Tag Archives: International Trade

Bank of Korea Assisting with Modernization of Mongolia’s Foreign Exchange Policy



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The Bank of Mongolia, signed a cooperation agreement on June 21, 2017 with the Bank of Korea. The agreement solidifies plans by both organizations to cooperation regarding development of a comprehensive strategy for development of the foreign exchange market in Mongolia.

The Bank of Korea has been conducting a study on Mongolia’s foreign exchange market. The results of the study are expected to have an important impact on development of foreign exchange regulations and growth of the foreign exchange market in Mongolia.

Major complaints about the current state of the foreign exchange market in Mongolia include the lack of transparency in the process and inefficient operations. The study will draw on the Bank of Korea’s past experience in managing foreign exchange issues in Korea to set out a road map for Mongolia.

The plan is expected to help stabilize the exchange rate of the Mongolian Tugrug, which will facilitate a better environment for foreign investment and domestic economic growth.

Foreign Exchange in Mongolia



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Financial Regulatory Commission (the FRC) and Bank of Mongolia (Mongol Bank), which serves as the central bank of Mongolia, are authorized to regulate Foreign Exchange (ForEx) trading within Mongolia. The Law on Currency Settlement is the primary legislative authority as to conduct of ForEx in Mongolia.

The currency market of Mongolia operates on the basis of supply and demand and consists of the currency exchange activities of the authorized banks, exchanges and brokerage companies.

Mongol Bank is permitted to buy currencies and gold bullion from domestic and foreign banks, as well as from business entities, other organizations and from individuals. Mongol Bank’s primary official purpose for such purchases is management of currency and wealth reserves of Mongolia. Mongol Bank may likewise sell foreign currency and gold from its reserves as part of efforts to maintain the general stability of the Tugrug (the currency of Mongolia).

Mongol bank acts to fix the official exchange rate of the Tugrug, and to provide guidance as to the same. These fixed rates are set in relation to currencies which are bought and sold on the currency market by commercial banks on a comparative basis against a stable foreign currency used in foreign commerce by a majority of countries. The rate fixed by Mongol Bank is used in the State budget and for customs purposes.

An increase or decrease in the Tugrug exchange rate by 5 percent or more from the previous day shall be brought to the attention of the Prime Minister of Mongolia. This is only report and the Prime Minister has no authority to personally order or to prevent the Governor of Mongol Bank from increasing or decreasing the Tugrug exchange rate in accordance with market conditions.

Mongol Bank also sets various rules and regulations regarding foreign exchange activities, including as to FX swaps, forward transactions, and Forex auctions.

Commercial banks are able to establish their own exchange rate for using Tugrugs to buy and sell foreign currencies based on market conditions. Likewise the bank sets its own rate of commission.

Upon obtaining a license from Mongol Bank, Mongolian Commercial banks are allowed to facilitate non-cash transactions in foreign currency, buy and sell foreign currency in cash, establish and operation accounts in foreign currency (and pay required interest), provide credit and provide guarantees in foreign currency.

A Non-banking financial company may trade foreign currency after obtaining a license from the FRC.

Mongolia and Vietnam Promote Trade in Goat Meat



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Vice President of Vietnam, Mrs. Dang Thi Ngoc Thinh, visited Mongolia for an official visit from May 07 -10. While in Mongolia, she participated in the Mongolian Vietnamese business forum in Ulaanbaatar on May 09. Mrs. Dang Thị Ngọc Thinh gave a presentation at the opening ceremony of the business forum discussing trade, investment and economic cooperation between Mongolia and Vietnam.

Vietnam’s trade volume with Mongolia is estimated at USD 59 million in 2016 alone. The trade includes over USD 40 million in race, sugar, canned foods and telecommunications equipment imported to Mongolia. Mongolia and Vietnam seek to increase cooperation and trade in natural resources and agricultural goods, which Mongolia is well placed to export to Vietnam.

Three main issues were touched on during the official talks between Vietnam’s Vice President and the Prime Minister of Mongolia. These included promotion of defense ties and cooperation between law enforcement agencies.

Also discussed was increased export of Mongolian meat products to Vietnam, particularly goat meat. Mongolia is scheduled to export 20 tons of goat meat to Vietnam this year, and trade is expected to grow significantly.

The agreement on export of goat meat highlights one of Mongolia’s current strengths in agricultural production of meat and dairy. The sector is ripe for foreign investment, including funding, technologies and techniques.

Mongolian Free Trade Zones



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In 2016, matters related to Free Trade Zones (FTZ) came under the power of the Deputy Minister. There are three FTZ in Mongolia: Zamiin-Uud, Altanbulag and Tsagaannuur. The Law on FTZ was revised in 2015 to enabled and promoted the cooperation between private entities and public authorities in developing FTZs.

Altanbulag Free Zone in Selenge province covers 500 hectares of land. Since the establishment of Mongolian FTZs, MNT 35 billion has been allocated by State Budget and 77 per cent of the budget was invested to the infrastructures of Altanbulag Free Zone. At the moment only Altanbulag has drawn investment from private entities, which totals MNT 6.2 billion.

Zamiin-Uud Free Zone in Dornogobi province covers 900 hectares of land. In 2010, Development of Zamiin Uud infrastructure project started with soft loan of the Government of China which totals USD 58.8 million. The project performance is 95 per cent. As of this day, 23.6 hectares of land are in possession of 13 private entities for the purposes of trade, service, hotel, manufacture, storage, logistics and gas station.

Tsagaannuur Free Zone in Bayan-Ulgii province covers 708.4 hectares. 115 hectares are in possession of 5 private entities.

The Deputy Minister Khurelsukh Ukhnaa has stated that the Free zones are in need of accelerated foreign and domestic investment and noted that the Parliament and the Government should start establishing joint FTZ areas with bordering countries. Deputy Minister Office and Ministry of Foreign Relations are working on research and assessment and negotiating with Chinese authorities about a potential new joint FTZ.

Mongolia Investment Promotion Agreement With Canada



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Canadian Minister of International Trade Francois-Philippe Champagne met March 12, 2017 with Mongolia Mining Minister Ts.Dashdorj, to issue a joint announcement that the Mongolia-Canada Foreign Investment Promotion and Protection Agreement (FIPA) has entered into force.

The Global Affairs Department of the Canadian government is quoated as saying, “This agreement sets out a framework of legally binding rights and obligations that will protect Canadian investors in Mongolia. The strong reciprocal protections in the FIPA will help Canadian and Mongolian companies deepen commercial ties with confidence and spur job creation.”

Canada is estimated to have invested over 6.4 billion USD in Mongolia in 2015, one of the larest individual country contributions. Most of this Canadia investment in Mongolia is in Mining and related sectors. It is hoped that FIPA will encourage diversification in investments in areas such as agriculture and infrastructure.

According to the agreement each nation will accord the other “Most Favored Nation” status.

We are happy to see Canada double down on economic engagement with Mongolia. Canada’s efforts include working with Mongolia to develop capacity in natural resources management, official transparency and accountability, and environmental sustainability.

The benefits Mongolia gains from these policy improvements will be felt not only by Canadian investors, but for all foreign investors in Mongolia, along with local Mongolian companies and individuals.

Prime Minister Discusses Future of Mongolian Cooperation With Eurasian Economic Commission



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On February 2-3, Mongolian Prime Minister J. Erdenebat met with a representative of the Eurasian Economic Commission (EEC) for talks promoting economic cooperation between the EEC and Mongolia.

In the meeting, Mongolia indicated that it hoped to establish a Free Trade Agreement with the EEC. The EEC representative supported the PM’s proposal, suggesting a formal decision would be seen from the EEC relatively soon. As trade between Mongolia and the EEC has been stable but stagnant for several years, the EEC hopes to organize a business forum for entrepreneurs from EEC member states, and Mongolian organizations.

The Prime Minister was quick to agree and assured EEC companies there are great business opportunities in Mongolia, and made clear that the Mongolian Government is currently making efforts to improve its agricultural sector, including exports to EEC states.

The sides agreed to work to strengthen collaboration in establishing regulations and raising standards in veterinary, sanitation, and quarantine regulations and practices. There was also mutual agreement to promote joint training, and business seminars in Mongolia.

The meeting ended with an agreement on protocol for a second meeting to be held this year In November, and developing an action plan for joint working groups, which will include provisions to facilitate cooperation in transportation and infrastructure.

LehmanLaw Mongolia is pleased to learn of the government’s continued focus on developing the Mongolian economy through increasing trade and promoting the agricultural sector, as well as development of Mongolian infrastructure.

Keep up to Date on The Mongolia VAT



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As we posted previously, the newly adopted Mongolia Value-Added Tax  (VAT) law has come into effect since January 1, 2016.

According to the VAT law, “Any citizen and legal person, who is engaged in the import and export of goods as well as the sale and manufacturing of any goods, performance of work and rendering of services in the territory of Mongolia, shall be value-added taxpayers.” VAT shall be applicable for the following goods, works and services where operational income value reaches 50 or more million tugrugs:

  • all types of goods, works and services sold within the territory of Mongolia;
  • all types of goods, works and services imported from abroad to Mongolia; and
  • all types of goods, works and services exported from Mongolia;

Furthermore, the VAT shall apply to the representative office of a foreign legal entity whose revenue of sold goods, performed works and rendered services in the territory of Mongolia, has reached 50 million tugrugs or more.

In almost all cases, the value-added tax shall be imposed at the rate of 10 percent of the taxable amount of imported, manufactured or sold goods, performed works and rendered services.  However, some certain types of goods, work and services can be subject to zero (“0”) percent VAT. The payment of VAT must be within the first ten days of the following month.

The newly adopted law also creates an incentive system with the possibility of recovering up to 20 percent of paid taxes if certain conditions are met. Initial such tax returns are expected to refund in the first quarter of this year.

A conference with our Mongolian Tax Law specialists can help you determine whether your company may be able to take advantage of the 0% VAT, or the VAT recovery.

Britain and Mongolia to Partner in Mining Sector



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Britain and Mongolia this week signed a new memorandum of understanding targeting the mining sector. The two countries pledged an exchange of technology and expertise, and deepening ties in the mining sector.

The agreement, recognizes “the spirit of cooperation that exists between the respective countries” and demonstrates a desire on both sides to “to promote closer cooperation in the extractive sector”. The MOU was signed by the two parties at a Mining conference held in UK.

Future cooperation is expected to cover technology transfer, education, and financing. This is good news for the mining sector in Mongolia, which relies on foreign technology, expertise and financing to develop its vast mining resources.

Oyu Tolgoi, the largest mining project in Mongolia, is managed by UK based Rio Tinto.

New Mongolian Plan on Overcoming Economic Difficulties



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The Mongolian economy has faced challenges in recent years, including decline of foreign investment and slow down in the economy. The current government of Mongolia has stated that restoration of the reputation of Mongolia is the top priority. The cabinet has established a new council responsible for communicating with investors in hopes of attracting more foreign investment.

 The Minister of Finance has recently presented a draft of a new Program on Overcoming Economic Difficulties and Stabilization. The Program includes over 60 policy proposals designed to stabilize the Mongolian economy, assist with economic restructuring, and securing sustainable growth.

 The plan aims to achieve 3% economic growth in 2017. This is be accomplished by coordinating monetary and budget polices, and attempts to increase foreign exchange. Growth of 5.1% is targeted in 2018 and 7.1% in 2019. Better infrastructure, transportation and non-extractive exports are expected to contribute to growth.

 The plan lays out growth of 20,000 jobs each year between 2017-2019 and aims for 8% percent unemployment by the end of 2019. The processing industry is expected to grow by 6.3% by 2019.

 The Program estimates that exports from Mongolia will amount to USD 5.4 billion in 2019, and imports will amount to USD 5.5 billion. Increased construction activity is expected to contribute.

 The Program aims to increase annual FDI investment to USD 2.0-3.0 billion. Overall the Program is a positive indicator for prospective economic growth in Mongolia. Conditions for foreign investment are expected to improve. LehmanLaw Mongolia will be watching closely and are ready to assist any foreign company considering a new investment in Mongolia.

Basics of Mongolia Customs Restrictions



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Mongolia recognizes 4 categories of commodities for purposes of cross-border trade. Items are classified as either:

  1. Forbidden;
  2. Licensed;
  3. Taxed;
  4. General.

An item classified as Forbidden is not allowed to pass through Customs whether by import or export. Narcotic s and related equipment for production or use are Forbidden.

Items which are not Forbidden, but which are subject to certain legal restrictions are Licensed. There must be an appropriate license for import or export. Some licenses are restricted to only export, or only import. Medical drugs and alcoholic beverages are examples of items which must be licensed. Imported or exported metals must also be accompanied by a license, however there is an exception for used aluminum drink cans. Other items which must have a license for export or import are toxic chemicals, blood and organs for donation, raw or processed uranium, firearms, historic or cultural items, and Mongolian pedigree cattle.

Some items which do not require a license are nevertheless subject to special taxation on import or export. As of September 09, 2016 changes to the law, such taxes on goat cashmere and camel wool are removed. Only processes and unprocessed timber remain subject to special taxation.