Corporate - Income determinationLast reviewed - 31 January 2023
In Mongolia, a resident entity is subject to corporate income tax on its worldwide income, unless the income is specifically exempt. Corporate income tax 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 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, transferred by national and local state administration office, by a Mongolian tax resident, and/or PE in Mongolia to a non-resident taxpayer;
income from the sale, transfer, or lease of an asset or associated right in Mongolia which 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.
There is no specific provision in the tax law for inventory valuation, but a loss incurred from of inventory revaluation are not deductible from taxable income.
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 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).
A special 5% rate applies on dividend income of an investor who purchased shares of a local entity (not holding mineral resources, oil exploration, and mining special licences) traded in local and international stock markets.
Interest income is subject to a special income tax of 10% if the recipient is a Mongolian resident taxpayer. 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 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 is included in taxable income for tax determination.
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 licence 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.
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.
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 exchange of information agreements with the Mongolian tax authorities, capped at the level of Mongolian tax that would have been due on the same income in Mongolia.