Types of Taxes Payable by Business Entities

Mongolian taxes consist of taxes, fees, and charges. [1] According to the General Tax Law, there are a total of 30 types of taxes, which are classified into the following main categories:

1. Corporate income tax;

2. Value-added tax (VAT);

3. Other taxes;

4. Fees;

5. Charges.

   
   

1. Corporate Income Tax

Any legal entity, regardless of whether it is registered or operates in Mongolia, is required to pay corporate income tax under the Law on Corporate Income Tax if it earns income in Mongolia. Tax liability is determined based on the entity’s operational income, income from assets, income from the sale or transfer of assets, and other sources of income. [2] This includes: [3]

Table 1

Taxable income	Tax Rates
Operating income
0-6 billion MNT	10%
Over 6 billion MNT	MNT 600 million + 25% on the amount exceeding MNT 6 billion
Income sourced in and earned from activities within the territory of Mongolia by a taxpayer who is not a resident of Mongolia	20%
Capital income
Income earned from the utilization and lease of movable and immovable assets, as well as from royalties, dividends, and interest payments.	10%
Capital gains arising from the sale and transfer of assets
Income derived from the sale or transfer of immovable property, as well as from the sale of shares, securities, and other financial instruments, and other comparable sources.	2%
Other income
Income derived from monetary lottery activities	40%

The above-mentioned non-resident taxpayer refers to a foreign enterprise operating in Mongolia through its representative and earning income sourced from Mongolia.[4] However, if a permanent resident of Mongolia owns 50 percent or more of the total shares and voting rights of a foreign enterprise, the enterprise is considered a “foreign enterprise whose operational management is exercised from Mongolia,” classified as a “taxpayer located in Mongolia,” and is taxed in the same manner as a domestic enterprise.[5][6] In this regard, the relations between the two countries to prevent double taxation and tax avoidance are regulated by the Double Taxation Agreement.[7]

2. Value Added Tax (VAT)

Value Added Tax is a tax imposed on the value of goods, works, and services. A business entity must register as a VAT payer in the following cases:[8]

• Mandatory registration if the sales volume exceeds 50 million tugriks;

• Voluntary registration if the sales volume exceeds 10 million tugriks.

The VAT rate is 10% of the sales volume.[9]

3. Other Taxes

Depending on the activities of a legal entity, the following taxes may be imposed:[10]

1.     Customs Duty:

-       A tax levied, collected, and paid according to the customs tariff when goods are imported into or exported from the customs territory. For example, if Company A imports products from China, it will pay customs duty on those goods based on the applicable customs tariff.

2.     Excise Tax:

-       A tax payable by companies engaged in the production, import, and sale of specific consumer goods or alcoholic beverages.

3.     Real Estate Tax:

-       If a business entity earns income from the sale, use, or lease of its own real estate, it shall pay tax after deducting the expenses incurred in generating such income.

4.     Capital City Tax:

-       A tax levied on business entities operating within Ulaanbaatar city, including hotels, restaurants, and resorts.

5.     Gasoline and Diesel Fuel Tax:

-       Business entities producing or importing gasoline and diesel fuel are required to pay this tax.

4. Fees and Charges

Charges are monetary amounts collected from individuals or entities by government agencies for providing services in accordance with the law and are deposited into the state budget.[11] Fees, on the other hand, are monetary amounts collected for the use, pollution, or exploitation of state-owned land, subsoil, natural resources, forests, plants, springs, minerals, oil reserves, air, water, soil, and wildlife.[12] For example, a business entity may be required to pay the following types of fees and charges within the scope of its operations:[13]

1. Mineral Resource Royalty:

-       Fees imposed on business entities holding special mineral licenses to mine minerals such as copper and gold.

2. Air Pollution Fees:

-       For example, a business entity holding a license to operate a major stationary source of air pollution, such as raw coal mining, is obligated to pay air pollution fees.

As outlined above, businesses operating in Mongolia and earning income sourced from Mongolia are obligated to pay various taxes, fees, and charges based on their income, goods, works, services, property, and use of natural resources. Therefore, accurately identifying the tax-related obligations of a business entity and fulfilling reporting and payment requirements in accordance with the law will help prevent financial risks and foster stable and lawful operations.

Sources:

[1] Article 7.1, General Law on Taxation

[2] Article 7.4, Corporate Income Tax Law

[3] Article 20, Corporate Income Tax Law

[4] Article 5.5, Corporate Income Tax Law

[5] Article 31.1, Corporate Income Tax Law

[6] Article 31.2, Corporate Income Tax Law

[7] Tax Agreement Regulation approved by the Minister of Finance’s Order No. 293 dated December 27, 2019

[8] Article 5.2, Value Added Tax Law

[9] Article 11.1, Value Added Tax Law

[10] Article 7, General Law on Taxation

[11] Article 6.1.40, General Law on Taxation

[12] Article 6.1.36, General Law on Taxation

[13] Article 7, General Law on Taxation

Disclaimer: This article is intended for general informational purposes only and have been prepared in accordance with the laws in effect at the time of writing. For legal advice, please consult a professional attorney.