Mongolia
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Ulaanbaatar GMT +8
EY
Suite 200
8 Zovkhis Building
Seoul Street 21 Ulaanbaatar Mongolia
Principal Tax Contacts
Martin Richter
+976 (11) 314-032
Fax: +976 (11) 312-042
+852 2629-3938 (resident in the Hong Kong SAR)
Email: martin.richter@hk.ey.com
Khishignemekh (Nicky) Regzedmaa +976 (11) 314-032
Mobile: +976 9905-1144
Email: khishignemekh.regzedmaa @mn.ey.com
A. At a glance
(a) The corporate tax system is progressive, with annual taxable income of up to MNT6 billion subject to tax at a rate of 10%, and taxable income in excess of this amount is taxed at a rate of 25%. In addition, entities (except those engaged in exploring and mining minerals, selling and importing alcoholic beverages and tobacco, producing and wholesaling crude oil, and trading and importing gasoline and diesel fuel) with annual taxable income up to MNT300 million are subject to tax at a rate of 1%.
(b) Gross proceeds 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) Capital gains are taxed on the gross income for nonresidents. However, the capital gains accrued from the shares and other securities issued on the Mongolian Stock Exchange will be taxable on net income starting from 1 July 2024.
(e) This reduced withholding tax applies only to royalty and server lease payments transferred to nonresident taxpayers from resident taxpayer entities operating in software development and design.
(f) The general rule is that losses can be carried forward for four years, and the use of such losses is limited to 50% of taxable income in any year.
B. 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 if any three of the following conditions are met:
• More than 50% of shareholders (or their nominees) reside in Mongolia.
• More than 50% of shareholder meetings have been held during preceding four years.
• Accounting or financial documents are maintained in Mongolia.
• More than 25% of board members or their nominees reside in Mongolia.
• More than 60% of total income is sourced from 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 foreign corporate entities that conduct business in Mongolia through a permanent establishment and foreign entities that generate income sourced in or from Mongolia.
Rates of corporate tax. The corporate tax system is progressive, with annual taxable income of up to MNT6 billion subject to tax at a rate of 10%, and taxable income in excess of this amount is taxed at a rate of 25%. Small companies with annual taxable income up to MNT300 million are taxed at a rate of 1%. This concessionary rate applies to all companies except for those engaging in exploring and mining minerals, selling and importing alcoholic beverages and tobacco, producing and wholesaling crude oil, and trading and importing gasoline and diesel fuel.
Certain types of income received by residents are taxed at different tax rates, as indicated in the following table.
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
• Meat and meat products produced in the chicken industry
A tax credit of 50% or 90% is available to taxpayers that are located in remote provinces. The credit is 50% for taxpayers that are 500 or more kilometers away from Ulaanbaatar and 90% for
Taxable revenue falls under the following four categories:
• Income from operations. This is primarily income generated from business activity. However, it also includes, among other items, income from lottery and gambling, income from management and consulting services, and income from goods and services received from others without consideration.
• 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 and the sale of intangible assets.
• Other income. This includes gains on realized foreign-currency exchange rates, insurance compensation, and penalties and interest received from others as a result of the failure of contractual obligations.
Different sources of taxable income are taxed at different rates (see Section B).
The following types of income are exempt from tax (this is not an exhaustive list):
• Interest earned on government bonds (which includes bonds issued by the Development Bank of Mongolia, a governmentowned bank)
• 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 certain education and health institutions
• Income earned from the mediation of intellectual property rights from one party to another (type of commission income)
• Interest income from a loan secured by intellectual property rights
• Income earned by investment funds
The tax law provides specific criteria for deductible expenses. Any expense items that have not met such criteria or additional qualifying conditions for deduction must be added back when computing taxable income.
In general, deductible expenses should fulfill the following criteria:
• They are incurred for the reporting period.
• They are incurred for income-generating purpose.
• They are recognized according to accounting laws with supporting documents.
• They are recorded in the VAT system or customs clearance with some exceptions, if applicable.
• They are paid or expected to be paid by the taxpayer.
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 nonbanking financial institutions
• Per diem expenses
• 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.
Mongolia has an earnings before interest, tax, depreciation and amortization (EBITDA)-based restriction and a thin-capitalization restriction to limit related-party loan interest for tax deduction purposes. Thin capitalization arises when an investor’s debt-to-equity exceeds a 3:1 ratio; any interest attributable to the debt exceeding such ratio is nondeductible for tax purposes. In addition, such related-party loan interest should not exceed 30% of EBITDA for any given year.
Nonresidents carrying out trading activities in Mongolia through a permanent establishment may deduct business expenses in accordance with the rules applicable to permanent residents, subject to certain restrictions specific to permanent establishments.
Tax depreciation. Tax depreciation of noncurrent assets is calculated using the straight-line method. The following are the useful economic lives of various noncurrent assets.
asset with definite useful life
licenses for mineral
* The companies operating in locations outside the capital city may choose to apply a 15-year straight-line tax depreciation rate on their new building and construction. This tax depreciation rate does not apply to holders of mineral or crude oil exploration or mining licenses.
Relief for losses. In general, tax losses can be carried forward for up to four years and the use of such losses is restricted to 50% of taxable profits in any tax year.
The carryback of losses is not allowed.
Groups of companies. Tax grouping is not allowed in Mongolia.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax
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 5 (with certain exceptions)
(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 nonresidentowned 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) Please consult treaty for further details.
(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.
(ab) The 5% rate applies if the beneficial owner is a company that has directly held (owned) at least 10% of the paying company’s capital for a period of at least 12 months preceding the date the dividends were declared; otherwise, the 15% rate applies.
(ac) The 5% applies to the profits of permanent establishments.
(ad) The 0% tax rate applies if any of the following circumstances exist:
• The payer is a government or a local authority.
• The interest is paid to the government, a local authority or an agency or instrumentality wholly owned by the government or local authority.
• The interest is paid to another agency or instrumentality (including a financial institution) in relation to loans made in application of an agreement concluded between governments.