Bloomberg News

Mongolia Sets Same Rules for Foreign Private Investors (Correct)

October 07, 2013

(Corrects date law takes effect in second paragraph, tax timeframe in fifth paragraph and state-ownership requirement in eighth paragraph of story published Oct. 3.)

Mongolia’s parliament approved a law on investment that ends the application of different rules for domestic and foreign private investors and sets stable tax periods, overturning two earlier laws.

The Great Hural voted today to pass the new Investment Law, which takes effect from Nov. 1, according to Sereeter Javkhlanbaatar, director of foreign investment at the ministry of economic development. It voids the Strategic Entities Foreign Investment Law, or SEFIL, passed in 2012.

The new law may help boost investor confidence as protracted conflicts with key foreign investors in Mongolia, including Rio Tinto Group (RIO), deters investments. Foreign direct investment plunged 47 percent in the first eight months.

It’s “the most significant step forward for foreign investment into Mongolia in nearly five years,” Chris MacDougall, managing director of Mongolian Investment Banking Group LLC, said by e-mail. “Tax stabilization measures and provisions that will help to prevent future changes to the legislation should provide investors with the confidence that they need to return to the market.”

The new law sets stable tax periods based on the investment amount and the location within the country and will set tax rates for between five to 22.5 years, Javkhlanbaatar said. It makes no distinction between domestic and foreign private investors, eliminating earlier rules that were perceived as discriminatory against foreigners, and replaces laws passed in 1995 and 2012.

Rules would apply based on the day a contract is signed and not be subject to the changing legal environment during the lifetime of the deal.

Investor Concern

“The main concern among investors is that every four years the new government treats foreign investors differently,” Ochirbat Chuluunbat, Mongolia’s deputy minister for economic development, said in an interview in Ulaanbaatar yesterday before the law was passed. It means the “treatment of all investments will be done equally and there will be no need for the government to negotiate over every investment in Mongolia,” he said.

Under the new law, any entity with 50 percent or more foreign-government ownership which wants to operate in the sectors of mining, banking or communication, and wants to hold more than 33 percent of a company, will still need government permission, Javkhlanbaatar said, unchanged from the SEFIL law.

A similar provision existed in the 2012 law, which blocked a bid by Aluminum Corp. of China Ltd. from acquiring coal miner SouthGobi Resources Ltd. (SGQ)

To contact the reporter on this story: Michael Kohn in Ulaanbaatar at mkohn5@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net


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