Income Tax | KPMG | GLOBAL

Mongolia - Income Tax

Mongolia - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

15 February

What is the tax year-end?

31 December

What are the compliance requirements for tax returns in Mongolia?

Mongolia operates a self-assessment tax return filing system. All tax returns are to be filed on an individual basis.

Tax returns are due to be filed with the local tax office by 15 February following the end of the tax year. The balancing payments are due by the same date. There are no available extensions to file, or pay the tax due.

Residents

Residents are subject to income tax on their worldwide income. If the correct amount of personal income tax has been withheld from the individual’s employment or investment income (such as bank interest), there is no requirement to file a tax return. Residents are only required to lodge a tax return if they received income which had not been taxed in Mongolia at source (e.g. foreign investment income, Mongolian rental income etc.).

Non-residents

Non-residents are subject to tax on certain categories of income from Mongolian sources under the concept of limited tax liability. If their income from employment is subject to personal income tax withholding, the tax obligations have already been fulfilled and no Mongolian tax return needs to be filed.

Tax rates

What are the current income tax rates for residents and non-residents in Mongolia?

Residents

As a general rule, personal income tax is levied at a flat 10% rate. There are certain types of income which are either exempt or subject to final withholding tax.

The following income is subject to specific personal income tax rates:

  • Income from sale of immovable property – 2% final withholding tax
  • Income from gambling quiz and lottery – 40% final withholding tax
  • Income from artistic perforamce and sport competitions – 5% final withholding tax.

Non-residents

Same tax rates apply to both resident and non-resident individuals.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Mongolia?

An individual taxpayer shall be considered a tax resident of Mongolia if:

  • He owns a residence in Mongolia;
  • He is physicially present in Mongolia for more than 183 days in a given tax year (days of arrival and departure shall be included in the calculation of the days of presence for the purpose of the residence test); or
  • He is a Mongolian civil servant appointed to work overseas.

Although the tax legislation is silent on the matter of splitting the tax year into a resident and non-resident period in the year of the individual’s arrival to and departure from Mongolia, in practice the Mongolian Tax Authorities accept a position wherby an inbound individual taxpayer is only considered a tax resident of Mongolia starting from the 184th day of their physical presence in Mongolia during their first year of residency.


Is there a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

No

What if the assignee enters the country before their assignment begins?

The number of days of the individual’s physical presence in Mongolia needs to be counted starting from their first entry to Mongolia in a given tax year; this includes any pre-assignment visits and business trips.

Termination of residence

Are there any tax compliance requirements when entering or leaving the country?

The individual taxpayer should be registered with the Mongolian Tax Authorities on arriving in Mongolia in order to obtain a tax reference number. It is also possible to obtain a Tax Book which may serve as evidence of tax payments made to the Mongolian Tax Authorities.

On departure from Mongolia, there are no additional tax requirements to comply with over and above the annual tax return filing process. Once all outstanding taxes have been settled with the Mongolian Tax Authorities, the taxpayer may be deregistered in Mongolia.

Departure tax

Not applicable

What if the assignee comes back for a trip after residency has terminated?

Any post-assignment trips to Mongolia will need be included when calculating the individual’s days of presence in Mongolia for the purposes of determining the tax residence position in the year of departure.

Communication between immigration and taxation authorities

Do the immigration authorities in Mongolia provide information to the local taxation authorities regarding when a person enters or leaves Mongolia?

Yes this information is provided where necessary. In addition, immigration documentation must be provided to the tax authorities when the individual is registered or deregistered for tax purposes.

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

The assignee may be required to file the annual personal income tax return in the year of departure – see above.

Economic employer approach

Do the taxation authorities in Mongolia adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Mongolia considering the adoption of this interpretation of economic employer in the future?

Mongolia is not part of the OECD and has a very limited double taxation treaty network. This means that, in practice, most income derived from employment exercised in Mongolia would be taxable in Mongolia.

De minimus number of days

Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

Not applicable

Types of taxable compensation

What categories are subject to income tax in general situations?

The following types of remuneration are subject to Mongolian personal income tax:

  • Base salary, additional wages, overtime pay, bonuses, incentives, vacation pay, pension contributions made on behalf of the employee, and any employment allowances earned in accordance with the individual’s employment contract;
  • Any allowances provided by the employer to the individual or individual’s family member(s) ;
  • Gifts provided by the employer to an individual or individual’s family member(s) ;
  • Salaries, wages, bonuses, and any other incentives of members of a board of directors, control committees, part-time comittees, task force, and any income akin to these;
  • All types of bonuses and incentives issued by both foreign and domestic business entities, citizens and other entities.

Tax-exempt income

Are there any areas of income that are exempt from taxation in your country? If so, please provide a general definition of these areas.

A tax credit of MNT 84,000 (MNT 7,000 per month) is deductible from Mongolian personal income tax of residents and non-residents who receive employment income. In addition, certain income is tax-exempt under the Personal Tax Law, including:

  • Certain employee pensions, benefits, payments, discounts and reimbursements,
  • Per-diems (up to a limit),
  • Insurance proceeds,
  • Payments, interest and penalties for Government notes payable (i.e. Government bonds).

Expatriate concessions

Are there any concessions made for expatriates in your country?

No

Salary earned from working abroad

Is salary earned from working abroad taxed in Mongolia? If so, how?

Individuals resident in Mongolia are taxable on their worldwide income, including their salary earned from working abroad. Where such income has not been already taxed in Mongolia by means of employer withholding, the individual is required to file an annual personal income tax return to report the foreign salary income and remit the tax due to the Mongolian Tax Authorities.

Where there is a double taxation agreement in place between Mongolia and the foreign country, a tax credit may be available depending on the terms of the treaty.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in your country? If so, how?

Dividends, interest, and rental income

Dividends, interest and rental income are subject to Mongolian personal income tax at the flat rate of 10%.

Gains from employee stock option exercises

No – stocks and securities are only taxable at the point of sale
 

Foreign exchange gains and losses

No
 

Principal residence gains and losses

Total proceeds, as opposed to a gain, from the sale of immovable property are subject to Mongolian personal income tax at a flat rate of 2%.
 

Capital losses

The Mongolian legislation does not specifically discuss availability of capital losses; in practice, any capital losses (e.g. on the sale of shares) may be utilized to reduce the capital gains made in the same tax year, however, there is no facility to carry forward the losses to subsequent tax years.

Personal use items

No

Gifts

There is no inheritance or gift tax in Mongolia.

Employment income includes also gifts made by an employer to an employee or employee’s family member. For taxation of employment income see comments above.

Foreign property reporting

No

Non-resident trusts

No

Additional capital gains tax (CGT) issues and exceptions

Are there capital gains tax exceptions in your country? If so, please discuss.

Pre-CGT assets

No
 

Deemed disposal and acquisition

No

General deductions from income

What are the general deductions from income allowed in your country?

The employee Social Security contributions (maximum 2,880,000 MNT per tax year) are deductible in arriving at the individual’s taxable employment income.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in your country?

The most common form of tax reimbursement is current year gross-up. This enables the tax payable by the employer and the income to which it relates to be dealt with together in the same year’s tax calculation.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in your country? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

Currently no tax estimates or prepayments are required in Mongolia as the tax rate is a flat 10% rate. Personal Income Tax is withheld from the individual’s salary by the employer and remitted to the Mongolian Tax Authorities on a monthly basis.

When are estimates/prepayments/withholding of tax due in your country? For example, monthly, annually, both, and so on.

See above

Relief for foreign taxes

Is there any Relief for Foreign Taxes in your country? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

Mongolia currently has double taxation agreements with the following countries:

  •  Austria
  •  Belarus
  •  Belgium
  •  Bulgaria
  •  Canada
  •  Czech Republic
  •  Democratic People’s Republic of Korea
  •  France
  •  Germany
  •  Hungary
  •  India
  •  Indonesia
  •  Kazakhstan
  •  Kyrgyzstan
  •  Malaysia
  •  People’s Republic of China
  •  Poland
  •  Republic of Korea
  •  Russia
  •  Singapore
  •  Switzerland
  •  Turkey
  •  Ukraine
  •  United Kingdom

No foreign tax credit is available in absence of a double taxation agreement.

General tax credits

What are the general tax credits that may be claimed in your country? Please list below.

A tax credit of MNT 84,000 (7,000 MNT per month) is deductible from Mongolian personal income tax of both resident and non-resident individuals who receive Mongolian employment income.

Sample tax calculation

The sample tax calculation assumes that the individual is resident in Mongolia during their assignment which runs from 1 January 2016 to 31 December 2018.

 

2016

USD

2017

USD

2018

USD

Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = MNT 2,500.00.

Other assumptions

  • All employment income is attributable to Mongolia.
  • All allowances are paid gross.
  • The individual is resident in Mongolia throughout their assignment.
  • All moving expenses can be substantiated with appropriate receipts or invoices.
  • All numbers provided in the calculations are rounded up to closest 1,000 MNT.

Calculation of taxable income

Year-ended

2016

MNT

2017

MNT

2018

MNT

Days in Mongolia during year 365 365 365
Earned income subject to income tax      
Salary 250,000 250,000 250,000
Bonus 50,000 50,000 50,000
Cost-of-living allowance 25,000 25,000 25,000
Housing allowance 30,000 30,000 30,000
Company car 15,000 15,000 15,000
Moving expense reimbursement 50,000 0 50,000
Home leave 0 12,500 0
Education allowance 15,000 15,000 15,000
Total earned income 427,500 390,000 427,500
Investment income 15,000 15,000 15,000
Total income 442,500 405,000 442,500
Deductions 2,880 2,880 2,880
Total taxable income 439,620 402,120 439,620

Calculation of tax liability

Taxable income as above 439,620 402,120 439,620
Income tax (federal and provincial) thereon 44,770 40,212 43,692
Less      
Non-refundable tax credits 84 84 84
Total income tax 43,878 40,128 43,878
Employee contribution to Pension Plan 0 0 0
Employee contribution to Employment Insurance (SHI) 2,880 2,880 2,880

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