Investment income. Dividends, interest and royalties received by residents are subject to a 10% withholding tax on a gross basis.
Self-employment income and business income. Individuals undertaking business activities independently (such as manufacturing, trade, rental and services, including professional services) without establishing a legal entity are subject to income tax at a rate of 10% on net income (after allowable deductions). Professional services include services provided by doctors, lawyers, advocates, architects, accountants and teachers. Individual business persons are entitled to deduct business expenses in the same manner as corporate taxpayers. Commonly allowed deductible expenses include cost of goods sold, salaries and wages, depreciation allowances, interest, rent, and advertisement expenses. However, if the expenses are not documented, are not related to the business activities or used for the personal use of the taxpayer, the expenses are considered nondeductible expenses.
Income from non-regular business activities are also subject to income tax under these same rules.
Directors’ fees. Remuneration received by individuals in their capacity as supervisory board members or committee members of a company is treated as an employment income (see Employment income).
Other income. Income derived from the creation of scientific, literary, and artistic works and inventions, product designing, organizing and participating in sports competitions or art performances and other similar income is taxed at flat 5% rate on a gross basis. Income derived from gambling, quizzes and lotteries is taxed at a rate of 40% of gross receipts.
Transfers of land possession and land-use rights are treated as sales of rights and are subject to a 10% tax on the gross transfer value (certain transfers between immediate family members are subject to exemptions).
Tax-exempt income. The following income received by individuals is exempt from income tax in Mongolia:
• Pensions, allowance, payments, discounts, reimbursements, benefits, compensation and one-time grants provided in accordance with the legislation of Mongolia
• Income of an individual with disability
• Assistance provided by international organizations, foreign governments, legal entities and citizens to the government of Mongolia and local organizations, legal entities and citizens in the event of a disaster
• Income of herder households and persons with livestock, only per head of livestock
• Interest income on treasury bonds
• Transfer of land possession and usage certificates free of charge between certain family members
• Salary, benefit and income earned in a foreign country of a foreign citizen or his/her family member who is permanently residing in Mongolia and is assigned to a foreign diplomatic mission or consulate in Mongolia, the United Nations or its specialized branch
Other exemptions may apply.
Taxation of nonresidents. Nonresidents are subject to 20% tax on income earned in Mongolia or sourced from Mongolia on a gross basis.
Taxation of employer-provided stock options. Employer-provided stock options are taxed at the time of actual exercise and not at the time of grant. Share awards are taxable at the time of award or, if a vesting period is imposed, at the time of vesting. The taxable amount is the generally the market value of the shares at the time of exercise, award or vesting. This income is included in the employee’s taxable income as part of ordinary employment income and taxed accordingly at 10%. Any gain from a subsequent disposal of shares or other instruments is taxable at 10% at the time of the disposal.
Capital gains and losses. Gains derived from the sale of shares, securities or movable properties are subject to tax at a rate of 10% on a net basis. The sale of immovable property by a tax resident is taxed at 2% on a gross basis.
Deductions. Statutory social and health insurance contributions paid by employees are the only tax deductions permitted in Mongolia and no other deductions are allowed for employment tax purposes. For details regarding statutory social and health insurance contributions, see Section C.
No deductions are allowed for personal expenses. For details regarding deductions for business expenses, see Self-employment income and business income
Rates. Residents’ employment income is subject to progressive tax rates of up to 20%.
Other income, including business income, investment income and capital gains, is subject to a standard tax rate of 10%. A resident individual entrepreneur may elect a 1% gross tax instead of a 10% tax on the taxable income from business operations. See exceptions in Other income, Taxation of nonresidents and Capital gains and losses
Credits. The following annual credit is provided to all resident taxpayers for employment income.
Relief for losses. No measures exist for the carryover of tax losses in Mongolia.
B. Other taxes
Wealth tax or net worth tax. No wealth or net worth tax is imposed in Mongolia.
Immovable property tax. Immovable property tax (capital duty) is imposed annually on the value of property at a rate ranging from 0.6% to 2%, depending on the location of property in Mongolia. No immovable property tax is imposed during the development process of a property. This tax is not imposed until the property certificate is issued by the government.
The value of the immovable property is defined in accordance with the following sequence:
• The value of property that is registered with the property rights registration authority is the tax base.
• In the absence of a registered value, the insured value is the tax base.
• In the absence of an insured value, the value in the financial records is the tax base.
The owner of immovable property calculates the amount of tax due on the immovable property based on the valuation as of January of each year. An immovable property tax exemption applies to up to two apartments in the capital city and one in rural areas owned by an individual or legal entity.
Inheritance and gift taxes. Mongolia does not impose tax on inheritances or gifts.
C. Social security
Contributions. In general, Mongolian citizens and foreign citizens employed on a contract basis by an economic entity undertaking activities in Mongolia are subject to a compulsory social and health insurance contribution that is required to be withheld by employers. This contribution is imposed at a flat rate of 11.5%. However, the employees’ portion of the obligation is capped at MNT759,000 per month. The rate for the employers’ portion of the contribution ranges from 12.5% to 14.5%, depending on the economic sector. No cap applies to employers. Social and health insurance covers pension insurance, unemployment insurance, health insurance, benefits insurance (provided if the employee loses his or her working capability for a short time period, goes on maternity leave or passes away), and industrial accident and occupational disease insurance.
Self-employed individuals may register as voluntary social and health insurance payers.
Totalization agreements. To provide relief from double social and health insurance and assure benefit coverage, Mongolia has entered into totalization agreements with a few countries, including Korea (South) and the Russian Federation.
D. Tax filing and payment procedures
The tax year is the calendar year in Mongolia. Spouses are taxed separately, not jointly, on all types of income.
work in Mongolia. A single-entry C visa and a temporary work permit must be obtained before traveling to Mongolia. Once foreign nationals are in Mongolia, the process for obtaining the necessary work and residency permits begins. It is imperative for foreign nationals to remain within Mongolia while their documentation is being processed, as departing Mongolia during this period would require them to start the visa application over.
A temporary visitor can stay in Mongolia up to 90 days. In addition, for the purpose of encouraging tourism, a daily tourism visa can be obtained at the border only for tourists who are in the border zone.
In summary, under the new regulation for Mongolian visas, the individual applies with respect to the dedicated field in which he or she wishes to work in Mongolia.
H. Family and personal considerations
Dependent person. Family members and other affiliated people may accompany an employee by obtaining dependent-person visas simultaneously with the main applicant, provided they present proof of their relationship or affiliation. For investor and work visas, there are specific types to be granted to a dependent of the main applicant. For example, if a dependent person of a foreign investor wishes to enter Mongolia, such dependent person will apply for a B1-1 visa. According to a newly enacted amendment to the immigration law of Mongolia, a dependent person includes a foreign citizen’s husband, wife, partner, father, mother, grandparents and children.
Marital property regime. Mongolia has a community property regime, which applies only to the property of spouses acquired during the marriage. Property acquired before the marriage is considered the separate property of the respective spouse.
Driver’s permits. Foreign nationals may not legally drive in Mongolia using their home country driver’s licenses. However, a foreign national holding a valid driver’s license or an international driving permit issued by a member country of the Vienna Convention on Road Traffic is authorized to operate a vehicle of the corresponding category for a period of one year following his or her entry into Mongolia.