Registering a company in Mongolia can be a prospective decision for engaging in international business. Mongolia is a country in East Asia with Ulaanbaatar as its capital, located in the northern part of the country and being the largest city in Mongolia.
Mongolia provides a favorable location and conditions for investments. Companies registered here can access economic advantages such as tax incentives, easy access to international markets, and investment protection. If you are aiming at establishing an entity in Mongolia, you can learn about some details regarding specifications and the enrollment phase by reading the article.
Why consider launching an enterprise in Mongolia?
Mongolia has become an inviting domain for business due to its commercial-oriented approach and reasonable state policies. The Republic is undergoing remodeling targeted at improving the investment climate and promoting business development.
Here are several main reasons why considering enrolling business in Mongolia is worthwhile:
- Simplicity and relative speed of enrollment: the stage of enrolling a company in Mongolia is straightforward and expedited. Entrepreneurs can expect minimal bureaucracy and a relatively quick acquisition of all necessary permits and licenses.
- Favorable commercial climate: Mongolia is actively seeking overseas contributions and strives to expand its business industry. In the last couple of years, authorities have taken steps to reduce restrictions on entrepreneurship.
- Geographical location: the country is situated in the center of Asia, intersecting crucial trade routes. This opens possibilities for the enhancement of transcontinental commerce and logistics.
- Rich natural resources: Mongolia is renowned for its natural wealth. If your business involves extraction or processing of natural resources, it is a country that can offer prospects for development.
- Tax benefits: Mongolia has a favorable tax system. Some structures of businesses may be exempt from taxes for the primary few years, and the overall business income tax rate varies from 1-25%.
- Developing infrastructure: authorities are contributing into infrastructure improvement, containing road construction, railways, and energy systems. This creates favorable conditions for initiating an investment undertaking here.
The most developed cities in the Republic with the perspective of an investment-friendly environment include:
- Ulaanbaatar. As the capital and biggest city of Mongolia, Ulaanbaatar is the hub of business and economic evolvement. The city bestows numerous investment possibilities in multiple segments, including finance, real estate, information technology, and tourism.
- Darkhan. The second-largest city in Mongolia, Darkhan has significant investment prospect. The city specializes in industry, notably in the extractive areas as coal and gold mining.
- Erdenet. Located in the center of Mongolia, Erdenet is an important industrial center. Investments in light industry, construction, and metallurgy are welcomed here.
- Zamyn-Uud. This city serves as the center for economic betterment in the southern part of Mongolia. It hosts major enterprises in the coal mining and other natural resource sectors.
Overall, these cities have high potential for attracting investments. However, before deciding to establish a company in Mongolia, it is essential to counsel with experts with relevant expertise who can explain the specifics of the Mongolian market, legal constraints, and business conditions in the country.
Forms of doing business in Mongolian Republic
There are several primary forms of leading business that are most commonly used:
- Limited Liability Company (LLC). The LLC is the most common form of legitimate entity, especially for small and medium-sized businesses. An LLC can be created by one or several individuals or legitimate enterprises, supplying flexibility and protection to owners. In case of obligations, the liability of members for the arrears of the LLC is capped to the amount of their allocations to the capital. This allows founders to minimize risks and protect their personal assets. There are no minimum statutory capital requirements to register an LLC in Mongolia. In most cases, LLCs have a director (sole executive body) responsible for making all important decisions and running the company.
- Joint Stock Company (JSC). A JSC is a type of business organization where members (shareholders) acquire shares in the company. Through the issuance of shares, the company attracts additional financial resources for its activities. Shares represent stakes in the authorized capital of the enterprise and give shareholders the right to receive dividends and participate in the administration of the enterprise. Investors can establish a JSC in Mongolia of two types: open (shares are publicly traded) or closed (shares can be sold to a limited circle of persons). The registration of a JSC in Mongolia involves appointing a board of executives, consisting of several members who jointly make decisions and oversee the activities of the company. JSCs are typically preferred for larger businesses.
- Branches and representative offices of international enterprises. Transnational enterprises are allowed to open branches or representative offices in Mongolia, enabling them to perform business in the domestic market. A branch of an international corporation in Mongolia is its dependent unit with its structure, functioning under the control of the foreign organization. The branch may engage in the same types of activities as the parent company, which is fully responsible for the branch's actions. Representative offices of transcontinental enterprises in Mongolia are not separate legal enterprises and function on behalf and for the welfare of the parent entity. They may perform advertising, informational, and advisory functions but are not allowed to engage in business operations.
In the country, there are also other formations of commercial enterprises, such as Limited Liability Partnership (LLP) and partnership. Despite the diversity of licit forms for commercial organizations, investors predominantly prefer to establish LLCs or JSCs. When selecting a form of doing business in Mongolia, seeking advice from a business consultant is a wise decision to ensure that the chosen form aligns with the set goals and needs, and that the stipulations of the country's legislation are complied with.
Establishing an enterprise in Mongolia: enrollment procedure
To create an entity in Mongolian Republic, the procedure is the following:
- Step 1. Select the corporate formation of the enterprise. When selecting the company form, it is important to consider legal, financial, and tax aspects.
- Step 2. Assemble a package of founding papers and deliver them containing the application form to the regulator. The founding documents should be translated into Mongolian and notarized.
- Step 3. Open a corporate bank account in Mongolia to have the ability to conduct financial operations.
- Step 4. Obtain special licenses. Companies may need special certificates or permits to engage in certain types of business.
Specific stipulations may vary slightly determined by the chosen legitimate formation of the company and the specifics of the business. Take counsel from a consulting firm to get detailed information and assistance with the phase of enrolling an enterprise in Mongolia.
List of paperwork required for registering a Mongolian enterprise
To enroll a company in Mongolia, typically the next essential files are required:
- Registration application.
- Bylaws, which should contain information about the company's structure, rights and obligations of establishers, and governing bodies.
- Information about founders and their shareholdings in the enterprise.
- Legal address of the enterprise in Mongolia.
- Resolution on the appointment of the CEO.
- Notarized copy of the passport of the CEO.
- Papers confirming the amount of the registered capital (if required).
In addition to these core documents, additional information may be needed determined by the specifics of the company and the specifications of domestic registrar officials.
Enrollment of an enterprise in the unrestricted domains of Mongolia
Special Economic Zones (SEZs): Altanbulag, Tsagaan Nuur, and Zamyn-Uud. These domains offer tax and customs inducements, simplified processes for registration and licensing, and favorable conditions for hiring foreign employees. The role of these free zones is to attract foreign investments, create new jobs, promote exports, introduce new technologies, and support local entrepreneurship.
SEZs provide access to the global market and have well-developed infrastructure and communications. They contribute to the transfer of expertise and knowledge from abroad, fostering the overall development of the country's economic area. The main activities in the SEZs contain production, logistics, processing agricultural products, tourism, and services.
In which industry can investors find competitive opportunities?
Industries providing competitive advantages for foreign investors:
- Mining industry: Mongolia has rich mineral resources with high market value globally, offering significant investment opportunities. The country's favorable geological conditions contribute to the extraction and exploitation of these resources. The government vigorously attracts foreign investments in Mongolia's mining sector and provides incentive programs for investors. Mongolia's strategic location between major global markets opens up extensive export opportunities.
- Information Technology (IT): in recent years, the authorities in this jurisdiction have actively developed IT infrastructure. The state offers various incentives and benefits for registering IT enterprises. Mongolia has a number of young and talented professionals in IT who can grant quality services in software development, web programming, data analytics, and other IT services. The cost of labor and services is relatively low compared to many other countries, significantly reducing investors' costs in IT projects in Mongolia.
- Financial Technology (FinTech): FinTech has been one of the dynamically developing industries worldwide for several years, and Mongolia is no exception. The adoption of financial technologies can improve access to financial services, streamline processes, and enhance efficiency. Furthermore, FinTech innovations can contribute to improving monetary literacy and providing accessibility to educational resources. This is fundamental for investors to make informed financial decisions and efficiently manage their investments. Mongolia's proximity to China and other major countries may open opportunities for expanding international boundaries to promote products/services and develop partnerships in this segment. Launching a FinTech startup in Mongolia can be successful in areas such as developing mobile platforms for banking services, payments, transfers, and financial management, as well as microfinance services and credit platforms, remote payment technologies, and blockchain solutions to ensure transaction security. Success in the FinTech sector requires innovation, flexibility, and adaptation to the needs of local customers.
- Energetics: Mongolia has considerable prospect in the energy industry due to its natural resources such as coal, water resources, and solar energy. There are many undeveloped regions in the country where infrastructure needs to be developed, and access to energy needs to be ensured. The increasing demand for energy in industrial and transportation sectors plays a significant role. The development of renewable energy sources, improvement of energy efficiency, and infrastructure construction can be promising directions in this industry.
The selection of a specific industry to launch a business depends on your interests, skills, and available resources. A wise decision would be to study the market demand before making a choice. In any case, seek the support of professionals specializing in investment activities in Mongolia.
Incentive programs in different areas in Mongolia
Incentive programs play a valuable part in stimulating the advancement of individual industries and stimulating foreign direct investments to Mongolia. Below are a few examples in the table.
Legislative initiative of the Mongolian state “Mongolia Today”
Under this scheme, tax stimuli and other incentives are supplied to overseas contributors for investing in projects related to the development of alternative energy sources, mining projects, tourism, and agricultural industries.
Innovation Development Program
Authorities support the development of innovation through funding programs and assistance to startups in Mongolia across various sectors. Some of them include financial support, training, and consulting services.
Export promotion program
In the country, various incentives are offered to companies engaged in exports, such as tax benefits, subsidies to enhance the competitiveness of products and consulting services for developing export strategies.
Tourism Sector Incentive Program
The country stimulates the development of tourism by presenting tax and other preferences for investors developing tourist infrastructure and offering tourism services.
Taxes in Mongolia
The Corporate Income Tax (CIT) is calculated on a rising scale starting at 1% to 25%, specifically:
- 1% is applied to corporations with yearly income up to 300 million Mongolian Tugriks (MNT), disregarding mining and oil sectors.
- 10% is applied to the first 6 billion MNT of yearly leviable income.
- If the yearly taxable revenue excels 6 billion MNT, the tax is 600 million MNT plus 25% of the revenue surpassing 6 billion MNT.
The general VAT tariff is 10%. This tax is appropriate to most goods and services, but certain categories may be exempt from VAT. Additionally, a Sales Tax of 2% is levied in addition to VAT and amounts to 2% of the total value of the sale of goods or services.
Opening a corporate account in Mongolia involves specific considerations.
Here are several key points to keep in mind:
- Documents. Typically, an extensive list of paperwork is required, comprising duplicates of the company's founding files, the enrollment certificate, identification documents, and addresses of directors, shareholders, and beneficial owners.
- Directives and conditions. Different banks may have varying specifications for opening a corporate account. Some banks may ask the inclusion of Mongolian directors in the company's structure. It's important to carefully review the stipulations of the bank you plan to work with to ensure they meet your needs.
- Physical presence. In most cases, a visit to the bank by the account signatory may be required for the personal submission of documents and to undergo the identification procedure.
- Minimum account balance. Many banks may set a minimal balance for a corporate account, and the required amount can be substantial in some cases.
- Opening an account in foreign currency. If you plan to create a corporate account in a foreign currency, such as US dollars, it's essential to check for any restrictions or requirements.
Among foreign investors, some of the most popular banks in Mongolia include Khan Bank, Trade and Development Bank (TDB), Golomt Bank, and XacBank. These banks have good reputations and offer a wide range of services for corporate clients.
Mongolia plays a significant role in shaping the global business environment. The country's authorities are working towards improving the entrepreneurial landscape. Mongolia possesses substantial mineral resources, attracting international companies interested in exploration and development. Moreover, situated in the heart of Asia, Mongolia serves as a crucial transit zone, fostering the development of logistics services and the expansion of trade connections.
Implementing an investment project in Mongolia requires effort. Experts from TK Deal can assist you in this process. With an extensive experience in communication and a deep understanding of the country's legislative environment, we can guide you through the company registration process in Mongolia at every stage.