KPMG Mongolia Tax Newsletter | 12 March 2025

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With the Parliamentary Election and the new Cabinet appointments, the year 2024 did not have many significant changes within the tax environment in Mongolia. As we step into the tax year 2025 with the new Government, Mongolia is now actively focusing on tax reform and businesses are alike paying close attention to the potential changes and impacts. Hence, the year 2025 promises to be a very interesting year for taxation. KPMG will continue monitoring these developments and share them with you timely.

In this update, we would like to remind you of the recent legislation changes that came into force effective from January and February 2025.

In an effort to address the challenges faced by businesses in Mongolia, 178 proposals on the 12 legislations have been submitted by the businesses to the key government agencies (e.g. Standing Committee on Budget of the Parliament, Ministry of Finance and Mongolian Tax Authorities) in the last few months. As part of ongoing efforts to improve the business environment, the Mongolian National Chamber of Commerce and Industry (MNCCI) has organized discussions on “Comprehensive Tax Reform” in collaboration with the working group of the Parliament Speaker in December 2023. Subsequently in January 2025, discussion on “Needs and Solutions to Reform the Tax Code” in collaboration with members of the working group established by the Parliament Speaker.

B. Udval, a Member of the MNCCI Board of Directors, expressed concerns regarding the revised VAT law, in particular, "VAT is paid by end-users and consumers. There are many businesses who sidestep their VAT obligations by not collecting the VAT revenue although the tax must be charged on the consumption and to be remitted to the MTA. It may not be a wise revision to increase the VAT registration threshold from MNT 50 million to MNT 400 million. From a fair tax perspective,  regardless of taxable turnover, every citizen and business entity should pay VAT. For that reason, this is important to reduce the tax rate to five percent. Having an increased tax gap and VAT fraud shows the fact that the current tax rate is relatively high. In addition, it is necessary to stop the current incentive system that provides the two-percent as well as the lottery VAT refund to the consumers”.

Source: Montsame.mn “178 proposals submitted to the relevant authorities”

On 30 September 2024, Mongolia deposited its instrument of ratification for the Multilateral Convention (MLI) to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS Convention), which now covers around 1950 bilateral tax treaties, underlining its strong commitment to prevent from the abuse of tax treaties and base erosion and profit shifting (BEPS) by multinational enterprises. The MLI aims to close gaps in international tax rules and prevent businesses from using treaties to avoid taxes. More than 100 countries and jurisdictions have signed the MLI and the BEPS MLI will enter into force for Mongolia on 1 January 2025.

According to the OECD BEPS MLI database, 19 jurisdictions out of 26 partner countries that Mongolia has DTTs with have already been listed under the MLI as of February 2025. In light of this development KPMG would like to advise the foreign-invested companies in Mongolia to review and assess their holding structures and business transactions. Should you have any questions as to how these changes may impact you or your business, then please get in touch.

In accordance with Article 4.2 of the Accounting Law of Mongolia and the Article 10.1.1 of the Audit Law of Mongolia, the business enterprises that are subject to applying full IFRS require annual statutory audits. However, a regulation on the criteria to determine the entities for full IFRS has not been renewed by the Ministry of Finance since 2016. At the beginning of 2025, this regulation to determine the enterprises subject to full IFRS requirements is renewed and approved by the Minister of Finance (Decree no. A/25, 6 February 2025).

Before this development, with a lack of timely revisit to the threshold, small and medium enterprises (SMEs) were facing administrative burdens in recent years as they ultimately were classified as ‘large and public interest entity (PIE)’ for audit requirement purposes under the criteria set a while ago in 2016. For instance, dormant companies or permanent establishments that recorded intercompany receivables of MNT 500 million whilst no business transactions or active projects held during the year had to be audited in order to submit the statutory financial statements. 

The decision of the National Tripartite Committee on Labor and Social Partnership to increase the minimum wage came into force on 1 April 2025. The minimum wage amount rises to MNT 792,000 per month which is MNT 4,715 per hour, an increase of MNT 132,000 or 20%. As a result, the employee contribution to social health insurance shall be capped at MNT 910,800 per month effective from April 2025.

As the work permit fee for foreign nationals is linked to a minimum wage amount, starting from 1 April 2025, it is to be set to MNT 1,584,000 per person per month.

A foreign worker quota for 2025 is renewed and approved by the Government on the 20^th of November 2024. Previously the foreign workforce quotas were set with a percentage per organization or per sector in which companies operate, respectively. Whereas for the 2025 year, the quotas are eliminated for most sectors and businesses as long as the number of foreign nationals residing in Mongolia is within three percent of the population of Mongolia and up to one percent of the total population for each nationality (i.e. citizens of the same country).

This development could potentially help address the labor shortages that Mongolia has been experiencing in recent years. 

In the last quarter of 2024, significant amendments were made to the corporate income tax law in Mongolia with a focus on promoting corporate social responsibility and encouraging investments in various sectors that contribute to the welfare of society and the environment. These changes, which will remain in effect until January 1, 2035, allow businesses to deduct investments made in fixed assets for the purpose of supporting the following activities within the scope of social responsibility, and financial support and donations granted to other non-related entities not exceeding 1% of the taxable income for the relevant tax year. Kindly refer to the revised CIT law amendments outlined below for your reference and consideration:

■      22.9.1. Protecting natural resources such as forests, animals, and water, increasing resources, rationally utilizing them, and restoring them, reducing air, water, and soil pollution, and slowing down desertification;

■      22.9.2. Providing and protecting the rights of the elderly, disabled people, and children, creating an adapted environment for disabled people, and constructing and using children's playgrounds, camps, and parks;

■      22.9.3. protection and restoration of cultural heritage, museum and library activities, creation, performance and distribution of music, film, handicrafts and stage art works, construction and use of cultural and creative production complexes;

■      22.9.4. building and construction, maintenance, protection, improvement, and development of public roads, squares, and parks;

■      22.9.5. Compensation for damage caused by force majeure and other similar disasters;

■      22.9.6. Construction and use of sports facilities, organization of Olympic-type competitions, financial support provided to Olympic-type sports associations registered with the Mongolian National Olympic Committee and the Mongolian National Paralympic Committee, and to teams, professional athletes, and coaches registered with them;

■      22.9.7. Tuitions/scholarships provided to students studying at foreign universities, domestic accredited universities, and vocational and technical education institutions in priority fields announced by the Government of Mongolia;

■      22.9.8. Scholarships granted for universities, institutes of higher learning, and academies of science for research purposes;

■      22.9.9. Activities of state and local educational and health institutions;

■      22.9.10. Activities of the Government Special Fund.

22.9.11. Activities specified in the law of legal entities registered in the virtual zone to support information technology production

Traffic congestion is a frequent problem in Ulaanbaatar city. In order to reduce traffic jams, beginning in 2012 City council introduced an “odds and evens” access system around Ulaanbaatar central zones. The system restricts the vehicles based on their license plate number. The driving restriction system was initially successful in reducing traffic congestion, however as a result of the increasing number of cars in Ulaanbaatar city this travel program has been not very effective in recent years. To address the congestion issues, the City council and the Government have been taking several measures and one of the actions includes an increase of Vehicle taxes and Road fees in Ulaanbaatar city effective from 1 January 2025. 

To compare the increased rates with the prior year’s taxes, we illustrate an example for the Ulaanbaatar registered passenger car with an engine size of 2001 cubic centimeters (cc), and the total taxes potentially increased fivefold to MNT 312,081 per annum.

As a part of a comprehensive approach to address children’s health and reduce the consumption of sugar-sweetened beverages, excise taxes have been introduced for the beverages and drinks that contain sugar and sugar substitutes exceeding 5 grams per 100 milliliters in Mongolia.

Effective from 1^st of January 2027, the following tax rate shall be applicable:

■      In 2027: MNT 500 per liter

■      In 2028: MNT 525 per liter

■      In 2029: MNT 550 per liter

KPMG Tax Alerts highlight the latest tax developments, impending change to laws or regulations, current practices and potential problem areas that may impact your company. Tax Alert summary is issued exclusively for the information of clients and staff of KPMG Mongolia and should not be used or relied upon as a substitute for detailed advice or a basis for formulating business decisions. 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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