Expenses mostly associated with income generating activities are deductible for CIT purposes (provided they meet deductible expenses requirements), and the requirements and limitations on the deductible expenses are provided in the legislation.
Accrued expenses are deductible only if they are supported by valid documentation.
Contingent liabilities are not deductible.
Depreciation and amortisation
Depreciation of fixed assets and amortisation of intangibles are deductible within the limits provided in tax legislation. A straight-line method is used, and the years of usage are determined for tax purposes.
|Non-current asset class||Useful life (in years)|
|1||Building and construction / Land improvements||40/25|
|2||Machinery and equipment||10|
|3||Computer, computer parts, and software||2|
|4||Intangible asset with defined useful life (includes licence for mineral exploration and extraction)||Period in force|
|5||Other non-current asset||10|
A taxpayer can choose to depreciate its newly built property in Baganuur, Bagakhangai, and Nalaikh district of the capital city and other aimags and soums from 1 January 2023 for 15 years on a straight-line basis. This excludes taxpayers holding minerals, radioactive minerals, oil exploration, and mining licence.
There is no specific provision in the tax law regarding the deductibility of goodwill.
Organisational and start-up expenses
Organisational and start-up expenses are deductible if they meet the requirements for deductible expenses.
Interest expenses are deductible. However, there are limits with respect to the deductibility of interest expense. See Thin capitalisation in the Group taxation section for more information.
Bad debt provisions are not deductible. There is no clear guidance in the tax legislation as to whether bad debt is deductible or not; however, in practice, the tax authorities disallow deductibility of bad debt.
Charitable contributions are not deductible, except for donations to the fund of vocational training, donations to reduce air pollution, and donations up to MNT 10 million to support the activity of a sport club, association, or NGO established by a disabled Mongolian citizen.
Compulsory pension insurance premiums paid to the Social Security Authority of Mongolia are deductible. Additional voluntary insurance premiums are deductible but shall not exceed 15% of taxable income. Pension provisions or internal pension fund expenses are not deductible.
Payment for directors
If a payment for directors is a salary payment on which social insurance and PIT is levied, it is considered as deductible.
Bribes, kickbacks, and illegal payments
Bribes, kickbacks, and illegal payments are not deductible. Per anti-corruption law, monetary amounts involved with respect to such payments will be confiscated and criminal proceedings will be instituted.
Fines and penalties
Fines and penalties are not deductible for tax purposes.
Certain taxes paid by a taxpayer, as well as social contributions of employers, are generally deductible for tax purposes.
Tax losses generally may be carried forward for up to four years. However, the annual amount of carried forward losses deductible from taxable income may not exceed 50% of the taxable income in the tax year.
There is no provision for the carryback of losses.
Payments to foreign affiliates
As a general rule, deductible expenses shall be supported by proper documentation. Deductibility of payments to foreign affiliates depends on the nature of the payment, as follows:
- Interest payments are deductible but with restrictions (i.e. thin capitalisation rule may apply, interest paid on loans for construction of buildings and installation of equipment needs to be capitalised during that period).
- Dividend payments are not deductible.
- Technical assistance service payments are deductible if applicable taxes were levied.
- Payments for other services are deductible if applicable taxes were levied.