KPMG Mongolia Tax Newsletter | 16 May 2025

2024 Financial Statements

The “Regulation on receiving financial statements of business entities” was renewed and approved by the Ministry of Finance on 18 November 2024, and the previous regulation from 2020 is no longer in force. As per Article 4 of the new regulation, entities are only permitted to revise their financial statements once without any formal system request in the e-balance. Additionally, it is stated that financial statements can be restated upon issuance of the audit report.

The deadline to revise the financial statement is 1 December of the following year. In prior years, the closure date for the financial statement revision was 20 December.

2024 Annual Tax Returns

Under Article 31 of the General Tax Law, taxpayers are allowed to amend their tax returns within the next tax year (by 31 December 2025) by submitting a request online in the e-tax system along with providing explanations and any relevant documents to support the amendment. Although taxpayers have an amendment window until the end of 2025, processing times would depend on the complexity of the certain lodgment. Therefore, we advise companies to arrange the necessary amendments as soon they have completed the audited financial statements.

Lastly, please note the following:

■      Filing an amended tax return shall not be a basis for exemption from “tax loss due” (алданги) to be calculated on the underpayment of tax for the period between the original reporting date and the date the taxpayer files the amendment.

■      Where filing an amended tax return reduces tax payable, “tax loss due” (алданги) which was calculated before the amendment shall not be a basis to reduce such penalty calculated and imposed already.

Looking at the purpose of the Representative offices in Mongolia, it is common for overseas companies to utilize the units as a means of entering the local market for the first time to ensure that future operations can be carried out effectively.

While full incorporation within Mongolia comes with capital requirements and due diligences, many of the preliminary activities a company may wish to carry out are readily accomplished through a RO such as:

■      market research and testing;

■      negotiating with local companies;

■      distributing products or services through local distributors; and

■      promoting products or services without doing direct business activities

According to current domestic legislation, ROs are restricted from generating profits and often do not end up paying corporate income tax. As a result, ROs established in Mongolia conduct only withholding obligations when paying their employees income tax.

During the recent seminar held by the Mongolian Tax Authority (MTA) on 6 May 2025, the tax authority highlighted its plan to re-assess and determine if ROs are likely to facilitate the generation of profits for their parent company. If they are indeed involved in business activities, then the ROs shall be found to be liable for corporate income tax and value added tax relating to taxable activities carried out in Mongolia which potentially leads to the compliance of a Permanent establishment. It was noted during the discussion that currently there are 714 Representative Offices (ROs) registered with the MTA while only 47 Permanent Establishments (PE) are recorded as taxpayers.

We strongly advise ROs in Mongolia to consult with their respective tax advisors regarding this development and the MTA positions in order to comply with related tax regulations. All businesses considering investment within the country should be sure to conduct a careful review of their opportunities, and contemplated business form and to maintain a clear understanding of the regulatory responsibilities.

Should you have any questions as to how these changes may impact you or your business, then please get in touch.

Members of Parliament B. Tuvshin, O. Nominchimeg, A. Ganbaatar, Ch. Lodoisambuu, G. Uyangakhishig, Z. Mendsaikhan, P. Ganzorig, and G. Ochirbat submitted a proposal bill on the amendments to the General Law on Social Insurance last week. The initiators of the proposal introduced that a draft was prepared based on the need to create a favourable environment for citizens and legal entities to engage smoothly in their day to day business activities, reducing the cost burden, increasing the profits and competitiveness, and expand free market relations.

The key changes proposed in the bill are:

1.     Individuals who enter into work or service contracts with all types of legal entities and individuals owned by Mongolia shall be excluded from being compulsory insured in social insurance, and the income from the service contract shall be excluded from the income subject to social insurance contributions;

2.     Employers shall exclude cash benefits provided to employees for food, transportation, housing, and the purchase of firewood or coal from the salary income subject to social insurance contributions.

3.     The maximum amount of employer social insurance contributions is to be capped at 10 times the current minimum monthly wage, similar to that of an employee.

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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