Gadgetine

INTRODUCTION OF LAW ON INVESTMENT

2014-03-10

The Government submitted drafts for Law on Investment, 12 accompanying laws and Parliament resolution to the Parliament on 10 September 2013.

The Parliament conducted initial discussion for drafts of above laws at the special session of the Parliament and approved and adopted them on 3 October 2013.

Law makers supported the following concepts of the draft laws of the initiators and approved them:

1. To create common legal regulation, protection and guarantee for investors, to transfer their capital and income without restriction to foreign countries, to legally protect intellectual properties of investors regardless whether the investors are foreign or national;

2. To remove the system to obtain permission in establishing foreign invested enterprises, to commence its operation by registering in State registration authority, to obtain permission for state owned foreign legal entity to own shares in Mongolian enterprise; The entity is deemed to be “state owned foreign legal entity” if 50% or more of its shares is directly or indirectly owned by foreign government.

3. The government guarantees the stability of tax environment for investors: To maintain tax or corporate income tax, value added tax, customs duty percentage and amount and mineral resource utilization fee amount which are stated in the Law on Investment stable at the level which is validly complied with at the time of approving Law on Investment and to issue Stabilization certificate;

4. To establish Agency in charge of Investment issues with responsibilities to attract and promote foreign investment, to advertise investment environment in our country, to issue Stabilization certificate for investors who satisfy requirements in the law and etc;

5. To increase criterion for law amendment in order to maintain legal environment for investment stable, to make modification or amendment to the Law on Investment with at least 2/3 vote of the total members of the Parliament.

The Parliament resolved a few amendment which are principally different from the submitted draft law within its plenary power during discussion of the draft law and approved the Law on Investment. For instance, over 60% of the total chapters, clauses and articles of the draft was amended during discussion by over 130 differences in the draft law and over 30 suggestions of edition.

The summary of major amendments made in the draft during discussion is:

1. The concept on foreign invested enterprise is renewed and amended that the foreign investor owns at least 25% of the total shares of an enterprises and the amount of each investor should be 100 thousand USD. Thus, the requirement of the law for foreign invested enterprise’s investment to Mongolia, especially the entrance of small and medium enterprises on the market is risen.

2. Support to investors and legal guarantees for them are specifically defined. The clause, stating that investors are able to exercise conditions in legal environment if they are favorable and will not exercise them if they are worse than before, got clearer because it could have created tendency for investors to or not to comply with the law on their own discretion. For example, the concept of “stabilizing tax environment” is amended to “stabilizing tax percentage and amount”. If the amount and percentage for 4 types of taxes stated in the Law on Investment is increased by the amendment of the law, the amendment is not valid for investors and if it is decreased, the amendment is valid for investors. Tax environment shall be stabilized by signing Investment agreement with the investors who are able to invest with an amount 500 billion MNT or more.

3. A new clause “Making Investment agreement” is added to the draft and investment amount for signing agreement, a person who sign agreement on behalf of the government, period for agreement and other conditions are defined in the draft. The government shall adopt the regulation to sign agreement as stated in the law.

4. Requirements for issuing Stabilization certificate is detailed and the period of Stabilization certificate is defined to have various types depending on the investing sector, geographical location and investment amount. The period of Stabilization certificate is 5-18 years and can be extended by 1.5 times depending on the investment project. The clause, stating that the government shall issue Stabilization certificate for investments with the amount of 15 billion MNT or above, is modified that the Stabilization certificate shall be issued for investments of 30 billion MNT or above for mining, heavy industry and infrastructure and for investments in other industries depending on geographic location; such as, at least 2 billion MNT in western region, 3 billion MNT in eastern region, 4 billion MNT in Khangai region, 5 billion MNT in central region and 10 billion MNT in Ulaanbaatar.

5. The investors who obtained Stabilization certificate should complete their investments within 2-5 years depending on the investment amount. However, the period can be extended up to 2 years upon the request from the investor if the request is deemed to be reasonable.

6. A new chapter “Investment support” is added to the draft. Types of tax and non-tax supports for investors are defined in it and such issues of shall regulated by Law on Tax and other relevant laws in detail.

7. The clause, stating that state owned foreign legal entity shall obtain permission from the Ministry of Investment regardless of its industry if it owns 25% or more shares in a Mongolian enterprise, is modified that it shall obtain permission if it invests only in mining, bank, financing, media and telecommunication and the percentage of share owned by it is modified and defined to be 35 and over.

The Law on Regulation to comply with Law on Investment is adopted. The law shall regulate relations related with issuing Stabilization certificate if the projects implemented within 5 years prior to implementation of Law on Investment satisfy the requirements set in the law, registering enterprises whose permission period stated in the Law on Foreign investment is expired as a new enterprise and etc.

The Law on Investment has become valid since 1 November 2013.

Secretariat of the Parliament

Resource:  http://www.parliament.mn/news/medeelel/categories/209/pages/10413