Taxation

Overview of the corporate tax system

Taxpayers in Mongolia are separated into two separate classifications − resident and non-resident taxpayers, with different rates applying to various revenue streams depending on whether the entity is a tax resident in Mongolia.

• A resident taxpayer is an entity that resides in Mongolia on a permanent basis and comprises of entities established under Mongolian law and foreign entities that have their headquarters in Mongolia.
• A non-resident taxpayer is an entity that undertakes business activities in Mongolia through a permanent establishment (PE) or foreign entities that earn income sourced in Mongolia.

We outline the applicable tax rates for taxpayers considered Mongolian tax residents below. 

The payment date requirements vary depending on the type of income. Local advice should be sought to ensure that you comply with the various payment date requirements.

Taxable income and rates

A taxpayer that resides in Mongolia

A taxpayer that does not reside in Mongolia

Time frame for Tax Reporting

Quarterly tax statement shall be reported by the 20th of the first month of the following quarter. Annual tax statement shall be reported by the February 10th of the following year to the corresponding tax authority and make yearend settlement.

Value Added Tax

VAT is imposed at the rate of 10% on the supply of taxable goods and services in Mongolia and on imports into Mongolia. Taxpayers are required to register with the tax authorities for Mongolian
VAT purposes when their taxable turnover exceeds 10,0 million MNT. Taxpayers may also voluntarily register whether the sale revenue of the primary manufacturing work and service reached or not 10.0 million MNT. If they have invested more than USD$2,0 million in Mongolia. VAT is levied on the following in Mongolia:

• Work performed or services rendered in Mongolia;
• Goods sold in Mongolia;
• Goods imported into Mongolia to be sold or used; and
• Goods exported from Mongolia for use or consumption outside Mongolia

10% rate of VAT is imposed on (i) the supply of taxable goods 
and services in Mongolia, (ii) exports from Mongolia and (iii) 
imports into Mongolia. Exported goods and services are taxed at 
0% rate and are listed in the law

Customs Duty

Most imported goods are subject to 5% ad valorem Customs duty while others are subject to seasonal duties. Certain goods for export are subject to specific Customs duties. Any person (physical or legal) engaged in foreign trade is liable to pay Customs duties, as well as some other taxes and fees upon importation or exportation of goods.

You can find more information from the General Department of Customs 
at www.ecustoms.mn or through its hotline 1800-1281

Mongolia reforms its key tax legislation

Mongolia engaged an extensive tax reform discussion over the past months. As a consequence, key tax laws including General Law on Taxation, Corporate Income Tax Law, Personal Income Tax Law and
VAT Law revised substantially by Mongolian Parliament (the legislative body), under Government’s tax reform packages.

The package of amendments to the laws on taxation effective from January, 2020.

The approved package of tax amendments includes the following changes:

1. General Law on Taxation
   • The tax payment deadline for companies experiencing financial
     difficulties have been extended from 2 months to 24 months.
   • Taxes overpaid due to unfounded requests by tax authorities will
     be refunded immediately, along with the principal payment and
     any fines paid.
   • Taxpayers who have been determined to be “no risk” taxpayers,
     will not be audited.
   • An electronic tax registration and tax information portal with
     taxpayer information will be created, and services provided by tax
     authorities will be based on the electronic system.
2. General Law on Taxation
   • The license transfer tax was decreased from 30% to 10%, and will
     now be applied to net income instead of gross income.
   • The interest income of Mongolia’s commercial banks for loans
     and debt instruments obtained from local and foreign stock
     markets will be taxed at 5%.
   • The tax of 10% on financing obtained through debt instruments
     from initial and secondary markets has been lowered to 5%.
   • If a foreigner is found by the Tax Administration to owe 20 million MNT or more in unpaid taxes, and he does not have the funds to pay his debt, the Tax Administration can request a ban on crossing the Mongolian border until the foreigner pays off the tax debt.
   • The statute of limitations for tax audits, as well as penalties, fines, and tax payments assessed as a result of such audits, was lowered from 5 years to 4 years.
   • The interest income from loans and debt instruments of Mongolia’s commercial banks from local and foreign sources will be taxed at5%.
   • International regulations aligning transfer pricing rules with OECD standards (including reporting requirements) will be implemented.
3. Personal Income Tax
   • A flat 10% personal income tax will be applied
   • Resident tax was lowered from 20% to 15%, with interest at 10%
   • The tax return for first-time homeowners was raised from 3
     million MNT to 6 million MNT.
   • A tax credit will be given for the difference between account
     interest for mortgage loans and subsidized loans.

You can find more information from the General Department of Customs 
at www.ecustoms.mn or through its hotline 1800-1281

Tax Treaties

Bilateral foreign tax credits are only available to residents of Mongolia. To avoid double taxation, Mongolia uses the ‘tax sparing method’. In this case, the amount of foreign tax paid is allowed as a credit against the Mongolian tax payable on the same income or capital.

However, the amount of such tax credits should not exceed the amount of tax payable on the same amount of income in Mongolia. The chart below shows the withholding tax rates (in percent)on Mongolian source dividends, interest and royalties remitted to a resident of other contracting state where the income is not connected with a permanent establishment in Mongolia.

Tax stabilization

The legal entity which is going to implement an investment project in Mongolia can obtain Stabilization certificate upon application if it meets the requirements specified in the Law on Investment of Mongolia (2013). Stabilization Certificate is a certificate issued by the National Development Agency for the purposes of stabilizing tax rates for a
specified period of time. The rates of the following four taxes are stabilized under the stabilization certificates from 5 up to 18 years depending on the size and target region of investment:

1. Corporate Income Tax;
2. VAT;
3. Customs Tax;
4. Royalty;

• Criteria for issuing the stabilization certificate:
  • Thresholds based on the regions;
  • Environmentally friendly;
  • New technology & know-how;
  • Stable job creation;

The first table below illustrates the scope of Stabilization Certificates for the minerals, heavy industry and infrastructure development sectors. The second table below other sectors. Investment Law does not apply to investments in the nuclear energy sector, which are governed by the Nuclear Energy Law.