John Viverito and Myles Hankin of Gibson Dunn & Crutcher look at the impact of the country’s new investment law

Following the Mongolian Parliament’s enactment of the Strategic Entities Foreign Investment Law or SEFIL in May 2012 (discussed in last year’s Mongolia Legislation Guide), the country saw a steep drop in foreign investment due in large part to the law’s poor reception internationally.  In an effort to revive the foreign investment climate, Parliament adopted a new Law on Investment in October 2013 (‘Investment Law’) that replaces the SEFIL as well as the earlier Foreign Investment Law of 1993 while seeking to remedy SEFIL’s shortcomings.  A brief overview of the key provisions of the new Investment Law follows.

Types of investments

The new Investment Law covers both foreign and domestic investments, although certain types of investments are excluded such as donations and grants by international organisations, NGOs and private actors. A person may invest in any production or services sector that is not prohibited or restricted by law.  Likewise, investments may be made through any structure that is not legally prohibited, including:

•                incorporation of a new business entity in Mongolia;

•                purchase of securities;

•                acquisition or merger of companies;

•                entry into concession, production sharing, marketing or management agreements; and

•                entry into franchise or financial leasing arrangements.

Registrations and approvals

An investor can conduct investment activities with a single registration of a Mongolian legal entity in accordance with applicable laws, which is made with the Legal Entities Registration Office.  All previous requirements to register with a second government department have been removed.

Foreign private investors do not need to obtain any government approvals to make their investments, and all governmental approval requirements under the old foreign investment laws no longer have effect (although licensing or other approval requirements may still apply under separate industry-specific legislation).

If a foreign state directly or indirectly holds 50% or more of an entity’s issued shares, then the entity is classified as a foreign state-owned entity. Such entities must obtain approval from the Ministry of Economic Development in order to acquire 33% or more of the shares in Mongolian legal entities operating in the minerals, banking and finance or media and telecommunications sectors. Criteria for approval include whether the investment will contradict the national security policy of Mongolia, restrict competition or seriously and adversely impact Mongolian budget policy and state revenues.

Legal guarantees and obligations

Legal guarantees are provided in the form of protections for intellectual property rights, the right to choose an arbitration forum for contractual disputes with the government and the right to make foreign remittances after paying applicable taxes.  Additionally, confiscation of property is prohibited unless made for the public interest and with full market compensation.

Any amendment or repeal of the Investment Law requires the approval of two-thirds of the members of the Mongolian Parliament (although the constitutionality of this provision is somewhat unclear).

Foreign and domestic investors are subject to a broad set of obligations relating to the conduct of their investment activities in areas such as standards for goods and services, maintenance of records, corporate governance, environmental protection and human resources development.

Investment incentives

Investors may be given non-tax incentives relating to such matters as extended land rights, increased foreign employee quotas and more favorable visa arrangements, and may also be entitled to various tax incentives such as tax exemptions, accelerated depreciation, tax loss carry-forwards and deduction of employee training expenses from taxable income. Additionally, equipment and machinery imported for the construction of railways and certain types of plants may be exempt from customs duties and eligible for 0% value-added tax during the construction period. Further details of these incentives are to be set out in additional legislation and regulations.

Tax stabilisation benefits

Certain investments are eligible for tax stabilisation benefits in the form of stabilisation certificates or investment agreements upon request by the investor. Tax stabilisation certificates entitle their holders to stability in the tax treatment of their investments for corporate income tax, customs duties, value-added tax and minerals royalties.  The certificates apply for a specified period generally ranging from 5 to 18 years, depending on the sector and amount of the investment and the region where it is made (with extended periods of 1.5 times the original length available in special cases).  If the applicable tax rates under general legislation are reduced during the term of a tax stabilisation certificate, the certificate holder will be entitled to the reduced tax rates.

Tax stabilisation certificates are issued by an “Invest Mongolia” agency newly created under the law, which is also responsible for supporting and promoting investment activities generally and monitoring the activities of certificate holders.  In addition, the law provides for the formation of a designated council to furnish conclusions on whether the requirements for those certificates have been met.

The criteria for approving tax stabilisation certificates are whether:

•                the investment amount meets the relevant threshold;

•                an environmental impact assessment has been carried out if required by law;

•                the investment creates workplace stability; and

•                the investment introduces innovative technology.

The threshold investment amount for a tax stabilization certificate depends on the sector of the investment and the region where it is made.  It can be as high as Tug30 billion (approximately $16.6 million), which is the case for investments in mining, heavy industry or infrastructure projects anywhere in the country, or as low as Tug2 billion (approximately $1.1 million), which applies to other types of investments made in certain areas of western Mongolia.

Instead of receiving a tax stabilisation certificate, an investor whose proposed investment exceeds Tug500 billion (approximately $277 million) may apply to enter into an investment agreement with the Mongolian government in order to gain tax and business environment stability as well as legal guarantees and other benefits.

In sum, the Investment Law is perhaps best seen as a focused government effort to rectify past missteps and to lay the groundwork for a stable and business-friendly legal environment that will attract foreign investment for many years to come.



John Viverito


Gibson Dunn & Crutcher



About the author

Gibson Dunn’s Mongolia practice is headed by John Viverito. John’s primary areas of practice include energy, mining and infrastructure projects, real estate, general corporate/commercial transactions and mergers and acquisitions, as well as structured and project finance. He has been involved in the development of numerous infrastructure projects, including the development of mines, power plants, pipelines, refineries, mass transit projects and telecommunications projects.

Mr Viverito has more than 20 years of experience in the region.  He has handled transactions in numerous countries in Asia, including Bangladesh, Cambodia, China, India, Indonesia, Japan, Kyrgyzstan, Laos, Malaysia, Mongolia, Myanmar, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.


Myles Hankin

Of Counsel

Gibson Dunn & Crutcher



About the author

Myles Hankin has been based in Asia since 2003, and has spent most of his time in Mongolia since 2010. Mr. Hankin has developed a broad practice, which includes mergers and acquisitions, natural resources, energy and infrastructure, project finance, real estate, construction and lending, as well as general corporate transactional and advisory work.  He has advised clients on the structuring of international joint ventures and global supply chain arrangements as well as corporate compliance and various other matters.  He speaks English, Thai, Spanish and Danish.