Anti-Corruption Law in Mongolia

Each year, Transparency International association develops an index of corruption perceptions which reveals corruption levels at a worldwide standstill. From 2020-2022, Mongolia scored 35 points and ranked 111 out of 180 countries on the corruption index, while this year it was ranked 116^th with 33 points.

Corruption is a high risk for foreign investors and companies operating business in Mongolia, arising from political corruption and judicial corruption. Since 1996, Mongolia has been fighting against corruption through activities such as a national anti-corruption program and anti-corruption legislations include the Criminal Code and the Anti-Corruption Law, which prohibit active and passive bribery. However, the fact that Mongolian corruption index has not decreased over the last 3 years, and the most recent update has even seen an increase in the corruption index which has led to questions about the effectiveness of anti-corruption law.

On January 18, 2023, the draft of Law on Human rights protections on social networks was submitted by the Ministry of Digital Development and Communications, and the bill was adopted by the Mongolia parliament on January 20, 2023 providing no time for public to get acquainted with the bill.

The purpose of the law is to protect human rights and legitimate interests in the digital environment, to restrict inappropriate, insulting and discriminatory content, to protect from any kind of violence against children such as immorality, physical, mental and moral development and to prevent the use of drugs and psychotropic substances.

However, some human right organizations raised concerned that the law may not adequately protect rights to freedom of expression, speech and publication as protected under the Constitution of Mongolia. Moreover, they argue that the parliament’s adoption of the law overlooked standard procedures calling for public engagement and discussions.

Currently, the law has been passed by parliament, but has been vetoed by the President within the framework of his constitutional rights.

Recently, one of our clients had been seeking our advice on how to obtain private purpose permanent residency in Mongolia. Our Mongolian lawyers and visa specialists are able to assist in obtaining permanent residency permits and visas for Mongolia.

The residence permit for personal purposes shall be granted for up to 5 years. This type of residence permit may be issued for family reasons, employment, investment, study and academic research, or immigration.

There are several sub-classes of investment related visas.

B1 Investor of foreign-invested enterprises;
B1-1 Family member of an investor of foreign-invested enterprises;
B2 Foreign national appointed as an investor’s representative or executive management of a foreign-invested enterprises;
B3 Foreign national working as an executive or a representative of a foreign legal entity.

Visa grant processing time is 5 working days for standard and may be expedited to 3 working days.

A Visitor must apply for residency permit at the Immigration agency for Mongolia within 21 days after entry.

Our Mongolian lawyers and accountants regularly assist foreign individuals and companies in Mongolia with advise regarding Mongolian income tax issues. There are important changes to the Personal Income Tax law in 2023 that foreign companies and individuals should be aware of.

On 11 November 2022, the parliament adopted the Law on amendments to the Personal Income Tax which came into effect on 1 January 2023. The legalized change imposes progressive rates on individual’s salaries and other similar income tax. In other word, it is a tax system that increases rates when the taxable income goes up. Previously, the flat rate of 10% of Personal Income Tax on salary, wage, bonus, incentive and similar income was set for resident taxpayer. Now, tax in salaries and other similar income will be imposed as follows:

10% for taxable income between 0-120,000,000 MNT;
12,000,000 MNT and the income exceeding 120,000,000 will be subject to an additional tax of 15% for taxable income between 120,000,001-180,000,000 MNT;
21,000,000 MNT and the income exceeding 180,000,000 MNT will be subject to an additional tax of 20% for taxable income above 180,000,000 MNT

For instance, an individual who earns 144 million tugrug annually would be taxed at the rate of 10% in 120 million tugrug of taxable income. The remaining 24 million tugrug will be taxed at the rate of 15%.

Our Mongolian lawyers were recently approached with a request to assist a client to confirm the legality of non-compete obligations under an employment contract for a mining services company.

Employer companies often ask whether they can oblige employee not to work in the company engaged in the similar type of activity or working after terminating an employment contract. This is regulated in the Labor Law of Mongolia as non-compete obligation under additional term of employment agreement.

In order to protect industrial and business secrets, an employer is given right to provide for an additional term in an employment contract or conclude a supplementary contract with employee creating non-compete obligations. Such agreements create an obligation for the departing employee not to work for a directly competing organization, or individual for a period of time after the termination of the employment relationship, or the employee himself/herself shall not engage in directly competitive activities.

The period of validity of additional non-competition clause or supplementary contract in the employment contract is not more than 1 year after the termination of the employee’s employment contract. After the termination of the employment, the employer shall pay the employee a monthly allowance in an amount equal to at least 50% of the last month’s salary during the period of validity of the additional non-competition clause or supplementary contract.

Meaning of last month’s salary is the salary that includes the base pay, additional pay, extra pay, annual leave pays and bonuses.

As we work with many foreign clients engaged in range of international businesses, one of the comment questions asked by our clients lately is whether cryptocurrency is legal in Mongolia and how it is regulated.

In Mongolia, cryptocurrency trading and exchanges are legal, and the country implemented the Law of Mongolia on Virtual Property Service Providers (VPSP law) which came into force on December 17, 2021.

Along with the rapidly evolving technological processing in the world, the market of crypto is expanding in Mongolia. At the same time, there was a need to create a legal framework for the sector of crypto trading and exchanging in order to prevent from public risks as well as to have required records, suspicious or terrorist-related transactions reports.

Considering these issues, Mongolia has taken an adoptive approach to cryptocurrency regulation by applying legislation mentioned above. The main objective of the VPSP law is to register cryptocurrency exchanging and trading providers, monitor their activities, and determine their legal rights and obligations.

The VPSP law brought cryptocurrency under the regulatory authority of the Financial Regulatory Commission from December 2021, and imposed a requirement from cryptocurrency service provider companies to register and obtain a special license. Moreover, cryptocurrency exchange and trading service provider’s income is taxable and exempt from value added tax.

In order to guarantee the fundamental rights of the citizens, regardless of the material damage, the rights to claim emotional distress damage should be open. In Mongolia, the right to claim emotional distress damages is limited by the Civil Code of Mongolia. In judicial practice, only emotional damages related to defamation of other people’s distinction, reputation and business reputation are awarded. Other than that, emotional damage that may occur is interpreted as not specifically regulated on compensation for emotional damage based on the Article 230.2 of the Civil Code of Mongolia.

Jurisprudence shows that certain conditions must be met in order to award emotional damage compensation. It includes:

Emotional damage should be related to the victim of the case
The damage cannot be repaired or restored
Intentional or reckless guilt
The act must have been manifested in an action that is discussing, repulsive and noticeable to anyone
Victims may have experienced emotional damage
The right to demand compensation for emotional damage must be specified in the civil law and other laws.

Studying the decisions of the courts of Mongolia, emotional damage award will be depending on the severity of the case. Although the court considered that emotional damage has not been proven, in cases of obviously serious, repulsive and despicable acts, there are cases where claims are satisfied including the amount and evaluation of emotional damage in the physical damage of the victim. However, the scope of the right to claim emotional damages is still limited by Article 230.2 and 511 of the Civil Code.

The Law on Criminal Procedure and the Law on Family provide for the possibility of demanding compensation for emotional damage, but the court refuses to issue compensation for emotional damage on the grounds that “it is not specifically provided for in the Civil Code”.

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.

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.

Articles 91-93 of the Civil Procedure Law of Mongolia regulate grounds for recusal of a judge, submission of a request for recusal, resolution thereof, and consequences of recusal by a judge. In this blog, we will mention some practical difficulties and issued encountered in judicial recusal.

Firstly, in general a judge is obligated to reach a decision in a matter before it.

When the parties to the case make a motion for recusal of the judge, they usually base the request on issues or concerns which raise doubt as to whether the case can be resolved fairly. In this ground, one of the participants in the case must have provided information with certain facts about the judge being influenced by the other party.

However, according to the court practice, the requests made on this basis are related to the violation of the rights of the participants in the case, the restriction of their rights, and the violation of the case procedure.

In the course of the proceedings, the judge himself/herself manages the proceedings, granting or refusing to grant requests made by the parties to the case on the basis of the law.

There are also cases where withdrawing from a judge on the grounds that refusing to accept the request is considered to be interfering to the process of case review by judge.

On the other hand, in the course of the proceedings, there are cases where the judge gives too much priority to one of the parties involved in the case and makes a decision that is beneficial to that party.

It is very difficult to prove the above-mentioned grounds for recusal of a judge, and in practice, in most cases, even if a request for recusal of a judge is made, the request will be always denied or not accepted.

Another reason for refusing a judge is that lawyers use the tactics of delaying the court hearing and delaying the court processing.

Delays in proceedings and delays in court hearings depend on many factors, but one of them is the delay related to the process of resolving a request to recuse a judge, a panel of judges, or all judges of a given court. 445 cases or 7.8% of cases were delayed due to requests for recusal by judges in civil courts of first instance.