The tax year is the calendar year.
Companies must submit a quarterly return by the 20th day of the month following the end of each quarter and an annual return by 10 February after the end of the tax year.
A withholder must prepare and submit a quarterly return of the tax deducted by the 20th day of the first month of the following quarter and an annual return by 10 February after the end of the tax year.
Payment of tax
A taxpayer shall pay the taxes due in advance by the 25th day of each month in accordance with the payment schedule based on the previous year. Year-end settlement is made by 10 February of the following year (along with the annual tax statement).
In practice, the Mongolian tax authorities allow concessions as follows:
Where total tax paid exceeds the tax liability, the excess may be credited against other taxes due or credited against future tax payments. The overpayment also may, theoretically, be refunded; however, the practice of refunding in Mongolia is not clear or consistent.
An economic entity or organisation that has withheld tax from a payment of dividends, royalties, sale of rights, or a payment of income to a taxpayer should transfer the WHT to the tax authorities within seven working days. Tax withheld relating to the sale of immovable property should be transferred to the tax authorities within ten working days.
Tax audit process
The tax audit cycle is not clearly stated in the tax laws. However, the regular cycle in Mongolia is three to five years in practice, and it is very common if the company requests a refund from tax authorities or liquidates its company. Moreover, a tax audit can come anytime if the tax authorities suspect some risk or misuse of the legislation or receive information from a trustworthy source about tax evasion.
Statute of limitations
The statute of limitations in Mongolia is five years for tax arrears, fines, and penalties. However, the dispute settlement timeframe shall not pertain to payment of tax, fine, and penalty debts.
Topics of focus for tax authorities
The tax authorities normally focus their attention on issues like understatement of income, overstatement of expenses, and withholding obligations of taxpayers.
Another hot topic in Mongolia right now is transfer pricing. The transfer pricing concept is at an early stage of development. Nevertheless, the basic principle governing Mongolian transfer pricing rules is that transactions between related parties should be undertaken at fair market value.
The tax authorities introduced new transfer pricing regulation. This transfer pricing regulation applies to controlled transactions between related parties. The list of controlled transactions, transfer pricing methods to be applied, transfer pricing documentation requirements, and very concise comparability analysis items are based on the OECD Transfer Pricing Guidelines.
PE is also becoming one of the focus areas of the tax authorities. Although it is possible for PEs to be registered as taxpayers, determination of taxable income of PE is still in question.