Business Entities and Registration

• Businesses in Mongolia operate under several legal forms, all of which must be registered with the Legal Entities Registration Office (LERO).
• The most commonly used structures by foreign investors are Limited Liability Companies (LLCs) and Representative Offices (ROs).
• Permanent establishments (PEs) are not registered with LERO but must register with the Tax Authority and, if applicable, the Social Insurance Authority.
• The establishment of a foreign-owned company typically takes around two weeks, assuming all documentation is complete and in order.

Forms of Business Entities

1. Limited Liability Companies (LLCs)
   The most popular legal structure, LLCs have share capital divided into shares. Shareholders are not personally liable for company obligations. LLCs can be established by one or more individuals or legal entities through a charter and founder’s resolution.
   Key features include:
   • Right to engage in licensed activities upon obtaining appropriate permits
   • Pre-emptive rights for shareholders when transferring shares to third parties
   • Share transfer requires a shareholders’ resolution
2. Joint Stock Companies (JSCs)
   An LLC may be converted into a JSC to be listed on the Mongolian Stock Exchange (MSE).
   • Shares of open JSCs are freely tradable and not subject to pre-emptive rights.
   • Shareholdings are maintained by the Mongolian Central Securities Depository once listed.
3. Partnerships
   Not widely used except by law firms, partnerships may take the form of:
   • General Partnerships
   • Limited Partnerships
   • Limited Liability Partnerships
4. Representative Offices (ROs)
   ROs do not have legal entity status and may not engage in commercial activities. Their scope is limited to:
   • Business development
   • Marketing and research
   • Representation of the parent company
   • ROs must register with LERO and appoint a Chief Representative.
   • The parent company is liable for all obligations incurred by the RO.
5. Branches
   While branches are defined in domestic law, Mongolian legislation does not provide a procedure for registering branches of foreign entities. In practice, this form is not available to foreign companies.
6. Permanent Establishments (PEs)
   A tax concept only—PEs are not recognized as legal entities under Mongolian law. They must register solely with the Tax Authority and, where applicable, the Social Insurance Authority.

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Company Liquidation and Bankruptcy

• Voluntary liquidation is possible only when a company is solvent and able to pay all creditors.
• Shareholders must pass a resolution and appoint a liquidation committee.
• The company must notify LERO within 15 working days of this resolution.
• The liquidation process typically takes at least 12 months, including a final tax inspection.

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Free Trade Zones (FTZs)

Mongolia has established three FTZs in border towns: Altanbulag, Zamyn-Uud, and Tsagaan Nuur.
FTZs provide preferential regimes covering taxation, customs, transit, foreign currency use, visas, and labor.

• Businesses must commence operations within one year of registration to maintain their status.
• Infrastructure gaps and lack of secondary legislation continue to limit FTZ development.
• No foreign labor quota applies in FTZs; entities are exempt from foreign employment fees.

Tax Incentives in FTZs include:

Sector	Incentive	Duration	Rate
Retail, tourism, hotel management	Land fee exemption	First 5 years	100%
		Following 3 years	50%
Infrastructure projects	Land fee exemption	First 10 years	100%
Buildings/constructions	Immovable property tax	–	100%
Infrastructure projects (USD 500 investment)	Corporate income tax (CIT) credit	–	50%
Industrial/hospitality projects (USD 300 investment)	CIT credit	–	50%
Domestic goods transferred to FTZs	VAT	–	0%
Goods/services in FTZs sold by registered entities	VAT	–	Not subject

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Investment Law (2013)

The Investment Law protects investor rights, stabilizes the tax environment, and promotes investment. It applies to both foreign and domestic investors.

• Foreign state-owned entities must obtain government approval before acquiring 33% or more of a Mongolian company in the mining, banking, finance, media, or communications sectors.

Incentives under the Law:

• Tax Incentives:
  • Tax exemptions and credits
  • Accelerated depreciation
  • Loss carryforwards
  • Deduction of training expenses
• Non-Tax Incentives:
  • Longer land lease terms
  • Benefits in FTZs and tech parks
  • Simplified visa and work permit processes
  • Increased foreign employee quotas

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Accounting and Audit

• Annual reporting follows the calendar year.
• Financial statements must be submitted by February 10, or by March 1 for consolidated accounts.
• IFRS is required for all large, medium, small enterprises, and public institutions.
• Books must be in Mongolian language and MNT, with exceptions requiring Ministry of Finance approval for using USD.
• Financial source documents must be signed in writing or electronically, with proper authorization.

Audit Requirements:

• IFRS-applying entities are mandatory audit subjects.
• Companies under restructuring, liquidation, or undergoing asset sales, and foreign-invested companies, must be audited under International Standards on Auditing (ISA).

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Labour Relations and Employment

• Employment agreements must be in writing, typically as indefinite contracts unless otherwise permitted by the Labour Law.
• Foreign hiring quotas are set annually based on economic sector needs.
• Employers must prepay a foreign work placement fee for each foreign hire.

Labour Market Overview:

• Unemployment rate: 7.8% (Q2 2022)
• Economically active population: ~1.2 million
• Unemployed individuals: ~98,500 (59% men)

Salaries and Benefits:

• Minimum wage: MNT 792,000 (effective April 1, 2025)
• Employers must withhold social insurance contributions and specify gross salaries in employment contracts.
• Full-time work = 40 hours/week; overtime compensated by pay or leave.

Social Security Contributions:

• Employer: 12.5%–14.5%
• Benefits include pensions, unemployment support, maternity leave, etc.

Hiring Foreign Employees:

• Requires: work permit, residence permit, and visa
• Work visas are applied for at Mongolian embassies with prior approval from the Immigration Authority
• Processing time: ~1 month before entry + 2 weeks post-arrival

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Taxation Environment

• Comprehensive tax reform implemented in 2020 to align with international standards.
• Introduced:
  • General Anti-Avoidance Rule (GAAR)
  • Transfer Pricing (TP) regulations
  • Expanded tax base and detailed provisions

While more comprehensive, ongoing clarification from tax authorities is often necessary for interpretation and application.