Doing Business in Mongolia

Updated: Aug 29

1. Investment climate

1.1. Business environment

Mongolia is a centralised state and not a federation. Mongolia is a parliamentary democracy. The President is the head of state. Executive power lies with the Government of Mongolia, headed by the Prime Minister. The Prime Minister is usually the leader of the political party holding majority of the seats in the Parliament of Mongolia. The legislature has a single chamber consisting of 76 members elected by the electorate. (

Mongolia follows the Romano-Germanic civil law system. The Supreme Court is the final court of appeal for all civil, criminal and administrative cases. (

Mongolia is party to numerous international organisations, conventions and treaties including (but not limited to) WTO.

Mongolia is an emerging economy. Mongolia's economy has been growing at a fast pace in the last 20 years due to the increase in foreign direct investments into Mongolia in the mining, construction, financial and service sectors. Mongolia's GDP growth was 12.3% in 2012 and 11.7% in 2013 (

Mongolia has some of the lowest tax rates in the world and Mongolia's tax regime has been consistent and stable in the last 20 years.

Price controls

Mongolia is a liberal market economy in which prices are determined by supply and demand. The government regulates prices in certain industries (e.g. energy and public transportation).

1.1. Currency and Currency Controls

The currency in Mongolia is the Togrog (MNT). In recent years, the exchange rate of the MNT has significantly depreciated against the US dollar. As of the end of Q2 2022, the exchange rate was USD1.00=MNT3,134. In contrast, the exchange rate was USD1.00=MNT1,342 ten years ago.

In Mongolia, transactions must be done in MNT. Cross-border transactions can be done in any currency.

There is no requirement for obtaining any approval to repatriate or transfer funds out of Mongolia.

1.2. Banking and financing

The Central Bank of Mongolia (or Mongolbank) is the central bank of Mongolia that regulates the commercial banks and investment banks and sets the monetary policy (

The Financial Regulatory Commission regulates other financial institutions and listed and public companies (

The capital city Ulaanbaatar is the main financial centre.

1.3. Foreign investment

Since becoming a market economy in 1990, Mongolia has been attracting foreign direct investment (FDI) with a steady growth of investment year-by-year. The peak of FDI reached in 2012 and 2013. FDI slowed down between 2014 and 2016 due to the price of commodities. FDI has seen an increase from 2017 (

Foreign investors can make investments into any industry. The Investments Act 2013 encourages investments by way of offering tax stabilisation or investment agreements that guarantee the stabilisation of taxes.

The only form of restriction applies to the mining, banking and financing, print, media and telecommunications sectors. In these sectors, the acquisition by a foreign state-owned enterprise of more than 33% of the issued shares is subject to the government's approval (

Investments made by way of (i) incorporation of a business enterprise with or without other investors; (ii) purchase of shares, debentures and other types of security; (iii) merging or consolidating companies; (iv) entry into concession, production-sharing, marketing or management agreements; and (v) financial lease or franchising.

As for risks, various risks exist including:

· The political risks – from time to time (usually around the time of parliamentary elections), some politicians take anti-foreigner sentiment and some legislations were passed that discriminate against foreigners. These legislations are no longer in effect due to the harm they did to foreign direct investment. The legislations include the Windfall Tax Act which taxed profits from minerals at 68%, and the Regulation of Foreign Investment in Strategic Sectors Act which was passed in 2012, which was repealed a year later when its impacts on FDI were proven to be harmful.

· Tax risks – the tax legislations can be open to interpretation in some cases, which can lead to disputes between taxpayers and the tax administration.

2. Setting up a business in Mongolia

2.1. Forms of business entity (

Business organisations can take one of the following forms: (i) private limited company; (ii) public limited company; (iii) partnership.

The Companies Act 2011 recognises companies limited by shares only. The Companies Act does not recognise unlimited companies or companies limited by guarantee.

The private limited company restricts the transfer of its shares and limits the number of members to 50 at the time of incorporation.

The public limited company is divided into (i) open; and (ii) closed. Open companies must be registered with a recognised stock exchange and can invite the public to subscribe to shares. Closed companies must be registered with a securities depository and can trade its shares off-exchange (over the counter).

Partnerships are recognised as legal persons separate from its members and include (i) general partnership where all the members are personally liable for the partnerships' debts; (ii) limited partnerships where some of the members are personally liable for the partnerships' debts; and (iii) limited liability partnerships.

The common vehicle used in Mongolia is the private limited company due to the limited liability of its members. The most popular choice for foreign investors is also the private limited company.

2.2. Formalities for setting up a company in Mongolia

Companies incorporated under the laws of Mongolia must be registered with the Legal Entity Registration Office (or Registrar). Different rules apply for registration of foreign investment companies and companies with local investment.

Registration application (Form UB-12) of an FIC must be accompanied by, among other things, the articles of association, written shareholders agreement (if there is more than one member), resolution to incorporate the FIC, proof of investment and the payment of a service fee. After the submission of the application, the Registrar will issue the certificate of incorporation within 3-5 business days.

2.3. Requirements for public and private limited companies

Capital: In general, there is no minimum required capital for companies except for:

(i) private limited companies with 25 per cent or more ownership by foreign investors. Private limited companies with 25 per cent or more foreign investment are called "foreign investment companies" (hereinafter referred to as "FIC") and each investor (either local or foreign) must contribute no less than USD100,000 to the company's share capital in proportion to their shareholding; and

(ii) companies that carry on regulated businesses including banking, insurance, underwriting, broker, dealer, securities clearing or securities depository businesses. Banks are regulated by the Central Bank and the other regulated businesses are regulated by the Financial Regulatory Commission, who sets the minimum required capital.

Founders and shareholders: The shareholders meeting is the highest governing organ of a company. Companies may carry on their business with just one member. There are no nationality or residence requirements.

Management: Mongolia's company law is significantly different with respect to management as compared to common law countries. There are offices called board of directors and chief executive officer (sometimes called an executive director). Public limited companies must have a board of directors of at least nine directors and a chief executive officer. The directors are elected by a cumulative voting method. Private limited companies do not need to have a board of directors but if they do have a board, the minimum number of directors is one. Unless otherwise specified in the articles, nominees with most number of votes are elected as directors. Private limited companies must have a chief executive officer. There are no nationality or residence requirements for the management personnel and no qualification requirements.

Types of share and securities: Recognised shares include ordinary and preferred. Ordinary shares must be issued. Share warrants entitling the bearer to the shares specified in the warrant may be issued. Debentures that create a charge on the assets of the company may be issued.

Fee: The fee payable to the Registrar for incorporation of a FIC is MNT750,000 and fee for registration of a company with local investment is MNT44,000.

Control: Unless otherwise specified in the law or the articles, most ordinary resolutions are adopted by a majority (50%+1) vote. Other resolutions including changing the articles, amalgamation merger or division, splitting the shares, exchanging the debts of the company for shares or winding up the company require an overwhelming majority (66.6%).

2.4. Mergers and Acquisition

Acquisition of 20 per cent or more of the ordinary shares of a competitor is subject to the prior approval of the Fair Competition and Consumer Protection Agency ("FCCPA"). In the event a company that has a dominant position in the market merges with another entity, the merger is also subject to the prior approval of the FCCPA. Decisions of FCCPA are issued within 30 days. (

2.5. Accounting, filing and auditing requirements

The Accounting Act 2015 requires businesses to follow one of three accounting standards: international financial reporting standard (IFRS), IFRS for small and medium-sized entities and International Public Sector Accounting Standards. Most businesses must follow IFRS including FIC, companies who have applied for stock exchange listing, banks, financial services firms, mining companies and oil companies.

Business that follow IFRS must file their financial statements on a semi-annual basis. All filings are done electronically.

Businesses that follow IFRS, FICs, companies who prepare consolidated financial statements and companies who are subject to reorganization (including mergers, amalgamations and division) or liquidation must be audited by independent audit firms.

3. Business taxation

3.1. Overview

The sources of tax laws of Mongolia include legislation enacted by the Parliament of Mongolia, regulations, guidelines and methodologies adopted by the tax authority or the Ministry of Finance and the international tax agreements of Mongolia.

The main source of business taxation is the Corporate Income Tax Act of 2019 (the "CIT Act"). Under the CIT Act, companies, partnerships, cooperatives and central or local government owned enterprises are taxable persons.

Taxpayers are categorised as (i) resident; or (ii) non-resident. A company incorporated in Mongolia or a foreign company whose central place of management and control is in Mongolia is a Mongolia-resident company.

A Mongolia-resident company is subject to corporate income tax on its worldwide profits. Credits are given for taxes paid in a country that has a double tax agreement with Mongolia.

A non-resident taxpayer is a foreign company that carries on business in Mongolia through its permanent establishment or is otherwise earning income from Mongolian sources. A non-resident taxpayer is subject to tax only on its Mongolian-source income.

3.2. Taxable income and rates

The various sources of income include:

· Trading income

· Property income

· Property sale or transfer income

· Other income

The main rate of corporate income tax is 10% on taxable profits of up to MNT6 billion and 25% on taxable profits in excess of MNT6 billion. Corporate income tax is determined by deducting various expenses.

Taxpayers with taxable income of up to MNT300 million are subject to a rate of 1%.

Different tax rates apply to the following incomes of resident taxpayers:

· Dividend – 10%

· Royalties – 10%

· Winnings from gambling or raffle – 40%

· Sale of immovable property – 2%

· Interest – 10%

· Sale of right (mineral exploration or mining licences, land title and petroleum licence) – 10%

· Interest paid by Mongolian commercial banks to lenders – 5%

· Sale of intellectual property – 5%

From 1 January 2018, a new concept was introduced – ultimate owner, who is defined as a person who by virtue of ownership of shares, interest or voting rights, directly or indirectly, of a Mongolian legal entity that:

(i) Holds mineral exploration or mining licence;

(ii) Land lease or land usage rights;

(iii) petroleum licence.

In the event the ultimate owner sells or transfers their interest, the Mongolian legal entity is liable to pay 10% tax from the value of the aforementioned assets.

Non-residents are subject to 20% withholding tax on dividends, interest, royalties, finance lease, management fees, rental income and provision of services from the gross amount. The 20% withholding tax can be reduced under the applicable double tax agreement.

Profits remitted by a permanent establishment to the HQ are subject to 20% withholding tax.

3.3. Deductions

Taxpayers may deduct from their gross income various expenses incurred directly in connection with their business.

3.4. Depreciation

Assets that have useful life of greater than 1 year may be depreciated as follows: