LAW OF MONGOLIA
ON FREE ZONES
June 28, 2002
(Turiin medeelel #27, 2002)
Article 1. Purpose of Law
1.1. The purpose of this Law shall be to govern relationships concerning the establishment of free zones and their forms, structure of management bodies, determining and implementing the legal basis of the tax and customs regime.
Article 2. Legislation on Free Zone
2.1. Legislation on free zone shall consist of the Constitution of Mongolia, this Law and other acts of legislation enacted in conformity therewith.
2.2. If an international agreement to which Mongolia is party provides otherwise than this Law, then the former shall prevail.
2.3. Legal relationships other than those provided for in the free zone legislation shall be governed by the respective laws of Mongolia.
Article 3. Free Zone and Its Forms
3.1. “Free zone” shall mean a part of the territory of Mongolia considered to be separate in terms of customs and taxation and which is subject to a special business and investment regime.
3.2. Free zones shall be of trading, industrial, agricultural, tourism or economic forms.
3.3. Activities aimed at improving the packaging, storage and protection of products and goods without detracting from their quality, and at increasing their value and sale transactions shall be carried out in a free trade zone.
3.4. Activities aimed at developing advanced, export-oriented technologies and production of market competitive products shall be carried out in a free industrial zone.
3.5. Activities aimed at developing intensive agriculture and husbandry, and the production and sale of foodstuffs shall be carried out in a free agriculture zone.
3.6. All types of services shall be offered by a tourism free zone, where facilities and infrastructure meeting international standards shall be established.
3.7. Activities specified in 3.3.-3.6 of this Law shall be carried out in a free economic zone, in combined or merged forms.
Article 4. Special Regime of Activities at Free Zones
4.1. Tax incentives, simplified business entity registration procedure, and simplified entrance/exit regime shall apply at free zones.
4.2. Passengers, goods and means of transportation shall enter free zones only through a check-point under customs control. The customs central authority shall approve the customs control procedures for free zones.
4.3. Goods prohibited for importation into the territory of Mongolia shall be prohibited from entering free zones.
4.4. Non-tariff restrictions shall not be imposed on the goods entering free zones from abroad or leaving free zones.
4.5. Accounts at free zones shall be settled in national or foreign currencies according to a special currency regulation to be approved by the Bank of Mongolia.
Article 5. Establishment, Change and Dissolution of Free Zone
5.1. The State Ikh Khural shall decide matters of establishing, forms, location and the size of territory to be allocated to, borders, changing and dissolving of free zones in Mongolia at the submittal by the Government.
MANAGEMENT OF FREE ZONES
Article 6. Governor of a Free Zone
6.1. Governor of a free zone shall be a representative of the state charged with functions to exercise public administration at a free zone.
6.2. The Prime Minister of Mongolia shall appoint and release the Governor of a free zone.
6.3. Governor shall report to the Prime Minister.
6.4. Governor shall have an Office. The Government shall decide the number of staff positions and the expenditure limits of the Office depending upon the scope of the activities and the size of the territory of respective free zone
6.5. Governor shall use a seal, stamp and printed letterhead of established standards.
Article 7. Powers of Governor of a free zone
7.1. Governor of a free zone shall exercise the following powers:
7.1.1. to represent the free zone and to make decisions within limits of his/her powers;
7.1.2. to draft, have approved and implement the free zone development program and budget;
7.1.3. to register investors, business entities, their branches and representative offices seeking to operate in the free zone;
7.1.4. to conclude transactions on behalf of the free zone.
7.1.5. to define and implement labor force and employment policies in the free zone;
7.1.6. to process applications from the business entities and organizations operating in the free zone to change areas of their business;
7.1.7. to render decisions to permit the use of land allocated, state-owned buildings and facilities provided under the legislation, and to exercise oversight of their utilization;
7.1.8. to coordinate activities of specialized state inspection units within the free zone;
7.1.9. to appoint and release the free zone general manager and staff members
7.1.10. to issue land possession and use permits to citizens, business entities and organizations within the territory of the free zone;
7.1.11. to cooperate closely with the board of investors of the free zone and the private sector.
7.2. Governor may delegate the function specified in 7.1.3 of this law to a business entity under a contract.
7.3. Governor shall render decrees on the matters delegated to him/her in compliance with the law. In case of conflict with law of a Governor’s decree either the Governor himself/herself or the Prime Minister shall rescind it.
Article 8. General Manager of a Free Zone
8.1. General Manager of a free zone shall be an official delegated with the functions to exercise economic management of a free zone.
8.2. General Manager of a free zone shall be responsible for social, cultural, utility services, town planning and land management of the free zone, and shall implement them on the basis of contracts with the local administrative body and board of investors.
8.3. General manager shall report to the Governor and inform the board of investors as to the following areas:
8.3.1. free zone development program and its implementation;
8.3.2. implementation of investment projects;
8.3.3. selected issues of foreign cooperation of the free zone.
8.4. General manager shall use printed letterhead conforming to an established standard.
Article 9. Specialized Inspection at a Free Zone
9.1. An independent inspection unit shall operate in a free zone. The Government shall determine the limits of number of positions and the organizational structure of the inspection unit depending on the form, location and specifics of activities of the respective free zone.
Article 10. Board of Investors to Free Zone
10.1. A free zone may have a board composed of investor representatives that have Invested in the free zone, which has the purpose in protecting their interests attracting new investment, supporting and promoting the development of the free zone
10.2. Activities of the Board of investors shall be governed by a charter approved at its meeting.
Article 11. Budget of a Free Zone
11.1. A free zone shall have an independent budget.
11.2. A free zone budget shall be approved by the State Ikh Khural as an independent item of the state budget and will be submitted by the Government
11.3. Revenues accruing to a free zone budget shall be derived from the following sources:
11.3.1. income taxes and duties levied on the business entities, organizations and citizens in the free zone;
11.3.2. use of natural resources, rentals for the lease of state-owned buildings and facilities, land fees, and service fees;
11.3.3. state and local budget allocations to the free zone budget, as provided for in the establishment of the free zone
11.3.4. donations and aid from the business entities, organizations and citizens;
11.3.5. other revenues of the free zone budget.
11.4. A free zone budget shall be spent to finance the following expenditures:
11.4.1. operational costs;
11.4.2. costs of services to be provided;
11.4.3. expenses of border guards of the free zone;
11.4.4. inspection unit expenses.
11.5. Governor shall be the executor of the free zone general budget.
Article 12. Relationships of the Free Zone Governor with the local Khural of Citizens’ Representatives and with the Governor
12.1. Governor of a free zone shall render assistance to the respective local Khural of Citizens’ Representatives and Governor in exercising the powers conferred by law, and cooperate in the following areas:
12.1.1. regulation of civil registration and migration;
12.1.2. assistance in the improvement of local social, cultural and utility services;
12.1.3. improvement of employment and living standards of the local population;
12.1.4. allocation of specified portions of land fees, and making other payments to the local budget in the amounts set by the Government;
12.1.5. proper use and protection of land, its resources, objects of historical and cultural heritage;
12.1.6. joint implementation of industrial infrastructure development projects that are of importance to the free zone, the aimag or local community.
BUSINESS ACTIVITIES IN THE FREE ZONE
Article 13. Registration of Business Entities at Free Zones
13.1. Business entities to operate in a free zone shall meet the following requirements:
13.1.1. trading, production and services to engage in within the free zone, and eligible for tax incentives, shall match the form and areas of activities of the free zone;
13.1.2. trading, production and services to engage in within the free zone shall apply advanced methods and technologies meeting national and international standards;
13.1.3. have an environmental impact assessment conducted and an opinion rendered.
13.2. A business entity to operate in a free zone shall submit to the Office of the free zone Governor the following documents for registration:
13.2.1. an application by an authorized person specifying the form of business organization, name, location, nationality, type, form, amount and the area of investment, business to engage in, term of the investment project and its stages;
13.2.2. a notarized copy of the business entity’s state registration certificate in the case that the founder is a legal person;
13.2.3. a notarized copy of the citizen identification card and a brief autobiography in case the founder is a natural person;
13.2.4. where necessary, a permit for a specific type of business activity;
13.2.5. charter and agreement;
13.2.6. name permission in case of the founding a new business entity.
13.3. If the application meets the requirements set forth in law, the free zone Governor shall register the given business entity in the state registry, and issue a certificate within 5 business days from receipt.
Article 14. Powers of the Governor with Respect to the Registration of Business Entities
14.1. Free zone Governor shall exercise the following powers with respect to the registration of business entities:
14.1.1. to examine whether the business entity is established in accordance with the procedures prescribed by law;
14.1.2. to cancel the state registration in the case that the business entity fails to commence production or services as provided in its charter, or preparatory works within a year from registration; or if production or services commenced have been interrupted for more than 12 consecutive months after such commencement;
14.1.3. to refuse to issue a certificate on the following grounds:
a) failure to approve the charter and agreement according to the procedure prescribed by law;
b) business purpose does not match the given free zone form;
c) business name is identical to one already registered;
d) founder- natural person. has no legal capacity.
Article 15. Business Activities at Free Zone
15.1. Business activities specified in Article 3 of this law shall be allowed in free zones. Irrespective of the free zone form the production, social and market infrastructure activities of all types may be conducted in free zones.
15.2. The State Ikh Khural shall decide matters of engaging in the business activities at free zone otherwise prohibited by law.
Article 16. Land Relationships
16.1. The Government, in consultation with the respective aimag Khural of Citizens’ Representatives shall submit to the State Ikh Khural for approval a proposal for the size of land to be allocated to a free zone, and its boundaries.
16.2. Governor of a free zone shall render decisions permitting citizens, legal persons and organizations to possess and use land, to which effect the Office of the Governor shall enter into agreements with the land possessors and users. The decision shall specify the size of the land and the duration of land possession or use.
16.3. Government may set land fees which shall – this is a standard legal language be based on the land base value, and the size of the plot and type of business activity.
Article 17. Tax Assessment and Tax Exemption at Free Zone
17.1. The following taxes and exemptions shall apply to the goods entering a free zone:
17.1.1. no import, customs, excise and added value taxes shall be assessed on goods imported into a free zone from abroad;
17.1.2. no export customs duty shall be assessed on goods entering a free zone that were imported to the customs territory of Mongolia and on which import, excise and value added taxes are already paid;
17.1.3. if Mongolian goods entering a free zone are subject to export customs duty, such duty shall be assessed but the value added tax shall be returned.
17.2. The following taxes shall be assessed or exempted on the goods leaving a free zone:
17.2.1. import customs duty, value added and excise taxes shall be assessed on goods entering the customs territory from a free zone;
17.2.2. goods specified in 17.1.2 of this law shall be exempted from import customs duty, value added and excise taxes when entering the customs territory from a free zone;
17.2.3. neither import customs duty or the value added tax shall be assessed on Mongolian goods returning from a free zone to the customs territory. In such cases, export customs duty shall be returned, but value added tax shall be
17.2.4. no export customs duty, excise or value added taxes shall be assessed on goods being exported abroad from the free zone, unless export customs duty is specifically levied by law.
17.3. Matters of granting tax relief and exemptions, other than those specified in 17.1 and 17.2 of this law, shall be regulated by law taking into account the location and form of the free zone.
17.4. Domestic and foreign legal and natural persons who have land use or possession agreements concluded within a free zone may be granted relief or exemption from land fees for a specified period depending upon their performance of
obligations to use, possess and protect land yields.
17.5. The State Ikh Khural shall decide the duration and the percentage of relief or exemption from land fees, upon recommendation by the Government.
Article 18. Guarding and Control of Entry to Free Zones
18.1. Free zones shall have the status of a state facility of special importance.
18.2. Internal troops shall exercise the duty of protecting free zone borders, and controlling entry to its territory.
CHAIRMAN OF THE
STATE IKH KHURAL