Mongolian Law Updates: Recent Key

Changes (since 2013)

Ashid Advocates LLP

Suite #301, Ochir House Business Center, Peace Avenue 15A/5, 1st Khoroo, Sukhbaatar District, Ulaanbaatar City - 14210, Mongolia

13 August 2015

New Laws and Amendments• Law of Mongolia on Investment /3 October 2013/

• Laws of Mongolia on Amendments to the Minerals Law /between 2013 and 2015/

• Law of Mongolia on Amendments to the Petroleum Law /9 May 2015/

• Law of Mongolia on Amendments to the Energy Law /19 June 2015/

• Amended and Restated Law of Mongolia on Free Zone /12 February 2015/

• Law of Mongolia on Promotion of Industrial Manufacturing /19 July 2015/

• Law of Mongolia on Amendments to the General Tax Law /4 June 2015/

• Law of Mongolia on Amendments to VAT Law /12 February 2015/

• Law of Mongolia on Amendments to the Corporate Income Tax Law /12 February 2015/

• Law of Mongolia on General Administration /19 June 2015/

• Law of Mongolia on Amendments to the Legal Entities’ State Registration Law /19 January 2015/

• Law of Mongolia on Promotion of Economic Transparency /7 August 2015/

• Law of Mongolia on Construction /Legislation Bill has been submitted to the State Great Khural on 9 July 2015/

Law of Mongolia on Investment(I)• Law of Mongolia on Investment Law (the “Investment Law”) was approved on October

3, 2013.

• The purpose of the Investment Law is to boost Mongolia economy by increasingforeign and domestic investment. Therefore, among others, tax and non-tax incentiveshave been created for all investors in Mongolia under the Investment Law.

• The Investment Law provides an equal opportunity and

access for both foreign and domestic investors.

• The Stabilization Certificate has been created under the

Investment Law under which some taxes and fees are

stabilized for certain periods of time, depending on amounts

of investment and industrial sector, such as corporate

income tax, customs tariff, VAT and royalty.

Law of Mongolia on Investment(II)

• The term for a land use right has been extended.

• The requirement for bringing foreign work force has been eased.

THE AMENDMENTS OF 2013, 2014 AND 2015 TO THE LAW OF MONGOLIA ON MINERALS (2006) 1. The major amendments to the Law of Mongolia on Minerals (2006) have been approved since 2013.

Stabilization certificate. The Investment Law was enacted on 3 October 2013. Therefore, in compliance with the Investment Law, the relevant amendments, among others, regarding the Stabilization Certificate, were introduced and approved under the Law of Mongolia on Amending the Minerals Law, which was approved on 3 October 2013.

Tax incentives. The Parliament of Mongolia enacted the Law of Mongolia on Amending the Minerals Law on 24 January 2014 under which in the event the license holder sells the extracted gold to the Bank of Mongolia or its authorized banks, the royalty rate will be decreased to 2.5%.

Strategic significant deposit. On 18 February 2015, the Parliament of Mongolia approved the Law of Mongolia on Amending the Minerals Law that sets out in the event the relevant parties to the contract agree to transfer the percentage of the state share in minerals deposit of strategic importance upon the approval of applicable authority in charge, the license holder who receiving the state share has to pay the royalty by percentage approved by Government of Mongolia.

THE AMENDMENTS OF 2014 TO THE LAW OF MONGOLIA ON MINERALS

2. The main amendments, introduced under the Law of Mongolia on Amending the Minerals Law, which was passed and came into effect on 1 July 2014. Under the initiation of the Government of Mongolia, which formed as a result of 2012 election, to reform the certain laws in order to increase foreign investment, therefore achieve the primary objective of stimulating the economy, the Parliament of Mongolia approved the Law of Mongolia on Amending the Minerals Law on 1 July 2014, which came into effect on the same day of approval (the “Amendment”). The Amendment includes some key changes, which include, among others:

As for the common minerals, and its exploration and mining activities are now stipulated under the separate law, therefore, it is no longer regulated under the Minerals Law;

The exploration and collection of non-ferrous metals and precious stones will now require a license similar that of other common minerals;

The term for exploration licenses has been extended to 12 years, which was 9 years prior to theAmendment;

The license holders have now obligation in giving priority to business entities registered in Mongoliawhen procuring goods, works or services and hiring subcontractors;

THE AMENDMENTS OF 2014 TO THE LAW OF MONGOLIA ON MINERALS

Besides above obligation, the license holders shall give priority to Mongolian concentratorplants when selling its extracted, concentrated or semi-processed products;

A license holder whose licensed area has been confiscated as a result of the establishmentof a special purpose zone in accordance with the Law of Mongolia on Land must now becompensated by the relevant authority who issued the confiscation decision within one yearof the approval of such decision. Therefore, the Minerals law specifically provides that inthe event compensation is not paid within the specified period, the license holder maycontinue operating. The most significantly, the Amendment stipulates that in the event theconfiscated area is not treated anymore as the special purpose zone, such area will bereturned to the previous same license holder; and

The maximum area which may be licensed under a single exploration license has beenreduced from 400,000 hectares to 150,000 hectares.

Key Changes to the Law of Mongolia on Petroleum

Law of Mongolia on Petroleum (the “Petroleum Law”) was

enacted on 1 July 2014. Under the Petroleum Law, the following

key changes have been introduced:

the powers of the Government in the petroleum sector are

clarified;

royalty fee rates are defined; and

regulated relationship of the Governmental authorities in

monitoring of imposition of a tax credit, acquisition and licensing,

suspend, revocation of oil prospecting, exploration and

exploitation licenses.

Law of Mongolia on Amendments to the Petroleum Law was

approved on 9 May, 2015 under which non-conventional oil

exploration drilling activity is permitted.

Law of Mongolia on Energy

• In accordance with business operations’ classification standards adopted by the United Nations, "gas" and "gas supply network" concept has been now reflected as the new energy concept "gas“ in the Law of Mongolia on Amendments to the Energy Law (the “Amendment”)on 19 June 2015.

• In the Amendment, the special permit holder for gas supply now be classified into “non-regulated supplier”.

• A special permit for construction of energy facilities

now be obtained from the Mongolian Ministry

of Energy.

Amended and Restated Law of Mongolia on Free Zone (I)Amended and Restated Law of Mongolia on Free Zone (the “Amendment”) was approved 12 February 2015 by the State Great Khural (Parliament).

According to the Amendment, if investors to invest in a Mongolian free zone, the following favorable conditions are provided:

Free zone customs special regime

If goods are imported and exported into/from the territory of the free zone, concessional and simplified clearance terms, which are more favorable than

terms specified under the Law of Mongolia on Custom tariffs and duties, are applied.

Visa regimes

Citizens of bordering countries with the free zone is subject to up to 30 day stay without a visa.

Registration management of legal entity

A free zone registered legal entity has some special treatments during its operations.

Special tax regimes

Tax discount and exemption apply to income generating from business activities and investment within the free zone.

Amended and Restated Law of Mongolia on Free Zone (II)Special tax regime applies in free zone. Such as:

1. goods, imported from abroad to Free Zone, are exempted from customs, excise and value added taxes;

2. in the event that import customs, excise and value added tax are already paid when goods are in the customs

territory, such paid customs, excise and value added tax shall be refunded;

3. in the event that Mongolian goods are imported into the free zone, “0” VAT shall be imposed;

4. goods exported from free zone to abroad are subject to exemption of any tax; and

5. legal entity or citizens of free zone who engage in production activities and sale of goods, works and services in the

territory of free zone are subject to “non VAT payers”.

Amended and Restated Law of Mongolia on Free Zone (III)The corporate income tax is exempted under the following conditions:

1. innovation and high-tech enterprises are exempted from corporate income taxes in following 5 years after profit

activities; or

2. constructed and registered construction facilities in the territory of free zone are now exempted from real estate tax.

Law of Mongolia on Promotion of Industrial Manufacturing According to the Law of Mongolia on Promotion of Industrial Manufacturing (the “PIM”), the Government of

Mongolia shall encourage and support the development of export industries through following forms.

Entities which export more than 30 percent of its production are refunded the interest rate gaps of loan granted from a

commercial bank under the following conditions:

a loan obtained for the purpose of technological innovation; and/or

a loan obtained for the purpose of increasing an investment and/or working capital of a company.

export manufacturing oriented entities, which engage in business activities with high efficiency with an advanced

technology or introduced or provided a high-technology, are refunded research and development costs up to 75 percent

from the State budget until production.

An eligible entity shall meet the following requirements:

based on Domestic raw materials and imported raw materials, the value of the network has been created;

joint stock company;

60 percent of main and auxiliary materials, other relief goods, work and services are sourced from domestic

manufacturing entities; and

technology is registered with the technology registration database.

Law of Mongolia on General Taxation and Law of Mongolia on VATLaw of Mongolia on Amendments to the General Taxation

Law was approved on June 4, 2015.• now accept financial receipts via an electronic form.

Law of Mongolia on Amendments to the VAT Law was enacted on February 12, 2015.

• VAT with sale volumes of 50 million or more reached, the entities, which have engaged the following activities, are responsible for payment of withholding taxes:

1. Sales of goods, works and services in the territory of Mongolia;

2. Import of goods and services to Mongolia; or

3. Export goods and services from Mongolia.

Law of Mongolian on Corporate Income Tax

In case the event of Free Trade Zone enterprises to invest:• incomes which are equal to 50 percent of the invested amount shall be

exempted from corporate income tax under the following conditions:• if infrastructure sector, investment amounts are 500.0 thousand US dollars or more,

• if hotel and tourist complexes, and establishment of import-substituting and export orientedfactory, investment amounts are 300.0 thousand US dollars or more.

• Deficit shall be deducted from taxable incomes within 5 years followingafter commencement and production.

A taxpayer’s newly purchased assets’ depreciation andamortization shall commence on the first day of the nextquarter.

Law of Mongolia on General Administration

The Law of Mongolia on General Administration (the “Legislation”) prevents anyuncertainty in decision making by the State authorities. Furthermore, it abolisheslimitless actions or inactions of the State authorities who infringe the legitimaterights of investors, corporations and individuals under the ambiguity terms of“protection of public interests, national security and national interests”.

The Legislation ensures no bureaucracy exist in the State power, as well asdecision making path is well regulated.

The Following principles are reflected in the Legislation.

Protection of Legitimate rights of individuals and entities;

Principle of Listening; and

Effective Administrative Decision Enforcement.

Law of Mongolia on Legal Entities’ State RegistrationThe Parliament of Mongolia approved the Law of Mongolia on Legal

Entities’ State Registration (the “Legal Entities’ State Registration Law”) on January 29, 2015, which came into force on 1 March 2015.

The purpose of adoption of Legal Entities’ State Registration Law is to provide transparent and one-spot registration procedures which would ease the current hurdles concerning the registration of legal entities in Mongolia. As such, since the Legal Entities Registration Law is in place, services of state registration can be acquired through electronic or written form. In addition, effecting the stamp duty fee in an electronic form displaces the current problems, such as preparation of many documentations and time consuming procedures, surrounding the registration of the legal entities.

Law of Mongolia on Promotion of Economic Transparency

Those, who have done the followings before 1 April 2015:

1. not registered at the tax authority as taxpayers;

2. concealed the significant amounts of taxable incomes;

3. not registered removable and immovable properties at the State registration;

4. not registered the scope of business to the Legal Entities’ State Registration Authority of Mongolia; and/or

5. reduced or concealed the wage funds for employees, are required

exempt from the following taxes according to the Law of Mongolia on

Promotion of Economic Transparency:

1.corporate Income Tax;

2.personal income tax;

3.real Estate Tax;

4.VAT;

5.excise Tax; and/or

6.customs Tax.

Voluntarily:

Declare,

Report,

Register before 31

December 2015

will be exempted from the

said taxes;

not be imposed any

criminal and

administrative sanctions,

waived from any interests

and penalties.

April 01, 2015 December 31, 2015

Law of Mongolia on Construction

Law of Mongolia on Construction (the “Bill”) has been submitted to the State Great Khural on 9 July 2015.

The following key changes are in the Bill:

Construction activities are classified into 5 categories. Other than the first category, the remaining categories are subject to construction work permits.

The requirements and procedures for construction work permits have been eased and clarified in detail.

In the event the construction work permit holder transfers its shares in the amount more than 34 percent, such holder must re-apply for a construction work permit.

The term for construction work permit has been extended for 5 and 10 years.

In the event the construction work permit holder has not engaged into construction activities for consecutive 3 years, the construction work permit shall be revoked.

Thank you for your attention!

Ashid Advocates LLP

Contact details

For further clarification, please contact us at:

Ashid Advocates LLP

Suite #301, Ochir House Business Center,

Peace Avenue 15A/5, 1st Khoroo, Sukhbaatar District,

Ulaanbaatar City - 14210, Mongolia

Phone: +976 70147878

Fax: +976 70147878

Email: info@ashidadvocates.mn