Mongolia’s Business Income Tax Law: Are Businesses Enabled?

• 2023-08-24
• 210

Certainly, Mongolia’s 2019 Business Income Tax Law aims to support small businesses and diversify investments and exports.

That said, the benefits of tax laws depend on adequate guidance and supportive culture of the tax authorities as Mongolia’s tax laws are complex.

In addition, the expertise and integrity of courts and other dispute resolution avenues are crucial.

Below, I highlight some information on Mongolia’s tax system and the Business Income Tax Law:

–      Mongolia has 30 taxes.

–      The country has concluded 30 DTAs (bilateral agreements which prevent double taxation). DTA countries include Singapore, China, Korea, France, Germany, Turkey, Canada, and India.

–      Tax stabilization is provided for investors for 10-20 years. Investment Agreements provide much longer period.

–     The loss carry-forward period is 4 years and is limited to 50% of the annual taxable income.

–      The Tax Department does not issue private rulings, but it issues advisory guidelines.

–      The Ministry of Finance issues rules, for instance, on the sale and transfer of land rights and mineral licenses.

Business Income Tax Rates 

–      1% on up to USD 86,000 annual taxable income (excludes real property, dividend and interest incomes & mining and petroleum industries)

–      2% on the sale or transfer of a real property

–      5% on interest income of an investor who purchased debt instruments issued by a Mongolian commercial bank or by a resident taxpayer not holding mineral or petroleum licences

–      5% on dividend incomes of an investor who purchased shares issued by a resident taxpayer not holding mineral or petroleum licenses

–      5% on the sale of IP rights, and royalty income remitted by a software development business to a non-resident for server renting and software license

–      10% if the taxable income is up to around USD 1.8 million

–      20% on profits transferred to a head company from a permanent establishment. The same rate applies to Mongolian-source income of unregistered non-residents.

–      25% if the taxable income is over USD 1.8 million (which may be reduced by an applicable DTA).

Exempt Incomes

–      Interest incomes from a loan securitized by IP rights

–      Business income of investment funds

–      Primary incomes of institutions which provide loan guarantees

–      Sales income earned under a product sharing agreement in the petroleum sector.

Tax Credits

• 90% of the annual taxable income of USD 86,000-USD 429,000 from goods or services, sale or transfer of shares and securities, asset use or lease, sale or transfer of intangibles or movable property will be refunded (non-mining or non-petroleum business income);
• 50% of the annual taxable income will be refunded if the income derives from dairy, grain, fruit and vegetable produce, animal feed and food plants, and meat products sourced from intensive poultry farms;
• 90% of the annual taxable income will be refunded if the income derives from a primary activities of energy production business (3 years initially, and then 50% tax concession for additional 3 years).

Asset Depreciation  

–      10 years for machineries and equipment

–      15 years for a new Capital work and Land improvement (non-capital city locations & non-mining/ petroleum license holders)

–      25 years for Capital works and Land Improvement (non-mining and non-petroleum industries)

–      40 years for Capital works and Land improvement (mining and exploration license holders)

–      For a duration of intangible assets with a definite useful life (includes mining/ exploration licenses)

–      Expenses accrued as “Mineral exploration and evaluation asset” will be depreciated for a duration of mining.