Mongolia Tax Newsletter | 30 April 2024

The KPMG team regularly monitors recent developments in the tax legislation of Mongolia and publishes them as a Tax Newsletter. Please find the key developments from the below that occurred over the last quarter. 

The capital gain taxation and reporting mechanism has not been fully enforced for the earnings from the stock trading market in Mongolia. Recently, the new development was introduced and approved by the Parliament and the following amendments of the CIT and PIT law shall be in force effective from 1 July 2024:

• Entities with regulated activities (Central Depository and Custodians) under the Law on Securities Market, shall withhold the taxes on the sale of bonds, stocks, and other securities issued by the Government, the Provinces, the Capital city or Mongolian resident taxpayers which are traded on domestic primary and secondary markets
• The applicable tax rate for resident taxpayers shall be 10% on the taxable gain (after deducting the purchase price of the securities as well as the commission fees from the sale price)
• The applicable tax rate for non-residents’ earnings from the sale of securities shall be 20% on gross proceeds
• The tax credits are available for the sale of securities on the domestic primary and secondary market at the rate of 90% between 2024 and 2026 and then 50% between 2027 and 2029

The Ministry of Finance and Financial Regulatory Committee are now in the process of developing the regulation on the taxation of securities upon gathering public opinions.

Effective from 1 January 2024, foreign travelers to Mongolia who stay in the country for less than 90 days are eligible for tax-free shopping. The amount of one-time purchase on the receipt must exceed MNT 500,000. Products eligible for tax-free shopping are those for personal use by tourists except for the below listed goods:

• Products subject to excise tax (alcohol, tobacco, etc.)
• Medicines and pharmaceutical products
• Meal and food products
• Gold, silver and other rare metals and minerals
• Goods prohibited to be taken out across the national border
• Goods purchased more than 90 days prior to departure

To be eligible for the tax refund, foreign visitors must register their personal information through the Tax Authority website or mobile application. Upon this registration, a bar code shall be emailed to the registered email address which should be presented at the store checkout.

At the end of their stay when tourists pass the customs border (i.e. passport control), the claim form shall be submitted at the self-service kiosk machine or the tax refund desk. The VAT refund is available in both cash and non-cash forms. Please note that the timing for the international bank transfer (non-cash) procedure is not clear at the time of writing this newsletter.

Where necessary the customs officer has a right to inspect and check the goods in a luggage to ensure whether the claim request is issued in accordance with the law.

You may visit the legal website for further details of the VAT refund procedure (in Mongolian language).

The property tax in Ulaanbaatar is imposed according to the district location at the rate of 0.6%, 0.8% and 1% based on capital city land location and valuation within five zones. Within the last five years, a total of 52 khoroos (i.e. administrative subdivisions of Ulaanbaatar) are newly created by the resolution of Citizens Representatives Khural of the Capital city. An unclear situation has arisen to impose taxes on the properties in the newly created 52 khoroos. Therefore, the Citizens Representatives Khural of the Capital city has allocated the new khoroos into the regions in line with the taxing location.

The latest approved property taxes as per the updated zone is available in this link.

A capital city tax that applies to entities in the service industry has increased to 2% of the sales amount or market price effective from 1 January 2024. Previously the city tax rate was 1% on services including hospitality, restaurants, bars and vehicle services. According to the Ulaanbaatar City 2024 budget approved, the tax increase to 2% will accumulate MNT 32 billion in the city budget in 2024.

According to Article 23.1 and Article 23.8 of the CIT law of Mongolia, a foreign tax paid by a Mongolian resident taxpayer in the countries Mongolia has Tax Information Exchange Agreements (TIEA) with can reduce taxpayer’s Mongolia tax liability in the same tax year. As of November 2023, there are 143 countries with which Mongolia has TIEA which are published on the MTA website.

This list is renewed every year and in the previous year there were 130 countries.

For taxpayers who submitted a request to obtain a tax loss confirmation for the 2023 CIT return, we would like to remind the following notes:

• Upon receipt of the tax loss confirmation request, the risk assessment shall be performed by the MTA
• If the taxpayer risk level is assessed as low, the Taxpayer’s correspondent department shall review and confirm the losses. Please note that such confirmation of the loss is subject to change during future tax audits.
• If the taxpayer risk level is assessed as medium or high, the tax audit department shall review and confirm the losses and issue the confirmation form ХШ-11.
• The confirmed tax losses will be carried forward and deducted from taxable income for up to four (4) consecutive years following the 2023 tax year.
• The tax loss utilized against the taxable income may not exceed 50% of the total taxable income in the tax year.

The tax losses shall not be carried forward in the following cases:

• Mineral license expires, is canceled, or is returned;
• The company is reorganized; or
• The taxpayer opts for the simplified tax regime.

We have seen a number of changes and developments within the authorities’ electronic systems in Mongolia for the last 6 months period including the social health insurance system.

As you all know, since the beginning of this year, the monthly social health insurance report has been submitted to the new platform https://portal.ndaatgal.mn/ and starting this month lodgments are running smoothly after the extended delays. However, there are still some technical issues happening during the implementation stages.

The Regulation on SHI Reporting and Amendment was approved by the Minister of Labour and Welfare on 25 December 2023, and it has been recently published on the official legal website of Mongolia.

A few notes from the Regulation on SHI Reporting and Amendment to highlight:

• SHI electronic reporting system should show the filing statuses such as “sent”, “reviewed”, “accepted” or “rejected”. If the reporting is rejected, the employer must review, and clear the comments made by the inspector and re-submit within 3 working days. If the employer cannot re-submit the electronic report within this extended period, the report will be considered as overdue, and the late submission procedure shall require completing the submission. Therefore, it is advised to frequently check on your filing status in the system after the lodgment to avoid any late submission risk.
• If there is no payroll or income to report in the month, the company should notify the relevant SHI office in writing within the filing due date 5th of the next month.
• The human resource officers of the company must upload a copy of the employer decisions to hire, terminate, or change appointments to the electronic system in a timely manner.
• The companies that use a digital signature shall verify the annual salary list with the corresponding district office by the end of the financial year.
• The companies who do not use a digital signature shall verify the paper version of the reports for the period January – June by the 7th of July and for the period July – December by the 5th of January the following year.

According to the Decree No. 37 of the Speaker of the Parliament Mr. Zandanshatar dated 17 February 2023, the working group was established under the Budget Standing Committee led by G. Temuulen with the assignment to analyze the tax environment, research the concerns and issues arising in the society and economy, make suggestions and conclusions, and where necessary to present a proposal for the required tax reform. In the past, the members of the working group held a total of 15 meetings, met with 12 professionals and sectoral associations, and 300 taxpayers, and discussed the tax burden, related legal circumstances and regulatory difficulties that the businesses face.

During the presentation made by the Speaker Mr.Zandanshatar in December 2023, he noted the plan to improve the tax environment, in particular the VAT system. KPMG will keep you updated if there is any further discussion on this topic again. Source: Montsame Agency

The Investment Law Bill was submitted by the government in June 2023 while the draft law was openly discussed among citizens, and investors. The Law on Investment include the non-tax incentives for investors, which provides for the right to possess and use land for up to 60 years and the one-time extension by up to 40 years.

In April 2024, the Parliament has approved a public discussion to remove the proposed provision 12.1 that foreigners to use land for up to 100-year. In the online poll, 100,167 citizens voted in support of removing such provision of the use and possession of land by foreigners. The Investment Law Bill will be re-submitted for discussion during the Spring Session of Parliament.

The Parliamentary Elections in 2024 will be held on Friday, June 28, 2024. Under the Law on Elections of the parliament, the polling day is a public holiday in Mongolia.