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Mongolia – Regulatory Framework For Investment: General Framework For Investment.

5 November, 2013

 

Legal News & Analysis – Asia Pacific – Mongolia

 

Subject to approval requirements for FSOEs, investors may invest in any production or services sector which is not prohibited or restricted by law. Prohibited sectors are specified as narcotics, gambling, pornography, or pyramid sales or marketing. Certain regulated sectors are also subject to licensing requirements.


The form of investment may be incorporation of a Mongolian-incorporated entity, purchase of securities, merger of companies, entry into of concession, production sharing, marketing or management agreements, or franchise or financial leasing agreements.


According to the Implementation Procedure, existing foreign-invested companies and representative offices that are registered with FIRRD must re-register with LERO following the expiry of their FIRRD certificates. Otherwise, such entities or representative offices may continue their operations under existing certificates.


Registration Framework For Foreign Investment


Under the Investment Law, foreign investors may establish a presence to do business in Mongolia only through (i) a foreign-invested business entity or (ii) a representative office. No other form of corporate vehicle such as a branch, is currently provided for. Although a reference is made to “business entity” which may include any corporate forms for profit-making activities, in practice a limited liability company is the most common vehicle used to establish a presence in Mongolia.


The Investment Law expressly provides that a foreign or domestic investor may make an investment on the basis of registration of a legal entity in accordance with the Law of Mongolia on Companies, (as revised) enacted on 6 October 2011, the Legal Entities State Registration Law and other relevant laws and regulations. This is similar to the process under the Foreign Investment Law where foreign-invested entities need to be registered with FIRRD and LERO, save that the two-stage process has become a one-step registration. However, an FSOE may only make an investment upon obtaining approval from the MED as specified in the Investment Law as discussed below.


Accordingly, investment made by foreign or domestic private investors will no longer be subject to general approval requirements, other than registration to the extent required, and licensing or other requirements under sector-specific legislation.


Regulation of Investment By An FSOE


The Investment Law stipulates that an FSOE must fulfil the MED’s approval procedures for investments exceeding a 33 per cent or more interest in Mongolian-incorporated legal entities which operate in any of the following sectors:


(a) minerals;
(b) banking and finance; and
(c) media and telecommunications.


The Investment Law does not define these sectors as having strategic importance, but these are identical to the sectors that were considered as strategic under the SFI Law.


The Investment Law sets out the application procedure for seeking approval and the required documentation for making an application to the MED. The MED will determine the application within 45 days of the receipt of the application. The Investment Law maintains certain criteria specified in the SFI Law for assessing the application which are rather subjective, such as whether the investment will contradict with the national security policy of Mongolia, restrict competition, or have adverse impact on the budget policy and state revenues.

 

According to the Implementation Procedure, the approval requirements under the Investment Law will not apply to changes in the shareholding structure in Mongolian entities in which FSOEs owned a 75% or more interest as at the date of enactment of the Investment Law.

 

Index:

 

1. Overview

2. Scope Of The Law, State Regulation Of Investment

4. General Legal Guarantees And Obligations

5. Promotion Of Investment

6. Sanctions, Conclusion

 

Hogan Lovells

 

For further information, please contact:

 

Michael Aldrich, Partner, Hogan Lovells
michael.aldrich@hoganlovells.com

 

Chris Melville, Partner, Hogan Lovells
chris.melville@hoganlovells.com

 

Anthony Woolley, Hogan Lovells
anthony.woolley@hoganlovells.com

 

Nominchimeg Odsuren, Hogan Lovells
nominchimeg.odsuren@hoganlovells.com

 

Solongoo Bayarsaikhan, Hogan Lovells
solongoo.bayarsaikhan@hoganlovells.com

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