Mongolian resident economic entities are taxable on aggregate annual income earned worldwide. Non-resident economic entities carrying out business activities in Mongolia are taxable on the income earned in the territory of Mongolia and from Mongolian sources.
Mongolian corporate income tax (CIT) is levied at the following rates, using a progressive-rate scale that ranges from 1% to 25%, as follows:
- 1% applies to entities with annual revenue of up to 300 million Mongolian tugrik (MNT) (except for those operating in mining, petroleum, alcoholic beverage, and tobacco industries).
- 10% applies to the first MNT 6 billion of annual taxable income.
- If annual taxable income exceeds MNT 6 billion, the tax shall be MNT 600 million plus 25% of income exceeding MNT 6 billion.
However, the income described in the chart below is excluded when determining the annual taxable income and is taxed at different tax rates on a gross basis:
|Source of income||Applicable tax rate (%)|
|Gambling, betting games, and lotteries (net)||40|
|Sale of immovable property||2|
|Sale of rights (e.g. mining licences, special activity licences, and other rights granted by the authorised organisations for conducting specific activities)||10|
A special 5% tax rate will apply on dividend and interest income of an investor who purchased debt instruments or shares of a local entity (not holding mineral resources, oil exploration, and mining special licences) traded in local and international stock markets.
Entities with revenue of up to MNT 300 million will submit CIT returns on a semi-annual basis and will be taxed at 1% (not applicable to entities operating in mining, petroleum, alcoholic beverage, and tobacco industries).
Ultimate beneficial owner (UBO)
The UBO for tax purposes is defined in the General Taxation Law (GTL) as ‘a person who owns 30% or more of the shares, ownership interest, or voting rights of a legal entity holding a mining/petroleum licence or land-use (or possess) right directly or indirectly through legal entities with a chain of ownership at one or more levels; implements voting rights; or has a right to receive dividends’. Simultaneously, a concept of a ‘right holder’ is introduced, which is defined as ‘a person who possesses a mineral, radioactive minerals, and petroleum exploration or mining license or land-use (or possess) right’.
The taxpayer (the right holder) must register its UBO for tax purposes to the tax authorities. If the UBO changes, the taxpayer must notify the authorities within 30 days.
If the tax UBO’s share ownership in the licence holding company is changed as a result of the sale/transfer of shares transaction, the transaction is considered as an 'indirect sale/transfer of the rights', and it is subject to CIT in Mongolia.
Importantly, a tax obligation is imposed on the legal entity holding such rights, but not the person who earns the 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:
- Methodology to assess and impose taxes on income from sales of the right to use or possess land (Decree No. 303).
- Methodology to determine the value of mining licences and assess taxes on income from transfer of mining licences (Decree No. 302).
Breach of the above-mentioned legislative requirements (including failure to comply with requirements for assessing taxes, reporting and/or concealing relevant documents and information, and providing false documentation for tax purposes) shall be subject to cancellation of the respective rights (a mining licence and/or the respective right to use or possess land).
Local income taxes
CIT is levied at the state level in Mongolia. There are no provincial or local corporate income taxes.