Newly approved Investment Law of Mongolia The Parliament of Mongolia has passed a new Investment Law (IL) which has 7 chapters and 24 articles and to become effective on 1 November 2013. Once effective, IL permanently ceases the application of Foreign Investment Law of Mongolia /1999/ and Law Regulating Foreign Investment in Business Entities Operating in Sectors of Strategic Importance /2013/. The scope of LI, with exception to public procurement, private and public humanitarian affairs, covers both foreign and domestic investment and, thereby making no distinction between these two investors. It should be noted that nuclear sector also goes under the regulation of IL with minor exception when it comes to establish an investment agreement. Despite the void of the Law Regulating Foreign Investment in Business Entities Operating in Sectors of Strategic Importance, the lawmakers agreed to keep their very original intention that prompted the adoption of this law back in 2012. Thus, not any but only state/government owned foreign entities are subject of a prior approval if they are to make a direct investment in banking, mining and media sectors and to obtain more than 33 percentage of existing shares. In this scenario, Ministry of Economic Development has given a power and responsibility to scrutinize the application and make a final decision. And among those criteria that the state owned entities to satisfy as per Article 22 of IL, national security perspective & consideration of competition/monopoly character of investment are included. Chapter 4 of IL offers tax and non-tax incentives for the investors (both local and domestic) yet its sub-article 11 contains some general declarations – that investors are entitled for i) tax exemption, ii) tax rate reduction, iii) faster amortization/depreciation deductible expenses form taxable income – with no specifications on what ground and how these tax incentives are to be applied; instead it gives a reference to a tax law (sub-article 11.3 of IL) to regulate these routines. Certain conditions attached by sub-article 11.2 for those who may be exempt from customs fee and value added tax of “0” for their imported machines and equipment within the duration of a construction work. This advantage is given to petroleum industry, construction of materials building, agriculture, export industry, nano & bio technology production sectors, power generation and railway construction. As for non-tax incentives under the heading of Article 12 include a permission to possess and use land for 60 years as an initial term with further extension for 40 years. We should be reminded that Land Law of Mongolia does not permit foreign legal entities to possess a land (sub-article 31.1 of Land Law of Mongolia) and amendment to Land Law was not submitted along with the draft text of IL. Therefore, it is sound to conclude that it – land possession – refers to local investors only. Yet foreign investors may consider utilizing 60 + 40 years term for land use since the Land Law of Mongolia is silent (sub-article 44.5 of Land Law) when it concerns a period of land use by a foreign legal entity. Another issue of interest under the non-tax incentives is a simplified routine to get foreign-workforce permission and fee waive for those investors in infrastructure, production, science and education. Similar to tax incentives, IL does not set specific parameters for non-tax incentives but does make a reference to Land Law, Foreign workforce permission and other laws to regulate these aspects of IL. Furthermore, from a linguistic perspective, these tax and non-tax incentives are not straightforwardly granted; it is simply stated that investors “may have”. Other incentive is a provision of Tax Rate Stability Certificate but again requirements are different depending on geographical location and have a certain threshold of investment which differs among mining (30 billion in MNT of minimum threshold) and non-mining sectors (10 billion MNT of minimum threshold). On top of this, those investors with more than 500 billion of MNT investment may ask a favorite environment apart from those set in IL and entitled to sign an investment agreement with the Government.
Posted on: Thu, 17 Oct 2013 07:23:37 +0000