Corporate tax in Mongolia

Summary

Corporate Income Tax Rate (%) 10 / 25 (a)
Capital Gains Tax Rate (%) 10 / 25 (a) (b)
Nonresident Corporate Income Tax Rate (%) 10 / 25 (a)
Withholding Tax (%) (c)
Dividends 20
Interest 20 (d)
Royalties 20
Rent 20
Management and Administrative Fees 20
Lease Interest 20
Use of Tangible and Intangible Assets 20
Goods Sold, Work Performed or Services Provided 20
Branch Profits Remittance Tax 20 (e)
Net Operating Losses (Years)
Carryback 0
Carryforward 2/4/8 (f)

a) The corporate tax system is progressive with annual taxable income of up to MNT3 billion subject to tax at a rate of 10% and taxable profits in excess of this amount taxed at a rate of 25%.

b) Gains derived from the sale of immovable property are subject to tax at a rate of 2%.

c) These withholding tax rates apply to payments to nonresidents.

d) A 10% rate applies to interest payments to nonresident bondholders on bonds issued by Mongolian commercial banks.

e) This is a technical tax because the Investment Law of Mongolia generally requires foreign companies to carry on business through a Mongolian limited liability company (LLC).

f) The general rule is that losses can be carried forward for two years, and the use of such losses is limited to 50% of taxable income in any year. For com­panies in the mining and infrastructure sector, losses can be carried forward for four to eight years, depending on the investment amount, and no restric­tion is imposed on the use of losses.

Taxes on corporate income and gains

Corporate income tax. Permanent residents of Mongolia are taxed on their worldwide income. A company is regarded as a permanent resident of Mongolia in either of the following circumstances:

  • It is incorporated in Mongolia.
  • It is a foreign entity that has its head office located in Mongolia.

Permanent residents may qualify for a tax credit with respect to income generated from the production and planting of specified products (see Tax incentives).

Nonresidents of Mongolia are taxed on Mongolian-source in­come only. The term nonresident is generally defined to include for eign corporate entities that conduct business in Mongolia through a permanent establishment and foreign entities that gen­erate income sourced in Mongolia other than through a perma­nent establishment.

Rates of corporate tax. The corporate tax system is progressive with annual taxable income of up to MNT3 billion subject to tax at a rate of 10% and taxable profits in excess of this amount taxed at a rate of 25%.

Certain types of income received by residents are taxed at differ­ent tax rates, as indicated in the following table.

Income Rate (%)
Dividends 10
Royalties 10
Interest 10
Sale of rights (gross) 30
Gambling and lottery income 40
Sale of immovable property 2

Tax incentives. A 50% tax credit is available to taxpayers that gen­erate income from the production and planting of the following:

  • Cereal, potatoes and vegetables
  • Milk
  • Fruits and berries
  • Fodder plants

Double tax treaties offer additional tax credits for corporate enti­ties taxed in foreign countries.

An exemption from corporate tax is available to investors that operate in the oil industry in Mongolia under a product-sharing contract with the Mongolian government.

Certain tax incentives are available to infrastructure developers in free-trade zones in Mongolia, subject to certain qualifying condi­tions, such as an investment threshold. They include tax incentives for projects with respect to power generation, heating facilities, sanitary facilities, auto roads, railways, airports and telecommuni­cation infrastructure.

Both foreign and domestic companies may apply for a tax-stabilization certificate (subject to meeting certain criteria such as in troducing new technology and creating stable jobs) to govern their investment in Mongolia. This certificate provides for stable tax conditions for a fixed term (consistent tax treatment regard­less of changes in the tax law) across four different taxes; which are corporate income tax, customs duty, value-added tax (VAT) and tax on royalties. The term (5 years to 18 years) of a tax-stabilization certificate depends on the industry, the amount of investment and the geographical location of the investment. Previously, a tax stabilization certificate was granted for up to 30 years; however, this was limited to companies engaged in the mining industry under the Mineral Law of Mongolia.

Capital gains. Capital gains and losses are treated in the same manner as other taxable income and losses. Gains are subject to the progressive Mongolian corporate tax rates of 10% and 25%. The exception to this rule is that gains derived from the sale of immovable property are subject to tax at a rate of 2% on a gross basis.

Administration. The tax year in Mongolia is the calendar year.

Tax is generally calculated by the taxpayer on an accrual basis. The tax authorities deliver monthly and quarterly tax schedules to taxpayers that must pay tax before the 25th day of each month.

Taxpayers must also file quarterly returns within 20 days after the end of each quarter. An annual return is due on 10 February fol­lowing the end of the tax year and the taxpayer must settle all outstanding liabilities by that date.

If it is necessary to withhold tax on dividends, royalties, sales of rights, transfers of profits overseas by permanent establishments of foreign companies and other Mongolian-source income earned by nonresident taxpayers, the withholding tax must be remitted to the state within seven working days. Withholding tax on income received from the sale of immovable property must be remitted to the state within 10 working days after the sale of the property. All withholding tax statements must be submitted within 20 days after the end of the quarter, and an annual statement must be filed by 10 February following the end of the tax year.

On submission of the tax returns, the Mongolian tax authorities generally conduct an administrative check of the returns to ensure that all requirements have been satisfied with respect to the filing. At a later stage, the tax authorities can conduct a more detailed review of the returns through a tax audit.

Dividends. Dividends paid between permanent residents of Mon­golia are subject to a 10% withholding tax. Dividend income re­ceived by a nonresident from a permanent resident is subject to withholding tax at a rate of 20%. This rate may be reduced under an applicable double tax treaty.

Foreign tax relief. The domestic law states that a foreign tax credit is generally available only if the foreign tax is paid in a country with which Mongolia has a double tax treaty.

Determination of trading income

General. Taxable income is broadly defined as total revenue less the following:

  • Deductible expenses
  • Exempt income
  • Tax losses

Taxable revenue falls under the following three categories:

  • Income from operations. This is primarily income generated from business activity. However, it also includes, among other items, income from the sale of shares and securities, income from the sale of licenses, income from the sale of intangible assets and gains on foreign-currency exchange rates.
  • Income associated with property. This includes rental income, royalties, dividends and interest income.
  • Income from the sale of property. This includes the sale of mov­able and immovable property (with the exception of shares and securities).

Different sources of taxable income are taxed at different rates (see Section B).

The following types of income are exempt from tax:

  • Interest earned on government bonds
  • Income and dividends earned by taxpayers trading in the oil in­dustry in Mongolia under a product-sharing contract and derived from the sale of its share of product
  • Income earned by cooperatives from sales of their members’ products through an intermediary
  • Income earned by investment funds

The tax law provides a list of deductible expenses. Any items that are not listed as deductible in the tax law must be added back when computing taxable income.

The following are nondeductible expenses:

  • Expenses incurred in earning exempt income
  • Expenses not documented by the taxpayer
  • Payments from which tax has not been withheld correctly
  • Rental payments under finance leases
  • Fines and penalties imposed by the tax authorities

Specific restrictions apply to the deductibility of the following:

  • Regular maintenance expenses
  • Voluntary insurance premium fees
  • Reserves accumulated in the risk funds of banks and other non-banking financial institutions
  • Per diem expenses
  • Natural disaster restoration fees
  • Depreciation of inventory

Third-party interest payments on loans to finance the company’s primary and auxiliary production, operations, services and pur­chases of properties are generally deductible for tax purposes, subject to thin-capitalization rules.

Nonresidents carrying out trading activities in Mongolia through a permanent establishment may deduct business expenses in ac­cordance with the rules applicable to permanent residents. How­ever, expenses incurred outside of Mongolia and management and administrative expenses not related to the generation of busi­ness income are not deductible for tax purposes.

Tax depreciation. Tax depreciation of non-current assets is calcu­lated using the straight-line method. The following are the useful economic lives of various non-current assets.

Non-current assets Useful economic life (years)
Building and construction 40
Machinery and equipment 10
Computers, computer parts, software 3
Intangible asset with indefinite useful life 10
Intangible asset with definite useful life (includes licenses for mineral exploration and extraction) Validity period
Other non-current assets 10

The depreciation value for a mineral exploration and extraction license is the sum of its purchase price and fees paid for owner­ship and transference of such license.

If an asset is only partially used in generating taxable profits, the tax depreciation claimed is accordingly prorated. If the taxpayer ceases to use its own depreciable assets to generate taxable prof­its, the asset is deemed sold and tax is levied on the higher of the book value or the market value of the asset. Land and inventory are non-depreciable assets.

Relief for losses. In general, tax losses can be carried forward for up to two years and the use of such losses is restricted to 50% of taxable profits in any tax year. For companies in the mining and infrastructure sector, losses can be carried forward for four to eight years, depending on the investment amount, and no restric­tion is imposed on the use of losses.

The carryback of losses is not allowed.

Groups of companies. Tax grouping is not allowed in Mongolia.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Royalties; paid on the sale of mining products;
the two types of royalties are standard flat rate
royalties and surtax royalties; the rates of the
standard flat rate royalties depend on the type
of minerals and whether they are sold within
Mongolia; the rates of the surtax royalties
vary depending on the type of minerals, their
market prices and their degree of processing;
surtax royalties are not imposed on minerals
below a certain market price
Standard flat rate royalties
Coal and commonly occurring minerals sold
in Mongolia for power plants
2.5
Coal sold abroad, commonly occurring
minerals sold abroad and minerals that are
not commonly occurring and that are sold
in Mongolia or abroad
5
Surtax royalties
Copper 0 to 30
Other minerals 0 to 5
Value-added tax (VAT); applicable to the supply
of taxable goods and services in Mongolia and
to goods imported into Mongolia; taxpayers must
must register for VAT if taxable turnover exceeds
MNT50 million; taxpayers can voluntarily register
for VAT if taxable turnover reaches MNT10 million;
the tax law specifically indicates zero-rated and
exempt items; taxable supplies are subject to VAT
on the fair market value of the goods sold, work
performed or services provided; the taxpayer
is responsible for VAT on goods and services
received from nonresidents; the Mongolian tax
law allows VAT-registered taxpayers to offset
output VAT with input VAT if this is supported
by appropriate documentation; the excess of
input VAT over output VAT can be carried
forward for offset against future VAT or other
tax liabilities; VAT exemptions are available
in certain industries; VAT grouping is not
possible; VAT is accounted for monthly and
VAT payments must be made by the 10th day
of the following month; VAT returns must be
filed by the 10th day of each month
10
Excise tax; levied on individuals and legal
entities that manufacture or import goods,
such as alcoholic beverages, tobacco, gasoline
and diesel fuel and automobiles; physical units
of technical devices and equipment used for
betting and gambling are also subject to excise
tax; rate varies depending on the amount and
the product
Various
Customs duty; levied on the majority of goods
imported into Mongolia; information technology,
medical equipment and pure-bred livestock are
zero-rated and specified equipment imported
into Mongolia by small and medium-sized
enterprises are exempt
5
Stamp duty; levied on various types of services;
the rate depends on the type of services involved
Various
Immovable property tax; levied on the value of
the immovable property; the value on which
the tax is levied is the value registered with
the government registration authority; if the
property has not been registered, the insured
value is used; if neither the registered nor the
insured value is available, the accounting value
is used in the calculation; rate depends on the
size, location and market demand
0.6 to 1
Air pollution payment; applies to domestically
produced raw coal, used or imported organic
solvents and vehicles
Various
Social security taxes; applicable to Mongolian
citizens and foreign citizens employed on a
contract basis by economic entities, the
government or religious or other organizations
undertaking activities in Mongolia; consists of
compulsory health and social insurance taxes; charges are capped at MNT140,400 per month for employees
Employers 11 to 13
Employees 10

Miscellaneous matters

Foreign-exchange controls. The Mongolian currency is the tugrik (MNT).

Foreign revenue and expenses must be converted into tugriks on the date of the transaction.

Realized foreign-exchange gains and losses are taxable and de­ductible, respectively.

Transfer pricing. Transactions between the taxpayer and a related party must follow arm’s-length principles. If these principles are not followed, the tax authorities may seek to adjust the transac­tion to fair market value. The Ministry of Finance has released guidelines setting out the pricing methodologies that can be used by taxpayers and the documentation requirements for related-party transactions.

Debt-to-equity rules. Interest paid to certain related parties is sub­ject to a debt-to-equity ratio of 3:1.

Treaty withholding tax rates

The table below provides Mongolian withholding tax rates for dividends, interest and royalties paid from Mongolia to residents of various treaty countries. The rates reflect the lower of the treaty rate and the rate under domestic law. The table below is for gen­eral guidance only.

Dividends

%

Interest

%

Royalties

%

Austria 5/10 (a) 10 5/10 (b)
Belarus (c) 10 0/10 (d) 10
Belgium 5/15 (e) 10 (f)(bb) 5 (bb)
Bulgaria 10 10 10
Canada 5/15 (g) 0/10 (h) 5/10 (i)
China 5 10 10
Czech Republic 10 0/10 (j) 10
France 5/15 0/10 0/5
Germany 5/10 (k) 0/10 (l) 10
Hungary 5/15 (m) 0/10 (n) 5
India 15 0/15 (o) 15
Indonesia 10 0/10 (p) 10
Kazakhstan 10 10 10
Korea (South) 5 5 10
Kuwait (q) 5 5 10
Kyrgyzstan 10 10 10
Malaysia 10 10 10
Poland 10 0/10 (r) 5
Russian Federation 10 10 20 (s)
Singapore 0/5/10 (t) 5/10 (u)(bb) 5
Switzerland 5/15 (v) 10 5

 

Thailand (c) 10 10/15 (w) 5/15 (x)
Turkey 10 10 10
Ukraine 10 0/10 (y) 10
United Arab
Emirates (cc) 0 0 10
United Kingdom 5/15 (z) 7/10 (aa) 5
Vietnam 10 10 10
Non-treaty countries 20 20 20

a) The 5% rate applies if the recipient of the dividends is a company (excluding partnerships) that holds directly at least 10% of the capital of the company paying the dividends. The 10% rate applies to all other dividends.

b) The 5% rate applies to royalties paid for patents, trademarks, designs or mod­els, plans, secret formulas or processes, or information concerning industrial, commercial or scientific experience. The 10% rate applies to royalties paid for the use of, or the right to use, copyrights of literary, artistic or scientific works, including cinematographic films.

c) This treaty is not yet in force.

d) The 0% rate applies if the loan is provided to the government or the central bank. The 10% rate applies in all other cases.

e) The 5% rate applies if the beneficial owner of the dividends is a company that holds directly or indirectly at least 10% of the capital of the company paying the dividends. The 15% rate applies to all other dividends.

f) The following types of interest are exempt from tax in the contracting state in which the interest arises:

  • Interest on commercial debt claims
  • Interest paid with respect to loans made, guaranteed or insured by public entities or credits extended, guaranteed or insured by public entities, the purpose of which is to promote exports
  • Interest on loans granted by banking enterprises
  • Interest on deposits and interest paid to the other contracting state, or a political subdivision or local authority thereof

g) The 5% rate applies if the beneficial owner of the dividends is a company that controls directly or indirectly at least 10% of the voting power in the com­pany paying the dividends (except in the case of dividends paid by a nonres­ident-owned investment corporation that is a resident of Canada). The 15% rate applies to other dividends.

h) The 0% rate applies to interest paid on loans made to the government or a political subdivision. The 10% rate applies in all other cases.

i) The 5% rate applies to copyright royalties and similar payments with respect to the production or reproduction of literary, dramatic, musical or other artis­tic works (but not including royalties with respect to motion picture films or works on film or videotape or other means of reproduction for use in connec­tion with television broadcasting) and royalties for the use of, or the right to use, computer software, patents or information concerning industrial, com­mercial or scientific experience (but not including royalties paid with respect to rental or franchise agreements). The 10% rate applies in all other cases.

j) The 0% rate applies to interest paid to (or by) the government (or specified institutions), subject to further conditions.

k) The 5% rate applies if the recipient of the dividends is a company (other than a partnership) that owns directly at least 10% of the capital of the company paying the dividends. The 10% rate applies to other dividends. Silent partner­ship income is taxed at the domestic rate of 25%.

l) The 0% rate applies to interest arising in Germany that is paid to the Mongo­lian government or a Mongolian bank.

m) The 5% rate applies if the beneficial owner is a company that holds directly at least 25% of the capital of the company paying the dividends. The 15% rate applies to other dividends.

n) The 0% rate applies to interest paid on loans to the government, the central bank, a political subdivision or a local authority. The 10% rate applies in all other cases.

o) The 0% rate applies to interest paid on loans to the government, the central bank, a political subdivision or a local authority, the Trade and Development Bank in Mongolia or the Industrial Development Bank of India or another recipient approved by the government. The 15% rate applies in all other cases.

p) The 0% rate applies to interest paid on loans to the government or central bank. The 10% rate applies in all other cases.

q) In November 2012, domestic legislation was passed to terminate this treaty, effective from 1 April 2015.

r) The 0% rate applies to interest arising in the contracting state and derived by the government of the other contracting state or a political subdivision, local authority or the central bank thereof or a financial institution wholly owned by that government or by a resident of the other contracting state, with respect to a debt claim indirectly financed by the government of that contracting state, a local authority or the central bank thereof or a financial institution wholly owned by the government.

s) Royalties may be taxed in the contracting state in which they arise and according to the laws of that state.

t) The 0% rate applies to dividends paid by a company that is resident in a contracting state to the government of the other contracting state. The 5% rate applies if the beneficial owner of the dividends is a company that holds directly 25% of the capital of the company paying the dividends. The 10% rate applies to other dividends.

u) The 5% rate applies to interest received by banks or similar financial institu­tions. The 10% rate applies in all other cases. Interest is exempt from tax under certain circumstances.

v) The 5% rate applies if the beneficial owner of the dividends is a company (other than a partnership) that holds directly 25% of the capital of the com­pany paying the dividends. The 15% rate applies to all other dividends.

w) The 10% rate applies if the interest is received by a financial institution (including an insurance company). The 15% rate applies in all other cases.

x) The 5% rate applies to royalties paid for the use of, or the right to use, copyrights of literary, artistic or scientific works. The 15% rate applies in all other cases.

y) The 0% rate applies to interest paid with respect to bonds, debentures or similar obligations of the government, political subdivisions, local authori­ties or the central bank. The 10% rate applies in all other cases.

z) The 5% rate applies if the beneficial owner of the dividends is a company that controls directly or indirectly at least 10% of the voting power in the company paying the dividends. The 15% rate applies to other dividends.

(aa) The 7% rate applies to interest paid to banks and other financial institutions. The 10% rate applies in all other cases.

(bb) Please consult treaty for further details.

(cc) In November 2012, domestic legislation was passed to terminate this treaty, effective from 1 January 2015.

Mongolia’s tax treaties with Luxembourg and the Netherlands were terminated, effective from 1 January 2014.