Tax Guidance for Property Investment in Mongolia

Taxes in Mongolia can be difficult to navigate, so we condensed and shortened some of our 2018 Mongolia Real Estate Report to give to you as useful content for investing in an exciting emerging market. 

Comparison of Different Countries on their Tax Schemes

Source: KPMG

The low taxes, absence of capital controls, and clear ownership title makes Mongolia one of the most favorable investment environments in the world.

1. Personal Income Tax

There are effectively two types of individual entities in Mongolia as laid out by the Mongolian Law on Personal Income Tax: permanent resident taxpayers and non-resident taxpayers. A permanent resident taxpayer is defined by law as:

• Individuals with residence in Mongolia; or
• An individual who resides in Mongolia for 183 days or more a year.

Conversely, the same document identifies a non-resident taxpayer as:

• An individual who has no residence in Mongolia and has not resided in Mongolia for 183 or more days in a tax year.

The legislation states that any individual classified as a permanent resident taxpayer must pay tax to the Mongolian authorities on their worldwide income. Those who qualify as non-resident taxpayers (by fulfilling either of the conditions stipulated above), are required to only pay the Mongolian authorities a portion of their income earned within Mongolia.

Total taxable income is defined as aggregate annual income minus all allowable expenses.

• All income received through employment or other taxable income is taxed at 10 except 40% tax rate on personal income through gambling, lottery. For non-resident taxpayers, income tax rate is 20% on aggregate amount of income generated within the territory of Mongolia. The taxable income from property is determined by deducting the cost of leasing from the total annual income from leasing;
• Gross income from sales of immoveable property is charged a flat tax rate of 2%.

2. Corporate Income Tax

The Economic Entity Income Tax Law of Mongolia governs the taxation of profits acquired by the following different forms of taxable entity:

• An economic entity formed under Mongolian law, and its subsidiaries;
• A foreign economic entity headquartered in Mongolia;
• A foreign economic entity earning income in Mongolia, and its representative offices.

The first two categories are charged a variable rate of corporate income tax subject to the following rates:

• All annual income less than MN₮3 billion is to be charged at a rate of 10%;
• All annual income which exceeds MN₮3 billion is to be charged at a rate of 25%.

There is also a separate tax rate applicable to foreign economic entities (and their representative offices), earning income in Mongolia. This concerns repatriation of funds:

• All annual income transferred out of Mongolia by foreign economic entities is to be taxed at a flat rate of 20% as withholding tax on the income derived from dividends, interest and guarantee.

The above condition does not apply to FIFTA registered companies and joint ventures who reinvest their profits within the Mongolian economy. Tax on sales of immovable property also applies to corporations, taxed at 2% of the gross proceeds from the sale of immovable property.

3. Immovable Property Tax

Entities facing property ownership taxes on immovable assets are:

• Any company that owns property in Mongolia;
• Any NGO that owns property in Mongolia;
• Any citizen that owns property in Mongolia;
• Any non-citizen that owns property in Mongolia.

Owners are liable to pay property tax according to the Immovable Property Tax Law of Mongolia on all immovable assets, except:

• The immovable property of legal entities financed by central and local budgets;
• Immovable property in the form of apartments;
• Immovable property in the form of buildings for public use.

Those required to pay property tax on immovable assets are to be taxed in accordance with the following conditions:

• Property tax from the 1st January 2013 and beyond is charged based upon a variable scale that begins at 0.6% of the property’s value (value of the property as it is registered with the immovable property state registry), and is capped at 1% of the property’s value annually.

The Immovable Property Tax Law of Mongolia stipulates:

• Taxpayers must submit immovable property tax returns to the Mongolian tax office before the 10th February each year;
• Legal persons and corporate entities are liable to pay property tax before the 15th of the last month of each quarter.

4. Value Added Tax

VAT is imposed at a rate of 10% on the supply of goods and services in Mongolia and on imports into Mongolia. Legal entities and individuals are required to register for Mongolian VAT purposes when their turnover exceeds MNT50 million or approximately US$21,000. The Mongolian Law on Value- Added Tax applies to:

• All types of goods sold in the territory of Mongolia;
• All types of goods exported for the purpose of sale, consumption, or use outside the territory of Mongolia;
• All types of goods imported for the purpose of sale, consumption, or use in the territory of Mongolia;
• Work performed and services provided in the territory of Mongolia, including rent of immovable or movable properties (other than buildings or construction), or the grant of rights to possess or use in other forms.

There are several exemptions to VAT, depending on the type of good or service. For example, income from renting of residential accommodation is exempt from VAT.

International Comparison

Income tax in Mongolia is competitive with the other nations outlined in this study, including both emerging and developed countries. In Mongolia, the amount payable is a flat tax at a lower or similar rate. Capital gains tax exists in most of the countries listed, except for Mongolia and Singapore.

We hope this was useful, though admittedly dense, content. Feel free to download our most recent copy of the Real Estate Report on Mongolia by clicking below.