92088 Doing Business 2015 Mongolia Economy Profile 2015 Mongolia Doing Business 2015 Mongolia 2 © 2014 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 17 16 15 14 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2015 Mongolia 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 6 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 31 Registering property .................................................................................................................. 38 Getting credit .............................................................................................................................. 44 Protecting minority investors ................................................................................................... 51 Paying taxes ................................................................................................................................ 60 Trading across borders .............................................................................................................. 65 Enforcing contracts .................................................................................................................... 69 Resolving insolvency .................................................................................................................. 75 Labor market regulation ........................................................................................................... 78 Distance to frontier and ease of doing business ranking ...................................................... 85 Resources on the Doing Business website .............................................................................. 88 Doing Business 2015 Mongolia 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is 1, 2014 (except for the paying taxes indicators, which for a local entrepreneur to open and run a small to cover the period January–December 2013). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, getting trading across borders and getting electricity), the credit, protecting minority investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and labor market regulation. macroeconomic conditions or the underlying strength of In a series of annual reports Doing Business presents institutions—are not directly studied by Doing Business. quantitative indicators on business regulations and the The indicators refer to a specific type of business, protection of property rights that can be compared generally a local limited liability company operating in across 189 economies, from Afghanistan to Zimbabwe, the largest business city. Because standard assumptions over time. The data set covers 47 economies in Sub- are used in the data collection, comparisons and Saharan Africa, 32 in Latin America and the Caribbean, 25 benchmarks are valid across economies. The data not in East Asia and the Pacific, 26 in Eastern Europe and only highlight the extent of obstacles to doing business; Central Asia, 20 in the Middle East and North Africa and they also help identify the source of those obstacles, 8 in South Asia, as well as 31 OECD high-income supporting policy makers in designing regulatory reform. economies. The indicators are used to analyze economic More information is available in the full report. Doing outcomes and identify what reforms have worked, where Business 2015 presents the indicators, analyzes their and why. relationship with economic outcomes and presents This economy profile presents the Doing Business business regulatory reforms. The data, along with indicators for Mongolia. To allow useful comparison, it information on ordering Doing Business 2015, are also provides data for other selected economies available on the Doing Business website at (comparator economies) for each indicator. The data in http://www.doingbusiness.org. this report are current as of June Doing Business 2015 Mongolia 5 CHANGES IN DOING BUSINESS 2015 As part of a 2-year update in methodology, Doing Finally, the name of the employing workers indicator set Business 2015 incorporates 7 important changes. First, has been changed to labor market regulation, and the the ease of doing business ranking as well as all topic- scope of this indicator set has also been changed. The level rankings are now computed on the basis of indicators now focus on labor market regulation distance to frontier scores (see the chapter on the applying to the retail sector rather than the distance to frontier and ease of doing business ranking). manufacturing sector, and their coverage has been Second, for the 11 economies with a population of more expanded to include regulations on labor disputes and than 100 million, data for a second city have been added on benefits provided to workers. The labor market to the data set and the ranking calculation. These regulation indicators continue to be excluded from the economies are Bangladesh, Brazil, China, India, aggregate distance to frontier score and ranking on the Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian ease of doing business. Federation and the United States. Third, for getting Beyond these changes there are 3 other updates in credit, the methodology has been revised for both the methodology. For paying taxes, the financial statement strength of legal rights index and the depth of credit variables have been updated to be proportional to 2012 information index. The number of points has been income per capita; previously they were proportional to increased in both indices, from 10 to 12 for the strength 2005 income per capita. For enforcing contracts, the of legal rights index and from 6 to 8 for the depth of value of the claim is now set at twice the income per credit information index. In addition, only credit bureaus capita or $5,000, whichever is greater. For dealing with and registries that cover at least 5% of the adult construction permits, the cost of construction is now set population can receive a score on the depth of credit at 50 times income per capita (before, the cost was information index. assessed by the Doing Business respondents). In addition, Fourth, the name of the protecting investors indicator set this indicator set no longer includes the procedures for has been changed to protecting minority investors to obtaining a landline telephone connection. better reflect its scope—and the scope of the indicator For more details on the changes, see the “What is set has been expanded to include shareholders’ rights in changing in Doing Business?” chapter starting on page corporate governance beyond related-party transactions. 24 of the Doing Business 2015 report. For more details Fifth, the resolving insolvency indicator set has been on the data and methodology, please see the “Data expanded to include an index measuring the strength of Notes” chapter starting on page 114 of the Doing the legal framework for insolvency. Sixth, the calculation Business 2015 report. For more details on the distance to of the distance to frontier score for paying taxes has frontier metric, please see the “Distance to frontier and been changed. The total tax rate component now enters ease of doing business ranking” chapter in this profile. the score in a nonlinear fashion, in an approach different from that used for all other indicators (see the chapter on the distance to frontier and ease of doing business ranking). Doing Business 2015 Mongolia 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: East Asia & Pacific based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Lower middle income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. This Population: 2,839,073 year's report presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 3,770 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier (DTF) scores. DB2015 rank: 72 The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute DB2014 rank: 70* distance to the best performance in each Doing Business Change in rank: -2 indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the DB 2015 DTF: 65 worst performance and 100 the frontier. (See the chapter on the distance to frontier and ease of doing business). DB 2014 DTF: 64.4 The 10 topics included in the ranking in Doing Business 2015: starting a business, dealing with construction Change in DTF: 0.6 permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading * DB2014 ranking shown is not last year’s published across borders, enforcing contracts and resolving ranking but a comparable ranking for DB2014 that insolvency. The labor market regulation indicators captures the effects of such factors as data (formerly employing workers) are not included in this corrections and the changes in methodology. See year’s aggregate ease of doing business ranking, but the the data notes starting on page 114 of the Doing data are presented in this year’s economy profile. Business 2015 report for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2015 Mongolia THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2015 Mongolia THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Mongolia and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Mongolia 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Mongolia (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Mongolia (Scale: Score 0 center, Score 100 outer edge) Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Mongolia 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business tells Doing Business introduced the distance to frontier score. This only part of the story, so do changes in that ranking. Yearly measure shows how far on average an economy is from the movements in rankings can provide some indication of best performance achieved by any economy on each Doing changes in an economy’s regulatory environment for firms, Business indicator. but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed in over time—how far it has moved toward (or away from) the different areas. To aid in assessing such changes, most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Mongolia come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2010, except for getting credit, paying taxes, protecting minority investors and resolving insolvency which had methodology changes in 2014 and thus are only comparable to 2013. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2015 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2015 Mongolia 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Mongolia Best performer globally Taiwan, China DB2015 Korea, Rep. DB2015 Kazakhstan DB2015 Russian Federation Mongolia DB2015 Mongolia DB2014 Indicator Japan DB2015 China DB2015 DB2015 DB2015 Starting a Business 42 38 128 83 55 17 34 15 New Zealand (1) (rank) Starting a Business (DTF 91.33 91.29 77.43 86.21 90.19 94.36 92.17 94.39 New Zealand (99.96) Score) Procedures (number) 5.0 5.0 11.0 8.0 6.0 3.0 4.4 3.0 New Zealand (1.0)* Time (days) 11.0 11.0 31.4 10.7 10.0 4.0 11.2 10.0 New Zealand (0.5) Cost (% of income per 1.2 1.5 0.9 7.5 0.5 14.5 1.2 2.2 Slovenia (0.0) capita) Paid-in min. capital (% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 74 75 179 83 154 12 156 11 China (1) (rank) Dealing with Hong Kong SAR, Construction Permits 74.62 74.61 43.75 73.30 58.39 85.89 56.70 86.20 China (95.53) (DTF Score) Doing Business 2015 Mongolia 12 Best performer globally Taiwan, China DB2015 Korea, Rep. DB2015 Kazakhstan DB2015 Russian Federation Mongolia DB2015 Mongolia DB2014 Indicator Japan DB2015 China DB2015 DB2015 DB2015 Hong Kong SAR, Procedures (number) 16.0 16.0 22.0 12.0 25.0 10.0 19.8 10.0 China (5.0) Time (days) 137.0 137.0 244.3 197.0 156.0 29.0 238.4 93.0 Singapore (26.0) Cost (% of warehouse 0.0 0.0 7.6 0.6 1.5 4.3 1.9 0.4 Qatar (0.0)* value) Getting Electricity 142 143 124 28 97 1 143 2 Korea, Rep. (1) (rank) Getting Electricity (DTF 60.91 60.42 66.35 86.51 72.96 99.83 60.89 98.94 Korea, Rep. (99.83) Score) Procedures (number) 8.0 8.0 5.5 3.4 6.0 3.0 5.6 3.0 12 Economies (3.0)* Time (days) 79.0 79.0 143.2 97.7 88.0 18.0 179.1 24.0 Korea, Rep. (18.0)* Cost (% of income per 600.6 719.9 459.4 0.0 56.6 41.1 321.0 45.7 Japan (0.0) capita) Registering Property 30 31 37 73 14 79 12 40 Georgia (1) (rank) Registering Property 82.76 82.72 80.67 71.33 89.83 70.99 91.27 80.19 Georgia (99.88) (DTF Score) Procedures (number) 5.0 5.0 4.0 6.0 4.0 7.0 3.0 3.0 4 Economies (1.0)* Time (days) 10.5 10.5 19.4 13.0 11.0 7.0 19.0 4.0 3 Economies (1.0)* Cost (% of property 2.1 2.1 3.6 5.8 0.1 5.1 0.1 6.2 4 Economies (0.0)* value) Getting Credit (rank) 61 55 71 71 71 36 61 52 New Zealand (1) Getting Credit (DTF 55.00 55.00 50.00 50.00 50.00 65.00 55.00 60.00 New Zealand (100) Score) Strength of legal rights 5 5 4 4 3 5 4 4 3 Economies (12)* index (0-12) Doing Business 2015 Mongolia 13 Best performer globally Taiwan, China DB2015 Korea, Rep. DB2015 Kazakhstan DB2015 Russian Federation Mongolia DB2015 Mongolia DB2014 Indicator Japan DB2015 China DB2015 DB2015 DB2015 Depth of credit 6 6 6 6 7 8 7 8 23 Economies (8)* information index (0-8) Credit registry coverage 32.7 58.3 33.2 0.0 0.0 0.0 0.0 0.0 Portugal (100.0) (% of adults) Credit bureau coverage 0.0 0.0 0.0 100.0 51.7 100.0 64.6 87.9 23 Economies (100.0)* (% of adults) Protecting Minority 17 21 132 35 25 21 100 30 New Zealand (1) Investors (rank) Protecting Minority 67.50 65.83 45.00 62.50 65.83 66.67 50.83 64.17 New Zealand (81.67) Investors (DTF Score) Extent of conflict of interest regulation 7.0 6.7 5.0 7.0 6.7 7.0 5.0 6.7 Singapore (9.3)* index (0-10) Extent of shareholder governance index (0- 6.5 6.5 4.0 5.5 6.5 6.3 5.2 6.2 France (7.8)* 10) Strength of minority investor protection 6.8 6.6 4.5 6.3 6.6 6.7 5.1 6.4 New Zealand (8.2) index (0-10) United Arab Emirates Paying Taxes (rank) 84 100 120 122 17 25 49 37 (1)* Paying Taxes (DTF United Arab Emirates 73.79 71.52 67.44 67.19 90.04 86.09 80.63 82.90 Score) (99.44)* Payments (number per Hong Kong SAR, 41.0 41.0 7.0 14.0 6.0 10.0 7.0 11.0 year) China (3.0)* Time (hours per year) 148.0 192.0 261.0 330.0 188.0 187.0 168.0 221.0 Luxembourg (55.0) Trading Across Borders 173 175 98 20 185 3 155 32 Singapore (1) (rank) Trading Across Borders 30.18 27.84 71.68 87.23 7.87 93.45 53.58 84.38 Singapore (96.47) Doing Business 2015 Mongolia 14 Best performer globally Taiwan, China DB2015 Korea, Rep. DB2015 Kazakhstan DB2015 Russian Federation Mongolia DB2015 Mongolia DB2014 Indicator Japan DB2015 China DB2015 DB2015 DB2015 (DTF Score) Documents to export 11 11 8 3 10 3 9 5 Ireland (2)* (number) Time to export (days) 44.0 44.0 21.0 11.0 79.0 8.0 21.1 10.0 5 Economies (6.0)* Cost to export (US$ per 2,745.0 2,745.0 823.0 829.3 5,285.0 670.0 2,400.5 655.0 Timor-Leste (410.0) container) Cost to export (deflated 2,745.0 3,088.5 823.0 829.3 5,285.0 670.0 2,400.5 655.0 US$ per container) Documents to import 12 12 5 5 12 3 10 6 Ireland (2)* (number) Time to import (days) 45.0 45.0 24.0 11.0 67.0 7.0 19.4 10.0 Singapore (4.0) Cost to import (US$ per 2,950.0 2,950.0 800.0 1,021.3 5,265.0 695.0 2,594.5 720.0 Singapore (440.0) container) Cost to import (deflated 2,950.0 3,319.2 800.0 1,021.3 5,265.0 695.0 2,594.5 720.0 US$ per container) Enforcing Contracts 24 24 35 26 30 4 14 93 Singapore (1) (rank) Enforcing Contracts 70.17 70.17 68.21 69.95 69.33 81.71 75.85 57.75 Singapore (89.54) (DTF Score) Time (days) 374.0 374.0 452.8 360.0 370.0 230.0 267.0 510.0 Singapore (150.0) Cost (% of claim) 30.6 30.6 16.2 32.2 22.0 10.3 14.9 17.7 Iceland (9.0) Procedures (number) 32.0 32.0 37.0 32.0 36.0 32.0 35.0 45.0 Singapore (21.0)* Resolving Insolvency 90 87 53 2 63 5 65 18 Finland (1) (rank) Resolving Insolvency 43.93 44.05 55.31 93.74 51.45 90.06 49.69 78.41 Finland (93.85) (DTF Score) Doing Business 2015 Mongolia 15 Best performer globally Taiwan, China DB2015 Korea, Rep. DB2015 Kazakhstan DB2015 Russian Federation Mongolia DB2015 Mongolia DB2014 Indicator Japan DB2015 China DB2015 DB2015 DB2015 Time (years) 4.0 1.7 0.6 1.5 1.5 2.0 1.9 Ireland (0.4) Cost (% of estate) 15.0 15.0 22.0 3.5 15.0 3.5 9.0 4.0 Norway (1.0) Outcome (0 as piecemeal sale and 1 as 0 0 0 1 0 1 0 1 going concern) Recovery rate (cents on 17.8 18.0 36.0 92.9 43.3 83.1 43.0 81.8 Japan (92.9) the dollar) Strength of insolvency 11.0 11.0 11.5 14.0 9.0 14.5 8.5 11.0 5 Economies (15.0)* framework index (0-16) Note: DB2014 rankings shown are not last year’s published rankings but comparable rankings for DB2014 that capture the effects of s uch factors as data corrections and changes to the methodology. Trading across borders deflated and non-deflated values are identical in DB2015 because it is defined as the base year for the deflator. The best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2015 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2015 Mongolia 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business measures the ease of starting a business in an economy by recording all procedures Each procedure starts on a separate day (2 officially required or commonly done in practice by procedures cannot start on the same day). an entrepreneur to start up and formally operate an Procedures that can be fully completed industrial or commercial business—as well as the online are recorded as ½ day. time and cost required to complete these procedures. Procedure completed once final document is It also records the paid-in minimum capital that received companies must deposit before registration (or within 3 months). The ranking of economies on the No prior contact with officials ease of starting a business is determined by sorting Cost required to complete each procedure their distance to frontier scores for starting a (% of income per capita) business. These scores are the simple average of the distance to frontier scores for each of the component Official costs only, no bribes indicators. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Is a limited liability company, located in the  Has a start-up capital of 10 times income per largest business city and is 100% domestically capita. owned . 1  Has a turnover of at least 100 times income per  Has between 10 and 50 employees. capita.  Conducts general commercial or industrial  Does not qualify for any special benefits. activities.  Does not own real estate. 1 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Mongolia 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Mongolia? largest business city of an economy, except for 11 According to data collected by Doing Business, starting a economies for which the data are a population-weighted business there requires 5.0 procedures, takes 11.0 days, average of the 2 largest business cities. See the chapter costs 1.2% of income per capita and requires paid-in on distance to frontier and ease of doing business minimum capital of 0.0% of income per capita (figure ranking at the end of this profile for more details. 2.1). Most indicator sets refer to a case scenario in the Figure 2.1 What it takes to start a business in Mongolia - Paid-in minimum capital (% of income per capita): 0.0 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Mongolia 18 STARTING A BUSINESS Globally, Mongolia stands at 42 in the ranking of 189 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in Mongolia The rankings for comparator economies and the regional to start a business. Figure 2.2 How Mongolia and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2015 Mongolia 19 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Mongolia (table 2.1)? Table 2.1 How has Mongolia made starting a business easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Mongolia made starting a business easier by eliminating the DB2013 minimum capital requirement for limited liability companies. Mongolia made starting a business easier by eliminating the requirement to get company statutes and charters notarized DB2014 as well as the requirement to register a new company with the local tax office. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Mongolia 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Mongolia is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Limited Liability Company (HHK) firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid in minimum capital requirement: MNT 0 the study of laws, regulations and publicly available City: Ulan Bator information on business entry in that economy. Following is a detailed summary of those procedures, Start-up Capital: 10 times GNI per capita along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Mongolia - Time to No. Procedure Cost to complete complete Check the uniqueness of company name at the State Registration Department of the Tax Authority Once the name has been checked, the State Registration Office gives the entrepreneur a card authorizing him or her to open a bank account within the same office. The entrepreneur opens a temporary account at 1 day MNT 500 1 the bank within the same office and, at the same time, can instruct the bank to make a payment to the account of the Tax Authority. Agency: Legal Entity Registration Office Pay the registration fee The payment is done at a commercial bank. 2 1 day no charge Agency: Bank Register at the State Registration Office, under the General Department of State Taxation By registering at GASR Legal Entity Registration Department, the 3 company also registers for VAT and corporate income tax. The Registry 7 days MNT 22,500 automatically publishes a notice of company formation. The Registry issues a letter of approval to open bank accounts. Starting from Feb. 27 2013, GASR prepares periodic updates of new Doing Business 2015 Mongolia 21 Time to No. Procedure Cost to complete complete registrations and provides them to GDT, which updates its own records without the need for involvement by the new business. The following documents should be submitted at GASR: 1. Application form 2. Company statutes 3. Founders' official decision to start the company in writing 4. Payment slip of the registration fees 5. The name confirmation obtained in the previous visit 6. Financial start-up balance sheet 7. Copies of ID of founders Other related information: • If there are more than one founder, founders’ meeting minutes and decision from the founders meeting are required. • For business activities that require licenses must be registered first and update registration information after obtaining licenses from respective authorities. • If equity is non-financial asset, list of assets (if above Tg 5 million, the asset has to be evaluated by the Property evaluation agency) and if financial, the receipt of cash transfer to legal entity’s bank account is required. • The address for a legal entity can be the founder’s residential address. If the property is in applicant’s possession, a copy of property title and if the property is rented, a lease agreement (a notarized copy is required if the lease is signed with an individual and a signed and stamped copy is required if the lease is signed with a legal entity) is required. • Form UB 03, founder’s decisions, meeting minutes, decisions from founder’s meetings, and articles of association have to be signed by founder(s). • A slip to open a bank account should be picked up from the Service windows # 1 and 2 and open a bank account at any bank. Agency: Legal Entity Registration Office Apply for social security with the Social Insurance Department Registration for social security with the social insurance department at the district is free (There is no regulated fee/payment for registration with social insurance office). Even though it is free of charge, the cost to pay for Social Insurance Certificate (paper certificate) for the legal entity is MNT5000. 4 1 day no charge Now the social security office can get all the information concerning the company directly from the registration office. But one still has to register with the social security office separately so they could issue the social insurance certificate. Agency: District Social Insurance Department Doing Business 2015 Mongolia 22 Time to No. Procedure Cost to complete complete Make a seal The company obtains a company seal from a seal maker. MNT 46,000 rush 5 1 day delivery fee Agency: Sealmaker * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Mongolia 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records the procedures, time and cost Obtaining utility connections for water and for a business in the construction industry to obtain sewerage all the necessary approvals to build a warehouse in Registering the warehouse after its the economy’s largest business city, connect it to completion (if required for use as collateral or basic utilities and register the warehouse so that it for transfer of the warehouse) can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking of economies on the ease of dealing with Does not include time spent gathering construction permits is determined by sorting their information distance to frontier scores for dealing with Each procedure starts on a separate day. construction permits. These scores are the simple Procedures that can be fully completed online average of the distance to frontier scores for each of are recorded as ½ day. the component indicators. Procedure considered completed once final To make the data comparable across economies, document is received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of warehouse value) Official costs only, no bribes  Is a limited liability company operating in the construction business and located in  Will have complete architectural and the largest business city. For the 11 technical plans prepared by a licensed economies with a population of more than architect or engineer. 100 million, data for a second city have  Will be connected to water and sewerage been added. Is domestically owned and (sewage system, septic tank or their operated. equivalent). The connection to each utility  Has 60 builders and other employees. network will be 150 meters (492 feet) long. The warehouse:  Will be used for general storage, such as of books or stationery (not for goods requiring  Is valued at 50 times income per capita. special conditions).  Is a new construction (there was no  Will take 30 weeks to construct (excluding all previous construction on the land). delays due to administrative and regulatory requirements). Doing Business 2015 Mongolia 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build business city of an economy, except for 11 economies for a warehouse in Mongolia? According to data collected which the data are a population-weighted average of the by Doing Business, dealing with construction permits 2 largest business cities. See the chapter on distance to there requires 16.0 procedures, takes 137.0 days and frontier and ease of doing business ranking at the end of costs 0.0% of the warehouse value (figure 3.1). Most this profile for more details. indicator sets refer to a case scenario in the largest Figure 3.1 What it takes to comply with formalities to build a warehouse in Mongolia - Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Mongolia 25 DEALING WITH CONSTRUCTION PERMITS Globally, Mongolia stands at 74 in the ranking of 189 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Mongolia to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Mongolia and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2015 Mongolia 26 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in Mongolia (table 3.1)? Table 3.1 How has Mongolia made dealing with construction permits easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Mongolia made dealing with construction permits easier by eliminating the requirement for a technical review of the DB2014 building plans by the state for low- and medium-risk construction projects. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Mongolia 27 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Mongolia are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated cost of information collected from experts in construction MNT 288,477,694 construction : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Ulan Bator service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and cost, that apply to a company and structure matching the are summarized below. standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Mongolia - Time to No. Procedure Cost to complete complete Request and obtain environmental impact assessment from the City Environmental Office Article 4.6 of the Law on Environmental Impact Assessment, adopted in 1998 and amended on July 20, 2006, provided that authorized investigators will make a general environmental impact assessment within 12 working days. According to article 4.6 of the Law, an expert 28 days no charge 1 will determine whether a project needs a detailed EAI or not. If necessary, the related state authority may extend this time. However, in practice, this takes on average 28 -- 30 days. Agency: City Environmental Office Notarize a copy of the land possession agreement BuildCo already has the land possession agreement from when he/she owned the right to use the land. But the copy of the agreement must 2 be notarized at a notary. 1 day no charge Agency: Land Affairs, Geodesy and Cartography Agency Request and obtain approval of preliminary drawings from the Municipal Planning Agency 3 documents are submitted at the MPA to obtain the approval of the preliminary drawings: an application, notarized copy of the land possession agreement, copy of the cadastral maps. The cadastral maps 14 days no charge 3 for the land are already in the possession of the owner of the land, he does not need to renew it. MPA meets once every 2 weeks to review these requests and approves the preliminary drawings if they are in line with the existing construction norms and regulations. With this approval, contractor can Doing Business 2015 Mongolia 28 Time to No. Procedure Cost to complete complete start preparing the detailed drawings. Agency: Urban Development Department Request and obtain technical conditions for heating BuildCo needs to obtain approval from water, electricity and heating agencies. Each agency takes about 14 days to review the request and the general drawings and issue technical conditions. Obtaining of 4 technical conditions can be done simultaneously. The technical 14 days no charge conditions are issued free of charge. Agency: Ulaanbaatar Dulaany Shugam Suljee JSC * Request and obtain technical conditions for water and sewage BuildCo needs to obtain approval from water, electricity and heating agencies. Each agency takes about 14 days to review the request and the general drawings and issue technical conditions. Obtaining of 5 technical conditions can be done simultaneously. The technical 14 days no charge conditions are issued free of charge. Agency: Water Department of Ulan Bator Municipality Request and obtain approval of final drawings from the Fire Department For a building of less than 3,000 sq. m., this approval is obtained from 6 the city's Fire Department. 1 day no charge Agency: Fire Department Request and obtain approval of final drawings by the Ulan Bator Construction Development Center Before obtaining the permission to start building from MPA, contractor needs to get the final drawings approved by the Construction Development Center where a committee of several certified architects 7 days MNT 60,000 7 review the final drawings and issue an official conclusion that all is set according to building regulations. The also stamp the drawings. Agency: Ulan Bator Municipality Request and obtain a building permit To start the actual construction, BuildCo must obtain a building permit 8 from the Municipal Planning Agency. Once all the necessary approvals 21 days no charge are obtained, the final drawings are submitted back to MPA to obtain the license or right to start construction. Doing Business 2015 Mongolia 29 Time to No. Procedure Cost to complete complete Agency: Ministry of Construction and Town Planning Receive a foundation inspection by the Municipal Planning Agency The Municipal Planning Agency has to conduct an inspection once foundation is laid. This inspection is mandated by the Government Resolution No 151 of December 2012 and is enforced in practice. No 9 fees are charged. For all the inspections the representative of the 1 day no charge construction company should be present on the site. Agency: Municipal Planning Agency Receive inspection during construction from Municipal Planning Agency The Municipal Planning Agency has to conduct an inspection during construction. This inspection is mandated by the Government Resolution No 151 of December 2012 and is enforced in practice. No 1 day no charge 10 fees are charged. For all the inspections the representative of the construction company should be present on the site. Agency: Municipal Planning Agency Request water and sewage connection 11 1 day no charge Agency: Water Authority of Mongolia Receive inspection from the Water Authority 12 1 day no charge Agency: Water Authority of Mongolia Connect to water and sewage services through the Water Authority 13 3 days no charge Agency: Water Authority of Mongolia Request and receive a final inspection from the Technical Committee 14 15 days no charge The final inspection is conducted 14 days after submitting the request to the Technical Committee. Doing Business 2015 Mongolia 30 Time to No. Procedure Cost to complete complete Agency: Technical Committee Obtain approval of the building by the Technical Committee The Technical Committee will review the results of the inspection and will issue its approval or "the official act" after 14 days from the day of the final inspection. The official act would include the signature of all 14 days no charge 15 members of the commission. Agency: Technical Committee Register the building in the Real Estate Registry The Real Estate Registry registers the right of ownership within 14 days of the application date and issues a certificate of ownership. The registration fees to be paid are equal to 0.01% of the value of the real 14 days MNT 28,848 16 property. Agency: Real Estate Registry * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Mongolia 31 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity a customer is always to gain access by obtaining a connection (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. The obtaining final supply ranking of economies on the ease of getting electricity is determined by sorting their distance to Time required to complete each procedure frontier scores for getting electricity. These scores are (calendar days) the simple average of the distance to frontier scores Is at least 1 calendar day for each of the component indicators. To make the data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information  Is owned by a local entrepreneur, located Reflects the time spent in practice, with little in the economy’s largest business city, in follow-up and no prior contact with officials an area where other warehouses are Cost required to complete each procedure located. For the 11 economies with a (% of income per capita) population of more than 100 million, data Official costs only, no bribes for a second city have been added. Excludes value added tax  Is not in a special economic zone where the connection would be eligible for subsidization or faster service.  Is to either the low-voltage or the medium- voltage distribution network and either  Is located in an area with no physical overhead or underground, whichever is more constraints (ie. property not near a railway). common in the area where the warehouse is  Is a new construction being connected to located. Included only negligible length in the electricity for the first time. customer’s private domain.  Is 2 stories, both above ground, with a total  Requires crossing of a 10-meter road but all surface of about 1,300.6 square meters the works are carried out in a public land, so (14,000 square feet), is built on a plot of there is no crossing into other people's 929 square meters (10,000 square feet), is private property. used for storage of refrigerated goods  Involves installing one electricity meter. The The electricity connection: monthly electricity consumption will be 26880 kilowatt hour (kWh). The internal  Is 150 meters long and is a 3-phase, 4-wire electrical wiring has been completed. Y, 140-kilovolt-ampere (kVA) (subscribed capacity) connection. Doing Business 2015 Mongolia 32 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Mongolia? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 8.0 procedures, which the data are a population-weighted average of the takes 79.0 days and costs 600.6% of income per capita 2 largest business cities. See the chapter on distance to (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Mongolia - Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Mongolia 33 GETTING ELECTRICITY Globally, Mongolia stands at 142 in the ranking of 189 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Mongolia to The rankings for comparator economies and the regional connect a warehouse to electricity. Figure 4.2 How Mongolia and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2015 Mongolia 34 GETTING ELECTRICITY Obtaining an electricity connection is essential to enable ensure safety in the connection process while keeping a business to conduct its most basic operations. In many connection costs reasonable, governments around the economies the connection process is complicated by the world have worked to consolidate requirements for multiple laws and regulations involved—covering service obtaining an electricity connection. What reforms in quality, general safety, technical standards, procurement getting electricity has Doing Business recorded in practices and internal wiring installations. In an effort to Mongolia (table 4.1)? Table 4.1 How has Mongolia made getting electricity easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Mongolia made getting electricity easier by increasing the efficiency of the utility’s internal processes, enforcing time DB2014 limits at different stages of the connection process and eliminating the fees for testing the installation. Source: Doing Business database. Doing Business 2015 Mongolia 35 GETTING ELECTRICITY What are the details? The indicators reported here for Mongolia are based on OBTAINING AN ELECTRICITY CONNECTION a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Ulaanbaatar Electricity identified by Doing Business. Data are collected from the Name of utility: Distribution Network distribution utility, then completed and verified by (UBEDN) electricity regulatory agencies and independent professionals such as electrical engineers, electrical City: Ulan Bator contractors and construction companies. The electricity The procedures are those that apply to a warehouse and distribution utility surveyed is the one serving the area electricity connection matching the standard (or areas) in which warehouses are located. If there is a assumptions used by Doing Business in collecting the choice of distribution utilities, the one serving the largest data (see the section in this chapter on what the number of customers is selected. indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Mongolia - Time to No. Procedure Cost to complete complete Apply to Ulaanbaatar Electricity Distribution Network (UBEDN) for an electricity connection and await technical conditions Required documents: application, registration of the company, license of the company, land ownership documents, required load. A 4- or 5- member commission within the UBEDN meets to consider the request. 15 calendar days MNT 156,000 1 Agency: Ulaanbaatar Electricity Distribution Network Authority * Await and obtain an external inspection from UBEDN for preparation of technical conditions The utility has to visit the site to determine the best way to connect the 2 warehouse before the technical conditions can be prepared. 1 calendar day MNT 0 Agency: Ulaanbaatar Electricity Distribution Network Authority Await completion and approval of the project design of the external connection completed by a private project design firm 3 The customer hires a specially licensed project design firm which 22 calendar days MNT 2,500,000 develops design of the external connection. Once the design is completed the project design firm makes an appointment at the utility and takes the design for approval. Doing Business 2015 Mongolia 36 Time to No. Procedure Cost to complete complete In case that the connection crosses a public road, the project design company should also approve the project at the Road Department of Ulaanbaatar City. Agency: Project design firm Obtain an approval from Road Authorities to lay out the cable The subcontractor is in charge of getting excavation permits if the line is crossing public road. In the past few years the most widespread excavation practice for laying the cables in Ulan Bator has been by using a 'shooting technique' whereby a ground puncture is made with a special pneumatic machine that has a different puncture tip depending on the kind of soil. The 5 calendar days MNT 0 4 actual work does not require digging a large trench; it is sufficient to have a small sized rust of about 2-3 sq. meters where the machinery is installed. It will 'shoot' the cable on the needed distance thanks to the compressed air energy. Agency: Road Police and Municipality Await completion of the external connection works by a private electrical contractor. The customer hires a licensed electrical contractor who carries out all the necessary external connection works in according to the approved technical conditions and the project design documentation. Among 30 calendar days USD 20,614.22 5 other tasks, the subcontractor installs a transformer which is required in the assumed case. The electrical contractor also installs the meter. Agency: Electrical Contractor Await external inspection of the completed works by state commission A committee consisting of an employee of the utility and an employee of the department specializing in electrical issues at government organization which includes all inspectorates for various industries visits the site. At this point the electrical contractor presents his/her license for 6 the electrical works and technical reports on the installation ((1) working 4 calendar days MNT 450,000 drawings (showing the electricity connections and cable layouts); (2) a statement of whether there have been any changes from the original drawings submitted; (3) a statement listing all persons that have worked on installing the electrical equipment. The purpose of this statement is to check whether the work has been done by properly licensed electricians; (4) a statement certifying that all technical work complies with safety and technical regulations). Internal wiring is also checked at this point. Doing Business 2015 Mongolia 37 Time to No. Procedure Cost to complete complete Agency: Inspection committee Await for the meter to be sealed by UBEDN When the permission for a power turn on is received, a utility employee comes to the site to seal the meter. 1 calendar day MNT 0 7 Agency: Ulaanbaatar Electricity Distribution Network Authority Customer signs a supply contract for consumption of electricity at UBEDN Once the customer has permission for power turn on, he/she can visit the supply department at the utility and sign a supply contract for 2 calendar days MNT 0 8 consumption of electricity. Agency: Ulaanbaatar Electricity Distribution Network Authority * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2015 Mongolia 38 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. The (calendar days) ranking of economies on the ease of registering Does not include time spent gathering property is determined by sorting their distance to information frontier scores for registering property. These scores are the simple average of the distance to frontier Each procedure starts on a separate day. scores for each of the component indicators. To Procedures that can be fully completed online are recorded as ½ day. make the data comparable across economies, several assumptions about the parties to the Procedure considered completed once final transaction, the property and the procedures are document is received used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure  Are limited liability companies, 100% (% of property value) domestically and privately owned and Official costs only, no bribes perform general commercial activities. No value added or capital gains taxes included  Are located in the economy’s largest business city . 2  Is located in a periurban commercial zone, and no rezoning is required.  Have 50 employees each, all of whom are nationals.  Has no mortgages attached, has been under the same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square  Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000  Is registered in the land registry or cada- square feet). The warehouse is in good stre, or both, and is free of title disputes. condition and complies with all safety standards, building codes and legal  Property will be transferred in its entirety. requirements. There is no heating system. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Mongolia 39 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Mongolia? According to data collected by Doing business city of an economy, except for 11 economies for Business, registering property there requires 5.0 which the data are a population-weighted average of the procedures, takes 10.5 days and costs 2.1% of the 2 largest business cities. See the chapter on distance to property value (figure 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in Mongolia - Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Mongolia 40 REGISTERING PROPERTY Globally, Mongolia stands at 30 in the ranking of 189 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Mongolia to transfer property. Figure 5.2 How Mongolia and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2015 Mongolia 41 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: MNT 288,477,694 notaries and property registries. These procedures are those that apply to a transaction matching the City: Ulan Bator standard assumptions used by Doing Business in collecting the data (see the section in this chapter on The procedures, along with the associated time and what the indicators cover). cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Mongolia Time to No. Procedure Cost to complete complete Obtain a non-encumbrance certificate from the Immovable Property Registration Office The seller obtains, before signing the contract, the mortgage-free certification from the Immovable Property Registration Office. MNT 5, 000 Administrative fees of General Authority for State Registration is (regular) obtained determined by the Government Resolution No. 234 dated September 15, in 3 days, MNT 10, 2010. According to the Government Resolution providing “detailed 1 day 000 1 reference” relating to immovable property the fees are as follows: MNT (expedited)obtaine 5, 000 to obtain a non-encumbrance certificate within 3 days, expedited d in 1 day or 8 service MNT 10, 000 (to obtain a non-encumbrance certificate within 1 day or 8 business hours). business hours Agency: Immovable Property Registration Office Notarization of the contract of purchase Notary fees according to the The contract must be certified by the notary public who is authorized to following operate in the district in which the immovable property is situated. The schedule: Value of contract is prepared by the parties. The authorized representatives of the contract (in MNT): parties must be present at the notary office. In Mongolia, a legal entity Notary fees (in cannot own land, only real estate. Thus calculation shall be made only for MNT) 1.000,001 to the building. As to the land ownership the purchaser after the transfer of 1 day 10.000,000: MNT 2 the title of the immovable property, shall make an application to the Land department of the relevant district to transfer the Land use right to 10,00010.000,001 the purchaser's name. The documentation shall include: • Non- to 25.000,000: encumbrance certificate (obtained in Procedure 1) • Immovable property MNT 25,000 registration certificate (already in possession of seller) • ID card number 25.000,001 to and registration number of citizen or name, address and state 100.000,000: MNT registration number of legal entity who is certifying documents. • 50,000 Permission of citizen, legal entity and authorized organization if required 100.000,001 to by law • Copy of contract • Copy of power of attorney, if required • All 300.000,000: MNT Doing Business 2015 Mongolia 42 Time to No. Procedure Cost to complete complete documents shall be in original or notarized--Notary Law of February 10, 100,000 2011 established that the ID cards and the permission of citizen, legal 300.000,001 to entity and authorized organization do not need to be notarized any 500.000,000: MNT longer. The originals can be shown and the officer or related agencies 200,000500.000,00 will only keep a copy. 1 or above: MNT 300,000 Agency: Notaries Payment of Income or Transfer Tax at a commercial bank Pursuant to Article 21.6 of the Corporate Income Tax Law, the seller shall withhold the tax imposed on income from the sale of immovable property and transfer the withholding to the Budget (relevant local tax authority) within 10 business days upon the sale of the property. Less than a day 2% of property 3 However, in practive, this tax has to be paid and a receipt acknowledging (online value the payment of income tax has to be submitted to the Immovable procedure) Property Rights Registration Office for the Procedure 4. Agency: Commercial Bank Submit application to the Immovable Property Registration Agency Parties submit relevant materials to the Immovable Property Registration Agency. At the desk, the officer will check all documents and if satisfied will receive the application; if not he will note the missing documents and reject the application. The certificate of ownership will be issued within 7 days after the Registration Agency analyzes all the documentation presented, if the normal Procedure is followed but in 1 day if the urgent Procedure is chosen. The documentation shall include: 7 days (regular Standard service • A request for registration (fill an application form) • Original immovable Procedure) or 1 fee MNT 20.000, 4 property registration certificate. • A notarized copy of the contract day (urgent rush delivery fee (obtained in Procedure 2) • Notarized permission of a citizen, legal Procedure) MNT 40.000 entity and authorized organization if required by law • The origial tax paid slip for income taxes paid at the district tax office • Receipt of acknowledgement for the tax payment for immovable property sale as discussed in the Procedure 3. Agency: Immovable Property Registration Office Transfer of the land use right Ownership of the land belongs to the state. It is prohibited to possess land without valid land certificate. Land use certificates can only be MNT 70,000 fee 5 issued to the Citizens of Mongolia and legal entities established 7 days for new certificate organized under the laws of Mongolia. Land authorieis of relevant districts of Ulaanbaatar deal with land management including issuance, renewal and transfer of land use right certificate within their districts. The documentation shall include: • A request for registration from both Doing Business 2015 Mongolia 43 Time to No. Procedure Cost to complete complete parties. • Copy of the immovable property registration certificate. • A notarized copy of the contract (obtained in Procedure 2) • Notarized permission of a citizen, legal entity and authorized organization if required by law • The original tax paid slip for income taxes paid at the district tax office • Receipt acjnowleding the payment of income tax Agency: City Governance Authority * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Mongolia 44 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable Strength of legal rights index (0–12) 3 lenders’ rights to view a potential borrower’s financial history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially Depth of credit information index (0–8) 4 movable property, as security to generate capital— while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2015 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. 3 For the legal rights index, 2 new points are added in Doing Business 2015 for new data collected to assess the overall legal framework for secured transactions and the functioning of the collateral registry. 4 For the credit information index, 2 new points are added in Doing Business 2015 for new data collected on accessing borrowers’ credit information online and availability of credit scores. Doing Business 2015 Mongolia 45 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Mongolia stands at 61 in the ranking of 189 and bankruptcy laws in Mongolia facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 6 on the depth of rankings for comparator economies and the regional credit information index and a score of 5 on the strength average ranking provide other useful information for of legal rights index (see the summary of scoring at the assessing how well regulations and institutions in end of this chapter for details). Higher scores indicate Mongolia support lending and borrowing. more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Mongolia and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2015 Mongolia 46 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Mongolia and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Source: Doing Business database. Doing Business 2015 Mongolia 47 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Mongolia (table 6.1)? Table 6.1 How has Mongolia made getting credit easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Mongolia improved its credit information system by eliminating DB2012 the minimum threshold for loans included in the database. Mongolia improved access to credit information by adopting a DB2013 law that provides for licensing of credit reference bureaus and guarantees borrowers’ right to inspect their personal data. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Mongolia 48 GETTING CREDIT What are the details? The getting credit indicators reported here for Mongolia The data on the legal rights of borrowers and lenders are are based on detailed information collected in that gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as well collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Strength of legal rights index (0–12) Index score: 5 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable No assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically Yes to the products, proceeds or replacements of the original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is unified geographically and by asset type, with an electronic database indexed by debtor's No name? Does a notice-based collateral registry exist in which all functional equivalents can be No registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and No searches can be performed online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor No defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is No liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by No providing clear grounds for relief from the stay and/or sets a time limit for it? Doing Business 2015 Mongolia 49 Strength of legal rights index (0–12) Index score: 5 Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through Yes public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 6 Are data on both firms and individuals distributed? No Yes 1 Are both positive and negative credit data distributed? No Yes 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - No No 0 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years of negative data or erase data on No Yes 1 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per No Yes 1 capita distributed? By law, do borrowers have the right to access their No Yes 1 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an No Yes 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions No No 0 assess the creditworthiness of borrowers? Note: Prior to Doing Business 2015, the depth of credit information index covered only the first 6 features listed above. An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 0 11,621 Number of individuals 0 628,711 Percent of total 0.0 32.7 Doing Business 2015 Mongolia 50 Source: Doing Business database. Doing Business 2015 Mongolia 51 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions ; Disclosure requirements for related-party transactions What do the indicators cover? Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold interested indicators and shareholders’ rights in corporate directors liable for prejudicial related-party transactions; governance through another. The ranking of economies Available legal remedies (damages, disgorgement of on the strength of minority investor protections is profits, fines, imprisonment, rescission of the transaction) determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the extent of shareholder governance index. To make the Extent of conflict of interest regulation index data comparable across economies, a case study uses (0–10) several assumptions about the business and the Sum of the extent of disclosure, extent of director liability transaction. and ease of shareholder indices, divided by 3 The business (Buyer): Extent of shareholder rights index (0-10.5)  Is a publicly traded corporation listed on the Shareholders’ rights and role in major corporate decisions economy’s most important stock exchange (or at least a large private company with Strength of governance structure index (0- multiple shareholders). 10.5) Governance safeguards protecting shareholders from  Has a board of directors and a chief executive undue board control and entrenchment officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Extent of corporate transparency index (0-9) specifically required by law. Corporate transparency on ownership stakes, The transaction involves the following details: compensation, audits and financial prospects  Mr. James, a director and the majority Extent of shareholder governance index shareholder of the company, proposes that (0–10) the company purchase used trucks from Sum of the extent of shareholders rights, strength of another company he owns. governance structure and extent of corporate transparency indices, divided by 3  The price is higher than the going price for used trucks, but the transaction goes forward. Strength of investor protection index (0–10)  All required approvals are obtained, and all Simple average of the extent of conflict of interest required disclosures made, though the regulation and extent of shareholder governance indices transaction is prejudicial to Buyer.  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2015 Mongolia 52 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Mongolia? The economy has a score of not measure all aspects related to the protection of 6.8 on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Mongolia stands at 17 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Mongolia and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2015 Mongolia 53 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the protecting indices for Mongolia in 2014. A summary of scoring for minority investors indicators into context is to see where the protecting minority investors indicators at the end of the economy stands in the distribution of scores across this chapter provides details on how the indices were comparator economies. Figures 7.2 through 7.7 highlight calculated. the scores on the various minority investor protection Figure 7.2 How extensive are disclosure Figure 7.3 How extensive is the liability regime for directors? requirements? Extent of director liability index (0-10) Extent of disclosure index (0-10) Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2015 Mongolia 54 PROTECTING MINORITY INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Ease of shareholder suits index (0-10) Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2015 Mongolia 55 PROTECTING MINORITY INVESTORS Figure 7.5 How extensive are shareholder rights? Extent of shareholder rights index (0-10.5) Note: The higher the score, the stronger the protections. Source: Doing Business database. Figure 7.6 How strong is the governance structure? Strength of governance structure index (0-10.5) Note: Higher scores indicate more stringent governance structure requirements. Source: Doing Business database. Doing Business 2015 Mongolia 56 Figure 7.7 How extensive is corporate transparency? Extent of corporate transparency index (0-9) Note: Higher scores indicate greater transparency. Source: Doing Business database. Doing Business 2015 Mongolia 57 PROTECTING MINORITY INVESTORS Economies with the strongest protections of minority result, reforms to strengthen minority investor investors from self-dealing require detailed disclosure protections may move ahead on different fronts—such and define clear duties for directors. They also have well- as through new or amended company laws, securities functioning courts and up-to-date procedural rules that regulations or civil procedure rules. What minority give minority shareholders the means to prove their case investor protection reforms has Doing Business recorded and obtain a judgment within a reasonable time. As a in Mongolia (table 7.1)? Table 7.1 How has Mongolia strengthened minority investor protections—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Mongolia strengthened investor protections by increasing the DB2013 disclosure requirements for related-party transactions. Mongolia strengthened minority investor protections by introducing a requirement for public joint stock companies to DB2015 publicly disclose related-party transactions within 2 business days. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Mongolia 58 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Mongolia are based on detailed information shareholder rights, governance structure and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2015 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Mongolia. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Mongolia Answer Score Extent of disclosure index (0-10) 6.0 Which corporate body can provide legally sufficient Board of directors excluding 2 approval for the Buyer-Seller transaction? (0-3) interested members Is disclosure by the interested director to the board of Full disclosure of all material facts 2 directors required? (0-2) Is disclosure of the transaction in published periodic filings Disclosure on the transaction only 1 (annual reports) required? (0-2) Is immediate disclosure of the transaction to the public Disclosure on the transaction only 1 and/or shareholders required? (0-2) Must an external body review the terms of the transaction No 0 before it takes place? (0-1) Extent of director liability index (0-10) 8.0 Can shareholders sue directly or derivatively for the damage caused by the Buyer-Seller transaction to the company? (0- Yes 1 1) Can shareholders hold the interested director liable for the Liable if unfair or prejudicial 2 damage caused by the transaction to the company? (0-2) Can shareholders hold members of the approving body liable for the damage cause by the transaction to the Liable if unfair or prejudicial 2 company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder No 0 plaintiff? (0-1) Can both fines and imprisonment be applied against the No 0 interested indrector? (0-1) Can a court void the transaction upon a successful claim by Voidable if unfair or prejducial 2 a shareholder plaintiff? (0-2) Ease of shareholder suits index (0-10) 7.0 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? Yes 1 (0-1) Can the plaintiff obtain any documents from the defendant No 3 Doing Business 2015 Mongolia 59 and witnesses during trial? (0-3) Can the plaintiff request categories of documents from the No 0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and No 1 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if successful 1 the company? (0-2) Strength of minority investor protection index (0-10) 6.8 Extent of conflict of interest regulation index (0-10) 7.0 Extent of shareholder rights index (0-10.5) 7.5 Can shareholders amend company bylaws or statutes with a No 0 simple majority? Can shareholders owning 10% of the company's share Yes 1.5 capital call for an extraordinary meeting of shareholders? Can shareholders remove members of the board of Yes 1.5 directors before the end of their term. Must a company obtain its shareholders’ approval every Yes 1.5 time it issues new shares? Are shareholders automatically granted subscription rights Yes 1.5 on new shares? Must shareholders approve the election and dismissal of the No 0 external auditor? Can shareholders freely trade shares prior to a major Yes 1.5 corporate action or meeting of shareholders? Strength of governance structure index (0-10.5) 5.0 Is the CEO barred from also serving as chair of the board of No 0 directors? Must the board of directors include independent board Yes for listed companies 1 members? Must a company have a separate audit committee? Yes for listed companies 1 Must changes to the voting rights of a series or class of shares be approved only by the holders of the affected No 0 shares? Must a potential acquirer make a tender offer to all Yes 1.5 shareholders upon acquiring 50% of a company? Is cross-shareholding between 2 independent companies No 0 limited to 10% of outstanding shares? Is a subsidiary barred from acquiring shares issued by its Yes 1.5 parent company? Extent of corporate transparency index (0-9) 7.0 Must ownership stakes representing 10% be disclosed? Yes for listed companies 1 Must information about board members’ other directorships as well as basic information on their primary employment Yes for listed companies 1 be disclosed? Must the compensation of individual managers be Yes 1.5 disclosed? Must financial statements contain explanatory notes on significant accounting policies, trends, risks, uncertainties Yes for listed companies 1 and other factors influencing the reporting? Must annual financial statements be audited by an external Yes 1.5 Doing Business 2015 Mongolia 60 auditor? Must audit reports be disclosed to the public? Yes for listed companies 1 Extent of shareholder governance index (0-10) 6.5 Source: Doing Business database. PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2013 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business measures the taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as the Time required to comply with 3 major taxes administrative burden of paying taxes and (hours per year) contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax payable transactions made over the year. Information is also compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if required the simple average of the distance to frontier scores for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to Profit or corporate income tax one of the component indicators, the total tax rate . 5 The financial statement variables have been updated Social contributions and labor taxes paid by to be proportional to 2012 income per capita; the employer previously they were proportional to 2005 income Property and property transfer taxes per capita. To make the data comparable across Dividend, capital gains and financial economies, several assumptions are used. transactions taxes  TaxpayerCo is a medium-size business that Waste collection, vehicle, road and other taxes started operations on January 1, 2012.  Taxes and mandatory contributions include  The business starts from the same financial corporate income tax, turnover tax and all position in each economy. All the taxes labor taxes and contributions paidof by the 5 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power 0.8. The threshold is defined as and mandatory the total contributions tax rate at the 15th percentilepaid during of the company. overall distribution for all years included in the analysis. It is calculated and adjusted on a the yearly basis. second The thresholdyear of is not operation based are recorded. on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set  range Alower at the end ofstandard of deductions the distribution and of tax rates levied on medium-size  Taxes and mandatory contributions are exemptions enterprises in the manufacturing sector as observed through the paying taxes indicators. are also This reduces recorded. the bias in the indicators toward economies that do not need to levyat measured all levels significant government. ofon taxes companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 26.1%. Doing Business 2015 Mongolia 61 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with 2 largest business cities. See the chapter on distance to taxes in Mongolia—and how much do firms pay in taxes? frontier and ease of doing business ranking at the end of On average, firms make 41.0 tax payments a year, spend this profile for more details. 148.0 hours a year filing, preparing and paying taxes and Globally, Mongolia stands at 84 in the ranking of 189 pay total taxes amounting to 24.4% of profit (see the economies on the ease of paying taxes (figure 8.1). The summary at the end of this chapter for details). Most rankings for comparator economies and the regional indicator sets refer to a case scenario in the largest average ranking provide other useful information for business city of an economy, except for 11 economies for assessing the tax compliance burden for businesses in which the data are a population-weighted average of the Mongolia. Figure 8.1 How Mongolia and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2015 Mongolia 62 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue rise. consolidating filings, reducing the frequency of What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Mongolia (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Mongolia made paying taxes easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Mongolia made paying taxes easier for companies by DB2015 introducing an electronic system for filing corporate income tax, VAT and social security contributions. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Mongolia 63 PAYING TAXES What are the details? The indicators reported here for Mongolia are based LOCATION OF STANDARDIZED COMPANY on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Ulan Bator chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Employer paid - Social gross 12 48 11% 12.4 insurance contributions salaries 10% (25% for taxable profit taxable Corporate income tax 12 46 10 exceeding profit 3,000,000,0 00 togrogs) gross sales Property transfer tax 0 paid jointly 0 2% 1.2 price property Property tax 1 0 0.6% - 1% 0.8 value interest included in Tax on interest 0 paid jointly 0 10% 0.3 income other taxes varies up to Vehicle tax 4 0 MNT 0 100,000 Employee paid - Social gross 0 paid jointly 0 10% 0 withheld insurance contributions salaries Doing Business 2015 Mongolia 64 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate value not Value added tax (VAT) 12 54 10% added and 0 included land sale Totals 41.0 148.0 24.4 Source: Doing Business database. Doing Business 2015 Mongolia 65 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from a Customs clearance documents 10% drop in their trading costs than from a similar reduction in the tariffs applied to their products in Port and terminal handling documents global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing a Inland transport and handling standard shipment of goods by sea transport, and the number of documents necessary to complete the Customs clearance and inspections transaction. The indicators cover predefined stages Port and terminal handling such as documentation requirements and procedures Does not include sea transport time at customs and other regulatory agencies as well as at the port. They also cover trade logistics, including Cost required to export and import (US$ per the time and cost of inland transport to the largest container) business city. The ranking of economies on the ease All documentation of trading across borders is determined by sorting their distance to frontier scores for trading across Inland transport and handling borders. These scores are the simple average of the Customs clearance and inspections distance to frontier scores for each of the component Port and terminal handling indicators. To make the data comparable across economies, Doing Business uses several assumptions Official costs only, no bribes about the business and the traded goods. The business:  Is located in the economy’s largest The traded product: business city. For the 11 economies with a population of more than 100 million, data  Is not hazardous nor includes military items. for a second city have been added.  Does not require refrigeration or any other  Is a private, limited liability company, special environment. domestically owned and does not operate  Do not require any special phytosanitary or with special export or import privileges. environmental safety standards other than  Conducts export and import activities, but accepted international standards. does not have any special accreditation  Is one of the economy’s leading export or such as an authorized economic operator import products. status.  Is transported in a dry-cargo, 20-foot full container load. Doing Business 2015 Mongolia 66 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Mongolia? population-weighted average of the 2 largest business According to data collected by Doing Business, exporting cities. See the chapter on distance to frontier and ease of a standard container of goods requires 11 documents, doing business ranking at the end of this profile for more takes 44.0 days and costs $2745.0. Importing the same details. container of goods requires 12 documents, takes 45.0 Globally, Mongolia stands at 173 in the ranking of 189 days and costs $2950.0 (see the summary of four economies on the ease of trading across borders (figure predefined stages and documents at the end of this 9.1). The rankings for comparator economies and the chapter for details). Most indicator sets refer to a case regional average ranking provide other useful scenario in the largest business city of an economy, information for assessing how easy it is for a business in except for 11 economies for which the data are a Mongolia to export and import goods. Figure 9.1 How Mongolia and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2015 Mongolia 67 TRADING ACROSS BORDERS What are the details? The indicators reported here for Mongolia are based LOCATION OF STANDARDIZED COMPANY on a set of specific predefined stages for trading a standard shipment of goods by ocean transport (see the section in this chapter on what the indicators Port Name: Xingang port of Tainjin, China cover). Information on the required documents and the time and cost to complete export and import is City: Ulan Bator collected from local freight forwarders, shipping lines, The predefined stages, and the associated time and cost, customs brokers, port officials and banks. for exporting and importing a standard shipment of goods are listed in the summary below, along with the required documents. Table 9.2 Summary of predefined stages and documents for trading across borders in Mongolia Stages to export Time (days) Cost (US$) Customs clearance and inspections 2 160 Documents preparation 23 145 Inland transportation and handling 14 2,250 Ports and terminal handling 5 190 Totals 44 2,745 Stages to import Time (days) Cost (US$) Customs clearance and inspections 4 150 Documents preparation 23 110 Inland transportation and handling 13 2,500 Ports and terminal handling 5 190 Totals 45 2,950 Doing Business 2015 Mongolia 68 Documents to export Bill of lading Certificate of origin Commercial invoice Contract (between exporter and importer) Customs export declaration Insurance certificate Packing List Proof of Payment of Customs Fees Railway Bill Technical standard/health certificate Transit document (for Chinese customs) Documents to import Bill of lading Certificate of origin Commercial invoice Contract (between exporter and importer) Customs import declaration Insurance certificate Letter of Credit Packing list Proof of payment of customs fees and duties Railway bill (Transport document) Technical standard/health certificate Transit customs declaration (for Chinese customs) Source: Doing Business database. Doing Business 2015 Mongolia 69 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because Procedures to enforce a contract through businesses know they can rely on the courts if a new the courts (number) customer fails to pay. Speedy trials are essential for Steps to file and serve the case small enterprises, which may lack the resources to Steps for trial and judgment stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the judicial system in resolving a commercial dispute before Time to file and serve the case local courts. Following the step-by-step evolution of Time for trial and obtaining judgment a standardized case study, it collects data relating to Time to enforce the judgment the time, cost and procedural complexity of resolving a commercial lawsuit. The ranking on the ease of Cost required to complete procedures (% of enforcing contracts is the simple average of the claim) percentile rankings on its component indicators: Average attorney fees procedures, time and cost. Court costs The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The Enforcement costs case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city. For the 11 economies with a population of more than  The seller requests a pretrial attachment to 100 million, data for a second city have secure the claim. been added.  The dispute on the quality of the goods  The buyer orders custom-made goods, requires an expert opinion. then fails to pay.  The judge decides in favor of the seller; there  The seller sues the buyer before a is no appeal. competent court.  The seller enforces the judgment through a  The value of the claim is 200% of the public sale of the buyer’s movable assets. income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2015 Mongolia 70 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial business cities. See the chapter on distance to frontier dispute through the courts in Mongolia? According to and ease of doing business ranking at the end of this data collected by Doing Business, contract enforcement profile for more details. takes 374.0 days, costs 30.6% of the value of the claim Globally, Mongolia stands at 24 in the ranking of 189 and requires 32.0 procedures (see the summary at the economies on the ease of enforcing contracts (figure end of this chapter for details). Most indicator sets refer 10.1). The rankings for comparator economies and the to a case scenario in the largest business city of an regional average ranking provide other useful economy, except for 11 economies for which the data benchmarks for assessing the efficiency of contract are a population-weighted average of the 2 largest enforcement in Mongolia. Figure 10.1 How Mongolia and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2015 Mongolia 71 ENFORCING CONTRACTS What are the details? The indicators reported here for Mongolia are based COURT NAME on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this chapter on what Claim value: MNT 9,305,698 the indicators cover). These procedures, and the time and cost of completing them, are identified through Ulaanbaatar District study of the codes of civil procedure and other court Court name: Court regulations, as well as through questionnaires completed by local litigation lawyers (and, in a City: Ulan Bator quarter of the economies covered by Doing Business, by judges as well). Table 10.2 Summary of time, cost and procedures for enforcing a contract in Mongolia East Asia & Indicator Mongolia Pacific average Time (days) 374 554 Filing and service 14 Trial and judgment 180 Enforcement of judgment 180 Cost (% of claim) 30.6 48.6 Attorney cost (% of claim) 14.9 Court cost (% of claim) 7.2 Enforcement Cost (% of claim) 8.5 Procedures (number) 32 37 Number of procedures (without bonus points) 32 Total number of procedures (including bonus points) 32 Doing Business 2015 Mongolia 72 No. Procedures Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. 2 Plaintiff hires a lawyer: Plaintiff hires a lawyer. Plaintiff files a summons and complaint: Plaintiff files a summons and complaint with the court (orally or * in writing). Plaintiff pays court fees: Plaintiff pays court fees (e.g. court duties, stamp duties, or any other type of court * fees). Answer ‘yes’ even if Plaintiff recovers these costs. Registration of court case: Registration of court case by the court administration (this can include 3 assigning a reference number to the case). Assignment of court case to a judge: Assignment of court case to a judge (through a random procedure, * automated system, ruling of an administrative judge, court officer, etc). Judge admits summons and complaint: Judge admits summons and complaint (after verifying the formal * requirements). Mailing of summons and complaint: Court or process server, including (private) bailiff, mails summons * and complaint to Defendant. Attempt at physical delivery: An attempt to physically deliver summons and complaint to Defendant is 4 made. Substituted service: Substituted service is completed by publication in newspapers, by affixing a notice in 5 court or on public bulletin boards, etc. * Proof of service: Plaintiff submits proof of service to court, as required by law or standard practice. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. Decision on pre-judgment attachment: Judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. Pre-judgment attachment order: Defendant's property is attached prior to judgment. Attachment order 6 either involves physical attachment, or is achieved by freezing, registering, marking, or otherwise separating and restricting Defendant’s movement of specific moveable assets. Report on pre-judgment attachment: Court enforcement officer or private bailiff issues and delivers a 7 report on the attachment of Defendant’s property to the judge. Trial and judgment: Defendant files an answer to Plaintiff’s claim: Defendant files a written pleading which includes his answer 8 or defense on the merits of the case (see assumption 4). Doing Business 2015 Mongolia 73 No. Procedures Filing of written submissions: Plaintiff and Defendant file written pleadings and submissions with the court 9 and transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Court appointment of independent expert: Judge appoints, either at the parties' request or at his own * initiative, an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 5-b). Notification of court-appointment of independent expert: The court notifies both parties that the court is 10 appointing an independent expert (see assumption 5-b). Delivery of expert report by court-appointed expert: The independent expert, appointed by the court, * delivers his or her expert report to the court (see assumption 5-b). * Setting of date(s) for oral hearing or trial: Judge sets the date(s) for the oral hearing or trial. * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court (see assumption 5-a). Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral 11 hearing or trial (see assumption 5-a). Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the 12 judge. Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 13 Judgment date: The judge sets a date for delivery of the judgment. 14 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 15 Writing of judgment: The judge produces a written copy of the judgment. Registration of judgment: The court office registers the judgment after receiving a written copy of the 16 judgment. Court notification of availability of the written judgment: The court notifies the parties that the written 17 judgment is available at the courthouse. Plaintiff receives a copy of the judgment: Plaintiff receives a copy of the written judgment which is 100% 18 in favor of Plaintiff (see assumption 6). Defendant is formally notified of the judgment: Plaintiff or court formally notifies the Defendant of the 19 judgment. The appeal period starts to run from the day the Defendant is formally notified of the judgment. Appeal period: By law Defendant has the opportunity to appeal the judgment during a specified period. 20 Defendant decides not to appeal. Seller decides to start enforcing the judgment when the appeal period ends (see assumption 8). Order for reimbursement by Defendant of Plaintiff's court fees: The judgment orders Defendant to 21 reimburse Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Doing Business 2015 Mongolia 74 No. Procedures Plaintiff hires a lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented by * a lawyer during the enforcement of judgment phase. Plaintiff requests an enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). 22 Plaintiff advances enforcement fees: Plaintiff pays the fees related to the enforcement of the judgment. Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 23 judgment. Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer * or a private bailiff. Plaintiff’s request for physical enforcement: As Plaintiff commonly fears that Defendant might physically * resist the taking into custody of its previously attached movable assets, Plaintiff requests the judge or the police authorities to obtain police assistance during the physical enforcement of the Judge's order for physical enforcement: Judge orders the police to assist with the physical enforcement of 24 the attachment of Defendant's movable assets. Check as “yes” only if the pretrial order of attachment for Defendant’s moveable assets does not ordinarily involve physical seizure of the as Identification of Defendant's assets by court official or Defendant for purposes of enforcement: The judge, 25 a court enforcement officer, a private bailiff or the Defendant himself identifies Defendant's movable assets for the purposes of enforcing the judgment through a sale of Defendant’s assets. Contestation of selection of assets identified for sale: A party, Plaintiff or Defendant, which was not 26 involved in the designation of the assets for attachment, contests the selection of assets for enforcement of judgment through a sale. Attachment: Defendant’s movable goods are attached (physically or by registeri ng, marking or separating 27 assets). Report on execution of attachment: A court enforcement officer or private bailiff delivers a report on the 28 attachment of Defendant's movable goods to the judge. 29 Sale through public auction: The Defendant’s movable property is sold at public auction. 30 Judge's decision on bids: Judge determines the adequacy of the bids presented at public auction. Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which 31 Plaintiff had advanced previously. 32 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2015 Mongolia 75 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By improving the expectations of creditors Appeals and requests for extension are and debtors about the outcome of insolvency included proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and thereby improve growth and estate) sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome of Fees of insolvency administrators insolvency proceedings involving domestic legal Lawyers’ fees entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recouped by secured creditors through Other related fees reorganization, liquidation or debt enforcement (foreclosure) proceedings. To determine the present Outcome value of the amount recovered by creditors, Doing Whether business continues operating as a Business uses the lending rates from the International going concern or business assets are sold Monetary Fund, supplemented with data from piecemeal central banks and the Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) determines the maximum value that can be framework index. The index tests whether economies recovered adopted internationally accepted good practices in four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of the Resolving Insolvency indicator is account based on the recovery rate and the total score of the Present value of debt recovered strength of insolvency framework index. The Strength of insolvency framework index (0- Resolving Insolvency indicator does not measure 16) insolvency proceedings of individuals and financial institutions. The data are derived from survey Sum of the scores of four component indices: responses by local insolvency practitioners and Commencement of proceedings index (0-3) verified through a study of laws and regulations as well as public information on bankruptcy systems. Management of debtor’s assets index (0-6) Reorganization proceedings index (0-3) Creditor participation index (0-4) Doing Business 2015 Mongolia 76 RESOLVING INSOLVENCY Where does the economy stand today? Combination of quality regulations and efficient practice According to data collected by Doing Business, Mongolia characterize the top-performing economies. How scores 2.5 out of 3 points on the commencement of efficient are insolvency proceedings in Mongolia? proceedings index, 6.0 out of 6 points on the According to data collected by Doing Business, resolving management of debtor’s assets index, 0.5 out of 3 points insolvency takes 4.0 years on average and costs 15.0% of on the reorganization proceedings index, and 2.0 out of the debtor’s estate, with the most likely outcome being 4 points on the creditor participation index. Mongolia’s that the company will be sold as piecemeal sale. The total score on the strength of insolvency framework average recovery rate is 17.8 cents on the dollar. Most index is 11.0 out of 16. indicator sets refer to a case scenario in the largest Globally, Mongolia stands at 90 in the ranking of 189 business city of an economy, except for 11 economies for economies on the ease of resolving insolvency (figure which the data are a population-weighted average of the 11.1). The rankings for comparator economies and the 2 largest business cities. See the chapter on distance to regional average ranking provide other useful frontier and ease of doing business ranking at the end of benchmarks for assessing the efficiency of insolvency this profile for more details. proceedings in Mongolia. Figure 11.1 How Mongolia and comparator economies rank on the ease of resolving insolvency Doing Business 2015 Mongolia 77 Source: Doing Business database. Doing Business 2015 Mongolia 78 Figure 11.2 Recovery Rate (0-100) - Mongolia Source: Doing Business database. Figure 11.3 Strength of insolvency framework index (0-16) - Mongolia Source: Doing Business database. Doing Business 2015 Mongolia 79 LABOR MARKET REGULATION Doing Business measures flexibility in the regulation of Doing Business 2015 presents the data for the labor employment, specifically as it affects the hiring and market regulation indicators in an annex. The report redundancy of workers and the rigidity of working hours. does not present rankings of economies on these This year, for the first time, the indicators measuring indicators nor include the topic in the aggregate distance flexibility in labor market regulations focus on those to frontier score or ranking on the ease of doing affecting the food retail industry, using a standardized business. Detailed data collected on labor market case study of a cashier in a supermarket. Also new is that regulations are available on the Doing Business website Doing Business collects data on regulations applying to (http://www.doingbusiness.org). The data on labor employees hired through temporary-work agencies as market regulations are based on a detailed survey of well as on those applying to permanent employees or employment regulations that is completed by local employees hired on fixed-term contracts. The indicators lawyers and public officials. Employment laws and also cover additional areas of labor market regulation, regulations as well as secondary sources are reviewed to including social protection schemes and benefits as well ensure accuracy. To make the data comparable across as labor disputes. economies, several assumptions about the worker and the business are used. Over the period from 2007 to 2011 improvements were made to align the methodology for the labor market The worker: regulation indicators (formerly the employing workers  Is a cashier in a supermarket or a grocery store indicators) with the letter and spirit of the International  Is a full-time employee Labour Organization (ILO) conventions. Only 6 of the 188  Is not a member of the labor union, unless ILO conventions cover areas measured by Doing membership is mandatory Business: employee termination, weekend work, holiday The business: with pay, night work, protection against unemployment  Is a limited liability company (or the equivalent and medical care and sickness benefits. The Doing in the economy) with 60 employees. Business methodology is fully consistent with these 6  Operates a supermarket or grocery store in the conventions. The ILO conventions covering areas related economy’s largest business city. For 11 to the labor market regulation indicators do not include economies the data are also collected for the the ILO core labor standards—8 conventions covering second largest business city. the right to collective bargaining, the elimination of  Is subject to collective bargaining agreements if forced labor, the abolition of child labor and equitable such agreements cover more than 50% of the treatment in employment practices. food retail sector and they apply even to firms that are not party to them. Between 2009 and 2011 the World Bank Group worked  Abides by every law and regulation but does not with a consultative group—including labor lawyers, grant workers more benefits than those employer and employee representatives, and experts mandated by law, regulation or (if applicable) from the ILO, the Organisation for Economic Co- collective bargaining agreements. operation and Development (OECD), civil society and the private sector—to review the methodology for the labor market regulation indicators and explore future areas of research. A full report with the conclusions of the consultative group is available at: http://www.doingbusiness.org/methodology/employing-workers. Doing Business 2015 Mongolia LABOR MARKET REGULATION What are the details? The data reported here for Mongolia are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Difficulty of hiring index Difficulty of hiring covers 4 areas: (i) whether fixed-term wage to the average value added per worker. The contracts are prohibited for permanent tasks; (ii) the average value added per worker is the ratio of an maximum cumulative duration of fixed-term contracts; economy’s GNI per capita to the working-age population (iii) the minimum wage for a cashier, age 19, with 1 year as a percentage of the total population. of work experience; and (iv) the ratio of the minimum Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) No limit Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage applicable to the worker assumed in the case study 125.46 (US$/month) Ratio of minimum wage to value added per worker 0.28 Source: Doing Business database. Doing Business 2015 Mongolia 81 LABOR MARKET REGULATION Rigidity of hours index Rigidity of hours covers 7 areas: (i) whether the premium for work on a weekly rest day (as a percentage workweek can extend to 50 hours or more (including of hourly pay); (v) whether there are restrictions on night overtime) for 2 months in a year to respond to a work; (vi) whether there are restrictions on weekly seasonal increase in workload; (ii) the maximum number holiday work; and (vii) the average paid annual leave for of days allowed in the workweek; (iii) the premium for workers with 1 year of tenure, 5 years of tenure and 10 night work (as a percentage of hourly pay); (iv) the years of tenure. Rigidity of hours index Data 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in workload? Maximum working days per week 5.0 Premium for night work (% of hourly pay) 0% Premium for work on weekly rest day (% of hourly pay) 50% Major restrictions on night work? No Major restrictions on weekly holiday? No Paid annual leave for a worker with 1 year of tenure (in working days) 15.0 Paid annual leave for a worker with 5 years of tenure (in working days) 15.0 Paid annual leave for a worker with 10 years of tenure (in working days) 18.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 16.0 working days) Source: Doing Business database. Doing Business 2015 Mongolia 82 LABOR MARKET REGULATION Difficulty of redundancy index Difficulty of redundancy index looks at 9 questions: (i) whether the employer needs approval from a third party what the length is in months of the maximum to terminate 1 redundant worker; (vi) whether the probationary period; (ii) whether redundancy is employer needs approval from a third party to terminate disallowed as a basis for terminating workers; (iii) a group of 9 redundant workers; (vii) whether the law whether the employer needs to notify a third party (such requires the employer to reassign or retrain a worker as a government agency) to terminate 1 redundant before making the worker redundant; (viii) whether worker; (iv) whether the employer needs to notify a third priority rules apply for redundancies; and (ix) whether party to terminate a group of 9 redundant workers; (v) priority rules apply for reemployment. Difficulty of redundancy index Data Maximum length of probationary period (months) 6.0 Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? No Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? No Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2015 Mongolia 83 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice requirements and severance payments applicable to a requirements, severance payments and penalties due worker with 1 year of tenure, a worker with 5 years and when terminating a redundant worker, expressed in a worker with 10 years is considered. One month is weeks of salary. The average value of notice recorded as 4 and 1/3 weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 4.3 Notice period for redundancy dismissal for a worker with 5 years of tenure 4.3 Notice period for redundancy dismissal for a worker with 10 years of tenure 4.3 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 4.3 Severance pay for redundancy dismissal for a worker with 5 years of tenure 4.3 Severance pay for redundancy dismissal for a worker with 10 years of tenure 4.3 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure) Source: Doing Business database. Social protection schemes and benefits & Labor disputes Doing Business collects data on the existence of Doing Business also assesses the mechanisms available unemployment protection schemes as well as data on to resolve labor disputes. More specifically, it collects whether employers are legally required to provide data on what courts would be competent to hear labor health insurance for employees with permanent disputes and whether the competent court is contracts. specialized in resolving labor disputes. Social protection schemes and benefits & Labor disputes indicator Data Availability of unemployment protection scheme? Yes Health insurance existing for permanent employees? Yes Availability of courts or court sections specializing in labor disputes? Yes Source: Doing Business database. Doing Business 2015 Mongolia 84 Doing Business 2015 Mongolia 85 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING This year’s report presents results for 2 aggregate defined as the total tax rate at the 15th percentile of the measures: the distance to frontier score and the ease of overall distribution for all years included in the analysis. doing business ranking, which for the first time this year For the time to pay taxes the frontier is defined as the is based on the distance to frontier score. The ease of lowest time recorded among all economies that levy the doing business ranking compares economies with one 3 major taxes: profit tax, labor taxes and mandatory another; the distance to frontier score benchmarks contributions, and value added tax (VAT) or sales tax. In economies with respect to regulatory best practice, addition, the cost to export and cost to import for each showing the absolute distance to the best performance year are divided by the GDP deflator, to take the general on each Doing Business indicator. When compared price level into account when benchmarking these across years, the distance to frontier score shows how absolute-cost indicators across economies with different much the regulatory environment for local entrepreneurs inflation trends. The base year for the deflator is 2013 for in an economy has changed over time in absolute terms, all economies. while the ease of doing business ranking can show only In the same formulation, to mitigate the effects of how much the regulatory environment has changed extreme outliers in the distributions of the rescaled data relative to that in other economies. for most component indicators (very few economies Distance to Frontier need 700 days to complete the procedures to start a business, but many need 9 days), the worst performance The distance to frontier score captures the gap between is calculated after the removal of outliers. The definition an economy’s performance and a measure of best of outliers is based on the distribution for each practice across the entire sample of 31 indicators for 10 component indicator. To simplify the process, 2 rules Doing Business topics (the labor market regulation were defined: the 95th percentile is used for the indicators are excluded). For starting a business, for indicators with the most dispersed distributions example, Canada and New Zealand have the smallest (including time, cost, minimum capital and number of number of procedures required (1), and New Zealand the payments to pay taxes), and the 99th percentile is used shortest time to fulfill them (0.5 days). Slovenia has the for number of procedures and number of documents to lowest cost (0.0), and Australia, Colombia and 110 other trade. No outlier was removed for component indicators economies have no paid-in minimum capital bound by definition or construction, including legal requirement (table 15.1 in the Doing Business 2015 index scores (such as the depth of credit information report). index, extent of conflict of interest regulation index and strength of insolvency framework index) and the Calculation of the distance to frontier score recovery rate (figure 15.1 in the Doing Business 2015 Calculating the distance to frontier score for each report). economy involves 2 main steps. First, individual Second, for each economy the scores obtained for component indicators are normalized to a common unit individual indicators are aggregated through simple where each of the 31 component indicators y (except for averaging into one distance to frontier score, first for the total tax rate) is rescaled using the linear each topic and then across all 10 topics: starting a transformation (worst − y)/(worst − frontier). In this business, dealing with construction permits, getting formulation the frontier represents the best performance electricity, registering property, getting credit, protecting on the indicator across all economies since 2005 or the minority investors, paying taxes, trading across borders, third year after data for the indicator were collected for enforcing contracts and resolving insolvency. More the first time. For legal indicators such as those on complex aggregation methods—such as principal getting credit or protecting minority investors, the components and unobserved components —yield a frontier is set at the highest possible value. For the total ranking nearly identical to the simple average used by tax rate, consistent with the use of a threshold in Doing Business . Thus Doing Business uses the simplest 6 calculating the rankings on this indicator, the frontier is 6 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to Doing Business 2015 Mongolia 86 method: weighting all topics equally and, within each overall tax system. Instead, it is mainly empirical in topic, giving equal weight to each of the topic nature. The nonlinear transformation along with the components . threshold reduces the bias in the indicator toward 7 economies that do not need to levy significant taxes on An economy’s distance to frontier score is indicated on a companies like the Doing Business standardized case scale from 0 to 100, where 0 represents the worst study company because they raise public revenue in performance and 100 the frontier. All distance to frontier other ways—for example, through taxes on foreign calculations are based on a maximum of 5 decimals. companies, through taxes on sectors other than However, indicator ranking calculations and the ease of manufacturing or from natural resources (all of which are doing business ranking calculations are based on 2 outside the scope of the methodology). In addition, it decimals. The difference between an economy’s distance acknowledges the need of economies to collect taxes to frontier score in any previous year and its score in from firms. 2014 illustrates the extent to which the economy has closed the gap to the regulatory frontier over time. And Calculation of scores for economies with 2 cities in any given year the score measures how far an covered economy is from the best performance at that time. For each of the 11 economies for which a second city Treatment of the total tax rate was added in this year’s report, the distance to frontier score is calculated as the population-weighted average This year, for the first time, the total tax rate component of the distance to frontier scores for the 2 cities covered of the paying taxes indicator set enters the distance to (table 12.1). This is done for the aggregate score, the frontier calculation in a different way than any other scores for each topic and the scores for all the indicator. The distance to frontier score obtained for the component indicators for each topic. total tax rate is transformed in a nonlinear fashion before it enters the distance to frontier score for paying taxes. Table 12.1 Weights used in calculating the distance to As a result of the nonlinear transformation, an increase in frontier scores for economies with 2 cities covered the total tax rate has a smaller impact on the distance to Economy City Weight (%) frontier score for the total tax rate—and therefore on the Dhaka 78 distance to frontier score for paying taxes—for Bangladesh Chittagong 22 economies with a below-average total tax rate than it São Paulo 61 would have in the calculation done in previous years (line Brazil Rio de Janeiro 39 B is smaller than line A in figure 15.2 of the Doing Shanghai 55 China Business 2015 report). And for economies with an Beijing 45 extreme total tax rate (a rate that is very high relative to Mumbai 47 India the average), an increase has a greater impact on both Delhi 53 these distance to frontier scores than before (line D is Jakarta 78 Indonesia bigger than line C in figure 15.2 of the Doing Business Surabaya 22 Tokyo 65 2015 report). Japan Osaka 35 The nonlinear transformation is not based on any Mexico City 83 Mexico economic theory of an “optimal tax rate” that minimizes Monterrey 17 distortions or maximizes efficiency in an economy’s Lagos 77 Nigeria Kano 23 Karachi 65 Pakistan that from the simple average method because both these methods Lahore 35 assign roughly equal weights to the topics, since the pairwise Moscow 70 Russian Federation correlations among indicators do not differ much. An alternative to the St. Petersburg 30 simple average method is to give different weights to the topics, New York 60 depending on which are considered of more or less importance in the United States Los Angeles 40 context of a specific economy. Source: United Nations, Department of Economic and Social 7 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned Affairs, Population Division, World Urbanization Prospects, to the strength of legal rights index and 40% to the depth of credit 2014 Revision. http://esa.un.org/unpd/wup/CD- information index. Indicators for all other topics are assigned equal ROM/Default.aspx. weights Doing Business 2015 Mongolia 87 Economies that improved the most across 3 or more Selecting the economies that implemented regulatory Doing Business topics in 2013/14 reforms in at least 3 topics and had the biggest improvements in their distance to frontier scores is Doing Business 2015 uses a simple method to calculate intended to highlight economies with ongoing, broad- which economies improved the ease of doing business based reform programs. The improvement in the the most. First, it selects the economies that in 2013/14 distance to frontier score is used to identify the top implemented regulatory reforms making it easier to do improvers because this allows a focus on the absolute business in 3 or more of the 10 topics included in this improvement—in contrast with the relative improvement year’s aggregate distance to frontier score. Twenty-one shown by a change in rankings—that economies have economies meet this criterion: Azerbaijan; Benin; the made in their regulatory environment for business. Democratic Republic of Congo; Côte d’Ivoire; the Czech Republic; Greece; India; Ireland; Kazakhstan; Lithuania; the former Yugoslav Republic of Macedonia; Poland; Ease of Doing Business ranking Senegal; the Seychelles; Spain; Switzerland; Taiwan, China; Tajikistan; Togo; Trinidad and Tobago; and the The ease of doing business ranking ranges from 1 to 189. United Arab Emirates. Second, Doing Business sorts these The ranking of economies is determined by sorting the economies on the increase in their distance to frontier aggregate distance to frontier scores, rounded to 2 score from the previous year using comparable data. decimals. Doing Business 2015 Mongolia 88 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 10,700 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 139 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, reform case repreneurship studies and customized economy and regional profiles Distance to frontier http://www.doingbusiness.org/reports Data benchmarking 189 economies to the frontier in regulatory practice Methodology http://www.doingbusiness.org/data/distance-to- The methodologies and research papers underlying frontier Doing Business http://www.doingbusiness.org/methodology Information on good practices Showing where the many good practices identified Research by Doing Business have been adopted Abstracts of papers on Doing Business topics and http://www.doingbusiness.org/data/good-practice related policy issues http://www.doingbusiness.org/research Doing Business iPhone App Doing Business at a Glance—presenting the full Doing Business reforms report, rankings and highlights for each topic for Short summaries of DB2015 business regulation the iPhone, iPad and iPod touch reforms, lists of reforms since DB2008 and a ranking http://www.doingbusiness.org/specialfeatures/ simulation tool iphone http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2015 Mongolia 89