Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

MONGOLIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of January 31, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: February 1, 1996.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Restrictions are imposed on certain transactions with the former Republic of Serbia and Montenegro.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Mongolia is the Mongolian togrog.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementThe official (reference) exchange rate of the togrog against the dollar is set daily by the Bank of Mongolia (BOM) as the daily average of the buying and selling rates of transactions among participants in the interbank foreign exchange market. The BOM reserves the right to intervene in the foreign exchange market using the dollar as the principal intervention currency. Effective June 1, 2006, reflecting the stability of the togrog exchange rate owing to BOM interventions, the de facto exchange rate arrangement of Mongolia was reclassified to a conventional pegged arrangement from managed floating with no predetermined path for the exchange rate.
The official exchange rate is applied to customs valuation and public sector imports and service payments, including debt service, and to trade and service transactions conducted under bilateral payments arrangements. All other transactions, including sales of retained foreign exchange by public sector enterprises, take place through the interbank market. Exchange rates for other convertible currencies are calculated on the basis of the cross rates against the dollar in international markets.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketBanks are granted a supplementary foreign exchange settlement license from the BOM for engaging in forward exchange transactions.
References to legal instruments and hyperlinksn.a.
Arrangements for Payments and Receipts
Prescription of currency requirementsWithin the territory of Mongolia, all settlements, advertisements, setting of prices, and tariffs must be made in togrogs.
Controls on the use of domestic currencyn.a.
Use of foreign exchange among residentsYes.
Payments arrangements
Bilateral payments arrangements
InoperativeThere are outstanding balances under the clearing arrangement with the Russian Federation and under bilateral trade arrangements with the Islamic Republic of Afghanistan, China, the Republic of Montenegro, and the Republic of Serbia.
Clearing agreementsMongolia maintains a bilateral clearing agreement with the Democratic People’s Republic of Korea.
Administration of controlInternational transactions are governed by the Foreign Exchange Law.
Payments arrears
OfficialSome arrears are still owed to Bulgaria, China, Romania, and the Russian Federation.
Controls on trade in gold (coins and/or bullion)
On external tradeEffective July 31, 2006, gold mining companies do not have to register their gold exports with the BOM or a commercial bank.
Controls on exports and imports of banknotes
On exports
Domestic currencyExportation of domestic banknotes is prohibited.
Foreign currencyThe source of foreign currency must be documented.
On imports
Domestic currencyImportation of domestic banknotes is prohibited.
References to legal instruments and hyperlinksn.a.
Resident Accounts
Foreign exchange accounts permittedAccounts may be held at authorized banks; they may be credited with retained export earnings and foreign exchange transferred from abroad, and the balances may be used for any purpose without restriction.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyYes.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedInclusion in the State Registry is required.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
References to legal instruments and hyperlinksn.a.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measures
Negative listImports of drugs, alcohol, materials that encourage or depict violence or pornography, and items that could cause environmental damage are banned.
Open general licensesA special permit is required for imports of historical artifacts, precious metals, weapons, radioactive materials, ferrous and nonferrous metals, and goods and services requiring licenses under international contracts and agreements.
Other nontariff measuresYes.
Import taxes and/or tariffsA uniform import duty of 5% applies. Effective January 1, 2007, a uniform VAT of 10% (previously, 15%) is levied on imports of most goods. Specific excise taxes are levied on imports of alcohol, cigarettes, tobacco and tobacco products, passenger cars, and petroleum products.
State import monopolyNo.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licenses
Without quotasA special permit is required for exports of historical artifacts, precious metals, weapons, radioactive materials, ferrous and nonferrous metals, and goods and services requiring licenses under international contracts and agreements.
With quotasYes.
Export taxesExport taxes apply to the export of nonferrous and scrap metals, raw cashmere, raw camel wool, and lumber and other wood products.
Other export taxesYes.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsYes.
Repatriation requirementsNo.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsSecurities may be issued only by government institutions on the approval of the Great Hural or by companies registered in Mongolia.
It is prohibited to lend securities. Any person owning 5% or more of the total shares of any company must report that information to the Securities Committee of the Great Hural within five days after acquisition. Any person who intends to own, directly or indirectly, 20% or more of the total shares of any company must make a tender in accordance with the Securities Law of Mongolia.
Sale or issue locally by nonresidentsThe issue of capital market securities is prohibited.
Bonds or other debt securities
Purchase locally by nonresidentsRegistration with the Mongolian Stock Exchange is required.
Sale or issue locally by nonresidentsn.r.
Purchase abroad by residentsn.r.
Sale or issue abroad by residentsn.r.
On money market instruments
Sale or issue locally by nonresidentsThe issue of money market instruments is prohibited.
On collective investment securities
Sale or issue locally by nonresidentsThe issue of collective investment securities is prohibited.
Controls on derivatives and other instruments
Sale or issue locally by nonresidentsThe issue of derivatives and other instruments is prohibited.
Controls on credit operations
Commercial credits
By residents to nonresidentsRegistration with the MOF is required.
To residents from nonresidentsRegistration with the BOM is required.
Financial credits
By residents to nonresidentsRegistration with the MOF is required.
To residents from nonresidentsRegistration with the BOM is required.
Controls on direct investment
Outward direct investmentn.r.
Inward direct investmentInvestment by private corporations is encouraged, particularly in projects involving export promotion, the use of advanced technology, and the exploitation of natural resources. Effective January 1, 2007, the base rate of the profit tax is 10%, and a 25% income tax is levied on companies with revenue of Tog 3 billion or more. Previously, the maximum profit tax rate was 30%, and foreign investors were exempt from the tax for 5 to 10 years, depending on the sector and export performance. Any person who intends to own, directly or indirectly, 20% or more of the total shares of any company must make a tender in accordance with the Securities Law of Mongolia.
Effective, January 1, 2007, tax holidays for new foreign investors are eliminated.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase abroad by residentsInclusion in the State Real Estate Registry is required.
Purchase locally by nonresidentsInclusion in the State Real Estate Registry is required.
Controls on personal capital transactions
LoansRegistration with the BOM and the MOF is required.
Gifts, endowments, inheritances, and legaciesGifts, endowments, inheritances, and legacies involving antiques must be registered with the appropriate state administrative authority.
By residents to nonresidentsYes.
To residents from nonresidentsn.r.
Settlements of debts abroad by immigrantsn.a.
Transfer of assetsn.a.
References to legal instruments and hyperlinksn.a.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Borrowing abroadRegistration with the BOM is required.
Maintenance of accounts abroadBOM permission is required.
Lending to nonresidents (financial or commercial credits)Banks are required to obtain a supplementary foreign exchange settlement license to engage in these transactions.
Lending locally in foreign exchangeYes.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsThere is a 50% cap on the share of the reserve requirement that may be met by cash in vault, and on the symmetrical treatment of domestic and foreign currency deposits in meeting reserve requirements.
Investment regulations
Abroad by banksBanks are required to obtain a supplementary foreign exchange settlement license to engage in these transactions.
Open foreign exchange position limitsThe limits are 15% of capital base for the net position in a single currency and 40% of capital base for the total net position in all currencies.
Provisions specific to institutional investors
Pension fundsn.a.
Investment firms and collective investment fundsn.a.
References to legal instruments and hyperlinksn.a.
Changes during 2006
Exchange arrangementJune 1. The exchange rate arrangement was reclassified to the category conventional pegged arrangement from the category managed floating with no predetermined path for the exchange rate.
Arrangements for payments and receiptsJuly 31. Gold mining companies were not required to register their exports with the BOM or a commercial bank.
Changes during 2007
Imports and import paymentsJanuary 1. The VAT levied on imports of most goods was reduced to 10% from 15%.
Capital transactions
Controls on direct investmentJanuary 1. Tax holidays for new foreign investors were eliminated.
January 1. The base rate of the profit tax was set at 10%, and a 25% income tax was levied on companies with revenue of Tog 3 billion or more. Previously, the maximum profit tax rate was 30%.

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