Law on Economic Freedom

Law on Economic Freedom

The Law on Economic Freedom—aimed at genuinely strengthening a private sector and free market-based economic system, as well as defining public-private relations—was enacted during the plenary session of the State Great Khural (Parliament) on July 3, 2026.

Key Provisions:

• Private property may only be seized based on imperative public necessity, through procedures prescribed by law, and with full compensation.
• Other laws and legal acts are prohibited from degrading the economic freedom guaranteed by this Law.
• State inspections shall be transitioned to digital formats to the extent possible, and officials with conflicts of interest are prohibited from conducting inspections.
• Conducting inspections not provided for by law and intentionally delaying inspections are strictly prohibited.
• An Economic Policy Council chaired by the Prime Minister shall be established.

The Law on Economic Freedom is a relatively short, principle-based law consisting of 3 Chapters and 9 Articles. This Law does not establish direct operational prohibitions or licensing/permit procedures; rather, it sets forth fundamental principles, directions, and limitations for state organizations. Article 2, Section 2.3 of this Law specifically stipulates:

"The norms of legislation of Mongolia and legal acts enacted for general compliance shall be prohibited from degrading the norms ensuring economic freedom guaranteed by this Law."

The principles to be adhered to by the State in guaranteeing economic freedom have been defined as follows:

• Freely engaging in business activities in accordance with the law, except for those explicitly prohibited by law;
• Principle of inviolability of property;
• Principle of equal rights among business operators;
• Principle of fair competition;
• Principle of ensuring participation: when making policy or legal reforms to create a favorable and stable business environment, the State shall hear the opinions of and ensure the participation of business operators;
• Principle of transparency and accessibility of information, except for information categorized as state secrets by law.

Within the framework of protecting business entities, the Law strengthens the rights and interests protected under the Constitution and other laws by limiting state inspections, requiring advance notice and consultation if the interests of business entities are affected, allowing property seizures only based on lawful grounds/procedures with compensation, and prohibiting attacks on business reputation. Specifically:

Inspection Restrictions

• State controls and inspections shall be conducted digitally, except in cases where in-person inspection is strictly necessary.
• State officials are prohibited from conducting inspections when a conflict of interest arises, and the right of business operators to refuse such inspectors shall be respected.
• Conducting inspections on business activities that are not explicitly provided for by law, as well as delaying inspections, is prohibited.

Duty to Give Advance Notice and Conduct Consultations

• "...shall give advance notice to business operators and professional associations whose rights and lawful interests may be affected, ensure their participation, and, if necessary, organize public consultations no less than once."

Restrictions on Private Property Seizure

• Illegal direct or indirect seizure of private property is prohibited. Private property may only be seized based on imperative public necessity, on a non-discriminatory basis, in accordance with the grounds and procedures set by law, and with full compensation.

Provisions Against Defamation and Harassment

• Insulting or defaming business operators, destroying their property, and spreading false information are strictly prohibited.

Establishment of the Economic Policy Council

• The law mandates the establishment of a standing Council chaired by the Prime Minister, with at least 50 percent of its members consisting of independent representatives from the private sector, professional associations, and non-governmental organizations (NGOs).
• The Council is empowered and obligated to receive proposals and ensure participation of business operators when drafting legislation and administrative norms, issue recommendations, consolidate complaints regarding state bureaucracy and illegal activities to present to the Government, and, if necessary, report directly to the State Great Khural (Parliament) (Article 8.5.4).

Significance and Expected Outcomes

Lawmakers view the significance and key impacts of this Law as follows:

• The State shall not compete with the private sector;
• The State shall not participate in price-fixing;
• It aims to create a legal environment where the business environment is predictable, stable, and investor-friendly.
• The State shall not make sudden decisions. Laws that negatively impact businesses shall be complied with no earlier than 6 months after their enactment. Provisions are introduced to ensure that the State requests a given set of information only once. Furthermore, state bureaucracy will be reduced by 2–3 times;
• 41 permits/licenses in the energy, financial, and education sectors are completely annulled;
• Eliminates the practice in the construction sector where obtaining 3 permits for a single activity used to take 3–4 years;
• Extends the validity periods of already obtained permits: special permits (licenses) shall be issued for 10 years, and standard permits for 5 years;
• In the absence of violations, permits shall be extended within 2 working days;
• The 20–30 requirements previously imposed to obtain a permit have been reduced to 8–15 requirements;
• Refusing to extend or revoking a permit on the sole grounds of having tax or social security debts is prohibited;
• Authority to grant a total of over 120 permits is being transferred to professional associations.

Long-term stability is being established for investments. The withholding tax rate on interest income from foreign and domestic loans is reduced to 5 percent, creating opportunities to attract lower-cost capital globally and locally. Stabilization guarantees of 10 years will be granted for investments over 20 billion MNT in Ulaanbaatar and 10 billion MNT in rural regions. For investments exceeding 50 billion MNT, guarantees of 15 to 20 years will be provided regardless of location. Complaints from foreign and domestic investors will be resolved within 30 days. Data center and artificial intelligence (AI) equipment are 100 percent exempt from customs duties, and the high-tech, food, and tourism sectors are completely exempt from foreign worker workplace fees.