VAT, GST and Sales Tax in Mongolia

Summary

Name of the tax Value-added tax (VAT)
Local name VAT
Date introduced 1-Jul-98
Trading bloc membership None
Administered by Ministry of Finance of Mongolia (https://www.mof.gov.mn/) Mongolian Tax Authority (http://www.mta.mn)
VAT rates
Standard 10%
Other Zero-rated and exempt
VAT number format Tax identification number (TIN) with 7 digits
VAT return periods Monthly
Thresholds Registration
Mandatory MNT50 million (annual taxable turnover)
Voluntary MNT10 million
Recovery of VAT by non-established businesses No

Scope of the tax

VAT applies to the following types of transactions of individuals and legal entities:

  • All types of goods sold in Mongolia
  • All types of works and services provided in Mongolia
  • All types of goods, works and services provided to customers in another country
  • All types of goods, works and services received from suppliers in another country

The provision of services includes but is not limited to the fol­lowing:

  • Providing electricity, heat, gas, water, sewers, postal services, communication and other utilities
  • Leasing, possessing or using goods
  • Renting immovable and movable property (other than rental of houses for residential purposes) or allowing possession or use of them in other forms
  • Selling, transferring or leasing new inventions, new product designs, patents, copyright-protected work, trademarks, know-how, software and other proprietary information
  • Performing work and services provided for repayment of debts owed to other entities
  • Sale of goods and provision of works and services by a non­resident person to a resident
  • Organization of lottery, paid quiz or gambling games
  • Providing intermediary services (intermediary of special rights, trade representation, commission and similar services)
  • Receiving interest, fines and penalties arising from misconduct or noncompliance
  • Offsetting of any debts through the transfer of goods, perfor­mance of works or provision of services

Who is liable

In general, a taxpayer (or withholder) is any individual or legal entity (including a foreign legal entity) that is engaged in the import and export of goods, as well as the sale and manufacturing of any goods, performance of work and rendering of services in the territory of Mongolia. Any individual permanently or tempo­rarily employed under a labor contract is deemed not to be VAT taxpayer.

Tax registration. The following VAT registration thresholds apply in Mongolia:

  • Taxpayers must be registered for VAT when taxable turnover exceeds MNT50 million in a given financial year (subject to certain anti-avoidance measures)
  • Taxpayers can voluntarily register for VAT when annual taxable turnover reaches MNT10 million.

Exemption from VAT payment obligations. If a taxpayer has not reached the registration threshold of MNT50 million within a given financial year, the taxpayer is exempted from VAT.

Group registration. No group VAT registration is allowed.

Non-established businesses (foreign legal entities). A “non-estab­lished business” is a business that does not have a fixed establish­ment in Mongolia.

Foreign legal entities or individuals that sell goods, perform work or render services in the territory of Mongolia for an amount that exceeds MNT50 million will be subject to VAT. As such, the recipient of the services or goods must act as a tax agent and withhold the VAT under the Mongolian reverse-charge VAT sys­tem. A foreign legal entity is not entitled to recover any input tax (VAT on purchase) unless they have permanent establishment that is registered for Mongolian VAT purposes.

Late-registration penalties. In accordance with the VAT law of Mongolia, if an individual or legal entity that has exceeded the threshold for registration has not registered with the respective tax authority, then a competent state inspector shall assess the VAT due and may impose an administrative penalty ranging from MNT192,000 to MNT768,000, depending on the duration of the delay.

Reverse charge. Reverse-charge VAT is applied to payments for works and services supplied by foreign legal entities not regis­tered as taxpayers in Mongolia to Mongolian legal entities or individual entrepreneurs. Under the reverse-charge mechanism, the liability to impose, pay and report VAT rests with the recipi­ent of the supply that acts as a tax agent.

Tax representative. Not applicable.

Digital economy. No special rules apply.

Deregistration. An individual or legal person registered as VAT payers shall be excluded from the taxpayers’ registry and their certificate shall be cancelled if it has been proven by financial statements for a business entity or organization or by income and tax sheet for an individual that their taxable income amount for the subsequent 12 months after being registered as VAT payer is less than MNT50 million.

VAT rates

The term “sale” refers to a transfer of the ownership of goods to another person or the performance of services. The term “goods” includes all types of property other than money capital, and the terms “services” includes any activity.

In Mongolia, the following are the VAT rates:

  • Standard rate: 10%
  • Zero rate: (0%)
  • Other: VAT exemptions

The standard rate of VAT applies to all supplies of goods (works and services) unless a specific measure provides for the zero rate or an exemption.

Examples of goods and services taxable at 0%

  • Goods exported from the territory of Mongolia and declared with the customs organization
  • Passenger and cargo transportation services rendered from the territory of Mongolia to foreign countries, from foreign coun­tries to the territory of Mongolia, as well as from foreign coun­tries to third countries transiting through the territory of Mongolia, pursuant to the international treaties to which Mongolia is a signatory
  • Services provided in a foreign country (including tax-exempt services)
  • Any rendering of services (including “nontaxable services”) to a nonresident person
  • Any services of air navigation management, technical and fuel services, and cleaning that shall be provided for both foreign and domestic airplanes conducting international flight and sale, food and drink services provided for air crew members or pas­sengers during flight
  • State medals and coins manufactured domestically on the order of the Government or the Bank of Mongolia
  • Mining finished products that are exported (government approves list of final mining products)

Examples of exempt supplies of goods

  • Passengers’ personal-use goods (subject to permitted amounts and approval by customs authority)
  • Goods received through humanitarian and grant aid from for­eign governments, NGOs and international or humanitarian organizations
  • Special purpose appliances, equipment and machinery designed for physically challenged persons
  • Civil passenger airplanes and spare parts thereof
  • Revenues from the sale of establishments used for housing or portions thereof
  • Blood, blood products and organs to be used for purposes of specified treatment
  • Gas fuel, gas fuel containers, equipment, special purpose machineries, mechanisms and related mechanics
  • Sale of gold
  • Experimental products related to research and scientific work
  • Mining products other than mining finished product that was exported
  • Cereal, potatoes, seeds, vegetables and fruits domestically grown and sold by farmers and domestically produced flour
  • Asset-backed loan portfolio or claiming rights derived from financial leasing arrangements transferred by banks, nonbanking financial institutions (NBFI) or other legal entities to other banks, special purpose companies or mortgage corpo­rations
  • Imported woods, timbers, cut materials, planks, wooden pieces and semi-processed wooden materials
  • Exported cashmere and leather that has been raw processed (cleaned and brushed)
  • Import of special purpose machinery, equipment, parts, raw materials, and chemical or explosive substances imported by contractors and subcontractors to be used for crude oil and nontraditional crude oil industry for the first five years of an exploration period or for exploration periods of less than five years
  • Import of equipment, tools and accessories for renewable energy production and research
  • Others

Examples of exempt supplies of services

  • Currency exchange
  • Banking services, such as the receipt or transfer of money, or any dealing with money, any security for money or any note or order for the payment of money and the operation of any sav­ings account
  • Services of insurance, reinsurance and registration of property
  • The issuance, transfer or receipt of any securities and shares, and underwriting of such securities
  • The issuance of loans
  • The provision or transfer of an interest related to a social and health insurance fund
  • Loan interest, financial lease interest, dividends, loan guarantee fees or insurance premiums by banks, NBFIs, or saving and loan cooperatives
  • Rental of residential houses and apartments
  • Medical services
  • Services of religious organizations
  • Services provided by a government organization; this shall include public services provided by the government, its agen­cies and budgetary organizations
  • Public transportation services
  • Tour operating services

Option to tax. Not applicable.

Time of supply

The moment when VAT becomes due is called the “time of tax imposition,” called in many countries the time of supply.

For taxpayers, the time of tax imposition is the earliest of the fol­lowing dates:

  • The date when the seller receives the payment for goods, works or services
  • The date when the seller invoices for sold goods, performed works or rendered services
  • The date when the purchase of goods, works or services is exercised

Deposits and prepayments. Not applicable.

Imported goods. Imported goods are subject to 10% of VAT. Goods sent on approval or for sale or return. Not applicable. Continuous supplies of services. Not applicable.

Cash accounting. Please refer to time of tax imposition. Leased assets. Leased assets are subject to VAT.

Recovery of VAT by taxpayers

A taxpayer may recover input tax, which is VAT charged on goods (works and services) supplied for carrying out activities within the scope of VAT. A taxpayer generally recovers input tax by deducting it from output tax, which is VAT charged on sup­plies made.

Input tax includes VAT charged on goods (works and services) in Mongolia, VAT paid on the import of goods and VAT paid to the Mongolia budget by a buyer acting as a tax agent with respect to the acquisition of goods (works and services) from a foreign legal entity.

Nondeductible input tax. Input tax cannot be recovered on pur­chases of goods (works and services) and property rights that are not used for making supplies within the scope of VAT (for example, goods purchased for private use by an entrepreneur).

Examples of items for which input tax is nondeductible

  • Personal expenses
  • VAT paid for the spare parts of auto vehicles
  • Reverse-charge VAT paid on services provided by nonresidents
  • VAT paid on purchasing, procuring or developing fixed assets (capital expenditures)
  • VAT incurred on mineral exploration and pre-mining opera­tions
  • VAT incurred for the purpose of tax-exempt supplies

Partial exemption. If a Mongolian taxpayer makes both exempt supplies and taxable supplies, the taxpayer must account for them separately. Input VAT directly related to taxable supplies is recov­erable in full, while input VAT directly related to exempt supplies is not recoverable and must be expensed for Mongolian profit tax purposes. Input VAT that may not be directly attributed to taxable or exempt supplies (such as VAT on business overhead costs) must be apportioned. The statutory method of apportionment is a pro rata calculation, based on the value of taxable supplies made compared with the total turnover of the business.

Capital goods. Input VAT incurred on capital goods of businesses shall not be allowed for input credit or refunds. The law stipulates that input VAT paid on purchasing, procuring or developing capital goods (i.e., fixed assets) is unrecoverable irrespective of whether the particular supply is taxable or tax exempt.

Refunds. The VAT refund application must be sent to the appro­priate tax authority. The appropriate tax authority will review, confirm the ending balance and submit its proposal to the Mongolian Tax Authority (MTA) within 15 working days. The MTA will review the application and proposal within seven working days and submit its opinion including name of the tax­payer, registration number, bank account, refundable amount within two working days to the Ministry of Finance who will refund the amount within 45 days after the receipt of opinion. However, a refund of VAT shall not exceed 30% of the total VAT revenue to be paid into the state budget in a given month, quarter or year. Thus, a refund may take some time if the amount is siz­able.

Interest on refunds. The VAT law requires the tax authorities to pay a refund no later than 45 days following the positive decision regarding the VAT refund claim of a taxpayer. In practice, how­ever, refund payments are often delayed.

If a refund is made with delay, the tax authorities must pay inter­est, accrued at the rate announced by the Government of Mongolia on 14 February 2014. Starting from 1 January 2015, the daily rate is 0.052%.

Preregistration costs. Input VAT is recoverable only if it was incurred after the taxpayer submits a complete application for registration to the tax authority.

Write-off of bad debts. Not applicable.

Noneconomic activities. If VAT payer has purchased noneco­nomic related activities or goods, input VAT is not deductible.

Recovery of VAT by non-established businesses

VAT recovery is made exclusively by registered persons that make taxable supplies in Mongolia. VAT incurred by a foreign legal entity is not recoverable.

Invoicing

VAT invoices and credit notes. In general, a VAT taxpayer must provide a VAT invoice. Invoices must be issued in Mongolian, but bilingual invoices may also be issued in Mongolian and any other language.

A VAT invoice may be issued in paper or electronic format.

Proof of exports. Goods exported from Mongolia as well as some types of work and services related to exports are subject to a 0% VAT rate in Mongolia. To confirm the applicability of the 0% rate, the supplier must attach a customs declaration as supporting documentation. For works and services, a written agreement, invoice and bank statement should be attached as supporting documentation.

Foreign-currency invoices. The issuance of a VAT invoice must be in Mongolian currency.

Electronic invoices. Electronic invoices are acceptable.

VAT returns and payment

VAT returns. Taxpayers must file VAT returns on a monthly basis. The VAT amount per VAT return must be paid within the 10th day of the following month. VAT payable under the reverse-charge mechanism is accounted in the same VAT return.

Electronic filing and archiving. Taxpayer shall submit a monthly VAT return by the 10th of the following month. There is no requirement to transmit a hard copy of VAT return to the MTA, but the taxpayer shall keep a copy for further reference.

Payments on account. The taxpayer shall pay the amount of VAT due monthly by the 10th of the following month.

Annual return. Not applicable.

Special schemes. Not applicable.

Penalties

Under Article 74, General Taxation Law, the following types of VAT-related noncompliance are subject to penalties:

  • Failure to charge tax on taxable goods and services
  • Failure to remit tax to tax authorities
  • Late filing: penalties ranging from MNT384,000 to MNT768,000 may apply, depending on the duration of the delay

A 30% penalty applies, plus daily interest, which is set annually by the Ministry of Finance. The penalty is based on an average of the commercial bank lending rates (in 2015 the daily rate was 0.052%). However, the combination of penalty and interest is typically capped at 50% of the tax due.

Additional administrative penalties apply to deliberate non com­pliance:

  • A penalty equal to 2% of gross sales proceeds on failure to provide cash receipts of services and goods bought by custom­ers
  • A penalty equal to 20% of gross sales proceeds for falsifying cash receipts by giving a value higher or lower than the actual value of goods or services