Guide to Investment and Trade-Mongolia

Mongolia-Asia Investment Forum 2009

2009-02-02T14:09:00.003+08:00

The UB Post, Mongolia's independent English weekly newspaper is participating at the Mongolia-Asia Investment Forum 2009 as media partner. Following is from Euromoney Conferences:
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Mongolia-Asia Investment Forum 2009
31 March 2009
The Conrad Hotel, Hong Kong

Mongolia is a country which has come a long way turning around its economy in a short space of time, generating an average of 6-8 per cent growth of GDP over the past five years. Recent World Bank reports have announced Mongolia as one of the fastest growing and most stable economies in current turbulent times.

The Euromoney Mongolia-Asia Investment Forum will bring together top level government officials, world class economists, some of the biggest investors investing in Mongolia and multilateral companies as speakers to help you identify where the best investment opportunities are in Mongolia and how best to access these opportunities.

Some of the topics the conference will discuss include:

• Mongolia’s economic outlook in the face of a global economic turmoil
• Work in progress: political, economical and legal reforms: what changes need to be made?
• Financing Mongolia’s infrastructure needs
• Developments and reforms in the mining sector

Attendance is by invitation only. If you would like to be considered for a free place please e-mail rsvp@euromoneyasia.com.

Mongolia to Increase Excise Tax on Imported Vehicles

2008-10-10T19:58:00.002+08:00

IF Parliament approves a recently submitted proposal, Mongolia will soon double its excise tax on imported used cars.

In an effort to take some of the burden off Ulaanbaatar’s congested roads, the government plans to reduce auto imports. This year Ulaanbaatar had about 150,000 registered motor vehicles.
The growing need of vehicles in Mongolia will likely increase as the nation’s young population reaches driving age. According to US International Census data, there are 300,000 Mongolian boys and girls aged 15-19, making it the nations largest 5-year span demographic. Soon, these teenagers and young adults will be looking for affordable cars. For them, it is primarily a choice between used Chinese, Korean, or Japanese cars. Currently, Japanese cars dominate the market.

Current excise tax law imposes a fee ranging from US$500 to US$4,000 per vehicle depending on the automobile’s engine capacity and year of production, as well as its additional value-added tax, and import duty. Importing a 1997 Nissan Sunny with a 1,500 cc engine, for example, currently requires US$1,000 in taxes. Passing the new tax law would increase that fee to US$2,000 next month.

Small hatchback-type cars, which have become widely popular on Ulaanbaatar’s roads because of their small engine, require a smaller fee. According to Kh.Baatar, a used Japanese-car dealer, those increased taxes will go straight to consumers. “By mid-October, used car prices would increase by US$2,000 in average,” he said. “The price of Japanese used passenger car, which is now US$5,500, may become US$7,500 next month.”
According to Japan’s Customs Statistics Office, Mongolia has imported 14,322 used passenger cars from Japan in the first half of 2008, making the country one of the top five used car importers in the world after Russia, Chile, the United Arabian Emirates, and New Zealand.

Recently gathered statistics, which do not include data on trucks or commercial vehicles, indicate the total market value of used cars in Mongolia is approximately JPY4.3 trillion, JPY303,000 per unit in average. In 2004, Mongolia imported 6,000 used cars from Japan only. Just last year, when Mongolia placed 11th out of all country’s importing used Japanese passenger vehicles, that number increased to 17,000 units. This year some predict that figure will reach 30,000 units.

“Mongolia sounds like a very interesting place. We are very interested in developing our sales there. I hear that bigger cars will become more expensive. Smaller capacity cars may not be so affected,” said Simon Doherty, a sales and marketing manager of Japan Partner Company.

“Mongolia is a growing market. Japanese cars are a good value because they have a very strict inspection system here and the cars are in good condition. The roads here are very good so the cars are in good condition and because the roads are busy, the cars have low mileage,” Doherty said.
Delegates from the Japan Used Motor Vehicle Exporters Association (JUMVEA) attended a business forum held on September 22 in Ulaanbaatar to talk about Mongolia’s growing market for used cars. “The used car sales market of Mongolia has attracted member companies to do business with both Mongolian traders and individual buyers,” said Hiroshi Sato, Chairman of JUMVEA.

On September 12, the nation’s two major political parties, Mongolian People’s Revolutionary Party and Democratic Party, signed an agreement to form the coalition government until 2012. According to the agreement, the Government will support the importation of hybrid and low-emission engine vehicles in an effort to reduce Ulaanbaatar’s air pollution.

Go to Auto Trading Business Blog of Mongolia at http://autotrading.bblog.mn (in Mongolian)

The Mongolia Investment Forum 2008

2008-08-22T12:45:00.003+08:00

Following is from Euromoney Conferences:
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The Mongolia Investment Forum 2008
10-11 September 2008
State Palace, Ulaanbaatar

Following on from the huge success of the previous two years, Euromoney is proud to host the 3rd Annual Mongolia Investment Forum, which will take place on 10-11 September 2008 in Ulaanbaatar.

With a growth rate of 8.7% GDP in 2007, Mongolia has witnessed a remarkably strong growth rate against a backdrop of a gloomy slowing global economy. The Forum will bring together over 500 participants including decision makers, international investors, corporate financiers and key market players to help identify where the best investment opportunities are in Mongolia

Supported by the Mongolian government, Euromoney’s Mongolia Forum is regarded as the most prestigious forum in the country.

Some of the topics to be discussed at this year’s conference include:

- What reforms need to be implemented by the Mongolian government to ensure sustainable levels of economic growth?
- To what extent do the bond markets provide an efficient means for building a healthy financial system?
- What further banking reforms are required to increase financing opportunities?
- What are the key projects in the infrastructure sector to look out for in the year ahead?
- How will legislation, tariff reforms and restructuring of the energy sector improve energy distribution?
- How are mining companies responding to China’s increasing demand for minerals?
- To what extent will environmental concerns impact the development of the industry?

For more information, please contact Alexander Pang on tel: +852 2842 6991 or fax: +852 2842 7067 or email: alexander.pang@euromoneyasia.com.

Lead Sponsors

Co-Sponsors

Exhibitors

Supporting Government Organisation

Supporting Organisations

Media Partner

Importing Japanese Used Cars Into Mongolia

2008-06-26T19:37:00.002+08:00

HOW MUCH IT WILL COST

TARIFF SCHEDULE FOR IMPORTED GOODS

All merchandise imported is subject to a value-added tax (VAT) of 13%, and a 5% import duty. Import duty does not apply to equipment and tools imported to Mongolia for hospitals.

Vehicles are subject to an additional excise tax (in addition to import duty and VAT):

Excise Tax Schedule For Automobiles
Cylinder Capacity (cm3)	Tax on cars used from 0 to 2 years	Tax on cars used from 2 to 4 years	Tax on cars used over +4 years
Up to 2000	$500.00	$1000.00	$2000.00
2001-3000	$1000.00	$2000.00	$4000.00
Over 3001	$1500.00	$3000.00	$6000.00

Customs Declaration Fees:

US$5 for basic declaration;
US$8 for basic intensive and simplified customs declaration;
US$5 for every additional declaration.
Payment for the charged services are to be made in MNT at the US Dollar rate of the day.

Other Costs:

Annual Vehicle Tax
- 2,000MNT to 100,000MNT depending on engine size and capacity.
- Annually, must be returned by Feb 15th of next year.

REQUIRED DOCUMENTS

DOCUMENTS REQUIRED BY MONGOLIAN CUSTOMS TO IMPORT GOODS
The following documents are required by Mongolian Customs:

Contract for import
License for import
Cargo Manifest
Bill of Lading
Transportation Invoice (railway bill, road shipment bill, airfreight bill, and/or combined transportation bill)
Merchandise Customs Declaration
Declaration of Merchandise Value
Proof of Insurance
Commercial Invoice
Payment Receipt
Status on quality control of goods
Packing List
Certificate of Origin
License from responsible agency
Receipts of payment for related duties and taxes

WHAT MUST BE DONE

CUSTOMS CLEARING PROCEDURES TO IMPORT GOODS VIA RAILROAD

Goods are cleared based on a Customs Merchandise Declaration, which is filled out by the importer/exporter in Mongolian. The importer/exporter can use the service of broker companies such as MONGOLTRANS, TUUSHIN and IFFC, to prepare the Merchandise Customs Declaration.

The general steps to clear imported goods are shown below and should be followed in sequence:

1. Importer/ Exporter (I/E) obtains shipment documents from the Transport Dispatcher at the point of arrival of goods (UB Train Station, Toolkit Station or "Gurvaljin" container yard, etc.).
An inspector at the Ulaanbaatar Railroad Customs makes sure that the packet of papers is complete and reviews shipment documents.
I/E goes to one of the broker companies (MONGOLTRANS, TUUSHIN and IFFC) to prepare a Merchandise Customs Declaration.
Payment of taxes and fees to the bank (located in the same building as the Ulaanbaatar Railroad Customs).
I/E brings all collected documents to a goods clearance officer at the UB Railroad Customs and obtains a number for the Merchandise Customs Declaration.
Importer/Exporter and Customs Inspector go to the container yard to inspect the goods.
Goods are inspected and released.

Source: http://japan-used-car-exporting.info All tax informations here should be checked for any updates.

Doing Business in Mongolia

2008-06-26T19:28:00.001+08:00

Market Overview:

Prospects for 2005-2006: Surging to 10% in 2004, growth was led by higher commodity prices for gold, copper, etc. spurred by demand from Mongolia’s chief trading partner, China. Government estimates predict 8% growth in 2005. However, 8% may be too optimistic as the impact of the end of the Multi-Fiber Agreement on Mongolia’s 2^nd biggest export earner—apparel—will lower overall growth. Economic tightening coupled with a high rate of public indebtedness promise to make 2005 and 2006 leaner years for Mongolia.

Political Situation: Mongolia has held eight presidential and parliamentary elections in the past 12 years, during which power changed political hands peacefully. In 2004, the Democratic opposition won 34 seats, leaving the former communists (MPRP) with 36, with 3 seats going to independents and two still in dispute (seven months after the election). There was some initial worry that the even split between rivals would render Mongolia ungovernable; however both parties formed a Grand Coalition government that has held together and governed so far. Changes have yet to disrupt the local business environment or the administrative apparatus.

Mongolian-U.S. Relations: Good Mongolian-US relations have developed rapidly over the last 15 years to include humanitarian and technical assistance, military to military relations, business development, and a host of smaller programs. Mongolia calls the US its “third neighbor” to balance relations with China and Russia. Mongolia has contributed peacekeeping forces to both Iraq and Afghanistan. Over the past decade, we record no incidents of anti-American sentiment or politically motivated damage to American projects or installations.

Russo-Sino-Mongolian Relations: Relations with Russia and China are critical because Mongolia depends on both for power, petroleum and transportation. Sour relations among these neighbors invariably affects Mongolia’s business environment. When the Dalai Lama visited in spring 2003, the Chinese temporarily halted all commercial rail shipments for “technical reasons.”

Market Challenges:

Weak rule of law

Corruption in the bureaucracy

Ignorance of best commercial practices in the government and private sectors

Lack of transparency in regulatory and legislative processes

Some abuse of phyto-sanitary and licensing regimes in both the pharmaceutical and food production industries to protect existing state and private interests

Market Opportunities:

Mining: Over 6000 deposits of approximately 80 minerals exist in Mongolia, among them coal, copper, uranium, iron ore, oil, tungsten, molybdenum and phosphate. Of particular note are Mongolia’s excellent metallurgic coal deposits. Currently, 160 are being exploited. Mongolia’s location next to resource needy Chinese provides a ready market for Mongolia’s mineral wealth. As with all industrial sectors in Mongolia, the developing infrastructure is a concern.

Construction: The population of the Mongolian capital Ulaanbaatar has more than doubled in 7 years from 450,000 to over a million. Quality commercial and residential stock is in short supply and demand shows no signs of slacking. By 2010, Ulaanbaatar’s population is expected to grow by over 60%, bringing a demand of 700,000 additional family units as well increased need for expanding municipal facilities.

Tourism: Mongolia is an attractive venue for adventure and cultural tourism. In 2004, the government estimates that over 200,000 visitors saw famed fossil discoveries, a legendary history, religious sites, and a vibrant, living nomad culture. However, long, cold winters limit the length of the tourist season. Inadequate tourism infrastructure requires upgrading.

Meat Processing: Mongolia has vast herds of sheep and cattle, and hungry neighbors. Satisfying demand in Russia, China, Korea, and Japan offers an opportunity to American ranchers and meat processing and marketing technologies. However quotas and restrictive health regulations inhibit the meat trade among Mongolian and her neighbors. Existing Mongolian processing facilities require upgrading to increase production capacity, quality, and sanitation. For this and for other opportunities to export American agricultural products and technologies into Mongolia, contact the USDA supported Mongolia-based AGPROMO at agpromo@magicnet.mn.

Market Entry Strategies:

Personal Relations are key: Mongolians like to deal with old friends. Investors must establish and maintain close relationships with their Mongolian counterparts and relevant government agencies. Family and school ties are still very strong in Mongolia. Learn who is related to whom when establishing business connections.

Use of Agents: Find a Mongolian advisor to guide through the ins and outs of local customs and business practices.

Structure of ownership: The Foreign Investment Law of Mongolia does not require foreign investors to have a Mongolian partner. All investment may be 100% foreign-owned and operated (with the exception of land ownership).

Product Pricing: Sensitive to price, Mongolian consumers will choose the less expensive product–unless they can be swayed by after-sales service or clear product superiority. They perceive American- branded goods as superior to all others, and will more often than not pay a premium to avoid purchasing lower cost, lower quality items

Mongolia's Used Car Market

2008-06-25T19:41:00.001+08:00

Before the 1990s, made-in-Russia vehicles filled the streets of Ulaanbaatar. Today, one can see hardly any Russian cars among Ulaanbaatar’s 70,000 vehicles, except off-road vehicles like UAZ jeeps, still favored by many off road drivers. Ulaanbaatar’s motor vehicles range from cheap, small sedans to big off-road jeeps, many of which were imported from South Korea and Japan. No traffic laws exist to limit today’s mixed traffic of both left and right-hand driven cars. According to foreign trade statistical figures from the first ten months of last year by the General Customs Office, Mongolia imported 99 motor vehicles from the U.S., 102 from Germany, 379 from Russia, 73 from UK, 18 from China, 3 from Sweden, 2,660 from South Korea, and 7,628 motor vehicles were imported from Japan.

Imported cars are subject to customs tax and excise tax. The government imposes excise tax on imported cars depending on their cylinder capacity and year of production.

Capacity of cyllinder of engine /cc/	Excise tax (in USD)
	Year of production /by year/
	0-3 years	4-9 years	More than 10 years
Less than 1,500	500	1000	2000
1,501-2,500	1500	2000	3000
More than 2,500	2000	2500	4000

Source: Excise Tax Law
Although the world’s big companies, Toyota, Hyundai, Nissan, Suzuki, Ford, Mercedes Benz, and BMW, have authorized sales agents in Mongolia, people still prefer driving cheaper and used cars.

“Many Japanese used car exporter companies expressed their interests in cooperating on sales in the Mongolian market, which is rapidly growing,” said a businessman of an auto trading company.
“But our government lacks attention and checks on the imported cars whether they are stolen cars. The government only cares about collecting taxes. We [importers] don’t declare the price of vehicles truly because the customs tax is high.”

Japan exports used vehicles to over 180 countries; the largest markets are Russia and New Zealand, according to Japan Used Motor Vehicle Exporters Association. “In the future, further increases of Japanese used export are expected, especially to developing countries,” noted Hiroshi Sata, chairman of the association.

“We sell used Toyota Mark II for US$5,000, Land Cruiser US$25,000, Mitsubishi Pajero for US$9,000, and Toyota Raum for US$4,500. Buyers like Japanese ones because of safety, but the spare parts are more expensive than Korean ones,” said a retailer of Dako Auto, one of the largest auto vehicle importing companies in Mongolia.

In an effort to promote automobile manufacturing in the country, the government committed to not charge any excise tax on exporting cars, which were manufactured in Mongolia, by the Excise Tax Law of Mongolia.
Up till today, this sector is still vacant, awaiting potential investors.
“We have no record of this type of proposal submission. If someone foreign investor proposes, we will support it,” said an officer of the Mongolian Chamber of Commerce and Industry.

Source: www.newswire.mn. All tax information and prices here should be checked for any updates.

Exporting Used Cars to Mongolia

2008-06-25T19:35:00.000+08:00

Information on exporting and importing Japanese used vehicles into Mongolia is very hard to come by, especially in English. This is difficult for importers and exporters alike as the try to find ways to bring trade to this rising star. Just last year in 2007, Mongolia was place as the 11th top importing country of Japanese used passenger vehicles.

The ever need of vehicles growing in Mongolia will be dramatically rising as the baby boom generation are starting become adults. In fact, according to US International Census data, the largest 5-year span group in Mongolia is 15-19 at about 300 thousands boys and girls.

Soon, these teenagers and young adults will be looking for affordable cars. For them, it is a choice between used Chinese, Korean, or Japanese cars. Currently, the market is very open and growing rapidly and is good time for Japanese used vehicle exporters to enter the market.

Some obstacles faced by Mongolian foreign traders foreign traders

2007-08-06T13:53:00.000+08:00

Operation of state organizations

No initiatives from policy makers to incorporate business interest and comments in the process of policy formulation, elaboration of policy documents;
Methodology for determining of net weight and total weight;
Information database developed by State Customs Administration used for determination of customs value
Poor capacity of laboratory facilities for export and import goods;
Non acceptance by trading partners of some documents required by Customs for customs necessary documents;

Bribery, corruption

According to Red Tape Perception Index developed by MNCCI, State Customs Administration ranked at 2 place, implying poor performance.
Financial courses
Lack of long term investment capital in domestic financial market;
Lack of foreign trade documentation services provided by banks and financial institutions

Lack information and knowledge

Information source and database of foreign and domestic market;
Standards and technical requirement of goods to supply in foreign markets,information source of advanced technology;
Lack of trainings for foreign trade managers;
Lack of information in terms of foreign and international aid programs for Mongolia.

FOREIGN INVESTMENT LAW OF MONGOLIA

2007-05-14T21:45:00.000+08:00

FOREIGN INVESTMENT LAW OF MONGOLIA

Chapter One
General Provisions
Article 1. Purpose of the law
The purpose of this law shall be to encourage foreign investment, to protect the rights and
property of foreign investors in Mongolia, and to regulate matters relating to the foreign
investment. /This paragraph was rephrased by the Law of January 3, 2002/
Article 2. Legislation on foreign investment
1. The legislation on foreign investment is comprised of the Constitution of Mongolia, this
law and other relevant legislation which is consistent with those laws.
2. If an international treaty to which Mongolia is a party is inconsistent with this law, then the
provisions of the international treaty shall prevail.
Article 3. Definitions
1. “Foreign investment” means every kind of tangible and intangible property which is invested
in Mongolia by a foreign investor for the purpose of establishing a business entity with
foreign investment within the territory of Mongolia or for the purpose of jointly operating
with an existing business entity of Mongolia.
2. “Foreign investor” means a foreign legal person or individual (a foreign citizen or stateless
person not residing permanently in Mongolia or a citizen of Mongolia permanently residing
abroad) who invests in Mongolia.
3. “Mongolian investor” means a Mongolian legal person or individual (a citizen of Mongolia,
immigrant or stateless person permanently residing in Mongolia) who invests.
4. “Investment agreement” is an agreement and/or a contract on concession, product sharing,
marketing, management, financial leasing and franchise investment concluded by foreign
investors for implementation of concrete project without having to establish a legal entity.
/This paragraph was added by the Law of January 3, 2002/
5. “One stop service” is a complex service including to receive applications and other relevant
materials on establishing a business entity with foreign investment or a branch of foreign
legal entity, issuing certificate, license and special permission in order to start a business
activity, making a conclusion, appraisal at one place and to organize activities to solve of
these issues by relevant authorities, and to provide investors with necessary information
as well as consultancy service.” /This paragraph was added by the Law of January 3,
2002/
Article 4. Areas for foreign investment
1. Foreign investment may take place in all areas of production and all services other than
those prohibited by the laws of Mongolia.
2. Foreign investment may take place in all parts of the territory of Mongolia where the
types of production to be undertaken or services to be provided are not prohibited by the
laws of Mongolia.
Article 5. Types of foreign investment
A foreign investor may invest in the following:
1) freely convertible currencies and reinvestment of togrogs yielded by investments;
2) moveable and immovable property and property rights;
3) intellectual and industrial property rights.
Article 6. Forms of foreign investment
Foreign investment shall be made in the following ways:
1) by establishing wholly foreign-owned business entities or local branches or subsidiaries
of foreign enterprises;
2) by establishing business entities jointly with Mongolian investors;
3) a foreign investor makes a direct investment by buying stocks, shares and other securities
of the Mongolian business entities under the legislation of Mongolia; /This paragraph
was rephrased by the Law of January 3, 2002/
4) by acquiring rights by law, concession and product sharing contract to exploit and process
natural resources. /This paragraph was amended by the Law of January 3, 2002/
5) Conclude a contract for marketing and management,
6) Make an investment through financial leasing and franchise. /The paragraphs 5, 6 were
added by the Law of January 3, 2002/
Article 7. Purchase of shares or other securities
Foreign investors may purchase shares or other securities in any business entity which is
operating within the territory of Mongolia in accordance with the laws of Mongolia.
Chapter Two
Protection of Foreign Investment
Article 8. Legal guarantees for foreign investment
1. Foreign investment within the territory of Mongolia shall enjoy the legal protection
guaranteed by the Constitution, this law and other legislation which is consistent with
those laws and as guaranteed by the international treaties to which Mongolia is a party.
2. Foreign investment within the territory of Mongolia shall not be unlawfully expropriated. /
The word “nationalized” was cancelled from this paragraph by the Law of January 3,
2002/
3. Investments of foreign investors may be expropriated only for public purposes or interests
and only in accordance with due process of law on a non-discriminatory basis and on
payment of full compensation.
4. Unless provided otherwise in any international treaties to which Mongolia is a party, the
amount of compensation shall be determined by the value of the expropriated assets at
the time of expropriation or public notice of expropriation. Such compensation shall be
paid without delay.
5. Losses suffered by foreign investors due to a state of emergency or war in Mongolia shall
be treated equally with losses suffered by Mongolian investors.
Article 9. Treatment of foreign investors
Mongolia shall accord to foreign investors no less favourable treatment in respect of the
possession, use, and disposal of their investments than that accorded Mongolian investors.
Article 10. Rights and obligations of foreign investors
1. Foreign investors shall enjoy the following rights:
1) to possess, use, and dispose of their property including the repatriation of investments
which contributed to the equity of a business entity with foreign investment; This
subparagraph was amended by the Law of January 3, 2002/
2) to manage or to participate in managing a business entity with foreign investment;
3) to transfer their rights and obligations to other persons in accordance with the law;
4) Remit the following income, profit and payments to abroad without any barriers:
(a) allotted stockholders income and share dividends;
(b) allotted income after property and securities’ sale, transfer of property right to
other party, completion of an investment agreement and liquidation of an entity;
(c) principal and interest of debt or other identical payments;
(d) compensation payment for confiscated property;
(e) other income gained under the legislation of Mongolia. /This subparagraph was reedited
by the Law of January 3, 2002/
5) any other rights conferred by law.
2. Foreign investors shall have the following obligations:
1) to observe the laws of Mongolia;
2) follow commitments stated in the Agreement and Statute of the business entity
with foreign investment, branch of a foreign legal entity and in Investment
agreement; /This subparagraph was re-edited by the Law of January 3, 2002/
3) to implement measures to ensure the protection and restoration of the natural
environment;
4) to respect the customs and traditions of the people of Mongolia.
Chapter Three
Activities of a foreign entity and a branch of a foreign legal entity
Article 11. Business entities with foreign investment
1. Business entity with foreign investment is a entity, established in accordance
with the
legislation of Mongolia, of which not less than 25 percent of the equity is
constituted
with an investment of a foreign investor. /This paragraph was re-edited by the
Law of
January 3, 2002/
2. A business entity with foreign investment shall become a legal person of Mongolia from
the date of its registration and shall conduct its operations in accordance with the laws of
Mongolia.
/The article 12 was annulled by the Law of January 3, 2002/
Article 13. Valuation of tangible and intangible property
1. Investors of a business entity with foreign investment shall negotiate on evaluation
of the property and intellectually valuable items invested from them to form the
equity of the entity following the same principle sued for convertible currency and
tugrug (local currency). If investor considers it as necessary, the evaluation can be
done by either Mongolian or foreign specialized company licensed to conduct asset
evaluation. /This paragraph was re-edited by the Law of January 3, 2002/
2. Conversion of togrogs into freely convertible currency shall be done at the rate of exchange
set by the Bank of Mongolia and applicable at the time of valuation.
Article 14. Plenary rights of the state administrative body in charge of foreign
investment
1. The State Central administrative body in charge of foreign investment shall have the following
plenary rights with respect to foreign investment:
1) to formulate foreign investment policy in accordance with the Government general
action plan on development country’s economy and society, and monitor its
implementation;
2) to ensure and supervise the implementation of legislation regard to foreign investment;
3) to work out a proposal on leading sectors and directions of foreign investment.
2. The State administrative body in charge of foreign investment shall have the following
plenary
rights:
(1)to implement policies and legislation with respect to foreign investment;
(2)to research possibilities to increase foreign investment, to organize investment
promotional activities, to provide investors with relevant information, and to involve
foreign investors to project tender;
(3) to render foreign investors with complex “One-stop service”;
(4) to prepare information on foreign investment statistics;
(5) to approve and/or disapprove establishment of a business entity with foreign
investment or a branch of a foreign legal entity;
(6) to terminate, temporarily or completely, the activities of a business entity with foreign
investment or a branch of a foreign legal entity;
(7) other rights specified in legislation.
3. The State administrative body in charge of foreign investment issue shall render some of
the
services specified in the provision 3 of section 2 of this Article on charge base. /This article
was
re-edited by the Law of January 3, 2002/
Article 15. Registration of Business entity with foreign investment, branch of a foreign
legal entity and Investment agreement
1. A business entity with foreign investment and a branch of a foreign legal entity that
received a certificate from the State administrative body in charge of foreign investment
shall be registered by the National General Taxation Office with state registration.
2. Any amendment to the Agreement or Statute of a business entity with foreign
investment and a branch of a foreign legal entity shall be registered with the National
General Taxation Office as approved by the State administrative body in charge of foreign
investment.
3. The State administrative body in charge of foreign investment will register an
Investment agreement based on an application to register an investment agreement and
a notarized copy of the investment agreement, and will issue a certificate within 10 business
days after the receipt of the application. /This article was re-edited by the Law of January
3, 2002/
Article 16. Terminating a foreign invested entity and branch of a foreign legal
entity
1. The operations of business entities with foreign investment and a branch of a foreign
legal entity may be suspended or terminated on the grounds provided in the laws of
Mongolia. /This paragraph was amended by the Law of January 3, 2002/
2. /This paragraph was annulled by the Law of November 30, 2001//
Article 17. Liquidating a foreign invested entity and a branch of a foreign legal
entity
1. If a business entity with foreign investment or a branch of a foreign legal entity resolve to
suspend or terminate its operations it shall submit that resolution to the State Central
Administrative body in charge of foreign investment and to the General Department of
National Taxation within 14 days of its adoption. /This paragraph was rephrased by the
Law of November 30, 2001 and was amended by the Law of January 3, 2002/
2. An investment agreement shall be removed from the registration and a certificate of
approval shall be revoked when duration of the investment agreement expires and/or the
investor annuals the agreement or violates laws of Mongolia. /This paragraph was added
by the Law of January 3, 2002/
3. /This paragraph was annulled by the Law of November 30, 2001/
4. Upon receiving the notice referred to in paragraph 1 of this article, the General Department
of National Taxation shall remove the business entity with foreign investment or a branch
of a foreign legal entity from the State register and publish that fact. /This paragraph was
amended by the Laws of November 30, 2001 and January 3, 2002/
5. If the operations of the business entity with foreign investment or a branch of a foreign
legal entity cease in preparation for dissolution, then the foreign investor concerned shall
be entitled to transfer the returns referred to in paragraph 4 of article 10 of this law upon
completion of the final accounts of the business entity concerned. /This paragraph was
amended by the Law of January 3, 2002/
Article 18. Taxation
1. Business entities with foreign investment and a branch of a foreign legal entity shall be
liable for tax under the tax laws of Mongolia.
2. Tax incentives and/or exemptions to a business entity with foreign investment, branch of
a
foreign legal entity and an implementing entity of an investment agreement will be subject
to
Income tax law of Business entities and organizations1, Customs tariff law2, Value added
tax
law3, Excise tax law4 and Land law5 of Mongolia. /This paragraph was added by the Law
of
January 3, 2002/
Article 19. Stability Agreement
1. In the event of a request by the investor intending to undertake an investment project
of not less than US$ 2 million or equivalent amount in Mongolian national tugrigs in
Mongolia, the Cabinet Member responsible for taxation policy issues as permitted by the
Government of Mongolia may sign an agreement with that investor on a stability as a
legal guarantee for a stable environment to conduct business activities.
2. A sample of a stability agreement will be approved by the Government of Mongolia.
This agreement sample shall contain provisions to ensure stable tax conditions during
certain period and state objectives and amount of the investment, its implementation
period and rationale to revoke the agreement.
3. If a start-up investment amount of the project to be implemented by a foreign investor
is US$ 2.0-10.0 million or equivalent amount of Mongolian national tugrigs a stability
agreement can be signed for I0 years and if the amount is over US$ 10.0 million or its
equivalent in Mongolian national tugrigs for 15 years.
4. In the event of a termination of activities by sole initiative of an investor before the
period stated in the stability agreement when a business entity with foreign investment
and/or a branch of a foreign legal entity was not bankrupted in accordance with the laws
of Mongolia or their activities were not stopped by the respective authorities or the parties
did not terminate the contract upon their mutual agreement the amount of tax discounts
and/or exemptions awarded to that investor shall be compensated by the investor. /This
article was added by the Law of January 3, 2002/
Article 20. Conclusion of a Stability Agreement
1. An investor willing to conclude a Stability Agreement shall submit its application and
draft Stability Agreement to the State central administrative body in charge of taxation
policy issues.
2. The Government member in charge of taxation policy issues shall examine the
application and the draft agreement within 14 business days following the receipt and
shall conclude the Stability Agreement with the applicant, if no clarifications are required.
If additional clarifications are required, the applicant shall be notified of it within 7 business
days.
3. Relevant organizations shall be notified of such Stability Agreement. /This article was
added by the Law of January 3, 2002/
Article 21. Land utilization by a foreign invested entity and a branch of a foreign
legal entity
1. Business entities with foreign investment and branch of a foreign legal entity may acquire
the right to use land by way of lease and subject to the conditions and procedures set out
in the legislation on land of Mongolia. /This paragraph was amended by the Law of January
3, 2002/
2. Any lease shall include the terms and duration of use, measures required to ensure the
protection and restoration of the environment to its natural state, the amount of annual
ground rent, and the liabilities of the lesser and lessee.
3. A lease for the business entities with foreign investment and branch of a foreign legal
entity shall be granted in accordance with the procedures below: /This paragraph was
amended by the Law of January 3, 2002/
1) a lease for the use of State-owned land by a wholly foreign-owned business entity
shall be entered into by the Mongolian landowner and the foreign investor and shall
be authorized by the relevant local Hural of Representatives and its Presidium;
2) a lease for the use of State-owned land by a business entity with foreign investment
in which a Mongolian investor is a participant shall be entered into by the Mongolian
landowner and the head of the business entity concerned and shall be authorized by
the relevant local Hural of Representatives and its Presidium;
3) a lease for the use of private freehold land by a business entity with foreign investment
in which a Mongolian investor is a participant shall be entered into by the Mongolian
landowner and the head of the business entity with foreign investment and shall be
authorized by the competent State authorities.
4. The obligations arising from the leases referred to in sub-paragraphs 2 and 3 of paragraph
3 of this article which are entered into by the head of a business entity with foreign
investment shall be borne by the Mongolian and the foreign investor in proportion to their
contributions in equity of the business entity. /This paragraph was amended by the Law
of January 3, 2002/
5. The duration of any lease shall be determined by the duration of the operations of the
business entity with foreign investment and branch of a foreign legal entity. The initial
term of a lease shall not exceed 60 years. The lease may be extended once for a period
of up to 40 years on the same conditions as the original lease. /This paragraph was
amended by the Law of January 3, 2002/
6. If a business entity with foreign investment and branch of a foreign legal entity are dissolved
before the expiry of the lease, then the lease shall terminate at the same time. /This
paragraph was amended by the Law of January 3, 2002/
7. Leasehold land may be substituted or taken back for a specific State purpose. Decisions
on that matter may be made only by the Government of Mongolia. Compensation for
losses suffered by foreign investors as a result of such action shall be paid without delay.
The amount of compensation shall be determined on the basis of value at the time of
such substitution or transfer.
8. If leasehold land is used to the detriment of the public health, natural environment or the
interests of national security, then the lease shall be cancelled.
Article 22. Finances, loans, accounts and inspections
1. Business entities with foreign investment and branch of a foreign legal entity shall conduct
their activities in respect of finances, loans, accounts, and foreign currency operations in
accordance with the laws of Mongolia.
2. Business entities with foreign investment and a branch of a foreign legal entity shall keep
account books and balance sheets in accordance with the laws of Mongolia.
3. The accounts and financial and business transactions of business entities with foreign
investment and a branch of a foreign legal entity shall be investigated by State financial
inspectors or by chartered auditors in accordance with the laws of Mongolia. Foreign
auditing organisations may be invited if required. /This paragraph was amended by the
Law of January 3, 2002/
Article 23. Insurance
Business entities with foreign investment and branch of a foreign legal entity may be insured
by Mongolian insurance agencies in accordance with the laws of Mongolia. /This article was
amended by the Law of January 3, 2002/
Article 24. Labour and social security relations
1. Business entities with foreign investment and a branch of a foreign legal entity shall
primarily employ citizens of Mongolia. Foreign citizens may be hired for jobs requiring
special or high qualifications. Issues on importing labour forces and experts shall be
regulated by the relevant legislation of Mongolia. /This paragraph was amended by the
Law of January 3, 2002/
2. Matters of labour and social security relating to citizens of Mongolia who are employed
by business entities with foreign investment and a branch of a foreign legal entity shall be
governed by the laws of Mongolia on labour and social security. /This paragraph was
amended by the Law of January 3, 2002/
3. Foreign citizens who are employed by business entities with foreign investment and a
branch of a foreign legal entity shall be liable for income tax in accordance with the laws
of Mongolia and may transfer their income abroad after paying tax. /This paragraph was
amended by the Law of January 3, 2002/
Chapter Four
Miscellaneous
Article 25. Settlement of disputes
Disputes between foreign investors and Mongolian investors as well as between foreign
investors and Mongolian legal or natural persons on the matters relating to foreign investment
and the operations of the business entities with foreign investment and a branch of a foreign
legal entity, shall be resolved in the Courts of Mongolia unless provided otherwise by
international treaties to which Mongolia is a party or by any contract between the parties to
the dispute. /This paragraph was amended by the Law of January 3, 2002/
Article 26. Coming into force of the law
This law shall come into force on 1 July 1993.
Speaker of the State Ih Hural of Mongolia
N.Bagabandi
Secretary General of the Secretariat of the State Ih Hural
N.Rinchindorj
(Footnotes)
1
Bulletin “State Information”
¹ 1
, 1993
2
Bulletin “State Information”
¹ 9
, 1996
3
Bulletin “State Information”
¹ 2
, 1998
4
Bulletin “State Information”
¹ 2
, 1993
5
Bulletin “State Information”
¹ 2
, 1995

Regulation for establishment of foreign representative office in Mongolia

2007-05-14T21:44:00.000+08:00

THE REGULATION FOR THE ESTABLISHMENT OF FOREIGN REPRESENTATIVE OFFICE
WITHIN THE TERRITORY OF MONGOLIA

Attachment of the Government
Resolution number 247 of 1991

1. The foreign companies, banks and other commercial organizations (hereinafter referred to as
“foreign organizations”) may establish their representative office in accordance with this
regulation in Mongolia.
2. The objectives of the establishment of foreign representative office are:
2.1. Cooperation between the business entities of Mongolia and foreign organization in the field
of trade and economy, currencies and finance, science and technique, transport and tourism,
and other; information exchange and introduction of advanced technique and technology;
2.2. Rendering assistance in encouragement and promotion of foreign investment;
2.3. To organize efficiently the conclusion and fulfillment of contracts and other transactions.
3. The Foreign Investment and Foreign Trade Agency shall grant the establishment of foreign
representative office unless otherwise stipulated by the law of Mongolia.
Permission for the establishment of foreign representative office shall be granted for 3 years and
its duration may be extended for 2 years when a foreign organization considers that its
obligations are not fulfilled completely.
4. The foreign organization wishing to establish its representative office shall submit the
following documents to the Foreign Investment and Foreign Trade Agency:
4.1. Application letter (shall mention - the purpose of the representative office establishment, its
business contracts and scope of cooperation with the Mongolian organization, the intention of
further development and other things shall be stated);
4.2. Introduction of the foreign organization and its Statutes;
4.3. Bank confirmation - from investor’s national bank;
4.4. Copy of the National State Registration Certificate;
4.5. Copy of permission of the representative office establishment abroad - If that kind of
permission from relevant authorities is required according to their national laws. /shall be
guaranteed by notary/;
4.6. Statutes of the representative office (shall mention - its organization and structure, main
activities, stuff number and their rights and responsibilities);
5. The Certificate of foreign representative office shall be granted within 10 working days upon
the receiving foreign organization application letter.
6. The Certificate of foreign representative office must indicate the address, purpose, conditions
and the term of activities. The Certificate date of issuance is considered its establishment date.
If the representative office doesn’t function within 6 months from the date of Certificate issuance,
the Certificate will be considered invalid.
7. Several foreign organizations may have joint office.
8. Representative office must act on behalf of its own organization within the framework of the
Mongolian legislation. Representative office is prohibited to carry out any commercial activities
for the profit earning purpose within the territory of Mongolia.
9. The Authority, which granted the Certificate of foreign representative office, shall render
assistance in creation of conditions required for the normal operations of representative office.
10. The representative office shall possess an office and a flat in the territory of Mongolia on the
basis of contracts concluded with the relevant organizations and individuals and be supplied
with the domestic services.
11. The representative office may employ Mongolian citizens according to the Mongolian
legislation on the basis of lobar contract.
12. The head of the representative office shall act within the powers given by the foreign
organization.
The head of the representative office shall inform the Authority that granted the Certificate of its
activities, staff numbers and changes.
13. Representative office is obliged to provide with information concerning its activities to the
Mongolian competent authorities upon their request.
14. The representative office shall be dissolved in the following cases:
14.1. Certificate duration is expired
14.2. Termination of the foreign organization which established its representative office in
Mongolia.
14.3. Invalidation of agreement and contract which served a basis for the establishment of
representative office.
14.4. Violation of the requirements for the establishment of representative office and its
operations contradicting the legislation of Mongolia.
14.5. A decision by the foreign organization on dissolution of its representative office.
15. The registration fee of 700$ or other equivalent hard currency is to be paid for the granting
the Certificate of Foreign Representative Office. The fee of 300$ or other equivalent hard
currency is to be paid for the extension of permission.

/ Unofficial translation /

Foreign Citizens Law

2007-05-14T21:42:00.000+08:00

LAW ON LEGAL STATUS OF FOREIGN CITIZENS
CHAPTER ONE: GENERAL PROVISIONS
Article 1. Purpose of the law
The purpose of this law is to regulate relations concerning the entry, exit, transit and residence of
foreign visitors and stateless persons in Mongolia and to define their rights and responsibilities.
Article 2. Legislation and international treaties on legal status of foreign Citizens
1. Legislation on the legal status of foreign citizens is comprised of the Constitution of Mongolia,
this law and other legislative acts made in conformity with them.
2. If the international treaties of Mongolia stipulates otherwise than the present law, the international
treaties shall prevail.
Article 3. Foreign citizens
Persons with legal documentation certifying their foreign citizenship shall be considered as foreign
citizens.
Article 4. Legal subject of the law on legal status of foreign Citizens
The provisions of this law shall be applicable to foreign travelers to Mongolia, visitors in transit,
short and long term residents, immigrants and stateless persons (hereafter referred to as “foreign
citizens”).
Article 5. Diplomatic immunities and privileges of officers of diplomatic and consular
missions
The provisions of this law shall not affect the diplomatic immunities and privileges of officers of
diplomatic and consular missions of foreign countries or resident representative offices of the
United Nations and its specialized organizations as defined by the legislation and international
treaties of Mongolia.
Article 6. Political asylum
1. Foreign citizens being persecuted for ideas appreciated in Mongolia, can be granted the right to
residence and state protection.
2. The President of Mongolia shall carry the decision for granting residence status to a foreign
citizen according paragraph 1 of this Article.
Article 7. Organizations in charge of foreign citizens
1. The central state administrative body shall be responsible for issues in respect of the legal
status of foreign citizens in the territory of Mongolia and immigration in respect of those related to
them.
2. The council in charge of foreign citizens (hereinafter reffered as to “the Council” ) shall coordinate
the implementation of the State policy towards foreign citizens and the activities of the Central
State Administrative body relating to the legal status of foreign citizens and immigrations.
3. The Council shall have the following composition: chairman, secretary, and members. The
secretary of the Council is a full time post. The Council shall be chaired by the Government member
responsible for legislation issues.
4. The Government shall appoint the composition of the Council and adopt the rule of the Council.
CHAPTER TWO: LEGAL STATUS OF FOREIGN CITIZENS
Article 8. Basic principles of the rights and duties of foreign citizens
1. All persons legally residing in Mongolia shall be equal before the law and the courts.
2. Foreign citizens in Mongolia shall exercise the rights and freedoms equally to citizens of Mongolia
provided for by the legislation of the country.
3. In establishing the rights and duties of foreign citizens in this law, other legislative acts and
international treaties of Mongolia, Mongolia shall adhere to the principle of reciprocity with the
country of which the person is a citizen.
4. In exercising their rights and freedoms, as provided for in the legislation of Mongolia and its
international treaties, foreign citizens shall not infringe on the interests of Mongolia or the rights
and freedoms of Mongolian citizens or other human rights.
Article 9. Respect for the Constitution of Mongolia and obeying the law
1. Foreign citizens shall have a duty to abide by this law and other legislative acts.
2. Foriegn citizens shall respect the Constitution of Mongolia, obey its laws and honor Mongolian
national traditions and customs.
3. Foreign citizens shall pay taxes if it is not provided otherwise in other legislative acts or international
treaties of Mongolia.
Article 10. Specific rights and duties of foreign citizens
1. Foreign citizens shall not have the right to elect or be elected to the self-governing bodies of
administrative units, towns, villages or State organizations of Mongolia and shall not take part in
national opinion polls.
2. Foreign citizens shall not be employed as full-time civil servants of Mongolia.
3. Foreign citizens shall not be obliged to serve in the armed forces of Mongolia, ot any other
military service.
4. Foreign citizens shall not set up or join political parties or any organizations for political activities
on the territory of Mongolia.
5. It is prohibited for foreign citizens to campaign against the national unity of Mongolia.
6. Foreign citizens shall be employed at organizations classified by law as objects of State importance
only with permission of the Government of Mongolia.
7. In order to ensure the sovereignty of Mongolia, national security and public order, any necessary
restrictions may be placed on the rights and freedoms of foreign citizens apart from the basic
human rights.
Article 11. Employment
1. With the permission of the Central state administrative body in charge of labor issues, or an
organization which is empowered by it with long term residence status and immigrants shall be
allowed to be employed at any local or foreign organization other than those restricted by this law
or other legislative acts.
2. Foreign citizens with long term residence status and immigrants wishing to set up a business
entity in the production or service spheres shall obtain permission in accordance with legislation of
the country obtain permission from the Central state administrative body in charge of the labor
issues.
3. Foreign citizens who arrived in Mongolia on a labor contract and did not finish the contract term
or terminated the contract before the end of the term shall not be allowed to enter into another
contract with another organization or citizen.
4. Foreign citzens with temporary residence status shall be prohibited from working at a business
entity or organization or being engaged in the production or services spheres in order to make a
profit other than those of the purpose of their visit.
5. Organizations and business entities of any form conducting its activites on the territory of Mongolia
shall have a labor agreement for the employment of foreign specialists and workers from a foreign
country or public organizations with the permission of the Central state administrative body in
charge of labor issues.
CHAPTER THREE: ENTRY, EXIT AND TRANSIT VISAS FOR MONGOLIA
Article 12. Visas for Mongolia
1. If the there are no provisions stipulated in international treaties of Mongolia, foreign citizens
entering, exiting and transiting the country shall be issued a Mongolian visa.
2. Visas shall be issued to foreign citizens who are holders of valid foreign passports or equivalent
legal documents. Visas may be issued on attachments.
3. The grades of visa are: diplomatic, official and ordinary.
4. The types of visa are: single, double, multiple-entry, entry/exit, exit, exit/entry and transit.
5. Visa vignettes shall be approved by the member of the Government in charge of External
Relations.
Article 13. Visa issuing authorities
1. Visas shall be issued by the central state administrative body in charge of external relations and
diplomatic and consular missions of Mongolia to a foreign country.
2. The immigration office of the border guard of Mongolia may issue visas to foreign citizens who
arrive without transit visas.
Article 14 . Rights and duties of visa issuing authorities
1. The Central state administrative body in charge of external relations shall exercise
the following rights and duties:
1) to keep a central record of Mongolian visas;
2) to regulate visa issuing activities;
3) to audit the provisions on which visas are issued;
4) to refuse to issue a visa, shorten or extend a visa or to terminate a visa;
5) to issue a visa at the international airport in cases of urgency.
2. The Central department of police shall exercise the following rights and duties:
1) to keep a record of visas issued to immigrants and stateless persons in Mongolia;
2) to refuse to issue a visa if there are contradictions to the legislation.
3. Honorary Consuls of Mongolia, authorized by the central state administrative organization in
charge of external relations, shall have the right to issue visas for Mongolia.
Article 15. Provisions for visa issue
1. Mongolian visas shall be issued to foreign official visitors on the following basis:
1) at the invitation and request of a state organizations, self-governing bodies of an administrative
units, cities or villages, or political parties of Mongolia.
2) at the official request of the relevant country or international organization in respect of foreign
citizens to be employed at diplomatic or consular missions, the UN Resident Representative Office
or its specialized organizations in Mongolia and members of their families or in other cases, provision
of international treaties of Mongolia.
2. Visas shall be issued to foreign citizens arriving in Mongolia as private visitors on the following
basis:
1) invitations approved by central and local police organizations;
2) relevant contracts, approved invitations or with permission of the relevant organization in Mongolia
for visitors on tourist trips, for medical treatment and/or to participate in ceremonies and other
events;
3) official letters issued by the relevant central state administrative body for foreigners visiting
Mongolia for employment, launching production and service business, scientific research and
educational work;
4) in cases other than those in (2) or (3) above, an official invitation from a business entity or
organization;
5) written guarantee by the person himself or his or her sponsoring organization or citizen of the
visitoros financial ability to live in Mongolia and his or her intention to return to his or her home
country.
3. Visas shall be issued to foreign citizens arriving in Mongolia as immigrants on the lowing basis:
1) an application explaining the reason for immigration, identifying documents;
2) permission from the competent organization of Mongolia;
3) an international health certificate ensuring the absence of any epidemic diseases;
4) a written guarantee by the person him or herself of his or her financial ability to live in Mongolia.
Article 16. Duration of visa
For foreign citizens traveling to Mongolia shall be issued an entry /exit visa for a period of 30 days.
The duration of the visa may be extended once for a period of up to 30 days.
Article 17. Entry to Mongolia
Foreign citizens with valid passport or equal legal document with permission issued by the competent
Mongolian organization shall enter the Mongolian border according to the regulations determined
in the legislaation of the country.
Article 18. Transit travel through Mongolia
1. After obtaining a permission from the competent Mongolian organisation, foreign citizens with a
valid passport or equivalent legal document shall travel through the country as a transit passenger.
2. Transit travelers on international air flights shall not require a transit visa. However, those who
are traveling by car, other means of transport or on foot shall be required to obtain a transit visa for
the necessary period.
Article 19. Refusal of entry to Mongolia.
The following reasons shall be the basis for the refusal of entry to Mongolia:
1) children and persons without legal capacity unless accompanied by a guardian;
2) persons sentenced for criminal offences in Mongolia if the term of sentence is not completed;
3) persons expelled from Mongolia as persona non-grata;
4) persons who threaten the national security or public order of Mongolia.
Article 20. Exit from Mongolia and refusal of exit visa
1. Foreign citizens shall be obliged to leave the country before the expiry of their visa.
2. The exit of foreign citizens shall be prohibited for the following reasons and periods of time:
1) persons suspected of criminal offences, until a court has been able to make a decision;
2) persons sentenced to imprisonment, until either the end of the term of sentence, an amnesty is
granted, or transfer to their country of nationality in accordance with international treaties to which
Mongolia is a party;
3) persons who have infringed the rights, freedoms, and legal interests of others or competent
organizations, until the existence of such infringement is proved or the problem is solved;
4) if there are is any threat to national security or public order.
CHAPTER FOUR: VISITS TO AND RESIDENCE IN MONGOLIA
Article 21. Residence of foreign citizens in Mongolia
Foreign citizens who are holders of valid foreign passports or equivalent legal documents may visit
or reside in Mongolia after obtaining permission from the competent Mongolian organizations.
Article 22. Foreign visitors, temporary and long-term residents and immigrants
1. Foreign citizens traveling to Mongolia under the provisions of this law for private or official
reasons for up to 30 days shall be considered as visitors.
2. Foreign citizens visiting Mongolia for up to 183 days shall be considered as temporary residents.
3. Foreign citizens living in Mongolia for up to 5 years shall be considered as long-term residents.
4. Foreign citizens living permanently in Mongolia for private reasons shall be considered as
immigrants.
Article 23. Extension of term of residence
Requests from foreign citizens, except for immigrants, for an extension of their term of residence in
Mongolia shall be considered by the central state administrative body in charge of this matter.
Article 24. Number and composition of immigrants in Mongolia
1. The number of immigrants residing in Mongolia shall not exceed 1% of the citizens of the
country and immigrants from any one country shall not exceed 0.33%.
2. The State Ih Hural shall define annually the number and composition of immigrants in the
administrative units of Mongolia according to the proposal submitted by the Government.
Article 25. Issue, extension and cancellation of residency permits of foreign immigrants
1. The council shall consider official requests and other necessary documents from foreign citizens
who wish to obtain immigrant status and shall issue permission for residence in Mongolia for a
term of up to 5 years depending on the internal situation or economic capacity of the country,
requests from the recipient organizations, education and professional ability, language and personal
capability of the applicant.
2. Issues in respect of the extension of the residency status of immigrants shall be decided by the
council depending on the number of immigrants from any one country.
3. If a foreign citizen with immigrant status in Mongolia has not resided in the country for over 90
days within a one year period, the Council shall revoke the immigrant status and inform the person.
The person shall have the right to apply to court within 7 days of receiving notification.
4. If an immigrant has seriously breached the legislation of the country, the Council shall cancel his
or her immigrant status.
Article 26. Registration of foreign citizens
1. Foreign citizens, apart from those who came at the invitation of state organisations, self-governing
bodies of administrative units, towns or villages, shall be registered at the police office by their
sponsoring organization, business entity or citizen within 10 days of their arrival.
2. Foreign citizens (and members of their families) who arrive in Mongolia to work at foreign diplomatic
or consular missions, resident representative offices of the UN or its specialized organizations and
foreign press offices shall be registered at the central state administrative body in charge of external
relations within 10 days of their arrival in Mongolia.
3. Employees of foreign non-governmental and international charity organizations shall be registered
at the central state administrative body in charge of legal affairs within 7 days of their arrival.
4. Unless otherwise provided by law, foreign immigrants moving from one administrative unit to
another shall cancel their registration at the police office in the first administrative unit and register
at the new one within 7 days of their arrival.
5. Foreign immigrants shall advise the police offices of changes in their family status o job within 7
days of the change.
6. Foreign citizens with long term residence status traveling to other administrative units for a
period of more than 7 days shall be registered at the police office of the area visited.
7. The Central Department of Police shall monthly inform the relevant Mongolian organizations of
the movement of foreign citizens entering, exiting and transiting the country; those foreign citizens
who offended the law; those foreign citizens who were expelled from the country and those who
were declared persona non- grata by the competent international organizations.
Article 27. Visits by stateless persons abroad
1. Stateless people residing in Mongolia may visit abroad.
2. The Central organization of police shall provide stateless persons with identity documents
necessary for their foreign visits.
3. Unless otherwise provided by law, stateless people shall have the rights given to citizens of
Mongolia under the law on private foreign travel and immigration of Mongolian citizens.
Article 28. Documents provided to immigrants and stateless persons residing in Mongolia
1. The Central organization of police shall provide immigrants and stateless people with a “Certificate
of Residence in Mongolia”, defining of which administrative unit is he/she resident.
2. Immigrants and stateless persons residing in Mongolia shall temporarily return their residence
certificate to the police office of the area in which they reside during any period of visit abroad. The
certificate shall be collected in case of the immigrants and stateless persons are leaving forever.
3. The member of the Government in charge of external relations shall approve the design of the
documentation to be provided to immigrants and stateless people for their overseas visit.
CHAPTER FIVE: MISCELLANEOUS
Article 29. Responsibilities of business entities, organizations and citizens inviting or
employing foreign citizens
1. Business entities, organizations and citizens inviting and/or employing foreign citizens for a
certain period of time according to the legislation of the country shall take responsibility for registering
and accommodating their guest.
2. Foreign organizations and business entities in Mongolia inviting and/or employing specialists or
labour force, according to the legislation of the country, shall have the same responsibilities as
local ones.
Article 30. Deportation of foreign citizens from Mongolia
1. If there are no reasons for criminal charges, foreign citizens shall be deported on the following
reasons:
1) foreigners who entered the country on an invalid passport or forged documents, or those who
did not leave the country after expiry of the term of their visa.
2). Foreign citizens who did not leave the country after their residence permit was withdrawn or
canceled.
2. The council’s decision on deportation shall be implemented by the police organization. Foreign
citizens shall leave the country within the period of the resolution.
3. Expenses in respect of the deportation shall met by the defaulting party.
4. Deportation shall not include the transfer of criminal offenders to another country.
Article 31. Penalties for offences against the law
Those in breach of the Law on the Legal Status of Foreign Citizens shall be charged in accordance with the provisions of the Criminal Code and the Law on Administrative Responsibilities.

Article 32. Enforcement of the law
This law shall come into effect on 1 February 1994.

Chairman of the State Ih Hural N.Bagabandi

Labor Cost

2007-05-14T15:32:00.000+08:00

Comparative Labor Costs by Country for the Manufacturing Industry (Average)

Licensing in energy related operations

2007-05-14T09:53:00.001+08:00

Licensing in energy related operations

An application for a License

To: Energy Regulatory Authority
Subject: An application for a License
Our company . . . . . /company’ name/ . . . . . /local address/ would like to apply for a license of . . . . . . /type of activity/ according to the Law on Energy of Mongolia.
We do have financial and technical capability to perform, and satisfy all requirements: . . . . . . . . . . . of above mentioned activity. Documents are correctly prepared and enclosed with the application.
We will comply with Law on Energy, Law on operational licenses of Mongolia, requirements for license and other legislation. We also will respect consumer right.

APPLICANT:

HEAD /DIRECTOR/ OF COMPANY . . . . . . . . . . . . . . .
/signature/
SENIOR ACCOUNTANT . . . . . . . . . . . . . . . . . . . . . . .
/signature/
p/o address:
phone:
fax:
e-mail address:

Documents shall be enclosed to an application for a License

A License for Dispatching

1. State registration /A copy shall be approved by notary organization and enclosed/

There shall be also enclosed a company introduction related to its establishment, structure, type of capital, type of activities, scope of services, foreign investments, projects that are being implementing or will be implemented by assistance and loan, sources of financing, debt, receivables, statements of financial capability which are shown by diagrams, and other specifications.
2. Technical and economic basis
a/ Necessity of Dispatching:

♦ Consumption and generation are performed at the same time.
♦ The Energy System development
♦ Importation and exportation
♦ Load changing of year, month, and day
♦ Accounting between generators or generator and transmitter
♦ Emergency recovery
♦ How actual dispatch is monitored
♦ Performance plan
♦ To perform function switch

b/ Feasibility of Dispatching

♦ Established in . . . /start date/ and has experience to perform transmission
♦ A list of equipment, technical personnel and software
♦ Completion of Legislation
♦ Study of Law on Energy and requirements for license
♦ Contracts and agreements made with other licensees

c/ Calculation on expenses of Dispatching
d/ Profit or loss to be achieved

3. Study of energy resources to be used for energy transmission

Agreement on required MW of capacity storage to recover the lack of system capacity, in case of emergency circumstances in the electricity section shall be concluded and attached.

4. Type, quantity and quality indicators of product

♦ Capacity of Energy system and consumption balance for last 5 years and the next 5 years Instrument which regulates voltage level of system, regulating methods, rules and procedures shall be enclosed Instruction related to the system frequency and place where frequency to be regulated Measures, rules and procedures to decrease loss of electricity transmission line

5. Main characteristics of equipment to be used for operation

a/ software support

b/ Communication instrument
c/ Emergency shut down instrument of system /automatics, their calculation settings, emergency writing instrument, etc/
d/ legislation to be complied /Rule of dispatching Center, Rule of system, business rule, and agreements made between Licensees on exportation and importation of electricity, etc/

6. Scope of service, boundaries of ownership, energy generation, supply and consumption balance

7. Sources of financing and financial capability

8. Description of skills and experience of technical personnel

Study and information on technical personnel, wage fund, qualification, education, duration of employment, skill, experience and qualification status.

A License for Electricity Transmission

1. State registration /A copy shall be approved by notary organization and enclosed/

There shall also be enclosed a company introduction related to its establishment, structure, type of capital, type of activities, scope of services, foreign investment, projects that is being implementing or will be implemented by assistance and loan, sources of financing, debt, receivables, statements of financial capability which are shown by diagrams and other specifications.
2. Technical and economic basis

a/ Necessity of electricity transmission:

b/ Feasibility of electricity transmission

c/ Profit, loss and cost calculation of electricity transmission

3. Indicators of type, quantity and quality of electricity to be transmitted

4. Main characteristics of equipment to be used for operation

a/ main equipment

6. Assessment of the environmental impact

7. Action plan for environmental protection

Implementation period, expenses of action plan which are based on the conclusion of above mentioned assessment shall be enclosed to application.

8. Sources of financing and financial capability

9. Description of skills and experience of technical personnel

Study and information on technical personnel, wage fund, qualification, education, duration of employment, skill, experience and qualification status.

A license for Importation and Exportation of Electricity

1. State registration. /A copy shall be approved by notary organization and enclosed/

There shall also be enclosed a company introduction related to its establishment, structure, type of capital, type of activities, scope of services, foreign investment, projects that are being implementing or will be implemented by assistance and loan, sources of financing, debt, receivables, statements of financial capability which are shown by diagrams and other specifications.

2. Technical and economic basis

a/ necessity of importation or exportation of electricity

3. Indicators of type, quantity and quality of electricity to be imported and exported

4. Main characteristics of equipment to be used for operation

♦ Calculation diagrams of transmission line
♦ Legislation to be complied / operation manual of 2 sides, Agreement with other licensees for transmission, Distribution, and Dispatching/

5. Sources of financing and financial capability

6. Description of skills and experience of technical personnel

Study and information on technical personnel, wage fund, qualification, education, duration of employment, skills, experience and qualification status.

A License for Regulated Supply of electricity and heat

1. State registration /A copy shall be approved by notary organization and enclosed/

There shall also be enclosed a company introduction related to its establishment, structure, type of capital, human resource, type of other operational activities.

2. Technical and economic basis

a/ technical and other feasibility of company to perform electricity and heat transmission
b/ economic calculation and research of profit, loss and cost which a company can get from generation of electricity and heat

3. Type, quantity, and quality indicators of energy to be supplied

a/ Quantity and quality statements of purchasing electricity and heat from plants, and distribution and transmission networks / voltage level, frequency, pressure, temperature and etc./
b/ Study of line, substation, pump station and consumers that do not satisfy requirements of energy quality
c/ study and information on quantity of interruption and restriction of consumer’s energy supply shall be done in detail

4. Main characteristics of equipment to be used in operation

a/ study and information on meters installed at the boundaries of ownership, their supply for consumers, technical indices, operational conditions, energy balance and monitoring
b/ characteristics of meters and metering tools, and their maintenance condition
c/study and information on system of selling payments, and loss of distribution line;

5. Scope of service, ownership boundary, energy generation, supply, and consumption balance

a/ drawing and diagrams shown the area where electricity and heat supply /selling/ performed
b/ fundamental and location diagrams of distribution network which is used for energy supply
c/ structure and classes of consumers, / natural consumer , budget organizations and enterprises/ their energy consumption, requirements of agreements to be made with them
d/ balancing of electricity and heat which were purchased from plants and transmission, distribution /other/ networks and sold to consumers
e/ to classify loss of selling energy by consumers location and line feeder.

6. Sources of financing and financial capability

Study and information on financing and capital resource and capability, financial activity, foreign and domestic loan, debt and receivable of company or organization;

7. Description of skills and experience of technical personnel

Study and information on technical personnel, wage fund, qualification, education, duration of employment, skills, experience and qualification status.

A License for Distribution of Electricity and Heat

1. State registration /A copy shall be approved by notary organization and enclosed/
There shall also be enclosed a company introduction related to its establishment, structure, type of capital, human resource, type of other operational activities.

2. Stamp duty

A company shall pay tax, according to the Law on State mark and send it to ERA.

3. Technical and economic basis

a/ technical and other feasibility of company to perform electricity and heat distribution
b/ economic calculation and research of profit, loss and cost which a company can get from distribution.

4. Type, quantity, and quality indicators of energy to be distributed

a/ Quantity and quality indicators of distributing electricity and heat by own line / voltage level, frequency, pressure, temperature and etc./
b/ Study of line, substation, pump station and consumers that do not satisfy requirements of energy quality
c/ study and information on quantity of interruption and restriction of consumer’s energy supply shall be done in detail
d/ study and information on capacity limit of distribution line

5. Main characteristics of equipment to be used in operation

a/ length of line, and technical loss /line voltage /
b/ capacity, quantity and technical loss of substation, heat distribution center, and pump station /by all level of capacity/
c/ operational condition of line, substation, heat distribution center, pump station and other equipment at present
d/ safety reserve of spare parts and equipment, for example: wire for line, support
e/ study of machine and equipment to be used in services of operation and maintenance

6. Scope of service, ownership boundary, energy generation, supply, and consumption balance

a/ drawings and diagrams showing the area where electricity and heat distribution performed
b/ fundamental and location diagrams of distribution network
c/ balancing of electricity and heat which were purchased from plants and transmission, distribution /other/ networks and sold to consumers

7. Assessment of the environmental impact

A Company shall assess line environs and safety zone conditions.

8. Action plan for environmental protection

Action plan shall be based on the assessment of the environmental impact.

9. Sources of financing and financial capability

Study and information on financing and capital resource and capability, financial activity, foreign and domestic loan, debt and receivable of company or organization;

10. Description of skills and experience of technical personnel

Study and information on technical personnel, wage fund, qualification, education, duration of employment, skills, experience and qualification status.
A License for Generation of Electricity and Heat

1. State registration. /A copy shall be approved by notary organization and enclosed/

There shall also be enclosed a company introduction related to its establishment, structure, type of capital, human resource, type of other operational activities.

2. Technical and economic basis

a/ technical and economic feasibility of company to perform electricity and heat generation using certain type of equipment
b/ economic calculation and research of profit, loss and cost which a company can get from generation of electricity and heat

3. Type, quantity and quality indicators of energy to be generated

a/ quantity of electricity and heat to be generated, transmitted and distributed, and their quality indicators /voltage level, frequency, pressure, temperature and etc./
b/ Study of line, substation, pump station and consumers that do not satisfy requirements of energy quality
c/ study and information on quantity of interruption and restriction due to technical reason
d/ study and information on capacity limit of distribution and transmission lines

4. Main characteristics of equipment to be used in operation

a/ length of line, and technical loss /line voltage /
b/ capacity, quantity and technical loss of main and auxiliary equipment, substation, heat distribution center, and pump station /by all level of capacity/
c/ operational condition of line, substation, heat distribution center, pump station and other equipment at present
d/ emergency reserve and reserve and capacity to be generated
e/ study and information on meters installed at the boundaries of ownership, their supply for consumers, technical indices, operational conditions, energy balance and monitoring
f/ safety reserve of spare parts and equipment, for example: wire for line, support for substation
g/ study of machine and equipment to be used in services of operation and maintenance
h/ water reserve and communications

5. Scope of service, ownership boundary, energy generation, supply, and consumption balance

a/ drawings and diagrams showing the area where electricity and heat distribution performed
b/ fundamental and location diagrams of distribution network
c/ electricity and heat balancing which were purchased from transmission, distribution /other/ networks and distributed to the consumers, location of meters and their certification.

6. Assessment of the environmental impact

A company shall assess its line environs and safety zone conditions.

7. Action plan for environmental protection

Action plan shall be based on the assessment of the environmental impact and monitored by the Ministry of Environment.
8. Sources of financing and financial capability

Study and information on financing and capital resource and capability, financial activity, foreign and domestic loan, debt and receivable of company or organization;
9. Description of skills and experience of technical personnel

Study and information on technical personnel, wage fund, qualification, education, duration of employment, skills, experience and qualification status.

Decision term of an application for License

♦ The Regulatory Authority and Regulatory boards of Aimags and the capital city shall make decision within 60 days from the date of receipt of the application for a license.
♦ In case the application and enclosed documents fail to meet the requirements, they shall be returned to the applicant within 10 days from the date of receipt.
♦ The decision to issue license or justification for refusal shall be published.
♦ A license shall be granted to a financially capable legal entity, which possesses experience or is able to operate in the given field.
♦ In case several legal entities submit applications for the same type of license, the license shall be granted on the basis of competitive tendering.

Term of License and its Extension

♦ The term of a license for energy generation and transmission shall be 5 to 25 years; the term of a license for construction of energy facilities shall be up to 5 years; terms of other licenses shall be up to 10 years
♦ If the licensor considers that the Licensee has been properly meeting conditions and requirements of the license and that its normal operations can be sustained further in terms of technical and technological requirements, the licensor shall extend the license for up to 25 years.
♦ An application for extension of the license shall be submitted no later than 180 days prior to the expiry of the term of the license.

Mineral Exploration Service fee

2007-05-14T09:51:00.000+08:00

mineral exploration Service fee:

¹	Service names	Fee for exploration license holder			Fee for mining license holder ($)
¹	Service names	Foreigners, legal units ($)	Foreign invested legal unit ($)	Mongolian citizen, legal unit (MNT)	Fee for mining license holder ($)
1	Revise an application for a new license	1,000	400	250,000	1,000
2	Revise an application to transfer a license	2,000	2,000	1,500,000	5,000
3	Revise an application to extend a license	1,000	1,000	1,000,000	2,000
4	Revise an application to guarantee a license	1,500	1,500	1,000,000	2,000
5	Revise an application to transfer a license under guarantee	1,500	1,500	1,000,000	2,000
6	Revise an application to return the area under license	100	75	50,000	500
7	Revise an application to resolve a boundary conflict	600	350	250,000	500
8	Re-issue lost license	300	200	200,000	250
9	Revise additional application	500	200	200,000	1,000

Commercial Banking Licensing

2007-05-14T09:50:00.001+08:00

Commercial Banking Licensing

MongolBank
Commerce Street - 6
Ulaanbaatar - 1 1
Telephone: (976) 1-328-482
Facsimile: (976) 1-311-471
Contact: B. LHAGVASUREN, Director, Banking Supervision

Investors in commercial banking must apply to Mongol Bank for a banking license. Under the Banking Law, only banks and financial institutions are permitted to establish branches or subsidiaries or otherwise invest in banks financial institutions in Mongolia. Any foreign financial institution in good standing in its home country can apply to invest in commercial banking in Mongolia.

The bank licensing procedure is more rigorous than most other sectors. Investors wishing to engage in banking activities must provide detailed information on their banking activities outside Mongolia and management experience. As a signatory to the Basle Convention on Banking Supervision, Mongolia will cooperate, through Mongol Bank, with foreign Central Banks regarding licensing and supervision of foreign banks in Mongolia.

Unofficial Translation
Appendix 1 to the Resolution
No 375 of the Governor of the Bank
of Mongolia, dated August 7, 2000

REGULATION ON LICENCING OF
THE BANK AND ITS UNITS
ONE. GENERAL PROVISIONS

1.1. The purpose of this regulation is to regulate relations with respect to licensing of
the bank and its units, authorization to restructure a paid-up capital of the bank, verification of
evidence and revocation of a license by the Bank of Mongolia /BOM/ based on the Articles
20, 24 and 27 of the Banking Law of Mongolia.
1.2. The BOM shall accept application and other related documents for a bank
license from the founders and make appropriate decision while verifying them in accordance
to this regulation.
1.3. The BOM shall equally treat applications for bank license regardless of
ownership of the bank, form of its foundation and type of activities by applying the same
requirements and principles indicated in the legislation unless law otherwise provides for it. If
necessary, the BOM may impose certain restrictions and special requirements concerning a
type of activities, assets, liabilities and other items of the bank.
/ This part was added by Resolution No 352 of August 10, 2001 of the Governor of the
BOM. /
1.4. In accordance with the Law on foreign investment of Mongolia, bank with
foreign investment means a bank founded by single or few foreign banks or financial
institution in Mongolia or operating bank whose shares have been bought by foreign investor.
In accordance with the Law on foreign investment of Mongolia, foreign bank branch
means a branch, which is a legal entity and it is founded by foreign bank in Mongolia.
In order to establish bank with foreign investment or foreign bank branch, they should
meet requirements set up in legal acts.
/ This part was revised by Resolution No 352 of August 10, 2001 of the Governor of the
BOM. /
1.5. The bank can be a shareholding or limited liability company by form of its
foundation, and general or specialized by type of banking activities.
1.6. The bank can be established by subscribing new capital, issuing share,
accepting share orders and restructuring /acquiring, merging, segregating, separating and
transforming/ in accordance with the articles 13 and 18 of the Company's Law of Mongolia.
1.7. The taxation authorities shall first provide the authorization for the bank name,
then after having license for bank foundation and banking business from the BOM, the bank
shall start its operation by registering its name with the Intellectual Property Department.
1.8. Bank should clearly incorporate its name and location into its chapter, and in a
case of change of name or location, bank should receive approval from the BOM and tax
authorities, and shall register it with the Intellectual Property Department.
1.9. The banking unit shall use only the name of its headoffice and be provided a
special branch code by the BOM. A number for banking units shall be provided in accordance
with the sequence of its foundation.
TWO. REQUIREMENTS FOR BANK FOUNDATION
2.1 Any citizen, legal entity, foreign bank and financial organization, who desires to
form a bank /in the form of shareholding or limited liability company/ shall complete fully and
accurately the following documents that comply with the Articles 18 and 19 of the Banking
Law of Mongolia and requirements of this regulation, and shall submit original copy to the
BOM. Documents indicated in 2.1.8 of this regulation shall be provided in the final phase of
application process:
2.1.1 An application for license to found bank
An application shall be written in accordance with the Appendix 1 of this regulation
and attach the following documents:
1/ A decision of founders' meeting, at which share orders have been taken and their
payment was made in accordance with the regulation set by the Security and Exchange
Commission and a letter of registration from the Security and Exchange Commission if the
bank is founded in a form of shareholding company by selling public share orders.
2/ A decision of all shareholders' meeting in the case of restructuring of the bank that
has operated as a limited liability company into the shareholding company and license from
the Security and Exchange Commission.
In accordance with the Banking Law of Mongolia, payment for share orders shall be
made only in cash.
2.1.2. Bank Foundation Agreement
An agreement shall be made in accordance with the Civil Law of Mongolia and the
following items should be agreed in it:
1/ form, structure, organization, type of business and operation of the bank,
2/ a principle of collaboration of the founders, rights and responsibilities of each
founder,
3/ form of investment into paid-up capital, its term, classification and type of shares,
amount and size of each type, term for their purchase if founders are buying company' shares,
4/ other necessary items,
This agreement shall not apply for the bank with a single founder.
2.1.3. A decision of the meeting of the founders
The founders shall hold a meeting to form bank and official decision should be taken.
As for a single founder, his/her decision shall be considered as a decision to found a bank.
Decision shall include charter of the bank, share order, price for new shares, amount, term for
purchase and method of payment as well as whether the bank will have the Board of Directors
/BOD/ and Supervision Committee, if it will do so, regulation on nomination and work of their
chairperson and members, and appoint executive director and members. Also other required
issues shall be discussed and decided, and chairman elected by this meeting shall confirm the
decision by signing it.
For the founders that form the bank by offering share orders or issuing the new orders,
decision of the founders meeting shall be made upon consideration that condition has been met
if the amount for share payment reaches the minimum limit of paid-up capital required by the
legislation.
A decision shall have the following materials attached:
1/ list of shareholders that will invest in paid-up capital of the bank,
2/ the following references from concerned authorities on top ten shareholders (if
capital provided by top ten shareholders does not constitute 51 percent of paid-up capital, then
on shareholders, whose holdings in total represent a share no less than 51 percent of paid-up
capital) shall be submitted:
a/ references obtained from all banks, Mongolian Asset Recovery Agency and Credit
Information Bureau whether he/she has any past due loans or guarantee,
b/ references obtained from the custom and taxation authorities with a management
signature, which informs whether there is tax debt owed by the founders,
c/ reference obtained from the management of a department or division of the General
Department of Police, which informs whether he/she had any past criminal record,
d/ reference obtained from Chairman of founders meeting that confirms the chairman
and members of the BOD are bank shareholders if the founders meeting decided to have BOD,
e/ reference obtained from Chairman of the founders meeting that confirms ethical and
business reputation of the Chairman and members of the BOD,
3/ Depending on the country-specific conditions, if it is impossible to submit the
references indicated in the article 2.1.3, paragraph 2, bank with foreign investment, foreign
bank branch founders may not submit it.
/ This part was added by Resolution No 352 of August 10, 2001 of the Governor of the BOM. /
2.1.4. Charter of the bank
In accordance with the Articles 16 and 17 of the Company's Law of Mongolia and
Article 26 of the Banking Law of Mongolia, charter of the bank should include the following
items and must be approved by the founders meeting:
1/ name of the bank and address of its location,
2/ forms of ownership and foundation, directions of business and operations,
3/ amount of paid-up capital /number of shares for shareholding company, nominal
price, number of preferred shares if preferred shares have been announced and rights of the
owners/, condition to make changes into composition of the paid-up capital structure,
4/ if the BOD to exist, then operational regulation on shareholders' meeting and BOD,
rights and duties of executive director, a separate regulation on how deals, which would
substantially effect bank activity, will be carried out,
5/ operational regulation for the Internal Audit Department reflecting audit procedures
in accordance with the Manual for the internal audit operations approved by the BOM,
6/ rights and responsibilities of the shareholders meeting, the BOD, the Supervision
Council and the Internal Audit Department,
7/ issues related to protecting a reputation of the bank and its employees and providing
their safety and social security,
8/ legal reasons to regulate share trading, share transfer to others, reciprocal limitation
and other issues indicated in legislation,
9/ reasons to close bank, methods and forms to eliminate damages caused to the
customers by the inappropriate management actions and principles of being liable,
2.1.5. Economic reasons to found a bank
The economic reasons to found a bank shall be written introducing business activities
that identifies and summarizes economic reasons for bank based on service directions, scope
of banking services, loan, deposit and settlement operations while considering actual
requirements of the particular location. It shall present bank's beginning balance and five-year
business plan from the date of bank operation.
The business plan shall be worked out based on the sample methodology indicated in
the Appendix 2 of this regulation including balance sheet, cash flow, income and statement of
the bank.
The legal documents with policy specifications /charter, regulation and guidelines on
business, and general condition for business and service/ shall be attached to the business plan.
2.1.6. Financial statements of the founders and shareholders shall include the following
items:
1/ Top ten shareholders invested in paid-up capital of a bank (if capital provided by top
ten shareholders does not constitute 51 percent of paid-up capital, then on shareholders, whose
holdings in total represent a share no less than 51 percent of paid-up capital) - financial
statements of a legal entity for last two years audited by the audit organization /auditor/, a
notarized copy of shareholder’s financial statements of bank with foreign investment and the
headoffice's financial statements for past three years, in a case of foreign bank branch
licensing and note for identification of individual income tax due from the individuals.
/ This part was revised by Resolution No 352 of August 10, 2001 of the Governor of the
BOM. /
2/ Bank with foreign investment and foreign bank branch should attach following
materials:
- Official approval papers to open branch in Mongolia from licensing institution,
- A decision of the applicant institution to establish bank or branch in Mongolia,
- An evidence that bank or financial institution has been registered in their home
country,
- Rating of this bank provided by the international rating agencies.
/ This part was revised by Resolution No 352 of August 10, 2001 of the Governor of the
BOM. /
2.1.7. A description of management and personnel of the bank
The following legal entity should present description in accordance with the Appendix
3 of this regulation.
1/ Founder or shareholder, chairman and members of the BOD, the management of the
Internal Audit Department and employees that shall work as an auditor,
2/ Legal person that shall work as bank Executive Director, management of the
departments, divisions, other officers, management committees, management of any branch,
chief accountant and loan officer.
2.1.8. A description of hardware and software and terms of reference
The description shall be made in accordance with the Appendix 4 of this regulation
and it should include in detail how safety of hardware and software, job place, confidentiality,
guard and security issues will be solved. As an appendix, it should contain evidence that
confirms that software has been connected both to the BOM clearing network and Credit
Information Bureau and is ready to function. Police or other similar organizations shall
provide security.
2.1.9. The legal documents with policy specifications to be followed in the operations
/charter, regulations, guidelines, general terms of business and services, other materials/.
2.1.10. Bank with foreign investment and foreign bank branch should meet the
following requirements:
1/ the paid-up capital should not be less than minimum capital requirement for
domestic banks,
2/ at least 70 percent of the staff should consist of Mongolian residents,
3/ in a case if executive management is foreign resident, than institution should have
full-time translator
/ This part was revised by Resolution No 352 of August 10, 2001 of the Governor of the
BOM. /
2.2. In a case of bank with foreign investment and foreign bank branch, licensing of
documents indicated in the article 2.1 should be prepared in the both language of home
country and Mongolian (2 copies each) and translated copy should be notarized.
/ This part was revised by Resolution No 352 of August 10, 2001 of the Governor of the
BOM. /
2.3. A term of 60 days to verify the application and make appropriate decision
indicated in the third part of the Article 20 of the Banking Law of Mongolia shall be counted
from the date when founders presented their documents to the BOM in complete and accurate
form.
2.4. The founders may have professional and methodological advise by the
Supervision Department of the BOM regarding document completion.
2.5. After bank receiving a license from the BOM to conduct banking business, if there
is a need to revise documents mentioned in 2.1 article of current regulation, then bank should
present those changes to the BOM within 7 working days and get an approval.
THREE. VERIFICATION OF THE DOCUMENTS TO FOUND A BANK
3.1. Based on the banking legislation, the Supervision Department of the BOM shall
undertake the following procedure of verifying documents presented by the founders, which
are indicated in current regulation:
3.1.1. It shall verify whether documents indicated in this regulation, which have been
presented, are full and complete.
3.1.2. It shall make a conclusion in cooperation with Legal Division of the BOM
whether submitted documents and their contents meet the requirements of legislation as well
as of this regulation.
3.1.3. It shall verify whether there is a payment slip or other equivalent evidence,
which confirms that shareholders have met their obligations to invest their contribution to the
paid-up capital and purchased shares, as well as whether funding source of the shareholders
contribution is a profit from their operation.
3.1.4. The business plan of the bank shall be verified against the fact that whether it is
developed taking into account a density of local population, direction and scale of local
production and services, actual requirements of deposit' loan and fund placement and other
external and internal factors. It shall also verify and summarize whether study of impact on
stabilization and acceleration of national economy.
3.1.5. It shall verify that whether other legal documents with policy specifications /
charter, regulations and guidelines on business and service, general condition for business and
service and regulation for internal audit/ are in compliance with legislation and confirm that
bank can make profit through the way of effective placements of funds of the customers and
deposit owners. It shall verify whether internal audit system of the bank and its principle of
operation are systemized to meet minimum internal audit requirements and it is capable to
identify and assess both loss and risk of loss, whether it has established dual audit system that
will apply an audit to all levels of the management and reflect in detail its rights and
responsibilities as they are indicated in the law, and whether internal audit management and
staff have such knowledge and experience.
3.1.6. It shall verify whether shareholders, the chairman and members of the BOD, the
director of the Internal Audit Department, management of other departments, divisions, units
and committees, the chief accountant and staff of the internal audit and credit department of
the bank complies with legal and ethical requirements as well as criteria's of professional
knowledge and work skills to undertake banking business.
3.1.7. It shall make on-site verification whether preparations of hardware, software and
work place meet minimum requirements of reliable and secure banking business, whether they
are connected to clearing network and Credit Information of the BOM and ready for
appropriate operation and whether guards will be able to provide with responsible and reliable
security under the joint contract made with police and other similar organizations.
3.2. In accordance with the Article 18 of the Banking Law of Mongolia, the BOM has
right to approach legal and tax authhorities, audit, banks and other organizations to have
reference and information on the required issues or undertake investigation together with
professional organizations.
3.3. The Supervision Department shall officially inform the founders and require
additional documents, if documents submitted for bank foundation license are considered to be
incomplete and insufficient during their verification.
FOUR. GRANTING A LICENSE TO FOUND BANK
4.1. In accordance with the Articles 17-20 of the Banking Law of Mongolia and this
regulation, the Supervision Department shall verify the documents submitted by the founders
for bank license and it shall make on site examination of required issues. If as a result of
verification, documents are considered to fully comply with the requirements indicated in the
Part Two of this regulation, then the Supervision Department shall work out a proposal in
accordance with the Appendix 5 of this regulation using comments by the Legal Division, and
present it to the management of the BOM or submit to the Board of Directors' meeting for
resolution.
/ This part was revised by Resolution No 352 of August 10, 2001 of the Governor of the BOM.
/
After the BOM concluding "Memorandum of understanding" with the home country
supervisory authority to have cross border joint supervision, the BOM will decide a matter of
licensing foreign bank branch. The BOM may supervise bank with foreign investment with
cooperation of home supervisory authority.
Before discussing a bank with foreign investment and foreign bank branch at the
meeting of the Board of Director's of the BOM, the paid-up capital amount should be placed in
the special account at the BOM.
/ This part was added by Resolution No 352 of August 10, 2001 of the Governor of the BOM. /
4.2. Based on the decision of the Board of Director's of the BOM and related legal acts,
the Governor of the BOM shall make a final decision on whether to grant bank license. This
decision shall reflect what type of business has been authorized for the bank and maturity of
the license, if it is issued for certain period of time.
A license for non-cash settlements except interbank settlements shall be issued as an
additional license.
4.3. The Supervision Department shall present a license to the bank based on the
payment of fee of 1,000,000 togrog paid to the BOM, and resolution of the Governor of the
BOM issued in accordance with the article 4.2 of this regulation.
The Accounting Department of the BOM shall deduct a charge from above mentioned
service fee as a registration fee in the amount as it is indicated in the State stamp duties of
Mongolia and transfer it to state budget account within 7 working days.
4.4. Based on the resolution of the Governor of the BOM for the bank license, the
Supervision Department shall register the bank and it shall open and maintain a file in
accordance with appropriate guidance.
FIVE. REFUSAL TO GRANT A BANK LICENSE
5.1. The BOM shall refuse to issue a bank license due to the factors indicated in the
Article 21 of the Banking Law of Mongolia. They include:
1/ Specifications indicated in the Articles 17, 18, 19 and 20 of the Banking Law of
Mongolia are not fulfilled,
2/ The charter of the bank contradicts the Company's Law of Mongolia, Banking Law
of Mongolia and other legal acts,
3/ It has been confirmed that the bank have not fully subscribed a paid-up capital at the
level, which meets bank requirements in accordance with the appropriate regulation
/resolution of the shareholders meeting to stop bank establishment due to the fact that issued
and offered shares have not been sold, or it becomes clear that shareholders will not able to
invest their contribution to paid-up capital at the specific time agreed by the contract/ or paidup
capital has been set up by loans,
4/ Documents completed for bank license are false, and people nominated for the bank
management position have not met requirements indicated in the legal acts,
5/ Other requirements, which are indicated in this regulation, have not been met.
5.2. In the case of refusal to grant a bank license on the basis of reasons indicated in
the Article 5.1 of this regulation, the Supervision Department shall provide founders with
appropriate written explanation.
SIX. LICENSING OF BANKING ACTIVITIES
AND THEIR POSSIBLE LIMITATIONS
6.1. The BOM shall provide the bank with license for the banking activities indicated
in the Articles 4, 6, 8, 9, 10, and 12 of Part 1 of the Paragraph 6 of the Banking Law of
Mongolia only in following cases:
/ This part was revised by Resolution No 451 of September 29, 2000 of the Governor of
the BOM. /
1/ The bank has fully complied with the requirements indicated in the Article 15 of the
Banking Law of Mongolia and operated for more than one year on regular basis,
2/ The bank that operated for more than one or more years from an issuance of the
bank establishment license has fully complied with the requirements indicated in the Article
15 of the Banking Law of Mongolia and operated for more than six months on regular basis,
/ This part was added by Resolution No 451 of September 29, 2000 of the Governor of
Bank of Mongolia /
3/ The bank had "Good" or better mark after to the on-site examination conducted by
the Supervision Department,
6.2. A license for forex settlement shall be issued by the International Department of
the BOM on the basis of special regulation on approved by the Governor of the BOM.
6.3. An application for a license of additional banking activities should maintain
detailed description of additional business, demand for it, funding source, required hardware
and software to undertake additional businesses /accounting, credit information bureau and
etc/, changes to be made regarding work place, management, personnel, banking operations,
financial positions, and bank shall submit them together with the following documents:
1/ a management decision to engage in certain business, required additional capital and
estimation of their funding source,
2/ amendments in the charter of the bank,
3/ related amendments to be made in business plan and financial statements,
4/ legal documents with policy specification to be applied in business /guidelines,
regulations, instructions, general terms of service and business, etc/.
6.4. The Supervision Department along with the Legal Division shall review
documents indicated in the article 6.3 of this regulation submitted for a license of other
additional banking activities and make its comments on whether they are in line with
requirements and eligible for license for additional banking service, and the Supervision
Department shall brief management of the BOM and present it to the Board of Director's of
the BOM for resolution.
6.5. Based on the decision of the BOD meeting and other related legal acts, the
Governor of the BOM shall make final decision whether to issue license for additional
banking activities. The Supervision Department shall make appropriate note on the Appendix
of a certificate while authorizing it based on the decision of the Governor of the BOM on the
license issuance and evidence that confirms service fee payment has made for authorization of
additional banking activities. Fee for issuance of license for additional banking activities are
200,000.00 togrog.
6.6. The Supervision Department along with the Legal Division shall review
documents submitted for license for additional banking activities and study financial position
of the bank. It shall submit an issue to the Governor of the BOM and the Board of Director's
of the BOM if submitted documents are considered to comply with the requirements of this
regulation. The Governor of the BOM and the Board of Director's of the BOM shall review
and discuss recommendations from Supervision Department and Legal Division. And if they
decide to refuse a request for additional banking activities, then the Supervision Department
shall inform applicant bank about refusal by sending an official letter within three working
days from the date of final decision. If the recommendations are considered to be not
reasonable or incomplete then case shall be given back to the appropriate department with
certain assignments.
6.7. The BOM shall restrict and cease operation of the bank, revoke and rescind the
license based on the following reasons:
/The phrase " in accordance with the license for other additional banking business"
has been excluded by the Resolution No 451 of the Governor of the BOM of September 20,
2000/
1/ the requirements indicated in 1 and 2, Section 2, Article 15 of the Banking Law of
Mongolia have not been complied for duration of three months,
2/ the Banking Law of Mongolia and other legal acts have been violated,
3/ bank itself has requested it,
4/ other reasons indicated in the legal acts,
SEVEN. AUTHORIZATION AND REGISTRATION BY THE BOM
OF THE CHANGES TO BE MADE TO THE BANK PAID-UP CAPITAL
7.1. The bank shall subscribe its paid-up capital in accordance with the article 27.2 of
the Banking Law of Mongolia. The paid-up capital of the bank may be subscribed in the
following ways:
1/ by cash invested by the founders or shareholders when the bank has been initially
established,
2/ with authorization from other shareholders making new investment and issuing
additional shares from current year dividends, which resulted from banking activities.
7.2. In accordance with the article 17 of the Banking Law of Mongolia, legal entity that
has funding from state budget, religious and non-government organizations and humanitarian
foundations are forbidden to make investment in bank's paid-up capital and buy its shares.
7.3. The bank may change structure and amount of its paid-up capital by making
additional investment and issuing additional shares from the current year dividend, which have
resulted from banking activities with authorization from other shareholders, selling the shares
of shareholders to other interested parties /in the case of shareholding company it will sell the
shares on the stock exchange/, or enforcing the court decision and directive of the bank
receiver that confirms that paid-up capital has been subscribed on illegal basis, or making
transfer of shares by inherited, granted and testamentary ownership in accordance with the
Civil Law of Mongolia. The BOM should be informed of any changes on timely basis and
provide appropriate authorization. The following documents shall be submitted for the license
to the BOM before making any transactions or payments.
1/ an application,
2/ an evidence that confirms compliance with law to make changes or decision of
shareholders meeting that has authorized an issuance of new or additional shares, report from
the bank or stock exchange and related agreements that confirm sale of shares, decision of the
receiver that rescinds rights of the former shareholders and authorizes new shareholders to
make investment or court decision that confirms that paid-up capital has been subscribed on
illegal basis and evidence that confirms ownership right was inherited, gifted and bequeath in
accordance with the Civil Law of Mongolia.
3/ a reference obtained from respective organizations confirming information as
indicated in the article 2.1.3 of this regulation regarding shareholder (shareholders) who is
included in top ten or shareholders, whose total amount of holding is not less than 51 persent
of paid-up capital, and other evidence showing their purchased shares are generated from the
net profit made on the legal operation.
/ This part was revised by Resolution No 282 of June 20, 2001 of the Governor of the
BOM. /
4/ / This part was excluded by Resolution No 352 of August 10, 2001 of the Governor
of the BOM. /
5/ a reference on person if this person shall be a part of the bank management team
/Appendix 3 of this regulation /
6/ amendments to the charter of the bank regarding changes in the amount and
structure of the bank' paid-up capital,
7/ a license obtained under appropriate regulation and reports of the bank and Stock
Exchange on the sale and purchase of shares if the bank has been established as a shareholding
company,
7.5. The BOM shall review whether documents indicated in the article 7.4 of this
regulation have complied with the following requirements and officially inform the bank
whether to authorize the changes of amount and structure of paid-up capital:
1/ a decision of the stockholders meeting to accept or issue the new shares, legal basis
for agreement of sale, purchase and future purchase of shares, authorization of the
shareholders agreeing to those changes, evidence that confirms trading at stock market has
been accurate and legitimate as for shareholding company, court decision if the shares has
been transferred by the court and legal evidence confirming ownership transfer,
2/ Information indicated in the article 7.3 of this regulation is confirmed by the
reference from appropriate organizations that there is no violation,
3/ A citizen or legal person that requested to establish the bank should comply with the
requirements indicated in the Banking Law of Mongolia as well as other requirements of
section 2 and 3 of this regulation.
7.6. In a case if the bank management has been newly appointed due to changes in the
amount and structure of the bank paid-up capital, the bank shall make study and conclusion
whether the candidates complied with the requirements indicated in the paragraphs 6 and 8 of
the article 25 of the Banking Law of Mongolia and will inform in written form the Supervision
Department about its decision within three working days when decision has been made.
7.7. If required, the Supervision Department shall undertake on-site examination
whether bank request for modification of the paid-up capital's size and structure is complete,
and bank management has complied with appropriate requirements of the legal acts. It shall
make decision whether to authorize modification of the bank paid-up capital, its restructuring
and related changes of management team within 30 working days and inform the bank about
its decision by sending an official letter. If the BOM does not agree with the changes in
management structure, the bank may appoint another management and re-submit the request.
7.8. Based on the authorization from the BOM, the bank shall make transaction that
changes its paid-up capital and inform the BOM about it within three working days by sending
an official letter.
7.9. The bank shall make a contract with new shareholders after it receives an
authorization from the BOM.
7.10. The bank shall open a file for each shareholder that has invested in paid-up
capital, maintain the following documents, attach related evidence on regular basis and
maintain a record:
1/ related decision to invest in the paid-up capital and purchase the shares and an
authorization of the BOM,
2/ contracts made between the shareholder and bank to make investment in paid-up
capital,
3/ reference from appropriate tax authorities on the shareholder’s state registration as
for legal person, passport or identification card, its number, registration number, citizenship
and permanent residence address,
4/-transaction slip of the bank or its copy, which confirms that investment in the bank
paid-up capital has been made,
5/ decision of the changes made in shareholding capital and allocation of dividends and
transaction slip,
6/ evidence that identifies the shareholders,
7/ evidence that confirms decision of the shareholders meeting, which has approved a
charter of the bank and its amendments, attendance of the meeting.
7.11. The bank that operates as a shareholding company should submit daily trading
report of its shares /from Stock exchange/ to the Supervision Department.
7.12. The bank shall submit its report of paid-up capital structure to the Supervision
Department semiannually within 30th of the first month of next half of an year.
7.13. During its on-site examination, the BOM shall verify whether paid-up capital
transaction has been carried out appropriately.
EIGHT. LICENSING OF BANK UNIT
8.1. The branch, sub-branch, cash counter and foreign currency counter representative
office are forms of bank unit.
8.2. The branch of the bank is a unit that carries out all types of business authorized by
the BOM to the bank.
8.3. The sub-branch of the bank is a unit with limited authority that does lending and
other businesses authorized to the bank. A management of the bank shall decide whether to
establish the sub-branch, which has enough professional staff and equipment, and secure work
place.
8.4. Cash counter of the bank is a unit that provides limited banking service including
acceptance of individual deposits, all other relevant and non cash settlements, however, it does
not provide lending and current account service and business for legal entities. Management of
the bank shall decide whether to establish cash counter, which has enough professional staff,
and equipment, and secure work place.
8.5. Foreign currency counter of the bank is a unit that only buys and sells foreign
currency.
8.6. Representative office of the bank is a unit, which does not engage in business,
however, only represents the bank with duties to make agreements and negotiation and
provide an information.
8.7. The bank that complied with the requirements indicated in the article 1.2 of the
paragraph 6.1 of this regulation may found its branch. License for the branch foundation
should be solicited from the BOM. The branch can have sub-branch, cash counter and foreign
currency counter. The bank can limit the branch operation by certain type of products and
services and it should inform the BOM about any limitations.
8.8. The bank (including the bank with foreign investment as well as foreign bank
which operates under the authorization of the BOM) should complete the following documents
and present them to the Supervision Department:
1. proposals on opening of the branch both from the bank and local authority where
branch will operate
2. bank operation procedure and legal documents that will regulate the opening,
functioning, and closing of the branch
3. CV's of the personnel, who will work in the branch
4. location of the branch office, equipment, software and computer characteristics, be
used for the branch operation
8.9. If foreign bank opens its representative office in Mongolia, it should submit the
documents besides those indicated in the article 8.8 of this regulation as well as the following
ones indicated in the Article 19 of the Banking Law of Mongolia:
1/ Financial statements of the bank for last three years that are audited and certified by
authorized audit organization,
2/ Official document from the authorized organization of the host country to issue the
bank establishment license to open the bank branch and representative office in Mongolia,
3/ Rating and assessment of the bank by the international rating agencies.
8.10. The Supervision Department will review documents indicated in the paragraphs
of 8.8 and 8.9 of this regulation whether they comply with the legal requirements as well as
the requirements indicated in 1.2 of paragraph 6.1. It also will develop and approve branch
operation regulation, legal documents that will regulate the opening, functioning and closing
of the branch, check whether it has been registered in the Legal Division and present to the
Governor of the BOM.
8.11. The Governor of the BOM will make final decision whether to authorize the bank
to open a branch. Based on decision of the Governor of the BOM and paying slip for branch
authorization fee of 500,000 togrog, Supervision Department will confirm authorization for
branch by making appropriate note on the bank certificate appendix.
8.12. If foreign bank establishes its representative office, this matter shall be decided
based on the negotiations and agreement made with the BOM, and it shall be officially
registered by the BOM.
8.13. Every time when the bank will open, close, limit operation, restructure
(consolidate, merge, separate and segregate) and change locations (moving branch locations to
other banking office, exchange locations between them and move) between the branches and
transfer) of the banking offices except branch, it should make appropriate decision and inform
the customers and present evidence to the BOM and register with the BOM within three days
when decision has been made.
If the foreign bank closes its representative office or moves its location from Mongolia
to another place, it shall inform the BOM. In a case of restructuring /merging, combining,
segregating separating and modifying/ of two or more operating branches and representative
office, an authorization should be solicited from the BOM.
8.14. The BOM shall rescind decision of the bank that established its office if the bank
has financial difficulties, or it has conducted businesses that did not comply with existing
banking regulation, or it did not fulfill assignments given by the BOM, or financial situation of
the bank is considered to have negative impact on banking system.
8.15. The bank shall include description of movement of its offices and their location
in the financial statements and present them to the BOM.
NINE. ABOLISHING A LICENSE FOR FOUNDATION OF THE BANK
AND ITS OFFICES, OR ABOLISHING A LICENSE FOR CERTAIN
TYPE OF BUSINESS ACTIVITIES
9.1. The BOM shall abolish the bank establishment license on the following reasons:
1/ authorized organizations as the court, the BOM and stockholders meeting have
announced that the bank has become bankrupt, insolvent or has been closed,
2/ it has been confirmed within a year when the bank had state registration, or bank has
presented false documentation,
3/ operations have not started for more than a year after the bank has state registration.
9.2. If the license for bank foundation has been abolished, the Supervision Department
shall seize the license, put "Invalid" seal on, add to the bank file and pass to the archive under
appropriate regulation.
9.3. The branch license shall be on the following reasons:
1/ decision of the bank management to close its branch,
2/ decision of the BOM has been made based on conclusion that identifies activities of
the branch are harmful to the banking system, economic security of Mongolia or customer
interests or it may cause difficulties to the regular activities and liquidity of the bank,
3/ in the case of the branch of foreign bank except of the sub-article 1 and 2, decision
of the BOM will be made based on the home country supervisory authority's decision to
withdraw the banking license on the reasons of head office having financial difficulties,
bankruptcy and become insolvent, and other reasons to withdraw the banking license.
4/ other reasons indicated in legal acts.
/ This part was added by Resolution No 352 of August 10, 2001 of the Governor of the
BOM. /
9.4. If the BOM abolished a license for bank establishment and its offices and to be
engaged in certain type of banking business in accordance with the Banking Law of Mongolia,
the request for issuing the license shall not be reaccepted within a year. After certain period of
time, the bank may again complete appropriate documents and submit them in accordance
with this regulation.
9.5. If the bank continued to be engaged in business without eliminating reasons
suspension for that which led to limitation of its activities or there is not sufficient condition
for rescinding of limitation within six months since limitation of some bank activities has been
imposed and abolishment of the license on the basis stipulated article 6.8 of this regulation,
then the license for certain bank business shall be annulled.
9.6. The BOM shall inform the public as well as customers if it has suspended or the
license issued for banking activities.
9.7. In the case of the license suspension for branch or some type of business, the bank
can request to restore a license if it considers that discrepancies are eliminated and the bank
has returned to regular operation.
TEN. RESPONSIBILITIES AND CONTROL
10.1. The BOD, the Audit Council and the Internal Audit Unit of the bank shall
supervise movement, location, process of making changes in the amount and structure of paidup
capital and accounting of the bank and its branches /branch and representative office for the
foreign bank/
10.2. If the bank has established the bank and its branch and carried out banking
activities, without any authorization income of the bank and its branch shall be confiscated
while operations of the bank and its branch will be ceased bank will have to pay for loss
caused during its operation.
10.3. The expenses occurred during cassation of operations of the bank and its branch
established without the BOM the license shall be borne by person who made that decision.
10.4. If making changes in paid-up capital without the BOM license has carried out
transaction, the transaction shall be reversed and person in charge shall be held responsible
under the Banking Law of Mongolia.
10.5. Any loss caused by the business operation that hold by violating this regulation
shall be met by authorized person who made that decision.
10.6. The BOM shall supervise enforcement of this regulation, conduct on-site
examination and charge appropriate person that violated banking legislation with
responsibilities.

LAW ON LICENSING

2007-05-14T09:48:00.000+08:00

LAW OF MONGOLIA

LAW ON LICENSING

February 1, 2001
Ulaanbaatar

PART ONE
General Provisions

Article - 1. Objectives of the Law

1.1. Objective of this Law is to regulate a relation with respect to giving, delaying and invalidating a license to some business activities that might negatively effect public interest, human well-being, environment and national security and that might require specific conditions and expertise.

Article – 2. Other relevant legislation on Licensing

2.1. Legislation on licensing consists of this Law, Civil Code and other legal acts consistent with these two laws.
2.2. If it is differently stated in the International Agreement of Mongolia, provisions of the international agreement will be enforced.
2.3. Licenses on land and natural resources will be regulated by the Land Law of Mongolia, Law on Land Paunch, Law on Specially Protected Territory, Law on Natural Plants, Hunting Law, Law on Animals, Forest Law and Water Law of Mongolia.

Article – 3. Terminology in the Law

3.1. Terminology in this law will be understood as below:
3.1.1. “License for the business entities” (will further be stated as
Licensing) means an official document given by an authorized institution to the individuals, for-profit and not-for-profit legal bodies to conduct particular type of business in accordance with specific deadline, terms and requirements;
3.1.2. “License holder” means a body who is given a license by the
authorized institution to conduct particular type of business;

PART TWO
Giving, Delaying and Invalidating the License

Article – 4. Content of the License

4.1. The license will include the following contents:
4.1.1. name of the authorized institution that gave a license;
4.1.2. name and address of the license holder;
4.1.3. type of expected business;
4.1.4. deadline of the license;
4.1.5. terms and requirements to the licensed business;
4.1.6. Number and authorized date (year, month, date) of the license;
4.1.7. signature and stamp of the authorized official of the licensing
institution.

Article-5. Scope and frame of the Licensing

5.1. The licensed business should be conducted within the particular territory, if it is specifically stated.
5.2. Other business activities, except the licensed ones, can be conducted in accordance with required legal acts and requirements after passing relevant registration institution.
5.3. It is prohibited to sell, present and pledge the license to others, except in the cases stated in this Law.

Article-6. Deadline of the License and its Extension

6.1. The license will be given for three years, if it is not differently stated in the law.
6.2. The license can be extended for the period not less than the original deadline, if it is not differently stated in the law.
6.3. If it is not differently stated in the law, and if the situation stated in the 13.1 of this law is not revealed, deadline of the license will be extended within three days based on license holder’s request.
6.4. In case the terms and requirements of the license are violated, the deadline of the license will not be extended.

Article-7. Procedure to give a license

7.1. If it is not differently stated in the Law, relevant central administrative body will give a license stated in the article-15 of this law.
7.2. All types of food industry and food services will be conducted on the base of inspection and permission by appropriate institution on industrial conditions, technology procedures and product samples.
7.3. Detailed procedures with regard to the licensing of the particular type of business will be regulated by each separate law.
7.4. If the authorized institution finds it as necessary, the license might be given through selection of bids.

Article – 8. Prohibited business activities

8.1. The following types of business are prohibited within the territory of Mongolia:
8.1.1. manufacturing, importing and selling drugs and narcotics;
8.1.2. organizing, advertising and encouraging any types of depravity;
8.1.3. dealing with casino business;
8.1.4. profit-seeking business through multistage marketing or pyramid
approach.

Article-9. Principles and requirements for licensing

9.1. The following principles will be considered by the authorized institution to give a license:
9.1.1. provision of national security and defense, protecting public and
legal interests;
9.1.2. creating favorable environment for business;
9.1.3. efficiency and transparency;
9.1.4. giving a license only in the cases stated in this law.

Article-10. Authority of the licensing institution

10.1. The authorized licensing institution has the following rights:
10.1.1. Giving a license in accordance with terms and procedures stated in
this law;
10.1.2. Registering the license;
10.1.3. Supervising the enforcement of terms and requirements of the
license;
10.1.4. Delaying and restoring the license;
10.1.5. Extending and invalidating the license.

Article-11. Required documents for licensing

11.1. The body who is requesting the license will bring the following documents:
11.1.1. Request for the license / expected business, type of service and
deadline should be clearly stated/;
11.1.2. If the requester is a legal body, he/she will bring state registration
certificate;
11.1.3. If the requester is an individual, he/she will bring notarized copy of
their passport or ID;
11.1.4. Receipt confirming payment of state stamp fee;
11.1.5. Other documents stated in the law depending on specific types of
industries and services;
11.1.6. Proposals of the capital city and aimag Governors are required to
conduct business activities stated in the 15.5.7; 15.5.8; 15.6.1-15.6.3; 15.6.5; 15.8.3; 15.8.8; 15.8.18; 15.8.20; 15.10.4-15.10.6; 15.11.2; 15.12.1-15.12.6 of this law.
11.2. Other documents and fees not stated in the 11.1 are not to be required.

Article – 12. Giving a license

12.1. The authorized licensing institution will review the request and other relevant documents and will make a decision within 21 working days after receiving the request, if the issue of giving a license is not differently stated in the law.
12.2. If the institution refused to give a license, the reason of refusal should be described in the written response to the request.
12.3. If required, the licensing institution has an authority to give the documents of the requester for inspection /accreditation/ of relevant institution.
12.4. In case of additional inspection /accreditation/, deadline to decide upon the request can be extended for 14 working days.

Article-13. Delaying the licensing

13.1. If the terms, deadline and requirements of the licensing are violated, licensing institution can delay the license up to three months based on opinion of professional inspection body.
13.2. The licensing institution will send written information on the delaying decision to the license owner and related tax organization within 3 days.
13.3. The licensing institution will reauthorize the license, when the delay reason is corrected.

Article-14. Invalidating the license

14.1. The licensing institution will invalidate the license in the following cases:
14.1.1. according to the license owner’s request;
14.1.2. if the legal body is abolished;
14.1.3. if it is revealed that the license owner brought counterfeit
documents to get the license;
14.1.4. terms and requirements of the license are constantly violated;
14.1.5. Within the delayed period, requirement on violation is not
addressed;
14.2. The licensing institution will send written information on the decision to
invalidate the license to the license owner and related tax organization within 3 days after making the decision.

Article-15. Types of business to be conducted under the license

15.1. The following businesses will be conducted under license.
15.2. Banking:
15.2.1. establishing a bank and dealing with banking business
15.3. Securities related business:
15.3.1. organization dealing with underwriter, brokerage, dealer, stock
exchange, clearing, settlement and depository businesses and conducting professional activity on the investment fund and capital market.
15.3.2. publicly trading of company bond;
15.4. Finance and economy:
15.4.1. dealing with social and commercial insurance business;
15.4.2. auditing;
15.4.3. producing securities;
15.4.4. issuing lottery;
15.4.5. establishing and dealing with duty-free shop;
15.4.6. dealing with trusted customs freight-forwarding service;
15.4.7. acting as customs broker;
15.4.8. dealing with endorsed customs warehouse.
15.5. Justice and home affairs:
15.5.1. asset valuation;
15.5.2. translation business in court, case registration and questioning;
15.5.3. prosecutor’s business;
15.5.4. notary business;
15.5.5. publishing laws of Mongolia and law brochures, except “State
Information”;
15.5.6. producing state number of transportation vehicles;
15.5.7. dealing with bookmaking, bet and gambling;
15.5.8. manufacturing and selling weapons;
15.5.9 production of seals and stamps
15.6. Environment
15.6.1. importing, selling and utilizing ozone splitting substances and products involving such substances in their contents;
15.6.2. dealing with industries that produce harmful, poisonous disposal
for environment and human well-being;
15.6.3. manufacturing, importing, selling, utilizing and destroying
poisonous chemical substances;
15.6.5. transferring chemical substances to the air zone while pollution
rate is not described in consistent with the standards;
15.6.6. detailed assessment of environmental impact
15.7. Education, culture and science:
15.7.1. establishing university, college, vocational and training schools;
15.7.2. dealing with master and PhD training,
15.7.3. exporting and selling historical, cultural and precious collections
through the state border;
15.7.4. conducting new professional training courses at the higher
education institution;
15.8. Energy and fuel:
15.8.1. establishing and working with atomic energy generator;
15.8.3. establishing power sources and distribution network;
15.8.4. dealing with energy generation, transmission, dispatch regulation,
distribution, provision and selling;
15.8.18. gas service;
15.9. Social Protection and Labor:
15.9.1. exporting and importing work force and dealing with public
employment bureau business;
15.10. Industry and trade:
15.10.1. producing medals and stamps;
15.10.2. manufacturing jewelries of precious metal and stones;
15.10.3. selling strong poisonous substances except drugs;
15.10.4. selling grenade and shells;
15.10.5. minerals exploration;
15.10.6. utilization of minerals;
15.10.11. any transactions with regard to natural gas;
15.10.12 Import alcoholic beverages
15.11. Food and agriculture:
15.11.1. planting tobacco plants and manufacturing tobacco;
15.11.2. producing alcoholic products except milk vodka;
15.11.3. producing seed of crops;
15.11.4. manufacturing and importing livestock medicine and veterinary
facilities;
15.11.5. selection of livestock sickness microbes;
15.11.6. selling and importing substances utilized to protect plants;
15.11.7. adapting new and imported veterinary medicine and new sorts of
animal selects into industry and services, importing and exporting of new sort of animals;
15.11.8. privately deal with veterinary and selection service, and
manufacturing new medicine for veterinary and livestock selection;
15.12. Health:
15.12.1. preparation of medicine using drug plants;
15.12.2. producing and selling drugs and medical facilities;
15.12.3. all types of services to deliver health care;
15.12.4. producing and selling drugs, mutually effected medicament and
substances;
15.12.5. domestically and internationally invested medical
institutions dealing with professional health care services;
15.12.6. producing, selecting, reserving, storing, transporting, selling harmful microbes and their causes;

15.13. Copyright and patent :

15.13.1. working as a trusted representative of products belonging to copyrights;
15.13.2. working as a trusted representative of a patent.

15.14. Construction and Rural development :

15.14.1. developing geodesy and dealing with construction building;
15.14.2. confidential location map and database publishing;
15.14.3 cadastral drawing;
15.14.4. construction and maintenance of elevator and lift ;
15.14.5. public industries and services;

15.15. Road, Transportation and Tourism :

15.15.1 building railway stations;
15.15.2civil aviation business;
15.15.3.railway freight forwarding;
15.15.4.building and maintaining auto roads and road construction;
15.15.5. technical inspection to auto transportation vehicles;
15.15.6. international and domestic public transportation, post service;
15.15.7. constructing and reconstructing aircrafts;
15.15.8. dealing with higher ranked hotel service.
15.15.9. sea freight forwarding , transportation service
15.15.10 production, repair and installment of water traffic signals and lights

15.16. Information, Telecommunication and Tehcnology:

15.16.1. establishing telecommunication network, its utilization and
services;
15.16.2. radio frequency, and utilization of its transmission;

15.17 . Standardization and measuring:

15.17.1. Production of measuring facilities, it’s maintenance and selling

Article-16. Types of business to be licensed by aimag, capital city, soum and

district Governors and by the Radioactivity Monitoring Department

16.1. The Radioactivity Monitoring Department will give a license for the following types of business:
16.1.1. dealing with radioactive minerals and other radioactive sources;
16.2. Aimag and capital city Governors will give a license for the following types of business:
16.2.1. nationwide public transportation and post service;
16.2.2. professional activities of health care institutions;
16.2.3. producing, destroying and importing of poisonous chemical
substances;
16.2.4. establishing secondary schools;
16.2.5. selling and serving with alcoholic beverages;
16.3. Soum and district Governors will give a license for the following types of business:
16.3.1. dealing with business that produces polluted chemicals to the
atmosphere and that effects poisonous physical impact and using local sources for such kind of business;
16.3.2. delivering local public transportation service /this provision
doesn’t belong to the district Governor/;
16.3.3. establishing kindergarten.

PART THREE
Miscelleanous

Article-17. Dispute solution regarding licensing process

17.1. Any conflicts/disputes regarding the licensing will be solved by the related senior level institution of the authorized licensing organization and if a decision is not agreed, the case can be decided by the Court.

Article-18. Sanctions and punishment to the violators of licensing law

18.1. If a case of the violator is not necessary to have criminal punishment, a judge or authorized state inspector will impose him/her the following sanctions while considering violation scope:
18.1.1. If the business activities stated in the articles 15 and 16 of this law
are conducted without licensing, illegal income will be collected and the guilty individual will be fined by 20000-50000 Tg, and the legal body – 100000-250000 Tg;
18.1.2. If, the article 7.2 is violated, illegal income will be collected and
a guilty individual will be fined by 20000-50000 Tg, officials will be fined by 30000-60000 Tg and the legal body will be fined by 100000-250000 Tg;
18.1.3. If, the article 5.3 of this law is violated, individuals will be fined by
20000-50000 Tg, officials by 30000-50000 Tg and the legal bodies – by 100000-250000 Tg. License will be invalidated;
18.1.4. If the license owner brought counterfeit documents and received a
license, illegal income will be collected, a guilty individual will be fined by 20000-50000 Tg, legal bodies – by 100000-250000 Tg and a license will be invalidated;
18.1.5. Officials who violated 6.3; 11.2; 12.1; 12.4; 13.2; and 14.2 of this
law will be fined by 30000-50000 Tg.

Article-19. Validating the Law

19.1. This Law will be enforced from the 1st of January, 2002.

Parliament Speaker L. Enebish

Sectors that need licensing:

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Banking
Securities related business
Finance and economy
Justice and home affairs
Environment
Education, culture and science
Energy and fuel
Social Protection and Labor
Industry and trade
Food and agriculture
Health
Copyright and patent
Construction and Rural development
Road, Transportation and Tourism
Information, Telecommunication and Technology
Standardization and measuring

Crude Oil

2007-05-14T09:45:00.000+08:00

Petroleum product sharing contracts and new ventures department strictly follows the “Intensifying oil exploration activities and increase production output” article of the Government action plan in its daily operations.

The department highly recognized and pursued policies of promoting oil and natural gas reserves of Mongolia, oil exploration areas among domestic and foreign investors, promoting the advantages of investing into this sector, increasing the interests through interpreting the legal environment appropriately, conducting these promotions within tight cooperation schemes, receiving and assessing applications related to oil exploration in accordance with Oil law and respective regulations. The sample of the product sharing contract has been renewed and introduced to the Ministry of Industry and Commerce.

Oil companies from China, US and Canada are conducting oil exploration and production activities on totally 5 contractual areas under the spirit of product sharing contract principles.

Explorations had been actively pursued. Totally 200339.5 barrels of crude oil were extracted in 2005 from Dornogobi aimag and Tamsag areas, from which 187900.5 barrels were exported.

The total volume of oil exploration and export is given in the following graph, where explorations increased by 1.3 percent and export by 3.5 percent respectively compared with the numbers of previous year.

Oil exportation and export of Mongolia for 1998-2005

In 2005 the department had negotiated terms and conditions of the product sharing contracts and concluded them with Mongolian “Petro Matad” company on 20th oil area, “China Golden Sea Petroleum Exploration Corporation” company on 15 Block, and Canadian “Shaman Resources” company on 16 Block. These contracts are currently sent to Ministry of Industry and Commerce for approval.

According to estimates, in overall 185.4 million USD investment was made into oil industry during the period from 1993-2005, from which “SOKO” (Datamo) company invested 103 million USD, “Donshen oil” (Mongolian) company invested 81.6 million USD, and “Storm Kat Energy” company invested 1.4 million USD respectively.

Following tasks are planned for implementation in increased petroleum exploration and production in 2006.

o Intensify oil exploration works and increase production hot less than by 7 percent from the previous year value
o Actively encourage domestic and foreign investments, commence the implementation of the above-mentioned 3 product sharing contracts in 2006 upon and after Government’s ratification
o With the scope of the “Foreign investors forum 2006” activity, organize oil sector sub-meetings during forthcoming September
o Organize an executive committee meeting of the “Natural gas pipeline forum of the North East Asia” during August 2006 in Ulaanbaatar
o Make necessary improvements into legal environment of oil exploration sector, for instance make respective amendments into Land law and its observance regulations
o Celebrate oil sector day, directed at promoting this sector and publicizing its activities.

MRPA

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MINERAL RESOURCE AND PETROLEUM AUTHORITY 2005 COOPERATIVE BUSINESS REPORT IN BRIEF

The Mineral Resource and Petroleum Authority of Mongolia (MRPAM) up by the Government resolution N.249 of 21st December 2004 through merging Mineral Resource Authority and Petroleum Authority.

The MRPAM operates solely under and in compliance with the directions of the Government action plan and objectives of the Minister of Industry and Commerce to promote mining and oil exploration sectors.

In accordance to order of the Minister of Industry and Commerce, its daily activities maintained by 6 subordinate units such as Geology Department, Mining Department, Geological and Mining Cadastre Department, Petroleum Product Sharing Contracts and New Ventures Department, Petroleum Refining and Supply Coordination Department, Administration and Finance Department.

Since its initial days of restructuring the MRPAM has been aiming at resolving the following priority issues of the sector. Namely:

* Stabilize legal environment applicable to geological, mining and petroleum sectors, ensure law implementation
* Extend geological research and study
* Foster exploration output through supporting mining industries
* Enhance cadastre agencies services and increase transparency
* Increase crude oil explorations
* Maintain stable of petroleum products
* And besides promoting international relations and cooperation in mining and petroleum sectors, it has actively pursued aims and objectives emphasized in Government action plan, Main directions of developing Mongolian economy and society in 2005, resolution and decisions of the higher executive bodies.

Wood Processing Industry

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Presently, approximately 150 small and medium sized companies with 4000 employees are operating at the wood processing sector. 100 of such companies are domestic, 40 foreign invested companies.

Approximately 90 of these companies are operating in rural areas, 40 in UB city.
The main factor of rapid increase of wooden products needs at domestic market is related to development of construction sector, directly.

For instance: production of door and windows was increased by 2,3 times, compared with the same period of the previous year.

It’s important to process raw materials without waste, supply domestic needs by ecologically clean wood and wooden products, and increase industry on export products through the encourage and develop mat on small and middle sized industries, equipped by new techniques and technology which are harmless for the environment.

Crop Industry

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The agricultural land of Mongolia covers 174.5 thous. Hectares, of which 159.0 thous. hectares is used for crop production. Crop production is understood to include wheat, barley for food and fodder, oats for fodder, maize for silage, sunflower, potatoes, 20 types of vegetables, silage, and annual and perennial leguminous crops. After privatization of the national herd, herders with small numbers of livestock did not have the resources to buy conserved fodder, relying more on the natural pastures to graze their livestock under the influence of kind weather conditions. During the socialist period, the State organized the production and distribution of over 200,000 tons of crops (barley and oats), nearly 300,000 tons of green fodder (annual and perennial plants) and 350,000 tons of silage (sunflower and maize). In the last 10 years, the cultivation of crops for fodder has been negligible.

Mongolia’s annual demand for vegetables is approximately 100,000 tons of potatoes and 160,000 tons of other vegetables. In 2005, there were 84,400 tons of potatoes and 62.500 tons of other vegetable produced supplying 70% and 50% respectively of domestic requirements. In reality, most herders living in rural areas are not used to eating vegetables nor do they have the facilities to store vegetables during winter, so actual consumption could be lower than this estimate. The estimated annual consumption of flour is 241,200 tons requiring 340,000 tons of wheat. A further 15,000 tons is needed in spirit production and some 70-75,000 tons of seed wheat is needed to produce the annual production of 425-430,000 tons of wheat. To produce this quantity of cereals and vegetables, it would require a non-irrigated area of about 350-400,000 ha for wheat, 8-10,000 ha and potatoes a similar area for vegetables. However, if wheat was grown under irrigated conditions, a yield of more than 3.5 tons/ha is possible, reducing the required planted area

Wheat flour and wheat products represent 46% of daily food consumption in urban households and 70% in rural households. As such, it is considered an essential food item and has been categorized as a “strategic food product” under the Mongolian Law on Food. As wheat comprises 84.5% of the cropped area and more than 90% of total crop production, it is crucially important in the agricultural sector. There is less investment in the production of potatoes, vegetables, and fruit and in fodder for livestock. There is also lower consumption of these compared with flour as a daily food source for humans.

Food industry

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Mongolia’s food processing industry began in the 1960s, processing agricultural raw materials and manufactured products for local consumption and export. Todays food processing industry is comprised of meat processing, milk and dairy processing, flour and flour product manufacture, production of alcoholic beverages and production of salt.

Processing of agricultural food products and raw materials is developing in Mongolia. The words "food industry" may not adequately reflect the real development, because many agricultural products are processed and marketed in small and medium-scale enterprises.

Presently, there are over 1800 small and medium sized business entities engaged in the food industry. These industries produce 10% of Mongolia’s GIO. Up to 14% of total industrial workers are engaged in this sector.

Processing industries for food:
In Mongolia, there are about 135 flour milling factories with a combined capacity to produce 288,000 tons of flour per annum. Ten of these comprise the larger plants with a joint capacity to produce 210,000 tons per annum. Currently, only 22% of plant capacity is utilised due to the lack of raw materials (wheat). In 2005, 30-40000 tons of flour was produced that satisfied only 15-16% of the domestic flour demand. A broader range of bread, pastries, macaroni and other related flour products are appearing on the market and the quality of these products has improved as is the packaging of locally produced goods.

New technologies for the production of beverages and soft drinks are being introduced and the range and quality of these products are improving through competition. MCS Group was appointed the official distributor of Coca Cola, and subsequently produced Coca Cola soft drinks under licence in 2002.

Meat Processing:Meat and meat product manufacturing has an important place in the food sector and is considered to be the most potential sector for future development. There are 28 medium and large slaughterhouses with a total capacity of about 85,000 tons of carcass meat per year. However, they only use 20% of their total capacity.

In total, there are over 70 SMEs that produce meat products. Total meat production was 199.3 thous. tons in 2004. As far as the food supply to the population is concerned, local meat production meets all the domestic demand and some meat products are exported. Meat consumption per person is about 94.2 kg per year. In 2004, 10 meat slaughtering factories with annual capacity of 30 thous. tons of carcass meat were newly established.

In 2004, 8.7 thous tons, 2005, 7,3 thous tons of carcass meat were exported. Russia is the basic meat export market for Mongolia. Since 2004, Canned meat and pet food has been started to export to Korea, Japan and Indonesia.

Looking at the 2005 statistics based on the livestock number, Mongolia was able to provide domestic meat consumption and to export meat. Due to the high import customs tax of Russia, high railway transportation cost and consumer monopoly, the price of the exported meat has decreased annually.

Among the larger meat slaughtering companies, Makh Impex JSC has a capacity of producing 120.0 tons of carcass meat per day, slaughtering 400 large animals (camel, horse, cattle) livestock and 4000 small animals (goat and sheep) livestock in one shift. Bagahangai meat processing company has a capacity of slaughtering 200 large animals and producing 25.0 tons of carcass meat. The “Darkhan makh expo” JSC has a capacity of slaughtering 400 large animals and 2000 small animals livestock or producing 80.0 tons of carcass meat per day. By the end 2003, “Meat market” Co.ltd placed into operation its new meat processing factory with production capacity of slaughtering 50 tons of meat and 10 tons of internal organs in a shift, which was equipped most advanced and sophisticated facilities of modern meat processing industry that meets international standards of meat and meat products.

Milk and milk production: . The average milk and dairy product consumption per capita increased by 18.8kg in 1990 compared to 1985. This consumption increased constantly during the last 10 years and reached 126.0kg in 2002 respectively. For instance, the dairy industry in 1990 was 315.7 thous. tons and 328.6 thous. tones in 2004.

Currently, many small and medium factories and business entities manufacturing milk products are established in the aimag, towns and soums, providing solid basis for the further development of the dairy industry. In 2005, the total output of processed milk was 7.1 mln liters, which is 5 times more than 2000.

The milk and dairy industry structure was unbundled during the early years of transition to a market based economy, which led to a sharp decrease in milk and diary product production. Due to the decrease in the domestic production, the amount of the imported milk products is increasing. In 1995, 1223.8 tons of milk and milk products were imported and in 2004, 6848.5 tons of milk products were imported. There are about 88 small and medium sized dairy plants, with a total daily capacity of about 50.0 tones of fresh milk, producing butter, cheese and other dairy products. Local dairy production has not been able to meet the population’s needs fully.

Mon-Fresh factory of Monsonic Group and a New Zealand-Mongolian joint venture, NZM-Food Company introduced tetra-pack technology and are now producing milk and fruit juice using UHT technology.
In recent years, alcohol producing factories such as APU and SAPU have introduced new technologies involving more sophisticated measuring equipment to produce low alcohol beverages and have improved the quality of their products.

Specific Government Programs

The Government launched a number (16, which are listed below) of nationwide, medium-term programs for the development of specific sectors and for implementation of Government policy. However, due to financial constraints, the implementation of all tasks set for the programs has not been possible.

The Green Revolution Program, started in 1997, and the White Revolution Program, from 1999, are well known in the farming sector. Under the Green Revolution, about 45 agro-parks were established, where pilot demonstrations are being implemented. These agro-parks are now merged with the Agriculture Extension Centers.

In order to improve the financial and economic conditions of the processing industries, the Government has now started to implement programs for “Wool”, “Cashmere”, and “Skins and Hides”.

Under a framework of promoting recovery of the cropping industry, actions mainly focused on increasing the amount and quality of cultivated land were introduced in 2001, when the Government approved a sub-program called “Fallow - 2001”. Under the sub programs “Seed” and “Fallow - 2001” some cropping companies were provided seeds under lending agreements, which helped to play an important role in the recovery of the cropping industry.

In addition a national program for “Assisting the Protection of Livestock from Drought and Dzud” was approved and implemented. As a result of that program, in 2001, 802.6 thousand tons of hay and 142.3 thousand tons of fodder were prepared, representing increases of 16.4 percent and 42.3 percent respectively, compared to 2000.

Agriculture Sector

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Agricultural sector in Mongolia has been and is still holding a weighty share in the country’s economy. The agricultural sector produces over 25 per cent of GDP and 13 per cent of the national hard currency income is generated from exports of products of food and agricultural origin.

We have over 170 thousand herding households working in livestock sector, which produces over 80 per cent of total agricultural produce. Number of livestock has increased during the last two years and reached 30 million at the end of 2005, which is a 10 per cent increase or 2 million heads of livestock more compared to the previous year.

Crop sector produced 77 thousand tonnes of cereals and 145.9 thousand tonnes of potato and vegetables in 2005, which provided 20 per cent of domestic flour demand and 50-70 per cent of that of potato and vegetables. Legal conditions were set up for using land in the economic rotation and intensive work is being done for privatizing land for household use and giving possession rights for cropland.

Nationwide there are approximately 1800 enterprises working in food production sector. This sector produces 12 per cent of total industrial product and 13 per cent of total industrial workers are employed here. Food production has increased by 2,5 per cent in 2004 compared to the previous year.

It is assumed that Mongolia’s population will be increase in near future so that demand for food and other products will be increased significantly. Currently basic food staff such as wheat flour, potato, vegetable, milk and dairy products cannot be supplied by domestic production. In rural areas, meat, flour and milk products are consumed mostly that other product’s consumption such as fish, egg, fruit products which are rich of valuable micronutrients and vitamins are not sufficient and present very small percentage in total population’s food consumption. In relation to the fast economic development and changing livelihood level in neighbouring countries like Russia and China, as well as other regional countries, there is going to be high demand of ecologically clean food products.

The Government Policy on Food and Agriculture sector was approved in 2003 by the State Ih Khural that formulated the basic principle and strategy to develop the sector and measures to implement within the sector until 2015. In order to use land efficiently in the market economy system as a property and to improve it’s value, renovation of land issues has being implemented that requires higher priority for larger investment. Legislative environment has been established for such land renovation process due to revision of “Land law” and approval of “Law on land ownership for Mongolian citizens”.

Currently, Mongolia has 30.4 million heads of livestock which is being produced annually about 200 thousand metric tons of meat, 328.000 metric tons of milk, 8.4 millions of skin and hide, 17,000 metric tons of sheep wool, 3.0 thousands metric tons of cashmere. In this regard, the Government’s policy intends to improve capacity in order to protect livestock from natural disaster’s risks, consequently to increase aid and loan assistance through attracting foreign investors and donor’s attention, to promote national investment as possible, to promote efficiency and productivity through introduction of some elements of intensification. Last years, the policy on active implementation has been taken place to support initiatives on rural people’s cooperation and co-working, starting of settled intensified farming based on new technologies for improving livestock production and herding methods.

In crop sector, there is wide range of opportunities to intensify crop sector by increasing national and foreign investment. Before 1990, even though 1.2 millions ha of arable land had been utilized under crop production nationwide, privatisation of the state owned large crop producing entities during transition period from state planned economy to market economy system had contributed to the negligible effect that caused about 690 ha of land unutilised and substantial decrease of arable land. With increased demand of agricultural products and enough available and suitable land such as Khalkhiin gol river basin area that also could be used for cropping create more opportunities for future investment in the crop sector.

There is wide range of possibilities to invest in the national processing enterprises that are based on inexpensive and high quality raw materials. Many small and medium sized food processing enterprises, which meet sanitary and hygiene requirements and equipped with modern techniques and technologies have been established and their products’ variety and packaging have been improved a lot. Due to newly established meat processing and slaughtering plants, currently there are total 28 large, medium and small sized meat plants with capacity of processing 70 metric tons of meat annually. Processed milk production has been increased due to the increased number of small and medium sized dairy processing plants that was doubled compared to 1999 and reached 88 plants nationwide.

At present, there are operating about 130 large and small flourmill plants with capacity of producing total domestic consumption. Also there are more market competition among producers with increased production and increased variety of different products such as bread, cake, spagetti, beverages and soda. In last four years, annual food production has been increased by 2.1 to 5.5 percent. However, major objective of our national food enterprise is to introduce new technologies into production, provide domestic market with high quality products through improved productivity, eventually to support import substituting and export production. In this regard, this sector requires high need for the substantial investment.

Livestock sector

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As mentioned earlier, livestock is the main livelihood and source of wealth in Mongolia and the country’s economy substantially depends on the production and development of this sector. In 2005, 25 percent of GDP and one fourth of export sales are contributed by the agricultural sector. Approximately 50 percent of the total labour force is engaged in this sector.

The animal husbandry industry of Mongolia was responsible for 80% of national agricultural production in 2003, and so has a great impact on the economy. Herders are not the only beneficiaries of this industry but it affects the national food supply, the export industry and most of the domestic processing industry.

In 2005, there were 1391.5 thous. Heads of pure-breed livestock, 1608.5 thous. Heads of cross and local breed livestock in Mongolia. As a result of privatization processes some 99.5 percent of the total livestock is now privately owned. By the end of 2005, 236.2 thousand families owned livestock, some 72.9 percent of which (172.4 thousands households) are dependent solely on income generated from their livestock. Numbers of livestock per family differ significantly.

One of the indicators for evaluation of rural family wealth is the number of animals a family owns. According to the results of last year’s animal census 65.4 percent of herding families have less than 100 head of animals and 20.1 percent between 101 and 200 heads of animal. The average number of animals per household is 105.
After completion of livestock privatization, the number of livestock increased between 1993 and 1999 by 17.5%, reaching 33.6 million. But drought and zud over the last 3 years have killed a total of 11.1 million animals and by the end of 2002 there were only 23.9 million animals, devastating the economy and the livelihood of herders. As a result of livestock census of 2005, total animal number reached 30 million heads , which is 2.5 millions of head increase compared to the previous year. At the present agricultural exports consist mostly of raw materials of animal origin. 5.1% of Mongolia’s total exports were from the livestock industry at the end of 2002,
mostly exported to Russia and China. Also small animal intestines are exported to Holland, Germany and Turkey. Exports of raw materials of animal husbandry consist of meat, by-products, skins, hides, and washed and unwashed cashmere. The Mongolian Ggovernment is taking steps to restructure the policy for the development of the livestock industry and to develop legislation to reform the livestock industry in connection with drastic climate changes over the last few years.
In June 2003 Government of Mongolia has approved Programme on Supporting Intensified livestock production development. The Intensified Livestock Production Development Support Programme aims in the first turn to develop dairy and meat breed cattle and meat-wool sheep farming together with pork and poultry farms.

Current developments and the demands of the market dictate integration of intensified livestock and crop production near regional centers, rational use of the pasture resources and breeding high productivity animals in line with the Food and Agriculture Policy and Regional Development Concept.

Copper Industry

2007-05-14T09:28:00.000+08:00

Copper is a primary industry of Mongolian mining sector that has been playing a key role in the economy in the last two decades. Copper industry is dominated by a well-known large enterprise Erdenet Mining Corporation (EMC) developed with technical assistance of the former Sovlet Union in the early 70s. Currently the main products of the Erdenet Mining Corporation are copper and molybdenum concentrates. Production of copper concentrate has been increasing steadily since 1997. As of the end of 2004 Erdenet mine was producing 514.1 thousand tones of copper concentrate and 2,333.9 tones of molybdenum concentrate.

Mineral Production 2002 2003 2004

Copper concentrate, in 000’ metric tones 488.0 511.3 514.1
Copper in concentrate, in metric tones 131.000 130.270 130.000
Molybdenum concentrate, in metric tones 3,068.0 3,519.3 2,333.9
Molybdenum in concentrate, in metric tones 1.590 1.793 1.140
Cathode copper, in metric tones 1,490.9 1,328.7 2,451.07

Tourism

2007-05-14T09:27:00.001+08:00

Recent years Mongolian Government has being paying a lot of attention to the tourism development: Guideline for the tourist industry development for 1995-2005 was developed, within the framework of this development a Master plan or the tourism development in Mongolia up to 2015 was developed with technical assistance of the European Union and Japanese Government. These activities were a remarkable step in the maintenance of the legal and policy framework for the industry.

Effort and active participation of the government and non-government institutions and private sector to achieve the mission to make Mongolia as a world tourist destination were engaged with some success. Tourism has been enjoying steady 15-25 annual growth for last a few years and conceivable quality improvement in hospitality and services has been achieved.

According the statistics for 2005, 344635 foreign visitors have been to Mongolia, out of which 338715 were tourists, increasing by 12.7% total revenues generated are 201 million USD, which has increased by 11% comparatively to previous comparatively to previous year.

At present 534 operators and tour agencies, more than 300 hotels, more than 160 tour camps are operating throughout the country, creating more than 12000 jobs. About 54 state and private higher education institutes and schools train qualified human resource for the industry.

Exchanges rate

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A national banknote rate has been weakening last 5 years by approximately 2, 4 percent. However, it weakened by only 1 percent in 2005. In the beginning of 2005, the banknote rate was strutted. At was caused by favorable condition on external trade, increase on foreign direct investment and personal remittance. At the end of 2005, US dollar rate reached at 1221 tugrigs, previous year. The average US dollar rate will be reached at 1205 tugrigs.

Cor current rate, see rate of Bank of Mongolia (central bank).

Inflation

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In 2004, inflation reached at 11 percent because of petroleum price increase in foreign economy, increase on fuel and lubricant price due to changes on customs tax, and decrease on live stock number because of harsh winters between 2000 and 2002 and meat supply. At the end of 2004, inflation reached 9,5 percent, decreased by 1,5 percent compared with previous year.

In 2005, price increase on meat and petroleum take place in inflation, mostly. Even though striating a monetary policy effected to keep inflation stable, inflation consists of supply inflation in 2005.

Government organized meetings by making parties participate to coordinate or regulate price increase on meat and petroleum; therefore, the GV made some resolutions to measure required/useful means. For instance: in 2006, there was a resolution that business entities, which prepare and purchase meat I order to make meat supply and price stable, will be encouraged by the GV.

In addition, a survey to decrease taxation on petroleum and make termination of tax longer to business entities which run on petroleum import sector, has been implementing.

Economic growth, GDP (Gross Domestic Products)

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In 2005, economic growth amounted to 6,2 percent, of which increased by 0,6 percent for agricultural sector, and 4,9 percent for service sector respectively. However manufacturing sector decreased by 0,2 percent.

Economic growth decreased because of some reasons such as crop page of agricultural sector decreased and tariff preference on knitted and sewed products to America and EU market was abolished.

In 2005, knitted product processing decreased by 40 percent, clothing by 66 percent. It decreased economic growth by 2.0 percent, entirely. However, knitted and send product processing will be increased due to Mongolia will be involved in tariff preference through the assistance of negotiation on tariff preference of EU during 2005. For instance: Transportation and agricultural sector effected economic growth.

Foresight turnover in railway transportation is being increased and third operator in cellular telephone sector will be come into view.In addition, favorable winter and spring influenced on increase of livestock number.

However, transportation and agricultural sectors increased economic growth is 2005 instead of only one gold mining sector that increased economic growth by 10,6 percent in 2004. Service price decreased in telephone service sector in 2005, because of the third operator’s establishment in such sector, therefore, income of communication sector increased.

In 2005, there were 9,3 million newly-born young livestock. However, 6,5 million livestock were used for food and there were about 600 thousands of abnormal spoilage. At the end of 2005, livestock number reached at 30 million, increased by 7,1 percent compared with the previous year. This year, production on agricultural sector will be increased by 8,8 percent.

Economic external environment

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In 2005, miscellaneous, especially natural disasters ( Catherine typhoon occurred in littoral areas of USA and some parts of Mexico and tornado in South Eastern Asian countries) and high price fluctuation of some products and goods in the world market affected in the world economy, mostly.

For instance: Catherine typhoon, occurred in littoral areas of the USA, has ravaged main outlets of oil extraction industries: therefore, this influenced to increase petroleum price, sharply. One of the reasons of increase on petroleum and mineral prices at the world market is caused Chinese demands and needs that have been increasing rapidly.

Economic growth of the USA and China, influencing to the world economic growth certainly, have been declined, presently. However, it has still influenced highly. As for China, economic growth has increased by 9.0 percent, decreased by 0.5 percent compared with the executed plan of 2005.

In addition, economic growth has been decreasing in some Asian countries because of natural disasters and price fluctuation on products and goods. Demands of various mineral resource and raw material such as copper, iron, coal, cement, zinc and aluminum etc have been increasing because of Chinese economic growth, investment overage or high growth of disassociated industries, sharply.

For instance: Too many buildings industries and factories are built under the auspice of foreign direct investment of 50-60 billion US dollars every year.

Copper Demand and needs outdistance its supply by 165.000 tones of copper according to the International Center of Copper Study.

As a result, concentrated copper price is getting to be higher at the world market. Copper demand is being increased not only. in Russia and China, our main 2 borders, but also in India.The high rate demands of China and Russia influence on metal price increase at the world market; therefore, it effect to increase of Mongolian external Trade environment. It’s noted between 2004 and 2005 clearly.

Russian Economic growth reached at about 7, 3-7,1 percent between 2003 and 2004. It decreased by 1,8 percent at the end of 2005, and reached at 5,3 percent in 2006. Decrease of petroleum and metal mining and weakening of trade turnover etc influenced it decrease economic growth. In 2005, price on apart met and service increased, which of foodstuff increased by approximately 12-14 percent, service-by 14-15 percent because of other reasons.

In 2005, the inflation will be reached at 12,0 percent. The decrease on oil mining sector in Russia is related to some bigger mining companies, such as UCOS and its activities, and higher taxation rate on petroleum industry; therefore, it influences in Mongolian economic condition especially high price increase.

In conclusion, natural disasters, progressive development of some countries such as China and decrease of Russia oil mining, which is considered the world’s second largest country with oil, influence on the country’s petroleum price increase; therefore, it influences on price increase of Mongolian domestic economy, in one hand. On the other hand, Chinese economic growth, and investment increase can influence on metal price increase, therefore, it affected to improve our external trade environ met and condition and budget balance.

Import

2007-05-14T09:21:00.000+08:00

Goods with value of 1184.3 mln.USD had been imported and the volume of import increased by 163.2 mln.USD or 16.0 percent in comparison with 2004.

Imported goods consist of transactions paid in hard currency (74.5%), goods supplied by foreign loan (3.1%) goods imported as a foreign aid (2.5%), commodities imported as an investment (12.9%) and materials for inward processing (6.1%). Imported goods paid in hard currency increased by 160.8 mln.USD, total volume of commodities as an investment also increased by 57.6 mln.USD, while total volume of aid commodities gone down by 23.4 mln.USD, import commodities supplied by loan by 23.4 mln.USD, import commodities supplied by loan and import of goods for inward processing decreased by 15.1 mln.USD and 26.5 mln.USD respectively.

Import increase of mineral products; pulp of wood; base metals and articles thereof, machinery and mechanical appliances, vehicles aircraft, vessels and parts thereof mainly influenced on import increase.

If look at import changes in accordance with HS classification of goods import of vegetable products decreased by 14.6 mln.USD; volume of textile and textile articles has gone down by 25.4 mln.USD and total amount of imported goods by other 3 headings of HS such as live animals decreased by 0.04-2.0 mln.USD while import of all other headings of HS has been increased. Import of mineral products increased by 89.9 mln.USD; total import volume of pulp of wood; machinery and mechanical appliances and volume of vehicles, aircraft vessels and parts thereof has also gone up by 10.7 mln.USD, 54.5 mln.USD and 12.2 mln.USD respectively.

If look at changes of some main goods in 2005 total volume of wheat decreased by 17.4 thous.tone, its average price has gone done from 276.8 USD to 162.0 USD in comparison with 2004. total volume of imported petroleum products decreased by 2.3 percent and increase on its average unit price per 1 tone from 374.6 USD to 537.7 USD influenced on total amount increase by 86.8 mln.USD. Average unit price of gasoline with octane less than 90 increased from 353.5 USD to 463.4 USD while average unit price of gasoline with octane more than 90 has gone up from 372.7 USD to 520.6 USD. Total amount of imported diesel fuel increased by 58.9 mln.USD and its average unit price has gone up by 199.7 USD.

Goods with value 29.1 mln.USD have been imported as a foreign aid from international financial and economic organizations and donor-countries. If we take into consideration the countries of origin 5.4%. 10.3%, 31.9% and 19.2% of the goods were originating form the USA, the Russian Federation, China and Japan.

The goods donated from donor-countries came from the USA (7.5%), China (18.5%), France (5.9%) and Japan (42.0%).

85.4 percent of foreign aid was imported as a grant while 14.6 percent of them came as a humanitarian aid.

Goods with value of 37.0 mln.USD have been imported as a foreign loan from international financial and economic organizations and donor-countries and these goods were originating from different countries such as China (30.8%), Japan (19.4%), Republic of Korea (8.4%), the Russian Federation (9.7%) and Federal Republic of Germany (12.2%).

Most of total aid goods were imported as a government loan. 53.4 And 12.9 percent of total loan lent from Government of Japan and Federation Republic of Germany, while 9.0 and percent of it lent from Kuwait and Asian Development Bank.

Goods with total value 152.6 mln.USD had been imported to the charter fund of joint ventures and companies with foreign investment and these goods were originating from different countries including the USA (7.8%), the Russian Federation (43.8%) and China (24.5%).

Mongolia has imported goods originating from 91 countries including European countries (48.7), Asian countries (44.5%) which are equal to 93.2 percent of total import.

Export

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The volume of export is 1064.9 mln.USD which means increase by 195.2 mlnUSD in comparison with the previous year.

90.4 percent of exported goods come to transaction paid in hard currency, while barter is 0.2 percent and goods for inward processing are 8.6 percent. The volume of trade paid in hard currency has been increased by 228.6 mln.USD (31.1%) while export of barter trade and goods for inward processing has been decreased by 46.4 and 28.9 percent respectively if compare with last year.

If look at export changes in accordance with HS classification of goods export of mineral products increased by 101.0 mln.USD or 28.6 percent; export of natural or cultured pearls, precious or semi-precious stones increased by 88.3 mln.USD or 36.3 percent; export raw hides and skins; leather, furskins and articles thereof also has gone up by 7.3 mln.USD or 31.7 percent; export of goods covered by 13 HS headings such as prepared foodstuffs and animal or vegetable fats oils other increased from 0.002 mln.USD to 3.3 mln.USD. Volume of textiles and textile articles; vegetable products and export of base metals and articles; vegetable products and export of base metals and articles thereof has been decreased by 5.6 mln.USD, 5.2 mln.USD and 1.5 mln.USD respectively.

Export increase of mineral products; non-monetary gold and raw hides and skins, leather, furskins mainly influenced on total export increase.

In 2005 95.3 percent of exported mineral products comes to copper concentrate, molybdenum concentrate, fluorspar, crude oil and coal.

If compare with 2004 export of copper concentrate increased by 24421.3 tone, while average unit price also gone up by 50.3 USD and it influenced on total amount increase by 41.9 mln.USD. 95.2 percent of exported copper concentrate comes to China.

As a result of increase on average unit price of molybdenum concentrate its total export has gone up by 26.6mln.USD. Average unit price of molybdenum concentrate increased from 8906.4 USD to 19488 USD. 95.9 percent of molybdenum concentrate were exported to China.

Export of fluorspar concentrate increased by 22.3 thous.tone and 3.6 mln.USD In 2004 average unit price of fluorspar concentrate was equal 73.1 USD, which has been increased to 79.3 USD in 2005. Fluorspar concentrate exported to the Russian Federation (48.8%), the USA (15.1%), Ukraine (24.3%) and other countries (11.8%).

Export of crude oil and coal increased by 3.0mln.USD and 10.1 mln.USD respectively if compare with 2004. Most of crude oil and coal were exported to China. ‘

Most of export of natural of cultured pearls, precious or semi-precious stones comes to gold. In 2005 export of gold has been increased by 4.5 tones and unit price per 1 kg of it has gone up from 12583.7 USD to 13918.1 USD and total amount increased by 88.2 mln.USD. Gold were exported to Canada (40.2%), Unit Kingdom (22.7%); the USA (16.7%) and Republic of Korea (16.0%).

99.1 percent of exported textiles and textile articles comes to animal hair; carpets, knitted or crocheted and sewing goods.

Export of combed cashmere increased by 8.7 mln.USD, export of knitted, crocheted and sewing goods decreased by 27.2 mln.USD and 10.0 mln.USD respectively if compare with the previous year.

84.8 percent of exported base metals and articles thereof comes to ferrous waste and scrape; semi-finished products of iron and non-alloy steel; refined copper and copper alloys. Export of ferrous waste and scrape decreased by 2.1 mln.USD or by 72.8 percent while volume of exported semi-finished products of iron and non-alloy steel has gone up by 1.6 mln.USD or 22.6 percent and export of refined copper and alloys also increased by 1.3 mln.USD or 25.6 percent.

Mongolia has exported goods and raw materials to 69 foreign countries including European countries (16.1%), Asian countries (56.7%) and countries of American continent (25.9%).

Foreign Trade

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Foreign trade date for the year 2005 has been based on 32870 export and 79860 import customs declarations and non-customs resources of information on electrical energy import and gold export. 4909 export and 2332 import declarations belong to the goods crossed through seasonal ports.

Mongolia had a foreign trade with 98 countries and as a result total turnover of foreign trade for 2005 increased by 358.4mln.USD or 19.0 percent and amounted 2249.2 mln.USD in comparison with the 2004. Import exceeded export by119.5 mln.USD and this difference decreased by32.0 mln.USD in comparison with the previous year. Total trade amounted 51.2 mln.USD in 2005 belong to the seasonal ports which equal to 2.3 percent of total trade turnover (3.1 percent of export and 1.6 percent of import).

TOTAL FOREIGN TRADE TURNOVER 1890807.0 (2004), 2249230.6 (2005)
EXPORT 869661.4 (2004), 1064877.8 (2005)
IMPORT 1021145.6 (2004), 1184352.8 (2005)

International Organizations in Mongolia

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Access to concessional external resources is essential for economic recovery and sustained growth in Mongolia. With a large fiscal deficit and the need to build up adequate foreign exchange reserves, substantial net capital inflows are required. While foreign direct investment (FDI) will meet some of these needs, the amount of FDI is expected to be modest and concentrated in a few sectors (e.g., minerals).

The IMF, ADB and the World Bank have worked closely together to support the Government’s macroeconomic stabilization and reform program since 1991. Concessional assistance from the donor community will continue to be critical. At the Assistance Group Meeting in June 1999, about $320 million in external assistance was pledged for the next 18 months (July 1999 – December 2000) with Japan (US$115 million), ADB ($76 million) and the World Bank ($52 million) as the three largest donors.

ADB has taken a lead role in several key sectors (education, health, finance, roads, telecommunications, power, air navigation, and housing) and has provided assistance to strengthen the Government’s capability to prioritize and coordinate projects proposed for external assistance.

The World Bank has provided assistance to the transport, coal and mining sectors, poverty alleviation, privatization, and state-owned enterprise reform.

Japan, the largest bilateral donor, has financed critical imports and provided assistance for the rehabilitation of the power plants, railways, urban transportation, and water supply sectors and has provided assistance for health equipment, human development, and environmental issues. /JICA/.

The UNDP and other UN agencies are playing an important role in the areas of health and population, poverty alleviation, and human development and management capacities. UNDP is also active in facilitating local donor coordination.

Representatives of Multilateral and Bilateral Institutions in Mongolia

MNCCI

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The Mongolian Chamber of Commerce is a non-governmental membership organization established in 1960. Following the demise of the Soviet Union and the immense changes in international trade and economic relations of the early and mid nineties, its scope of work expanded. It was renamed the Chamber of Commerce and Industry and asserted its independence as a non-governmental membership association representing the interests of the trade and industry communities of Mongolia.

The Chamber’s activities include information exchange on domestic and international markets, study visits and trade missions for domestic and foreign economic organizations, organizations of specialized industrial and trade exhibitions and fairs, provision of advertising and consultancy services to the private sector, submission of proposals on investment and trade-related matters to the legislature and relevant executive state bodies, certification of place of origin of goods, and establishment and operation of the Foreign Trade Arbitration Court as provided for by law.

Foreign Investment and Foreign Trade Agency (FIFTA)

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The Foreign Investment and Foreign Trade Agency is the State administrative body charged with implementing policies and legislation with respect to foreign investment, to research possibilities to increase foreign investment, to organize investment promotional activities, to provide investors with relevant information, and to involve foreign investors in project tenders; to provide foreign investors with a complete “One-stop service”, to prepare information on foreign investment statistics; to approve and/or disapprove establishment of a business entity with foreign investment or a branch of a foreign legal entity; to terminate, temporarily or completely, the activities of a business entity with foreign investment or a branch of a foreign legal entity; an other rights specified in legislation.

In August 1996, the Board of Foreign Investment (BFI) was created by Parliamentary Decree No.40. This had two major responsibilities: development of foreign investment projects and the promotion of foreign direct investment. In July 1998, the BFI was attached to the Ministry of External Relations and the name of the organization changed to FIFTA. In September 2000, the FIFTA started operating under the authority of the Ministry of Industry and Trade.

FIFTA’s One Stop Service Center is designed to coordinate assistance to investors wishing to establish business enterprises. It provides a local network facility that enables investors to comply with all registration procedures. At this center investor can benefit from the professional advice and support of the representatives of important government authorities such as tax, customs, labor and other business licensing organizations. Its registration service is directed to issue a certificate of incorporation to foreign investment or representative offices based on the investor’s application. Its aftercare service concentrates an assistance to investors in facilitating further stages of the investment process and running the business, including supporting the import of capital and equipment, issuing ID cards for investor’s residency permission and multiple entry visas to Mongolia, as well as assisting with guidance on problems faced by investors at the relevant authority level.

FIFTA is becoming a reliable and recognized partner for investors abroad and locally. It received the Mongolian National Chamber of Commerce and Industry’s award for “The best business supporting government institution”, WAIPA’s award for “The best investment promotion agency”, “The best organization of Industry and Trade” of Mongolia, Award of Mongol Bank, and “Honoring Award for Excellence” of Newsweek magazine.

For details and further information:

Foreign Investment and Foreign Trade Agency
Government Bldg #11, Sambuu street 11,
Ulaanbaatar -211238.
Phone: (976-11) 326040, 320871, 314774
Fax: (976-11)324076
E-mail: fifta@investmongolia.com
http://www.investmongolia.com
http://www.exportmongolia.net

Financial Sector

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Currency

The official monetary unit of Mongolia is the Tugrik (MNT). Whereas the Tugrik is the official currency for settlement of payments, the Bank of Mongolia is authorized to approve other currencies acceptable as legal tender. Certain government agencies have implemented standard form contracts requiring government agencies to be assessed in other designated currencies, such as the US dollar.

Since 1996, all cash payments are made in Tugriks, except services for foreigners. The exchange rate fluctuates but is approximately US$1=MNT1172 as of July 2006. Money can be exchanged at the authorized currency exchange points, as well as at banks and hotels.

Bank and Financial Sector Development

Prior to the spring of 1991, no western-style commercial or central banking system existed in Mongolia. The State Bank was the only bank in Mongolia and fulfilled all banking functions, both domestic and international.Under the 1993 Banking Law, a two-tiered banking system was created consisting of the Central Bank of Mongolia (BOM or Bank of Mongolia) and the commercial banking sector. As a result of sound monetary and fiscal policy, confidence in the banking system by the public, business people, and organizations has significantly increased. Role of financial intermediation within the economy has deepened and a positive influence of the banking system on the real economy, including foreign investment in the financial and banking sector has occurred.

Reform of the banking sector was an essential component in the transition process. Priorities include the reduction of government stakes in the banking sector through the privatization program, elimination of bank insolvencies while minimizing the cost to the exchequer and the creation of a modern and efficient banking sector.

Mongolia suffered three banking sector crises in 1994, 1996 and 1998. Three banks placed under receivership were the Investment and Technological Innovation Bank (ITI), Reconstruction Bank (RB) and Agriculture Bank (AB). The cost of the 1994 restructuring was estimated at over 2% of GDP. The cost of the 1996 restructuring exercise as measured solely by issuance of government reconstruction bonds, amounted to MNT46 billion or 7.8% of GDP. Under closer examination, the situation in these banks appeared worse than had been initially suspected with doubts about the quality of the ‘performing’ loan portfolio and a reclassification which resulted in an increase in the share of loss loan assets. Whereas AB may be re-capitalized in the context of a sale to new private owners, ITI and RB have been scheduled for liquidation and their licenses were revoked.

During 1999, the BOM also took several steps to strengthen banking regulation and supervision. Measures included the development of a new chart of accounts and a revised accounting framework introduced in January 2000. A range of banking-related legal amendments were also enacted and aimed at strengthening the powers of conservators and receivers, providing explicit powers for writing down shareholders capital in insolvent banks, ensuring enforcement of court orders and speeding up the enforcement of collateral.

During 2001, the Mongolian banking system was stabilized and the fundamental basis for further steady growth was in place. At the end of 2001, 16 banks and 28 non-bank financial institutions were providing banking services through their 538 offices (105 branches, 419 sub-branches, & 13 cash offices) located in all aimags of the country. Rural offices represent more than 80 percent of all banking offices. During 2000, banks focused on expanding their operations only in aimags with well-developed infrastructure, industry and agriculture. But during 2001, they began opening new branches in Gobi-Sumber, Khovd, and Selenge which indicates that there was competitive pressure between banks and a desire to enter new markets. Improvements in the financial condition of the Agricultural Bank, derived from implementation of a memorandum of understanding, helped to restore public confidence in the rural area.

As of the end of 2005, 17 banks were carrying out an activity in Mongolia and 732 subsidiaries of these banks across the country (including 107 branches, 590 payment and settlement centers and 31 cash offices) were providing banking service to customers.

Out of 17 commercial banks 1 was state-owned, 2 had minor state participation and the remaining 14 banks were under full private ownership. Of 14 private banks, 6 were with foreign investment (the majority interest of 5 banks is owned by foreign investors). State-owned and state-participated banks held 10.8 percent of deposits and 8.5 percent of current accounts in the banking sector.

In recent years, banks have been adopting new technologies, including non-cash settlements and Internet banking. Furthermore, banks have been focusing on providing tailor-made services to individual customers by diversifying basic banking services and products, such as deposits and loans. Thus the expansion of banking services has supported the rapid growth in microfinance development, and facilitated poverty reduction and employment generation.

The number of current account holders reached 899,600, the number of depositors 627,600, and borrowers 322,700, showing the broadening of financial services and growing public confidence in the banking system.

Banking sector

In 2005, money supply (M2) made up 51.6 percent of GDP. The ratio of outstanding loans to GDP was steadily rising; in 2005 it reached 37.9 percent. According to the Resolution of the Governor of the Bank of Mongolia, banks must increase their statutory capital up to MNT 8.0 billion by the end of March, 2006. Rising minimum capital requirement for banks leads to enhanced resilience to various types of risks, improve public confidence in the banking system, bring greater exposure to individual borrowers and broaden the scope of financial intermediation. The share of currency outside banks in GDP has fallen for the last four years, indicating the rising public confidence in the banking system.

In 2005, the ratio of banks total assets to GDP increased to 69.9 percent. The growth in total assets resulted from 34.1 percent or MNT 176.5 billion increase in deposits (of which, MNT 134.7 billion accounts for deposits of individuals), 69.8 percent or MNT 129.9 billion pick up in current accounts, 76.5 percent or MNT 53.6 billion increase in liabilities to other financial institutions, and 23.9 percent or MNT 40.0 billion increase in capital. Return on assets (ROA) was estimated at 1.5 percent.

Bank of Mongolia (BOM)

The principle objective of BOM is to ensure the stability of the national currency, the ‘Tugrik’ and to implement state monetary policy. In order to implement its objectives, the Bank of Mongolia conducts the following activities:

1) Issuing currencies into circulation;

2) Formulation and implementation of monetary policy by coordinating money supply in the economy;

3) Acting as the Government's fiscal intermediary;

4) Supervision of banking activities;

5) Organization of inter-bank payments and settlement;

6) Holding and management of the State's reserves of foreign currencies.

The 1996 Law on the Central Bank invested broad powers of financial oversight in the Bank of Mongolia. These powers include the management and oversight of interest and exchange rates, government borrowing, inter-bank settlements and lending, printing and issuance of bank notes, minting of coinage and management of state foreign currency reserves. Fulfilling the functions of a central bank, the Bank of Mongolia is independent of government. The Speaker of the Mongolian Parliament nominates the BOM Governor, who in turn nominates the Bank’s First Deputy Governor and Deputy Governor. The Mongolian Parliament approves all three nominates, together with salary levels. The Parliament has, however, only a supervisory role in implementing the state’s monetary policy.

The Bank of Mongolia also reviews applications for the establishment of new commercial bank as well as issuing approvals for the creation of branches of existing banks. The requirements for new commercial banks, and the creation of branches of existing banks are outlined in the Law on the Central Bank. While the Bank of Mongolia is responsible for regulating foreign exchange rate policy, private currency transactions at rates other than the official rate are not illegal. This has lead to a considerable variation from official rates in the private market.

Non-Bank Financial Institutions

At the end of 2005, the number of operating NBFIs reached 150. NBFIs were classified by activity as stated in the Law on Non-Bank Financial Activities as follows: providing loans 144, foreign currency trading 50, trust services 16, financial leasing 13, factoring 5, remittances 19, electronic transactions 1, financial consulting 1. These activities were carried out in accordance with license terms and additional permissions.

Out of total NBFIs, 7 carry out activities in Dornod Aimag, 3 in Darkhan-Uul Aimag, 2 in Zavkhan Aimag, 2 in Arkhangai Aimag, 2 in Khovsgol Aimag, and one in each of the following aimags such as Tov, Selenge, Sukhbaatar, Orkhon, Govi-Altai, Uvs, and Bayankhongor. Total assets held by these NBFIs were worth MNT 888.3 million, which represents 2.3 percent of total assets held by all NBFIs.

Moreover, the Bank of Mongolia took policy measures to boost the operations of NBFIs by encouraging foreign investment in the financial sector. The Bank of Mongolia encouraged international financial organizations to establish NBFIs with special legal status. “Imperial Gold” Ltd. received a license to conduct activities as an international financial organization.

The number of NBFIs with foreign investment rose to 13. Total assets held by these NBFIs reached MNT 11.3 billion, or 29.5 percent of total assets of all NBFIs, and their capital accounted for MNT 7.3 billion, making up 28.6 percent of total capital.

Breaking down NBFIs by the origin of their investment shows that 2 NBFIs were financed by the EU TASIS program and the international non-governmental organization “World Vision”, and another 10 NBFIs were supported with full or joint foreign investment. There were 3 NBFIs with Japanese investment, 2 with British, 2 with Chinese, and 3 with full Russian, Italian and Korean ownership.

In 2005, the number of NBFIs shareholders and employees reached 411 and 546, respectively. Moreover, NBFIs provided financial services to about 51,200 customers. Total NBFI assets comprised 2.4 percent of the banks total assets, while the return on the assets (ROA) stood at 3.6 percent.

In order to raise NBFI capital and diminish risk, the minimum requirement for statutory capital was increased by the BOM. NBFIs carrying out activity in Ulaanbaatar city are required to establish paid-in capital of at least MNT 200.0 million, those operating in Darkhan Soum, Darkhan-Uul Aimag and Bayan-Ondor Soum, Orkhon Aimag are required to have MNT 100.0 million, and in other aimag centers the requirement is for MNT 10.0 million. Moreover, NBFIs conducting electronic transactions, remmitances and trust services should have paid-in capital of at least MNT 500.0 million.

Further state regulation of issues such as the introduction of new financial products, expansion of financial intermediation, and development of fair competitiveness will facilitate deepening financial intermediation in its classic form, according to the best international practices and reduce risk in the financial sector.

Under the Law on Legal Status of the Financial Regulatory Committee, enacted by the Parliament on November 17, 2005, a Financial Regulatory Committee was established with fixed legal status. The Committee is responsible for issuing, suspending or revoking licenses for financial activities with respect to non bank financial activities, insurance, securities and saving and loan , as well as setting out standards for compliance and supervising activities to protect investors and customers rights. The establishment of the Financial Regulatory Committee should greatly facilitate further development of the non bank financial institutions, saving and loan cooperatives, the stock market, insurance and leasing activities.

Leasing

Except for the first cross-border lease of the Airbus by Mongolian Airlines in 1998 and Fokker 50 by Aero Mongolia LLC in 2003, the main types of leasing as a financial product are the leasing of mining equipment mainly by suppliers-sometimes by collaborating banks-and short-term leasing of consumer items ranging from mobile phones to provides cars. The latter are often for items of less than 12 months, though can go up 24 months in the case of vehicles.

As of December 2005, there are 13 companies (as compared to 11 in 2004) providing leasing/lease type products in Mongolia, of which seven are commercial banks, two non bank financial institutions, and rest are suppliers. In 2005 the lease providers issued 23,708 leasers for a total value of USD10.7 million, showing on increase of 40.2% compared to the previous year.

The total value of the outstanding leases was USD 7.12 million on 31 December 2004 and had grown by 51% to USD 10.73 by 31 December 2005.

A significant increase (813%) in outstanding leases for banks appeared in 2005, while it increase for NBFI by 200% and decreases for suppliers by 5.3%, the decrease in outstanding leases of other lease providers (suppliers) is mainly due to insufficient financial sources. The research shows around 50% to 60% of sources of the suppliers that used to finance leases came from local and foreign bank loans.

The estimated value of outstanding leases as compared to outstanding loans in the banking sector is 1.59 % in 2005, which indicates a 0.1 % growth from 2004.

Demand for leasing Leasing could be an important source of medium and long term financing for the acquisition of assets, for producers that currently are not able to benefit from the loans offered by the banking sector, either because they do not possess sufficient collateral, or because they don’t have credit history to quality for loans. Another major reason of unavailability of bank loan is a gap between demand and supply of loan sources.

Leasing is considered one of the ways to fill this gap and promote herder, farmer and small business income expansion, adopt a better technology and improve productivity.

Government support to develop leasing Strengthening the financial sector, and leasing in particular, is part of the Action Plan of the Government of Mongolia for the economic development of the country in 2004-2008. Within the frame of the Action Plan, the year 2005 was declared as a “Year of microfinance and Support to Small and Medium Entrepreneurship” by government and this year was mostly dedicated to creating favorable conditions and environment for microfinance, raising awareness among public about the importance of microfinance.

In a year of microfinance the Government drafted the law on financial leasing and tax amendments with the assistance of MLDP and on January 20, 2006 the approved version of draft leasing legislation presented to the Secretarial of Parliament by the Government.

Lessors The financing of assets through leasing-even though the “leasing” mentioned might not fully adhere to the definition of financial leasing-in Mongolia is done by banks, NB-FIs (including leasing companies and credit unions), and vendors. Some donor funded projects are also considering leasing, through they seem to be more interested in operational leasing.

As the following chart demonstrates the biggest volume of leasing in monetary terms is financed by the suppliers of large equipment –mostly related to the mining sector. The equipment suppliers finance part of their equipment sales through leasing arrangements and will continue to do it until the banks and other leasing companies offer sufficient lease financing.

Banks come in second place with approximately 40 % of the lease volume, while NB-FIs are responsible for less than 3 % of the volume of leases.

Since the banks are mainly engaged in the leasing of consumer goods while the four vendor-lessors are engaged in the leasing of mining equipment, it is not meaningful to calculate the average size of all leases. The average size of lease agreements executed by banks was only US$ 340; in contrast, the average size of the leasing deals executed by the lessor-vendors was US$ 35,117.

Banks There are 17 commercial banks in Mongolia, 7 of which are advertising products that they call “leasing” or “leasing loans”. There are: Trade and Development bank (TDB), Golomt, XAC Bank, Capitron bank, Agricultural Bank, Zoos Bank and Anod Bank. Banks offer a variety of leases; they finance mainly consumer goods such as mobile phones, household appliances and vehicles, but also some productive equipment. Under the present regulatory framework, banks have an advantage over other companies that would be interested in leasing because they process leases similarly to loans and pay less tax. Unfortunately, there are disadvantages related to banks engaging in leasing activities: Precisely because they are deposit-taking institutions they must be closely supervised, adhere to prudential regulations and minimize risks. As a consequence, they are not well equipped to offer an attractive leasing product that is fast, flexible, with a reasonable term and doesn’t require extra collateral; therefore they mainly engage in consumer type of leasing. Banks have not yet seen an urgent need to develop genuine leasing because their loan products are successful and absorb their available resources. Banks that engage in leasing of consumer products and private vehicles usually draw up an agreement with certain vendors. In some cases they get a discount for the leased assets- unbeknownst by the lessees.

Vendors There are four large suppliers of mining equipment that resort to leasing because their clients are not able to buy the equipment outright and cannot get loans for acquiring the goods. Their outstanding lease portfolio declined slightly from USD 6.44 million to USD 6.10 million and was probably picked up by banks (foreign and Mongolian).

Leasing products The 3 main types of leases assets are consumer goods (electronics, household appliances), private cars (used and new) and productive equipment.

Typically, leases for consumer items and vehicles have terns up to 12 months (sometimes up to 24 months), down payments of 20-30% and monthly interest rates (in tugrik) range between 1.1% -3 % is mainly done by banks. Only 1.2% of the number of leases drawn up by banks in 2005 is for more than one year, corresponding to 13.3% of the value of those leases.

Particularly, in the case of consumer goods, the banks provide financing for goods of certain specific suppliers with whom they have a contract (and sometimes they pay less than the retail price for those goods nut the consumer doesn’t know that). Sometimes a small commission is paid by the customer or supplier.

Generally, the lesser owns the asset or at least holds the title of the asset until the end of the lease term, but the assets are not recorded on their balance sheet.

Collateral is only requested when it is not fully clear whether the customer’s cash flow might be sufficient to cover the lease payments.

Heavy Equipment Concerning the leasing of productive equipment per sector, in terms of value of leases, the mining sector is clearly the sector that makes the most use of leasing deals. This is probably due to the fact that the mining equipment is very expensive as compared to other types of equipment and mining companies can’t afford to pay upfront or get bank loans.

The interest rate used in the equipment leasing of the suppliers is between 12-18% per annum. This is lower than the average market interest rates, the reason being that these Vendors don’t see themselves as lessors and make their money on the sale of equipment.

Vehicles Private vehicles are usually mentioned separately from consumer items, though many of them are, in fact consumer items. Vehicles are an attractive asset to lease because they are easier to keep track of (vehicle registration) and have a clear re-sale value.

The operations of taxi-services in Ulaanbaatar are interesting in that they demonstrate a need for the availability of more lease financing. Below is an example of how they operate:

An undisclosed taxi company offers a service to taxi-drivers that is similar to a finance lease; it makes a “Sale-Purchase” agreement with each taxi driver for a car stating that after 320-360 working days, depending on the payment schedule, the ownership will transfer to the taxi driver. The driver pays a USD 500 deposit, is responsible for the maintenance, and pays around USD 5 037 over 18-20 months in daily installments of about USD 15 per working day.

The company manager says that the drivers benefit a lot from this service, because they do not pay any interest. However, the actual cost of these vehicles in the market is around USD 2 642; this means that the company makes 91% on its investment over 18-20 months, which, depending on the way it is calculated, is nearly 3 or 4 times the average loan interest rate in Mongolia. Of course, the drivers don’t quality for bank loans because they do not have any acceptable collateral. The development of leasing companies would bring down these extortionate interest rates. This demonstrates the weak position lessees in Mongolia are generally, in: Even though, according to the Mongolian laws, financial lease is considered a type of lease and the Civil Code promulgates a principle of equally of a contract, in practice lessors often take a dominating position in concluding a contract while in Mongolia lessees are constrained by the lack of choice of lessors and a lack of knowledge on leasing.

Mongolian Stock Exchange (MSE)

The Mongolian Stock Exchange was created in 1991. The Mongolian privatization program, to a greater extent than in other countries, was connected with the development of the capital market.

In the first phase from February 1992 to August 1995, the MSE operated as a mechanism of voucher distribution (blue coupon privatization of big enterprises). Until the first half of 1995, the MSE sold shares of 470 companies worth MNT19, 400 million, served about 1.1 million people, and traded 1.540.500 blue vouchers and 1.377.200 pink vouchers received from over 460.000 people.

During the second phase, beginning in August 1995, the MSE assumed the role of the regular stock exchange. In September 1995, the State Great Khural (the Parliament) adopted the “Law on Securities” and set up the “Securities Committee”. This solved many problems related, firstly, to the reorganization of the MSE as a not-for-profit entity. Secondly, the privatization of brokerage firms. Thirdly, the financial resources needed to conduct a secondary securities market. Fourthly, the creation of conditions for effective participation of regulations on distribution of dividends, and, finally, prices of shares traded in cash. Therefore, the fledging securities market was open for domestic and foreign investors, “playing” on an equal playing field under the same rules and regulations.

With the start of secondary market activity, shares of over 38.8 billion tugriks /32.1 million USD/ have been traded in 1996-2004. Since the government bond trading in 2000, corporate bond trading in 2001 to date government bonds worth of 117.9 billion tugriks /97.5 billion USD/, and corporate bonds worth of 9.9 billion tugriks /8.2 billion USD/ have been traded.

Revision to the securities and exchange law adopted by the Parliament in December 2002, stated the MSE as a business entity, which is allowed to carry out legal business services. According to the Government resolution, the MSE was reorganized as a profit making, state-owned shareholding company and divided two independent organizations such as “Mongolian Stock Exchange” and “Securities Clearing House and Central Depository”.

Depository, Clearing and settlement of securities on the MSE market are executed through the “Securities Clearing House & Central Depository”/SCHCD/ Co.,Ltd. All listed securities on the MSE are deposited in dematerialized form with SCHCD. The clearing and settlement of securities is performed without the physical transfer of certificates between seller and buyer. This method enable to be cleared and settled on the day the transaction is executed (T+1) for Government and Corporate bonds and on the next business day following the day of transaction (T+1) for shares.

Trading on the MSE is performed only by member broker-dealers companies licensed by the Securities Exchange Commission. The relations between members and MSE, and the requirements, procedures and fees are stipulated in the “Regulations of Membership of the MSE”.

In 2005, there were 253 securities trades on Mongolian Stock Exchange, trading 257 stock companies 25.9 million shares, 305.4 thousand company bonds and 70.0 thousand Government bonds with total transaction value of 12.0 billion MNT. Comparing with the last year, the total value of share trading was increased by 1.9 billion MNT or 3.9 times, the trading value of company bond and government bond decreased to 112.8 million MNT or 4.1 times.

At the end of 2005, the MSE's TOP-20 index stood at 1019.20, which exceeded the same indicator for the previous period by 326.63 points. Visit www.mse.mn for more information

Privatization of Most Valued Companies

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The Most Valued Companies (MVCs) are government-owned enterprises that occupy a monopolistic share in substantial market, strategically positioned in their respective sectors of the economy and have the potential to attract foreign investment.

Increasing participation of foreign strategic investors in the privatization of the MVCs will support to modernize equipment and technology up to current international standards, introduce management know-how, dismantle the monopolistic position of certain enterprises, and promote the economic aspects of Mongolia’s multilateral foreign policy and national security. However, since these companies are monopolistic and may remain monopolistic after their privatization, special considerations and arrangements are required in order to make their operations efficient. Possible adverse effects on the national economy should also be considered.

The companies selected for privatization in 2005 are currently being audited or are subject to audit by a reputable international auditor. An information Memorandum consisting of legal and financial due diligence will be prepared for each company under the privatization program of most valuable companies.

Government Privatization Guidelines for 2005-2008

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The Government of Mongolia has approved “Guidelines for Privatization 2005-2008” on September 2005, which outlines two sets, the first of which is to be completed by the year’s end. This guideline follows the first set for 2001-2004.

The first set affects nine organizations including banks, a spa-resort, and mining, wool processing, construction companies to be privatized in 2005. The second set affects 11 other organizations to be privatized by 2008.

The first set of the privatization program included “Shargaljuut” spa-resort, “Mongol Erdene” mining company, “Mongol Camel Wool” wool processing company, “Khash-Ord” Construction Company, Savings bank, Capital bank, Central Asian Uranium, the State Circus, and the Number Three Clinical Hospital.

The 11 entities that will soon be privatized include large companies like the Mongolia Telecom company /55 percent state-owned/, Darkhan Makh Expo /21 percent state-owned/, “Mongolrostsvetmet” /51 percent state-owned/, state-owned “MIAT Company” and state-owned “Mongol Kino Unit”. These organizations will be reorganized and ready to privatize by the end of the year.

In one case of from the second privatization set, the Civil Aviation Authority will remain intact with the status of the authority unchanged, but the petroleum stations, airports, and the service department of MIAT will no longer fall under the jurisdiction of Civil Aviation Authority. These petroleum stations, airports, and the service department will be privatized.

The first set of the privatization began with the sale of Mongol Camel Wool for USD 970 million through auction. Next the state owned Shargaljuut spa resort – valued by government at 100.000.000 tugriks- will privatize through a competitive tender process. A progress report from the consulting commission handling the competitive tender process will be released on September 16 notifying applicants of their status.

Three organizations of the initial nine organizations – Shargaljuut spa resort, State Circus, and the Number Three Clinical Hospital – will privatize under contract conditions guaranteeing that certain organizational elements of the companies remain the same while decreasing their reliance on the state budget. The other six organizations, which included in privatization in this year, would privatize without any contract condition.

Savings bank will sell by the international open tender, but the State Property Committee hasn’t established the date of the tender yet.

The state will auction off their 100 percent owned Mongol Erdene mining company. The state will sell its 34.6 percent stake hold of shares in the Khash Ord Company on the Mongolian Stock exchange.

The Government will first offer its holdings in the Capital bank to other shareholders, and if the shareholders are not interested, the state will sell shares through an open auction.

Mongolia Telecom Company is one of largest companies. And is part of the second set, with major investment by Japan and South Korea. The Government of Mongolia is considering offering the state-owned portion fro sale to the Korea Telecom Company under a contract between shareholders.

State Property Committee

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The State Property Committee (SPC) is the government agency responsible for the administration of the privatization process in Mongolia and management of state-owned property. The SPC's mission is to accelerate the privatization process and increase private section participation in the economy, thereby improving economic efficiency, generating economic growth, and enhancing the welfare of the people.

In compliance with the State and Local Property Law, the State Property Committee manages and conducts the privatization of objects included in the list of enterprises and immovable assets to be privatized. The SPC, together with the relevant state central administrative authority, determines the necessity of restructuring enterprises and organizations and implements the government’s decision to operate enterprises and organizations through management, performance, and lease contracts. The SPC monitors the process and reports the results to the government.

The agency conducts a public awareness campaign to provide necessary information to participants in the privatization process, shareholders, and other interested parties and to help facilitate informed decisions. It provides assistance to the government on various issues including promotion of the privatization process, determination of the market value of enterprises to be privatized, development of tender rules and documents, evaluation of proposals and selection of investors, and negotiation with winners. It also organizes various activities using mass media and modern information technology to disseminate information about privatization to the public.

Barents Group of KPMG Consulting, Inc. serves as an advisor to the SPC in the privatization of the most valuable companies under a contract signed between the United States Agency for International Development and the Mongolian government.

More detailed information regarding privatization process in Mongolia can be accessed through its website www.spc.gov.mn/privatization .

Privatization of State Propoerty

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The State Privatization Commission was set up in 1991 and the main privatizations, some 400 have been completed so far. However approximately 70% of the shares ended up in the hands of only 1500 individuals, even though the voucher system was expected to produce a wider share ownership of assets. This seems to have resulted from a narrow understanding by the population at large about the process and ‘insider information’ by Government and elites according to the USAID Report. In addition there is overlap between various ministries (Industry and Trade, Finance, with little cooperation between them.

The Guidelines for further privatization 2001-2004 and again for 2005 –2008 have been issued. The target dates for the nine organizations for the first phase, including a Bank, a spa resort, mining, wool processing construction have not been met. Eleven organizations are to be privatized by 2008 during the second phase. They include Mongolia Telecom (55% state owned), Darkhan Makh expo (51% state owned), Mongol Rostsvetmet (51% state owned), MIAT, and Mongol Kino Unit which will be reorganized.

Privatization of formerly state-owned assets has been regarded as key components in the economic stabilization programs and socio-economic reform. It also reflects a commitment of the Government of Mongolia to the creation of a favorable environment for business and investment in the country.

From 1991 to 1994, all or parts of 4,500 Mongolian state-owned enterprises were transferred to the private sector through a voucher privatization program. Each citizen of Mongolia was issued vouchers to be exchanged for shares in enterprises, or in the case of rural dwellers, for a share of state-owned farms and livestock. However, the state retained control of the key industrial enterprises and other properties. Trading of company’s shares, privatized under the voucher program began in 1995 on the Mongolian Stock Exchange.

In 1996, the Government of Mongolia selected certain properties for immediate privatization and the State Property Committee conducted auctions for those properties in Ulaanbaatar. Since that time more than 70 previously state-owned properties have been privatized, including real estate and enterprises. The privatization program, approved by the government in July 1997, outlines a plan to privatize the remaining state-owned assets in Mongolia, which total over one-third of GDP.

From 1996 to 2000, 942 enterprises and assets were privatized through sealed bid auctions, English auctions, sales of shares through the Mongolian Stock Exchange, and other methods raising approximately MNT48 billion (over US$65 million) in revenues for the budget.

In summer 2005, the Government issued a resolution to privatize some state entities and make a list of those which will be restricted in preparation for privatization. The resolution is based on the state concept for privatization and recognition of state organizations in the period 2005-2008, which was approved by the 48th parliament resolution and Law on State and Local Property.

The Government now seeks to shift the focus of its privatization efforts to the country’s largest firms and their divestiture by transparent, credible “case by case” methods that permit and encourage new business entrants and aim at attracting direct foreign investments.

Opening ownership of large privatized firms to external investors is expected to bring needed capital, market access, managerial know-how, technological and product development improvements, operational efficiency, and customer- and service- oriented mentality to privatized companies. The sale of state-owned assets to reputable, internationally recognized firms is expected to have a major, positive impact on the overall economic situation in Mongolia.

Law on Economic Zones

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The Parliament has approved the Law on Economic Zones. Economic zone will be established in the city of Altanbulag on Russian-Mongolian border and Zamiin-Uud on Chinese-Mongolian border. This legislation envisions virtually tax-free business environment and minimum bureaucratic obstacles for foreign and domestic companies.

Within the Tumen River project, the Tumen River FEZ will be established and developed under the auspices of the United Nations plan for transforming the Tumen river delta (which is divided among North Korea, China and Russia) into a hub of economic growth and international co-operation. The plan includes huge duty-free shipping and processing zone on the Tumen River. It is envisaged that this project will allow Japan and South Korea to tap into the region’s natural resources while opening a land route from the Sea of Japan to Europe. Mongolia hopes to improve it links to the Pacific Ocean, its access to seaports, airports, and mass markets and telecommunications facilities.

Altanbulag Free Trade Zone

Altanbulag Free Trade Zone (hereinafter referred to as AFTZ) is located in the northern part of Mongolia with a planned area of 500 hectares. It is adjacent to Khiagt border port of Russia, 335 km away from the capital city of Ulaanbaatar and 25 km away from Sukhbaatar city of Selenge province. With its favorable advantages and opportunities free zone have a broad vision of AFTZ to expand to a major trade center with a free flow of products and goods and operations of internationally well-known companies and corporations, creating a combined network of centralizing, storing, sorting and distributing the products. Likewise, we look forward to it to develop into a new modern industrial place with functions of international trade, import and export processing and warehousing. The Free Trade Zone (hereinafter referred to as FTZ) is also expected to serve as a gateway for foreign investments.

Accessibility
AFTZ is directly accessible by an automobile road from Ulaanbaatar city and Sukhbaatar railway station of Russia-Mongolia-China international railway network. Passenger, freight and container transportation is convenient.

Immigration
AFTZ Administrative Office will monitor that the rules and regulations governing the entry into the Mongolian territory do not obstruct your work in the Free Zone.

The Administrative Office of AFTZ will assist you in the following processes:

1. Preparation of the necessary documents;
2. Application and issuance of entry visa upon arrival at the FTZ;
3. Application and issuance of entry visa upon arrival at any border points of Mongolia.
4. Extension of visa and providing assistance in obtaining residence visa.

Services
The Administrative Office of AFTZ will support and assist you in the following services to facilitate your business activities and to ensure that your stay is hassle-free.

* One stop service;
* Easy registration;
* Facilitation of the issuance of licenses and insurance;
* Introduction of business partners;
* Secretarial services, including translations, typing, etc;
* Security service.

Other related services will also be available upon request and it will include accommodation, catering services, restaurant and food outlets, leisure and social activities, etc.

Business and Investment Opportunities

AFTZ will give opportunities for companies, enterprises and other economic organizations as well as individuals both in and out of Mongolia to establish enterprises, joint ventures and other economic organizations to handle businesses related to the FTZ main functions-international trade, import and export processing and warehousing.

The operations in AFTZ will include, the reprocessing of first stage processed and semi processed products using advanced and modern technology and exporting of the final products to foreign markets; storage of export and imported products, sorting, packaging, classification of these products, affixing logo on them and other related operations, as well as activities of industrial and service nature, including selling the products in foreign countries and regions.

Zamyn-Uud Free Economic zone

"Zamyn-Uud" FEZ is located in Zamyn-Uud border point town in the southern part of Mongolia. It is situated in 780 km from Ulaanbaatar, the capital city of Mongolia, 230 km from Sainshand, the center of Dornogobi province and 8 km from Erlian town of China. Allocation for the FEZ is an area of 900 hectares.

The Law on the Legal Status of the "Zamyn-Uud" FEZ envisages to develop the zone with three major sections - industrial, commercial, and tourism-service.

1. Industrial section

It is envisaged to establish and develop therefore environmentally friendly industrial production. This would include assembling factories of audio and video equipment, home appliances and electronic goods on the order of foreign companies and the production of textiles and clothing, furniture and its details, souvenirs and other products for export.

2. Commercial section

The commercial part would include warehouses, business, exhibition centers and commodity exchange, and parceling, bottling and packaging of goods, and banking, financial services, information and communication centers

3. Tourism and services section

Implementation of projects aiming to develop tourist camps, hotels, restaurants, cafes, fast food shops and entertainments, golf course, horse racing , camel polo and a casino.

Land Reform and the Rights of Foreign Investors

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There are a number of important legal documents regarding foreigners’ rights in relation to land ownership. Two specific legislations have been ratified by Mongolian Parliament in 2002 and revised in 2003. Namely Law on Land (new version) and Law on Mongolian Citizens’ Ownership of Land.

Foreign countries, international organizations, foreign legal entities, entities with foreign investment, foreign citizens and stateless persons may become users of land for a specific purpose and period of time subject to contract conditions and in compliance with the law.

Citizens, companies and organizations possessing or using land shall pay land fees in accordance with relevant laws and contracts. The amount of land fees and regulations on partial waiver from land fees, exemption from land fees, and expenditure of the income from land fees shall be regulated by the law.

Land, excluding pastureland, land for public and special government use, may be given into ownership of Mongolian citizens only.

Land Ownership

Law on Mongolian Citizens’ Ownership of Land (effect in May 1, 2003, revised in 2004 and 2005) allows to privatize land for private use in urban areas (0.01% of total land) will be done freely to all Mongolian citizens. Families in capital city are entitled to 0.07 ha, aimag centers – 0.35 ha and soum centers – 0.5 ha of land. Subsequent acquisitions of land will require payment. Individuals that possess land on leasehold terms (including farming) have the preemptive right to purchase it form the state.

Customs

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Before 1991, Mongolia had no customs tariffs regulating foreign trade except for tariffs regulating travelers’ personal effects. Since June 1992, the customs tariff of Mongolia has been at a single rate. Customs tariffs nomenclature is based on the Harmonized System, which has been effective in Mongolia since 1996.

Most imported items are subject to ad valorem rate, calculated on the basis of the customs valuation methods devised within the framework of the General Agreement on Trade and Tariffs (GATT). In practice, the valuation methods used by Customs officials have proved to be variable. Mongolia is not yet a signatory of international instruments such as the Brussels Definition of Value, GATT Valuation Code.

The tariff rates and list of items to which various rates apply change frequently. It is important to check the latest updates from Customs Office. The following goods shall be exempt from Customs duty:

Technological equipment and heavy mechanisms (facilities) to be installed for technological and industrial purposes by the business entities with foreign investment that invest in priority sectors and export oriented industry. The list of priority sectors shall be approved by the Government of Mongolia;
appliances for special use by the disabled or equipment or raw materials necessary for making such appliances;
goods of humanitarian or irrevocable assistance;
equipment, facilities, materials, raw materials, appliances, petroleum, diesel fuel, food and consumer items for employee and private needs required for oil related activities according to the agreement made with the Government on product sharing in oil sector;
re-exportation of equipment and facilities temporarily introduced into the Customs territory for use in oil exploitation works according to the agreement made with the Government on product sharing in oil sector;
exportation of a foreign contractor's share of oil;
the nominal price of currency or securities;
goods for official use by organizations or representative offices enjoying diplomatic privileges and immunities, and household articles of persons and the families of persons enjoying diplomatic privileges; and
travelers' personal effects;
Private vehicles (no more than one) of a Mongolian citizen returning to the country after more than one year appointment in a Consular or diplomatic mission of Mongolia in another country or in an international institution.
Diagnostic facilities, equipment, appliances and packages required for guaranteed and safe transportation and reservation of blood, blood products, body and organs to be used for medical purposes.
Gas fuel, designated container, equipment, special machinery, facilities and equipment. The list of goods relevant to this subparagraph shall be approved by the Government.

Examination of Goods and Means of Transport

1. Search equipment, appliances, search dogs and other devices may be used in examining any goods or means of transport.

2. Where necessary, in the course of a customs examination, customs may take a test or sample of any goods free of charge.

3. Customs shall complete the examination of a means of transport within its scheduled stop time, which may be extended by the decision of the head of a customs inspection place where necessary.

4. The declaring person shall only load, unload, unpack, repackage goods or move any means of transport under customs examination with customs permission.

5. Customs shall not bear any expenses or losses of the goods under customs examination connected with loading, unloading, storing or transshipping or those due +to the delay of a means of transport connected with a customs examination.

6. Customs may employ expeditious clearance procedures for specific goods or means of transport that require special conditions, including urgent, hazardous or perishable goods and international postal items.

7. Customs documents may be supplied to customs in advance.

Intellectual Property Rights

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The Mongolian Government ensures protection for intellectual property. Copyright Law, Patent Law, Trademark Law are in place. The Intellectual Property Office of Mongolia and intellectual property protection state inspectors are responsible for protection and enforcement of intellectual property rights.

Mongolia became a member of the World Intellectual Property Organization in 1979 and joined to eleven International Conventions on intellectual property rights, including the Berne Convention on Copyright, Paris Convention on Protection of Industrial Property and Madrid Agreement on International Registration of Trademarks.

Insurance Law

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The Insurance Law was adopted in 2004, sets out the legal basis for insurance activities and government regulation, and regulates the relations between insurance agencies and individuals and legal entities. The legislation on Insurance shall consist of the Constitution of Mongolia, Civil Code, Company Law, this law and other legislative acts issued in conformity therewith. If an international treaty to which Mongolia is a party is inconsistent with this law, then the provisions of the international treaty shall prevail.

Foreign citizens, legal entities, and stateless persons shall enjoy the right to insurance protection of their property and non-material assets to the same extent as citizens and legal entities of Mongolia.
The State Central Administrative Organization in charge of insurance matters shall have the following competence in respect of insurance business:

To develop proposals to improve the legislation on insurance;
To provide policy advice to the Government;
Other competence as may be assigned to it under law.

Insurance Coordination Committee

The Financial Coordination Committee (hereinafter referred to as the "Coordination Committee") shall carry out the coordination and supervision of insurance business.

The Parliament of Mongolia shall adopt the business strategy and the organizational structure of the Coordination Committee and its activity shall be financed from the state budget. The Coordination Committee shall be accountable to the Parliament of Mongolia.

According to the Insurance Law, the capital of an insurance company shall consist of cash money and the minimum value shall be 500 million tugriks. It shall be prohibited to accumulate the capital through loans.

The Civil Code and the Company Law regulate the establishment, liquidation and restructuring of insurance companies unless otherwise stated in the Insurance Law. Entities engaged in other commercial activities are not allowed to operate in the insurance sector. There are no restrictions on foreign companies to operate in the Mongolian market. The Insurance Law also specifies that foreign citizens and entities have the right to establish insurance services in Mongolia on an equal basis with Mongolian citizens and entities.

Labour Law

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The Labour Law enacted in 1999 and subsequently revised in 2001, 2002 and 2003 governs labor relations of state entities and foreign enterprises with Mongolian nationals, as well as purely Mongolian employment contracts. The Law also addresses health and safety requirements, minimum wage levels, and maximum hours of work regulations, collective employment agreements and resolution of employment disputes

Employment discrimination on the grounds of social or property status, race, color or nationality, sex, religion or political views are prohibited, as are unwritten contracts of employment. The standard working day is set at 8 hours (subject to modification by mutual agreement) and the maximum working week is 40 hours. Basic annual vacation for workers is 15 days, increased both for additional years of service and work under difficult conditions. Overtime is reimbursed at the rate of at least 1.5 times the standard rate of pay. Deductions from worker’s pay, other than for income tax and child support are limited to 20% of gross monthly wages.

Bankruptcy

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The procedures for placing a company in liquidation are outlined in the Company Law. A company is legally classified as ‘in liquidation’ if one of the following conditions has been satisfied:

Shareholders’ meeting resolution.
By court order, if the company is bankrupt, no shareholder can be located, other legal grounds.

The Bankruptcy Law sets out the basic procedures for declaring companies bankrupt, as well as for their dissolution and to protect the interests of their creditors. However, the same provisions are covered in the Company Law, where Civil Code provisions are also mentioned. Problems include the lack of provision whereby a company can restructure with the agreement of its creditors in order to avoid bankruptcy. In the case of many state-owned enterprises, these enterprises are technically bankrupt but continue to trade.

Licensing Issues

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The new Law on Licensing has been passed and is being implemented. Following the enforcement of the Law business licenses and permits have been reduced from 600 to 87. The Government has directed all license issuing Government authorities to simplify business license procedures by establishing one-stop service.

Government has made a structural reorganization and merged all state inspection institutions into a single State Professional Inspection Agency under the Minister of Mongolia - Cabinet Member. Customs, health, veterinary and quality state inspection bodies at the border check points have been also reorganized into one-stop service within the customs clearance procedure. Duplicating charges and fees for inspection services have been eliminated and a single fixed rate has been established.

Auditing

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In 1997, the Mongolian Parliament adopted the Auditing Law requiring all audits to be conducted in accordance with International Standards on Auditing (ISA). Recently, it has revised. /January, 2006/ The Guidelines on International Standards in Auditing have only recently been translated into Mongolian and this should be helpful to both companies and auditors.

The competent authority shall approve National Auditing Standards in consistent with International Standards on Auditing.

Each company is responsible for maintaining its accounts in accordance with ISA. They must also have sufficient supporting documentation for all transactions and entries in financial statements and ensure that they represent the financial position of the company for the period under audit.

Grounds for undertaking auditing service:

Provision in the law for mandatory /compulsory/ auditing of financial statements.
Entrepreneurs of business entities and headquarters of organizations express their request and conclude an agreement with auditing firm
Client accepts the subscriber’s decision on audit service and selects the auditing firm to perform and concludes an agreement with the firm.

Accounting Law

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The Government of Mongolia passed Accounting Law in December, 2001 and subsequently revised the Law in 2002 and in 2003.

According to the Accounting Law the accounts of all Mongolian companies must conform to International Accounting Standards (IAS). In practice this means that, whereas no particular accounting method is specified for particular enterprises, each entity’s accounting methods must be approved by the Minister of Finance and must be consistent with International Accounting Standards.

The purpose of the present law is to determine the legal ground for accounting principles, management and institution and to regulate the relationship pertaining to the maintenance of accounting records and the preparation of financial statements of the business entity or organization.

The business entity and organization shall prepare the financial statements in accordance with the International Accounting Standards. Financial statements shall have the following composition:

Balance sheet.
Income statement
Statement of changes in equity
Statement of cash flow
Other required additional disclosures to the financial statements
The notes and disclosures of the significant events that effected to the operation of business entity or organization along with the auditor’s opinion and managerial report shall be enclosed in the audited financial statements.

The financial year shall begin on January 1 and end on December 31 of each year. Business entity or organization shall prepare and submit their quarterly financial statements by 20th of the month following quarter and annual financial statements by February 10th of the following year to the corresponding financial institution. Business entity or organization, which prepares consolidated financial statements, shall submit quarterly by 25th of the first month following quarter and annual financial statements by February 25th of the following year.

Significantly for the Mongolian government, there are implications for the effectiveness of tax policy. In principle, determination of taxable income by the state tax authorities must be consistent with International Accounting Standards as well as the provisions of other sector-specific laws. A specific example relates to the provisions for depreciation of equipment in the mining sector as specified in the Minerals Law. For taxation purposes, however, the state Taxation Department accepts a range of accounting standards.

List of Countries with Which Mongolia Concluded Agreement on Avoidance of Double Taxation

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Austria
China, Peoples’ Republic of
Korea, Republic of
Germany
India
Hungary
Romania
Russian Federation
Turkey
France
United Kingdom
Belgium
Poland
Malaysia
Vietnam
Uzbekistan
Indonesia
Czech Republic
Bulgaria
Ukraine
Kuwait
Egypt
Luxembourg
Switzerland
Belarus
Kazakhstan
Canada
Arab Emirates
Italy
Singapore
Netherlands
DPR of Korea
Thailand

Responsibility for Taxation

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Tax administration is the responsibility of the General Department of National Taxation (GDNT) which was established as a separate government agency in 1992, under the supervision of the Ministry of Finance. The GDNT has jurisdiction over 21 aimag offices. There are 9 district tax offices under the supervision of the capital city office and 360 districts under the supervision of the aimag offices and other cities. The GDNT currently employs over 100 staff at its Ulaanbaatar Headquarters. The aimag offices have been between 10 and 20 staff members each while the district offices in Ulaanbaatar have approximately 280 staff. Offices in each of the soums have 1-5 tax inspectors.

The current tax system consists of taxes, fees and payments. Taxes are imposed at both state and local level. The tax administration is responsible for administrating 19 state taxes and 4 local taxes while the custom administration is responsible for the application of import duties, excise taxes and value-added taxes (the former sales tax) on imported goods and for the application of export taxes on certain exported goods.

Double-Taxation Agreements
Bilateral foreign tax credits are only available to residents of Mongolia. To avoid double taxation, Mongolia uses the ‘tax sparing method’. In this case, the amount of foreign tax paid is allowed as a credit against the Mongolian tax payable on the same income or capital. However, the amount of such tax credits should not exceed the amount of tax payable on the same amount of income in Mongolia.

Mongolia has negotiated double-taxation agreements with China, France, Germany, India, the Republic of Korea, the Russian Federation and the United Kingdom, but not with the United States or Japan. Absence of a comprehensive bilateral tax treaty could subject foreign investors to the risk of double taxation where the investors’ home countries subject them to world-wide income taxation, but do not provide a full credit for taxes imposed by Mongolia.

Taxation

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In the framework of the Government of Mongolia’s measures to align the tax system with country competitiveness by reducing the tax rates and burden on businesses to enable job creation and induce a reduction of the informal economy, in June, 2006 the Parliament of Mongolia passed the new editions of Corporate Income Tax, Personal Income Tax, Value Added Tax and Excise Tax laws, which will be in force beginning from January 1, 2007. The new set of laws removes discriminatory provisions against domestic investors and gets rid of a large number of distortion VAT exemptions and provisions.

The new Corporate Income Tax Law reduces the lower tax rate from 15% to 10%, and the higher rate from 30% to 25% raises the threshold for the higher rate from 100 million MNT to 3 billion MNT; thus, 99% of corporate taxpayers will effectively operate in a “flat tax environment”. Besides, the new Corporate Income Tax law permits business entities to deduct more of their legitimate business expenditures provides for an investment tax credit, encouraging business investment, provides for loss carry-forward, supporting new and temporarily troubled business entities, eliminates most discriminatory tax exemptions and holidays, leveling the playing field for foreign and domestic investors and brings the law closer to international best practices.

The new Personal Income Tax Law unifies the tax rate on taxable personal income at 10 percent, replacing the existing three-tiered rate of 10, 20, and 30 percent; raises the tax credit on taxable personal income from MNT 48,000 a year to MNT 84,000, statutorily exempting from taxes those below the poverty line, around 30 percent of the population, as well as at least an additional one-third of low-income citizens; reduces the number of tax rates from 8 to 4, reducing the administrative burden on taxpayers; permits sole proprietorship operators to deduct more business expenses; defines fringe benefits and includes them in taxable income, reducing the opportunity for tax evasion; provides for restatement of related party transactions, reducing the opportunity for tax evasion; brings the law closer to international best practices.

Value Added Tax (VAT)
The new Value Added Tax Law reduces the VAT rate from 15% to 10% and eliminates the majority of the exemptions, removing distortions. VAT exemption remains on imported technique, equipment, materials, raw materials, spare parts, and gasoline and diesel fuel in order to encourage petroleum activity which made under production sharing contract with Government. VAT exemption applies also on gas fuel, its container, special purposes equipment, machinery and accessories. The list of these goods will be approved by the Government.

Excise Tax
The New Excise Tax Law imposes a monthly tax on gaming devices, changes the methodology for tax imposed on imported vehicles and increases the tax amount, discouraging importation of older, more-polluting vehicles and increases the rates on most alcohol products.

Import Customs Duty
Mongolia applies a flat rate of 5% import duty. Purebred live animals, some information technology and medical and veterinary equipments, their spare parts are duty free. Wheat flour, vegetables have seasonal tariff rates.

Export Tax
Mongolia applies a limited number of export duties on selected raw materials such as cashmere, camel wool, goat skin, timber, ferrous and aluminum waste and scrap.

Windfall Profit Tax Law
Recently Parliament of Mongolia ratified Windfall Profit Tax Law. The purpose of this law is to regulate imposition of tax on the excess-profits made by price increase of some minerals /product/ and collection the tax fees to the special fund.

The following minerals /products/ are taxable for the excess-profits tax imposed on price increase:

* gold;
* copper ore and concentrate

Tax payer shall be an individual, legal entity selling minerals /product/ as gold and copper ore and concentrate upon conducting mining in Mongolian territory.

Amount of taxable profit income of gold shall be determined upon calculation of subtracting charge and price as “base price” /means total amount of mining and production cost of copper ore and concentrate and amount calculated upon 100 percentage of profit/ from the copper price at London Metals exchange.

Amount of taxable profit income of copper shall be determined upon calculation of subtracting 500 USD from the price of one ounce of gold at London Metals Exchange. And amount of base price which shall be used for determination of taxable profit income of copper shall be 2600 USD per one ton of copper.

Tax rate on income as defined in gold and copper of this law shall be 68 percent.

Registering Business in Aimags

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All foreign companies must register with FIFTA and the State Registration Agency in Ulaanbaatar; regardless of where in Mongolia they will be based. After initial registration, companies that are located in provinces must deposit copies of the ‘Certificate of Foreign-Invested Company’ with the Aimag Governor’s Office of Business Registry.

Legal Framework on Foreign Investment

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Like many transition economies, Mongolia has adopted a comprehensive investment law setting out the framework for foreign investment. The Foreign Investment Law enacted in 1993 (latest amendments adopted in January, 2002) contains four sections dealing with:

General provisions relating to foreign investment, including a definition of foreign investment and an outline of the types and forms of foreign investment allowed.
Protection of foreign investment including legal guarantees and the right and duties of foreign investors including protection in the event of expropriation.
Operation of business entities with foreign investment including registration and dissolution of businesses, land use and other practical issues relating to the operation of business entities within Mongolia.
Settlement of disputes.

Definition of Foreign Investment and Foreign Investor

The 1993 Law defines ‘foreign investment’ as all tangible assets invested in Mongolia by a foreign investor for the purpose of establishing a business entity on the territory of Mongolia for the purpose of operating jointly with an existing business entity of Mongolia. According to the Law, a ‘foreign investor’ is a foreign legal person or individual (foreign national or stateless person not residing permanently in Mongolia and citizens of Mongolia with a permanent residence abroad) investing in Mongolia. According to Foreign Investment Law the company that has at least 25% of foreign interest is classified as foreign-invested company.

Areas for Foreign Investment

Foreign investment may take place in all areas of production and services; and in all parts of the territory of Mongolia where performing production and services is not prohibited by the laws of Mongolia.

Types of Foreign Investment
Foreign investment may occur through investment in:

Freely convertible currencies and reinvested earnings in tugrik.
Movable and immovable property rights.
Intellectual and industrial property rights.

Forms of Foreign Investment
Foreign Investment may take the following legal forms:

A wholly foreign-owned business entity or a local branch or subsidiary of a foreign enterprise.
A business entity jointly with a Mongolian investor.
A foreign investor makes a direct investment by buying stocks, shares and other securities of the Mongolian business entities under the legislation of Mongolia
By acquiring rights by law, concession and product sharing contract to exploit and process natural resources.
Marketing and/or management contract.
Financial leasing or franchising.

The 1993 Law on Foreign Investment provides that in any case where the law is in conflict with an international treaty by Mongolia, the international treaty will prevail.

Repatriation Rights

Article 10 of the Law on Foreign Investment allows foreign investors to repatriate profits, capital contribution to registered capital, dividends and other financial assets or benefits resulting from asset sales. Article 10 also allows investors to repatriate proceeds derived by withdrawing from, or dissolution of an investment.

The following income, profit and payments to abroad may be remitted without any barriers:

allotted stockholders income and share dividends;
allotted income after property and securities’ sale, transfer of property right to other party, completion of an investment agreement and liquidation of an entity;
principal and interest of debt or other identical payments;
compensation payment for confiscated property;
other income gained under the legislation of Mongolia.

Guarantees for Foreign Investment
The Law on Foreign Investment guarantees the following rights and privileges for foreign investors:

Foreign direct investment is protected by the Mongolian Constitution and by the Law on Foreign Investment complemented by relevant legislation and regulations, as well as by international treaties and agreements to which Mongolia is a signatory.
It is prohibited to expropriate assets or capital of foreign investors.
Foreign investors receive treatment equal to that enjoyed by domestic investors in relation to the right to own, utilize and exploit assets and capital.
Foreign investors are granted the following additional rights.
The right to own, utilize and dispose of investment assets and to repatriate capital invested in Mongolia.
The right to manage and to participate in the management of economic entities with foreign investment participation.
The right to assign and transfer their and duties to other legal entities.

Settlement of Disputes
Disputes between foreign and Mongolian investors, as well as between a foreign investor and a Mongolian legal entity, are resolved in the courts of Mongolia unless provided otherwise by international treaties, to which Mongolia is a signatory, or by a contract between the parties to the dispute. Mongolia joined the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards in 1994 and is also a signatory of the 1965 Washington Convention on the Investment Disputes between States and National of other States, which ensure the settlement of disputes in accordance with internationally agreed rules and procedures.

Phasing Out Tax Incentives

It is important to note that official government policy is to phase out tax incentives gradually and also to phase out other fiscal benefits that are inconsistent with Mongolian agreements with the World Trade Organization (WTO) and the International Monetary Fund (IMF). Under the protection of ‘grandfather’ provisions, existing investors benefiting from such incentives will not be deprived of their incentives during the phasing-out period.

Company Law

The Company Law of Mongolia is the most important and authoritative legislation that governs all operations and activities of business entities in Mongolia. The power of this law is expressed in its Article 98.3:

As of the effective date of this Law the provisions of other laws pertaining to companies shall continue to be effective to the extent that they are not inconsistent with the provisions of this Law.

The Mongolian Company Law permits creation of two basic forms of business entities (Article 3):

An open or joint stock company whose shareholders' capital is divided into shares which may be freely traded by the public; and a closed,
Or limited liability Company whose shareholders’ capital is divided into shares, where the right to dispose of such shares is limited by the company’s charter.

The state may also participate in business through companies with state ownership. Any company may establish one or more branches or representative offices by issuing authorization to an executive of such an office. Authority to conduct business operations commences on the date of the entity’s registration in the state register at the local government office. The applicant receives a certificate of incorporation upon completion of registration. Failure to register a business entity can result in a substantial fine and confiscation of profits from the business enterprise.

Entities are required by law to include abbreviations identifying their form of organization as part of their registered names, as follows:

* “XK” (joint-stock company).
* “XXK” (limited-liability company).

Capital contributions for company shares may be made in cash; contributing assets or intellectual property. Owners’ equity in “XK” shall be at least MNT10 million and in case of “XXK” it shall be at least MNT1 million.

The governing board of each “XK” is required to retain an independent auditor or an auditing board with supervisory responsibility for the financial affairs of the company. The auditor or auditing board verifies the annual financial report prepared for the company of Form A71, a form prescribed for all companies. This verified report is then required to be filed on or before each 1 April with the Securities Commission, the company registrar, and financial and taxation authorities.

Contract Laws

Mongolia’s principal laws of contract formation, performance, assignment, remedies for non-performance etc. are found in the current Civil Code, enacted in November 1994 and amended a number of times later on, latest version was approved in spring of 2002. Issues relating to contracts concluded before the enactment date continue to be governed by the prior Civil Code.

Contracts involving legal entities or land, as well as most other contracts shall be in writing and be certified by notary public. The Civil Code principles of contract also govern stock exchange transactions, unless pre-empted by other laws. Performance of contractual obligations may be secured by penalties, pledges (including secured loans by banks), money deposits, and sureties. Evidence of each form of security shall be given in writing, and if the subject of the security is immovable property, public registrar’s certification shall be provided.

Incorporation Procedures

Foreign investors have the following options of establishing business in Mongolia:

A wholly foreign owned business entity or a local branch or subsidiary of a foreign enterprise.
A new business entity jointly established by foreign and/or Mongolian investment.
In shares or other securities of a business entity operating within the territory of Mongolia.

The first stage of establishing a company in Mongolia is to register a company name. All names of registered companies are recorded on a database at the State Registration Agency. Company names can be confirmed in a matter of minutes.

Following the registration of the company name, the foreign investor should apply to the Foreign Investment and Foreign Trade Agency (FIFTA) for a ‘Certificate of Foreign-Invested Company’. According to Foreign Investment Law the company that has at least 25% of foreign interest is classified as foreign-invested company. A complete application includes the following documents:

Application letter - including:

Name, address, nationality of investor;
Type and size of investment;
Form of business entity;
Sector of investment, activity;
Term, stage of project investment and implementation.

Introduction of investors
If it is an application of a legal entity:

* Full introduction of the company/corporation:
* name, country of origin, contact addresses, type of activities,
* branches, permanent representations - contact addresses, type of activities
* administration structure,
* Copy of the National State Registration Certificate,
* A contact address of your bank.

If it is an application of an individual:

* Resume /CV/:
* full name, sex, nationality, date of birth,
* education, profession, occupation,
* if you're a member of Mongolian or other foreign entity - names and addresses
* A contact address of your bank,
* Copy of the national passport.

Company name certification (issued by the State Registration Agency of Mongolia)

Agreement of a joint-venture company - shall be certified by notary public (not needed, if it is 100% foreign owned company)

* full information of investors and confirmation of authority with signing rights;
* full information of a business entity;
* detailed information of registered capital;
* rights and responsibilities of the Parties, management;
* if necessary, the establishment of a supervisory council, rights and duties, its members, the procedure of electing members;
* the voting procedure and the decision making procedure if the votes are tied;
* procedure of extension, termination and alteration on the agreement;
* other provisions.

Statute - for both JVC and wholly owned company – shall be certified by notary public

* full information on investors;
* full information on business entity;
* number of investors, detailed information of registered capital;
* rights and responsibilities of the Parties, administration;
* procedure of profit and loss distribution;
* finance and auditing;
* labor and social benefits of employees;
* resolution of disputes;
* suspension and termination of operations of a business entity with foreign investment, final accounting procedure;
* liquidation of the JVC;
* other provisions.

Other agreements to be related to the investment

Bank confirmation letter (from the investor’s bank)

Reference of ownership

Special approvals/licenses from the related Government Authorities according to the Special Permit Law of Mongolia passed in 2001 (if needed)

Feasibility study (for each type of activity)

Lease contract of premises

Sanitary Evaluation of work-place (issued by the Labor and Social Welfare Inspection Agency)

The Foreign Investment Law states that the Foreign-Invested Company Certificate shall be issued within 10 days. In reality, FIFTA usually issues the certificate within one week. The certificate is issued together with an order from the FIFTA Chairman establishing the company.

On receipt of the Foreign-Invested Company Certificate from FIFTA, the investor should apply to the State Registration Agency for the State Registration Certificate (equivalent to companies’ registration). The required documents are the following:

* Company name approval.
* Certificate of Foreign Invested Company (issued by FIFTA).
* License or recommendation of investing in a special sector.
* Company’s by-laws.
* Articles of association, if joint venture.

In order for the foreign investor to complete the SRC application, he must transfer into the country the minimum MNT10 million in capitals in the form of cash and equipment. The cash must be deposited into a temporary account in a Mongolian commercial bank. If the capital contribution is in the form of equipment, it must be brought into Mongolia at least as far as the Customs checkpoint at the border. Possession of a State Registration Certificate allows the holder to convert the temporary bank account into a permanent bank account.

Once the company has been incorporated, the State Registration Certificate, the Certificate of Foreign Invested Company and the company stamp are issued. The company’s bank account is then made permanent.

Trade and Investment Agreements

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FDI is protected by the Constitution of Mongolia and the Foreign Investment Law and complemented by relevant legislation and regulations, as well as international treaties and agreements to which Mongolia is bound. Since the loss of COMECON markets, Mongolia has been active in concluding a range of trade and investment agreements.

Mongolia respectively signed the “Agreement on Mutual Protection and Encouragement of Investment” with 39 countries: Belgium, Bulgaria, China, Cuba, the Czech Republic, Denmark, France, Germany, Hungary, Indonesia, Italy, Kazakhstan, Republic of Korea, Kuwait, Kyrgyz Republic, Laos, Luxembourg, Malaysia, Philippines, India, Japan, Arabian Emirates, Austria, Belarus, Latvia, Sweden, North Korea, the Netherlands, Poland, Romania, the Russian Federation, Singapore, Switzerland, Turkey, Ukraine, the United Kingdom, the United States and Vietnam. These treaties contain provisions on compensation for damage and losses, nationalization, expropriation and repatriation of profit and income, subrogation and settlement of dispute. Mongolia is a member of the New York Convention of 1958 on Recognition and Enforcement of Foreign Arbitral Awards effective 23 January 1995.

Mongolia respectively signed the “Agreement on Avoidance of Double Taxation” with 33 countries. Mongolia acceded to the “Washington Convention on Investment Dispute Settlement of 1965” in 1996, joined up the World Trade Organization in 1997, and adhered to the “Seoul Convention on Investment Insurance of 1985” in 1999.

Preferential and Concessional Trade

Under the General System of Preferences Schemes, imports to the number of foreign countries from Mongolia are relieved of customs duties (if items are 100% produced in Mongolia), or preferential tariffs are set if certain parts of the raw materials are brought in from abroad.

Since July, 2005, Mongolia became eligible for importing to the EU market without any duties or quantitative restrictions under the GSP Plus scheme, which would assist in attracting more FDI, to diversify Mongolia’s industrial structure into manufacturing and services and to ensure macroeconomic stability. Mongolia has become one of 13 countries which have been granted such a status. As a result, there is an opportunity to supply over 7200 product items to all the 25 EU member countries (for instance, all types of textiles and knitted products, skin and hides, wool and cashmere, beverages, spirits, wooden items, electronic goods, shoes, carpets, copper and copper products, iron and iron products, just to name a few).

The eligibility to the above status reflects an improved external environment for both foreign and domestic investors in Mongolia. Considering the fact that Mongolia has rather limited types of export items, there is no doubt that in order to fully utilize such a status, there will be a need for the Government to support through its policy initiatives towards increasing the types of export goods and products.

It is worth noting that part of the support being offered by the Government can be reflected through the tax incentives that are currently being offered to investors.

Sources of Information on Foreign Investment

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A wide range of economic statistics, including those relating to foreign direct investment can be obtained through the National Statistical Office (NSO) of Mongolia. The majority of the NSO’s information comes in turn from the Foreign Investment and Foreign Trade Agency (FIFTA) of Mongolia, the government agency responsible for promoting and facilitating foreign investment in Mongolia. In addition to providing practical advice and support to new and established foreign investment, FIFTA maintains links with a range of government bodies and institutions and serves as the first-line source of information on foreign investment trends. Other sources of FDI statistics include the Ministry of Finance, and the tax and custom authorities, which compile their own statistics for budgeting purposes.

List of Major Investors

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Boroo Gold Gold exploration, mining, processing Great Britain 1997
Chinggis Khaan Bank Banking and Financial services Virgin island(UK) 2001
Mongol-Amical Cashmere & Camel wool processing USA 1996
Shijir alt Gold exploration and mining,trade Russian Federation 1995
Tomorteikhuder Geological prospecting and exploration, foreign and domestic trade China 2002
Mobicom Cellular phone service Japan 1995
Cashmere Fine Asia Wool,cashmere,furprocessing Great Britain 1998
Mongolyn Tsahilgaan kholboo shareholding Telecommunications South Korea 1995
Skytradind Shopping center,international trade South Korea 2001
Skytel Telecommunications service,wholesale,retail,cellulor phone South Korea 1999
Citi taxi Taxi service and foreign trade South Korea 1999
Mongol hung hua Sewing factory and international trade Hong Kong(China) 2000
Menatep St-Peterburg Banking and Financial services Russian Federation 2001
MongolBulgargeo Geological prospecting activity,and exploiting international trade Bulgaria 1998
Monfresh juice Manufactore and pacging multi beverage,mineral water China 2002
NZM food Processing milk products,trade New Zealand 1999
Wagner Asia Equipment Supply and leasing old mining equipments USA 1996
Khasge (Xac bank) Loan activities USA 2000
Trade and Development Bank All kind of banking and financial services Luxembourg 2002
Top light textile Manufacture of garments and textile babies clothes,trade Taiwan(China) 1997

Foreign invested companies have supported the creation of over 80,000 jobs, accounts for over half of Mongolian exports, generated around 60 billion tugriks of tax revenue which is about 10 percent of the total budget revenue. According to the General Taxation Authority, in 2005 foreign companies paid 81 billion tugriks in tax, which is 35 percent higher than in the previous year. Besides creating new job opportunities and paying taxes, foreign companies are promoting other industrial and service sectors.

List of Priority Sectors for Foreign Investment

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Agriculture

Cultivation of crops, fruits, sugar canes, oil and animal fodder plants
Intensive animal husbandry (diary, meat production, chicken farming)

Exploration industry
Coal Exploration

Exploration of all types of coat through open-cut and underground mining methods, crushing, grading and a quality improvement.
Production of briquette fuel
Exploration of brown coal and a fuel of coal type, production of briquette fuel
Exploration of shale and peat

Exploration of Oil and Gas

Exploration, strengthening, processing of oil, mineral resources containing oil and exploration of gas
Services for drilling and equipping oil and gas pits, erecting and maintaining towers

Exploration of Uranium and Thorium Ore

Exploration of uranium and thorium ores and ores containing radio-active components

Exploration of Iron Ore

Exploration, concentration, conditioning (heating, breaking into pieces, floatation, sorting and cleaning) of iron ore and minerals containing iron
Exploration of chemical and fertilizer minerals, minerals containing nitrogen, phosphorus and sulphur, flour spar and other minerals which can become chemical raw materials such as soil colorants

Exploration of Other Mineral Resources

Exploration of chemical and fertilizer minerals, minerals containing nitrogen, phosphous and sulphur, flour spar and other minerals which can become chemical raw materials such as soil colorants

Other exploration works

Exploration of minerals such as asbestos, fossil organics, magnetite, argillite, quartz, misa, fibre glass

Processing Industry
Food Production

Production and storage of meat and meat products, processing technologies for meat storage, drying, smoking, salting and tining
Production of vegetable and animal originated oils
Production of Flour and Animal Fodders
Production of mixed and tossed fodder
Other Food Production
Production of cane and turnip sugar

Knitting Industry

Spinning, knitting, dying, decorating of woolen and paper thread of animal and plant origin
Final processing of knitted cloth
Production of knitted goods for tagging, belting and hygiene purposes

Fur Processing

Final processing of fur and sheep skin tannery

Leather Processing

Leather Processing
Production of leather goods
Production of all types of shoes, including male, female and children’s shoes

Timber Production

Production of boards, glued, wood-shavings, filings

Coking, Liquid and Radio Active Fuel

Production of coke, tar and other by-products out of shale and oil

Fuel production

Production of liquid and gas fuel out of shale and oil

Production of Chemical Products

Production of industrial chemicals, such as gas, acetylene, oxide, alkali, paints and substances for processing skin
Production of nitrogen, phosphours and potassium fertilizers and substances containing them

Goods made of Non-Metal Minerals

Non-flammable ceramics
Production of non-flammable bricks, transportation boards and pipes
Production of cement, lime and gypsum

Metallurgic Industry

Production of conditioned iron ore, primary cast-iron and steel (reinforcement steel, rails, pipes, wires etc) using scrape metal
Refining and melting precious and non-ferrous metal, gold, silver, production of non-ferrous metal through segregation by electrical and other chemical methods, production of copper, lead, aluminium, zinc, molybdenum, tungsten, nyoby, tantalum, zircon, rare earth metal and strontium

Processing of a Secondary Raw Material

Processing of a secondary raw material except scrape metal

Infrastructure Sector
Production of Electricity and Steam and Water Supply

Electricity production, transmission, distribution activities (hydropower station, transmission facilities, thermo and diesel stations)
Production of steam, hot water supply (heat distribution facilities)

Water Treatment

Collection, treatment and distribution of a water for household and industrial use

Construction Industry

Construction of engineered buildings and structures
Installation, placement and maintenance of lifts and security alarm devices
Construction of a “Millennium road” (equipment leasing)
Construction of oil and gas pipelines

FOREIGN DIRECT INVESTMENT

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Since starting the political and economic reform process in 1990, Mongolia has proclaimed an open door towards the outside world and offers a favorable climate for foreign investors. The country has extensive and largely untapped natural resources, competitive local operating costs (labor costs, energy and premises), high literacy rate, and a relatively stable political and economic environment.

Creating the conditions to attract FDI and to strengthen the private sector have been important components in national development plans and have underpinned policy and structural reform since independence. Despite its location and distance from export markets, investment in the Mongolian economy has been relatively dynamic. This dynamism has been aided in part by rich natural resources and in part by the pro-active policies pursued by the Mongolian government.

The majority of sectors of the Mongolian economy are open to foreign investors, including banking, financing and privatization, infrastructure (road, transportation; tourism; ICT; construction), mining and oil, and food and agro-industry. The government actively encourages all forms of foreign investment, including joint ventures, wholly foreign-owned firms and co-production arrangements. There are no performance requirements as a condition for investment as the Government of Mongolia complies with trade-related investment measures (TRIMS) that specifically prohibit such requirements, for example export performance or local content requirements.

Recent FDI Flows

As of the end of 2005, since 1990, around 4,800 foreign invested companies (including the oil sector) have been registered from 88 countries with the total direct investment of 1.4 billion USD of which around 50 percent accounts for the minerals sector. 80 percent of total FDI was undertaken between the years 2000-2005, and among them investors from the People’s Republic of China, Canada, South Korea, Japan, British Virgin Islands, USA and Russian Federation are in leading position by the amount of investment and the number of registered companies. The leading sectors in terms of FDI are mining, trade and catering, light industry, banking, construction, and raw material processing.

FDI for 1999-2005 was concentrated in mining and oil followed by trade and catering service, light industry, banking and financial services and engineering construction and production of building materials. According to FIFTA, the majority of investment was in the mining sector, accounting for 47, 7% of all accumulated FDI. The strong presence of the mining sector in FDI can be explained in part by the high capital-intensity of mining industry. Canada, China, USA, Bulgaria and Russia are main investors in this sector.

FDI in the mining and minerals sector now represents about half of total FDI, while trade and catering compromises 15.4 percent, light industry 6 percent, banking and financial services 5.3 percent, construction 3.9 percent, and processing of animal originated raw materials 3.8 percent.

In 2005 FDI in the geological prospecting, oil exploration and mining sector amounted to US$191 million, compared to US$60 million in 2001. Following active FDI in this sector many new business activities were created in Mongolia.

The construction sector is on the rise, primarily due to the implementation of The Land Ownership Law of Mongolia, which allows for private ownership of land. The Program on 40 thousand houses has also had a positive impact on the construction sector.

FDI in the banking and financial services sector increased to above 5 percent of total FDI in 2005. The highest FDI flow – US$ 19.7 million – occurred in 2001. Since then banking has been an important sector for FDI because of the privatization of The Trade and Development Bank and the Agricultural Bank of Mongolia, and further liberalization in the banking system.

In the 2000-2005 period, FDI flows into the tourism sector increased to US$5.6 million. Today, FDI in the tourism sector comprises around 1.1 percent of total FDI and 10 percent of the country’s GDP.

There has, however, been declining FDI in the textile and garment sector due to expiration of the WTO multilateral fiber agreement, and China becoming a member of WTO.

Ninety five percent of total FDI occurred in the capital city of Ulaanbaatar, with only 5 percent / about 72.6 million USD/ in the provinces. Amongst the provinces 7.5 percent of FDI occurred in the Western region, 34.6 percent in the Khangai region, 41.1 percent in the Central region and 16.7 percent in the Eastern region. FDI is, therefore, concentrated- not unexpectedly- in those locations typified by more infrastructures.

The Government of Mongolia has approved a list of priority sectors for investment. In accordance with the list, the technological equipment and machinery brought into Mongolia by foreign investors as a part of share capital of foreign-invested companies are granted customs duty and VAT exemptions. And this is the list of the Priority sectors for foreign investment of Mongolia.

Heavy industry

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Geology and mining industry of Mongolia, has become one of the leading sectors of Mongolian development and fruits of the sector have been growing for years in due to the increase of the raw material extraction, surplus of the export and sale profits, playing an important role for economic development.

Thus, already has capacity and groundwork to provide with resources in order to develop heavy industry (ferrous, nonferrous and mining resource) based on mining resources.

At present, mining industry of Mongolia is one of primary significant sectors; producing 20 percent of the GDP, 64.0 percent of Gross industrial output, 68.5 percent of export and 47.7 percent of FDI alone with addition of 20 percent of the 20 percent of the state budget income.

The number of extractive mining products has been increasing year by year and iron ore, zinc concentrate and molding copper are starting to be exported in the beginning of 2005.

Due to the favorable legal environment of the geology and mining industry to attract domestic and foreign investors, new industries are starting to intensify.

As mentioned above, foreign investors in geology, mining and petroleum industries are increasing and about 47.4 percent of the total foreign investors are from China, 12.2 percent is from Canada, Korea (7.3%), Japan (5.0%), USA (3.6%) and other foreign investors.

The exploration process of Ivanhoe Mines Mongolia Ltd., Co, invested from

Canada, in Oyu Tolgoi deposit, Khanbogd soum of the Umnugobi province is attracting on not only in Mongolia but also in the world. Due to this exploration there is a provisional expectation of increase in Mongolia’s copper and gold reserve with a number of times.

However, extracting new kinds of minerals and processing final products to export are in stagnant situation. For example, mines and deposits with copper, coal, pewter, poly metal, phosphorus and uranium etc., have been found with state budget exploration about 20 years ago, still are not in use in industrial process till present time.

The cause of this lack of usage is directly related with infrastructure problems like shortage of water resource, not connected with heat and electricity power and lack of driveway and railway constructions in deposit located places and areas.

Technique and technology of many mining industries are in bad situation except for Mongolian-Russian joint industries. Especially, land damages of per gold and coal production and mineral leavings are high, causing environmental pollution following with extracting process of illegal ninja situations.

Some of the newly established deposit sites are using nonstandard toxic chemical causing damage to environment and people at the same time. Due to this, there are necessity of drafting a law or rules of proper usages of chemicals in mining industry and inspection process of its usages and making clearer on some points like impending, registering and neutralizing of the chemical usages.

Government has been focusing on policy which is transferring from aid and loan based economic mechanism to foreign investment supported economic mechanism. And in order to succeed Erdenet and Darkhan metallurgy industries have to renewed and extended.

In addition, creating middle capacity industries which are going to deeply processing produce products of the extracted and concentrated products of the mining industry are still in under plan.

We also have to mention, the new and amended “Mineral law of Mongolia”, adopted by Parliament to create accomplished legal environment of geology and mining industry.

Furthermore, there are great opportunities to make plan to develop infrastructure complex in deposit sites like Tavan Suvraga, Oyu Tolgoi and Tsagaan Suvraga, located in southern part of Gobi provinces, and there are great opportunity to research and study the establishment of chemical industries like cathode copper, cokes, carbonated coal and to extract liquid fuel following the these sites together with foreign investors.

In order to float some deposit sites we need to have some investors’ proposal to participate in establishment of infrastructure, railway, roads and heating power stations and we are ready to assist in this.

Even though Mongolia is a country rich with mineral resource, raw materials in future we plan on becoming a country that produces the “Value added products”.

To establish the micro and middle extractive industries directed to Asian developed countries along with our resource based Russian and Chinese industries, we are in need of technique and technology, know-how, foreign direct investment, business knowledge and experience and management and ready to cooperate in these fields which are open to everyone.

Wood Processing Industry

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The wood processing industry has a long historical background starting from 1924 and it considered as one of the oldest industries in Mongolia.

The total area covered by forest is 12.9 million ha (8.2 percent of territory of Mongolia). The total size of the forest reserve is 1.4 billion m3 and its average annual growth has reached 12.0 million m3.

Wood products are widely used by construction, energy, mining, and agricultural sectors.

At present, approximately 128 enterprises are actively operating and have more than 4,000 are employed in this sector. In terms of investment, 87 enterprises are domestic invested companies and 41 enterprises are joint ventures. Eighty-five enterprises out of 128 are operating in rural areas, 43 enterprises exist in Ulaanbaatar.

Due to insufficient forest reserves, the Government of Mongolia is paying more attention on promoting the import of wood and raw materials by exempting them from import customs duty.

In order to improve the quality of the products, the Government is also encouraging the importation of advanced technology, by exempting the technological equipment and machinery from import VAT and customs duty.

The Government of Mongolia is paying a great deal of attention to maintaining the sustainable development of the wood processing industry. The government has approved two large-scale programs to be implemented until the year 2015. The Ministry of Industry and Trade is giving high priority on the implementation of these programs in order to enhance the processing level of timber, improve the quality, and increase the range of products.

Leather Industry

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Mongolia currently produces 8.4 million raw skins and hides, out of which 52.4% or 4.4 million is sheep skin, 26.2 % or 2.2 million is goat skin, 7.1 % or 0.6 million is cow hides; The remaining leather products constitute 4.7% or 0.46 million.

As of 2003, more than 60 leather-processing companies represent the industry. Twenty processing companies produce finished goods. The total processing capacity maintained by these companies is 7.9 million skins.

However, they currently operate at a production capacity of 10-40%. Early stage processing has exceeded the raw material resource capacity by 12.6%.

Production volume of the industry for 2004 was 356.6 million MNT. A total value of USD 5,149 million was exported. This amount reflects 1.3% of the GDP and 8.6% of the total export. Most of the production volume and export is semi-processed leather.

The National program for the leather industry was developed with the objective to ensure the sustainable development of the livestock product processing industry. This industry is crucial for the economic development of the country in the achievement of the objectives of the Government to promote export-oriented industry, to achieve about 10 % growth in economy in 2010, and to maintain the sustainable development of the industry.

Goal of the program

Increase the export earnings of the leather industry through improvements in processing
Restructure the industry in line with the regional development concepts.
Reduce the ecologically negative impact of the production technology, and introduce new and advanced technology.
Promote the livestock product processing and the recycling of production wastes based on modern, advanced biotechnology processing.

Textile Industry

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At present, around 100 enterprises are operating in the textile sector, where 38.3% are fully foreign invested companies, 46.8% are joint ventures and the remaining 14.9% are domestic manufacturers.

Nearly 20,000 employees are working in this sector, which represents approximately 12 percent of total workforce of the industrial sector.

Currently this industry is manufacturing about 5.3 percent of the Gross Industrial Products (GIP) and sharing more than 16 percent of the total export. Like many developing countries, the textile industry in Mongolia is based on the orders from overseas.

Main features of textile industry in Mongolia:

Favorable trade conditions in international market
Appropriate positions in US and European market
Advanced technology and production lines
Key document - “Program for development of textile industry”, approved by the Government The main objective of the Program is to create a fertile business environment for the development of the textile industry.

In order to fulfill the main objectives, the following measures are taken:

Creating more favorable trade conditions and expanding foreign relations to increase exports and to find new market niches
Creating a productive legal framework for developing the textile industry
Supporting domestic production rather than imports
Improving industrial efficiency through the enhancement of management skills
Creating a non-discriminatory tax environment for foreign and domestic investors
Helping former manufacturers in the rural areas to recover
Promoting capacity as well as training of the employees

As WTO has abolished the quota system for the textile products, the Parliament of Mongolia has approved the Law of exemption from VAT and Customs duty on textile raw materials and spare parts.

Construction sector

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Although limited by its harsh winter climate, Mongolia’s construction sector continues to flourish. While Mongolia’s total population remains small at 2.6 million, 55% of the people reside in cities, creating a larger than expected housing market. Most of the cities, particularly Ulaanbaatar, have grown phenomenally over the last 7 years. Ulaanbaatar has more than doubled in 7 years from 450,000 to over a million. Residential stock is in short supply and demand shows no signs of slacking. By 2010, the population of Ulaanbaatar is expected to increase by over 60%, bringing a demand of 700,000 additional family units.

Growing industrial, service and tourism industries contribute to strong construction demands. By mid 2003 construction had grown by 10% over the same period in 2002. Most commonly, the building of private apartments, shopping complexes, and small hotels. In the country, builders and buyers appreciate the financial and environmental benefits of energy efficient techniques. However, construction methods need improvement. Companies are still learning to utilize these technologies efficiently.

Mongolia needs expertise and technology, specifically in the areas of concrete and cold weather construction, and heating, ventilation and air conditioning installation. At its Soviet-era peak in 1989, the construction sector made up ten percent of the gross national product of Mongolia. Once Soviet subsidies vanished, building projects stopped. Until 1996, the state undertook all construction activities. By 1998, Mongolia privatized its construction industry. In 2004 a mix of private and public companies are learning how to work and prosper in the free market. In addition, the privatization of apartments has inspired a host of renovations and additions to buildings. Rather than build or buy new homes, apartment owners improve what they have, creating a market for American home improvement materials and concepts.

Today Mongolia has 100 architectural and engineering design companies and over 800 construction companies. Of these, 40 are considered large operations with their own in-house design and engineering units or have a close relationship with one or more companies that either manufacture or import construction materials. The private sector can now initiate real estate development projects.

Therefore, there's an increasing demand for taking a complex measure within a short period of time, to increase the number of citizens living in suitable apartments, decrease unit costs for apartments, create more jobs, take decrease poverty, and enable them to have regular income source.

The Government of Mongolia has proposed to implement "40.000 housing units" program taking consideration the Government housing policy , "Housing Law", National "Housing" program approved under the resolution No.58 of the Government of Mongolia , the Government Action Plan for 2004-2008 and the Strategic Action Plan developed by the Ministry of Construction and Urban Development and other related laws and regulation.

The purpose of the Program lies in ensuring provision of apartments for citizens of the basis of supply and demand ratio through implementing appropriate policies for urban development taking the national features of Mongolia into account, introducing land into a market economy, creating favorable economic and legal environments for construction field an long-term credit system, constructing housing infrastructure in ger areas and in vacant sub-urban area of the city. The program will implemented during next 5 years and approximately 90 percent out of the planned 40.000 housing units will be constructed in the capital city and the rest 10 percent will be constructed in the regional pillar centers and provinces.

With the purpose of allocating requirement of US$6.00 million for the project implementation, the Government will create favorable business environment for the foreign and domestic investors.

Within the framework of the program, we are aiming to form a legal and economic favorable condition by making amendments in the existing laws of Mongolia to exempt from the value added tax of the activities such as : infrastructure for the apartments, service providing water supply to the ger areas, income coming from selling apartments, housing units and project design work.

The Parliament of Mongolia has approved Laws for exemption of the Value Added tax and Custom Taxes for major construction machine and mechanisms and other equipments that to be imported for purpose to implement the Government "40.000 Units of Housing program" and the Law for exemption of the Value Added Tax of the project works in the field of construction development, infrastructure construction and sales of units in frame of Government Housing Program.

For more information view this site: http://www.pmis.gov.mn/mcud

Information and Communication Technology sector

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During the last five years, information and communication technology (ICT) was seen as a dynamic and active sector in Mongolia. Foreign investments, technical assistance, and cooperation with technically advanced nations have enabled Mongolia to achieve significant progress in ICT development. The Government of Mongolia has articulated a national ICT Vision in 2010 that lays out the principal strategies of ICT development and the Prime Minister himself heads the National ICT Committee. The government's relatively forward-looking policies have encouraged the private sector to become a leading force in the ICT sector.

The private sector has in turn responded to opportunities in building infrastructure and providing hardware and software services.

The government of Mongolia focuses its attention to ICT as a prime mover to socio-economic development. Therefore, various strategies were formulated to tap this opportunity. The main strategy is contained in the ICT Vision 2010, which aims to provide favorable conditions for the development of government-legislation framework, business-economic framework, and people-society framework and on the necessity to establish state policy and regulatory regimes. The medium-term development strategy for ICT supports the ICT Vision 2010 by presenting different approaches and project implementation schemes to realize the vision.

Recently the new Government of Mongolia has established the Information and Communication Authority/Agency under the Prime Minister. National Information and Communication Technology Committee is an organization with consulting and recommendatory functions to the Mongolian government.

The government recognizes the important role of the private sector and expresses their support in the following interventions: use ICT for increasing the competitiveness of national industry and services, support start-up businesses in ICT, activate domestic ICT market by promoting and intensifying ICT consumption by the government.

The telecommunications network of the country was renovated and installed according to international standards by Alcatel of France, EWSD of Germany and KDD of Japan. And also in 2006, Information and Communication Authority of Mongolia has signed memorandum of understanding with Korean Information and Communication Authority.

The country is connected with more than 150 countries via American Intelsat, Asiasat-1 and Intersputnik satellite links. Moreover, mobile telephone services, paging and data networks, cable TV networks, radio and TV broadcasting, and intranet networks are presently operating in Mongolia.

The internet was first brought to Mongolia by DataCom in January 1996. Since then, various internet-based services such as e-mail, internet connections, internet faxing, internet telephone, e-accounts, e-shopping, and internet cafe are available to users in Mongolia. There are about 12 Internet service providers /ISP/ in Mongolia such as Magicnet, Datacom, MiCom, and Bodicom.

As of last year, there are 46,000 Internet subscribers, over 200,000 Internet users and over 80,000 households with a cable TV all over the country. The digital divide between the rural and urban area is very wide. The fiber optic cable along railway was already set in place and operational. This will serve as the main regional backbone traversing between Russia and China. The government is working on it to optimize the use of this facility.

At present, Mongolians communicate locally and internationally using different telecommunication services, and they are: fixed line network (copper line and fiber optics), wireless communication (microwave links & cellular phones), VSAT (Intelsat and Intersputnik systems). Telecom Mongolia dominates the telephone services while Railway Authority is working out to increase its share in the market. A total of 156, 3 thousand telephone subscribers were registered last year.

Mobicom and Skytel are the only cellular telephone providers in Mongolia using GSM900 and CDMA technology respectively. A total of 574, 4 thousand cell phone subscribers were registered and are expected to grow at a faster rate than telephone subscribers. The cellular network covers all aimag (province) center and some biggest soum (county) centers. The density of cellular phone is 12.8 per 100 inhabitants. More information … http://www.ict.mn; http://www.icta.gov.mn/ictam/

Guide to Investment and Trade-Mongolia

Mongolia-Asia Investment Forum 2009

Mongolia to Increase Excise Tax on Imported Vehicles

The Mongolia Investment Forum 2008

Importing Japanese Used Cars Into Mongolia

TARIFF SCHEDULE FOR IMPORTED GOODS

CUSTOMS CLEARING PROCEDURES TO IMPORT GOODS VIA RAILROAD

Doing Business in Mongolia

Mongolia's Used Car Market

Exporting Used Cars to Mongolia

Some obstacles faced by Mongolian foreign traders foreign traders

FOREIGN INVESTMENT LAW OF MONGOLIA

Regulation for establishment of foreign representative office in Mongolia

Foreign Citizens Law

Labor Cost

Licensing in energy related operations

Mineral Exploration Service fee

Commercial Banking Licensing

Commercial Banking Licensing

LAW ON LICENSING

LAW ON LICENSING

PART ONE General Provisions

Article - 1. Objectives of the Law

Article – 2. Other relevant legislation on Licensing

Article – 3. Terminology in the Law

PART TWO Giving, Delaying and Invalidating the License

Article – 4. Content of the License

Article-5. Scope and frame of the Licensing

Article-6. Deadline of the License and its Extension

Article-7. Procedure to give a license

Article – 8. Prohibited business activities

Article-9. Principles and requirements for licensing

Article-10. Authority of the licensing institution

Article-11. Required documents for licensing

Article – 12. Giving a license

Article-13. Delaying the licensing

Article-14. Invalidating the license

Article-15. Types of business to be conducted under the license

Article-16. Types of business to be licensed by aimag, capital city, soum and

PART THREE Miscelleanous

Article-17. Dispute solution regarding licensing process

Article-18. Sanctions and punishment to the violators of licensing law

Article-19. Validating the Law

Sectors that need licensing:

Crude Oil

MRPA

Wood Processing Industry

Crop Industry

Food industry

Agriculture Sector

Livestock sector

Copper Industry

Tourism

Exchanges rate

Inflation

Economic growth, GDP (Gross Domestic Products)

Economic external environment

Import

Export

Foreign Trade

International Organizations in Mongolia

MNCCI

Foreign Investment and Foreign Trade Agency (FIFTA)

Financial Sector

Privatization of Most Valued Companies

Government Privatization Guidelines for 2005-2008

State Property Committee

Privatization of State Propoerty

Law on Economic Zones

Land Reform and the Rights of Foreign Investors

Customs

Intellectual Property Rights

Insurance Law

Labour Law

Bankruptcy

Licensing Issues

Auditing

Accounting Law

List of Countries with Which Mongolia Concluded Agreement on Avoidance of Double Taxation

Responsibility for Taxation

PART ONE
General Provisions

PART TWO
Giving, Delaying and Invalidating the License

PART THREE
Miscelleanous