24.08.2015 legislative update Anthony Woolley

LEGISLATIVE UPDATE: 2015

Anthony Woolley Hogan Lovells Mongolia

24 August 2015

www.hoganlovells.com

2015 Spring Session

• ended on 10 July 2015

• 20 new laws

• 18 laws repealing existing laws or provisions of laws

• 64 laws amended

• 16 international agreements and treaties ratified

• several state policies for various sectors adopted

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2015 Spring Session

1. Support for domestic production

2. Taxation

3. Financial reporting and accountability

4. Other

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1. Supporting domestic production

• Following the approval of the State Policy on Industrialisation in June 2015, Parliament approved the Law on Supporting [Domestic] Production.

• Under this law, the Government of Mongolia ("GoM") will support production in the following manner: − subsidising the difference between commercial interest rates

on loans for technological updates and capital investment, to producers that export more than 30 per cent of their output;

− providing one-time payments equal to 75 per cent of the research and development costs incurred by producers of exports that created or brought to Mongolia highly efficient or cutting edge technology; and

− supporting export-oriented production by various export financing arrangements.

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The Law on Supporting Production

• Support provided to businesses that "add value"

• Preferential treatment for businesses that:

− are open joint stock companies

− acquire more than 60 per cent of their main or secondary

raw materials or other required goods, work or services

from domestic suppliers

− have registered on the technology register database

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The Law on Supporting Production

• Not applicable to foreign-invested business entities

and those investors that have entered into an

investment agreement with the government

• Parliament increased customs duty to up to 20%

(formerly 5 – 15%) for nearly 370 imported goods

that can be produced domestically

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Revised Law on Value Added Tax

• Introduced and revised key terminology

• Increased the type of activities that are subject to VAT (such as advocacy, legal and mediation services, and factoring and forfaiting)

• Increased the mandatory registration threshold from MNT 10 million to MNT 50 million, and for voluntary registration from MNT 8 million to MNT 10 million

• Changed the types of goods, work and services that are exempt from VAT or that are zero rated (refined mineral products)

• Effective from 1 January 2016

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The Capital City Tax law

• Completely new law

• Imposed on the sale of alcohol and cigarettes, hotel and

hospitality services

• The tax rate of up to 1 per cent will be determined by

Capital City parliament

• Will vary across the city depending on location and

population size of a particular area

• Effective from 1 October 2015

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3. Financial reporting and accountability

• Revised Law on Accountancy

− Large business entities and public institutions, and certain medium and small-sized business entities will be required to apply the IFRS relevant to them

− Now expressly requires accounting records to be produced in Mongolian and shown in MNT

− Electronic reports: twice per annum for joint stock companies, "regulated" sector companies and state-owned entities; other entities are required to submit once per annum

− Financial reports will be available to other government departments

− Effective from 1 October 2015 9


Revised Law on Auditing

• Definition of services auditing entity may offer to clients

• Mandatory audits for entities required to apply IFRS

• Prohibition on acting for more than 5 years

• Changes to the criteria and procedure for issuing and revoking auditing licences

• Prohibition on certified tax consultants from keeping accounting books and records and producing financial reports for clients

• Auditors may now provide tax consultancy services upon obtaining the relevant licence

• Auditors may also engage in property valuation, financial and accounting consultancy services

• Auditors may NOT audit the financial reports of an entity for which it has provided tax and accounting consultancy services or property appraisal services

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4. Other

• Policy for the Privatisation or Restructuring of State

Property for 2015-2016

• Policy on Energy

• Amendment to the Law on Occupational Health and

Safety

• Amendments to the Immovable Property Pledge

Law

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Policy for the Privatisation or Restructuring of

State Property for 2015-2016

• Government is to approve the list of state-owned legal

entities to be privatised or restructured

• Intention to use domestic or international stock exchanges

• Proceeds to be used for undertaking technical development

of the business

• Assets proposed to privatised/restructured:

− Thermal Power Plants #2, #3 and #4;

− Erdenet and Darkhan thermal power plants;

− the Ulaanbaatar Electricity Distribution Network;

− Shivee-Ovoo and Baganuur;

− Mongol Post;

− Mongolia Telecom; and

− Khutul Cement Factory.

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State Policy on Energy

• Purpose of this policy is to ensure uninterrupted and reliable supply of energy and to transform Mongolia into an energy exporting country

• Policy will be implemented in two phases:

− Phase 1 (between 2015 - 2023)

completion of Power Plant #5; thermal power plants at Tavan Tolgoi, Baganuur, and in the eastern and western regions; hydro-power plants at Egiin Gol and Khovd Gol; construction of various power transmission lines connecting towns and cities etc.

− Phase 2 (between 2024 - 2030)

establishing transnational grid; hydro-power plant Selenge Murun; establishing power plants and relevant lines for exporting energy

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Changes to the Law on OHS

• Notable changes in the Amendment are:

− Introduction of new terminology such as "industrial accident",

"industrial work environment", "high-risk workplace"

− subject to risk-levels, business entities must spend no less

than 1.5 per cent of their production and services costs on

occupational safety and sanitation related activities

− high-risk workplaces must provide workers with life and health

insurance in an amount equal to at least 36 times their

monthly salary

− employers must appoint a person or committee to be

responsible for occupational health and safety issues

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Changes to the Immovable Property Pledge Law

• Provides that parties to a land pledge agreement

may agree determination procedures involving non-

judicial bodies, such as arbitration tribunals and

notaries

• The provision which prohibits the sale of pledged

land by non-judicial procedures remains in effect

• Courts will be required to issue an order for an

forced sale

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Irregular Session held 3 - 14 August 2015

• Parliament approved following laws during its

irregular session convened at the request of

Enkhbold Z, the speaker of Parliament:

− the Amnesty Law

− the Law on Promoting Economic Transparency

− the revised version of Law on Firearms

• These laws have not yet been published in the state

gazette

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The Amnesty Law

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• General criminal pardon

• Applies to crimes committed before 3 July 2015

• Excludes grave crimes, such as murder, rape and terrorism

• Amnesty not available for some other crimes, but may receive a

2 year reduced sentence

• Crimes by government officials and fraud are (currently) subject

to the amnesty

• Damage suffered due to criminal acts shall remain

compensable notwithstanding the amnesty

• Suspects or persons accused who admit their wrongdoing and

agreed to compensate damage suffered can also benefit from

the amnesty


The Amnesty Law

• The President issued a decree on 17 August 2015

giving a partial veto in relation to persons who have

committed or are suspected or accused of the following

crimes:

− received bribes

− abused power or office by a state official

− acted in excess of authority by a state official

− unjustly enriched

− misused state funds

− committed serious fraud or embezzlement

• President's veto may be repealed by a vote of two-thirds

of Parliament

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The Law on Promoting Economic Transparency

• Aims to uncover undeclared income and assets;

• Applicable to legal and natural entities

• Encouraging proper reporting and registration

without any legal or financial consequences

• Applicable to breaches committed before 1 April

2015, if reported before 31 December 2015

• Not only tax matters

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The Law on Promoting Economic Transparency

• A one time relief in relation to sanctions, penalties,

late fees, tax and social insurance premiums under

following laws:

− Law of Mongolia on Value Added Tax

− General Tax Law

− Law of Mongolia on Social Insurance

− Law of Mongolia on State Registration of Legal Entities

− Law of Mongolia on Accountancy

− Law of Mongolia on Customs

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Conclusion

• Aim to support domestic production, to improve financial accountability and to uncover/legalise the shadow economy

• It is anticipated that Parliament will pass other laws, such as the Law on Trade, the revised Labour Law and Criminal Code, and may reconsider the Amnesty Law

• Possibility of summoning irregular session again

• Legislation generally favourably received by investors

• Tinkering around the edges?

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24.08.2015 legislative update Anthony Woolley

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