Mongolia

Mining sector study Introduction Mongolia is in the heart of the Central Asian Orogenic Belt located between the East European, Siberian, North China, and Tarim cratons, and is considered the largest area of Phanerozoic continental crustal growth. Mongolia is a favorable environment for medium and long-term foreign direct investment (FDI) for its vast natural resources, wide agricultural potential, and its geographical location neighboring countries that are major Asian markets. In the first half of 2024, Mongolia’s gross domestic product (GDP) reached MNT 37.4 trillion, reflecting a growth by 6.4 trillion MNT (20.8%) compare to the same period last year. The primary drivers of this growth were the mining sector, which saw a significant increase in added value of 3.8 trillion MNT, representing a 31.2% rise, services sector, which also experienced an increase in added value of 1.8 trillion MNT, marking a 20.0% upswing compared to the same period last year.[1] The Mongolian government is actively seeking foreign investment to maximize the exploitation of its abundant natural wealth and mineral resources. As illustrated in the diagram below, mining accounts for 83.9% of foreign direct investment as of 3rd quarter of 2024, while the remaining investments are distributed across trade, science, technical, and other sectors. National Statistics Office (https://www.1212.mn/mn), 2023 Compared to the same period of the previous year, the mining and quarrying sector saw its share decreased by 0.2 percentage points, whereas the agriculture sector witnessed a decrease of 2.7 percentage points, and construction sector decreased by 0.8%. Additionally, service sector increased by 3.4 percentage and net taxes on products experienced a slight rise of 0.3 percentage. The following mineral resources are registered as of 2023. № Minerals Unit Proven reserves 1 Copper Million.tn 61.4 2 Coal Billion.tn 34.6 3 Iron ore Billion.tn 1.84 4 Gold tn 499.5 5 Zinc Million.tn 4.7 6 Fluorspar Million.tn 34.2 7 Uranium Thousand.tn 192.2 8 Crude oil Million.tn 333.8   Laws and regulations Legislation in the mineral sector consists of the following laws: Law Regulated relations Law of Mongolia on Minerals The Law on Minelrals is the primary legislation in the mineral resources sector and regulates relations with respect to prospecting, exploration and mining of minerals other than water, oil, natural gas, radioactive and common minerals, which contains the following specific regulations, including: 1.     The Government shall approve the coordinates of areas for the issuance of exploration licenses based on the proposal of the Governor of the Aimag and the capital city and the proposal of the State Central Administrative Body in charge of Geology and Mining (or the Ministry of Industry and Mineral Resources) (hereinafter referred to as the “MOIMR”). 2.     Prioritizing the procurement of goods, services, and the selection of subcontractors for license holders’ activities, with a preference for legal entities registered in Mongolia, is mandated by the law. 3.     The supply of mined, enriched and semi-processed products to the processing plants which operates in the territory of Mongolia shall be prioritized at the market prices. 4.     For a taxpayer with a tax stabilization certificate according to the Law on Investment, mineral resource royalties shall be imposed at the rate and amount specified in such a certificate. 5.     Possibility to collect cash equivalent to the dividend of the state’s share (in the mine) in the form of royalties for exploitation of strategic minerals has been established. 6.     The State may participate up to 50% jointly with a private legal person in the exploitation of a minerals deposit of strategic importance where State-funded exploration was used to determine proven reserves. The percentage of the State share shall be determined by an agreement on exploitation of the deposit, considering the amount of investment made by the State.  The percentage of the State share determined by the agreement may be replaced by royalty for mineral deposits of strategic importance. 7.     The State may own up to 34% of the shares of an investment to be made by a license holder in a mineral deposit of strategic importance where proven reserves were determined through funding sources other than the State budget. The percentage of the State share shall be determined by an agreement on exploitation of the deposit considering the amount of investment made by the State. The percentage of the State share determined by the agreement may be replaced by royalty for mineral deposits of strategic importance. 8.     It is prohibited for any person, either individually or jointly with an affiliated person, to own more than 34% of the total issued shares of a legal entity holding a license for mineral deposit of strategic importance. Law of Mongolia on Common Minerals The Law on Common Minerals governs matters pertaining to obtaining exploration and mining licenses for common minerals in the territory of Mongolia, as well as the obligations and liability of license holders, and the protection and rehabilitation of the exploration and mining area. Law of Mongolia on Petroleum The Petroleum Law is a law aimed at regulating relations related to exploration, prospecting and exploitation of petroleum and un-conventional petroleum in the territory of Mongolia. Law of Mongolia on Petroleum products The purpose of the Law on Petroleum products is to regulate the relations in connection with importation, production, sale, transportation, and storage of petroleum products, ensuring its operational safety. Law of Mongolia on Nuclear Energy This law governs relations pertaining to exploitation of radioactive minerals and nuclear energy on the territory of Mongolia for peaceful purposes, ensuring nuclear and radiation safety, protection of the population, society and environment from negative impacts of ionized radiation. The Law of Mongolia on Mining Products Exchange   The purpose of the Law on Mining Products Exchange is to establish the legal framework for the establishment, management and organization of a mining products exchange, and to regulate relations in connection with organizing and supervising exchange trading, determining the rights and obligations of participants in exchange trading, and protecting their interests.   Products to trade on exchange The Government of Mongolia approved the following types and categories of products to be traded on the exchange on June 7, 2023. It specified that below-mentioned mining products must be traded on the exchange if sold by state-owned or local-owned legal entities or legal entities with state-owned or local-owned participation. These include: № Product name Type 1. Fluorite Ore Concentrated 2. Iron Ore Concentrated 3. Coal Not processed Concentrated 4. Copper Ore Products 5. Molybdenum Ore Products As of 2024, a total of 571 successful trades were conducted on the mining exchange, and 24.8 million tons of mining products were traded for a total of 8.9 trillion MNT. Areas of activity that must be carried out with a license: The following activities in the fields of mining and heavy industry shall be carried out with a license and shall be issued by the following authority: Authorized body for granting license License on The Government Construction of pipelines for oil sales Conducting industrial and technology park activities Use subsoil for protective burial of toxic substances that have a special effect on the health of the population, livestock, animals, and the environment The state central administrative body in charge of petroleum affairs Conducting wholesale and retail sales of all types of fuel Import of all types of fuel Conducting the production of oil products Exploration and exploitation of oil and unconventional oil The state central administrative body in charge of geology and mining affairs Manufacturing, importing and using of pyrotechnics for exhibition purposes Blasting for industrial purposes Import, export and manufacturing of explosives and blasting devices for industrial purposes The state central administrative body in charge of heavy industry affairs Processing of metallurgical and machine manufacturing Making and manufacturing articles with precious metals and precious stones The state central administrative body in charge of petroleum affairs Storage of oil in naturally occurring oil reservoirs The state central administrative body in charge of geology and mining affairs Mining of minerals Exploration for minerals Mining of radioactive minerals Rehabilitation of land after the mining of radioactive minerals Import, export, transporting and waste burial of radioactive minerals Exploration and prospective of radioactive minerals The state central administrative body in charge of education affairs Transporting, import and export of radiation generators Assembling, placing, renting, manufacturing, decommissioning, dismantling and storage of radiation generators Burial and safekeeping of radiation generator waste and conducting other related activities Possessing, use and sale of radiation generators The Nuclear Energy Commission Possessing, use and sale of nuclear material Import, export, and transporting of nuclear materials, and burial of radioactive waste of own country Use of nuclear devices Construction, modification, modernization and decommissioning of nuclear devices Governor of respective aimag or capital Use the subsoil for purposes other than mineral extraction Mining of common minerals Exploration for common minerals On June 17, 2022, the Great Khural of Mongolia passed the Law of Mongolia on Permits, and license shall be granted and extended within the following timeframe according to this law: Licenses are issued for a period of at least 5 years, unless otherwise specified in the law governing the sector of economic activity. Therefore, existing licenses will be subject to the laws of the relevant industry. If certain conditions are met, such as no tax arrears, stable operation, and employee retention, the license can be extended by twice the original period.   Procedures for reviewing license applications and renewal applications Examination of the integrity of application documents within 2 business days Verification whether the applicant has complied with conditions and requirements within 10 business days Extension of the due diligence process within 5 business days Making a decision on granting a permit within 5 business days In case of incomplete documents and its resubmission within 30 days   If the authorized body refused to issue a license, the applicant for that specific permit shall not be eligible to reapply for a period of 6 /six/ months. Procedure for issuing exploration license The exploration license shall be issued on the basis of a selection process for the “areas coordinate for the exploration license” approved by the Government, and shall be granted to the legal entity duly formed and operating under the laws of Mongolia and a taxpayer legal entity in Mongolia. One month prior to the expiration of an exploration license, the license holder may apply for an extension of the license by submitting an application to the State administrative body. Procedure for issuing mining license Only the exploration license holder is entitled to apply for a mining license in the exploration licensed area. The application for a mining license shall contain the coordinates of all corners of the requested mining area in degrees, minutes and seconds on a standard map approved by the State administrative body, and the map shall be attached to the application. The requested mining area shall meet the following requirements and the mining license shall be granted by the following procedures: If a license holder permits a third party utilize the derivative deposit, an agreement to utilize the derivative deposit shall be executed with the third party and shall notify the State administrative body in charge of geological and mining affairs within 14 /fourteen/ days. NUMBER OF MINERALS LICENSES IN EFFECTIVE, 2021-2025.01 Expenses associated with licensing: Cost associated with exploration license The license holder shall pay exploration license fees annually per hectare included within the exploration area at the following rates: For the first year 145 MNT For the second year 290 MNT For the third year 435 MNT For each of the 4-6 years 1450 MNT For each of the 7-9 years 2175 MNT For 10-12 years 7250 MNT The minimum cost of exploration. Each year an exploration license holder shall carry out exploration work in the license area costing not less than the amounts per hectare specified below: For each of the second and third years of the term of the exploration license 0,5 USD For each of the fourth to sixth years of the term of the exploration license 1,0 USD For each of the seventh to ninth years of the term of the license 1,5 USD For each of the tenth to twelve years of the term of the license 10 USD Cost associated with mining license The fee for a mining license is MNT 21,750 per hectare of mining area under the license, and MNT 7,250 per hectare for limestone, coal, and minerals for domestic production. The payment term of the license fee: First-year payment It shall be payable within 10 /ten/ business days after the license (exploration & mining) holder receives the approval notice. Subsequent years payment It shall be payable annually in advance, on or before the anniversary date of the issuance of the license. / If the payment is not made within the specified period, liquidated damage equal to 0.3% of the annual payment amount shall be imposed for each day overdue. Such an overdue period will be up to 30 /thirty/ days, after which the license will be revoked./ Suspension and revocation of license: The authorized body shall suspend the license for up to three months in the following cases: it is determined by the decision of the competent authority that the license holder failed to meet the conditions and requirements of the license; failed to submit information and reports required by law on time or correctly; it has not engaged in activity within two years after the license was issued or has stopped its activity. Upon receipt of the suspension notice, the license holder is required to submit a clarification and supporting documents, asserting the absence of any grounds for license suspension, to the authorized body within 10 /ten/ business days. The license shall be revoked upon the following grounds: The license holder submitted a request; Failed to eliminate violations and submit a request for restoration; It was determined by the decision of the competent authority that the license holder caused an adverse impact on public interests, public health, safety, environment, or national security, and caused significant damage; The license holder has violated the conditions and requirements of the license two or more times; The license and the documents certifying it were sold, gifted, pledged, or transferred in other ways except as provided by law; It was found that counterfeit documents were submitted to obtain the license; If the license holder is a citizen, he/she is considered legally incapable, if the license holder is a legal entity, it is bankrupted or liquidated; State stamp duties are not paid on time; Others prescribed by law. License Revocation Procedure: The authorized body shall notify the license holder in advance of the existence of grounds for revoking the If, within 30 /thirty/ days of receiving the notice specified in paragraph 1 of this article, the license holder does not submit to the authorized body a clarification and supporting documents indicating that he/she/it claims to believe there are no grounds for revoking the license, the issue of revoking the license shall be resolved within 10 /ten/ business days after the expiration of that period. If the license holder does not submit clarification within the time and does not file a complaint in response to the notice, it is deemed to have accepted the grounds for license The authorized body shall notify the license holder and the relevant tax authority in writing of the decision on revocation of the license within 2 /two/ business Consequences of suspension or revocation of the license: The operation of the contract related to the activities carried out under the license may be temporarily suspended during the term of suspension of the license. Revocation of the license shall be grounds for the termination of the license holder’s agreement with others in connection with activities conducted under the license. The person who held the license must compensate others for the damage caused by the license’s revocation. Damage caused to others as a result of the illegal granting of the license shall be compensated by the authorized body who took the decision to grant the license and the official who is in charge of the given issue, or the person who has received the right. If a public official violates the license granting procedure or caused damage to others owing to blatant negligence in his duties, failure to properly perform his duties, or neglect to take precautions to prevent possible harm, the damages must be removed. If the authorized body revokes the license, an application for re-applying for the given license by the person who held the license previously shall not be accepted within six months. Taxation Depending on the amount of taxable income of the enterprise, the tax is imposed at the following rates. Taxable income Tax rate Taxable income up to 6 billion MNT 10% Taxable income exceeds 6 billion MNT it shall be 600.0 million MNT plus 25 percent of income exceeding 6.0 billion MNT 25% In addition, “income” generated by selling or transferring (either partially or wholly) the shares, participation, and voting rights held by the ultimate beneficial owner (entity with 30 percent or more shares, with individual participation, who owns the voting rights by himself or herself or by one or more continuously connected legal entities, exercises the voting rights on behalf of the parties, or has the right to receive dividends)[2] of the legal entity that is granted the right to hold and use land, or the exploration and mining license for minerals, radioactive minerals, and oils in accordance with the laws of Mongolia is considered “income generated from the sale or transfer of rights granted by the government body” and is taxed at 10 percent. Enterprises using mineral resources pay royalties, which are determined as follows: Mineral license holder Coal royalty used for personal use, sold domestic market, or shipped for sale shall be 2.5 percent of the sales value whereas other royalties except for coal shall be 5 percent of the sales valueв Mineral exporting legal entity If the product is exported, the market price accepted by international trade shall be adhered The legal entity that sold gold to the Central Bank of Mongolia and other licensed commercial banks Royalty on gold sold to the Central Bank of Mongolia and other licensed commercial banks shall be 5 percent of the sales value In accordance with the Law of Mongolia on Corporate income tax, a mineral-licensed legal entity shall not be entitled to any tax credit or tax exemption. In accordance with the Law of Mongolia on Value-added tax, the final mineral products shall be subject to 0% VAT. While mineral products exported other than final mineral products are exempted from Value added tax. In addition, the Law of Mongolia on Fees for Natural Resources Use regulates relations concerning the imposition of fees for the use of natural resources on citizens and business entities, its collection in the treasury, reporting, and setting rates for funds to be spent on measures of environmental protection and restoration of natural resources out of revenues from fees for natural resources use. The mineral license holder shall pay the fees for the use of water and mineral resources according to the following rates and revenue from natural resources use fees shall be paid to the local treasury within 10th of the following month and the annual report on fees shall be submitted to the relevant tax office within 10 January of the following year for final settlement. Water subject to fees Fee range /at percentage of ecological and economic value/ Surface water Underground water Minimum Maximum Minimum Maximum Per cubic meter of water used in the mining industry: а/ mineral extraction and concentration 10 40 20 60 б/ copper concentrate and fluorspar concentration 10 50 20 70 в/ water drainage 10 15 15 50 г/ prospecting and exploration drilling 10 30 20 50   In conclusion, it is important to note that the World Mining Conference commenced on March 2 in Toronto, Canada, with the participation of the Mongolian Minister of Industry and Mineral Resources, Ts. Tuvaan, along with representatives from the Mongolian National Mining Association. During the event, Minister Tuvaan announced that Mongolia will begin issuing exploration licenses starting in March 2025. Furthermore, the Government believes that expanding the issuance of exploration licenses across the entire country in the future would be a beneficial step. As of now, the Mineral Resources and Petroleum Authority of Mongolia (MRPAM) has announced a selection process for obtaining exploration licenses for mineral resources, excluding water, petroleum, natural gas, radioactive minerals, and common minerals. Proposals for participation in the selection process will be accepted through the State Procurement Electronic System (https://www.tender.gov.mn/mn/mineral?page=1&perPage=20) until 2:00 PM on April 2, 2025. For detailed information regarding this selection process, please visit the official website of MRPAM (https://mrpam.gov.mn/news/5756) or the State Procurement Electronic System (https://www.tender.gov.mn/mn/mineral?page=1&perPage=20). In the future, the process for awarding exploration licenses will be transparently announced, ensuring openness and accessibility. Additionally, targeted initiatives will be implemented to effectively attract investment in the mining sector.   Sources: Law of Mongolia on General Taxation - https://legalinfo.mn/mn/detail/14403 Law of Mongolia on Permits - https://legalinfo.mn/mn/detail?lawId=16530780109311 Law of Mongolia on Minerals - https://legalinfo.mn/mn/detail/63 Law of Mongolia on Common Minerals - https://www.legalinfo.mn/law/details/9750 Law of Mongolia on Petroleum - https://www.legalinfo.mn/law/details/10484 Law of Mongolia on Petroleum products - https://www.legalinfo.mn/law/details/10484 Law of Mongolia on Nuclear Energy - https://www.legalinfo.mn/law/details/97 Law of Mongolia on Fees for Natural Resources Use - https://legalinfo.mn/mn/detail?lawId=8663 Law of Mongolia on Mining Products Exchange - https://legalinfo.mn/mn/detail?lawId=16532653439101 Resolution No. 223 of the Government of Mongolia dated June 7, 2023 - “Approving the types and categories of products to be traded on the stock exchange” - https://legalinfo.mn/mn/detail?lawId=16759591005431 Methodology for calculating the value of minerals, radioactive minerals, special permission for oil exploration and production and determining the amount of tax payments - https://legalinfo.mn/mn/detail?lawId=210470&showType=1 Official website of the Ministry of Industry and Mineral Resources - https://mmhi.gov.mn/imarc/   Official website of Mineral Resources and Petroleum Authority - https://mrpam.gov.mn/ Statistics of minerals and petroleum 2023/08- https://mrpam.gov.mn/public/pages/196/2023.08.stat.report.eng.pdf GDP in the first half of 2024- https://www.1212.mn/mn/statistic/statcate/573052/report/573052 Statistics of the mineral resources sector /January-March 2024/ - https://mmhi.gov.mn/%D1%81%D0%B0%D0%BB%D0%B1%D0%B0%D1%80%D1%8B%D0%BD-%D1%81%D1%82%D0%B0%D1%82%D0%B8%D1%81%D1%82%D0%B8%D0%BA/    Statistics of the mineral resources sector 2025/01 - https://mrpam.gov.mn/public/pages/714/2025.1.stat.report.mon.pdf   Official website of Mining Mongolia Journal - https://www.mongolianminingjournal.com Electronic system of State procurement - https://www.tender.gov.mn/   For further information, please contact Bolormaa.V  GRATA International Law Firm partner at [email protected] and lawyer Khulan.G at [email protected] or +976 70155031. GRATA International in Mongolia is part of the global law firm, which has offices in 20 other nations. This legal material is not a thorough examination of any particular problems; rather, it is meant to provide general knowledge. Before making any decisions, the reader should consult a professional for advice that is suitable to their situation (s). Any consequences or damages resulting from the use of this legal information are not our responsibility. [1] GDP in the first half of 2024- https://downloads.1212.mn/gwi3hXhTnQiVLH5iNuL0jjPHeNQLKvd8B3vTxxtc.pdf [2] Law of Mongolia on General Taxation - https://legalinfo.mn/mn/detail/14403

GENERAL OVERVIEW & CONTEXT The primary laws and regulations governing the Mongolian capital market, the hierarchy of these regulations The Mongolian capital market is governed by the following primary laws and regulations: Law on Securities Market Civil Code of Mongolia Company Law of Mongolia Law on Investment Law on Asset-backed Securities Law on Investment Funds Banking Law of Mongolia Law on Central Bank (Bank of Mongolia) Law on the Legal Status of the Financial Regulatory Commission The hierarchy of these regulations is as follows: The Constitution of Mongolia International treaties to which Mongolia is a party; Laws passed by the State Great Khural (Parliament); Regulations and guidelines issued by regulatory bodies: Financial Regulatory Commission (FRC) Bank of Mongolia (Central Bank) Ministry of Finance If an international treaty to which Mongolia is a party contains provisions that contradict national laws, the provisions of the international treaty shall prevail. (Article 2.2 of the Law on the Securities Market) The Law on Securities Market is the primary law regulating the issuance, registration, trading, and other activities related to securities in Mongolia. It provides the fundamental framework for the capital market, while other laws and regulations complement and provide more specific guidelines for different aspects of the market. Regulatory bodies responsible for overseeing the capital market, their specific roles and responsibilities, and independency The primary regulatory bodies responsible for overseeing the Mongolian capital market are: Financial Regulatory Commission (FRC) The FRC is the main regulator for the non-bank financial sector, including capital markets. Its key responsibilities include: Regulating and supervising non-bank financial institutions; Approving rules, procedures, and guidelines for the financial market; Granting, suspending, and revoking licenses for financial services; Monitoring activities of license holders; Setting regulatory service fees; Resolving disputes among market participants; and Approving and monitoring ethical rules for FRC employees. The FRC was established in 2006 as an independent regulator. Its funding consists of funds allocated from the government budget, regulatory service fees collected from licensees and registered entities, and other income generated from legal activities. However, this partial reliance on government funding may compromise the FRC’s independence. Bank of MongoliaWhile primarily responsible for banking sector regulation, the Bank of Mongolia also plays a role in capital market oversight: Supervising the banking sector; Collaborating with the FRC on issues related to financial market stability; and Participating in consolidated supervision of financial holding companies. Ministry of Finance The Ministry of Finance is involved in capital market regulation as one of the primary regulatory institutions by formulating state policy for the securities market in collaboration with relevant state administrative bodies. This policy is aligned with broader investment and economic objectives. The Ministry also cooperates with and supports the functions of the FRC. Mongolian Stock Exchange The MSE became a self-regulatory organization in 2015, allowing it to regulate its member securities companies and listed companies. The MSE has some self-regulatory functions: Regulating member securities companies and listed companies; Setting and enforcing trading rules; and Monitoring market activities. The objectives of Mongolia’s capital market regulations (e.g., investor protection, market integrity, financial stability, etc.) The stated objectives of Mongolia’s capital market regulations include: Investor protection, Regulation, and monitoring of market participants The Law on Securities Market, Article 1.1, states that one of its primary purposes is “to regulate the regulation and oversight of market participants’ activities, and the protection of the investor interests in the securities market.” Market integrity, efficiency, and risk reduction The Law on Securities Market, Article 1.2, emphasizes the “Principles of reducing systemic risks of the securities market and insuring its fairness, transparency and efficiency, shall be adhered to in implementation of the objectives of this law.” Financial stability The FRC has the objective to ensure national financial market stability. These objectives demonstrate Mongolia’s commitment to creating a robust, fair, and growth-oriented capital market framework that aligns with international best practices while supporting the country’s economic development goals. MARKET PARTICIPANTS & INSTRUMENTS Types of regulated market participants Based on the Law on Securities Market of Mongolia and the Law on Investment Funds, the following types of market participants are regulated: Securities brokers; Securities dealers; Investment funds; Securities investment advisors; Securities trustees; Underwriters; Securities ownership rights registrars; Securities trade clearing organizations; Securities trade settlement organizations; Securities central depositories; Securities custodians; Stock exchanges; Financial rating organizations; and Equity crowdfunding Additionally, the Law on Securities Market regulates securities issuers (Article 7) and investors, although investors are not explicitly listed as a regulated entity. Licensing and registration requirements for the regulated participants and qualification requirements Based on the Law on Securities Market of Mongolia, the licensing and registration requirements for market participants are as follows: Licensing Requirements Regulated activities specified under II(i) shall be carried out on the basis of special permits (Article 24.2). The FRC is responsible for issuing licenses (Article 28.1). Application Process Applicants must submit documents listed in Article 27.2, including: Copy of company charter; Information on founders/shareholders, solvency, a statement of no overdue debt to banks, financial institutions or other entities, and information on being a suitable person; Proof of minimum capital requirements; Business and risk management plans (for three years); Proof of qualified personnel and necessary workplace, hardware, equipment, and software; and Other information as may be required. Upon receipt of accurate and complete documentation, the application shall be resolved within 10 business days. Conditions for Granting Special Permits Applicants shall meet the following requirements: No conflicts of interest with other operations; Authorized persons are fit and proper; Satisfies human resource requirements; Meets minimum capital and current asset requirements; Office, equipment, and software meet requirements; and Satisfies additional conditions set by the FRC. Specific Qualification Requirements Authorized persons must be fit and proper (Article 68) Professional participants must obtain authorization from professional associations (Article 35.1) The FRC defines types and ranks of professional authorizations (Article 35.3) Registration Requirements Legal persons providing auditing, appraisal, and legal services to securities market participants must register with the FRC (Article 24.3). These service providers must have a fixed number of professionals (e.g. lawyers, appraisers, auditors) working under permanent employment contracts, having passed the relevant exams (e.g. bar exam) and obtained licenses for professional activities. In the case of a legal entity engaged in equity crowdfunding activities, it must have special software that meets the requirements set by the FRC. Ongoing Compliance Regulated persons must maintain membership with a self-regulatory organization (Article 69.3). They must comply with the principles for regulated operations (Article 25.1). Types of securities and financial instruments traded on the Mongolian capital market Based on Article 5 of the Law on Securities Market of Mongolia, the following types of securities and financial instruments are traded on the Mongolian capital market: Equities: Public company shares, representing ownership in companies. Debt Instruments: Company debt instruments and bonds, used for borrowing capital. Investment Fund Securities: Shares or units of investment funds, allowing collective investments. Depositary Receipts: Including Mongolian depositary receipts, representing ownership of shares in foreign companies. Asset-Backed Securities: Securities backed by a pool of assets. Derivatives: Including options contracts and futures contracts, based on underlying assets. Other Instruments: Such as warrants or rights to subscribe to specified quantities of shares or debt instruments. The rules governing the issuance of securities Based on the Law on Securities Market of Mongolia, the rules governing the issuance of securities include: 1.   Disclosure Requirements Issuers must provide a securities prospectus containing detailed information about the company, its finances, risks, and the securities being issued. The prospectus must include inter alia: Information on the issuer, shareholders, management, and organizational structure; Financial statements and auditor’s reports; Details of the securities being issued and associated rights; Business plans for using the raised capital; Information on binding agreements and transactions with a value equal to five percent or more of the issued capital and their implementation; and Risk factors and management plans. Issuers must immediately report any material changes or events that could impact investment decisions to the FRC. 2.   Prospectus Requirements The prospectus must be prepared according to FRC instructions. It must be verified by an independent lawyer and auditor registered with the FRC. The prospectus must include expert assessments or conclusions, if any, along with information about the experts, and signed by the company’s Board Chairman, CEO, CFO, and independent experts. 3.   Listing Requirements Securities must be registered with the FRC and approved for public offering. For listing on the Mongolian Stock Exchange (MSE), issuers must: Have a minimum paid-in capital of MNT 1 billion; Provide audited financial statements complying with IFRS; and Meet governance standards, including having an independent board. Issuers must not have significant tax or overdue liabilities. The company’s latest financial report must not be older than six months at the time of listing. 4.   Registration Process Issuers must submit an application, prospectus, and other required documents to the FRC. The FRC reviews the application within 20 working days, with a possible 15-day extension. Upon approval, the FRC registers the securities in the Registry of Securities Admitted to Public Offering. After FRC registration, the issuer must also apply for listing on the stock exchange. Different types of market participants regulated in terms of their conduct of business 1.   Client Protection Brokers must: Execute client instructions fairly and professionally (Article 36.4) Prioritize client orders over their own trading (Article 36.5) Segregate client assets in separate accounts (Article 36.8-36.11) Know their clients and verify trade eligibility (Article 36.13) Dealers must: Execute accepted offers without dispute (Article 37.4) Segregate own assets in special accounts (Article 37.5) Investment funds are prohibited from: Conducting activities not authorized by law or the FRC (Article 38.6.1) Spending fund assets for personal interest (Article 38.6.4) 2.   Conflicts of Interest All regulated persons must: Avoid conflicts of interest and inform clients immediately if they arise (Article 25.1.4) Not promote self-interest over client interests (Article 25.1.5) Brokers must disclose conflicts of interest to clients (Article 36.6-36.7). Financial rating organizations are prohibited from performing services with conflicts of interest (Article 50.3) 3.   Market Manipulation and Insider Trading The Stock Exchange must monitor trading to ensure it is conducted in accordance with applicable procedures (Article 49.1.5) The FRC has the power to: Take measures deemed necessary for promoting fair, efficient, competitive, and transparent practice in the securities market (Article 63.1.4) Supervise the operations of regulated persons, impose corrective actions, and impose sanctions (Article 63.1.8) Market manipulation and insider trading are criminal offenses in Mongolia, as defined by the Criminal Code. Convictions for these crimes can lead to penalties such as fines (ranging from approximately $780 to $2,890 USD), restrictions on travel, and imprisonment for periods between six months and twelve years (Articles 18.8 & 18.9). If market manipulation and insider trading do not meet the elements for these criminal offenses, they may still be subject to penalties under the Law on Infringement.  These penalties can include a fine of approximately $5,780 USD, forfeiture of any ill-gotten gains, and mandatory compensation for resulting damages (Article 11.10). 4.   Information Disclosure Securities issuers must disclose material information to the public the following information (Article 56.1): information on changes in the management structure of the issuer; information on changes in the structure of influential shareholders and their shares held in other companies; information on organizational changes in the issuer and its subsidiaries, affiliates, and related companies; information on the seizure or seizure of the issuer’s assets; information on the issuer’s license to conduct activities, or on its suspension or revocation; information on the decision of the issuer’s shareholders’ meeting; and other information that may affect the price and exchange rate of the securities. Regulated persons must provide the following information to clients (Article 57.1): information about circumstances that may adversely affect the interests of the investor; information about the securities and the issuer that is available to the investor, except for information that is confidential in the process of receiving an order to buy or sell securities; information about restrictions imposed by the competent authority on the securities and the issuer and about special conditions of the securities; reasoned explanation in case of failure to fulfill or refusal to fulfill the client’s order; and information submitted by the relevant person to the client. TRADING & MARKET INFRASTRUCTURE Securities trading in Mongolia, trading systems and platforms Securities trading in Mongolia primarily takes place through the Mongolian Stock Exchange (MSE), which was established in 1991 and serves as the country’s main securities trading platform. The MSE’s key trading systems include: Electronic Trading System: In 2012, MSE modernized its electronic trading system by implementing the Millennium IT platform from the London Stock Exchange Group (LSEG). This system has significantly improved trading efficiency by automating order processing, matching, clearing, and settlement processes. Remote Trading: Brokers can participate in trading from outside the exchange building using MSE’s remote trading system. This increases market accessibility and encourages trading participation. T+2 Settlement Cycle: MSE has adopted a T+2 settlement cycle in line with international standards. This means that securities ownership transfer and fund settlement are completed two business days after the trade date. Real-time Market Data: MSE provides real-time market data and trading information, enhancing market transparency. While an over-the-counter (OTC) market exists, it is smaller in scale and less strictly regulated. OTC trading is primarily conducted among institutional investors and by securities dealers meeting specific criteria. Recently, a new trading platform developed by AND Systems LLC has gained attention. This platform aims to enhance trading security and transparency by utilizing blockchain technology. It is also expected to support new forms of fundraising, such as crowdfunding, thereby improving capital market accessibility for small and medium-sized enterprises. The Financial Regulatory Commission (FRC) of Mongolia continuously monitors these trading systems and platforms to ensure compliance with relevant laws and regulations. When necessary, the FRC introduces new regulations to strengthen market stability and investor protection. The role of the Mongolian Stock Exchange (MSE), how it functions The Mongolian Stock Exchange (MSE) plays a crucial role in Mongolia’s capital market infrastructure. Established in January 1991, the MSE serves as the country’s sole stock exchange and has several key functions: Securities Trading: Provides a platform for trading stocks, bonds, and other securities; Coordinates trading activities among brokers, dealers, and other market participants; and Operates an electronic trading system for efficient order matching and execution. Market Regulation: Acts as a self-regulatory organization since October 2015; Develops and enforces trading rules and regulations; and Monitors trading activities to ensure compliance with applicable procedures. Capital Formation: Enables companies to raise capital through initial public offerings (IPOs) and secondary offerings; and Supports the development of various financial instruments, including equities, bonds, and derivatives. Market Information: Disseminates trading information to the public, including transaction details, security information, and price data; and Maintains market indices, such as the TOP-20 index, to track overall market performance. The MSE functions through its electronic trading system, which was modernized in 2012 with the implementation of the Millennium IT platform from the London Stock Exchange Group. This system allows for: Automated order processing, matching, clearing, and settlement Remote trading access for brokers Real-time market data dissemination T+2 settlement cycle, aligning with international standards The exchange operates under the supervision of the FRC and collaborates with other regulatory bodies to ensure market stability and integrity. As of September 2022, the MSE had 180 listed companies with a combined market capitalization of approximately US$1.5 billion. Recent developments include the introduction of new products, such as the trading of mining products and preparations for new offerings, demonstrating the MSE’s ongoing efforts to diversify and expand its market offerings. Other trading platforms or alternative trading systems (ATS) operating in Mongolia Over-the-Counter (OTC) MarketMongolia launched an over-the-counter (OTC) trading platform in September 2021. This platform is overseen by the Mongolian Association of Securities Dealers (MASD) and was developed by AND Systems LLC. Key features include: Trading of corporate bonds and other securities not listed on the main exchange Linked to the Mongolian Central Securities Depository’s registry and settlement systems Allows trading via a chat system among market participants Provides online submission and monitoring of security issuance applications Offers additional features like bond price and interest calculators Digital Assets Exchange (DAX) Launched in December 2020, DAX is Mongolia’s first cryptocurrency and security token exchange. As of June 2022, it reported: Over 400,000 registered customers Trading volume exceeding 1.63 trillion MNT (approximately $572 million) Ard Financial Group’s “Ard” Mobile Application This platform allows users to trade ArdCoin, a blockchain-based loyalty reward program. The company estimates that one in three Mongolians own ArdCoin. International Brokerage Platforms Several international online brokers and trading platforms are accessible to Mongolian investors, including Interactive Brokers, XTB, and IG, among others. These platforms offer access to global markets and a wider range of financial instruments. The rules governing market surveillance and enforcement, investigation and prosecution of market abuses The rules governing market surveillance and enforcement in Mongolia’s securities market, as well as the investigation and prosecution of market abuses, are primarily outlined in the Law on Securities Market and the Criminal Code. Key aspects include: 1.   Market Surveillance The Financial Regulatory Commission (FRC) is responsible for: Monitoring and supervising the activities of market participants to ensure compliance with relevant legislation (Article 63.1.8 of the Securities Market Law) Developing procedures, guidelines, and regulations for market surveillance (Article 63.1.2) The Mongolian Stock Exchange (MSE) is required to: Monitor trading to ensure it is conducted in accordance with applicable procedures (Article 49.1.5) Operate a fair, orderly, and transparent market (Article 49.1.6) 2.   Enforcement Mechanisms The FRC has the power to: Impose administrative sanctions on violators (Article 63.1.8) Temporarily suspend or revoke licenses of market participants (Article 63.1.8) Temporarily suspend trading or revoke the registration of securities in case of violations (Article 11.5) The MSE, as a self-regulatory organization since October 13, 2015: Can regulate its member securities companies and listed Joint Stock Companies by integrated standards Has the ability to fine companies that fail to meet regulatory requirements 3.   Investigation of Market Abuses The FRC is authorized to: Conduct inspections of regulated entities without prior notice (Article 24.4 of the Law on FRC) Access books, records, and request data from regulated entities (Article 25.1 of the Law on FRC) Investigate suspected misconduct and violations of securities laws The prosecutor’s office supervises the investigation process, ensuring: Proper registration and investigation of cases (Article 14.1 of the Law on Prosecution Service) Correct application of criminal law in investigations (Article 14.1.3) Protection of human rights during investigations (Article 14.1.4) 4.   Prosecution of Market Abuses Market abuse is criminalized under the Criminal Code of Mongolia: Article 18.9 deals with “Abuse of securities market” The FRC may refer cases to relevant authorities for criminal investigation and prosecution (Article 25 of the Law on FRC). Prosecutors have the power to: Supervise the investigation of violations (Article 12 of the Law on Prosecution Service) Initiate criminal proceedings based on evidence of market abuse Present cases of market abuse in court The regulatory framework aims to ensure market integrity and investor protection through comprehensive surveillance, investigation, and enforcement mechanisms. INVESTOR PROTECTION Measures to protect investors in the Mongolian capital market The Mongolian capital market has several measures in place to protect investors: Disclosure Requirements Securities issuers must provide a comprehensive prospectus containing detailed information about the company, its finances, risks, and the securities being issued (Article 10.3). Issuers must immediately report any material changes or events that could impact investment decisions (Article 20.1.9). Companies must disclose shareholders’ meeting resolutions and submit relevant information to the Financial Regulatory Commission (FRC) and the Exchange within three working days (Article 20.1.8). Regulatory Oversight The FRC has the authority to demand information from securities issuers and related persons if there are concerns about unlawful operations, fraud, or violations of investors’ interests (Article 21.1). The FRC can submit claims to court against issuers or authorized persons on behalf of investors if unlawful actions or violations of investors’ interests are suspected (Article 21.2). Corporate Governance Securities issuers must comply with corporate governance principles endorsed by the FRC (Article 20.1.10). Legal Protections The law prohibits the issuance of securities not registered in the registry of securities admitted for public offering (Article 11.10). Issuers and their authorized persons are collectively liable for losses incurred due to incorrect, false, incomplete, or misleading information in the prospectus (Article 9.14). Market Integrity The stock exchange is required to operate a fair, orderly, and transparent market (Article 49.1.6). Restrictions on Fund Usage Issuers are prohibited from using funds raised from securities trading for purposes other than those stated in the securities prospectus (Article 12.9). Protection of retail investors compared to institutional investors (in Korea) Professional Investor Classification In South Korea, there is a clear distinction between professional investors (including institutional investors) and retail investors. The Financial Investment Services and Capital Markets Act defines “Qualified Professional Investors”, which typically include financial institutions, pension funds, and other sophisticated investors. Regulatory Protection Retail investors in Korea generally receive more regulatory protection compared to institutional investors. For example: Mandatory investor education and margin deposit requirements apply to retail investors for certain high-risk products like leveraged ETFs. Restrictions on the combination of underlying assets and multiples for leveraged derivatives are in place for retail investors. Access to Investment Products Institutional investors have broader access to various investment products compared to retail investors. For instance: Certain high-risk products, such as 3x leveraged products or cryptocurrency-related products, are not permitted for retail investors in Korea but may be accessible to institutional investors. Private placement of offshore funds is limited to QPIs, excluding general retail investors. Tax Considerations There are some tax advantages for retail investors engaging in direct foreign equity trading, such as basic capital gains deductions and the ability to offset capital losses. While Mongolia’s current regulatory framework may not explicitly differentiate between retail and institutional investors to the same extent as South Korea, adopting some of these protective measures could be beneficial: Implementing a clear classification system for professional and retail investors; Introducing tailored educational requirements and risk disclosure for retail investors; Considering restrictions on certain high-risk products for retail investors; and Developing tax incentives to guide retail investors towards more stable investment vehicles. By adopting such measures, Mongolia could enhance investor protection while still allowing for market growth and sophistication, balancing the needs of both retail and institutional investors. The rules governing corporate governance of listed companies Based on the Law on Securities Market, the Company Law of Mongolia, and the Corporate Governance Code (2022), the key rules governing corporate governance of listed companies in Mongolia are as follows: Board Structure and Composition Public companies must have a Board of Directors with at least 9 members, one-third being independent (Company Law, Article 75.4). The roles of CEO and board chair must be separate (Corporate Governance Code). Corporate Governance Code Compliance Public companies, insurers, non-banking financial trust services, and investment management companies are mandated to comply with the Corporate Governance Code (FRC approval, March 23, 2022). Companies must report on code implementation annually in their activity report and on their website. Board Responsibilities The Board of Directors is the governing body between shareholders meetings (Company Law, Article 75.1). The board must define the company’s strategic development and supervise financial and operational activities (Corporate Governance Code). Committees Companies must establish an audit committee as a subcommittee of the board, composed of two-thirds independent directors (Corporate Governance Code) Executive Management The executive management shall manage daily activities of the company and represent the company without proxy (Corporate Governance Code). Regulations addressing related party transactions and conflicts of interest Based on the Law on Securities Market of Mongolia, there are specific regulations addressing related party transactions and conflicts of interest: Related Party Transactions “related persons” is defined in detail, including family members, as companies where the person is an authorized decision-maker, and entities where the person holds 10% or more of voting shares. “affiliation of legal persons” related to market participants. The Stock Exchange must disclose information about significant transactions and agreements with conflicts of interest made by securities issuers. Conflicts of Interest Regulated persons are required to avoid conflicts of interest with clients and other relevant persons, and inform clients immediately if a conflict of interest arises. The Law prohibits regulated persons from promoting self-interest over client interests or utilizing information obtained during service provision for self-benefit; obliges brokers to inform clients about any existing conflicts of interest before entering into a service agreement and to immediately inform clients if conflicts arise later; holds brokers liable for material damage incurred by clients due to failure to inform about conflicts of interest; and prohibits financial rating organizations from performing services with conflicts of interest. CROSS-BORDER ISSUES The rules governing foreign investment in the Mongolian capital market, restrictions on foreign ownership General Rules for Foreign Investment Foreign investors can invest freely in most sectors and industries in Mongolia, except where prohibited or restricted by law. Foreign investors must register their investments with the state in accordance with the Company Law, Law on State Registration of Legal Entities, and other relevant laws and regulations. Foreign investors are granted certain rights, including: Selecting investment objects, forms, amounts, and areas independently Investing in one or more sectors, projects, or operations Importing goods, works, and services for invested projects Disposing of assets and transferring profits abroad Managing or participating in the management of invested entities3 Restrictions on Foreign Ownership Foreign state-owned entities (SOEs) face additional restrictions: Foreign SOEs investing in more than 33% of an entity in the minerals, communication, or financial sectors must obtain approval from the state central administrative body in charge of economy and development (the “Ministry of Economy and Development”). A foreign SOE is defined as an entity of which a foreign sovereign state directly or indirectly owns more than 50%. Specific sectors requiring approval for foreign state-owned legal entities holding 33% or more equity: Mining Banking and finance Media and communication1 The process for obtaining approval for foreign state-owned entities includes: Submitting an application to the Ministry of Economy and Development A 30-day review period for the administrative body to make a recommendation to the Government A 5-business day decision period for the Ministry to approve or reject the transaction The Government considers factors such as: Potential conflicts with Mongolia’s National Security Concept Compliance with Mongolian laws and business norms Impact on competition in the sector Effects on budget income and other government policies Potential negative impacts on the concerned sector6 The Law on Minerals restricts ownership of strategic mineral deposits to a maximum of 34%, whether held by a single entity or a group of related entities.  This limit can be exceeded only if an investment agreement with the Government specifically allows for a higher percentage (Articles 5.7, 5.8). Regulation of cross-border transactions Cross-border transactions in Mongolia are regulated through various laws and mechanisms: Foreign Investment Regulation Foreign investors must obtain permits for transactions involving strategic sectors such as banking and finance, media and telecommunications, and mining. Transfer Pricing Rules Apply to both cross-border and domestic related party transactions. Taxpayers must submit annual transfer pricing reports to tax authorities. Capital Requirements Foreign investors in a Business Entity with Foreign Investment must inject a minimum capital of USD 100,000, either in cash or in-kind. Banking Sector Regulations Foreign investors in Mongolian banks are subject to prior review and approval by the Central Bank of Mongolia. Transactions involving over 5% of shares in a Mongolian commercial bank require regulatory approval. Securities Market The FRC oversees cross-border transactions in the capital markets. New regulations are expected to establish frameworks for corporate bond products and fintech innovations. Bilateral or multilateral agreements related to capital market cooperation Mongolia has several bilateral and multilateral agreements related to capital market cooperation: U.S.-Mongolia Bilateral Investment Treaty Signed on October 6, 1994 Entered into force on January 1, 1997 Protects U.S. investors and assists Mongolia in developing its economy Provides national treatment and most-favored-nation treatment for investments Allows for international arbitration of investment disputes S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment Signed on September 24, 2013 Went into effect on March 20, 2017 Promotes transparency in policy-making and facilitates information exchange between governments Applies to measures affecting trade in goods, services, investments, and intellectual property rights Mongolia-Canada Foreign Investment Promotion and Protection Agreement Signed in 2016 Entered into force on March 7, 2017 Mongolia-Japan Economic Partnership Agreement (EPA) Signed in February 2015 Entered into effect in June 2016 Multilateral agreements Mongolia is a member of the World Trade Organization (WTO) Mongolia is a party to the Seoul Convention establishing the Multilateral Investment Guarantee Agency Mongolia is a signatory to the Washington Convention on the Settlement of Investment Disputes Other bilateral agreements Mongolia has established Foreign Investment Protection and Promotion Agreements with 43 countries Mongolia has Double Taxation treaties with 26 countries Economic Partnership Agreement Negotiations As of September 10, 2024, South Korea and Mongolia launched the third round of talks for a comprehensive economic partnership agreement. This four-day negotiation in Ulaanbaatar focused on: Strengthening cooperation on trade and supply chains Discussing 13 segments, including goods, services, investment, and digital trade Enhancing cooperation on stable supply chains Joint responses to climate changes ENFORCEMENT & SANCTIONS The enforcement powers of the regulatory authorities Based on the Law on the Legal Status of Financial Regulatory Commission and other relevant legislation, the enforcement powers of regulatory authorities and types of sanctions for violations of capital market regulations in Mongolia are as follows: 1.   Enforcement Powers Investigation and Inspection: Inspectors appointed by the FRC can enter offices or premises of license holders during working hours (Article 25.1.1) Request and review documents, make copies, and question relevant parties (Articles 25.1.2, 25.1.3, 25.1.4) Conduct inspections without prior notice if violations are suspected (Article 24.4) Information Gathering: Obtain necessary reports, explanations, and documents from relevant organizations and authorities (Article 25.1.2) Compliance Monitoring: Monitor activities of license holders (Article 6.1.4) Supervise implementation of rules, procedures, and license requirements (Article 6.1.3) Regulatory Action: Suspend activities of licensees, in whole or in part (Article 25.1.6) Impose duties to eliminate violations and ensure their fulfillment (Article 25.1.5) 2.   Types of Sanctions Administrative Sanctions: Impose administrative sanctions in compliance with relevant legislation (Article 25.1.7) License-related Penalties: Suspend, revoke, or terminate licenses (Article 6.1.3) Financial Penalties: Set and impose regulatory service fees on license holders (Article 6.1.5) Operational Restrictions: Suspend activities of licensees, partially or fully (Article 25.1.6) Criminal Referrals: Transfer relevant documents to authorities for criminal prosecution if violations are deemed criminal offenses (Article 25.1.9) Fines: Infringement of the legislation is subject to penalties including fines, forfeiture of any ill-gotten gains, and mandatory compensation for resulting damages under the Law on Infringement. Fines typically range from $3 to $5,780 for individuals and $30 to $57,793 for legal entities depending on the severity of the offense. 3.   Criminal Penalties: While not directly imposed by the regulatory authorities, serious violations can lead to criminal charges, including imprisonment for up to 12 years for abuse of the securities market and insider trading. The regulatory framework aims to provide comprehensive enforcement powers and a range of sanctions to ensure compliance with capital market regulations and maintain market integrity. COMPARATIVE ANALYSIS Comparison of Mongolia’s capital market regulations with South Korea and lessons to learn Mongolia’s capital market regulations have been evolving to align more closely with international standards. However, there are still significant differences and areas for improvement. The Mongolian capital market is relatively young and less developed compared to South Korea’s. While Mongolia has been making efforts to modernize its regulatory framework, South Korea’s capital market regulations are more sophisticated and comprehensive. For instance, South Korea has a more robust self-regulatory system, with organizations like the Korea Exchange and the Korea Financial Investment Association playing crucial roles in market supervision. One key difference is in the financing structure. Mongolian companies still rely heavily on bank financing, similar to the German model. In contrast, South Korean companies have a more balanced approach, with a significant portion of capital raised through the stock market. This suggests that Mongolia could benefit from policies encouraging greater use of equity financing to diversify funding sources for businesses. Mongolia has recently taken steps to enhance its capital market connectivity, as evidenced by the “Mongolian Capital Market Connectivity 2024: Korea” event. This initiative aims to attract South Korean investments and facilitate cross-listing of companies, indicating Mongolia’s recognition of the need to learn from and integrate with more developed markets. In terms of corporate governance, Mongolia has made progress by adopting and revising its Corporate Governance Code, with the latest version in 2022 extending its application beyond listed companies to include insurers, trust service providers, and investment management companies. However, the implementation and enforcement of these governance standards remain challenges. South Korea, on the other hand, has a longer history of corporate governance reforms and stronger enforcement mechanisms. Mongolia could learn several lessons from South Korea’s experience: Developing a more robust self-regulatory framework to complement government oversight. Encouraging greater market participation by diversifying financial instruments and improving investor protection. Strengthening the implementation and enforcement of corporate governance standards. Fostering a “securities culture” to shift from bank-dominated financing to a more balanced capital market structure.       References: Law of Mongolia on Securities Market Civil Code of Mongolia Company Law of Mongolia Law of Mongolia on Investment Law of Mongolia on Asset-backed Securities Law of Mongolia on Investment Funds Banking Law of Mongolia Law of Mongolia on Central Bank (Bank of Mongolia) Law of Mongolia on the Legal Status of the Financial Regulatory Commission Law of Mongolia on Infringement Law of Mongolia on Prosecution Service Law of Mongolia on State Registration of Legal Entities Law of Mongolia on Minerals Law of Mongolia on Infringement Criminal Code of Mongolia     For further information, please contact V. Bolormaa, GRATA International Law Firm Partner at [email protected] or +976 70155031. GRATA International in Mongolia is part of the global law firm, which has offices in 20 other nations. This legal material is not a thorough examination of any particular problems; rather, it is meant to provide general knowledge. Before making any decisions, the reader should consult a professional for advice that is suitable to their situation (s). Any consequences or damages resulting from the use of this legal information are not our responsibility.

BUSINESS CLIMATE Tremendous mineral reserves, agricultural endowments, and proximity to Asia’s vast markets make Mongolia an attractive destination for medium to long-term foreign direct investment (FDI). FDI constitutes 60 percent of the country’s total investment, and by the end of 2023, Mongolia has attracted FDI totaling $3.1 billion. According to national statistics, as of the first half of 2022, Mongolia’s GDP stands at 12.8 trillion MNT (at 2015 par prices) and 23.0 trillion MNT (at annual prices)[1]. The significant features and advantages of Mongolia include, but are not limited to, the following: Diversified and growing market exists in Mongolia; Technology Innovation Hub; Large mineral resource base that can be leveraged for value-added processing; Developing Industry and Infrastructure; Acting as a bridge between the two economic powerhouses of Russia and China; A young, well-educated population; The private sector and privatization, including the privatization of major state assets and listing Mongolian conglomerates and exploration license aggregators on MSE; Public-Private Partnerships (PPPs) and modernizing Infrastructure; Rule of law, regulatory quality and transparency; Ensuring guarantees for investors, both tax and non-tax related; Promising mega projects; and A thriving telecoms & IT International legal framework: Mongolia is actively engaged in negotiating bilateral and multilateral agreements with foreign countries and participating in regional integration activities. Currently, Mongolia has: Signed “Bilateral agreements on investment promotion and mutual protection" with 43 countries; Established “Double Taxation treaties” with 26 countries; Established "Agreements on Mutual Legal Assistance in Civil, Family, and Criminal Matters" with 18 countries; Signed its first free trade agreement, referred to as "the Mongolia – Japan Economic Partnership Agreement (EPA)" with Japan. Moreover, Mongolia is the member of the Seoul Convention establishing the Multilateral Investment Guarantee Agency and Washington convention on the Settlement of Investment Disputes. Consequently, in April, 2014, Mongolia has introduced its investment policy and the law to UN Conference on Trade and Development /UNCTAD/ releasing “Mongolian Foreign Investment Policy Review”. Local legal framework: In 2013, the Parliament of Mongolia passed a new law on investment, which replaced both the old Investment law of 1993 and the Law on Strategic sectors. The new Investment law aims to create an open investment environment for investors, focusing on the following: No approval is required to enter the market and purchase a local company; No discrimination between foreign and local investors; Fast registration process; Stability guarantees- Provision of Tax stabilization certificate; and Flexibility and favorable conditions for investors. In 2021, the Ministry of Economy and Development was newly established, replacing the National Development Agency of Mongolia, which had been responsible for investment-related matters. The new Ministry is tasked with, among other things, enhancing integrated investment policy and planning, improving the legal environment, ensuring and overseeing the implementation of relevant legislation, attracting, supporting, and protecting investment, implementing comprehensive measures to develop public and private partnerships, defining integrated policies for loans, and developing a national investment program.   LEGAL FORMS FOR DOING BUSINESS IN MONGOLIA Despite the wide range of legal forms commercial entities provided by Mongolian legislation such as limited liability company or LLC, joint-stock company or JSC and joint venture, private businessmen and foreign investors mostly prefer to establish foreign-invested LLCs in practice. Representative offices of foreign legal entities are also common. Limited Liability Company (LLC) with Foreign Investment According to the law, a foreign invested company is defined as “a business entity with an overall equity of US$100,000 or more (or MNT equivalent), where not less than 25% must be owned by one or more foreign investors.” Investments into Mongolia can be made in the following ways: By establishing a solely or jointly owned business entity; Through the purchase of shares, bonds and other securities of Mongolian companies; By merging or wholly acquiring Mongolian and foreign companies; Through the establishment of franchise or financial leasing agreement; and In other ways acceptable and not prohibited by If two or more investors are planning to incorporate a foreign-invested LLC in Mongolia, each investor must invest US$100,000 or the MNT equivalent. An LLC is the most frequently used form of a legal entity established by one or more individuals or legal entities (founders or investors) who are not liable for its obligations but bear the risk of losses related to the company’s activities to the extent of their personal contributions (participatory interests). The company’s liability is limited to its assets. The supreme body of a limited liability company shall be the Meeting of Shareholders (MoS) which has exclusive powers regarding business, finance, management, and company structure. The Board of Directors (the BoD) is the governing body of the company between shareholders’ meetings. While an LLC is not required to have a BoD, if decided, it must be stipulated in the company’s charter. The day-to-day management of the company is performed by the Executive Management (an individual or a team) who are elected at the MoS. The powers of the director or management team are clearly defined under the company’s charter. Joint-Stock Company (JSC) A JSC is a legal entity that issues shares in order to raise capital for its activities. JSCs can be classified as open or closed. An "open JSC" is a company whose capital invested by the shareholders is divided into shares, which are registered at the securities trading organization, freely tradable by the public. A "closed JSC” is a company where shareholders’ capital is divided into shares registered at a securities depositing organization, traded in a closed extent outside of the securities trading organization. An open JSC may have an unlimited number of shareholders. Shareholders are not liable for the JSC’s obligations but bear the risks of losses within the value of their shares. A JSC’s assets are separate from those of its shareholders, and it is not responsible for their obligations. The JSC is managed by the MoS, BoD, and Executive Body. The MoS is the supreme management body, deciding on priority issues such as management, administration, business policy, corporate structure, and financial matters. The BoD oversees overall management, including finances and policy development and implementation, except for issues exclusively within the MoS’s competence as mandated by law and the charter. Daily activities are managed by the Executive Body, which may be collective or individual. The Executive Body is empowered to make decisions on matters not within the purview of other company bodies or officials, as specified by the laws of Mongolia and the company's charter. A Representative Office Representative offices of foreign legal entities are not considered legal entities themselves. Instead, they operate as subdivisions of their parent companies. Unlike a legal entity, a representative office is not permitted to engage in business activities that generate income in Mongolia. Operational guidelines for representative offices are outlined in their Charter, and they are managed by an individual authorized by the parent company through a power of attorney. Representative offices are established in a manner similar to legal entities. The state registration certificate for a representative office is typically granted for a period of 1 to 2 years. Before the expiry date, the representative office must apply for an extension of the state registration certificate term. Permanent establishment In practice, there are instances where a foreign business entity operates in the territory of Mongolia under a contract to perform work or provide services without establishing a legal entity in the country. However, depending on the nature and duration of work performed, there may be an obligation to register a “Permanent establishment” with the respective Taxation Authority of Mongolia. As defined in the Law of Mongolia on Corporate Income Tax, the Permanent establishment includes the following units and activities: A place of management; Branches and departments; Units responsible for training, seminars and exhibitions; Units responsible for warehousing, sale and services; Mines, oil or gas wells, exploration sites, or places where minerals are extracted; Factories; Units involved in construction sites, buildings, assembly and installation facilities, and other related construction and supervisory works for a period exceeding 90 days within 12 consecutive months; Units providing technical, consulting, management, supervisory, and other services to taxpayers residing in Mongolia for a period exceeding 183 days within a consecutive 12-month period. Furthermore, units conducting the following activities on behalf of a non-resident taxpayer in Mongolia are also considered as a permanent establishment: Storage, sale, and supply of goods and products; Concluding contracts in person or arranging contracts on behalf of a non-resident taxpayer without altering the main conditions of the contracts. This contract includes one of the following features: Being established in the name of a non-resident taxpayer; Transfering an asset owned, used or possessed by a non-resident taxpayer to others, or transferring the right to use and possess such an asset to others; Providing services offered by a taxpayer not residing in Mongolia. The term “Representative Office” used in the international agreement for the avoidance of double taxation and the prevention of fiscal evasion, ratified by the State Great Khural is considered equivalent to “Permanent establishment”. A non-resident taxpayer earning income generated from Mongolia is deemed to have a permanent establishment in Mongolia upon the date of the commencement of the activity or conclusion of the contract, whichever occurs earlier.   STATE REGISTRATION The registration process for a new foreign invested company in Mongolia involves three key agencies: Legal Entities Registration Office (LERO); District Tax Office; and District Social Insurance Registration of a company Below are the steps to establish an LLC or JSC in Mongolia, following relevant laws and regulations: Obtaining a company name The founder(s) or an authorized representative acting under the Power of Attorney must obtain a unique company name in Cyrillic letters from the State Registration Authority. The name should not duplicate other companies’ names already registered. Once an LLC obtains its name, the founders must establish the company within 30 days. Failure to do so will result in the expiration of the verification sheet for the company name within 30 days. Setting up temporary account of the company Upon obtaining a company name, the founder must complete the necessary forms to open a current temporary account(s) for the new company with any commercial bank in Mongolia. This temporary current account is required to deposit the paid capital of US$100,000 or the equivalent in MNT for a foreign-invested company, as part of the documentation specified in section (c) below. Once the company is incorporated, the deposited amount can be withdrawn with the assistance of the founder, appointed Executive Director or any other representative, who is the first signatory. Development of the documents required for establishment In accordance with the Law on State Registration of a Legal Entity, the founder(s) of the foreign-invested limited liability company must prepare the following documents: Application form (UB-03 form); Verification sheet for the company name; Formal decision for the establishment a foreign-invested company, accompanied by an official Mongolian translation; Should the decision to institute a BoD be reached, its members must be elected; Company Charter (2 copies in Mongolian and 1 copy with an official translation); A copy of agreement between shareholders, with an official translation: if the company has one investor, only the charter is required; if a company has two or more investors, both the charter and shareholders’ agreement are required and shall be drafted in Mongolian and any other foreign language chosen by the investor, then printed in 2 copies each, with each copy of the shareholder agreement notarized; If the founder is a legal entity, a copy of the company incorporation/registration certificate, charter and a brief company profile; Bank remittance receipt for the start-up investment threshold, which is US$100,000 for each foreign investor; A copy of the office lease agreement and real estate ownership certificate to confirm the company’s address; A copy of the Executive Director’s passport and “F” register information issued by the Department of Citizenship of Foreign Citizens; Receipt for establishment of a foreign-invested LLC, which is 750,000 MNT (approximately US$221); UB-12 form for the registration of Ultimate Beneficial Owner (UBO); UBO-related documents include a copy of the state registration certificate and articles of association (company charter) or similar document of all affiliate companies for determining the individual who owns 33% or more of shares of all holding companies of the Mongolian subsidiary, along with a passport copy of the UBO. If there is no UBO in the head company, then all confirmation documents of the absence of a UBO should be provided; Power of attorney (if applicable). State registration Following the submission of the above documents, the LERO will register a foreign-invested limited liability company within 5 business days. Obtaining company seal To obtain a company seal, a foreign-invested company must present an original copy of the company’s state registration certificate. This marks the final step of the company incorporation process. Bank account opening: Bank accounts can be opened at any commercial bank in Mongolia. Required documents include: For foreign citizens: Request to open an account; Passport and certificate of alien For company or entities: State registration certificate (original or notarized copy); Company Charter and founder’s resolution (both in original or notarized copy); ID or passport of shareholders (original or notarized copy); ID or passport of the Executive Director, as well as the 1st and 2nd signatories (original or notarized copy); Formal request to open an account for Mongolian Central Securities Depository and Bank (applicable for joint stock company); 2 copies of the decision granting permission to possess the account by the Shareholders’ meeting (or shareholder) or Board of Directors; and UBO-related documents, including copy of state registration certificate and articles of association or other similar documents of all affiliate companies to determine individuals owning 33% or more of shares of all holding companies of the Mongolian subsidiary. Currently, registration with other government agencies occurs separately. Registration for a foreign-invested company initially begins with the State Registration Authority. Taxpayer registration: Upon company registration, its representative must register with the respective tax department within 14 days, submitting the following documents as required by relevant laws and regulations: Application form; A copy of the state registration certificate; An original and a copy of the Charter; Founder’s application form and copy of passport; Bank statement of the company; Executive’s passport copy and “F” register information issued by the Department of Citizenship of Foreign Citizens; Lease agreement. For JSCs, obtaining a permit from the Financial Regulatory Commission, a government agency and registration at Stock Exchange of Mongolia is required. However, the registration officer of the LERO may request additional documents based on the type of activity etc. It is not a common practice for JSCs to be formed with foreign company in Mongolia. Registration of a Representative office: Pursuant to the Law on State Registration of a Legal Entity, the parent company or individual(s) must prepare the following documents: Application form; Decision of the parent company to establish the representative office and appointment of the Director with certified Mongolian translation; Relevant permission where the parent company is required to obtain permission from the authorized organization to establish a representative office in a foreign country, with its certified Mongolian translation; Passport copy of the representative office Director; Copies of the Parent company profile and charter with certified Mongolian translation; Copy of the state registration certificate of the parent company with certified Mongolian translation; Charter of the representative office (2 copies in Mongolian, 1 copy in any other chosen language); Payment receipt of the state stamp duty of 1,100,000 MNT (approximately US$323.66); Lease agreement; and Power of Attorney (if applicable). The authorized representative of the representative office can order the seal based on the state registration certificate of the representative office and open bank accounts with a commercial bank. Registration of a Permanent establishment The Permanent Establishment must submit the following documents and apply for registration as a taxpayer to the Tax Office electronically or in paper 10 business days prior to commencement of its activities: Taxpayer registration request form; Decision on the establishment of a permanent establishment of a foreign legal entity in Mongolia, detailing the type of activities, its duration, the name of the head and the number of employees, among other details; Taxpayer’s certificate proving registration as a taxpayer in a foreign country; Documents proving the parent company’s registration as a legal entity (copy) and the company’s charter (copy); A copy of the contract concluded with an individual from Mongolia, demonstrating the earning of income generated from Mongolia; Proof of address and location of the Permanent Establishment; Decision and power of attorney appointing a representative to manage the Permanent Establishment; Copies of resumes and documents of the head of the Permanent Establishment. If the head is a citizen of Mongolia, a copy of the identity card; If the head is foreign, a copy of the temporary identity card of a foreigner or stateless person registered at the Department of Citizenship Affairs, and a copy of the foreign passport; Initial Financial statement of the Permanent Establishment. As the Permanent Establishment is registered solely for tax purposes, it is not registered with the LERO. Ultimate Beneficial Owner (UBO) According to the Amendments to the Law on State Registration of Legal Entities dated March 22, 2019, all companies registered in Mongolia are required to register their UBO. The UBO refers to the following individuals: For a legal entity, an individual who holds a significant or controlling ownership interest solely or jointly with others, or occupies a management position within the legal entity or is represented by others, or ultimately benefits and profits by controlling the legal entity and its operations; For an individual, an individual who benefits from and profits by controlling the actions and activities of, or by being represented by that individual; For an asset management transaction, an individual who benefits from and profits by exercising ultimate effective control over the asset management transaction. Ownership of assets in the company, either individually or jointly with others must be 33 percent or more. For companies with continuous ownership, copies of the State Registration Certificate and articles of association of all companies holding 33% or more ownership are required. PERMITS According to the Law of Mongolia on Permits (2022), certain business activities must be conducted with a permit issued by the competent authority. Permits are classified as either (1) regular or (2) special, depending upon their purpose, prerequisites, business characteristics, and risk level. A special permit is necessary for activities that may endanger national security, public interest, health, environment, or financial stability. It is also required for professional activities that must adhere to specific conditions and requirements, or for limited utilization of natural resources and state-owned public property for profit and production. A regular permit is needed for one-time activities, additional activities conducted based on a special permit, or for the utilization of natural resources and state-owned public property for household purposes. General requirements To possess full legal capacity; If required by law, to have passed the professional and qualification examination and obtained an appropriate certificate; To have registered as a taxpayer. Specific conditions and requirements may be mandated by sector-specific laws and regulations. Applicants must submit documents demonstrating compliance with such requirements. The permit is issued to a company registered in Mongolia. In other words, the company will be entitled to apply for permits after it is duly registered. Application processing time The competent authority shall commence due diligence on the applicant within two business days of receiving the application, provided that the documents are complete. Due diligence for a special permit shall take 10 business days, and for a regular permit, it shall take 5 business days. Upon completion of the due diligence, the authority shall decide whether to issue the permit within 5 business days. RESTRICTIONS ON FOREIGN INVESTORS If a foreign state-owned legal entity intends to hold 33 percent or more percentage of the total shares issued by the legal entities in Mongolia operating in the following strategic sectors must get permission from the Ministry of Economy and Development before becoming the shareholder or investor: Mining; Bank and finance; The media and The following documents are required to apply for permission as a foreign state investor prior to investing in a Mongolian legal entity: Official request for permit of the applicant; Notarized copy of the applicant’s certificate of incorporation issued by a competent authority in the applicant’s country; References from the registration authority concerning the applicant, individuals with common interests, and the applicant’s executive management over the past two years; Introduction to the main activity and shareholders of the applicant; Investment plan and business project to be implemented by the applicant in Mongolia; Preliminary transaction details between foreign state-owned entity and the Mongolian entity, including types and conditions of the transaction, parties involved, shares to be transferred, percentage of shareholding, agreement price, and any proposed changes to the entity’s charter; Financial reports and audited financial statements of both the foreign state-owned legal entity and the Mongolian business entity; Contact details   POLICY FOR FOREIGN INVESTORS Stabilization of Taxations: A stabilization certificate will be issued to investors whose projects in Mongolia meet the following criteria: The total investment amount outlined in the business plan and feasibility analysis must meet the specified amount in Table 1 and Table 2; Completion of the environmental impact assessment, if required by the law; Creation of stable job opportunities; and Introduction of high-tech and advanced Stabilization certificate will be issued for the following sectors for the durations stated below: Mining, heavy industry, and infrastructure – Table 1; Other sectors – Table 2. Table 1 Investment amount /in billion tugrugs/ Validity of the stabilization certificates (in years) Investment completion period /in years/ Ulaanbaatar area Central region Khangai region Eastern region Western region 30-100 5 6 6 7 8 2 100-300 8 9 9 10 11 3 300-500 10 11 11 12 13 4 500 and above 15 16 16 17 18 5   Table 2   Investment amount /in billion tugrugs/ Validity of the stabilization certificates (in years) Investment completion period /in years/ Ulaanbaatar area Central region Khangai region Eastern region Western region 10-30 5 -15 4-12 3-10 2-8 5 2 30-100 15-50 12-40 10-30 8-25 8 3 100-200 50 - 100 40-80 30-60 25-50 10 4 More than 200 More than 100 More than 80 More than 60 More than 50 15 5 The investment amount is a crucial criterion for obtaining stabilization certificate. Depending on the investment amount and thelocation where the investment is made, the stabilization period will apply to corporate income taxation, customs duties, value-added taxation and mineral resource royalties as outlined in Tables 1 and 2. The stabilization certificate becomes effective from the date of issuance, and the tax rates for corporate income tax, customs duty, value-added tax and mineral resource royalty remain stable throughout the entire validity period of the certificate. The validity duration of stabilization certificate, as indicated in Tables 1 and 2, will be extended 1.5 times for investors implementing projects in the following categories: Producing import-substitute and export-oriented products significant for the long-term sustainable development of Mongolia’s socio-economic sector, investing over MNT 500 billion based on the Central Bank official rate at the time of feasibility analysis approval, and requiring over three years of construction works, irrespective of location and sector; An investor or legal entity meeting the above criteria engaged in the value-added processing industry and exporting basic An investor or legal entity meeting these criteria may make apply for a stabilization certificate to the state administrative body in charge of investment affairs, namely Ministry of Economy and Development. Taxation support: Tax support shall be provided to investors in the following forms: Tax exemptions: Imported machinery and technical equipment may be exempted from customs duty and the VAT rate may be zero-rated during the construction works in the following cases: Construction of materials, petroleum and agricultural processing and export product plants; Construction of plants utilizing nano, bio and innovation technologies; and Construction of power plants and railways. Tax credits; Accelerated depreciation expense deduction from taxable revenue; Carry forward of losses to be deducted from taxable revenue in future years; and losses can be carried forward for up to four years, with their use restricted to 50% of taxable profit in any year for economic sectors other than mining and infrastructure. Tax losses in the infrastructure and mining sectors can be carried forward and deducted from taxable income for four to eight income years following the year in which the loss was incurred. Deduction of employee training expenses from the taxable revenue: Investors have a right to transfer the following assets and revenues out of Mongolia without hindrance, provided they have fulfilled their tax payment obligations in Mongolia: Business activity profits and dividends; License fees for intellectual property rights and service charges; Payment of principal amounts and interests of overseas loans; An investor’s share of remaining properties after the liquidation of a business entity; and Other legally acquired or owned properties. Non-taxation incentives Non-tax incentives may be rendered to investors in the following ways: Lease and use of land for up to 60 years, extendable once for up to 40 years under the contract`s primary conditions; Support for investors investing in free zones, productions and technological parks, with eased registration and checkpoint regimes; Support for infrastructure, science and educational projects, including increasing the number of foreign workforces and specialists, exemption from employment fees, and facilitating permit issuance; Support for innovation projects and financing guarantees for the financing for production of export oriented innovation products; Provision of multiple visas and residential permissions for foreign investors and their family members under applicable Mongolian laws; Other non-tax support measures as stipulated by Free Zone A “Free Zone” refers to a designated area within the territory of Mongolia that is considered outside the customs territory for customs duties and other taxes, adopting special regulatory treatments for business activities. The establishment of a Free Zone aims to promote economic growth by accelerating regional development, facilitating trade, introducing new technologies, enhancing transits and logistics, developing new industries such as trade, services, and tourism, attracting investments, promoting exports and imports by individuals and business entities, and developing export-oriented production upon creation of favorable regulatory and investment environments in the region. There are currently four Free Zones in Mongolia, namely Tsagaannuur, Altanbulag, and Zamiin-Uud, which are actively operating. Additionally, Resolution No. 10 of 2022 by the State Great Khural of Mongolia established the Khushig Valley Economic Free Zone under the auspices of the new Chinggis Khan International Airport in Sergelen Soum, Tuv Aimag. Although the Free Zone has not commenced operations yet, it will focus on developing a tourism and recreation resort, cultural creative industry, international transport logistics center, and implementing a policy to diversify the economy away from dependence on the mining industry. Customs, visa, travel regulations for Mongolian citizens and foreigners, stateless persons, registration of legal entities, currency regulation, control, employment, taxation and other special regimes shall apply in the Free Zone. In the free zone, various activities such as production, services, tourism, trade, international banking, finance, payment, and gambling can be conducted in accordance with the requirements set by laws of Mongolia. Payments can be made in both national and foreign currencies in the Free Zone. Special customs Treatments in Free Zones The customs clearance process requires the submission of the following documents: For goods entering a Free Zone from overseas: cargo manifest, waybill, and if necessary, relevant permits; Receipt of payment of taxes on goods entering the Free Zone from the territory of Mongolia. In addition to the passenger’s personal items, a simplified customs clearance procedure applies to goods up to a total value of 3.0 million MNT purchased by a visitor entering the customs territory from a Free Zone. Non-tariff restrictions do not apply to goods imported from overseas into a Free Zone or exported from a Free Zone to a foreign country.   Regulation of Registration of Legal Entity in Free Zones A legal entity engaged in economic activities in a Free Zone must submit the following documents to the governor’s office of the Free Zone: For Mongolian legal entities: an application, a copy of the State Registration certificate, and the registration fee payment receipt; For foreign legal entities: an application, a copy of incorporation document, a power of attorney and the registration fee payment receipt. The Governor’s Office of a Free Zone shall review and process the application materials within 5 business days. If the applicant meets the relevant requirements, they will be registered in the Free Zone’s registry of legal entities and provided with a certificate valid only in the given Free Zone. If a legal entity or an individual in a Free Zone employs a foreign national who is engaged in income generating works or service, it shall be exempt from the payment of employment fees. If a legal entity operating in a Free Zone implements a project or program to develop skills and capabilities of its employees, the cost shall be deducted from the taxable income of the given year. Tax exemptions and discounts in Free Zones Goods imported from overseas into a Free Zone are exempt from the levy of import tax, customs duties, VAT and excise tax; No tax is imposed on goods entering a Free Zone previously imported into the customs territory upon payment of customs excise duties and VAT. Deductions are made from other taxes on the basis of payment receipts for taxes paid in the customs territory; VAT is charged at a “0” rate when Mongolian goods are brought into a Free Zone from the customs territory; In addition to the passenger's personal items, goods purchased by a visitor not exceeding a total value of MNT 3.0 million are exempt from customs duties and VAT when entering the customs territory from a Free Zone; Goods other than those specified above are subject to duties and other taxes under applicable laws when entering the customs territory from a Free Zone; No tax is imposed on goods exported from a Free Zone to overseas; No VAT is imposed on goods manufactured, sold, or services rendered in the territory of a Free zone by a citizen or legal entity registered in a Free Zone; In addition to passenger’s personal items, goods purchased by a passenger, goods worth up to MNT 3.0 million do not include goods subject to excise duties, medicines, medical devices, and biologically active products; Facilities constructed and registered in a Free Zone are fully exempt form immovable property tax. The list of goods purchased by the passengers that are exempted from customs and value added tax when entering the customs territory from a Free Zone, with a value of up to MNT 3.0 million, has been adopted by the Government Decree No.105, which includes a total of 546 types of goods. Land fee exemption and discount Business entities engaged in trade, tourism or hotel/hospitality services are fully exempt from land fees in terms of land used in a Free Zone during the first five years of operation and receive a 50 percent during the subsequent three years. Business entities and their branches engaged in infrastructure and production in a Free Zone, including energy and thermal sources, engineering networks, pure water supply, sewage and sanitary systems, roads, railways, airports and communication networks, are fully exempt from land fees for the first ten years of operation. Mongolian or foreign nationals or legal entities who conclude a land use or land possession agreements in a Free Zone may be exempt from the land fees for a certain period in consideration of their effective land use and protection obligations. Innovation in Mongolia Priority industries of innovation In setting priority industries of innovation, Mongolia focuses on directing scientific and technological achievements to accelerate economic growth, produce and export high-tech and competitive products, initiate highly efficient service types and forms, optimize the allocation of innovation capacity and resources, and increase of the effectiveness of government support. The Government of Mongolia approved the “Priority industries of Innovation (2020-2025),” including the following sectors: Information technology (development and security of Artificial Intelligence and Big Data, etc.); Material technology (skin processing, heat materials, and new fuel materials, etc.); Biotechnology/Production technology (manufacture of foods, medications, and vaccines made from agricultural and natural raw materials using biotechnological methods); Renewable energy technologies (accumulation of energy, energy-efficient advanced building technology); Cultural innovation and creative production with national characteristics (development of content and cultural services based on digital technology, government and business products and services based on smart technology). Measures to be implemented within these industries shall be reflected in the annual guidelines for economic and social development, and the required funds shall be financed from the state budget and other sources. Procurement of Funding for Innovation projects: Allocate 1% of the gross domestic product to facilitate innovation; Include funding for innovation within the budgets of the relevant ministries for designated industries; Distribute profits from contracts and innovation activities to national scientific entities; Enhance opportunities for funding for innovation infrastructure and long-term investment through public-private partnerships; Provide innovation loans with certain assets equating to a certain percentage of the loan used as collateral; Support innovation efforts grounded in solid market analysis by purchasing the product and implementing offset mechanisms; Support industries with significant intellectual capacities and those that have invested in advanced technological resources through loans and lenient tax policies; Innovation system in According to the Law on Innovation, the government supports innovation activity in the following measures: Financing a specific percentage of the loan interest for implementation of the innovation project; Financing the costs of patenting innovative products at local and foreign institutions; Allowing immediate depreciation of the property for startup companies engaged in innovation activities; Regulating provision of services to companies conducting innovation activities through state-owned research institutes’ laboratory equipment on preferential terms approved by the Government; Financing the remainder of the total project cost, with 60% or more financed by own funds, by innovative financing organizations and the local budget; Supporting participation in international exhibitions and exhibitions of high-tech innovative products; Financing of all or part of the costs of international quality assurance of export-oriented innovation products; Supporting domestic procurement of innovation products through Government procurement; Organizing and financing exhibitions, conferences, seminars and events to promote public awareness and culture of innovation; Providing monetary incentives to patent holders who have engaged in innovation and have established a product or service of a high social and economic value; Awarding national innovation awards for innovative products and services that have made significant contributions to social and economic development. Tax exemption on Innovative Goods, Works, and Services Under the Law on the Exemption from customs duty and value-added tax, (1) import of equipment necessary for manufacturing innovative products are exempt from customs duty and value-added tax; (2) income from sales of new innovative products, works, and services domestically is exempt from value-added tax. These exemptions apply to start-up companies specified in the Law on Innovation for five years from the state registration. Additionally, non-domestic raw materials and reagents necessary for the manufacture of innovative goods in domestic and foreign markets under Innovation projects are exempt from value-added tax according to the Law on VAT. MAIN TAXATIONS Corporate income taxation (CIT) Mongolian Corporate Income Taxation is levied at the following rates, using a progressive-rate scale that ranges from 10% to 25%, as follows: 10% tax rate applies to the first 6 billion MNT of annual taxable income; and For any annual taxable income exceeding MNT 6 billion, a 25% tax rate applies on the surplus amount, in addition to a fixed rate of 600 million MNT. However, certain income types, as listed in the chart below, are deducted when determining the annual taxable income and taxed at different tax rates on a gross basis: Table 3 Source of income Applicable tax rate (%) Dividends 10% Royalties 10% Interest 10% Law on Petroleum of Mongolia; Upon termination of a production sharing agreement by a Government decision, the costs incurred in exploration and exploitation activities will not be reimbursed, and the money deposited in the escrow account will be used to fully rehabilitate the environment and, if necessary, to dismantle exploration and exploitation facilities, and the remaining money to be returned to the contractor.     10% Insurance reimbursement 10% Fees and charges evidenced by a payment receipt paid to the State organization in connection with obtaining the right when it is issued by a State authority; 10%   Sale income and transfer of real estate 2% Quizzes with prizes, gambling, and lotteries(net) 40% Profits transferred from the representative office to its own head entity in the given tax year; 20% Income earned in Mongolia by a taxpayer not located in Mongolia, other than a registered representative office, as well as income earned in Mongolia and income from management services (shall be enforced from July 1, 2024). 20% Income from the sale of bonds, shares, and other securities of government, provincial, metropolitan, and taxpayers located in Mongolia, traded in the primary and secondary markets by a taxpayer not located in Mongolia (shall be enforced from July 1, 2024). 20% Interest income on loans and debt drawn by commercial and domestic sources of the Commercial Bank of Mongolia 5% Earned income up to 300 million MNT in the year for operating activities except exploration, mining, transportation, sale of minerals and radioactive minerals, production of alcoholic beverages, tobacco plants, and to import tobacco, petroleum products, import of all types of fuel, trade, exploration, extraction and sale of petroleum.   1% Income from the sale of intellectual property rights 5% Income transferred to a legal entity that does not reside in Mongolia with respect to software license fee and server renting fee to be used for a primary operation of a taxpayer residing in Mongolia that is engaged in primary activities of software development 5% Some of general deductible other expenses stipulated in the laws include: Normal loss of goods and materials; Health and social insurance contributions; Taxes, payments and fees reported for payment to the budget other than value-added tax paid to the budget and taxes deducted from the income of other persons; Financial support provided to vocational education and training institutions for the purpose of training specialists by his own order; Donations of up to MNT 10 million to support non-governmental organizations created by disabled Mongolian citizens; Donations of up to MNT 10 million to the Sports Support Fund to support sports activities and club activities; Donations and funds provided to the vocational education support fund; Donations for the purpose of reducing air pollution; Funds concentrated in the bank and non-banking financial institution's funds against loss on loan repayment; Funds concentrated in the deposit and loan cooperative loan risk fund and in the potential risk protection fund of other cooperatives; A special fund to be included in the annual environmental management plan of a license holder, project implementer or contractor in accordance with the Law on Environmental Impact Assessment, Law on Minerals, Law on Petroleum and Nuclear Energy and opened by the relevant state body and money transferred to the treasury and to the account stated in Article 11.2.9 of the Law on Petroleum; In accordance with the Article 6 of Law on Tourism, the expenses for renovating the sanitary facilities of the tourism organization at accommodation points and temporary rest areas along the road to meet standard requirements, as well as the expenses for constructing new sanitary facilities that meet standard requirements are included. Corporate income taxation exemption: The payment, interest, fine of bond from the Government, Capital and Development Bank of Mongolia; Revenues from the state budget and fund investment income to future heritage; Income specified in Articles 18.6.2 and 20.1 of this Tax Law from the sales of petroleum products by a taxpayer operating in the territory of the country under a production sharing agreement in the petroleum sector; Income from basic activities of credit guarantee organization specified in the law; Fee income from deposit insurance; Dividends distributed by the state-owned enterprises to the Government; Income transferred abroad from the income earned as specified in the 3rd paragraph by the taxpayer; Income from activities of health care organizations and educational organizations; Income from business activities related to accomplishing the purpose stated in the Charter of a non-profit legal entity; Cooperative revenue from the intermediary price difference of selling member's products; Income from the intermediary of intellectual property rights; Interest income from loans secured by intellectual property rights. Operating income of an investment fund. Value Added Taxation (VAT) Tax withholder and payer refers to an individual or a legal entity whose sales income and operating income has reached 50 million MNT and above and who is charged with the task of deducting the tax and remit it to the budget. Items subject to VAT taxation: All types of goods, works and services sold/provided/rendered in the territory of Mongolia; All types of goods, works and services imported to Mongolia from abroad; and All types of goods, works and services exported from Table 4   Items taxed Rate 1 All types of goods, works and services sold in the territory of Mongolia; All types of goods, works and services imported to Mongolia from abroad,   10 2 All types of goods and services exported from Mongolia 0 3 For value of auto fuel or diesel fuel imported, or produced and sold 0-10   Deductible expenses Following value-added taxes paid by an individual or legal entity in conformity Law on VAT, after being registered as a taxpayer, shall be deducted from the value-added tax to be paid to the state budget: Taxes paid in connection with the purchased goods, performed works, and rendered services for production and services purposes. Taxes paid for goods, works, and services directly imported by himself for the purpose of selling as well as manufacturing and servicing. By deducting VAT paid from the sum amount if goods, works, and services were purchased with value-added tax when being registered as a value-added taxpayer. The value of meat, milk, egg, skin, sheep and camel wool, cashmere, yak wool, livestock for meat processing factories, potatoes, vegetables, fruits, and domestically produced flour sold to domestic manufacturers shall be deemed to have included 10 % of tax, which shall be deducted at such a rate from the tax to be paid by withholding taxpayers who purchased those goods. Taxes paid for goods, works, and services imported or purchased for preparation of fixed assets as well as taxes paid for the import and purchase of fixed assets, shall be deducted proportionally according to the following terms: 10 years for buildings and constructions; 5 years for equipment /this includes exploration costs/; Directly from fixed assets other than those specified above. “0” % VAT: The rate of value-added tax imposed on the following exported goods, works and services shall be equal to zero /"0"/: Goods exported from the territory of Mongolia for the purpose of sale and declared with the customs. Passenger and cargo transportation services rendered from the territory of Mongolia to foreign countries, from foreign countries to the territory of Mongolia, as well as from foreign countries to third countries transiting through the territory of Mongolia under international treaties of Mongolia. Any services rendered (including non-taxable services) outside the territory of Mongolia; Any rendering of services (including "non-taxable services") to a foreign citizen or a legal person who is a non-resident of Mongolia. Any services of air navigation management, technical and fuel services, and cleaning, which shall be provided for both foreign and domestic airplanes conducting international flights, and the sale of food and drink services provided for air crew members or passengers during flight. State orders, medals, and coins manufactured domestically on the order of the Government or Bank of Mongolia. End products of mineral resources. Exemption from value added tax The following goods are exempted from VAT: Passengers’ personal use goods with a permitted amount to let without tax and approved by customs authority. Imported goods for the work needs of diplomatic missions and consular offices, the UN and its specialized branches permanently residing in the territory of Mongolia. Goods received through humanitarian and grant aid from foreign governments, NGOs, and international or humanitarian organizations. Special purpose appliances, equipment, and machinery designed for citizens with learning difficulties. Weapons and special equipment imported for the needs of the armed forces, police, organizations of national security, court or law. Civil passenger airplanes, and their spare parts. Revenues from the sale of establishments used for housing and/or their parts. Imported blood, blood products, and organs to be used for treatment purposes. Gas fuel, its container, equipment, special purpose machineries, mechanisms, and mechanics. Mongolian monetary notes made abroad by order; Following services are exempted from the VAT: Currency exchange; Banking services, such as the receipt or transfer of, or any dealing with, money, any security for money or any note or order for the payment of money and the operation of any savings account; Services of insurance, insurance intermediaries, reinsurance and registration of property; The issuance, transfer or receipt of any securities and shares, and underwriting of such securities; Loan service; The provision, or transfer of an interest on social and health insurance fund; Any services in respect of fees for bank or non-banking financial institution for interest, dividend, credit guarantees or insurance contract; The renting service of accommodation for housing and its part; Educational and professional service mentioned in the regulation of the citizen or legal entity that is engaged in and has a special permission to conduct educational and professional training; Medical services; Services of religious organizations; Virtual Asset Services, etc. Customs duties The term “Customs duty” refers to a tax levied on, collected from, or paid for goods entering or leaving the Customs territory, based on the Customs tariff (MFN Tariff Rate 2017). The tariff rate for non-WTO member countries shall be twice more than the MFN tariff rate. The Customs duties shall be in the following forms: Ad valorem; Specific; Combination or either of the two above; Any of the first two above which entails higher amount of Most of imported goods are subject to 5% ad valorem Customs duty while some others are subject to seasonal duties. Certain goods for export are subject to specific Customs duties. Any person (physical or legal) engaged in foreign trade is liable to paying Customs duties as well as some other taxes and fees upon importation or exportation of goods. Excise duty The following goods shall be subject to excise duty: All types of alcoholic beverages; All types of tobacco; Gasoline and diesel fuel; Automobiles; and By-product of oil production, such as kerosene. The amount of excise duty is imposed in MNT on a specific physical unit, depending on the name and type of goods. Tax reporting period The withholding tax payer must submit the tax report for the goods, works, and services sold to the relevant tax authority by the 10th day of the following month, using the approved form. Social insurance payment Social insurance consists of the following types: Pension insurance; Fringe benefits insurance; Health insurance; Industrial accident and occupational disease insurance; Unemployment allowance. Social insurance has two forms including mandatory and voluntary social insurance under Law on Social Insurance of Mongolia. Table 5 The following individuals must maintain compulsory social insurance Types of social insurance 1.     An employee working under an employment contract with a legal entity or individual of all ownership forms; 2.     Foreign-invested legal entities operating in Mongolia, foreign enterprises and organizations, their branches and representative offices, foreign enterprises operating through their representative offices outside Mongolia, and an employees working in such foreign enterprises or representative offices earning income from Mongolia; 3.     Unless otherwise specified in Mongolia's international agreements, employees working on diplomatic missions or consulates of foreign countries in Mongolia, international organizations, project or program units, branches, representative offices, or permanent offices implemented with foreign loans or aid; 4.     Employees specified in Sections 1, 2, and 3 who are temporarily incapacitated for one month or more and are on maternity leave; 5.     Individuals who have been unlawfully dismissed; 6.     Individuals who have been prosecuted and sentenced to prison on false charges. -        Pension insurance; -        Fringe benefits insurance; -        Unemployment insurance; -        Industrial accident and occupational disease insurance; 1.     Member of the Board of Directors. 2.     Mongolian citizens appointed to work in electoral divisions and committees at all levels; 3.     A Mongolian citizen working in a foreign country under an employment contract; 4.     A pensioner who is working under an employment contract or similar contracts with a legal entity or individual in accordance with the Law on Pensions Provided by the Social Insurance Fund, Law on Pensions, Benefits and Payments for Industrial Accidents and Occupational Diseases Provided by the Social Insurance Fund, Law on Social Welfare and the Law on Benefits Provided by the Social Insurance Fund. -        Pension insurance; -        Fringe benefits insurance; -        Industrial accident and occupational disease insurance; 1.     Unemployed spouses of officers, supervisors, and state customs inspectors serving and working at the state border; 2.     Spouse of an employee of the armed forces, intelligence, police, or court enforcement agency who is unemployed due to relocation to another province, city, or settlement; 3.     Monks and priests of religious organizations; 4.     Current employees and civil servants who are studying under the employer's orders; 5.     An employee mother or father who is caring for a child under the age of three, or a civil servant who is mother or father, unless otherwise specified by law; 6.     Spouses of employees of diplomatic missions working abroad from Mongolia who are unemployed and do not receive an old-age pension; 7.     Individuals who have worked in disaster prevention and other mobilization efforts; 8.     Reindeer herders living in the taiga; 9.     Temporary military personnel; 10.  An employee working under an employment contract or similar contracts with a legal entity or individual of all ownership forms. -        Pension insurance; -        Fringe benefits insurance;   1.     In accordance with Article 57 of the Labor Law, an employee who works multiple jobs simultaneously outside working hours; 2.     Pensioners who have become unable to work due to unemployment, industrial accidents, or occupational diseases. -        Pension insurance;      Table 6     Type of social insurance Deduction percentage /%/ of Employer’s                        salary fund or equivalent earnings Deduction percentage /%/ of Insured’s salary fund or equivalent earnings 1.     Pension insurance 8.5 8.5 2.     Fringe benefit insurance 1.0 0.8 3.     Health insurance 0.5, 1.5, 2.5 - 4.     Unemployment insurance 0.5 0.2 5.     Total deductions 10.5, 11.5, 12.5 9.5   The percentage of social insurance contributions for industrial accidents and occupational diseases shall be determined based on the occupational health and safety requirements and the working conditions of workplaces with risks, as well as the employer's wage fund and equivalent income. This will be approved by the Government upon the proposal of the National Council of Social Insurance. The monthly premiums to be paid by the insured and employers shall be paid before the 5th of the following month. RECRUITING LABOR FORCE FROM ABROAD The Government approves its resolution each year on foreign employees’ ratio. Depending upon number of total employees and sector in where the company operates, the ratio of expatriate various. For 2023, the ratio of expatriate employees follows for the selected sectors: Table 7 No Definition The number of total employees      1. Agriculture, Forestry, Fishing, Hunting 250      2. Mining 10,000      3. Processing factory 1,500      4. Electricity, gas, steam, ventilation 1,361      5. Water supply, drainage systems, waste disposal and environmental restoration activities 100      6. Construction 5,000      7. Wholesale and retail trade, repair and service of cars and motorcycles 3,300      8. Transportation and warehousing operations 2,100      9. Hotels, apartments, house, catering services 300   10. Communication 60   11. Financial and insurance activities 70   12. Real estate activity 10   13. Professional, scientific and technical activities 150   14. Administrative and support activities 300   15. Public administration, defense activities, and compulsory social security 100   16. Education 1,500   17. Human health and social welfare activities 250   18. Arts, entertainment and festivals 150   19. Other service activities 178   20. Household activities that employ people, as well as products and services produced for the household's own use that cannot be identified by type 500   21. Activities of international organizations and resident representatives 150 In order to hire a foreign employee, the employer must obtain (1) a permit to invite a foreign employee, (2) a preliminary employment permit or invitation, (3) a visa, (4) a work permit, and (5) a residence permit. To do so, follow the procedure outlined below. Seeking employees from Mongolia Initially, the employer must seek the necessary employees within the labor market of Mongolia. For this purpose, information about the necessary vacancies and job requirements should be submitted to the employment agency of the respective province and district, and a request to hire an employee should be made. Afterward, job advertisements will be posted in the employment register and database, and employees will be sought in Mongolia within 14 business days. It is notable to avoid exaggerating the qualifications and skills required to perform the job, as well as rejecting to hire a qualified candidate from Mongolia who meets the job requirements. Permission to invite foreign employee If it is unable to hire an employee from Mongolia within 14 business days as required above, the employer has the right to request an invitation or permit to hire a foreign employee. To do so, the following documents must be submitted to the State Administrative Body responsible for labor matters: A work plan detailing the classifications, types, lists, locations, and durations of workplaces to employ foreign employee. The state registration certificate and the necessary permits if the work or service requires a license. A document verifying the professional skills and qualification of the foreign employee (certified by a competent authority recognized by the concerned country). Evidence of placing a job advertisement in employment registers and databases, as well as proof of active efforts to search for employees. The receipt of service fee payment. Proof of payment of social insurance premiums. Other requirements specified in the relevant legislations. A preliminary employment permit or invitation The hired expatriate who is going to work at mine site (C3), construction field (C1), the expatriate employee shall obtain employment visa. Otherwise other type of visa such as K1 or business visa is not allowed to work in Mongolia. Prior to arrival, the hiring Company shall obtain employment invitation for an expatriate employee. Based upon employment invitation, the hiring company shall obtain entry visa permission from Immigration authority. For getting employment invitation, the following documents are required: Application form; Receipt of payment service fee (30 000 MNT or app 8.5 USD/ 1 person); Copy of State registration certificate; Copy of License with attachment; Copies of Government resolution if entity has exempted from ratio by Government resolution; Social Insurance: SI-7 and SI-8 forms during the last month of the social insurance period to confirm the number of employees who have paid social insurance in the entity. Statement from Ministries and Agencies regarding the employment of economic entities (applicable only to the field of education). An employment agreement with a foreign legal entity, with its Mongolian translation; Copy of a foreign citizen's passport; A copy of professional diploma and diploma certificates demonstrating profession in the field of employment; Other documents, if Obtaining visa Mongolia has 10 types or classifications of visas in general, including “D”, “A”, “B”, “C”, “E”, “F”, “G”, “H”, “J”, and “K” which are classified into sub-classifications such as D-1, B1, B1-1, C1, C1-1, and so on. The type of  visa shall be indicated on the visa slip using Latin letters, in accordance with the purpose of the foreign citizen or a stateless person. Type “B” visa shall apply to: A foreign investor (B1) and their related individuals (B1-1); A representative or a senior manager of a foreign-invested company (B2), and their related individuals (B2-1); A head of a representative office of a foreign legal entity (B3) and related individuals (B3-1). Type “K1” visa applies to foreign citizens visiting Mongolia temporarily with business purposes. Type “C” visa is for foreign citizens who intend to work in Mongolia under an employment Visas shall be issued by the following authorities: Ministry of Foreign Affairs; Mongolia Immigration Agency; Mongolian Embassies and Consulates in foreign For business visas for 30 days or less, is required to submit: Passport with a validity date of at least six months beyond the end of the applicant’s intended period of stay in Mongolia; Completed visa Application Form for non-tourists with one passport-size photo; Invitation from the inviting Mongolian organization which should be approved by the Ministry of Foreign Affairs of For foreigners planning to stay more than 30 days and up to 90 days and wishing to receive a visa on arrival, permission should be obtained from the Mongolian Immigration Agency. Citizens, business entities, and organizations that provide accommodation to foreigners shall register them with the state administrative body responsible for foreign affairs within 48 hours. Registration can be completed electronically. Required Documents: Registration request from an inviting organization or individual. In cases where there is no inviting organization or individual, the foreign national should submit their own request for registration. Passport or an equivalent document and additional copies. One copy of a passport-size photo (3x4 cm); Completed registration form. Obtaining work permit for a foreign worker After the arrival of the hired expatriate in Mongolia, the employee must obtain a work permit in order to get multi C or employment visa (depending on the industrial sector, the “C” visa is sub-classified). Work permits for foreign employees must be obtained within 10 business days from the date of entering the Mongolian border. Prior to obtaining this permit, the foreign employee must undergo medical examination and obtain a medical certificate. The workplace payment for each expatriate employee shall be MNT 1,100,000 per month. This payment must be made before obtaining work permit for a period of 6 months to one year. The following documents are required to obtain the work permit: Application form; Receipt of payment for service fee (MNT 30,000 per person); Receipt of payment for the workplace payment; Copy of state registration certificate; Copy of special permit certificate and its appendices; Copy of the relevant Government Decree, if exemption from the quota is applicable; Passport copy, including the stamped page; Medical certificate for medical Residence permission Foreigners coming to Mongolia for private purposes, such as work or investment should obtain a residence permit. The following documents necessary for obtaining the permission Official letter from an inviting citizen, business entity or organization requesting the residence permission; Reference on residential address from a Governor of Soum or Khoroo; Passport copy; In the case of a related person, the required documents include a marriage, birth, or adoption certificate, evidence of cohabitation, or their apostilled copies, along with their certified translation; Application form; One copy of a photo (3.5x4.5 cm); Other additional documents may be required, depending on the type of residence permit. Foreign citizens who hold valid foreign passports or equivalent legal documents may visit or reside in Mongolia upon obtaining the required visa from a competent authority of Mongolia. A request to obtain residence permission must be filed within 21 days after entry to Mongolia. TRADEMARK PROTECTION IN MONGOLIA To enjoy legal protection in Mongolia, a trademark needs to be registered with the General Authority of Intellectual Property in the Register of Trademarks. Alternatively, it may be protected in another country provided that it is registered in accordance with the Madrid Agreement Concerning the International Registration of Marks dated 1891 and the Protocol Relating to the Madrid Agreement. A "trademark" refers to a distinctive expression used by an individual or a legal entity, engaged in manufacturing goods or providing services, in order to distinguish their goods or services from others. It may be expressed in words, figures, letters, numerals, three-dimensional configurations, colors, combination of colors, sounds, scents, and/or any combinations thereof. The trademark registration process takes 9 months and can be extended for an additional 6 months. Once the trademark is registered, its certificate shall be issued for 10 years term and can be extended for additional 10 years. The exclusive rights of the trademark holder shall be enforced within registered list of goods and services. Exclusive rights: The trademark holder has the following exclusive rights: To own the registered trademark; To allow to use the registered trademark by a third party; To transfer the registered trademark to a third party; To demand cessation of registered trademark use without permission; To demand cessation of the use of the same or similar trademark by a third party that misleads the customers; and To demand payment for incurred loss due to action stated in (d) and (e). The trademark holder can transfer the rights to another person by signing an agreement for the transfer of ownership of the trademark. Alternatively, other parties can use the registered trademark by signing a license agreement for some or all goods and services. According to the law, both the transfer agreement and the license agreement are considered effective upon registration with the Intellectual Property Office and publication in official periodicals. If an individual or legal entity uses the trademark without permission, the trademark holder may protect their exclusive rights and file a claim to the following authorities: Intellectual Property Office of Mongolia; Customs General Administration of Mongolia; and Courts of Mongolia. Enforcement Action by Intellectual Property Authority: In the case of infringement of industrial property rights, the right holder or his/her representative may file a complaint, objection, or request with the Industrial Property Rights Dispute Resolution Board (DRB) at the Intellectual Property Office of Mongolia. The claim, objection, or request should be supported by the evidence of the infringement. The dispute will be resolved within 90 days from the initiation of the case, and this period may be extended for an additional 30 days upon the complainant’s consent. In the event of disagreement with the DRB decision, the concerned party can file a claim with the court within 30 days from the date of receiving  the decision. Enforcement action by the Customs authority: For the protection and combat against  counterfeit products being supplied and sold in the market, the trademark holder or their authorized entity or individual, under a licensing agreement, can register the trademark with the customs authority. This registration is based on the trademark certificate issued by the registry. The customs authority shall not clear counterfeit products with a registered trademark through  customs if there is any complaint. The trademark holder can file a claim to stop the clearance of products by customs in the event of trademark rights infringement, illegal clearance of products, or if reasonable grounds to suspect illegal or fake products during customs inspection. The claim should include information about the trademark holder, intellectual property, a detailed description of the products that have been cleared through customs illegally, and the requested  measures to be undertaken by the customs authority. The State Inspector of the Customs authority is authorized to impose sanctions on trademark infringers. Enforcement Action by courts: If the state Inspector and its senior inspector have not satisfactorily performed their duties to the trademark holder’s claims for protecting its exclusive rights, the trademark holder may file a claim with the court. If trademark infringement results in loss, either in monetary or non-monetary terms such as damage to the business reputation, the trademark holder is entitled to file a claim for compensation for the incurred loss. However, the loss caused must be proven with evidence in order to make a claim for the The court has the authority to impose criminal sanctions on entities and individuals in default. If a defaulted party has engaged in the manufacturing, supply, sole, and storage of counterfeit products using the registered trademark, criminal sanction will be imposed. Trademark infringement is classified as an offence or a crime under the relevant law. DISPUTE RESOLUTION IN MONGOLIA If the disputing Parties cannot reach an agreement by negotiations, they may apply to a Mongolian court or the Mongolian International Arbitration Center attached to the Mongolian National Chamber of Commerce and Industry. Judicial System of Mongolia According to the Article 13.2 of the Law on Court, the judicial system of Mongolia follows a basic structure consisting of the Supreme Court, the Court of Cassation or Review, aimag and capital city courts (the Court of Appeals), soum or intersoum and district courts (Courts of the First instance). Soum, intersoum and district courts have jurisdiction only at first instance; Aimag courts, found in the Aimag capitals and the Capital City Court, handles appeals from the lower-level courts; and The Supreme Court is the highest level of the Court, deals with any matters at first instance that are not within the specific jurisdiction of other courts and handles appeals on decisions made by the courts of Aimag and the Capital City. The courts, with the exception of the Supreme Court, are established to specialize in specific types of cases, such as criminal, civil, and administrative matters. The Administrative Cases Court specifically deals with matters pertaining to public law, but not purely constitutional matters. Reviews were conducted by an independent body to assess all administrative acts that impact  the citizenry.The primary role of the Administrative Cases Court is to examine the constitutionality of various administrative actions, especially those that infringe upon fundamental rights. The Administrative Cases Court of Mongolia was established by the State Great Hural (the Parliament of Mongolia) in June 2004. It handles disputes arising from the exercise of public authority, involving both citizens and legal entities. This relationship between the public authorities and individuals in this context is regulated by the Law on Administrative Procedure. Alternative Dispute Resolution - Mediation: Mediation is an alternative dispute resolution method that parties in any agreement should consider, aside from arbitration. Mediation is essentially a negotiation process facilitated by a neutral third party. Unlike arbitration, which takes a form more similar to a trial, mediation does not involve the neutral third party making a decision. Instead, it aims to find a mutually acceptable resolution or compromise between the disputing parties. Mediation procedures can be initiated by the parties or may be compelled by legislation, the courts, or contractual terms. When parties are unwilling or unable to resolve a dispute, one good option is to turn to mediation. Mediation  is generally a short-term, structured, task-oriented, and “hands-on” process. In Mongolia, the institution of mediation was established through the adoption of the Law on Mediation in 2012. Pursuant to the law, mediation may be used in civil legal disputes, labor rights disputes, and disputes arising from family relationships, and in certain other disputes as specified by law. In mediation, the parties involved in a dispute work with a neutral third party, known as the mediator, to resolve  their conflicts. The mediator facilitates the resolution of the parties’ disputes by supervising the exchange of information and the bargaining process. The mediator helps the parties find common ground and address unrealistic expectations. The mediator may also provide innovative solutions and help in formulating a final settlement agreement. The role of the mediator is to interpret concerns, relay information between the parties, frame issues, and define the problems. Unlike the litigation process or arbitration, where a neutral third party (judge or arbitrator) imposes a decision on the matter, the parties and their mediator typically have control over the mediation process. Mongolian International Arbitration Center Mongolian International Arbitration is affiliated with the Mongolian National Chamber of Commerce and Industry. It commenced operations in 1960 and is recognized internationally as a permanent arbitration institution in Mongolia.The arbitration has branches in all 21 aimags, which are administrative units under the law of Mongolia. Currently,  there are  51 local arbitrators with qualification in law, economics, finance, and mining, as well as 11 foreign arbitrators from countries including the Russian Federation, the People’s Republic of China, the Federal Republic of Germany, Japan, Hong Kong, and Poland. Exclusive Court jurisdiction cannot be changed by agreement of the parties to a dispute, in particular, in the following cases: Disputes related to the ownership, possession and use of immovable property in territory of Mongolia; Disputes arising in connection with reorganization and liquidation of a legal entity located in the territory of Mongolia or decision made by that legal entity, its branch, or representative office; Disputes related to the validity of entries in public registry of the court and other competent authority of Mongolia; Disputes related to the registration or receipt of an application for registration of patents, trademarks, or other intellectual property rights by a competent authority of Mongolia; and In the case where a court decision enforcement action has been taken in the territory of Mongolia or a relevant person applied for such action. Enforcing Foreign Court Judgments and Arbitrational Awards Mongolia ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awardsin 1994. Accordingly, the courts of Mongolia will enforce arbitral awards within the country provided that the following conditions are met: The award is final. The award relates to a commercial dispute. The award is confirmed by a judicial order in Mongolia. The award does not pertain to taxes, fines, or penalties. The award was not obtained in a manner that goes against the public policy of   Mongolia. There are specific circumstances under Mongolia’s Arbitration Law in which a foreign arbitration will not be enforced. These circumstances include: If one of the parties to the arbitration agreement lacks legal capacity, or if the arbitration agreement itself is invalid. When a party responsible for the arbitral award did not receive proper notice of the appointment of an arbitrator or the arbitral proceedings, and as a result was unable to participate and provide the response. If the arbitral award is not contemplated by or falls outside the terms of the claim, or if the arbitral award exceeds the scope of the initial claim. If the composition of the arbitral tribunal and the arbitral proceedings do not conform to the agreement of the partiesor, in the absence of such an agreement, do comply with the laws of the jurisdiction. When the arbitral award is invalidor its enforcement has been suspended. If the subject matter of the dispute is not capable of settlement through arbitration under the laws of Mongolia. The recognition of enforcement of the award would run contrary to Mongolia’s common interests.     For more information or any queries, please feel free to contact Bolormaa.V, Partner by [email protected] and Buyanjargal Tungalag, Lawyer of Grata International Law Firm by [email protected] or 976 70155031. This legal information was prepared by Umguulliin Grata International Mongolia LLP, the Mongolian office of Grata International, an international law firm that has its branches in 20 countries around the world. The material contained in this alert is provided for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this alert. [1] National Statistics Committee, "Gross Domestic Product", 2022 first half-year forecast performance presentation, 2022

Background Mongolia’s total renewable energy potential is 2600 gigawatts (GW), over 1000 times larger than the 1.6 GW installed capacity of Mongolia’s electricity system[1]. In the decades ahead, this potential could be harnessed through the vast solar and wind resources of Mongolia’s Gobi Desert. With the effective development of energy transmission infrastructure, these resources could not only meet domestic energy consumption but also fulfill the energy demands of the Northeastern Asian region. Despite its vast renewable energy potential, Mongolia currently depends on coal-fired thermal power plants for about 90 percent of its electricity production. Coal is also the primary source of heating. As a result, the energy sector is the major contributor to significant greenhouse gas emissions and severe air pollution in the country. The amount of electricity produced in Mongolia in 2023 was about 8528 million kWh, an increase of 3.3% or 349.7 million kWh over the year before. The majority of electricity produced, 90.9%, came from combined heat and power plants; the remaining 8.5% came from solar and wind power, 0.6% from hydropower sources, and 0.01% from diesel generators. In addition, the amount of power imported during the reporting period was 2447.6 million kWh, which represents a 13.2% increase over the previous year by 286.3 million kWh.[2] Therefore, Mongolia is taking concrete actions to increase development and investment in its renewable energy sector. In particular, Mongolia amended the Renewable Energy Law in 2008, 2011, 2012, 2015, 2019, and 2022, adding key provisions to support renewable energy projects. These amendments include the introduction of feed-in tariffs, a competitive auction system for renewable energy projects, project implementation guarantee and other supportive measures. Mongolia’s climate commitments under International Agreements Mongolia has shown a strong commitment to supporting the ultimate goal of the United Nations Framework Convention on Climate Change (UNFCCC)—limiting global warming to well below 2°C, and pursuing efforts to limit it to 1.5°C —through the following actions: In September 2015, Mongolia adopted its first Nationally Determined Contribution (NDC) to the UNFCCC, committing to reduce greenhouse gas emissions by 14% by 2030. In 2019, Mongolia updated its NDC target to 22.7% by 2030. This target includes reducing carbon emissions from the energy production and supply sector by 8.34 million CO2-equivalent (CO2-eq) tonnes and reducing carbon emissions from renewable energy by 2.97 million tonnes CO2-eq[3]. To achieve this international commitment, Mongolia is actively working to increase the share of renewable energy in its total installed energy capacity, including wind, solar, and hydropower. It has developed and adopted key state policy documents, such as "Vision-2050" and the "2021 New Recovery Policy." Specifically, Vision-2050, the country’s long-term development strategy approved by Parliament in 2020, reflected the government’s target to increase the installed renewable energy capacity to 30 percent by 2030[4]. Amendments to the 2007 Renewable Energy Law to Support the Renewables Tariff change and feed-in tariffs The provisions for renewable energy tariffs were amended in 2015 and 2019. These amendments replaced the previous tariff system, which included minimum (floor) and maximum tariffs, by introducing a cap on renewable energy tariffs without establishing a minimum tariff. Energy Source On-Grid Tariff (USD/kWh) Wind up to 0.085 Hydropower (up to 5 MW) 0.045 - 0.06 Solar PV 0.12   The Energy Regulatory Committee(hereainfter “the ERC”) reviews and approves energy price calculations, sets tariffs within the specific limits above, and monitors agreements between producers and the National Dispatching Center. The National Dispatching Center is responsible for purchasing electricity from producers at approved tariffs and managing grid expansion, excluding the connection of producers to the transmission grid. The National Power Transmission Grid is responsible for connecting the transmission line from the renewable energy plant to the grid, which is built and paid for by the developer. The tariff limits are determined based on the payback period of the investment to ensure that renewable energy projects remain financially viable, encouraging investment in clean energy infrastructure while avoiding undue financial burden on consumers. The difference in the price of electricity produced by renewable energy producers connected to the transmission grid shall be compensated through feed-in tariffs, as stipulated in Article 11 of the Renewable Energy Law. Feed-in tariffs (FiTs) are a policy mechanism used to promote the development of renewable energy projects by guaranteeing a fixed payment to energy producers for the electricity they generate. These tariffs are designed to provide financial incentives to renewable energy producers by offering long-term contracts at stable, often above-market prices, which encourage investment in renewable energy infrastructure. Factors for determining the prices and tariffs Competitive procurement of renewables Renewable energy projects for constructing generators connected to the grid will compete for selection based on established technical criteria and price offers. The procurement process will be conducted through an auctioning system by the Ministry of Energy. Project selection involves the following stages[5], as specified in the Regulation for Competitive Procurement of Renewables:   Principles for organizing the project selection Principle Description State Policy Compliance The project must align with the state's renewable energy development policy and support the sustainable operation of the integrated energy network. Key factors such as project location, power source type, installed capacity, and annual power purchase amount should be determined in advance. Competitive Pricing The project must demonstrate competitiveness in terms of selling price, as well as the renewable energy equipment and technology to be deployed. Transparency, Fairness, and Equality The project selection process should ensure transparency, fairness, and equality.   Obtaining a special permit and project implementation guarantee A project implementation guarantee means funds deposited in the bank and a bank guarantee submitted by a project participant confirming the full implementation of the project. It ensures that developers meet their obligations and complete the construction of the plant on time. This guarantee must clearly be outlined in the power purchase agreement between a renewable energy producer and a National Dispatch Center according to the law. Taxation and non-taxation Incentives and Exemptions for Renewable Energy Production and Equipment for investors To encourage domestic and foreign investment in renewable energy production, research, development, and infrastructure, the following tax and non-taxation incentives are provided:   Tax Incentives Incentive Type Details Tax Rate Customs and VAT Exemptions Machinery and equipment for renewable energy research, development, and production 0% VAT; Duty Exempt Corporate Income Tax (CIT) Incentives Sale of environmentally friendly equipment Reduced tax rate Investment income from energy sources in free zones (USD 500,000+) 50% tax reduction Income from heat/electricity projects after 2023 (first 3 years) 90% tax reduction Income from heat/electricity projects after 2023 (next 3 years) 50% tax reduction Income from equipment production for >5 MW (electricity) or >1.5 MW (thermal) sources 90% tax reduction   Non-Taxation Incentives Incentive Type Details 📋 Operational Flexibility Simplified processes in free zones and technology parks to reduce administrative burdens 👨‍💼 Workforce Support Increased quotas for foreign specialists, exemption from fees, and faster permit approvals 💼 Investment Guarantees Government assurance for funding innovative export-oriented projects in manufacturing 🛂 Visas & Residency Easy access to multiple-entry visas and residency permits for investors and their families Year operational Project name Power owner Capacity (MW) Investment (million USD) Key International public lenders Wind farms 2013 Salkhit Clean Energy 50 122.1 EBRD, FMO 2017 Tsetsil Clean Energy Asia 50 120.7 EBRD, JICA 2018 Sainshand Sainshand Salkhin Park 55 121.7 EIB, EBRD Subtotal 155 364.5 Solar plants 2016 Nar (Darkhan) Solar Power International 10 18.3 Joint Crediting Mechanism 2017 Monnaran Everyday Farm 10 23 JBIC 2018 Gegeen Naranteeg 15 26 100% Equity 2019 Sumber ESB Solar Energy 10 17.6 GCF 2019 Bukhug Tenuungerel Construction 15 18.7 ADB 2020 Gobi Desert Solar Power One 30 30.7 EBRD, FMO 2022 Khovd Nar (Myngad) N/A 10 16.0 World Bank 2023 Borkh MCS International 5 7.95 ADB 2023 Serven MCS International 10 10.4 ADB Subtotal 115 168.65 Total 270 533.15 Current ongoing renewable energy projects The renewable energy projects attracted a significant investment in wind and solar energy generation in recent years, totaling 270 MW of installed capacity with an investment of 533.15 million USD. The projects have been supported by key international public lenders, such as the EBRD, FMO, EIB, ADB, and the World Bank, demonstrating strong international collaboration in the development of Mongolia's renewable energy sector. The wind farms account for 155 MW of this capacity, while the solar plants contribute 115 MW. The current projects on renewable energy has been shown on below table: [6] Investment opportunities in Mongolia   References: Law of Mongolia on Renewable Energy (2007) Law of Mongolia on Investment (2015) Law of Mongolia on Corporate Income Taxation (2019) Law of Mongolia on Value-Added Taxation (2015) Law of Mongolia on Custom Tariffs and Custom Duties (2008) Action plan for 2021-2030 of Mongolia's long-term development policy "Vision-2050 https://legalinfo.mn/mn/detail?lawId=211058&showType=1 Regulation for Competitive Procurement of Renewables https://legalinfo.mn/mn/detail?lawId=211075 Nationally Determined Contribution (NDC) Targets of Mongolia - https://legalinfo.mn/mn/detail?lawId=14843 Solar and wind power in Mongolia, 2024 Policy overview by Stockholm Environment Institute - https://www.sei.org/publications/solar-wind-mongolia-2024-policy/ Comparative Policy Analysis of Renewable Energy Expansion in Mongolia and Other Relevant Countries - https://www.mdpi.com/1996-1073/17/20/5131     For further information, please contact V. Bolormaa, GRATA International Law Firm Partner at [email protected], and Junior Associate Kh.Enkh-Uchral at [email protected] or +976 70155031.  GRATA International in Mongolia is part of the global law firm, which has offices in 20 other nations. This legal material is not a thorough examination of any particular problems; rather, it is meant to provide general knowledge. Before making any decisions, the reader should consult a professional for advice that is suitable to their situation (s). Any consequences or damages resulting from the use of this legal information are not our responsibility.       [1] Solar and wind power in Mongolia, 2024 Policy overview by Stockholm Environment Institute https://www.sei.org/publications/solar-wind-mongolia-2024-policy/ [2]Comparative Policy Analysis of Renewable Energy Expansion in Mongolia and Other Relevant Countries https://www.mdpi.com/1996-1073/17/20/5131 [3] Nationally Determined Contribution (NDC) of Mongolia for the Implementation of the Paris Agreement https://legalinfo.mn/mn/detail?lawId=14843 [4] Action plan for 2021-2030 of Mongolia's long-term development policy "Vision-2050 https://legalinfo.mn/mn/detail?lawId=211058&showType=1 [5] Regulation for Competitive Procurement of Renewables https://legalinfo.mn/mn/detail?lawId=211075 [6] Solar and wind power in Mongolia, 2024 policy overview by Stockholm Environment Institute https://www.sei.org/wp-content/uploads/2024/11/solar-wind-mongolia-2024-policy-mongolian-sei2024-048.pdf