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Mongolia – Tax and Social Security Undergo Further Changes

Mongolia –Tax & Social Security Undergo Further Changes

This report covers some interesting personal income tax and social security rules in Mongolia that were recently approved, but appear to be a reversal of decisions made earlier in 2017.

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Flash Alert 2018-026

This GMS Flash Alert highlights recent tax and social security changes in Mongolia that have been approved by the country’s parliament and represent a reversal, in some cases, of previous decisions made. 

WHY THIS MATTERS

The changes and reversals, which we discuss further below, have created some confusion and uncertainty for individual taxpayers and their employers.  Affected parties should consult with their qualified tax professionals before taking any decisions.

In cases of assignments to Mongolia where assignees are subject to Mongolian taxation, and for assignees working outside Mongolia but still subject to Mongolian taxation, international assignment cost projections and budgeting should reflect the changes described in this newsletter once they come into effect.  Where appropriate, adjustments to gross-up packages and withholding taxes need to be considered.

Personal Income Tax (PIT)

The PIT rate on employment income for resident taxpayers (i.e., those who stay more than 183 days in Mongolia in the tax year) will revert back to a flat 10-percent rate, reversing the previously-approved marginal tax rates of 15 percent, 20 percent, and 25 percent, which represented an effort to make the tax system more progressive and boost yields to the country’s treasury.  (For prior coverage of earlier moves to amend the country’s tax system, see GMS Flash Alert 2017-077, 26 April 2017.)

The tax rate on Mongolian-sourced income (including fringe benefits, property income, dividends, business income, and interest income) for nonresidents will remain at the newly-introduced flat 20-percent tax rate.  Prior to 1 January 2018, the same income tax rate had been applicable to both resident and nonresident taxpayers.

The annual PIT credit of MNT 120,000 has also been revised as shown below – this also represents a reversal of the higher credit that had previously been agreed.  For monthly payroll purposes, we illustrate this on a monthly basis.  Based on the newly approved law1, where income is above MNT 36 million per annum (approx. USD 14,000), there will no longer be a PIT credit available.

Monthly taxable employment income (MNT)
2017 credit 2018 credit previous change
2018 credit new change
2019 onwards
Up to 500,000 7,000 10,000 13,333 20,000
500,001 – 1,000,000 7,000 10,000 11,667 18,333
1,000,001 – 1,500,000 7,000 10,000 10,000 16,667
1,500,001 – 2,000,000 7,000 10,000 8,333 15,000
2,000,001 – 2,500,000 7,000 10,000 6,667 13,333
2,500,001 – 3,000,000 7,000 10,000 5,000 11,667
Over 3,000,000 7,000 10,000    

Source: KPMG Tax TMZ LLC, Mongolia

KPMG NOTE

Further details on the mechanism for the refund / credit in relation to any overpaid PIT from January payroll have not yet been made available by the tax authorities.

Social Health Insurance and Retirement Age

The Social Health Insurance rate increases will be incremental over the next three years.2  The increased rates which are applicable from 1 January 2018, are as below:

Contribution 2017 rate New rate 2018
Employee 10% (capped) 11% (capped -- current cap of MNT 264,000 per month)
Employer 11%-13% (depends on industry) 12%-14% (depends on industry)

Source: KPMG Tax TMZ LLC, Mongolia

Another change approved by Parliament very recently was in relation to the retirement age which will remain the same as it was before the April 2017 changes. 

Retirement age Prior to April 2017 April 2017- February 2018 15 February 2018 onwards
Men 60

60 in 2017

61 in 2019

62 in 2021

63 in 2023

64 in 2025

65 in 2027

Full retirement age is 60, however beginning with people born in 1957 or later, that age gradually increases until it reaches 65 for people born after 1977.
Women 55

55 in 2017

56 in 2019

57 in 2021

58 in 2023

59 in 2025

60 in 2027

65 in 2037

Full retirement age is 55 beginning with people born in 1962 or later, that age gradually increases until it reaches 65 for people born after 2002.

Source: KPMG Tax TMZ LLC, Mongolia

In Force Dates

The new law took effect on 2 February 2018, with the new rules applying as of 1 January 2018.

FOOTNOTES

1  For the Personal Income Tax Law of Mongolia (in Mongolian), click here.

2  For the Social Health Insurance Law of Mongolia (in Mongolian), click here.

 

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MNT 1 = EUR 0.00034 

MNT 1 = USD 0.000418 

MNT 1 = GBP 0.000299 

MNT 1 = CNY 0.00265 

The information contained in this newsletter was submitted by the KPMG International member firm in Mongolia.

MN – KPMG Mongolia – © 2018 KPMG Audit LLC, the Mongolian member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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