There are several key areas to be aware of within Mongolia’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.
Labour contracts must contain the following basic conditions, at a minimum:
Parties are forbidden from independently changing the conditions stipulated within a labour contract. Both parties must have agreed upon terms, otherwise the contract is considered invalid.
|Disclosure and Confidentiality of Personal Information ?||
There is no such specification in the Labour Law, however there is a prohibition on asking questions related to private life, personal opinion, marital status, political party membership, religious beliefs, or pregnancy if irrelevant to the employment.
|Employee Protection and Anti-discrimination Rights ?||
The establishment of discrimination, limitation, or privilege based on nationality, race, sex, social origin or status, wealth, religion, or point of view is prohibited.
|Time Off Work ?||
Generally, the annual leave entitlement is 15 days, or 20 days if the employee is under 18 years of age. There may be additional leave days awarded on the basis of the tenure of employment ranging from 3 days to 14 days, depending on the length of employment.
|Medical Leave ?||
If an employee contracts a normal disease of domestic injury and therefore rendered unable to perform their duties, as determined by a competent medical authority, then they are entitled to sick leave for the duration of such temporary inability.
|Annual Leave Accrual Entitlement ?||
The basic annual leave entitlement is 15 days, or 20 days if the employee is under 18 years of age. There may be additional leave days awarded on the basis of the tenure of employment ranging from 3 days to 14 days, depending on the length of employment.
|Maternity Leave in Mongolia ?||
Female employees are entitled to 120 days of maternity leave. Adoptive mothers are entitled to the same leave period.
|Resignation / End of Service Payment ?||
There is no specified resignation or end of service payment.
|Severance / Redundancy Pay ?||
The employer is entitled to pay an allowance equal to an average wage of one month or more.
|Termination of Employment ?||
A labor contract can be terminated upon initiation by either the employee or the employer. Unless otherwise stated in the contract, employees are able to leave their position after 30 days of giving notice.
Grounds for terminating employment include:
Employers who terminate a labour contract with an employee must establish a time for the transfer of duties to the new employee and provide this information when dismissing the original employee. Employers are obliged to provide the dismissed employee with the decision on the dismissal, any legally required dismissal allowances, as well as a letter of reference about the occupation, profession, specialisation, position and remuneration at the request of the employee.
|Probation Period ?||
The maximum term of the probationary is 6 months. The exact duration of probationary period is to be determined at the employer’s discretion.
|Pension Requirements ?||
The system of welfare and benefits is complex in Mongolia, and are enforced for Mongolian employees in particular. There are requirements for both employee and employer contribution rates based on a percentage of salary.
The categories of Welfare Contributions include:
|Management Fee for Employer of Record Services / Monthly Payroll Costs||
Shield GEO does not operate in Mongolia.
Mongolian tögrög (also stylised as Tughrik) (MNT) is the official currency.
|Tax Returns Supplied||
Shield GEO does not operate in Mongolia.
|Corporate Tax Requirements||
For the sale of shares, a corporate tax return must be filed within 10 days. Taxpayers file returns and execute payments on a self-assessment basis although generally an annual return must be submitted by February 15 of each year.
|Employers Social Security and statutory contributions||
• Pensions: Employer contributes 7% of salary
|Employees Social Security and statutory contributions||
• Pensions: Employee contributes 7%
There are specific rules for payroll and taxation in Mongolia, depending upon whether your employees are foreign nationals or local Mongolians who require Mongolia payroll. The primary concerns for a foreign company that needs to comply with tax laws in Mongolia are: Individual income tax (IIT) for employees in Mongolia, social security costs, fringe benefits tax, and value added tax.
Mongolia is known for its flexible policies surrounding employment of foreign workers and thus appropriate payroll is important for any companies wishing to employ in Mongolia.
|Remote Payroll ?||
A remote payroll in Mongolia operates when a foreign company, i.e. a non-resident company, payrolls a resident employee in Mongolia. Under Mongolian law both Mongolian and foreign-owned entities are allowed to have employees based in Mongolia. This applies to both local and foreign employees. A good option, therefore, for a non-resident company to payroll its employees (local and foreign) in Mongolia is to use a fully outsourced service like a GEO or FESCO which will employ and payroll the staff on their behalf.
|Local Payroll Administration ?||
In some cases, a company will register their business in Mongolia under one of the forms available, (RO, LLC or JV) but may prefer to have another company administer its payroll, which can be achieved through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.
|Internal Payroll ?||
Larger companies with a longstanding commitment to Mongolia may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Mongolian payroll, and can fulfill all tax, withholding, and payroll requirements.
This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Mongolian employment laws.
|Fully Outsourced Payroll & Employment ?||
Shield GEO does not operate in Mongolia.
|Currency ?||Mongolian tögrög (also stylised as Tughrik) (MNT) is the official currency.|
|Employee Information Required ?||
To set up new employees for payroll purposes, the following must be included:
|Social Security Registration ?||
Companies must register with relevant social insurance departments of the appropriate district. The registration needs to be completed in person, upon which a social insurance code will be assigned by the District Social Insurance Department. The service is free and it is no longer required that a paper copy of the certificate of social insurance registration be obtained.
|Documentation Required for New Employees ?||
|Corporate Income Tax ?||
Up to MNT 3 billion, a marginal tax rate of 10% applies. Above this amount, the marginal rate is 25%.
|Income Tax Rate ?||
|Payroll Tax ?||
|Sales Tax ?||
10% although some goods such as fruits & vegetables are exempt from VAT.
|Withholding Tax ?||
Dividends, interest and royalties are all taxed at 10%. A withholding tax of 20% is applicable to all foreign entities.
|Other Tax ?||
Interestingly, there is no capital gains tax or provision for tax consolidation in Mongolia.
|Income Tax (Personal Allowance) ?||
There is no income bracket which is not taxed however a personal tax credit of MNT 84,000 per annum is provided for individuals to deduct against the tax payable on their annual income.
|Time to prepare and Pay Taxes ?||
|Time required to start a Business ?||
|Payment Mode ?||
Pay cheque and direct bank transfer are both common. Note that employees are not required to have a Mongolian bank account.
|Frequency of Salary Payment ?||
Most workers in Mongolia are paid twice monthly although they often also elect to be paid monthly.
|Invoice / Payslips required ?||
Filing methods can be either by paper or online at the employer’s discretion.
|Minimum Wage ?||
The minimum wage is 192,000 MNT per month.
The Mongolian Government is known for generally enforcing a fairly flexible investment policy, with foreign investment well received in all sectors of the economy. As there remains a significant shortage of skilled labour in Mongolia, foreign workers are therefore encouraged to fill these gaps. For companies considering sending foreign workers here is our guide to Mongolia work permits.
It is possible for companies that have established a Rep (Representative) Office or Limited Liability Company (LLC) in Mongolia to arrange for HG visas.
Foreign work permits are valid for a period of up to a year.
The process is as follows:
1. Employers initiates process
The Mongolian company sponsoring a foreign worker for their work permit must first provide a visa invitation letter to the applicant. This is a fairly complex process and requires a request to be submitted to the Immigration Agency, which then consults with the Labour and Welfare Agency before it can be authorised by the Ministry of Foreign Affairs and Trade. If all government agencies are in agreement regarding the application, a visa invitation letter will then be forwarded to the embassy or consulate in the applicant’s country of residence. The employer must provide a signed employment contract copy, the employee’s CV and copies of any relevant education certificates.
2. Apply for HG Work Visa
The applicant must then apply for a 30-day visa at the embassy or a consulate abroad. This step can only be completed upon receipt of a visa invitation letter.
3. Register address
Once an applicant has arrived in the country, they must then register with the Immigration Agency within 7 days of arrival, inclusive of non-business days.
4. Obtain Work permit
Work permit applications are lodged with the Labour and Welfare Agency.
Working visa applications require submission of the following documents:
There are several key considerations that employer should be aware of. A key influence is that there is a foreign worker quota set by the Government of Mongolia for local and foreign companies in Mongolia. This can range from 5-80% depending on the sector in question. Generally, however, the default quota for foreign invested companies is 5%.
5. Visa extension and long-term residence permit
Within ten days of arrival, it is necessary hat the applicant’s 30 day visa be converted into a year-long multiple entry work visa. This is arranged with the Ministry of Foreign Affairs and Trade. During this process, applicants must also apply for a long-term residence permit which is valid for the duration of the work permit.
Cost: A fee of 216,000 MNT per month of employment is payable to the ministry in advance + 60,000 MNT application fee.
Time: Generally around 4 weeks is required to complete this process.
|Category||Description of Visa|
|Single entry business visa (B Visa)||
B Visas are single-entry business visas that are valid for a period of up to 30 days. B Visa holders cannot legally work while in Mongolia – these visitors are intended for visitors attending meetings, conferences, exhibitions and other similar events. B visas must be sponsored by a Mongolian company which is legally registered.
|Work permit (HG Visa)||
HG Visas allow foreign workers to undertake employment in Mongolia. They must be obtained in conjunction with a work permit and a residence permit. These must all be obtained prior to arriving in the country and can be extended for up to a year. A registered Mongolian company must apply for this visa for its foreign workers.
|Foreign investor visas (T Visa)||
T Visas are issued to individual foreign investors in Mongolian companies or the foreign Executive Directors of a Mongolian company. These are valid for either 6 months or 1 year, allow multiple entries, and can be renewed.
When setting up a company you may want to consider these factors:
Business factors such as:
Location will be another factor. Mongolia is the most sparsely populated independent country in the world, with a population of 3 million spread out over land more than 6 times the size of the UK.
While there is a rising number of English language speakers amongst the younger generation, all documents filed with the relevant government agency must be translated into Mongolian.
Mongolia currently faces several key issues such as political and economic difficulties in its desire to become an economically developed nation and these can be evident when considering a Mongolia company incorporation. However, the legal system has struggled to adopt new regulations of business and the general public, with many Mongolians faced with a significant lack of understanding of the modern business law in the country and its application. Economic and business activities in Mongolia are regulated by a variety of laws, such as the Company Law of October 6, 2011, the Civil Code of January 10, 2002, the Investment Law of October 3, 2013.
This is one of the relatively faster and simpler ways to set up a company in Mongolia. Under the Law of Investment, foreign legal entities are able to set up representative offices, which are not separate legal entities. They are not entitled to charter capital, and the head office is legally responsible for liabilities to third parties. The registration process is the same as those for Mongolian legal entities, are ROs are registered with the State Tax Department.
Time: Around a week
Cost: MNT 148,800
First time investors in Mongolia often find that establishing a representative office may best suit their near-term business needs, particularly for those looking to establish a light presence to initially develop local relationships and a deeper understanding of Mongolia’s business and political environment.
They may not generate income and are restricted to only undertake limited, non-profitable activities.
While there is no initial capital requirement and no tax payment requirement for ROs, they are not separate legal entities and hence the head office incurs any liabilities of the RO.
WFOEs are limited-liability corporations organized by foreign nationals and capitalized with foreign funds. WFOEs are often used to produce the foreign firm’s product in Mongolia for later export to a foreign country. The WFOE must go through the entire registration and incorporation process, and is the most costly business structure to setup.
Time: Around a week
Cost: MNT 148,800
A Wholly Foreign-Owned Enterprise (WFOE, sometimes incorrectly written as WOFE) is a common investment vehicle for Mongolian businesses wherein foreign parties (individuals or corporate entities) can incorporate a foreign-owned limited liability company.
WFOEs are limited-liability corporations organized by foreign nationals and capitalized with foreign funds. This can give greater control over the business venture in Mongolia, and avoid a multitude of problematic issues which can potentially result from dealing with a domestic joint venture partner.
Such problems often include profit not being maximized, leakage of the foreign firm’s intellectual property and the potential for joint venture partners to set up in competition.
The steps are explained below.
1. Verify and reserve a unique company name
Business owners must propose a name to the Legal Entities Registration Office of the General Authority for State Registration of Mongolia (LERO) and reserve the name of the company. Upon approval, LERO will then issue a name reservation slip, either electronically or in writing, as well as bank account permission slip. The business owner will need to open a temporary account at the back within the same office and also instruct the bank to make a payment to the account of the Tax Authority.
The name reservation slip needs to be supplied in original for the purposes of incorporation, and as such, an in-person visit to LERO is necessary.
Time: 1 day
Cost: MNT 500
2. Pay the registration fee
This can be done at any commercial bank.
Time: 1 day
Cost: No charge
3. Register the company incorporation and register as a tax payer
The following documents need to be submitted to LERO in order to register for incorporation and obtain a state registration certificate:
According to legislation passed in 2015, LERO must process company registration within 5 business days.
Upon registration of the company, LERO will automatically publish a notice of company formation. LERO will also pass along relevant documents to the tax department for the area in which the company is located. The company will subsequently be registered as a corporate income tax and VAT payer.
Taxpayers should submit their requests for registration as a VAT payer within 3 days of sales income exceeding MNT 10,000,000, as evidenced by certified corporate income tax and financial reports.
Time: 2 days
Cost: MNT 44,000
4. Apply for Social Security Code
After the company has employees and incorporation procedures have been undertaken, the company must register with relevant social insurance departments of the appropriate district. The registration needs to be completed in person, upon which a social insurance code will be assigned by the District Social Insurance Department. The service is free and it is no longer required that a paper copy of the certificate of social insurance registration be obtained.
Time: 1 day
Cost: No charge
5. Make a seal
The company must obtain and complete a seal request form from LERO and then provide one of twelve seal makers located in Ulaanbaatar, the capital city, who are currently registered with the Ministry of Justice with a copy of its state registration certificate.
Time: 1 day
Cost: MNT 59,800 for fastest available service
A joint venture (JV) is a form of foreign invested enterprise (FIE) that is created through a partnership between foreign and Mongolian investors. However, contractual JVs are particularly rare in Mongolia and generally not a business option that either businesses or government in Mongolia are familiar with. Where the term “Joint venture” is used in Mongolia, it will generally refer to a incorporated joint venture, commonly an LLC. While unincorporated joint ventures are not strictly prohibited, they are simply not considered by law at all.
Joint ventures are uncommon in Mongolia – typically set up as incorporated LLCs, the Mongolian Law on incorporation does not address unincorporated LLCs, and thus creates a grey area under law. Unincorporated JVs in Mongolia face numerous problems, such as common ownership of property, particularly in the resources industry since only one party may be registered as the licence holder for an exploration or mining licence, as stipulated by the Minerals Law. This law also specifies that foreign entities cannot hold these licences. Furthermore, there is no concept of equitable interest in property in Mongolia, thus there is no promises that one’s equitable interest in property will be safeguarded. This creates inherent risk for JV partners, who are reliant on their contractual agreements for their respective interests in property.
The best course of action would be to register an incorporated JV – i.e. the same business form (LLC) as a WFOE. The minimum startup capital is US$100,000 for this business structure, which is favoured as it provides greater flexibility in management structure. The steps are the same as above.
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