MONGOLIA: FOREIGN INVESTMENT
FDI in Figures
Foreign direct investment has been the engine of Mongolia’s economic growth. FDI flows and stocks have risen sharply in recent years, but remain below their potential. In 2015, following the referendum in February endorsing the people's willingness to host foreign investment in the mining sector, the Prime Minister worked to restore investor confidence. According to UNCTAD, FDI flows were negative in 2016 (USD -4.072 billion). However, the Asian Development Bank (ADB) forecasts that FDI will increase significantly in 2017, thanks to the strengthening of the country's mining capacities, before stabilising in 2018, when the country will have maximised its coal-mining capacity.
In order to attract FDI, the Government launched a programme to improve the country’s legal framework. In particular, it decided to lift the moratorium on new mining exploration licences. However, foreign investors remain hesitant since the Government suspended 106 permits in 2014 due to a corruption investigation. Mongolia possesses numerous assets, including raw materials, sizable livestock and many other sectors with high potential for development (mining, food processing, telecommunications, tourism). All sectors of Mongolia’s economy are open to FDI. However, the instability of economic policies and regulations, its geographical isolation, corruption and an inefficient transportation system are important obstacles for investors. After several years of growth, Mongolia's business climate ranking has declined: the country ranked 64th out of 190 countries in the World Bank's 2017 Doing Business report (a loss of two places compared to 2016). Despite this decline, the World Bank has pointed out that significant progress has been made in terms of tax collection.
The sectors that attract most foreign investment are mining and, from henceforth, also the oil and construction sectors. In 2013, three large-scale mining projects were launched, including a new gold and copper mine co-financed by Rio Tinto. This project is expected to account for one-fourth of the country's GDP in the long term. However, opening of the mining sector to foreign investment is not without risk. For example, a rapid expansion of the construction sector, over a one-year period, may run the risk of over-representing the country’s real capacities.
Mongolia’s main investment partners are China, Canada, Russia, Great Britain and the United States.
Foreign investors’ confidence tends to revive as a
result of right and consistent economic policy and citizens’ income is
increased and many enterprises have started operating profitably, following
such economic growth and business activities.
“The government
of Mongolia’s Action Plan 2016-2020” and “Main course of Mongolia’s economic
and social development in 2017”, it is inscribed that Investor Protection
Council needs to established, followed with facilitation of investment related
dispute settlement and of favorable environment for the sustainable operation
of investors.
In this scope, Investor's Protection Council is
established based on an ordinance of the Prime Minister of Mongolia in Dec 2016.
That council is composed of Chairman, 15 members, and Secretary and its main
functions are to provide recommendations in regards to following issues, in
order to protect rights and legitimate interest of investors invested in
territory of Mongolia, to resolve cases of compliant and claims submitted in
response to bureaucracy of public bodies and illegal activities, to prevent
from potential risks, to improve legal environment for investment, and to
ensure their implementation.
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Furthermore, we believe that we should pay more attention towards ensuring the
independence and regular operations of the Investor's Protection Council, in terms of human resources, budget issues and capacity development.
Mongolian government is pleased to announce that the World Bank Group promoted Mongolia’s endeavor for
investor protection and investment promotion mechanisms, and called for
Mongolia to become a member of the “World
Forum on Investment Policy Reform” initiated by the World Bank.
Mongolian Government is working hard to convert Mongolia into one of
the best investment destinations in the world and we believe that the
involvement of the foreign investors here is very important for that. I would like
to confirm here from this podium that Mongolia’s door investment is always open.
Country Comparison For the Protection of Investors
| Mongolia | East Asia & Pacific | United States | Germany | |
| Index of Transaction Transparency* | 6.0 | 5.0 | 7.0 | 5.0 |
| Index of Manager’s Responsibility** | 8.0 | 5.0 | 9.0 | 5.0 |
| Index of Shareholders’ Power*** | 4.0 | 6.0 | 4.0 | 8.0 |
| Index of Investor Protection**** | 6.8 | 5.2 | 6.5 | 6.0 |
Source: Doing Business - Latest available data.
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.
| Foreign Direct Investment | 2014 | 2015 | 2016 |
| FDI Inward Flow (million USD) | 337 | 94 | 4,072 |
| FDI Stock (million USD) | 16,692.8 | 16,679.9 | 12,980.4 |
| Number of Greenfield Investments*** | 6.0 | 4.0 | 4.0 |
| FDI Inwards (in % of GFCF****) | 9.7 | 4.0 | 183.6 |
| FDI Stock (in % of GDP) | 136.9 | 142.3 | 117.7 |
Source: UNCTAD - Latest available data
Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country's Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.
Tax Rates
- Value Added Tax (VAT)
- 10%
- Company Tax
- Progressive rate from 10% to 25%
- Withholding Taxes
- Dividends: 10/20%, Interests: 10/20%, Royalties: 10/20%.
- Bilateral Agreement
- Mongolia and Spain are not bound by a Double Taxation Agreement.
- Social Security Contributions Paid By Employers
- 20%
- Other Domestic Resources
- Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.
Individual Taxes
| Income tax | 10% |
Country Comparison For Corporate Taxation
| Mongolia | East Asia & Pacific | United States | Germany | |
| Number of Payments of Taxes per Year | 19.0 | 22.9 | 10.6 | 9.0 |
| Time Taken For Administrative Formalities (Hours) | 148.0 | 198.0 | 175.0 | 218.0 |
| Total Share of Taxes (% of Profit) | 24.7 | 33.9 | 44.0 | 48.9 |
Source: Doing Business - Latest available data.
Business Setup Procedures
| Setting Up a Company | Mongolia | East Asia & Pacific |
| Procedures (number) | 5.00 | 7.00 |
| Time (days) | 6.00 | 23.90 |
