Deal Maker of the Year Awards 2012 Doing Business in MONGOLIA in MONGOLIA
e Director of LexLoci, a Mongolian law firm incorporated as a Limited Liability orate and commercial transactions, mining and infrastructure development, s, civil and administrative litigation etc. to foreign and domestic entities
Regarding forming a limited liability company, it should first be registered with the Foreign Investment Office in order to obtain the certificate of a company with foreign investment, after confirming the company name with the State Registration Office. Then it will need to apply for company registration and certificate at the State Registration Office, which is followed by registration with the local tax department. There are number of application documents that need to be prepared and signed by the investors and the executive of the newly established company such as incorporation decision, shareholder’s agreement, notarized company charter, investor’s details, etc. We prepare those documents for investors for signing and deal with the all aspects of registration.
If the new company is to be engaged in certain business activities then it may require ‘special licenses’ under the Law on Licensing (2001), these activities are registered in the scope of business activities upon issuance of the relevant licenses from the authorities.
Q
GDF Suez (France), Posco Energy (South Korea) and Sojitz (Japan) are in talks
with Newcom to invest $1.3bn in a Mongolian power plant. Is this a good thing for Mongolia?
It is expected that this is the largest non- mining investment project in Mongolia under the concession agreement with the Government, of which negotiation is expected to be concluded within this month (October, 2012). As far as I am concerned, the successful implementation of this project will be a shining example of best practice in terms of the newly adopted Concession Law of 2010. Ultimately, it may lead to other large scale public infrastructure projects structured by debts financing or otherwise, so the investments and associated supply chain are secure.
Generally speaking, this project is crucially important to our central power grid network as there is an increasing demand per annum (8%-9%), and shortage of power supplies at this period of rapid economic growth in Mongolia is due to the escalating use of electricity, real estate development and the mining industry. Mongolia will benefit from this new power plant generating both heat and electricity by reducing the amount of rush
hour electricity currently being imported from Russia. I also expect that the consortium awarded this concession will introduce international best standards, technologies and know-how in terms of minimising environmental impact.
Q
Have there been any legislative changes in the past 12 – 24 months? If not, what
changes would you like to see?
Mongolia is continuously improving its legislation towards a free market economy in order to deal with new and unforeseen circumstances. For instance, in 2011 the Parliament of Mongolia passed the revised version of the Company Law which is broadening the personal liability of governing persons, establishing stricter corporate governance rules, creating a concept of independent directors and increased disclosure obligations, abolishing minimum capital requirements for Mongolian companies (except foreign invested) and introducing closed joint stock companies. I would also mention the ratification of Law on Information Transparency and Access to Information (2011) and the Law on Preventing Conflict of Interest in Public Services (2012), although there is a need for improvement prior to their proper implementation.
As you may be aware, Mongolia has attracted the attention of the international community for its rich mineral resources and reserves. Recently, there have been a number of changes in mining legislation in Mongolia including the annulment of the Windfall Profits Tax Law of 2006 (2011) which imposed 68 percent tax on sales revenue from copper and gold that resulted in a significant increase in the tax liability of mining ventures. It also introduced surtax ‘ad-valorem’ Royalties based on market price and degree of processing of minerals in addition to the standard Royalty rates (2010); as well as prohibiting the conducting of mineral exploration and extraction work within the defined area of rivers, lakes, spring water and glaciers, or in natural and artificial forests (2009), suspension of the first issuance of mineral exploration licenses in 2012 (2012) and ratification of environmental related laws (2012) due to concerns over environmental protection.
The latest and most significant legislative change should be the adoption of a new Law of Regulating Foreign Investment in Strategic Sectors (May 17, 2012) which requires foreign investors to obtain Governmental or Parliamental approvals (depending on the size of the investment), if they wish to conduct business in the field of banking and finance, telecommunication and mass media and natural resources. However, the related regulation on the approval procedure has not been adopted thus far, ultimately causing uncertainty among the foreign investors and has led to the suspension of a number of transactions affected by this new law.
Based on my experience, I would like to see improvements on VAT Law (2006) in terms of the scope of VAT that causes numerous disputes between the tax payer and tax authority. I would also like to see further amendments to the Petroleum Law (1991), which has lack of regulation on several activities relating to petroleum developments, licensing etc. despite numerous legislative changes.
Q
Is there anything else you would like to mention?
In addition to the energy project discussed earlier, there some other large projects planned by the Government of Mongolia that the foreign investor may be involved in. These include the expansion of railroad network, development of a heavy industrial complex in Sainshand, the capital of Dornogovi Province, amongst others. Mongolia is also expecting development of its non-mining industries in order to avoid sole dependence on mining, whilst encouraging the development of mineral deposits, particularly those identified or potentially identified as deposits of strategic importance for the country.
As a final point, I would mention that Mongolian lawyers, with our unrivalled local knowledge and unique skillsets, enable us to be perfectly placed to assist foreign investors in their start-up endeavours in Mongolia right from the outset and throughout their business venture, by ensuring local compliance and managing local relationships.
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