Customs Duty On Import Goods Increased



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Under the Law on Customs Tariff and Duty, enacted on 20 May, 2008, Customs tariff on imported goods shall be classified into one if the following three types:

  • Ordinary
  • Most Favored
  • Discounted Tariff

The rate of ordinary tariff will be twofold the most favorable tariff. Discounted Tariffs will be established by treaty. Most Favored tariffs on imported goods will be approved directly by the Parliament of Mongolia.

On 28 March, 2016, the Cabinet issued a decree to raise the customs duties on imported goods between for 100 types of products as part of the efforts to promote domestic manufacturing. The list of affected products includes a range of goods including selected dairy products, vegetables, construction materials, some types of furniture, and raw materials of animal origin. It is claimed that all these types of goods are produced domestically and that such domestically produced goods have the potential to meet local demand. The enforcement of this decree is effective from May 1, 2016.

Parliamentary Elections in Mongolia!



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Parliamentary Elections will be held in Mongolia on June 29, 2016 and campaigning is in full swing in this developing democracy.  12 political parties are competing with a total of 498 candidates. A further 69 independent candidates are also in the race.

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The three largest parties are the Democratic Party with 76 approved candidates, the Mongolian People’s Party with 76 approved candidates, and the Mongolian People’s Revolutionary Party with 71 approved candidates.

The Democratic Party is a center-right party focused on furthering the goals of the goals of the Democratic Revolution in 1990, via the tenants of classical liberalism.

The Mongolian People’s Party was founded in 1920, and was the ruling political party during from 1921 to 1990. While founded on the principles of Communism and Marxist-Leninism, it now espouses a Social Democratic platform.

The Mongolian People’s Revolutionary Party was established in 2010, and is a spin off from the Mongolian People’s Party (using the old name of the MPP from the old one party state days).  Its platform is also primarily social Democracy, while it additionally seeks to grant more authority to the people, and to promote human-centered social welfare.

In preparation for election day, the government has banned the sale of alcohol on that day, in hopes of promoting sober decision making.

Police have also issued warnings that anyone caught vandalizing any political posters during the 18 day campaign period will face a fine of up to MNT 1.54 million (USD ~$790).

The Basics of the Capital City Tax



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Parliament approved the Law on Capital City Tax on 19 June 2015 and the law entered into effect on October 1, 2015.  The Law on Capital City Tax encompasses and includes the General Taxation Law, Budget Law and the Law on the Legal Status of the Capital City and other laws and legal acts enacted in conformity with them.

The law imposes a capital city tax for the first time In Mongolia.  The capital city tax is imposed on the sale of alcohol and cigarettes, the supplies of hotel and resort services, and services offered in restaurants and bars.

The tax rate (up to 1%) will be determined, region by region, by the Citizens Representative Khural of the Capital City (or by the local parliament) depending on the location and population size of a particular area within Ulaanbaatar city.

The New Law on Infringement Explained



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On Dec 4, 2015, the Parliament of Mongolia nullified the Law on Administrative Liability adopted on Nov 27, 1992, and passed the Law on Infringement. The new law will come into effect starting from September 1, 2016, up to this date the previous law will remain in effect. The new law was adopted in line with the revised version of the Criminal Law and all laws containing articles in connection with administrative liabilities are amended accordingly. The new law is intended to correct some problems encountered under the previous law.

According to the new law, main punishment types for infringements are “to fine” and “to deprive or restrict a right.” The former potential punishment of arrest for 7-30 days is removed. Fines range from 10 to 10,000 units for individuals and from 100 to 50,000 units for legal entities (a unit equals 2000 tugrugs). The amount of such fine is considerably higher than the fine imposed by the previous law.

Administrative liability aims to punish business entities or individuals which have breached the public order and hopes to prevent re-occurrence of such breach. However, the penalties imposed by the previous law did not have a strong deterrent effect on violators and there were several cases where the person charged with the administrative penalty committed the same offense repeatedly. This was the main cause leaded to the increase of the fine amount.
Beginning September 1, 2016, unless a breach of environmental, sanitation, labor, land, licensing, finance and audit laws rises to the level of a criminal offence, punishment for such action will be imposed pursuant to the Law on Infringement.

The new law consolidates approximately 1200 violations formerly specified in over 200 different legislation texts, and which were previously not unified under a consolidated legal policy. In the future, breaches or violations will be punished only according to the Law on Infringement. The law is expected to improve legal accountability systems and to ensure the promotion of public order.

The Law on Infringement has general and special parts similar to the Criminal Law. The law calls for penalties to match the nature of the regulatory infringement in proportion, so a small violation will not result in the maximum possible fine.

Mongolia Facing “Challenges,” but Long Term Growth Prospects “Strong”



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This month the World Bank released its 2016 East Asia and Pacific Economic Update, with the subtitle Growing Challenges (The full report is available here). According to the report, Mongolia’s economy grew by 2.3 percent in 2015. Growth is good, but significantly lower than the 7.9 percent seen in 2014. The decline appears to be connected to decreasing government spending and exports as a result of slowing Foreign Direct Investment.

The broader causes are well known and include reduced demand from Mongolia’s southern neighbor and greatest trading partner, China, and a widespread decline in global commodity prices. The decreased demand hurts Mongolia’s mining exports. According to the World Bank, declining commodity demand exposes the need to increase development of institutions and human capital, which will help the country better adapt to changes external demand for Mongolia’s exports.

The World Bank flags Mongolia’s growth in recent years, driven my mining exports as being linked to a “decline in economic complexity.” To remedy this, the report recommends “removing barriers to economic diversification.”

These barriers may include formal restrictions on or policies which are not welcoming toward foreign investment. They may also include limitations in public goods such as education, health and infrastructure. Without these public goods in place, foreign and domestic companies face challenges in finding the right people, and in conducting their daily operations. In particular, the quality and quantity of infrastructure in Mongolia is “extremely limited,” presenting a significant barrier to investment and growth.

According to the World Bank, “Mongolia’s long term growth prospects remain strong.” However, in the short term the country faces challenges due to the global decline in commodity prices.

The World Bank recommends reasonable reforms which are expected to strengthen the internal resiliency of the Mongolian economy and ensure that the “most efficient and adaptable companies can succeed” and grow.

Imposing Criminal Liability on a Legal Entity Under the Newly Adopted Criminal Code



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On December 3, 2015, the Parliament of Mongolia adopted the updated version of the Criminal Code. The law will come into effect on September 1, 2016.  We will briefly outline the primary provisions as they relate to leveling penalties on legal entities.

Currently, in case a legal entity commits a breach of applicable laws, including the Company Law, Taxation Law and Land Law, the company will be subject to administrative liability and the company’s management will be liable to pay for damages caused to the company.

Under the Criminal Code, there was previously no provision assigning legal liability to a legal entity. In this circumstance only physical persons were able to be subjected to liability.

This has been amended as follows: If certain crimes specified in the Criminal Code are committed for and on behalf of legal entity or in its interest, the person which committed the crime will be excused from punishment and the legal entity itself will be subjected to the punishment. Additionally, if the act is considered a crime, punishments will be increased and additionally compulsory measures will be applied.

Chapter 9 of the law states types of punishments for the legal entity. Depending on types of crimes specified in the special part of the Criminal Code, the legal entity will be subjected to the following punishment: fine, deprivation of rights and potentially dissolution.

  • Fine: A legal entity will be fined by an amount equal to 10,000 – 400,000 units. 1 unit is equal to 2,000 Mongolian tugrugs (approximately USD $10,000 -400,000 at current exchange rates);
  • Deprivation of rights: A legal entity’s right to carry out one or more operations may be restricted for 1-8 years;
  • Dissolution: In cases of serious violations, a legal entity may be dissolved, a court will decide matters regarding the confiscation of assets and distribution in compensation for damages incurred due to the crime and transferring the remainder to the state.

Globally, in countries such as USA, Australia, Canada, India, French, Switzerland, New Zealand, Netherland, Austria, Hong Kong and Scotland, a legal entity is subjected to criminal liability. In countries including Germany, Greek, Hungary, Mexico and Sweden, a legal entity is subjected to administrative liability. In Brazil, Bulgaria, Luxembourg and Slovak, a legal entity is not subjected to liability.

Generally, there are 2 forms of a criminal liability which may be imposed on a legal entity: derivative and institutional liability. The derivative liability is divided into i) liability assumed for actions of others and ii) equality liability.

For the liability assumed for actions others, the company assumes a criminal liability for the actions of any its employees.

For the equality liability, the company only assumes liability for the actions of persons at at least managerial level.

According to the institutional liability, the company assumes criminal liability independently on the basis of its policy, rights, operations and approach.

In the Criminal Code of Mongolia as revised, the principle of derivative equality liability will apply.

Minimum Wage Increased



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The Trilateral National Committee for Labor and Social Agreement has recently issued their decision to increase the minimum monthly wage by 25 percent, up to 240,000 tugrugs (approximately US$125).

The minimum wage is the lowest legally allowed salary. Workers employed in general labor not requiring certain education or professional skills, such as trade and services, cleaning services, loading, carrying and unloading cargo.

According to the Law on the Minimum Monthly Wage, the Trilateral National Committee for Labor and Social Agreement is required to confer on potential increases to the minimum wage every 2 years. Accordingly, the Trilateral National Committee for Labor and Social Agreement, which is composed of representatives of the Ministry of Labor, the Mongolian Employers’ Federation and he Confederation of Mongolian Trade Unions), increased the minimum monthly wage rate to 140,400 tugrugs in 2011 and 192,000 tugrugs in 2013, respectively. Since the 2013 increase, no changes have been made.

An employer is obligated by the law to pay a base salary which is not less than he minimum monthly wage to an employee who is under employment agreement, service agreement or other similar agreements. In the event an employer fails to do so, a judge or state labor inspector shall fine a business entity or company by 600,000-1,000,000 tugrugs and official by 300 000-500 000 tugrugs.

The increase to the minimum wage will come into effect as of Jan 1, 2017.