Mongolia - 4-Industrial Policies Mongolia - Industrial Policies
Investment Incentives
The GOM generally offers the same tax preferences to both foreign and domestic investors. The GOM occasionally grants tax exemptions for imports of essential fuel and food products or for imports in certain targeted sectors, such as agriculture or energy. Such exemptions can apply to Mongolia’s five percent import duty and ten percent value-added tax (VAT). In addition, the GOM occasionally extends a ten percent tax credit on a case-by-case basis to investments in key sectors such as mining, agriculture, and infrastructure. Under the Investment Law, foreign-invested companies properly registered and paying taxes in Mongolia are considered domestic Mongolian entities, thus qualifying for investment incentive packages that, among other benefits, include tax stabilization for a period of years. In 2014 Parliament authorized the central bank, the Bank of Mongolia (BOM), to waive 7.5 percent of the ten percent royalty payments that gold miners must pay when selling gold to the BOM and Mongolian commercial banks through 2017. The GOM intends to extend this program and to underwrite low-interest loans from commercial banks for small- to medium-sized gold mines that commit to selling gold to the BOM.
Investors should note that an impending three-year International Monetary Fund Program, set to begin in first half of 2017, may require the GOM to curtail lending and tax incentive programs as part of a fiscal austerity program.
Foreign Trade Zones/Free Ports/Trade Facilitation
The Mongolian government launched a free trade zone (FTZ) program in 2004. Two FTZ areas are located along the Mongolia spur of the trans-Siberian highway: one in the north at the Russia-Mongolia border in the town of Altanbulag; the other in the south at the Chinese-Mongolia border in the town of Zamiin-Uud. Both FTZs are relatively inactive, still pending development. A third FTZ is located at the port of entry of Tsagaan Nuur in the far western province of Bayan-Olgii bordering Russia. Mongolian officials also suggest that the New Ulaanbaatar International Airport (NUBIA), expected to commence operations in 2018, may host an FTZ. As first noted in the April 2004 USAID sponsored Economic Policy Reform and Competitiveness Project, benchmarking Mongolia’s FTZ program against current successful international practices shows deficiencies in the legal and regulatory framework as well as in the process to establish FTZs. In addition, Mongolian FTZs lack implementing regulations based on international best practices. Further, due diligence, including a cost-benefit analysis, has never been completed for the FTZs, nor has sufficient funding been mobilized for on-site infrastructure requirements. Finally, these shortcomings may lead to “hidden costs” or subsidies that the government of Mongolia did not foresee.
Performance and Data Localization Requirements
Mongolia imposes no legal requirement for foreign investors to use local goods, services, or equity, or to engage in substitution of imports. The government applies the same geographical restrictions to both foreign and domestic investors. Existing restrictions involve border security, environmental concerns, and local use rights. There are no onerous or discriminatory visa, residence, or work permit requirements imposed on U.S. investors – although foreign firms must meet certain local hire requirements. Neither foreign nor domestic businesses need purchase from local sources, export a certain percentage of output, or use foreign exchange to cover exports.
The GOM strongly encourages but does not legally compel domestic sourcing of material inputs in Mongolia, especially for firms engaged in natural resource extraction. The 2014 Amendments to the 2006 Minerals Law of Mongolia state that holders of exploration and mining licenses should preferentially supply extracted minerals at market prices to Mongolian processing facilities and should procure goods and services and hire subcontractors from business entities registered in Mongolia. Although there are no formal enforcement procedures to ensure local sourcing, investors occasionally report that central, provincial, or municipal governments slow down permitting and licensing until domestic and foreign enterprises make some effort to source locally. The GOM's encouraging of the hiring of Mongolians becomes essentially a legal requirement when combined with the GOM requirement that individual employers seeking work visas for foreign employees demonstrate that their workforces comprise the same percentage of domestic hires that are suggested in Mongolia's procurement law. A long-pending draft labor law, if adopted in fall of 2017, would clarify the extent to which these target percentages are mandatory.
Despite pressure to source locally, foreign investors generally set their own export and production targets without concern for government imposed targets or requirements. Mongolia has no requirement to transfer technology. The government generally imposes no offset requirements for major procurements. Certain tenders and projects on strategic mineral deposits may require specific levels of local employment, procurement, or commitments to fund certain facilities or training opportunities as a condition of the tender or project; however, such conditions are not the norm. Investors, not the Mongolian government, make arrangements regarding technology, intellectual property, and similar resources, and may generally finance as they see fit. Except for a currently unenforced provision of the amended Minerals Law of Mongolia requiring mining companies to list ten percent of the shares of the Mongolian mining company on the Mongolian Stock Exchange, foreign-invested businesses are not required to sell shares to Mongolian nationals. Equity stakes are generally at the discretion of investors, Mongolian or foreign.
In cases where investments are determined to have national impact or raise national security concerns, the GOM may restrict the type of financing that foreign investors may obtain, their choice of partners, or to whom they sell shares or equity stakes. Investors and local legal experts note that the system by which the GOM regulates these transactions lacks a clear statutory basis and transparent, predictable regulatory procedures.
Investors can locate and hire workers without using hiring agencies as long as hiring practices follow the Mongolian Law on Labor. Mongolian law requires companies to employ Mongolian workers in certain labor categories where it has been determined that a Mongolian can perform the task as well as a foreigner. This law generally applies to unskilled labor categories and not fields in which a high degree of technical expertise not existing in Mongolia is required.
The GOM has no forced localization policy for data storage; no legal requirements for IT providers to turn over source code or to provide access for surveillance; and no rules or mechanisms for maintaining a certain amount of data storage at facilities within the territory of Mongolia.
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