KPMG Mongolia Tax Newsletter | 04 August 2025

Per the Tax Administration Public Database, the number of taxpayers audited in 2024 rose significantly by 57.3%, reaching a total of 2,767 taxpayers and total monetary value of tax exposures identified during tax audit also saw an increase of 51.8% compared to the previous year reaching MNT 1,667.4 billion.

Amount of tax exposures identified in mining and exploration, wholesale and retail; vehicle and motorcycle repair services and manufacturing were the highest in FY 2024 comprising approximately 70.9% of the tax exposures identified during the tax audits.

Major tax audit findings outlined by the MTA in 2024 was related to underreported revenue for corporate income tax and value added tax purposes, inaccurate determination of mining royalties that is not in line with the requirements set under the Mineral law of Mongolia and underreported withholding taxes on income provided to non-resident taxpayers.

For further information, please refer to the link for MTA statistics

In 2024, there was a notable increase in the number of complaints received by the Tax Dispute Settlement Committee (TDSC) as compared to previous years. Per the MTA statistics 71% of complaints received by the TDSC was resolved, 5% was denied and 23% is pending. For further information, please refer to the link for MTA register data.

Below are summary of three examples worth noting and taking into consideration, illustrating key areas where tax-related issues have arisen in relation to the Capital City TDSC complaints and its resolutions.

·         Indirect Transfer Rule (“ITR”): Inaccurate selection Methodology for determining tax base under the ITR Raises Concerns

Under the ITR of Mongolia, Corporate Income Tax (“CIT”) obligations have become a key tax implication in transactions involving the indirect transfer of exploration, mining licenses and land rights, particularly through changes in shareholding owned by the ultimate beneficial owner.

According to order No. 302, issued on December 31, 2019, by the Finance Minister, taxpayers must apply the approved methodology to determine the tax base under the ITR. This includes three main valuation approaches for mining and exploration license:

■      Cost Approach

■      Income Approach

■      Market Approach

The appropriate method must be selected based on the transaction's context. Incorrect application that resulted in reduction of tax base may lead to disputed tax assessments.

For further information, please refer to the following link: https://www.mta.gov.mn/inspection/dispute Resolution No.16 issued on March 25, 2025

·         Surge in Tax Audits on Individual Taxpayers

Increased monitoring by the MTA has led to a surge in audits targeting individual taxpayers. Compared to previous years, there has been a noticeable rise in enforcement activities, with most violations stemming from unreported operational income from business activities and income from property and that should have been subject to Personal Income Tax (“PIT”). In 2024, PIT exposures identified during the tax audit saw the most dramatic increase, rising over 7-fold from the previous year.

As a result, tax inspectors have issued numerous reassessments and imposed back taxes and penalties. Individuals are advised to review their tax obligations regularly to avoid such liabilities. For further information, please refer to the following link https://www.mta.gov.mn/inspection/dispute Resolution No.23 issued on April 18, 2025 and Resolution No.43 issued on December 22, 2023

·         Value Added Tax (“VAT”) highlights

VAT payer threshold monitoring

Under article 6.8 of the VAT Law, the tax authority has the right to deregister a taxpayer and annul their VAT payer status if it is proven—based on 12 consecutive months of VAT returns—that the taxpayer has not earned taxable revenue as defined by the VAT law; met the required VAT threshold; or operated any business activities. Failure to meet these criteria can lead to automatic deregistration, which may in turn result in penalties and losses if the taxpayer continues to report creditable input VAT while unaware of the deregistration.

To avoid these consequences, it is essential for taxpayers to:

■      Monitor their VAT-reportable revenue

■      Ensure compliance with the threshold requirements

■      Track their VAT payer registration status with the tax authority

For further information, please refer to the following link https://www.mta.gov.mn/inspection/dispute Resolution No.45 issued on October 18, 2024 and Resolution No.17 issued on March 25, 2025

Application of Industrial Classification of Economic Activities

Moreover, for VAT imposition and exemption application, taxpayers must apply the Industrial Classification of Economic Activities, approved jointly by the Ministry of Finance and the National Statistics Office under order No. 319/A160, dated December 31, 2018. The Industrial Classification of Economic Activities significantly impacts all aspects of VAT treatment including exemption, as tax authorities rely on definition of the activities as stated in the classification when assessing the nature of taxpayers' activities. For instance, a taxpayer offering concierge services for insurance may not benefit from VAT exemption for insurance or reinsurance services, since its registered operation type does not align with the definition provided in the Industrial Classification of Economic Activities for insurance or reinsurance operations.

For further information, please refer to the following link https://www.mta.gov.mn/inspection/dispute Resolution No.02 issued on January 31, 2024.

 

Adherence to proper valuation methodologies of the indirect transfer rule, accurate CIT, PIT, and VAT reporting, and awareness of registration requirements are critical in mitigating tax risks and avoiding penalties. Taxpayers are encouraged to consult current tax regulations and seek professional guidance to mitigate risks and avoid potential penalties.

At our firm, we’re here to support you with tailored advice and expert assistance to help ensure full compliance and peace of mind. Staying informed and maintaining accurate, transparent records will be key to navigating the evolving tax landscape effectively