The Parliament of Mongolia adopted the revised General Taxation Law (the “GTL”), the Law on Corporate Income Tax (the “CIT Law”) and the Law on Personal Income Tax (the “PIT Law”, together the “Taxation Package Laws”) on 22 March 2019, which became effective from 1 January 2020. In connection with these revised laws, approximately 23 laws were amended. Revised methodologies on valuation of minerals licenses and land rights for tax purposes were approved by the Ministry of Finance and officially published as of 20 January 2020.
IMPACT OF THE FATF GREY LISTING ON FDI INTO MONGOLIA
In October 2019, the Financial Action Task Force (“FATF”) included Mongolia into its watchlist (the so called “Grey List”). From the outset, this could increase the concerns of investors around economic stability, smooth international transactions, and free flows of currency. If the Grey List status lasts for a significant length of time, this could develop into more serious problems, but we believe this status should be corrected within a short-term period and do not expect that it will have a material medium or long-term impact on FDI. Some of the potential short-term risks and the main points underpinning this are set out below.
UPDATE: OVERVIEW OF THE MONGOLIAN LEGAL SYSTEM AND LAWS
In cooperation with New York University, M&E’s article “Overview of the Mongolian Legal System and Laws” has been published at the website GlobaLex, an electronic legal publication dedicated to international and foreign law research. Please see the link below:
One of the headline issues giving rise to concerns among investors in Mongolia right now is the effect of a new Currency Law being approved by Parliament, and its implications both for existing and potential FDI.
Since the establishment of the Mongol Empire in 1206, the development of the Mongolian legal system can be divided into four main historical stages: Mongol Empire Period this is the period of the formation of the roots of Mongolian legal system. Chinggis Khan's Ikh Zasag Law, commonly known as Yassa, written sometime between 1206 and 1218, was for the most part a codification of the general principles of law already held by the tribes under his command.
Globalex, Hauser Global Law School Program at NYU School of Law
Recent announcements and developments regarding construction of a gas pipeline between Russia and China, transiting Mongolia, have been gathering steam and if the project moves forward would be a major boon for the Mongolian economy with a number of potential side benefits. These developments have built on the concept of an “economic corridor” between China and Russia routing through Mongolia.
It’s always an exciting moment for lawyers when the Parliamentary agenda for the next session is published and there are some interesting legislative developments penciled in for discussion during the fall session of Parliament. While this time is typically dominated by debates around the state budget, a number of other interesting points are worth highlighting.
As we head into the first week of September, conference season is upon us, with a number of investor-related events taking place in the space of just 5 days, including traditional annual events such as Coal Mongolia, Discover Mongolia and the IWFCI Global Women’s Trade Summit.
Effective from 1 January 2018, Mongolia introduced changes to its Minerals Law, Land Law, Law on Registration of Legal Entities and various tax specific laws, with the aim of increasing tax revenues by way of a 30% tax on the direct or indirect transfer of rights in land and minerals licences.
Developing the vast Erdenes Tavan Tolgoi coal deposit has been one of the biggest strategic challenges that Mongolia has faced over the past ten years, with various different unsuccessful attempts having been made. These range from the failed auction of 2010, the abortive international IPO in 2012-13, the blocked deal with Shenhua in 2015, and on the operational side, a difficult contract with Chalco that has kept the business locked down to onerous long-term obligations, and the shift of operations from Macmahon to the mysterious TTJVCo. Meanwhile, the 1072 citizens shares issue remains unresolved and confusing.
Mongolia has a rich tradition of nomadic pastoralism, constituting a key element of the nation’s culture and traditions. With the onset of significant urbanization, and just under half of the country’s population now residing in or around Ulaanbaatar, these traditions are slowly changing, exacerbated by the infamous Mongolian dzud which reduces the livestock population and damages the livelihood of nomadic herders.
Several immigration issues have been prevalent over the course of 2018 as a result of various factors which are impacting both on foreign invested major projects, including Oyu Tolgoi, and now trickling down to impact on smaller businesses.
A number of important pieces of legislation are slated in the books for the upcoming spring session of Parliament, including extensive amendments to tax legislation, a new law on Mining, the revised Labour Law and various amendments to laws in the banking sector aimed at implementation of the ongoing IMF program.
As of spring 2017, Mongolia needs foreign and domestic investments more than ever. This is because Mongolia is on the verge of a severe economic crisis. Since 2012, Mongolian economic growth has decreased from 17.8% to 0.8%. The main causes of this economic crisis were fiscal indiscipline, weak rule of law, unnecessary and wrong political promises to gain or retain political powers. Furthermore, outside factors, such as falling commodity prices and China’s economic slowdown, accelerated the impact.
It is difficult to imagine the sheer scale of the Chinese government’s “One Belt, One Road” policy, and it is equally difficult to imagine the huge problems and ‘black economy’ surrounding the reported 100 km tailback of minerals through the border points with China. One presents a carrot and the other a stick. How can these issues be navigated by the Mongolian authorities?
Mongolia is currently gripped by offshore fever, with new developments coming on a regular basis, most recently a Cabinet decision to increase the scope of jurisdiction that are covered by offshore accounts legislation. This reflects a much wider international concern around the use of offshore accounts, which this article will touch upon, and which has certainly fueled domestic concern.
The Mongolian energy sector remains a highly interesting and at times sensitive area. With important recent developments in the wind and solar sectors, is It possible to break dependence on its neighbours, the Dragon and the Bear.