Dear AustCham Mongolia members and friends,
We are proudly presenting ‘Doing Business in Mongolia’ cheat sheet prepared by our Corporate Member MinterEllison Mongolia Advocates LLP.
We hope this sheet will help anyone who are interested in and/or planning to start their businesses in Mongolia.
MinterEllison
Presence
Presence on the ground can be established through a representative office, branch office or Mongolian-incorporated legal entity. However, representative offices can't undertake any economic activities and branch offices, as a matter of practice, can't be registered. So, establishing a Mongolianincorporated legal entity, such as a limited liability company, is the only current option.
Mongolian companies with more than 25% foreign ownership, must have minimum paid in share capital of US$100,000 per foreign shareholder. Mongolian limited liability companies do not need to have a board of directors, but must have an executive director. Legally there are no residency requirements for board members or the executive director, but in practice it is difficult to operate in Mongolia without a resident executive director (although it is possible through the use of a power of attorney).
Structuring
Arbitration
However, Mongolian courts may refuse to recognise /enforce a foreign arbitral awards where to do so would, among other things, infringe Mongolia's common interests. Where parties choose to have their disputes resolved by foreign arbitration, it is possible for Mongolian courts to permit interlocutory applications or grant relief.
Taxes at a glance
Indirect transfer for the sale of an entity holding land possession and use rights or minerals licences are subject to 30% withholding tax on a gross basis.
Personal income tax: Mongolian tax residents (in-country for more than 183 days in any year in question) pay 10% personal tax on their global income.
Withholding tax: Mongolian entities pay 10% withholding tax on all dividends/ interest/royalties paid to other Mongolian entities. Mongolian-sourced income paid by Mongolian entities to offshore entities is subject to a 20% withholding tax.
VAT: 10% on all goods sold and services rendered within Mongolia. Companies should register for VAT as soon as possible. All VAT incurred prior to registration is not creditable or refundable.
Land rights
Whilst foreigners, foreign companies and Mongolian companies with more than 25% foreign ownership cannot own or possess land rights, they may be granted land use rights. Whereas Mongolian law does, in certain circumstances, provide for the grant of land use rights for extended periods (with renewal options) prevailing practice is for land use rights to be granted for between three and five years.
Enforcing foreign judgements
Employment
Monthly contributions must be made into a 'Social Health Insurance Fund'. Employee contribution is capped at 11.5% of employees salary and an additional employer contribution is 12.5-14.5% of employee's salary, uncapped.
Currency
Furthermore, parties may not agree to adjust their contractual payments based on movements in exchange rates. Generally, offshore counterparties can charge and be paid in foreign currencies and currency adjustment mechanisms are permissible, where goods are sourced or work or services are performed, offshore.