The tax year is the calendar year.
Companies must submit a quarterly or semi-annual return by the 20th day of the month following the end of each respective period and an annual return by 10 February after the end of the tax year.
A withholder must prepare and submit a WHT return on a quarterly basis by the 20th day of the first month of the following respective period 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. However, the tax authorities practically do not use their right to establish the payment schedule, and the tax payment deadline is the same as the tax reporting deadline. 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.
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 ten 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 process is based on a risk-based system. Hence, there is no pre-defined cycle. However, the regular cycle in Mongolia is up to four years in practice due the statute of limitation period of four years. The tax audit is also conducted if the company requests a tax refund from tax authorities or liquidates its company. Moreover, a tax audit can be conducted 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 four 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, and, in this respect, they are especially keen to scrutinise cross-border transactions between related parties.
Another hot topic in Mongolia right now is transfer pricing. The transfer pricing concept became more comprehensive in 2020 and detailed transfer pricing rules were introduced to align with the Transfer Pricing Guidelines developed by the OECD.
In particular, 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.