Key Takeaways
The Mongolian Government is drafting a new VAT Bill to be submitted to Parliament in 2025, bringing significant improvements for businesses. Key changes include a streamlined VAT system with fewer exemptions, higher registration thresholds, and faster input VAT recovery. However, ambiguities around reverse-charge VAT (RCVAT) remain. The public can raise comments and concerns on the draft bill up until 12 April 2025 to contribute towards a more business-friendly tax future.
Background
The existing VAT Act came into force on 1 January 2016. The key changes that the 2016 VAT Act introduced were:
The E-receipt system, which scrapped paper VAT invoices.
The transformation of reverse-charged VAT into a VAT withholding system. Under the 2016 VAT Act, 10% VAT withholding from service fees to non-Mongolian service providers is non-recoverable for the Mongolian customer and the non-resident service provider. Alas, it is not recognised as an input VAT for Mongolian taxpayers.
The recoverability of input VAT paid on the purchase of fixed assets over several years.
Highlights of the 2025 VAT Bill
The draft VAT Bill drastically improves on the existing legislation, which we see as very positive changes for businesses. The following changes have been included in the draft Bill.
No list of VAT-able goods and services. Instead, the VAT Bill takes the position that all goods and services will be VAT-able, except those that are exempted from VAT. It follows the principle that VAT should leave businesses in a net position.
No long list of VAT exemptions. The existing 2016 VAT Act contains 49 clauses that give exemptions. The 2025 VAT Bill contains only 16 clauses that give exemptions, retaining only the necessary activities such as financial services, sales of shares/securities/financial instruments, exportation of non-finished mineral products, importation of personal computers for personal usage and religious activities. This will be good news for existing VAT-exempted businesses who are unable to recover their input VAT as a result of their sales being VAT-exempt and it will lower their costs.
Abolition of input VAT recovery over 5/10 years paid on the purchase of fixed assets.
The threshold for VAT registration has been increased to sales of MNT 400 million or more in a rolling 12-month period, with the option to register for VAT if businesses’ sales reach 20% of that threshold.
Deadline to remit VAT has been changed to the 15th of the month, instead of the 10th of the month.
Deferral of VAT remittance to the Mongolian revenue for up to 3 months if the taxpayer has a good track record.
Consumers will be given the following VAT reliefs:
100% VAT relief on monthly purchases of up to MNT 500,000
50% VAT relief on monthly purchases between MNT500,000 and MNT800,000
20% VAT relief on monthly purchases over MNT800,001
As for reverse-charge VAT (RCVAT), there seems to be some ambiguities as to whether the 2025 draft Bill intends:
For the Mongolian taxpayer to reverse-charge the VAT on payments to foreign service providers, or
For the Mongolian taxpayer to withhold 10% VAT from payments to foreign service providers, as is the practice under the existing 2016 VAT Act.
Subsection 9.1 of the 2025 VAT Bill provides that all goods, work and services sold in Mongolia, imported into Mongolia or exported from Mongolia are chargeable to VAT. This implies that imports of services will be treated as purchases and thus the VAT will be recoverable for Mongolian businesses.
The cause for ambiguities lies in the following provisions:
Subsection 14.3 – VAT withheld from payments to non-residents for services rendered shall be treated as a VAT receivable.
Subsection 16.2 – VAT withheld from non-residents will be reported in the monthly VAT returns. But if the person who withheld the VAT is not VAT registered, then it should be reported in their personal income tax returns or corporate income tax returns.
Conclusion
The 2025 VAT Bill marks a significant step forward in creating a more business-friendly tax environment in Mongolia. By simplifying VAT exemptions, accelerating input VAT recovery, and increasing the registration threshold, the proposed reforms are poised to reduce administrative burdens and lower costs for businesses. However, clarity around the treatment of reverse-charge VAT will be crucial to ensure that businesses are not inadvertently disadvantaged. As the Government finalizes the legislation, we encourage businesses to stay informed and participate in the public consultation process to help shape a tax system that supports sustainable growth.
Gain access to tailored tax solutions
Should you have any questions or require further clarification, our dedicated team is ready to assist you. Please feel free to reach out to us via email at odendevsambuu@onch.mn; and tjavkhlant@onch.mn, by phone at +976-70120450, or visit us at 15/F, ICC Tower, Jamiyan-Gun Street, 1st Khoroo, Sukhbaatar District, 14240-0025 Ulaanbaatar, Mongolia.
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