The Mongolian Parliament has passed a new investment law on foreign investment that is intended to introduce a stable tax and legal background for foreign direct investors.

The new law will come into effect on November 1, 2013, and will repeal the Strategic Entities Foreign Investment Law, which was enacted in May 2012 and restricted investments in strategic sectors, by requiring government, or even parliamentary, approval for transactions.

In recognition of the recent decline of foreign direct investment (FDI) into Mongolia, especially in the copper and coal projects vital to its economic development, the new law provides an incentive in that value added tax, corporate income tax, mining royalties and customs duties will be “stabilized” for investors for periods from five to 15 years, dependent on the amount and location of the investment, and by registration and the obtaining of a Certificate of Stabilization.

Therefore, if tax rates were to be raised in Mongolia during a project”s “stabilization period,” an investment”s tax rates would remain capped and unchanged for a given period. If tax rates were to fall, the project would then pay the reduced taxes. Since it is felt that investment activities are mainly influenced by the four taxes, the Government considers that making their rates stable until investors can recoup their investment will now create a reliable and more favorable FDI environment.

Source: Tax-news.com