The new law on foreign investment, passed by Parliament at its special session, becomes effective on November 1. Aimed at reviving foreign investment by easing restrictions in key sectors such as mining and by providing greater certainty on the taxes to be paid, the new regulations cancel two previous laws, including one that imposed restrictions on foreign investments in strategic sectors, which was passed after state-owned Aluminum Corp of China (Chalco) made a bid to take control of Mongolia-focused coal miner SouthGobi Resources in 2012.
Investors and analysts have said the new law is a step in the right direction following more than a year of uncertainty over investment rules, which many have blamed for a slump of 43 per cent in overseas investment in the first half of 2013, on an annualised basis. The new law does away with the need for private companies to seek government approval to invest in the so-called strategic areas of mining, telecommunications and banking. However, companies that are 50% or more state-owned will need clearance from a new agency.
The law also ensures investors “stability” for five to 22 years on value added tax, corporate income tax, mining royalties and customs duties, effectively meaning there will be no change in tax rates in that period. It also protects investors from expropriation, allows profits to be taken out of the country, and reaffirms the right to arbitration.