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International tax: Mongolian Highlights 2014

Mongolian Highlights -2014


Investment basics:

Currency Mongolian Togrog (MNT)

Foreign exchange control According to the Law on Conducting Settlement in National Currency, MNT must be used in transactions between Mongolian entities (except for banks and non-bank financial institutions) and individuals unless specifically approved otherwise by the central bank. Transactions between Mongolian and foreign legal entities can be denominated in foreign currency. Both residents and non-residents can hold bank accounts in any currency. There are no restrictions on the remittance of profits, dividends, interest or royalties.

Accounting principles/financial statements Financial statements should be prepared in accordance with IFRS. Financial statements must be submitted quarterly by the 20th of the following month and annually by 10 February of the year following the calendar year.

Principal business entities These are the joint stock company, limited liability company, partnership and limited partnership. Foreign entities usually establish a subsidiary in the form of a limited liability company or representative office. Representative offices, however, may not engage in any income-generating activities.

Corporate taxation:

Residence – A corporation is a resident if it is incorporated in Mongolia.

Basis – Residents are taxed on worldwide income; nonresidents are taxed only on Mongolian-source income.

Taxable income –Tax is imposed on a company’s profits. Taxable revenue includes income from the sale of products, the provision of services, the lease or sale of

assets, the sale of shares and other operations.

Taxation of dividends – Dividends received are included in taxable income.

Capital gains– There is no separate capital gains tax; capital gains are taxed at the standard graduated corporate income tax rate.

Losses Losses may be carried forward for 4 to 8 years for businesses in the mineral and infrastructure sectors, and up to 2 years for other businesses. In the latter case, only 50% of losses may be offset against taxable profits.

Rate – Taxable income up to MNT 3 billion is taxed at 10%; the excess is taxed at 25%.

Surtax No

Alternative minimum tax –No

Foreign tax credit A foreign tax credit is available only if so provided under an applicable tax treaty.

Participation exemption –No

Holding company regime –No

Incentives – Tax incentives or benefits are available to industries in the agricultural and oil and gas sectors.

Withholding tax:

Dividends – Dividends paid to a resident are subject to a 10% withholding tax (on the gross amount). Exemption from tax of dividends paid to individuals ended in December 2013. Dividends paid to a nonresident taxpayer are subject to a 20% withholding tax unless the rate is reduced under a tax treaty.

Interest – Interest paid to a nonresident is subject to a 20% withholding tax unless the rate is reduced under a tax treaty.

Royalties – Royalties paid to a nonresident are subject to a 20% withholding tax unless the rate is reduced under a tax treaty.

Technical service fees –Fees billed for services rendered within Mongolia are subject to a 20% withholding tax.

Offshore goods and services – All income of goods and services sourced from Mongolia by nonresident taxpayers directly or through the use of the internet or other electronic means is subject to a 20% withholding tax.

Branch remittance tax –Nonresident entities are subject to a 20% profit repatriation tax unless the rate is reduced under a tax treaty.

The New Investment Law

This law came into effect on 1 November 2013 and invalidated two major investment laws - the 2012 Law of Regulation of Foreign Investment in Entities Operating in Strategic Sectors, which was responsible for the economic downturns in 2012 and 2013, and the Foreign Investment Law of 1993. It also amended provisions of existing laws to make them consistent with the new Investment Law. 

The law applies to both local and foreign investors and provides them with common legal investment guarantees, mainly in the form of guaranteed tax environment and stabilization for investments exceeding MNT 30 billion. 

 

Except for investments by state-owned foreign legal entities, the law removes restrictions to investments in sectors previously considered strategic. 

 

Other – A 2% withholding tax applies to gains derived from the sale of real property.

 

Other taxes on corporations:

Capital duty – No

Payroll tax – An employer must withhold income tax from employee wages and remit the tax to the government.

Real property tax –Tax imposed at a rate of 0.6% of the value of the property.

Social security –An employer is required to pay social insurance, health insurance, benefit insurance, unemployment insurance and industry accident insurance contributions at combined rates of 11% to 13%, depending on sector classification.

Stamp duty – Documentary stamp duties are imposed at various rates.

Transfer tax – No

Other – Various excise taxes are levied on tobacco, alcohol, gasoline and passenger vehicles.

Anti-avoidance rules:

Transfer pricing –Transactions between related parties are valued for tax purposes at fair market value. The Corporate Income Tax Law defines related parties and allows the tax authorities to adjust the price of a transaction to reflect an arm’s length price if it is above or below fair market values.

Thin capitalization –Certain regulated entities, such as banks, insurance and financial services companies, must maintain a minimum statutory capital. A shareholder’s interest-bearing loan is capped at 3 times the equity contribution.

Controlled foreign companies – No

Other – No

Disclosure requirements – No

Administration and compliance:

Tax year – Calendar year

Consolidated returns –Consolidated tax returns are not permitted; each company must file a separate return.

Filing requirements –A company must file and pay corporate income tax by 20th of the month following the end of each quarter. An annual return must be submitted by 10 February of the year following the calendar year.

Penalties – Penalties apply for failure to file, late filing or the filing of fraudulent returns.

Rulings – Taxpayers can seek tax rulings from the National Tax Administration.

Personal taxation:

Basis – Mongolian residents are taxed on worldwide income; non-residents are taxed only on Mongolian-source income.

Residence – An individual is resident if he/she resides in Mongolia for 183 or more days during the tax year or maintains a residence in Mongolia.

Filing status –Individuals must file separate returns; joint filing is not permitted.

Taxable income –Individuals must include all gross income from whatever sources derived in the taxable year.

Capital gains –Gross income from the sale of real property is taxed at a rate of 2%. Gains from the sale of securities are taxed at a rate of 10%.


Deductions and allowances –Deductions are allowed for social insurance payments. An annual tax credit is granted equal to MNT 84,000.

Rates – 10%

Other taxes on individuals:

Capital duty – No

Stamp duty – Documentary stamp duties are imposed at various rates.

Capital acquisitions tax –No  

Real property tax –No 

Inheritance/estate tax – No

Net wealth/net worth tax –No

Social security –An employee is required to pay social insurance, health insurance, benefit insurance, unemployment insurance and industry accident insurance contributions at a rate of 10% of gross salary. Employee contributions are capped at MNT 192,000 per month from September 2013.

Administration and compliance:

Tax year – Calendar year

Filing and payment –Tax on employment income is withheld by the employer and remitted to the tax authorities. Individuals with employment income only are not required to file a return. For all other sources of income, an individual must file a return and make a final tax payment by 15 February of the year following the tax year.

Penalties – Penalties apply for failure to file, late filing, the filing of fraudulent returns, and late payment of taxes due.

 

Value added tax:

Taxable transactions –VAT is levied on the sale of goods and the provision of services. A number of transactions are exempt from VAT, including transactions in stock or securities, banking services and the sale of gold. 

Rates – 10%

Registration – Taxpayers must register if their taxable sales reach MNT 10 million.

Filing and payment –Monthly payments and filings are due by the 10th of the following month.

Source of law: General Taxation Law, Law on Economic Entities Income Tax, Law on Personal Income Tax, Law on Social Insurance Tax, Law on Value Added Tax, the New Investment Law, Law on Excise Tax and relevant regulations.

Tax treaties: Mongolia has concluded 35 tax treaties and has cancelled four treaties. The treaty with UAE is in force until January 1, 2015; Kuwait treaty until April 1, 2015.  The treaties with the Netherlands and Luxembourg are terminated as of January 1, 2014.    

Tax authorities: National Tax Administration

International organizations: WTO

Deloitte contact

Onchinsuren Dendevsambuu

E-mail: odendevsambuu@deloitte.com

 

Nestor C. Umbac

Email: numbac@deloitte.com

 

Enkhsanaa Erdene-ochir

Email: eerdeneochir@deloitte.com

 

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