New Law on Investment passed to encourage investment

Four kinds of taxes to be stabilized
On October 3, Parliament passed a Law on Investment to create a stable legal and taxation environment for
foreign and domestic investors. With this law, investors are promised that Mongolia will maintain the rates of
Corporate Income Duty, Customs Duty, VAT and Royalty stable for 5, 8, 10 and 15 years of terms depending
on investment volume and the location for the investment.

If the law is amended to raise the tax rates, the company will follow the unchanged tax rate for a given term, and if it falls, the company will pay a reduced tax. Since the company activities are majorly influenced by these four taxes, it is considered that making the rates of these taxes stable until investors recoup their investment can create a reliable and favorable environment for investors.

During the discussion of the Bill, MPs stressed that the tax rate in Mongolia is lower than that of world countries, but the tax laws are amended within short period, which causes businessmen to get anxious about the future and be cautious about their investment. The result of a stabile tax environment can give investors confidence. The new law moves from a system of permit to the system of registration. As investors register at the relevant organization, they will obtain a Certificate of Stabilization which will entitle them to enjoy stabilized rates of these taxes for a certain period. The Bill worked out by the Government is stated to follow the stabilized rate for 5-10 years if the investment volume exceeds Tgs15 billion.

This accords with economic development and is eco-friendly as new technology is introduced and jobs are created. But MPs resolved to make it effective in remote provinces and soums with less volume of investment to encourage investment to rural areas. By classifying five regions as Ulaanbaatar, Central, Khangai,Western and Eastern, the term of enforcement for the stabilized tax rates is different. For instance, if the investment exceeds Tgs2 billion in  the western region, they qualify to get a Certificate of Stabilization for also specified in the law.
The period of investment can be extended by two years at the request of investors. The MPP group in parliament proposed that if there is new kind of tax, it will be ineffective for companies holding a Certificate of Stabilization, but they could not get major support.
Some MPs said that if this proposal is accepted, there will be too much privilege for investors which will
make it impossible for the State to amend and reform its taxation policy.
On the contrary, some believe that it can be regulated with the taxation law. MP D. Erdenebat said that the four kinds of taxes to be stabilized comprise almost 70 percent of total taxation. Depending on investment location and volume, this law makes the government keep the tax rate stable for up to 15 years.
In addition, if this law would prevent government from pursuing additional tax laws there would be no need for government. Moreover, the law states that there is eligibility to build an Investment Agreement at the investors’ request if they invest more than Tgs500 billion.
As the Investment Law was passed, the Law on governing foreign investment in entities operating in the strategic sector becomes void; therefore, some contents and articles of the law have been included in the Investment Law. For instance, with a purpose to avoid a monopoly by state-owned companies of foreign countries in the strategic sector, an article was reflected in five years.
The Law also states to give great importance to investment in mining, infrastructure and heavy industry sectors and production that can replace export products.
Because the favorable taxation environment is offered ahead of the investment, the period to complete investment was the Investment Law for fully state-owned or partly state-owned foreign investors with a share of more than 33 percent in companies operating in a strategic sector (mining; banking and finance; media, information and communications) will receive a permit from the relevant state administrative organization for investment issues.
The same day, a law on follow-up regulations to the Investment Law also passed. The law allows companies that have already invested to follow the above-mentioned four kinds of taxes stable for five years. At the plenary meeting 39 MPs out of 47 turnouts supported approving the Investment Law, even though some MPs gave opinions that the Bill on Investment submitted by the Government was incomplete and it needs significant modifications by Parliament; thus, the Bill needs to be given back to the initiators.
With a purpose to create a condition so the Investment Law cannot be easily re amended, the law states that it shall not be amended unless two-thirds of MPs present at the plenary session to support it, not just by a majority vote. On October 3, the plenary meeting of parliament passed the Law on Investment Funds. According to the law, the Investment Fund will have two forms — joint investment and private investment. It will operate up to 10 years regardless of the form of the investment fund.

Source:Mongol Messenger


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