Mongolia

Mongolian resident entities are taxable on their aggregate annual income earned worldwide. Non-resident entities conducting business activities in Mongolia are taxable on income earned within Mongolian territory and from Mongolian sources.

Mongolian corporate income tax (CIT) is levied using a progressive rate scale, as follows:

• 1% for entities with annual revenue up to 300 million Mongolian Tugrik (MNT), except for those in the mining, petroleum, alcoholic beverage, and tobacco industries.
• 10% on the first MNT 6 billion of annual taxable income.
• For annual taxable income exceeding MNT 6 billion, the tax is MNT 600 million plus 25% of the income over MNT 6 billion.

However, certain types of income, as detailed in the chart below, are excluded from the calculation of annual taxable income and are taxed at different rates on a gross basis:

A special 5% tax rate will apply to dividend and interest income for investors who purchase debt instruments or shares of a local entity (excluding those holding mineral resources, oil exploration, and mining special licenses) traded on local and international stock markets.

Entities with annual revenue up to MNT 300 million will submit CIT returns on annual basis and will be taxed at a rate of 1%. This rate does not apply to entities operating in the mining, petroleum, alcoholic beverage, and tobacco industries.

Ultimate beneficial owner (UBO)

Under the General Taxation Law (GTL), the Ultimate Beneficial Owner (UBO) for tax purposes is defined as a person who owns 30% or more of the shares, ownership interest, or voting rights in a legal entity holding a mining or petroleum license, or land-use (or possession) rights, either directly or indirectly through a chain of legal entities; exercises voting rights; or has the right to receive dividends. Concurrently, the concept of a 'right holder' is introduced, defined as a person who possesses a mineral, radioactive minerals, and petroleum exploration or mining license, or land-use (or possession) rights.

The taxpayer (the right holder) must register its UBO for tax purposes with the tax authorities. If there is a change in the UBO, the taxpayer must notify the authorities within 30 days.

If the UBO's share ownership in the license-holding company changes due to the sale or transfer of shares, the transaction is considered an 'indirect sale/transfer of rights' and is subject to corporate income tax (CIT) in Mongolia. Importantly, the tax obligation falls on the legal entity holding such rights, not on the person who earns income from the transaction.

Assessing taxable income

In general, taxable income shall be assessed based on the value of rights pro-rated to the number of shares or percentage of participation that are transferred from a right-holding entity or its UBOs. For the purpose of certainty, the Ministry of Finance passed the Decrees No. 303 and 302, dated 31 December 2019, which set the following methodologies to assess taxable income:

In general, taxable income is assessed based on the value of rights proportional to the number of shares or the percentage of participation transferred from a right-holding entity or its UBOs. To ensure clarity, the Ministry of Finance issued Decrees No. 303 and 302, dated December 31, 2019, establishing the following methodologies to assess taxable income:

• Methodology to assess and impose taxes on income from the sale of the right to use or possess land (Decree No. 303).
• Methodology to determine the value of mining licenses and assess taxes on income from the transfer of mining licenses (Decree No. 302).

Penalties

Breach of the above-mentioned legislative requirements—including failure to properly assess taxes, report relevant information, or conceal documents and information, as well as providing false documentation for tax purposes—may result in the cancellation of the respective rights, such as mining licenses and/or land-use or possession rights.

Local income taxes

CIT is levied at the state level in Mongolia. There are no provincial or local corporate income taxes.