Tag Archives: New Law

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.

Mongolia Set to Allow Trading of Real Estate Interests Via Stock Exchange



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Mongolian Parliament approved the Law on Allocation of Land to Mongolian Citizens for Ownership (LALMCO) in 2002 under the authority of Article 6.3 of the Constitution, “the state may give for private ownership plots of land, except pastures and areas under public and special use, only to the citizens of Mongolia”.

Implementation of LALMCO began May 1, 2003, granting every Mongolian Citizen a right to own a plot of land. This was the first time in the history that Mongolian citizens were entitled by law to own land. However, implementation of this law was not satisfactory. The right to acquire land for ownership is opened to all Mongolian citizens according to LALMCO, but implementation mechanism were not set out in this law, as result, many citizens face obstacles to their legal acquisition of land for their ownership. Those individuals who live in an apartment in the city, in particular have encountered difficulty in gaining access to land ownership despite the  guarantee in the LALMCO. Since LALMCO’s implementation only 7.6% of the 1.2 million city dwellers in Mongolia have been granted the land rights as guaranteed.

Reasons for the unsatisfactory implementation of LALMCO are not for lack of available land, or   limitations on use of land. The law is missing specific regulations and procedures with regard to establishing and confirming land ownership rights obtained under LALMCO. As a result of the lack of clear regulations and procedures, some national and local authorities have used the law to distribute land to friends and family through corruption and without transparency or public oversight.

As set forth in the new draft law, a Certificate of the Right to Own Land will be issued to each citizen, and upon establishing Land Ownership, a Certificate of Land Ownership will be issued. A Certificate of the Right to Own Land will represent each respective citizen’s right to own land. The Certificate of Land Ownership will clearly set out the individual’s ownership rights to a specific plot of land.  Details regarding issuance of these certificates and relevant regulations are also set out in the draft law.

The draft law also provides an interesting mechanism regarding the Land Ownership Certificate. Land Ownership Certificates will be able to be securitized and traded via the Mongolian Stock Exchange. This will provide an avenue for profits for those citizens, such as city dwellers, who are not planning on living on or using the granted land rights themselves.

While real estate can be very valuable, undeveloped land, may not always offer any profit or other benefit to the owner. Development of the land often takes substantial resources and time commitment, which owners may not be able to provide. The ability to trade ownership interests in these plots of land could be a major reform for the Mongolian economy enabling many citizens to profit off land ownership in new ways.

Currently, it remains unclear whether foreign individuals or companies will be able to invest in and trade the Land Ownership Certificates once they are listed on the exchange. This could also be a substantial opportunity for foreign investments in Mongolia. We will keep our eye on developments and update here when we know more.

Fresh Amendment to Mongolia Company Law Incoming



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A new draft law to amend to the company law was submitted to the Mongolia Parliament recently. The purpose of the proposed amendments is to improve the regulation of liability limited companies with majority state ownership. There have been problems which have occurred with corporate governance of such majority state owned companies, in areas such as shareholder and board meetings and selecting members of the Board and executive management.

The amendment aims to improve legislation concerning proposals to call regular and irregular meetings of shareholders of these companies and improve the effectiveness of the regular Board of Directors meeting so as to aid is role as decision maker and to ensure normal operations of these companies.

The draft amendment includes the regulations clarifying procedures for to the call of regular and irregular meetings of shareholders of and the effectiveness of Board of Directors meetings.

Once the draft law enacted, rights, obligations and liabilities associated with the liability limited companies dominated by state ownership shall be clear and no additional funding from state budget shall be required for enforcement of this law.  We see this as a positive step to encourage independent decision making among leadership of key state owned enterprises, which are the primary vehicles by which Mongolia facilities and draws profits from several of its major mining operations.

Mongolian Parliament to Consider New Anti-Corruption Program



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As we posted previously, the Anti-Corruption law of Mongolia was enacted firstly in 1996 and it was renewed by the Parliament in 2006. Furthermore, Mongolia became a Party to the United Nations Convention Against Corruption (UNCAC) in 2006.

According to the legislation, the Independent Authority Against Corruption was established in 2007 in charged with functions to raise anti-corruption public awareness and education, and corruption prevention activities, and to carry out under-cover operations, inquiries and investigations in detecting corruption crimes, and to review and inspect the assets and income declarations.

The National Program on Combating Corruption was approved by the Parliament of Mongolia in 2002. This program was implemented between 2002-2010. In recent years, a new National Program for Combating Corruption and Strengthening Integrity was drafted and submitted to the previous parliament. Unfortunately, Parliament at the time rejected the new program without discussion.

The current Parliament recently created a taskforce to prepare a draft program for discussion in the Parliament. The taskforce is led by the Chair of the Legal Standing Committee Sh. Radnaased. During the Parliament Legal Standing Committee meeting, a draft resolution on the National Program on Combating Corruption and Strengthening Integrity will be discussed. We expect the program to be presented and discussed at the Parliament plenary session in the near future.

New Criminal Law Delayed



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The Parliament passed a new Criminal law and Law on Infringement earlier this year, both  were supposed to come into force in 01, September 2016. However, now the Head of the Secretariat of the Government of Mongolia explains that the process of education of relevant government officials, and advertisement to the public for new laws, has not been sufficient. In light of this, it seems the government employee who will be responsible to enforce these laws are not yet ready, further new regulations in connection with implementation of the laws must be implemented as well. There is also a need to restructure the organizations in compliance with the law which may take quite some time to accomplish.

With all of these factors in mind, it is proposed that the implementation date be set back to 07 July 2017. This should allow enough time to address the outstanding issues.

Parliament Looks to Offshore Accounts



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Certain members of Parliament are planning a proposal for a new Law on Offshore Accounts. This comes in the wake of disclosures in the Panama Papers of names and offshore account details of several Mongolian nationals, including high-level government officials.

Following those revelations, the Standing Committee of Parliament initiated a formal request to the IAAC (Independent Authority Against Corruption), a Mongolian agency tasked with identification and elimination of corruption. The Standing Committee assigned the agency to perform a thorough review to determine of the accuracy of the Panama Papers information, and to verify information reported within the income declarations of senior pubic officials which were revealed to maintain offshore bank accounts.

The next step will be a new Law on Offshore Accounts which as envisioned would demand politicians and government officials to accurately and self-report their foreign bank account and real estate holdings in addition to those belonging to family members. Officials would also be required to identify and explain the sources of their income.

As the law is targeting Mongolian governmental officials, impact on foreign companies and foreign citizens in Mongolia should be minimal. In any case, the additional transparency among government officials will be a welcome and important step toward reducing corruption.

2016 Update to VAT



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The new Value-Added Tax Law came into effect on 1 January 2016.

The new VAT law revised key terminology and broadened the types of activities which are subject to VAT. The VAT Law increased the threshold for the requirement to register as a VAT payer from 10 million MNT to 50 million MNT in an effort to support small and medium sized enterprises. Voluntary registration as a VAT payer remains possible if the income of the entity reaches 10 million MNT.

The Law also introduces a system of incentivizing taxpayers with the possibility of recovering up to 20 percent of taxes paid if certain conditions are met. It further attempts to improve the system and procedure for collating, processing and reporting data relating to the payment of VAT by creating a consolidated registration system.

The VAT rate of 10 percent remains the same, however, there have been some changes in the types of goods, work and services that are exempted from value-added tax and those that are subject to zero (“0”) percent VAT.

New General Administrative Law to be Implemented



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Drafting of The General Administrative Law was started in 2008 but for various reasons the parliament of Mongolia did not adopt the law until June 19, 2015. The law will come into effect starting from July 1, 2016. In the past the Administrative Procedural Law has been the sole authority regarding general administrative issues, and administrative procedural issues. The law is intended to govern the relations of individuals or legal entities with public authorities in their performance of executive powers. A revised version of the Administrative Procedural Law was also adopted and will become effective on the same day.

The newly adopted General Administrative Law improves the law in the following areas:

  • The former law listed the agencies and agents whose decisions will be regarded as “Administrative”. This system was not very efficient as the administrative structure in Mongolia changes frequently, the new law removes such lists;
  • The new law clarifies the scope of application of the law and specifies where it does not apply;
  • The new law defines the rights and obligations of parties clearly more clearly;
  • The new law enables government agents or agencies to seek professional expert assistance from each another in a written form. This will improve the communications between governmental agencies;
  • The new law introduces a new procedure called “Hearing” which requires the governmental agents and agencies to conduct a hearing to introduce the concept and purpose of a new decision they are intending to adopt and the hear opinion from the affected population. This procedure is mandatory, with some exceptions, however government agencies will though not required to modify their proposed plans to reflect the input received at the hearings;
  • The forms of administrative actions are classified as “Administrative Acts”, “Administrative Contracts” and “Administrative Decisions Setting Norms and Standards”. The adoption of either of these different forms requires unique procedures. The law outlines these procedures to reduce ambiguity and confusion. For instance, the former law only regulated procedural issues such as what steps should be taken to annul the wrong decision at the court. The new law governs the process of drafting, introducing and passing the decisions before it reaches the court;
  • According to the new law, if an administrative action has become void, the authority that is responsible for wrongful decision shall be punished. The possible punishments include a warning, a decrease of salary for responsible individuals, dismissal, and dismissal with a prohibition on return to public service for 1-10 years.

Some are concerned that with the implementation of the new General Administrative Law, the public service will become more bureaucratic. Let us remain optimistic that after successful implementation, administrative obstructions will be reduced and implementation of effective Administrative actions will be made easier.