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Mongolia – Regulatory Framework For Investment: Scope Of Law, State Regulation.

5 November, 2013

 

Legal News & Analysis – Asia Pacific – Mongolia

 

SCOPE OF THE LAW


The scope of the Investment Law extends to the regulation, protection and promotion of investment by foreign and domestic entities in Mongolia.


Under the Investment Law, “investment” is defined as “tangible or intangible assets invested in share capital of a legal entity carrying out profit-making activities in Mongolia as reflected in the financial statements”.


A foreign-invested entity is defined as a business entity (i) which is incorporated in accordance with the laws of Mongolia; (ii) in which foreign investor(s) hold(s) a 25% or more interest; and (iii) the capital contributions made by each foreign investor (shareholder) exceeds US$ 100,000 or the MNT equivalent of the same. This means that a joint venture between Mongolian and foreign investors may need to comply with higher share capital requirements than those which existed under the Foreign Investment Law. It is not clear whether existing foreign-invested companies must comply with the new capital requirements.

 

The Investment Law expressly does not apply to investments by Mongolian state authorities with State funding nor to investments by international organisations, NGOs and private persons in the form of donations or ex gratia grants. Further, the relevant provisions of the Investment Law will not apply to the entry into of investment agreements relating to the nuclear energy sector.


STATE REGULATION OF INVESTMENT


The MED will continue to have the main authority to implement state policy and laws and regulations on investment. Among other powers, the MED issues approvals for certain equity investment made by an FSOE.


Further, the MED will create an Investment Agency, a separate agency with a mandate to promote, advertise and regulate investment activities in Mongolia. This agency will also be in charge of issuing tax stabilisation certificates as well as ongoing monitoring and inspection of the activities of holders of such stabilisation certificates. Unlike the current Foreign Investment Regulation and Registration Department of the MED (“FIRRD“), the agency will not have any role in registering foreign-invested entities established by private investors.


The Investment Law provides that an ad hoc board (including representative(s) of investor(s)) will be established by the cabinet minister in charge of investment matters (currently the Minister of Economic Development) with a mandate to provide opinions and recommendations for the issue of tax stabilisation certificates. The Minister of Economic Development will issue regulations for the composition and operational procedure of such ad hoc board.

 

Index:

 

1. Overview

3. General Framework For 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
[email protected]

 

Chris Melville, Partner, Hogan Lovells
[email protected]

 

Anthony Woolley, Hogan Lovells
[email protected]

 

Nominchimeg Odsuren, Hogan Lovells
[email protected]

 

Solongoo Bayarsaikhan, Hogan Lovells
[email protected]

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