Heading towards a new frontier – Mongolia | KPMG | AU

Heading towards a new frontier – Mongolia

Heading towards a new frontier – Mongolia

Julie Donnellan, Nicole Woodcock and Edward Stewart-Moore from Global Mobility Services discuss commercial considerations for mining employees moving to Mongolia.


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Mongolian landscape

The recent announcement on the expansion of the Oyu Tolgoi mine in Mongolia will attract significant interest from many Australian companies who are continuing to feel the impact from the downturn of the mining industry in Australia.

Apart from the commercial considerations, there are many employee and tax related items which should be considered when bidding for projects in a new location. So, what are the top tax and immigration facts for Australian companies considering sending employees to Mongolia?

Employee considerations

It can be difficult for your Australian employees to break residency for tax purposes. This is due to:

  • employees only required for short-term arrangements in the initial phases of the project
  • employees working fly-in, fly-out roster arrangements between Mongolia and Australia
  • employees wanting their family to remain at home in Australia.

This can lead to payroll and withholding challenges for the employer.

Tax considerations

The personal income tax rate is an attractive flat 10 percent in Mongolia, however, the income tax legislation is undeveloped. As a result, interpretation of the legislation can pose a significant challenge.

Individuals considered tax residents of Mongolia are taxed on their worldwide income, inclusive of investment income and capital gains.

Australia and Mongolia do not currently have a Double Taxation Agreement and as a result there are often instances where double taxation cannot be relieved.

Expenses in relation to rental properties, such as mortgage interest, are not allowable deductions in Mongolia. As such, a property which is negatively geared in Australia may be in a tax payable position in Mongolia.

The taxation of property sales also differs to Australia. In most instances, a property which is in a loss position for Australian capital gains tax (CGT) purposes would have a tax liability in Mongolia.

Social Health Insurance in Mongolia contributions arise for both employees (capped) and employers (uncapped). The rate for employer contributions can be as high as 13 percent (depending on industry classification).

By default, only 10 percent of a company’s workforce can be comprised of foreign workers. This quota can be increased in some circumstances.

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