Mongolia

In Mongolia, a resident entity is subject to CIT on its worldwide income, unless the income is specifically exempt. CIT applies to all taxable income and capital gains, at various rates dependent on the type of income and gains.

Non-resident corporations are taxed in Mongolia on their income earned in Mongolia or sourced from Mongolia (from which the income provider entity in Mongolia should withhold taxes), as well as income from a Mongolian source arising through a PE in Mongolia.

Mongolian-source income is defined in the CIT Law as including:

• income provided by a Mongolian tax resident and/or PE in Mongolia to a non-resident taxpayer for goods sold in Mongolia or for work performed and services provided directly or electronically
• income earned by a non-resident taxpayer from sport, arts, culture, and other events organised in the territory of Mongolia
• dividend income paid by a Mongolian tax resident to a non-resident taxpayer
• interest income paid or transferred by the national and local state administration office, by a Mongolian tax resident, and/or by a PE in Mongolia to a non-resident taxpayer
• income from the sale, transfer, or lease of an asset or associated right in Mongolia that is possessed, used, or owned by a non-resident taxpayer
• royalty income, income from the lease, usage, and right to use movable and immovable property, intangible assets, interest on finance leases, and income from technical, management, consulting, and other services provided by a Mongolian tax resident to a non-resident taxpayer
• income transferred by a PE in Mongolia to a non-resident taxpayer operating through the PE
• income from the sale or transfer of an asset, associated rights possessed, used or owned by a PE of a non-resident taxpayer
• income earned by a non-resident taxpayer from the sale or lease of movable and immovable property or intangible assets to be used for the activities of a PE in Mongolia, and
• other income equivalent to those specified above.

Inventory valuation

There is no specific provision in the tax law for inventory valuation, but a loss incurred from inventory revaluation is not deductible from taxable income.

Capital gains

Capital and ordinary transactions are treated in the same way for tax purposes (i.e. included in annual taxable income). An exception is provided for income from sales of immovable property, which is subject to tax of 2% on gross sales proceeds.

A non-resident taxpayer’s income earned in Mongolia or from a Mongolian source is taxed in Mongolia. The definition of Mongolian-source income includes income from a sale or transfer of asset and associated rights in Mongolia (including shares). Such income is taxed with a 20% withholding tax (WHT) on a gross basis.

Obligations for withholding, reporting, and paying such tax rests with a Mongolian resident taxpayer who provides such income to a non-resident. However, in absence of this agent (i.e. in case a transaction is done between two non-residents), a non-resident-seller should be responsible for tax reporting and payment of a Mongolian WHT on a self-assessment basis.

Dividend income

Dividend income earned by a Mongolian resident entity is subject to WHT of 10% if the recipient is a Mongolian resident taxpayer. Dividend income to be remitted out of the country to a foreign tax resident is subject to WHT at 20% but may be reduced by an applicable double tax treaty (DTT).

There is a special provision for investors who have purchased shares of a local entity (excluding those holding licences for mineral resources, oil exploration, and mining) traded in both local and international stock markets. In such cases, the dividend income is subject to a reduced WHT rate of 5%.

Interest income

Interest income is subject to a special income tax of 10% if the recipient is a Mongolian resident taxpayer. For interest income remitted out of the country to a foreign tax resident, the WHT rate is 20%, which may be reduced by an applicable DTT.

A special 5% rate applies on interest income of an investor who purchased debt instruments issued by a Mongolian commercial bank and debt instruments of a local entity (not holding mineral resources, oil exploration, and mining special licences) traded in local and international stock markets.

Rental income

Rental income is included in taxable income for tax determination.

Royalty income

Generally, royalty income is taxed at a special rate of 10% if the recipient is a Mongolian resident taxpayer. Royalty income to be remitted out of the country to a foreign tax resident is subject to WHT at 20% but may be reduced by an applicable DTT.

A special 5% rate applies on software license fee and server renting fee income transferred to a non-resident legal entity by a resident taxpayer in Mongolia that is engaged in primary activities of software development.

Partnership income

There is no transparent partnership concept in Mongolia. Partnership income is treated as income of a legal entity and is subject to CIT.

Unrealised currency exchange gains/losses

Unrealised currency exchange gains are not considered as taxable income, and, at the same time, unrealised losses are not deductible from taxable income.

Exempt income

Tax exempt income includes:

• Interest on bonds issued by the government, capital city, and the Development Bank of Mongolia.
• Income of a loan guarantee institution earned from its primary activities specified in the law.
• Income collected from its members for services specified in the charter document of an Apartment Owners’ Association.
• Dividend income and income subject to common tax rate (including operational income, income from sale of shares and securities, income from quiz, gambling, and lottery activities, income from sale of assets, etc.) derived from sale of its portion of product and earned by a taxpayer who operates in the territory of Mongolia under a product-sharing contract in the oil industry.
• Income of a cooperative earned from a price difference for the intermediary services for sale of its member’s products.
• Income distributed from the state budget to the future heritage fund and the investment income of the fund.
• Income from activities of organisations specified in the Law on Education and the Law on Health.
• Dividend distributed from state-owned enterprises to the government.
• Income from economic activities in connection with the implementation of the purposes specified in the charter of a non-profit organisation.
• Income from dividend specified in the Law on Sovereign Wealth Fund.
• Income from the sale of innovative products, works, and services specified in the Innovation Law and newly created by a start-up company within five years from the date of its registration.
• Operating income of investment funds.

Foreign income

Mongolian legal entities pay tax on their worldwide income. Unremitted earnings are taxed the same as ordinary earnings.

Credit relief is available for foreign taxes paid on income from countries that have information exchange agreements with the Mongolian tax authorities. This relief is capped at the amount of Mongolian tax that would have been payable on the same income if it had been earned in Mongolia.