Mongolia

Corporate - Income determination

Last reviewed - 04 August 2020

Inventory valuation

There is no specific provision in the tax law for inventory valuation, but results of inventory revaluation are 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.

In terms of tax base, taxation rules of capital gains of non-residents  not clear. The CIT Law could be interpreted in a way that the net gain from disposal of shares in a Mongolian company should be subject to CIT. However, since there was no mechanism in practice for non-resident companies to declare income in Mongolia and show the basis for the taxable gain, only withholding tax (WHT) (20% on the gross payment) charged at source of payment is available. With the introduction of an ‘ultimate holder’ concept, applicable from 1 January 2018, under the general rule, the Mongolian entities whose shares are traded will act as withholding agents to report and withhold the taxes of non-resident income from sale of its shares when there is a mining licence or a land right attached to the shares. Except for cases with mining licences and land rights, no mechanism for taxation of capital gains currently exists if the transaction takes place between two non-residents that have no taxable presence in Mongolia.

Dividend income

Dividend income earned by a Mongolian resident entity is subject to WHT of 10%. 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).

Interest income

Interest income is subject to a special income tax of 10%. Interest 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 interest income of an investor who purchased debt instruments of a local entity (not holding mineral resources, oil exploration and mining special licenses), traded in local and international stock markets.

Rental income

Rental income is included in taxable income for tax determination.

Royalty income

Royalty income is taxed at a special rate of 10%. 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.

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.

Foreign income

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

Credit relief is available with respect to foreign tax on income arising from countries that have DTTs with Mongolia, capped at the level of Mongolian tax that would have been due on the same income in Mongolia.