Mongolia

At present, the following types of incentives exist:

• The primary activity income of a heating and electric power production project that commenced 1 January 2023 onwards shall receive a tax credit of 90% for the first three years and 50% for the following three years starting from the subsequent reporting period of gaining profit.
• A tax credit of 90% is available to a taxpayer whose revenue is less than MNT 1.5 billion and operates in industries other than mining, petroleum, alcoholic beverage, and tobacco.
• Companies that employ disabled people (i.e. people who lost more than 50% of working capacity) can get a tax credit in proportion to the percentage of the disabled employees to the total number of employees.
• In alignment with corporate social responsibility objectives, investments in fixed assets and financial support or donations provided to unrelated parties for the following activities, which are not directly related to the taxpayer's income-generated operations , are eligible for the CIT credit from September 2024 to 1 January 2025. The amount of the CIT credit shall not exceed 1% of the taxable income for the relevant tax year.
  
  • Protection, enhancement, sustainable use, and restoration of natural resources such as forests, wildlife, and water; reduction of the air, water, and soil pollution; and mitigation of desertification.
  • Provision of care services for the elderly, person with disabilities, and children; protection of their rights; creation of accessible environments for persons with disabilities; and construction and operation of playgrounds, camps, and parks for children.
  • Protection and restoration of cultural heritage; operation of museums and libraries; creation, performance, and dissemination of music, films crafts, and stage arts; and construction and operation of cultural and creative industry complexes.
  • Construction, operation, protection, and maintenance of public road, squares and parks support for public transportation developments.
  • Compensation for damage caused by force majeure and other similar disasters.
  • Construction and operation of sports facilities; organisation of Olympic-type competitions; and financial support provided to Olympic-type sports associations registered with the Mongolian National Olympic Committee, including teams, professional athletes and coaches.
  • Scholarships provided to students studying at foreign universities in priority areas announced by the Government, as well as the students at accredited domestic universities and vocational and technical education institutions.
  • Scholarships provided for research purposes to universities and the Academy of Sciences.
  • Operation of state and local government-owned educational and healthcare institutions
  • Operation of special governments funds.
  • Other restoration expenses.

• A 50% tax credit is available from CIT for an economic entity that produces or grows the following products:
• Cereal, potatoes, and vegetables.
• Milk.
• Fruit and berries.
• Fodder plants.
• Meat and meat products produced through intensive poultry farming.
• Free Trade Zones (FTZs) have a special regime in terms of tax and customs (see below).

• When a taxpayer relocates its plant or warehouse from the capital city to an area outside the capital city limits, excluding Baganuur, Bagakhangai, and Nalaikh districts, the expenses incurred in connection with the relocation (provided they meet the general requirements for deductible expenses) shall be deductible from taxable income with an additional 50% deductibility. This provision does not apply to taxpayers holding licences for minerals, radioactive minerals, oil exploration, or mining.
• One-off salary expense (of the local employee hired) shall be deductible from taxable income with additional 20% deductibility, for a taxpayer, if all the following requirements are met:
• Carries out its basic business activities outside of the capital city limits, other than Baganuur, Bagakhangai, and Nalaikh district.
• Registers in the local territory in which a headquarter of the business entity operates.
• Registers in the local tax department.
• Hires a job seeking citizen under an employment agreement for a period of 183 days or more during the course of 12 consecutive months.

This excludes taxpayers holding minerals, radioactive minerals, oil exploration, and mining licence.

• If a taxpayer residing in Mongolia issues travel tickets or travel rights to its employees, in forms other than cash that will be used for public transportation within the capital city, purchase cost of such tickets and travel rights shall be deductible from taxable income with additional 50% deductibility. This excludes taxpayers holding minerals, radioactive minerals, oil exploration, and mining licence.

Foreign investment incentives

The Law on Investment provides tax incentives, including exemptions from tax, tax credits, possibility to use accelerated depreciation for tax purposes, tax loss carryforward, and deduction of employee training costs from taxable income.

Tax stabilisation

The Law on Investment also provides a 'stabilisation certificate' in order to create a more stable tax environment in Mongolia. By obtaining a stabilisation certificate, investors can stabilise applicable rates of the following taxes:

• CIT.
• Customs duties.
• VAT.
• Minerals royalties.

The holder of a stabilisation certificate can stabilise tax rates for a period from 5 to 18 years, depending on amount of investment, industry of investment, and geographic location of investment in Mongolia (see Stabilisation certificate terms below). Under the valid period of a stabilisation certificate, investors also have the right to apply effective tax rates provided in general legislation if such rates are more beneficial for investors.

The criteria of issuing a stabilisation certificate are:

• the total investment amount specified in the business plan and feasibility study reaches thresholds specified in the stabilisation certificate terms (see below)
• an environmental impact assessment should be carried out
• the investment should create new permanent jobs, and
• the investment should introduce innovative technology.

An investor who made an investment in tobacco and alcohol related activities cannot benefit from tax stabilisation.

If certain conditions are met, the stabilisation certificate period may be extended by 1.5 times for some projects.

The conditions are that the projects:

• produce products that substitute for imported products or export-oriented products that are important for the long-term social and economic development of Mongolia, that will require investment of more than MNT 500 billion, and have a development period of more than three years, or
• produce value-added, processed products for export.

In addition to above, the law provides for incentives with respect to customs duty (exemption) and VAT (zero-rate) on imported equipment and machinery during the construction period of specific projects, as below:

• Construction of a factory for processing construction materials, petroleum, agricultural products, and products intended for export.
• Nano, bio, and innovation technology plant construction.
• Construction of power plants and railroads.

Stabilisation certificate terms

For the mining, heavy industry, and infrastructure sectors, a stabilisation certificate is issued as follows:

For any other sector, a stabilisation certificate is issued as follows:

Free Trade Zones (FTZs)

Establishing FTZs

Currently, there are three FTZs established at the border towns of Altanbulag, Zamyn-Uud, and Tsagaan Nuur.

FTZs have special regimes in terms of tax, customs, transit, state registration, foreign currency, specialised inspection, and visa and labour regulations. Companies registered in FTZs should commence their operations within a year after their registration; otherwise, their registration will be suspended.

Tax and customs regime

CIT

Businesses that have invested 500,000 United States dollars (USD) or more in the FTZs operating to improve infrastructures, such as energy and heating sources, pipeline networks, clean water supplies, wastewater sewage, auto roads, railways, airports, and basic communication lines, shall receive a CIT discount equal to 50% of their invested capital in the FTZ.

For businesses with more than USD 300,000 invested in building warehouses, loading and unloading facilities, hotels, tourist camps, or manufacturers of export and import-substituted goods in the FTZ shall receive a CIT discount equal to 50% of their invested capital in the FTZ.

Loss-making entities in the FTZs can carry forward their losses reflected on their CIT return up to five years from the time of becoming fully operational to reduce their future tax payable.

Entities using innovated and enhanced technology in their businesses shall be fully exempted from CIT for the first five years from the time of starting operation in the FTZs.

VAT

Goods imported to the FTZs are not subject to VAT. If goods are to be transferred from the customs territory to the FTZs, there will also be no VAT on those goods, and any previously paid VAT will be reimbursed accordingly based on related documents.

There will be a 0% rate on VAT for domestic goods to be transferred from the customs territory to the FTZs.

In addition to purchases per Article 38.1.4 of the Law on Custom Tax and Tariff (which refer to goods for passengers’ personal use), purchases in the FTZ of up to MNT 3 million made by passengers are exempt from VAT when entered into the customs territory.

There will be no VAT imposed on goods and services manufactured and sold by registered individuals and businesses in the FTZs.

Customs and excise taxes

Goods imported to the FTZs are not subject to customs and excise taxes. If goods are to be transferred from the customs territory to the FTZs, there will be no customs and excise taxes on those goods, and any of these taxes previously paid will be reimbursed accordingly based on related documents.

In addition to purchases per Article 38.1.4 of the Law on Custom Tax and Tariff (which refer to goods for passengers’ personal use), purchases in the FTZ of up to MNT 3 million made by passengers are exempt from customs tax when entered into the customs territory.

Any goods, except purchases made by passengers as mentioned above, are subject to customs and related taxes as required in the regulation when transferred from the FTZs to the customs territory.

Goods exported from the FTZs are not subject to taxation.

Land payments and property taxes in the FTZ

Individuals and businesses may request a land possession and usage right in the FTZs through either project bid or auction.

Entities operating in trade, tourism, and hotel sectors in the FTZs are fully exempted from land possession and usage right payment for the first five years from commencement of operation. This payment is further reduced up to 50% for the following three years.

Businesses operating to improve infrastructures in the FTZs, such as energy and heating sources, pipeline networks, clean water supplies, wastewater sewage, auto roads, railways, airports, and basic communication lines, will be fully exempted from land payment for the first ten years from start of operation.

Buildings and facilities built and registered in the FTZs are fully exempted from the immovable property tax.

Foreign tax credit

A provision exists for a foreign tax credit, applicable to taxes remitted to foreign jurisdictions. This credit is limited to the equivalent tax liability that would have been assessed in Mongolia on the same income. Furthermore, upon meeting certain prerequisites, taxes paid in foreign countries that are party to information exchange agreements with Mongolian tax authorities may be eligible for credit. This credit can be applied against tax liabilities in Mongolia, thereby mitigating the potential for double taxation.