrastructure facilities for the purpose of providing services.

However, the current Concessions law is inadequate to meet the needs of fundamental principles of public-private partnership such as planning, granting and effective risk and debt management.

The implementation of the Concessions law raised the following issues:

  • Illegal selection of participants for granting a concession
  • Concluding an invalid direct agreement
  • Ineffective concession which creates significant burden of the state budget
  • Absence of specific regulations and policies of concession procedure guidelines.
  • Lack of related administrative authorities’ involvement on selecting, contracting, implementing, or overseeing concession
  • Risk management and risk allocation methodologies

Therefore, the government submitted the first draft of Law on Public-Private Partnership on April 6, 2022, and requested to repeal the Law of Mongolia on Concession. The purpose of the law is to support private sector’s participation and investment in the implementation of public-private partnership in the field of public infrastructure and public services projects, and to create favorable legal environment for long-term efficient cooperation.

Are Uncompleted Buildings Real Estate?



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It is common practice for a real estate developer to take an order or advance payment from customer for an apartment building, obtain an uncompleted building certificate from the state registry, and pledge the certificate to a bank or non-bank financial institution and obtain loan in order to finance the project.

According to the State Registration Agency, as of September 30, 2020, 552 uncompleted buildings in Ulaanbaatar were registered as real estate. Of these, 123 uncompleted buildings are pledged as collateral for loans from banks and financial institutions. In addition, there are 333 people who have not been able to obtain a real estate certificate even though the building has been completed and people has purchased the apartment. Moreover, bribery of the General Authority of State Registration in order to obtain a real estate certificate, as well as the creation of a network of bribes through acquaintances, is due to the regulation of registration of uncompleted buildings as real estate.

Therefore, taking into account the above circumstances, Article 10.10 of the Law on State Registration of Property Rights” amended as “An apartment building will not be registered in the state registry of property rights until it is commissioned/ handed over for permanent use” and the amendment was supported by the relevant standing committee and was recently submitted to the plenary session of the Parliament.

It is an important to change the regulations that corrects the practice of registering uncompleted buildings as real estate which violates citizens’ property rights, and creates new regulations related to the rights of public apartment and surrounding land. In addition, the amendments are based on the need to harmonize the Civil Code and the Land Law, including the need to change and improve the regulation of serious violations of citizens’ property rights related to public housing/apartment.

Avoid Risks in Foreign-Mongolian Cooperation Agreements



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Our Mongolian Lawyers regularly assist foreign investors in various forms of joint ventures and business cooperation with Mongolian partners. These partnerships are sometimes necessary to allow a foreign investor to participate where Mongolia law restrictions direct foreign ownership. For example, Mongolian law has certain restrictions on entities with foreign investment owning and using land. One client the firm has worked with, a European party engaged in property development entered into one such arrangement with a Mongolian partner for the development of land located in a special restricted zone of Ulaanbaatar.

The European side, and the Mongolian side entered into a “Cooperation Agreement” which described a cooperative business arrangement in which the European party contributed funding, while the Mongolian party contributed access to the land targeted for development. This type of cooperation, is common in Mongolia between foreign investors and Mongolian property owners, and has been upheld by Mongolian courts.

However, when entering into such an arrangement, a foreign investor should be aware of risks.  A few years into the partnership, relations broke down between the Mongolian party and the foreign investor resulting in extensive litigation over the validity of the Cooperation Agreement and ownership of the land.

Foreign participants in this kind of Cooperation Agreement should engage independent Mongolian legal counsel to review the agreement for compliance with Mongolian law, and to ensure the foreign party is protected. The agreement should be clear about the nature of the cooperation, and the contributions of each party. It is important specify that legal ownership of the land remains with the Mongolian party. To eliminate confusion, there are certain key phrases which should be avoided when describing the foreign investor’s relationship to the land. If the language of the Agreement is ambiguous the Mongolian side may latter attempt to challenge the validity of the Agreement alleging violation of Mongolian law.

Liability of a Mongolian Company for Non-Compliance



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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



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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



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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.

Mongolia Employment Contracts: One Size Does Not Fit All



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A longstanding client of the firm which operates a company in Mongolia posed a simple question to our Mongolian lawyers, asking the best way under Mongolian Employment law to fire an employee who has not lived up to performance expectations. The question is interesting because it requires first determining what type of employee is to be terminated. In Mongolian law, not all employment relationships are equal. There are two difference kinds of employment in Mongolia each with different rules and different processes for termination of the employee.

The Labor Law of Mongolia provides for 2 types of employment: (1) Employment pursuant to an “Employment Agreement” and (2) Employment pursuant to an “Employment Contract”. It is important to understand that that these are two distinct types of employment under Mongolian law, subject to different rules, not simply a difference in translation.

In Mongolia, most employment relationships are pursuant to an Employment Agreement, which is basically described as an agreement to be employed for general purposes. While the actual role the employee performs may vary, no particular or unique skills are required on the part of the employee. This type of employment is defined by an Employment Agreement.

However, under the Mongolia Labor law, when an employer hires someone specifically for his/her high skills or unique talents an Employment Contract may be concluded, rather than a simple Employment Agreement. The Mongolian government puts out a list which sets out the positions subject to an Employment Contract.  According to the list, an employer may conclude an Employment Contract with Directors, Chief Executive Officers, General Managers, Division (department) Managers, and Chief (head) of Divisions (departments).  Other types of employees may only be hired pursuant to an Employment Agreement.

There are several differences between an Employment Agreement and an Employment Contract. Generally, an Employment Agreement for a permanent position is concluded for an indefinite term or if the parties mutually agree for a specified term. In the latter case, at the expiration of the term of the Employment Agreement if the parties do not propose its termination, and the employee continues to perform his/her work, the Employment Agreement is considered to be extended for the initial term.

Whereas, an Employment Contract may be concluded for up to a maximum of 5 years. When concluding an Employment Contract, among other terms, the parties must specify in the Employment Contract a detailed procedure for the evaluation of performance of the employee under the Employment Contract. When this is included in the Employment Contract, it is relatively easy to conclude upon evaluation of the employment contract whether the employee has sufficiently performed his/her duties. If the employee as performed sufficiently, the Employment Contract may be extended.

An Employment Contract must specify in detail all duties, responsibilities, rights, privileges, benefits of the employee, including a description of assets to be given under employee’s responsibility, the rules of possession, the use and disposition of such assets, final results to be achieved by the employee, the liabilities of the employee. Because under an Employment Contract the employer hires the employee specifically for his/her high skills or unique talents, such employee has more responsibility, accountability, rights, privileges and benefits than a “regular” employee employed under an Employment Agreement.

Mongolia is Introducing E-Filing System for Intellectual Property



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The Mongolian Government’s Action Plan for 2016-2020 aims that the state functions have been introduced the online system for establishing reliable, accessible and express public services based on paperless services. The most ultimate source is that the article 8 of Patent law sets forth the filing an electronic application for invention, industrial design or innovation.

 

In April 26, 2018 as the World Intellectual Property Day, IPOM publish (Online Data system) and E-Filing (Online Filing System) were introduced for developing the use of the intellectual property database and facilitating the filing process for IP rights.

 

Above-mentioned systems allow to register the invention electronically and obtain electronic information on patents and trademarks.

 

In today’s highly developed IT platform, the filing electronic application for IP rights and the obtaining of patent information for the research work are an important part of saving time and paper. Furthermore, the researchers, inventors and producers are able to find the similar researches with their research work in online Intellectual Property database. It will definitely helpful to develop more competitive way of creating the inventions as well as avoiding any risks in the future.

Issues with Effective IP Enforcement Actions in Mongolia



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Several clients in recent months have contacted the firm requesting assistance in tracking down and stopping intellectual property infringers in Mongolia. After working closely on many of these cases, our Mongolian Attorneys and licensed Intellectual Property specialists are among the forefront of the Mongolian IP enforcement practice in Mongolia. Our team has a few key insights that those doing business in Mongolia should be aware of.

In Mongolia, the systems for investigation and resolution of IP infringement issues is relatively unsophisticated. IP infringement cases often are not able to be resolved or punished effectively due to a lack in the number of state inspectors and the resulting workload for those inspectors who are on the job. Only a few State Inspectors handle IP issues, and such inspectors are obliged to inspect shops or markets selling infringing goods throughout Ulaanbaatar in accordance with the specific demands of each case. It is often very difficult for the state inspectors to identify possible infringers. State inspectors will normally punish known infringers identified during an IP enforcement action by warnings, confiscation of infringing goods, and fines for repeat offenses. General lack of education in Mongolia account IP and the limited effectiveness of such examinations result in infringing products for which sales have been shut down at a particular market showing up again for sale elsewhere at a different shop or different market.

Another problem is that the estimation of intangible asset related damages caused by IP infringement is not clear and is not well defined or regulated under law. Though the law says such damages will be settled under applicable regulations and administrative acts, regulation applicable to estimation of intangible asset related damages caused by IP infringement is unclear in Mongolia. The complaint regarding intangible asset associated damages cannot be resolved properly under such procedure. In fact, it is very few cases which filed complaint concerning the said infringement with IP office and there is no good practice on this issue.

The Mongolian government needs to pay attention on eliminating violations of intellectual property rights and properly compensating damages caused by IP infringement.  Those seeking effective IP enforcement in Mongolia need to come prepared with a large amount of investigation preformed and research compiled ready to be presented in a complaint to the IP Office, and should have a clearly documented and easily calculatable claim for damages caused due to the alleged infringement.