This is part 4 of the Doing Business in Mongolia series. Read the other blog posts in the series here:
Mongolia's tax system includes corporate income tax, VAT, customs duties, and social security contributions.
In Mongolia, businesses must register for VAT when their sales income hits MNT 50 million. VAT is levied on a variety of transactions, making it a crucial element of the country's tax landscape.
VAT applies to:
Domestic sales and imports are subject to a 10% VAT, while exports are zero-rated to encourage global trade. However, not all transactions fall under VAT—certain goods and services are exempt, including the sale or transfer of shares, gold, homes, and raw or combed cashmere, as well as banking, insurance, and health services. Additionally, businesses engaged in exempt activities cannot recover VAT.
VAT filings are conveniently done electronically on a monthly basis, streamlining the process for businesses.
Mongolia does not impose traditional stamp duty. A mistranslation led to the term "stamp duty" being used to describe government service fees. These fees, which are paid online, cover a wide range of services such as applying for passports, work permits, company registration, licenses, and visas.
Customs duties in Mongolia can range from 0% to 40%, with most goods taxed at a standard 5% rate. Certain items, including renewable energy equipment, imported lumber, and machinery for oil exploration, are exempt from these duties.
Excise taxes, on the other hand, apply to a variety of goods, including alcoholic beverages, tobacco, fuels, automobiles, and even gambling equipment. Specific rates are set based on factors such as the octane level of petrol or the engine size of vehicles, ensuring the tax system remains adaptable to various import conditions.
In addition to VAT, customs, and excise duties, businesses in Mongolia are subject to immovable property tax, which ranges from 0.6% to 1%, and mineral royalties, which vary depending on the type of mineral and its level of processing. These taxes contribute to Mongolia's diverse taxation framework, which supports both local and international business operations.
To determine tax residency, Mongolia applies a statutory residence test under the Personal Income Tax Act of 2019 (as amended). An individual is considered a tax resident if they meet one of the following criteria:
In cases where an individual is considered a resident in both Mongolia and another state, the issue of dual residence can be resolved based on the provisions of the relevant tax treaty between the two countries.
Tax residents are required to pay tax on their worldwide income, with varying rates based on the nature of the income.
For employment-related income such as salary and wages, tax residents are subject to a 10% withholding tax, which is deducted directly by the employer. This flat rate ensures consistency and simplicity for both employees and employers.
Additionally, residents working under an employment contract in Mongolia are eligible for a tax allowance, which helps reduce the overall income tax liability. The specific allowance details will depend on various factors such as family status and other qualifying expenses.
Other rates include all from the gross amount:
Self-employed individuals such as lawyers, doctors, teachers, architects, accountants, and contract workers are subject to a 10% tax rate on their income. However, they can deduct eligible business expenses to reduce their taxable income, making the tax system more flexible for independent professionals.
Tax residents are required to submit their annual tax returns by 15 February each year. The process is done electronically, simplifying the filing for individuals. Non-residents, on the other hand, are subject to a 20% withholding tax on income derived from Mongolian sources, and the Mongolian resident making the payment is responsible for withholding and remitting the tax.
Social Security
Under the Social Insurance Act of 1994, all Mongolian citizens, foreign nationals, and stateless persons employed by a business or working as independent contractors are required to make mandatory social security contributions. These contributions cover a range of benefits, including:
The rates for these contributions are determined for both the individual and employer, ensuring coverage across various welfare programs.
