This is part 3 of the Doing Business in Mongolia series. Read the other blog posts in the series here:
Mongolia’s tax system effectively balances local and international business needs with clear rates, deadlines, and tax benefits.
Mongolia's taxation system is governed by legislation enacted by the Parliament of Mongolia, alongside regulations and guidelines issued by the tax authority or the Ministry of Finance. Additionally, Mongolia adheres to international tax agreements, including double tax treaties. The Mongolian Tax Administration (MTA) is responsible for enforcing tax laws in Mongolia.
The Corporate Income Tax Act of 2019 (CIT Act) serves as the primary legislation for business taxation. Taxable entities under the CIT Act include companies, partnerships, cooperatives, and enterprises owned by central or local governments. Taxpayers are categorized as either resident or non-resident, each with specific benefits and drawbacks.
This framework is designed to balance local and international business taxation, promoting compliance through clear definitions and integration with international agreements.
Taxable income in Mongolia can come from various sources, including trading income, property income, property sale or transfer income, and other types of income.
The main rate of corporate income tax is 10% on taxable profits of up to MNT 6 billion and 25% on taxable profits exceeding MNT 6 billion. Corporate income tax is calculated by deducting various allowable expenses.
For taxpayers with taxable income of up to MNT 300 million, the tax rate is 1%.
Different tax rates also apply to specific incomes of resident taxpayers:
From January 1, 2018, Mongolia introduced the concept of the ultimate owner in its tax regulations. An ultimate owner is defined as an individual who, directly or indirectly, owns shares, interests, or voting rights in a Mongolian legal entity that holds any of the following:
If the ultimate owner sells or transfers their ownership interest, the Mongolian legal entity is required to pay a 10% tax on the value of the specified assets being transferred.
This regulation aims to ensure greater transparency and accountability in industries tied to valuable national resources and addresses potential tax evasion in transactions involving high-value assets.
Corporate income tax exemption applies to (without limitation) interest on bonds issued by the Government of Mongolia, provincial government or the Development Bank of Mongolia and income derived from the sale of the contractor's portion of oil and gas under the production-sharing contract.
CIT Act provides for various reliefs to taxpayers such as (without limitation) 90% tax relief for companies that operate in remote areas, 50% relief for taxpayers that engage in production of wheat, potatoes, vegetables, milk, fruit and forage may enjoy and full relief for taxpayers that employ disabled employees, sale of environmentally-friendly equipment and innovative projects.
Mongolia has signed bilateral agreements for the avoidance of double taxation and fiscal evasion with the following countries:
In Mongolia, all of the above tax agreements were ratified and are in force. We cannot confirm whether all of the tax agreements were ratified and given effect in the other countries.
In order to enjoy reduced withholding tax, the Mongolian non-resident taxpayer must provide a copy of the Certificate of Residence issued by the relevant tax authority of the other contracting state to the Mongolian non-resident taxpayer. The non-resident must give the Certificate of Residence to the Mongolian resident taxpayer who should perform the tax withholding.
Entities required to submit transfer pricing documentation include companies with sales revenue of MNT 6 billion or more in the prior year, companies whose group financials exceed MNT 6 billion in sales revenue, and Foreign Investment Companies (FICs).
Required Documents:
For tax purposes, Mongolia follows a 3:1 debt-to-equity ratio. If an investor extends a loan that exceeds three times the amount of their "previous investment," the interest payments on the portion of the loan that exceeds this limit are treated as a dividend for the investor and cannot be deducted as an expense by the resident taxpayer.
The term ‘previous investment’ refers to capital contributions made through the purchase of ordinary or preferred shares, share-equivalents, or the irrevocable advance of money. The definition of "previous investment" is broad and does not specify when the investment should have been made.
In Mongolia, the tax year follows the calendar year. The filing deadlines for Corporate Income Tax (CIT) returns depend on the taxable income from the previous year:
Taxpayers are required to self-assess their CIT liabilities and submit returns by the deadlines. Tax payments must be made on the same day the return is filed, and withholding tax should be remitted to the tax office within 7 business days.Additionally, the statute of limitations for tax reassessment is 4 years, after which the tax authority cannot reassess taxes or impose penalties.
