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
Effective use and enjoyment. To avoid instances of non-taxation or double taxation, jurisdictions can apply “use and enjoyment” rules that allow a service that is “used and enjoyed” in the jurisdiction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a non-established supplier of the service may be required to register for VAT in every jurisdiction where it has customers that are not taxable persons. In Mongolia, no services are subject to the “use and enjoyment” provisions.
While the Mongolian VAT law does not contain explicit “effective use and enjoyment” rules, the location of a purchase determines whether it is subject to VAT. Any goods, works or services imported to Mongolia, exported from Mongolia or sold within the territory of Mongolia are subject to VAT. This rule applies regardless of whether the transaction is business-to-business (B2B) or business-to-consumer (B2C). Mongolian VAT is not applicable to a transaction involving Mongolian VAT agents that takes place outside of Mongolian legal jurisdiction.
Transfer of a going concern. Transfer of going concern rules do not apply in Mongolia. As such, VAT applies to all sales of a business or part of a business capable of separate operation including assets.
However, issuing, selling, transferring or accepting stocks is exempt from VAT. In certain cases, this would allow ownership of a business to be transferred without incurring VAT. For example, if a business is transferred from one entity to another through the transfer/sale of stocks, VAT will not be applicable to this transaction.
Transactions between related parties. In Mongolia, for a transaction between related parties, the value for VAT purposes is calculated on an arm’s-length basis. This is in the context of transfer pricing rules for VAT purposes in Mongolia. In addition, there is a specific VAT valuation rule that applies for transactions between related parties if the prices are not arm’s length, which the VAT law stipulates that when the prices of goods and services exchanged between related parties are either higher or lower than the market value, then tax authorities would apply the market value on such transaction when determining the tax liability. This provision is complimentary to the general arm’s length principle.
C. Who is liable
In general, a taxable person (or VAT agent) is any individual or legal entity (including a foreign legal entity and individual) 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 a VAT-taxable person.
Taxable persons must be registered for VAT when taxable turnover exceeds MNT50 million in a given financial year (subject to certain anti-avoidance measures).
Exemption from registration. If a taxable person has not reached the registration threshold of MNT50 million within a given financial year, the taxable person is exempted from VAT.
Individuals and entities engaged exclusively in VAT-exempt goods, works and services specified in VAT law may not be registered as a VAT agent.
Individuals and entities whose business activity is exclusively VAT exempt, shall submit the following evidence in online and paper form to the MTA annually by the 10th of January: the application for exemption from registration as an agent; proof of exemption for goods, works and services; business license, electronic payment receipt, contract and source documents, etc.
Voluntary registration and small businesses. Taxable persons can voluntarily register for VAT when taxable turnover reaches MNT10 million. Supporting documents are required to prove the expected sales reach MNT50 million in the next 12 months, such as contracts and sales orders, etc.
Group registration. Group VAT registration is not allowed in Mongolia.
Fixed establishment. A foreign business is deemed to have a fixed establishment for VAT purposes in Mongolia, where a business may instead register a permanent establishment (PE) or representative office of a foreign corporation in Mongolia. In terms of comparability, the PE is closest in function and form to a fixed establishment. The PE rules described in the CIT law also apply to the VAT law. Mongolian tax legislation uses the definition of PE found in the CIT law in all contexts relating to PEs. A PE is defined to be at least one of the following:
• Places of management, e.g., branches or offices
• Workshops
• Warehouses
• Mine, oil or gas wells, or other places where mineral natural resources are extracted
• Factories
• Construction sites, buildings, assembly or installation sites that last for a total of 90 days or more during a consecutive 12-month period, as well as units for construction, and management activities related to such activities
• Business activities providing technical consulting, management and other services to taxpayers located in Mongolia, through their own employees or contractors for a total of 183 days or more during a continuous 12-month period
Non-established businesses. 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 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. Foreign legal entities and individuals are not entitled to recover any input tax (VAT on purchase) unless they have a permanent establishment that is registered for Mongolian VAT purposes.
If a non-established business that does not make supplies incurs input tax and wishes to recover input tax, they may register as a VAT agent by establishing a PE or representative office. See the subsection G. Recovery of VAT by non-established businesses below.
Tax representatives. VAT agents are allowed for non-established businesses to enable them to recover input. See the subsection G. Recovery of VAT by non-established businesses below.
Reverse charge. Reverse-charge VAT is applied to payments for works and services supplied by foreign legal entities and individuals not registered as taxable persons 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.
However, input tax incurred on reverse-charge VAT paid on services provided by nonresidents is non-recoverable in Mongolia. See Section F. Recovery of VAT by taxable persons for more detail.
Domestic reverse charge. There are no domestic reverse charges in Mongolia.
Digital economy. There are no specific rules relating to the taxation of the digital economy. Normal VAT rules apply. Nonresidents that provide electronically supplied services are not required to register and account for VAT in Mongolia. The local customer self-accounts for the VAT via the reverse-charge mechanism. This applies for both B2B and B2C. The customer must act as a tax agent and withhold the VAT under the reverse-charge mechanism. See the Non-established businesses subsection above.
There are no other specific e-commerce rules for imported goods in Mongolia.
Online marketplaces and platforms. No special rules exist for online marketplaces and platforms in Mongolia.
Registration procedures. Individuals and legal entities shall submit a request letter to register and application form ТТБ-01-А for VAT registration to the relevant tax office within 10 business days from the date the documents proving the threshold has been met. Non-exhaustive proof of documents includes bank statements, cash receipt orders, sales contracts, company certificates and electronic invoices.
The registration application for VAT agent is filled in and submitted to the tax authority within 10 working days after the threshold is met by either online or by paper. Log into online portal (https://e-tax.mta.mn) where individuals and companies can apply online for the registration of VAT and upload the following documents: sales agreement, bank account statement, invoices and state registration certificate to prove sales revenue. The application is subject to verification from the tax administration who may request additional supporting documents to verify sales. The MTA shall register a taxable person as a VAT agent within three working days after receiving the application of the person specified in VAT law and issue a certificate.
Deregistration. An individual or legal person registered for VAT shall be excluded from the taxable persons’ registry and their certificate shall be canceled if it has been proven by financial statements for a business entity or organization or by income and tax sheet for an individual taxable income amount for the subsequent 12 months after being registered for VAT is less than MNT50 million.
Changes to VAT registration details. A VAT agent should keep their VAT registration details up to date. Taxable persons may change their information details in the tax online portal. The taxable person is obliged to notify the MTA about any changes on the taxable person’s registration certificate within seven days. Details that the taxable person must update for its tax registration are business structure, information of the business owner, amount of owner’s equity, licenses issued to taxable persons and transferred to ownership, name of company, type of business, etc.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero rate.
The VAT rates are:
• Standard rate: 10%
• Special rates: 0-10%
• Zero-rate: 0%
• Currency exchange
• Banking services, such as receipt or transfer of money, or any dealing with money, any security for money or any note or order for 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
• Weapons and special equipment imported for the needs of the armed forces, police, state security, enforcement of court decisions, state special protection organizations and the anti-corruption agency
• Notary services
• Goods imported for the use of diagnosis and treatment of COVID-19 such as diagnostic tests, medicine, medical equipment and disinfectants
Option to tax for exempt supplies. The option to tax exempt supplies is not available in Mongolia.
E. Time of supply
The moment when VAT becomes due is called the “time of tax imposition,” also known as the time of supply.
For taxable persons, 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 a payment receipt and an invoice is issued for sales of products and services.
• The date when the purchase of goods, works or services is exercised.
Deposits and prepayments. The time of supply for a deposit, prepayment and advance payment is the end of the calendar month (VAT return period) in which the prepayment is received, even if the supply has not been made. This treatment applies to both supply of services and goods.
Continuous supplies of services. There are no special time of supply rules in Mongolia for continuous supplies of services. As such, the general time of supply rules apply (as outlined above).
Goods sent on approval for sale or return. There are no special time of supply rules in Mongolia for supplies of goods sent on “approval” or for “sale or return” conditions. As such, therefore the general time of supply rules apply (as outlined above), and when the goods are sold, and it can be reversed with approval of the buyer. Mongolia employs an electronic VAT system where all supplies of goods and services are recorded. The seller can request a return of the goods to the buyer through the electronic VAT system.
Reverse-charge services. There are no special time of supply rules in Mongolia for the supply of reverse-charge services. As such, the general time of supply rules apply (as outlined above).
Leased assets. Leased assets are subject to VAT. The time of supply rule for the supply of leased assets that results in a transfer in ownership shall be in accordance with the agreed schedule for the finance lease payment.
Scope of electronic invoicing. For B2B, B2C and business-to-government (B2G) supplies, electronic invoicing is mandatory for certain taxable persons in Mongolia. It is mandatory for all resident taxable persons for all supplies (B2B, B2C, B2G). For nonresident taxable persons, it is allowed but not mandatory in Mongolia.
There is no threshold beyond which taxable persons are required to adopt electronic invoicing in Mongolia. The requirements related to electronic invoicing are the same as those for paper invoicing. Input tax can only be claimed when an electronic invoice is present.
Mongolia uses an electronic VAT system to reduce noncompliance. The invoice does not need to be verified by the tax authority before issuing. Where electronic invoicing is mandatory, it is also mandatory for businesses, including individuals and legal entities (providing services or goods) to enter sales information into the system, regardless of their VAT status or type of services, goods and work.
Simplified VAT invoices. Simplified VAT invoicing is not allowed in Mongolia. As such, full VAT invoices are required.
Self-billing. Self-billing is not allowed in Mongolia.
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. Invoices cannot be issued in a foreign currency in Mongolia. All invoices must be issued in the domestic currency, which is the Mongolian tughrik (MNT).
Supplies to nontaxable persons. For supplies from VAT-registered businesses to private consumers, a “payment receipt” must be issued by the seller for B2C transactions each time when goods or services are supplied. The payment receipt is generated from the designated equipment with unique payment number, date of payment, name and address of the seller and description, code and quantity, and price and amount of the payment.
Records. In Mongolia, examples of what records must be held for VAT purposes include all the supporting documents related to tax returns such as invoices, remittance and sales receipts, and other relevant accounting details.
In Mongolia, VAT books and records can be held outside of the country. There is no specific requirement regarding whether taxable persons can keep records locally in Mongolia or outside Mongolia. However, records can be held in or outside of Mongolia, if upon a tax inspection, hard and original copies of the accounting records can be provided to the tax authorities.
Record retention period. All tax records must be held for a maximum of four years (tax statute of limitation period) in Mongolian territory. In addition, any financial supporting documents should be held no less than 10 years.
Electronic archiving. Electronic archiving is not allowed in Mongolia. Archiving must be made in paper form only. While in practice, taxable persons aren’t required to keep their VAT receipts in paper form because they are already in the VAT system, it is recommended to keep paper copies, because electronic archiving is not legally accepted in Mongolia.
I. Returns and payment
Periodic returns. Taxable persons must file VAT returns on a monthly basis. Taxable persons must submit a monthly VAT return by the 10th of the following month. The submission process
Personal liability for company officers. Company directors can be held personally liable for errors and omissions in VAT declarations and reporting in Mongolia. The penalty for a company officer is MNT100,000-500,000 for an individual.
Statute of limitations. The statute of limitations in Mongolia is four years. This covers tax reimposition, imposing of penalties and fines, tax credit and exemptions. Any voluntary correction or adjustment to VAT returns can be made for the periods including the current and preceding tax year only but it is not allowed for amendments beyond such periods.