Press release

1 Aug 2018 Ulaanbaatar

Mining and metals tax guide

Mongolia, situated between two of the world’s commodity superpowers, is a nation rich in mineral resources. Its geology and geography have attracted significant investment in recent years. The Asian Development Bank has predicted that Mongolia’s economic growth will remain solid in 2018 and 2019, albeit with slight moderation, following a strong performance in 2017 as coal exports and mining investments strengthened.

Press contact
Khishignemekh Regzedmaa

Partner, International Tax and Transaction Services, EY Mongolia

A passionate international corporate tax advisor

  • Mining and metals tax guide - August 2018
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In accordance with the Company Law of 2011, the Civil Code of 2002 and the Law on Investment of 2013, foreign and local investors may conduct business in Mongolia through a number of organizational and legal forms. These organizational and legal forms can include joint-stock companies, limited liability companies (LLCs), partnerships, branches and representative offices. 

There are many financial, legal, commercial and tax implications arising from the choice of vehicle. For example, representative offices cannot conduct commercial income-generating activities and are not considered legal entities. Foreign companies that intend to engage in commercial income-generating business activities in Mongolia typically structure their presence through an LLC and tax branches are also available for certain operations.

Limited liability companies (LLC)


An LLC is formed on the basis of charter and decision of founders. The initial capital is provided by contribution from the shareholders and may take the form of cash or other property and property rights assessed in money equivalent.

LLCs may be founded by one or more individuals or legal entities and must have an appropriate state registration since they acquire legal status only when registered. For a foreign-invested LLC (a company with at least 25% foreign ownership), each foreign investor should contribute US$100,000. The share capital must be paid before registration.

Shares and rights

There are only two types of shares: ordinary and preferred. There is no limit to the number of preferred shares that can be issued.

The holder of an ordinary share has the right to vote at the general meeting of shareholders and take part in the election of management bodies and the audit committee.

The holding of preferred shares grants the shareholders priority rights to receive dividends and (as determined by the company’s charter) to participate in prior distribution of property in the event of liquidation. A holder of a preferred share has no right to take part in the management of an LLC, except for certain cases provided by the law.

Dividends may be paid in monetary form, as property or in the form of securities.


The registration of new foreign-invested companies in Mongolia takes place at the following agencies: the Legal Entity Registration Office (LERO), and the District Tax Office. Currently, registration at these agencies takes place separately.

A company should register a name with the LERO and complete the following steps: 

•Opening a US dollar bank account: Once the LERO has granted name approval, the applicant needs to open a US dollar bank account in the company’s name at a reputable bank (currently, Mongolia does not have any operational international banks). The required capital fund of US$100,000 for each foreign investor should be deposited into this account.

The capital fund must remain in the account until registration has been completed.

•Registration at LERO: The required documents to be submitted include an application form, charter, document confirming address, minutes of the foundation meeting, balance sheet confirming the required minimum amount of owner’s equity, a letter from the banking institution stating that the shareholder has maintained its accounts in good standing, and documents confirming the founders’ identities and payment of the state registration fee. The LERO will issue a certificate, which will be extended annually.

•Making company stamp: After the LERO registration, a company stamp will be created. The company stamp is crucial and all official company documents, from banking slip to financial statements, must be stamped with it.

Rules for terminating a company

A company may be terminated in the following circumstances:

•By agreement of its shareholders

•Under the court’s decision as provided by legislation, including for insolvency reasons

Termination may be affected through reorganization or liquidation. Liquidation is carried out by a liquidation committee appointed by the general shareholder’s meeting, or in case of insolvency, by the courts.

Importantly, the legal system does recognize the concept of collateralized assets provided as security for loans, investment capital or other debt-based financial mechanisms.

The legal system also provides for foreclosure. All creditors have to go to court to collect securitized collateral, adding months to the entire collection process. Once a judgment is rendered, the disputant faces a relatively hostile environment to execute the court’s decision.

Permanent Establishment

Separate to legal registration process, the Mongolian Tax Authority performs a tax registration of branches of foreign entities without having the branches registered legally with the state authorities in Mongolia (unless branches perform strictly or heavily regulated activities, such as branch of bank or other regulated financial institutions). This may be of a special interest for foreign investors who are not willing to have a legal registration in Mongolia (e.g. for conducting short or medium term business activities, or project based activities), but should be aware of the revised tax registration and filing requirements for PEs in Mongolia. However, as of date Mongolia only accepts PE registration from treaty partner country.

PE registration requirements

A PE should be registered within 30 days after the respective activity or start of a project that has triggered existence of a PE.

The MTA should issue a PE registration certificate within 3 business days of the application day4. The list of documents to be submitted to the MTA for PE registration include the following:

  • application center
  • document confirming PE address in Mongolia, copies of registration documents of foreign corporation in its jurisdiction e.g. incorporation certificate,
  • overview of the project background,
  • copy of service agreements, if any, and
  • documents confirming appointment of a director of a PE.

VAT Registration of PEs

A PE is considered a tax payer for VAT purposes in Mongolia; therefore, the general VAT rules should apply to the PE. Failure to register for VAT purposes, having met the registration threshold, may result in a heavy penalties and fines.

Profit allocation to a PE taxed locally

According to article 3.1.3 of the Corporate Income Tax Law of Mongolia, where a foreign enterprise, carries out business through a PE in Mongolia, a respective financial result should be attributed to that PE. The MTA also requires preparation of documentation that justifies profits allocated to PE (taking into account risks assumed and assets used by the PE and a headquarter).

Currently there are no specific guidelines or rules in Mongolia for PE profit allocation. It is expected that such guidelines will be issued by the State authorities, but there is no clear timing set on this regard. Given that there are no clear rules in place yet, the MTA is likely to follow internationally-accepted approaches, e.g. OECD approach for PE income allocation.

Investment law

On 3 October 2013, the Investment Law was introduced by the Mongolian Parliament, which repealed the Law of Mongolia on the Regulation of Foreign Investment in BESI. The BESI was introduced in May 2012, which was criticized significantly for unclear definitions and hectic procedures.

The pinpointing article of the Investment law is the Stability Agreement. Both foreign and local investors may apply for a tax stabilization certificate to govern their investment, thereby securing stable tax conditions for a fixed term. The stabilization agreement can cover four types of taxes: corporate income tax, customs duty, value-added tax (VAT) and royalties. The term of a tax stabilization certificate depends on the amount of investment and its geographic location, as set out below. The stabilization certificate can be extended by half of the initial term granted, if certain conditions are met.

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