The FDI regime applies to equity investments (i.e. acquiring 33 percent or more of the shares) made by foreign state-owned legal entities (i.e. legal entities in which a foreign state directly or indirectly holds 50 percent or more of the issued shares) in companies operating in the following sectors:

• Mining
• Banking and finance
• Media and communications.

Ministry of Economy and Development.

No time limit

Mandatory

National interests or national security.

The law does not specifically provide for indirect acquisitions. However, given the spirit of the law, it is likely that the government will require indirect acquisitions to be approved.

45 days of receipt of application.

No specific sanction provided by the law but the transaction would be considered invalid.

Yes

No special measures

FDI is primarily regulated by the Investment Law of Mongolia enacted on 3 October 2013 (Investment Law). The Investment Law replaced the Law on Foreign Investment, enacted on 10 May 1993, and the controversial Law on the Regulation of Foreign Investment in Business Entities Operating in Sectors of Strategic Importance enacted on 17 May 2012 (SEFIL) which curtailed FDI since its adoption.

The Investment Law eased the regulatory approval requirements and streamlined the registration process for FDI. Some of the key features of the Investment Law are:

• It applies to both foreign and domestic direct investments.
• No approval requirements are imposed on foreign private investment.
• The minimum capital requirements for foreign-invested entities in Mongolia (FIEs – defined as companies having 25 percent or more of their shares held by foreign investors) is US$100,000 per foreign investor.
• Approval is required for certain equity investments made by foreign state-owned legal entities (FSOEs – defined as legal entities in which a foreign state directly or indirectly holds 50 percent or more of the issued shares) in certain sectors.
• It provides legal guarantees to protect investment in Mongolia and sets out tax and non-tax incentives so as to promote investment in Mongolia.
• It offers tax stabilization incentives in the form of tax stabilization certificates and investment agreements.

There is currently no negative or positive list of foreign investment. Other than registration with the state registration authority and licensing or other requirements under sector-specific legislation, there are no review or approval requirements imposed on foreign private investment. Each foreign investor must invest (i.e., contribute equity into the company) at least US$100,000 if the company is a FIE. Foreign private investors may invest in any production or services sector which is not prohibited or restricted by law. Prohibited sectors are specified as drugs and narcotics unless provided in law, casino[1], pornography, or profit seeking business through fraudulent pyramid sales or marketing.[2] In terms of restrictions, additional requirements such as foreign equity restrictions, increased minimum share capital requirement compared to that of domestic entities, prior approval, and requirements applicable to key personnel can apply when foreign investors wish to engage in certain licensed activities such as engaging in insurance related activities, operating in the securities market, provision of tax consultancy and auditing services and engaging in activities relating to explosives and blasting devices etc.       

If a FSOE is to hold 33 percent or more of the shares of a company that is operating in certain sectors (see item (d) above), it must obtain an approval from the Ministry of Economy and Development (MED). The specific sectors are:

• Mining
• Banking and finance
• Media and communications.

The incorporation of a FIE (or an entity becoming one) must be registered by the MED and other than the requirement to submit proof of minimum capital requirement, the registration process is same as the process for registration of a purely domestic entity.

General restrictions

Foreign private investors may invest in any production or services sector which is not prohibited or restricted by law (see the answer to question 1 for more details on the prohibited and restricted sectors).

The Investment Law provides that form of investment may be incorporation of a Mongolian incorporated entity, purchase of securities, merger of companies, entry into of concession, production sharing, marketing or management agreements, or franchise or financial leasing agreements.

FSOEs

There is a one-time mandatory filing and review process for investments to be made by FSOEs whereby a FSOE must submit an application to the MED. The investment threshold is holding 33 percent or more of shares of companies operating in certain specified sectors. The law does not differentiate between domestic or cross-border deals.

Other than what is provided in the Investment Law which is rather brief, there is no specific regulation on the filing and review process. The law provides that the following information must be submitted as part of an application:

• A notarized copy of certificate of incorporation of the FSOE issued by a competent registration body.
• A letter of reference from a registration body for the last two years concerning the executive management of the FSOE, its affiliated entities and the Mongolian company;
• Information on the transaction agreed with the Mongolian company, its type, conditions, parties to the transaction, the number of shares to be sold, the amount of shareholding, the contract value, charter and management of the legal entity if agreed to change.
• The financial statements (and adjustments) of the FSOE and the Mongolian company.
• The FSOE investment plan and business plan for the investment to be made in Mongolia.

There is no additional information or guidance on how detailed the information should be. The documents to be supplied must be provided in Mongolian language. The MED has the right to request additional information from the FSOE if it considers necessary. 

The law provides that the MED is to take into consideration of the following circumstances when reviewing an application whether the:

• Character of any activity or investment of the investor conflict with the national security policy of Mongolia.
• Investor has satisfied conditions and opportunities to comply with laws and established business practices of Mongolia.
• Investment would restrict competition or establish a position of dominance in the concerned sector.
• Investment would have a serious impact on budgetary income or other policies or activities of Mongolia.

There is no guideline or information on how the above circumstances are to be assessed or evaluated by the MED. As such, the approval system for investment by a FSOE can be seen as somewhat discretionary.

The recently established MED is in charge of FDI. Prior to this, the National Development Agency was responsible for FDI. 

The Government is currently considering whether to re-establish the Foreign Trade and Foreign Investment Agency, an entity under the MED, to promote FDI and foreign trade.

There is no time limit beyond which the Government can no longer investigate deals closed in the past. If no filing is made, the MED can take action on its own.  

The Investment Law does not provide for a specific timeframe as to when an application should be submitted to MED. However, based on the drafting of the relevant provisions, it can be concluded that the application should be submitted any time prior to closing.

The application can be submitted by the FSOE itself directly or through its representative office (if any) or through an authorized representative.

There is no formal whistleblowing mechanism but the MED can act based on information provided from the public.

An approval is required if a FSOE is to own 33 percent or more of the shares of a Mongolian entity.

The law does not specifically address the issue of ownership through acquisition offshore or setting up nominee structures or other structures allowing parties to achieve contractual control over the Mongolian company. It should be noted that these have not been tested and due to the sensitivity of the matter, it is possible for the restriction to be interpreted broadly by the MED or the courts.

Mongolia has implemented a strict ultimate beneficial owner disclosure system, based on OECD guidelines, requiring all new and existing investors to disclose their ultimate beneficial owners in the company registration system, including disclosure of each company in a chain of companies. There is currently no exemption for companies listed on a recognized international stock exchange. As a result of this disclosure regime, it is difficult to structure around FDI restrictions.

There is no specific timeframe upon which an application for an investment by a FSOE (if required) should be submitted, but closing is subject to MED’s approval.

The MED is to review the application within 45 days of receipt of application. The MED can obtain comments from relevant organizations when making its determination.

The law does not prescribe the form of the MED decision but it is likely to be issued in the form of formal letter either providing an authorization to make an investment or refusing to grant an approval.

The sanction for not obtaining an approval from the MED is not specifically provided in the law. However, it is unlikely for a FSOE to acquire shares of a Mongolian entity without MED approval as it is not possible to close a deal without obtaining an approval from the MED. At the time of registration with the registration authority, the Mongolian company must submit information concerning its beneficial owners and likely registration would be refused without supplying an approval from the MED. 

Closing is conditional upon obtaining clearance. The FSOE would not be registered as the shareholder of a Mongolian entity if the parties close before receiving clearance. Further, the transaction would likely be considered invalid/void for breach of applicable legal requirements. 

There is no publicly available information on how many applications the MED has received since the adoption of the Investment Law and how many have been rejected and based on what grounds.

In the event that a deal is blocked, the applicant has the right to appeal the decision of the MED to the administrative court of Mongolia.

In terms of foreign private investment and investment by FSOEs in certain sectors, other than fulfilling administrative registration-related requirements, there are no restrictions or requirements that could result in deals being blocked by the Government.

In terms of investments to be made by FSOEs in mining, banking and finance and media and communications, it is advised that all information required by the Investment Law is prepared and submitted to MED. It is likely that additional information relating to anti-money laundering and terrorism financing and determining financial standing and expertise of the FSOE in the specific sector would be required. It would help to provide information on how the investment would benefit Mongolia and/or the specific sector.

The Government has not taken special measures to secure protection of national assets in the wake of the COVID-19 pandemic that would negatively affect FDI.

Mongolia has adopted and aims to pursue a more open policy towards FDI. However, sudden policy changes sometimes encouraging FDI and sometimes discouraging FDI, together with historic practices of revocation of licenses on questionable legal grounds, and the possibility of imposition of taxes as a result of tax investigations, together with unsophisticated judicial practice have resulted in currently low levels of FDI.

The Government does not actively review or block transactions.

There is no publicly available information on deals that were blocked since the adoption of the Investment Law. It is likely that the number would be few if not none.

One of the few examples of deals that were blocked include the potential transaction involving the acquisition by a Chinese state-owned company of South Gobi Sands in 2012. The deal was blocked not due to a formal investigation or decision of the Government but rather, as a result of the adoption of the SEFIL by the Parliament.

Given the specific sectors in which the Government clearance would be required, it is likely that there would be rigorous review process compared with the simple review process provided in the Investment Law.

The Investment Law (adopted on 3 October 2013) replaced the Law on Foreign Investment (adopted on 10 May 1993) and the controversial SEFIL (adopted on 17 May 2012 and which curtailed FDI since its adoption). No major changes have been made to the Investment Law since its adoption in 2013.

Taking into consideration of the steady decrease of FDI generally and negative impact of COVID-19 on the economy, the Government is pursuing a policy to stimulate the economy, ensure political and macroeconomic stability and create a favorable business environment for foreign and domestic investors. Some of the specific actions taken by the Government include the establishment of the MED, the approval of the “Vision-2050 – Long Term Development Policy” and the recent “10-year New Revival Policy”.

There are ongoing discussions concerning the need to revise the Investment Law to further promote and protect FDI. However, it is not clear when this will happen. The issue of revising the Investment Law to further improve investment environment has been under discussion in recent years. It is unlikely that the Government will introduce a new filing, review or approval process for foreign private investment. However, the approval process for FSOEs most likely would remain in place. Some of the changes discussed by the Government include positive and negative lists for foreign investment, detailed regulation on the role and responsibilities of state entities, remedying damage caused by illegal actions of the Government, further guarantees to protect investment, and incentives for investors with regard to taxes, land and visas.

For more information contact Chris Melville, Partner, M&E, Ulaanbaatar and Erdenedalai Odkhuu, Partner, M&E, Ulaanbaatar