2021 Investment Climate Statements: Mongolia

Policies Towards Foreign Direct Investment

Mongolia generally does not discriminate against foreign investors with two major exceptions.  First, foreign investors must invest a minimum of $100,000 to establish a venture; in contrast, Mongolian investors face no investment minimums.  Second, only Mongolian adult citizens may own real estate.  Additionally, while foreign investors may obtain use rights for the underlying land, these rights last for five years with a one-time, five-year renewal.  The government imposes no such restriction on its nationals.  Investors may also avail themselves of the Mongolian National Development Agency’s “One-Stop-Shop for Investors,” which provides services on visas, taxation, notarization, business registration (see  http://nda.gov.mn/ ).  The Agency has said that in some cases municipal, provincial, and central government officials may waive land-use rights limits and recommends that investors contact it for more information on how to apply for these waivers.  Investors have also encouraged the government to develop a policy aimed at retaining existing foreign direct investment in country.

Limits on Foreign Control and Right to Private Ownership and Establishment

Except for real estate, foreign and domestic investors have the same rights to establish, sell, transfer, or securitize structures, shares, use rights, companies, and movable property.  Mongolia generally imposes no statutory or regulatory limits on foreign ownership and control of investments.  The Mining Law allows the government to acquire up to 50 percent of mineral deposits deemed of “strategic” value to the state by parliament.  Article 6.2 of Mongolia’s Constitution also requires the state to take a “majority” share of the “benefits” of strategic mining projects.  Investors are waiting for the government to clarify the meaning of “benefits” derived from mining activities, which in the Mongolian language is the same word as “profit,” but, according to government officials, may include such non-cash contributions as development programs, employment, or technology transfers.  Investors also observe that excessive regulatory discretion allows bureaucrats de facto control over the use of legally granted rights, corporate governance decisions, and ownership stakes, stating that in some cases regulators make up rules beyond their actual statutory remit.  Finally, Mongolia has no formal or informal investment-screening mechanism, although the National Security Council has barred investments from some foreign state-owned entities.

Other Investment Policy Reviews

The Mongolian Government has undergone several third-party investment policy reviews over the last three years by the OECD ( http://www.oecd.org/investment/countryreviews.htm ) and the WTO ( WTO | Mongolia ).

Business Facilitation

Consistent with the World Bank’s Doing Business Report, investors report Mongolia’s business registration process is reasonably clear.  All foreign and domestic enterprises must register with the State Registration Office ( https://burtgel.gov.mn/ ).  Registrants can obtain required forms online and submit them by email.  The State Registration Office aims at a two-day turnaround for the review and approval process.  Investors report bureaucratic discretion often adds weeks or even months to the process and state more transparent adherence to the relevant laws and regulations would yield a consistent, streamlined process.  Once approved by the State Registration Office, a company must register with the General Tax Authority ( http://en.mta.mn/ ).  Upon hiring its first employees, a company must register with the Social Insurance Agency ( http://www.ndaatgal.mn/v1/ ).  The State Registration Office reports that notarization is not required for its registration process.

The same ease of opening a business does not apply to closing a business, however.  Foreign investors and legal contacts report the onerous bureaucratic and judicial process of shutting down a firm takes no less than 18-24 months.

Outward Investment

While the Mongolian Government neither promotes nor incentivizes outward investment, it does not restrict domestic investors from investing abroad.

In force since 1997, the United States and Mongolia Bilateral Investment Treaty (BIT) protects U.S. investors and assists Mongolia’s development by creating conditions more favorable for U.S. and Mongolian investment.  BIT details are available from the U.S. Department of State at  US-Mongolia BIT .

While Mongolia has ratified the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment between the United States of America and Mongolia (Transparency Agreement), the government is more than four years behind in its commitment to implement public-notice and comment periods for new laws and regulations affecting international trade and investment.  A copy of the Transparency Agreement is available:   US-Mongolia Transparency Agreement .

Mongolia and the United States have no bilateral tax or free-trade agreements.  For Mongolia’s other agreements see UNCTAD:   Mongolia Trade and Tax Agreements .  The Economic Partnership Agreement between Japan and Mongolia entered into force in 2016.  Mongolia is negotiating a free-trade agreement with the Eurasian Economic Union.

Mongolia’s Taxation Regime

Mongolia imposes a license-transfer tax for resource-use rights of 10 percent on the gross value of the transfer of rights involving land possession or usage, including exploration and mining licenses and rights for water, timber, pasturage, and land use in urban areas.  Some investors believe the tax discourages investment in the resource sector.  Inconsistent and nontransparent enforcement, coupled with an onerous dispute resolution process particularly concern investors. The amendments also impose a tax of 5 percent on the interest income of commercial Mongolian banks to be paid on loans and debt instruments obtained from local and foreign stock markets; decrease the withholding tax on income provided to non-residents to 15 percent; lower from 20 percent to 5 percent the tax on dividends for foreign investors; and lower from 10 percent to 5 percent the tax on financing obtained through debt instruments from initial and secondary markets.  They also simplify reporting procedures and provide relief for companies experiencing financial difficulties.

While the Ministry of Finance has reached out to the private sector to seek their input in drafting implementing regulations for the new tax laws, investors report a need for greater and more regular input into the final rules.  Using a formal public notice and comment system – as outlined under the Transparency Agreement – would create an institutionalized framework that would improve the government’s ad hoc approach.

Transparency of the Regulatory System

The Law on Legislation sets out who may draft and submit legislation; the format of these bills; the respective roles of the Mongolian parliament, government, and president; and the procedures for obtaining and employing public comment on pending legislation.  The Law on Legislation states that law initiators – members of parliament, the president of Mongolia, or cabinet ministers – must fulfill these criteria:  (1) provide a clear process for developing and justifying the need for the draft legislation; (2) set out methodologies for estimating costs to the government related to the bill’s implementation; (3) evaluate the impact of the legislation on the public if implemented; and (4) conduct public outreach before submitting legislation to the parliament.

Law initiators must post draft legislation for public comment and publish reports evaluating costs and impacts on parliament’s official website ( Parliament of Mongolia/Projects ) at least 30 days prior to submitting bills to parliament.  Posts must explicitly state the time for public comment and review.  Initiators must solicit comments in writing, organize public meetings, seek comments through social media, and carry out public surveys.  No more than 30 days after the public comment period ends, initiators must prepare a matrix of all comments, including those used to revise the bill as well as those not used, which must be posted on parliament’s official web site.  After a law’s passage, parliament must monitor and evaluate its implementation and impacts.  Investors report that while legislators have not implemented all these requirements, most relevant legislation is posted on parliament’s website before passage.  Ministries and agencies lag in fulfilling these statutory requirements, according to businesses.

While General Administrative Law Article 6 aligns Mongolia’s regulatory drafting process with Transparency Agreement obligations, investors report the government is not generally enforcing it.  Under the Transparency Agreement, originators of regulations must seek public comment by posting draft regulations in a single journal of national circulation, which Mongolia has designated as LegalInfo.mn ( LegalInfo ).  Drafters must record, report, and respond to significant public comments.  Under Mongolian law, the Ministry of Justice and Home Affairs must certify that each regulatory drafting process complies with the General Administrative Law before a regulation enters force.  After approval, the statutorily responsible government agency monitors implementation and impacts.

Businesses also complain about a high regulatory burden at the local, or province and county, levels.  They note inconsistent application of regulations and statutes among central, provincial, and municipal jurisdictions; and a lack of knowledge among local inspectors.  Regional tax, health, and safety inspectors are cited as particularly problematic.  The Economic Policy and Competitiveness Research Center of Mongolia annually ranks local regulatory burdens:  http://en.aimagindex.mn/competitiveness .

Mongolia’s so-called Glass Budget Law requires all levels of government publicly post proposed and actual budget expenditures; and the law, according to businesses and transparency experts, has generally been followed.

International Regulatory Considerations

Mongolia, not part of any regional economic bloc, often seeks to adapt European standards and norms in such areas as construction materials, food, and environmental regulations; looks to U.S. standards in the hydrocarbon sector; and adopts a combination of Australian and Canadian standards and norms in the mining sector.  Mongolia also tends to employ World Organization for Animal Health standards for its animal health regulations.  Mongolia, a member of the WTO, asserts it will notify the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations.

Legal System and Judicial Independence

Investors state that judges frequently avoid controversial decisions in business disputes, preferring to delay judgment for as long as possible – sometimes years.  If a decision is made, businesses face similarly long delays in obtaining and enforcing court orders.  In some instances, cases have taken so long that by the time an enforcement order is executed, the counterparty has liquidated assets and vanished.  Investors note similarly long delays with respect to inspection agencies, such as the Tax Dispute Settlement Resolution Council as well as with other inspection agency panels, especially those related to mineral licenses and health matters.

Investors have praised recent reforms they say could help to restore judicial independence severely compromised by a 2019 parliamentary resolution that vested the president, parliamentary speaker, and prime minister with the power to remove judges and prosecutors.  In November 2019 parliament amended the constitution to include reforms to strengthen judicial independence and accountability, effectively rendering the 2019 resolution invalid.  Parliament, in 2021 revised the Law of the Judiciary to bring it into line with the amended constitution.  The amended law, which entered into force March 1, limits the powers of the government, parliament, and the president to influence the selection and removal of judges and relegates discipline of jurists to a newly created Judicial Disciplinary Council, except in matters involving criminal acts.

Under Mongolia’s hybrid civil law-common law system, trial judges may use prior rulings to adjudicate similar cases but have no obligation to follow legal precedent as such.  Mongolian laws, and even their implementing regulations, often lack the specificity needed for consistent judicial and prosecutorial interpretation and application.  All courts may rule on matters of fact as well as matters of law at any point in the judicial process.

Mongolia has specialized laws for contracts but no dedicated courts for commercial activities. Contractual disputes are usually adjudicated through the Civil Court division of the district court system.  Criminal Courts adjudicate crime cases brought by the General Prosecutors Office. Disputants may appeal to the City Court of Ulaanbaatar and ultimately to the Supreme Court of Mongolia.  Mongolia has several specialized administrative courts adjudicating cases brought by citizens, foreign residents, and businesses against official administrative acts.  Mongolia’s Constitutional Court, the Tsets, rules on constitutional issues.  The General Executive Agency for Court Decisions enforces judgments and orders.

Investors and legal sector experts say that the Administrative Court is procedurally competent, fair, and reliable but that the Civil Courts deliver highly inconsistent judgments, reflecting ignorance of judicial best practices in civil and criminal matters as well as potential corruption, especially in civil commercial cases.

Laws and Regulations on Foreign Direct Investment

The 2013 Investment Law sets the general statutory and regulatory frame for all investors in Mongolia.  Under the law, foreign investors may access the same investment opportunities as Mongolian citizens and receive the same protections as domestic investors.  Investment domicile, not investor nationality, determines if an investment is foreign or domestic.  The law provides for a more stable tax environment and offers tax and other incentives for investors; and authorizes a single point of registration, the State Registration Office ( www.burtgel.gov.mn ), for all investors.  The Investment Law offers tax incentives in the form of transferable tax-stabilization certificates, giving qualifying projects favorable tax treatment for up to 27 years.  Affected taxes may include the corporate-income tax, customs duties, value-added tax, and royalties.

Investors cite two primary national-treatment issues with respect to investment rules.  First, foreign nationals and companies may not own real estate; only Mongolian adult citizens may own real estate.  While foreign investors may obtain use rights for the underlying land, these rights expire after a set number of years with limited rights of renewal.  The National Development Agency ( http://nda.gov.mn/ ), responsible for assisting foreign investors has said that in some cases municipal, provincial, and central government officials may waive land-use rights limits and recommends that investors contact it for more information on how to apply for these waivers.  Foreign investors also object to the regulatory requirement that each foreign investor in any given venture must invest a minimum of $100,000.  Although the Investment Law has no such requirement, Mongolian regulators impose it on all foreign investors without requiring the same minimum from Mongolian investors.

The Mongolian National Development Agency’s “One-Stop-Shop for Investors” provides services on investment data, visas, taxation, notarization, business registration, and government-business dispute resolution ( http://nda.gov.mn/ ).

Competition and Antitrust Laws

Mongolia’s Agency for Fair Competition and Consumer Protection reviews domestic transactions for competition-related concerns.  For a description of the Agency go to  AFCCP .  The Agency for Fair Competition and Consumer Protection launched no 2020 competition cases affecting FDI.

Expropriation and Compensation

State entities at all levels may confiscate or modify land-use rights for purposes of economic development, national security, historical preservation, or environmental protection.  Mongolia’s constitution recognizes private real-property rights and derivative rights, and Mongolian law specifically bars the government from expropriating assets without payment of adequate, market-based compensation.  Investors express little disagreement with such takings in principle but worry a lack of clear lines of authority among the central, provincial, and municipal governments has led to loss of property and use rights.  For example, the Minerals Law provides no clear division of local, regional, and national jurisdictions for issuances of land-use permits and special-use rights.  Faced with unclear lines of authority and frequent differences in practices and interpretation of rules and regulations by different levels of government, investors may find themselves unable to fully exercise legally conferred rights.

Some expropriation cases involve court expropriations after third-party criminal trials at which investors are compelled to appear as “civil defendants” – but are not allowed to fully participate in the proceedings.  In these cases, government officials are convicted of corruption, and the court then orders the civil defendant to surrender a license or property, or pay a tax penalty or fine, for having received an alleged favor from the criminal defendant with no judicial proceedings to determine if property or licenses were obtained illegally.

Dispute Settlement

ICSID Convention and New York Convention

Mongolia ratified the Washington Convention and joined the International Centre for Settlement of Investment Disputes (ICSID) in 1991 and the New York Convention in 1994; and has accepted international arbitration in several disputes.  Mongolian law allows for domestic enforcement of awards under the ICSID and New York Conventions.

Investor-State Dispute Settlement

Under the 1997 U.S.-Mongolia Bilateral Investment Treaty ( US-Mongolia BIT ), both countries agree to respect international legal standards for state-facilitated property expropriation and compensation matters involving nationals of either country, providing U.S. investors in Mongolia with an extra measure of protection against financial loss.

In disputes involving the government, investors report some government officials and politicians interfere in administrative and judicial dispute resolution processes.  Foreign investors describe three general categories of disputes eliciting interference.  First, in disputes between private parties before judicial tribunals, investors warn that Mongolian private parties may exploit contacts in the government, the judiciary, law enforcement, the media, or the prosecutor’s office to coerce foreign private parties to accede to demands.  Second, in disputes between investors and the Mongolian government directly, the government may claim a sovereign right to intervene in the business venture, often because the Mongolian government itself operates or seeks to operate a competing state-owned enterprise (SOE); because officials have undisclosed business interests; or from ignorance of the relevant statutes and regulations.  Third are disputes with Mongolian tax officials or prosecutors levying highly inflated, statutorily deficient tax assessments against a foreign entity and demanding immediate payment on threat of civil or criminal prosecution.

Investors report local courts recognize and enforce court decisions – but problems exist with enforcement.  The thinly staffed General Executive Agency for Court Decisions (GEACD) implements civil and criminal court orders.  Its employees, often living in the jurisdictions in which they work, are subject to pressure from friends and professional acquaintances.  A complicated chain-of-command and opportunities for conflicts of interest may weaken GEACD’s resolve to execute court judgments on behalf of foreign and domestic investors.

Mongolia has been both plaintiff and defendant in several past and ongoing international arbitration suits over the expropriation of private sector mining rights or the imposition of excessive tax assessments.  Whenever the government has lost arbitration claims, it has satisfied each and every judgment after some negotiation with foreign investors.

Investors have reported no extrajudicial actions against their interests.

The Oyu Tolgoi copper and gold mine has resurfaced as a bellwether of Mongolia’s investment climate.  Upon reaching full production, the mine may produce as much as 25 percent of Mongolia’s GDP.  Resolving an ongoing investment dispute related to the mine between the government and multi-national shareholders is seen by many investors as essential to improving Mongolia’s investment climate image internationally.

International Commercial Arbitration and Foreign Courts

The Mongolian government has consistently honored international arbitral awards against it.

Mongolia’s Arbitration Law, based on the United Nations Commission on International Trade Law (UNCITRAL), provides a clear set of rules and protections for Mongolia-based arbitration. Any organization that satisfies the laws’ requirements can provide arbitral services.

Bankruptcy Regulations

Bankruptcy Law treats bankruptcy as a civil matter requiring judicial adjudication.  Mongolia allows registration of mortgages and other debt instruments backed by real estate, structures, immovable collateral (mining and exploration licenses, intellectual property rights, and other use rights) and movable property (cars, equipment, livestock, receivables, and other items of value).  Although investors may securitize movable and immovable assets, local law firms hold that the bankruptcy process remains too vague, onerous, and time consuming for practical use.  Mongolia’s constitution and statutes allow foreclosure and bankruptcy only through judicial proceedings.  Reporting that proceedings usually require no less than 18 months, with 36 months not uncommon, investors and legal advisors state that a lengthy appeals process, perceived corruption, and government interference may create years of delay.  Moreover, while in court, creditors face suspended interest payments and limited access to the asset.

Investment Incentives

The government generally offers the same tax preferences to foreign and domestic investors; and occasionally waives tariffs for imports of essential fuel and food products or for imports in such targeted sectors as agriculture or energy.  Exemptions may apply to Mongolia’s 5-percent import duty and 10-percent value-added tax (VAT).  The government may also extend tax credits on a case-by-case basis to investments in such sectors as minerals processing, agriculture, and infrastructure.  Under the Investment Law, foreign-invested companies, properly registered and paying taxes in Mongolia, qualify as domestic Mongolian entities for investment incentive packages that, among other benefits, offer tax stabilization for a period of years.  While in theory the government can issue guarantees or jointly finance foreign direct investment projects, it seldom does so in practice.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Mongolian government has had a free-trade zone program since 2004.  Two free-trade zones are along the Mongolian spurs of the Trans-Siberian Highway and Railroad:  (1) the northern Mongolia-Russia border town of Altanbulag; and (2) the southern Mongolia-China border town of Zamiin-Uud.  Both free-trade zones are relatively inactive, requiring development.  A third free-trade zone is located at the port-of-entry of Tsagaannuur in the far western province of Bayan-Olgii bordering Russia.  Mongolian officials also suggest that the long-delayed new Ulaanbaatar International Airport may host a free-trade zone.

Performance and Data Localization Requirements

Mongolia does not generally require foreign investors to use local goods, services, or equity, or to engage in import substitution.  Neither foreign nor domestic businesses need to export a certain percentage of output or use foreign exchange to cover exports.  The government applies the same geographical restrictions to foreign and domestic investors, involving border security, environmental concerns, and local-use rights.  The government does not impose onerous or discriminatory visa, residence, or work permit requirements on U.S. investors – although foreign and domestic firms must meet certain industry-specific, local-hire requirements.

Investors may locate and hire workers without using hiring agencies so long as hiring practices follow the Labor Law.  This law requires companies to employ Mongolian workers in certain labor categories where the government determines Mongolians can perform the task as well as foreigners.  This law generally applies to unskilled-labor categories and not fields in which a high degree of technical expertise not existing in Mongolia is required.

The Mongolian government strongly encourages but does not legally compel domestic sourcing of inputs, especially for firms engaged in natural-resource extraction.  The Minerals Law states that holders of exploration and mining licenses should preferentially supply extracted minerals at market prices to Mongolian processing facilities and should procure goods and services and hire subcontractors from business entities registered in Mongolia.  Although facing no legal requirement to source locally, investors occasionally report that central, provincial, or municipal governments slow permitting and licensing until domestic and foreign enterprises make some effort to source locally.  Hiring Mongolians is often a de facto necessity because the government sometimes issues work visas for foreign employees only if employers have attempted to hire domestically.  The government had allowed companies to pay for waivers for domestic hiring requirements for expatriate expert labor and senior management staff but since 2019 has suspended the waiver process and imposed a requirement that companies hire five Mongolians for every non-Mongolian.  This requirement does not apply to members of boards of directors.

Despite pressure to source locally, foreign investors generally set their own export and production targets without concern for government-imposed quotas or requirements.  Mongolia does not require (but often encourages) technology transfers.  The government generally imposes no offset requirements for major procurements.  Investors, not the government, generally decide on technology, intellectual property, and finance as they see fit.  Except for an unenforced provision of the Minerals Law requiring mining companies to list 10 percent of the shares of the Mongolian-registered mining company on the Mongolian Stock Exchange, foreign-invested businesses are not required to sell shares into the Mongolian market.  Equity stakes are generally at the discretion of investors, Mongolian or foreign.  In cases where investments may have national economic, political, security, or social impacts, the government has, without a clear statutory basis, restricted the type of financing foreign investors may use, their choice of partners, or to whom they sell shares or equity stakes.

The government does not require localized data storage; nor legally compels IT providers to turn over source code or provide access for surveillance, except for criminal investigations.  Businesses may freely transmit customer or other business-related data abroad.

Real Property

The Mongolian Constitution, per the 2019 amendments, provides that “the State shall recognize any forms of public and private properties.”  Statute limits real-estate ownership to adult citizens of Mongolia.  Mongolian civil law allows private Mongolian citizens or government agencies to assume property ownership or use rights if the current owner or holder of use rights does not use that property or those rights.  In the case of use rights, revocation and assumption is almost always written into the formal agreements covering the rights.  Squatters may, under certain circumstances, claim effective property ownership of unused structures.

Foreign investors may own permanent physical structures and obtain use rights to land and resources, but only Mongolian citizens may own real estate, and only in municipalities.  Land ownership does not convey ownership of, or necessarily access to, surface or subsurface resource rights, which remain with the state.  Outside municipalities, the state owns the land and resources in perpetuity and may lease those resources to public and private entities.

Ownership of a structure may vest the owner with control over the use rights of the land upon which the structure sits.  Use rights are granted from periods of 3 to 60 years, depending on the particular use right.  However, foreign nationals and foreign companies can lease land-use rights for no more than 10 years:  a five-year term and a single five-year renewal.

Although Mongolia has a well-established register for immovable property – structures and real estate – it lacks a central register for use rights; consequently, investors, particularly those investing in rural Mongolia, have no easy way to learn who might have conflicting rights.  Complicating matters, Mongolia’s civil-law system is still developing a formal process for apportioning multiple use rights on adjacent lands or adjudicating disputes arising from conflicting use rights.

Creditors may seize and dispose of property offered as collateral, although this process is often subject to lengthy legal delays.  Debt instruments backed by real estate, fixed structures, and other immovable collateral may be registered with the Immovable Property Office of the State Registration Office ( www.burtgel.gov.mn ).  Movable property (cars, equipment, livestock, receivables, and other items of value) may also be registered with the State Registration Office as collateral.  Investors report that the movable-property registration system, while generally reliable, experiences occasional technical capacity issues.

As of 2021, the Mongolian government has no accurate figure for land with clear titles.

Intellectual Property Rights

Film, television, and digital content from the United States enjoy strong copyright protection in Mongolia, while the music and publishing industry is steadily signing licensing agreements with organizations using U.S. and Mongolian content.  Mongolia’s Internet Service Providers (ISPs) will quickly block access to internet addresses of offending sites once listed by the Intellectual Property Office of Mongolia.  However, use of pirated software by Mongolian government ministries, home-use consumers, and businesses is rampant.  Patent protection for pharmaceutical and medical device importers is virtually non-existent, with trademark law generally the only recourse for rightsholders.  While enforcement agencies will seize trademark-infringing drugs, simply removing the infringing trademark still allows the importer to bring the drug despite it being patent-infringingt.  Medical devices encounter similar problems.  Trademarkinfringement also includes stores distributing counterfeit apparel and fake spare parts for heavy equipment.  However, the Intellectual Property Office of Mongolia has not focused on these areas because rightsholders have not filed complaints.

IPR violations below MNT 50 million ($18,000) are subject to administrative enforcement; those above MNT 50 million are subject to criminal enforcement.  Enforcement agencies do pursue criminal and civil intellectual property (IP) cases, highlighting a willingness by Mongolian prosecutors, administrative investigators, and police to attack the problem.

The new Law of Mongolia on Intellectual Property sets a framework for public and private enforcement of IP, which had previously been left to ad hoc administrative decrees and private sector efforts.  The law grants: (1) the Intellectual Property Office of Mongolia exclusive authority to administer IPR under the Minister of Justice and Home Affairs; (2) expands the human and material capacity of the Intellectual Property Office of Mongolia to cover all of Mongolia; (3) creates a Dispute Resolution Council to handle complaints arising from Intellectual Property Office of Mongolia administrative acts; and (4) lets the Intellectual Property Office of Mongolia authorize private-sector IP-related associations to assist members with copyright, trademark, and patent registrations and royalty collection as well with disputes.

For additional information about laws and points of contact at local IP offices, please see WIPO’s country profiles at  WIPO  or  IPOM .

Capital Markets and Portfolio Investment

Mongolia imposes few restrictions on capital flows and has respected IMF Article VIII by not restricting international payments and transfers.  However, capital markets remain underdeveloped, with little ability to trade futures or derivatives.  The state-owned Mongolian Stock Exchange ( MSE ) is the primary venue for domestic capital and portfolio investments.

Money and Banking System

Mongolia’s four-largest commercial banks – Khan, Trade and Development Bank (TDB), Khas, and Golomt – are majority owned by a combination of both Mongolian and foreign investors and collectively hold 83 percent of all banking assets, or about $10.6 billion (as of December 2020).  Mongolian commercial banks had rates of non-performing loans averaging 11.8 percent in December 2020, an increase from December 2019’s 9.9 percent.  Ongoing COVID-19 rules enabling the postponement of consumer-loan and mortgage payments may create some additional forbearance risk in the banking sector.  The Bank of Mongolia, Mongolia’s central bank, regulates banking operations.  The Bank of Mongolia allows foreigners to establish domestic accounts so long as they can prove lawful residence in Mongolia.

Parliament amended Mongolia’s Law on Banking in January 2021.  The amended law states that ownership by a shareholder and their related parties collectively and as certified by the Bank of Mongolia shall not exceed 20 percent. Banks have until December 31, 2023 to comply with this divestment requirement.  In addition, Mongolia’s four systemically important commercial banks – Khan, TDB, Khas, and Golomt – and the state-owned State Bank must list themselves on the Mongolian Stock Exchange through an IPO by June 30, 2022.  The new rules should improve bank governance by creating accountability to a broader group of shareholders.

The IMF has reported unaddressed macroprudential concerns regarding the relatively large banking system, resulting in the Extended Fund Facility’s unsuccessful completion in May 2020.  Mongolia’s banking system remains broadly undercapitalized, while commercial banking practices and regulatory supervision remain inadequate for ensuring macroeconomic stability.  Mongolia also has a significant number of illiquid banks.  Potential investors in Mongolia’s banking sector are advised to conduct careful due diligence as sector participants and regulators have expressed concerns that the balance sheets of certain systemically important banks may have been inflated or misreported to create the perception of higher capital-adequacy ratios than is accurate.

International and domestic sector participants observe that the Bank of Mongolia does not exercise adequate macroprudential oversight over banks, enabling these banks to misreport their assets.  It has also allowed insolvent smaller banks to continue operating despite not having enough assets to cover liabilities.  Investors contemplating IPO participation should carefully factor in the additional systemic risk associated with these regulatory concerns.

Mongolia’s 2020 removal from the Financial Action Task Force can give confidence to investors that the country takes seriously anti-money laundering and countering the financing of terrorism concerns.

Foreign Exchange and Remittances

Foreign Exchange

The government employs a liberal foreign exchange regime; its national currency, the tugrik (denoted as MNT), is fully convertible into a wide array of international currencies.  Foreign and domestic businesses have reported no problems converting or transferring funds aside from occasional, market-driven shortages of foreign reserves.

Mongolia’s Currency Law requires domestic transactions use MNT, unless exempted by the Bank of Mongolia.  Regulation prohibits listing of wholesale or retail prices in any way – including as an internal accounting practice – that effectively denominates or otherwise indexes prices to currencies other than MNT.  Hedging mechanisms available elsewhere to mitigate exchange risk are generally unavailable given the small size of the market.  Letters of credit in a variety of currencies are available for trade facilitation.  The government sometimes pays for goods and services with promissory notes that cannot be directly exchanged for other currencies.

Remittance Policies

Businesses report no chronic, government-induced delays remitting investment returns or receiving inbound funds, although challenges with correspondent-banking relationships sometimes slow remittances.  Most transfers are completed within a few days to a week; however, occasional currency shortages, most often of U.S. dollars, may cause commercial banks and the central bank to limit transfers temporarily.  Remittances sent abroad are subject to a 10-percent withholding tax to cover potential tax liabilities.

Sovereign Wealth Funds

Mongolia’s Ministry of Finance manages two sovereign wealth funds (SWF) funded through diversion of mining sector revenues: The Fiscal Stabilization Fund and the Future Heritage Fund.  The Fiscal Stabilization Fund diverts revenues that might promote boom and bust cycles of spending; however, Mongolia’s recent fiscal crises have depleted this fund.  The Future Heritage Fund, resembling Norway’s Global Pension Fund, accumulates mining revenues for the future and invests the proceeds exclusively outside Mongolia.  The Ministry of Finance and the IMF project the Future Heritage Fund should start accumulating $104-125 million annually in 2022, coinciding with increased revenues from the Oyu Tolgoi copper and gold mine.  These SWFs are not meaningfully funded as 2021, however.

Mongolia has state-owned enterprises (SOEs) in the banking and finance, energy production, mining, and transport sectors.  The Ministry of Finance manages the State Bank of Mongolia and the Mongolian Stock Exchange, and the SOE Erdenes Mongol holds most of the government’s mining assets.  The Ministry of Roads and Transport Development manages the Mongolian Railway Authority.  The Government Agency for Policy Coordination on State Property ( http://www.pcsp.gov.mn/en ) manages non-mining and non-financial assets.  The Agency for Policy Coordination on State Property does not provide a complete list of its SOEs.

Investors are concerned SOEs crowd out more efficient private-sector investment.  Investors can compete with SOEs, but an opaque regulatory framework limits competition.  Foreign and domestic private investors have observed that government regulators favor SOEs, such as streamlining the process for environmental-permit approvals or ignoring health and safety issues at SOEs.

Mongolian SOEs do not adhere to the OECD Corporate Governance Guidelines for SOEs.  Although technically required to follow the same international best practices on disclosure, accounting, and reporting used by private companies, SOEs tend to follow these rules only when seeking international investment and financing.  Many international best practices are not institutionalized in Mongolian law, and SOEs tend to follow existing Mongolian rules.  At the same time, foreign-invested firms follow the international rules, causing inconsistencies in corporate governance, management, disclosure, minority-shareholder rights, and finance.

Privatization Program

The government routinely floats privatization for such state-held assets as the Mongolian Stock Exchange, the national air carrier MIAT, the Mongol Post Office, and the Tavan Tolgoi coal mine through sales of shares or equity but has not identified how or when it would do so.

The practice of responsible business conduct in Mongolia has improved.  Most international companies make good-faith efforts to work with local communities.  Larger domestic firms tend to follow accepted international responsible business conduct practices and underwrite a range of related activities, while smaller companies, lacking resources, often limit responsible business conduct actions to the locales in which they work.  Locally, firms adopting responsible business conduct are perceived favorably by the communities in which they operate.  Nationally, responses range from praise from politicians to condemnation by certain civil-society groups alleging responsible business conduct nothing more than a cynical attempt to buy public approval.  Public awareness of responsible business conduct remains limited, with only a few NGOs involved in responsible business conduct promotion or monitoring, and those concentrated on such large projects as the Oyu Tolgoi mega-mine.

Given Mongolia’s high social-media penetration, businesses should be aware that discussions regarding their activities could be ongoing on international and domestic social media sites; and should monitor social media discussions to ensure their activities are portrayed accurately.

The government makes a good-faith effort to enforce legislation on human rights, labor rights, consumer protection, environmental protection, and other laws protecting individuals from adverse business impacts.  While the Company Law articulates rules of corporate governance, accounting requirements, and shareholder rights, it has no rules for executive compensation.

Mongolia has no official position on OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas and no domestic legislation on due diligence for companies sourcing minerals originating from conflict-affected areas.  The government has not adopted a requirement regarding Organization for Economic Co-operation and Development and UN principles on responsible business conduct (OECD:   http://www.oecd.org/about/ ).  Mongolia is a member in good standing of the Extractive Industries Transparency Initiative ( EITI ).

There have been no alleged/reported human or labor rights concerns relating to RBC of which foreign businesses should be aware.

Mongolia has a private security industry, and many public and private entities avail themselves of private security services.  However, Mongolia has not signed the Montreux Document on Private Military and Security Companies.  It is neither a supporter of the International Code of Conduct or Private Security Service Providers nor a participant in the International Code of Conduct for Private Security Service Providers’ Association (ICoCA).

Additional Resources 

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
• North Korea Sanctions & Enforcement Actions Advisory

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor.
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Investors have acknowledged that corruption is widespread in Mongolia, leading some to exit Mongolia or decide against investing in it when less corrupt jurisdictions offer similar investment opportunities.  Given the level of corruption, U.S. businesses are advised to be especially diligent in complying with the U.S. Foreign Corrupt Practices Act.  Although Mongolian law penalizes corrupt officials, the government does not always implement the law effectively or evenhandedly.  Private enterprises report instances where officials and political operatives demand bribes to transfer-use rights, settle disputes, clear customs, ease tax obligations, act on applications, obtain permits, and complete registrations.  NGOs and private businesses report judicial corruption is also present.  Factors contributing to corruption include conflicts of interest, lack of transparency, limited access to information, an underfunded civil-service system, low salaries, and limited government control of key institutions.

Mongolia does not require companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials.  U.S. and other foreign businesses have reported that they accept the need for and have adopted internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.  (For Mongolia anti-corruption efforts:   https://www.state.gov/reports/2020-country-reports-on-human-rights-practices/mongolia/.

The Independent Agency Against Corruption (IAAC) has primary responsibility for investigating corruption, assisted at times by the National Police Agency’s Organized Crime Division.

Mongolia has signed and ratified the UN Anticorruption Convention ( UNAC ) but not the OECD Anti-Bribery Convention.

Resources to Report Corruption

Independent Agency Against Corruption (IAAC)
District 5, Seoul Street 41
Ulaanbaatar, Mongolia 14250
Telephone:  +976-70110251; 976-11-311919
Email:   contact@iaac.mn 
Web:     http://www.iaac.mn/home?lang=en 

Transparency International Mongolia
O. Batbayar, Executive Director, Mongolia Chapter
Office 803, 8th floor, Dalai Tower, Unesco Street,
Sukhbaatar District – Khoroo 1, Ulaanbaatar 14230
Web:    https://www.transparency.org/country/MNG 

Mongolia’s political and security environment is peaceful and stable.  Crime is low in the capital Ulaanbaatar but fluctuates from season to season.  Street-level petty theft and assault occur with some regularity, while more complex financial and fraud-based crimes are on the rise.  U.S. investors are generally welcomed by the Mongolian people; however, in small numbers and in specific areas, anti-foreign sentiment fueled by fringe nationalist groups has been observed. These sentiments do not focus on U.S. investors exclusively and are subject to current events.   Mining sector investors have reported that unlicensed, artisanal gold miners – locally know as ninja miners – may seek to mine gold on a legally licensed mine sites or sites where the ninja miners believe precious metals lie.  These intrusions can become disorderly and in rare cases lead to violence.

The National Statistics Office of Mongolia reports as of December 2020 official unemployment was 7.6 percent of Mongolia’s 1.22-million-person labor pool (92.100 people).  Youth unemployment hovers around 54 percent of total unemployed.  Approximately 4,039 foreign workers from 97 countries are officially registered with the Ministry of Labor, of whom two-thirds work in construction, mining, and manufacturing.  More than a half of the foreign workers come from China (51.2 percent), although COVID-19-related travel restrictions have likely diminished this total.  Out the 1.2 million labor pool, 45 percent (548,277) live in Ulaanbaatar and 55 percent (668,323) in rural areas.  Unskilled labor is abundant, but shortages persist in most professional categories requiring advanced degrees or vocational training, including all types of engineers and professional tradespeople in the construction, mining, and services sectors.  Foreign-invested companies address shortages by providing in-country training, increasing salaries and benefits to retain employees, or hiring expatriate workers with expertise unavailable in Mongolia.

The Labor Law requires companies to employ Mongolian workers in all labor categories where the Ministry of Labor and Social Protection determines a Mongolian can perform the task as well as a foreigner.  This provision primarily applies to unskilled labor categories.  Investors can locate and hire workers without hiring agencies, if hiring practices follow the Labor Law.  If employers want to hire expatriate laborers and cannot obtain a waiver from the Ministry of Labor and Social Protection for that employee, the employer can pay a monthly waiver fee.  Depending on a project’s importance, the Ministry of Labor and Social Protection can exempt employers from 50 percent of the waiver fees per worker.  However, employers report difficulty in obtaining waivers.  (For details on Mongolian labor laws:   https://www.state.gov/reports/2020-country-reports-on-human-rights-practices/mongolia/)

Because Mongolia’s winters limit operations in infrastructure development, construction, and mining, employers tend to use a higher degree of temporary contract labor than companies operating year-round.  The law allows employers and employees to use short-term contracts.

The Labor Law allows most workers to form or join independent unions and professional organizations and protects rights to strike; but denies these rights to foreign workers, certain public servants, and workers without formal employment contracts.  However, all groups have the right to organize.  The law protects the right to participate in trade union activities without retaliation, and the government has protected this right in practice.  The law provides for reinstatement of workers fired for union activity, but this provision is not always enforced.  Some employees occasionally face obstacles to forming or joining unions, and some employers have taken steps to weaken existing unions.  For example, some employers have prohibited workers from participating in union activities during working hours or refused to conclude collective bargaining agreements in contracts.

The Labor Law allows employers to fire or lay off workers for cause.  Depending on the circumstances, however, severance may be required, and workers may seek judicial review of their dismissal.  Employers and legal experts report that Mongolia’s courts usually support employee claims, especially if the plaintiff or defendant is a foreign business.  The severance laws requires employers to pay laid off workers one month of the contracted salary, but fired workers receive no severance.  Laid off or fired workers are entitled to three months of unemployment insurance from the Social Insurance Agency.

The Law on Collective Bargaining regulates relations among employers, employees, trade unions, and the government.  Wages and other conditions of employment are set between employers (whether public or private) and employees, with trade union input in some cases. Laws protecting the rights to collective bargaining and freedom of association are generally enforced.  The Mongolian Confederation of Trade Unions represents most workers in the resource extraction and construction-related sectors but not government and agricultural sector employees in collective bargaining activities.  The Confederation of Trade Unions also mediates specific grievances through the government-sanctioned Tripartite Labor Dispute Settlement Committees.  The Tripartite Labor Dispute Settlement Committees resolve most disputes between workers and management and consist of representatives Confederation of Trade Unions, employers, and the government.  Cases not resolved by these Committees may go to court.

Proposed amendments to the Labor Law would mandate employers, the government, and the Confederation of Mongolian Trade Unions to form committees to set work hours and conditions, rather than employers and employees contracting directly based on actual labor needs.  The bill also authorizes ministries to set sectoral quotas for foreign labor and imposes a more elaborate permitting requirements for foreign labor.

The International Labor Organization (ILO) is concerned about child-labor practices and variations between Mongolian law and international labor standards.  Authorities report employers often require minors to work more than weekly permitted hours, paying them less than the minimum wage.  The General Agency for Specialized Inspections ( GASI ) enforces all labor regulations but is understaffed.  For ILO conventions ratified by Mongolia:

The United States Development Finance Corporation, formally OPIC, ( USDFC ) offers loans, grants, and political risk insurance to U.S. investors active in most sectors of the Mongolian economy.  DFC and Mongolia have an Investment Incentive Agreement that allows DFC-financed projects to receive national treatment.  The agreement is available:  OPIC/Mongolia Agreement .   The U.S. Export-Import Bank ( EXIM ) offers programs in Mongolia for short-, medium-, and long-term transactions in the public sector and for short- and medium-term transactions in the private sector.  Mongolia is also a member of the Multilateral Investment Guarantee Agency ( MIGA ).  South Korea, Canada, the Russian Federation, Japan, China, Poland, Hungary, and Austria have provided investment and trade financing for their firms in Mongolia.  In addition, the European Bank for Reconstruction and Development (EBRD:   EBRD/Mongolia ) and the International Finance Corporation (IFC:   IFC/Mongolia ) also support Mongolia-based investments.

Note:  The Government of Mongolia does not track where beneficial ownership of a given investment terminates.  The government only records where the company claims its domicile.  The U.S. Embassy in Mongolia knows of numerous cases where foreign entities active in Mongolia do not incorporate in their countries of origin but rather in third countries for tax mitigation purposes.  Consequently, although Mongolia’s data and the IMF’s, respectively, suggest that much of Mongolia’s investment originates from such places as the Netherlands or Singapore, much of the investment comes from other jurisdictions, including but not limited to the United States, Australia, Canada, Russia, and PRC China.

The Economic and Commercial Section
U.S. Embassy
P.O. Box 341
Ulaanbaatar 14192, Mongolia
Telephone:  +976-7007-6001
Email:  Ulaanbaatar-Commercial