With the winter weather slowly subsiding, and an election, Naadam and ASEM Summit all approaching in the coming months, it seems like an opportune moment to provide you with some updates to the Mongolian tax laws and regulations.  If you have any questions as to how these changes may impact you or your business, then please get in touch.
  

Increase of Monthly Minimum Salary and Wage

It has recently been announced that the minimum hourly wage will be increased from 1 January 2017 to 1,428.60 MNT, with the minimum monthly wage becoming 240,000 MNT (previously 192,000 MNT).  As well as the direct consequences of this change, without an update to the Social Health Insurance legislation, the monthly employee SHI cap will also increase to 240,000 MNT.

Penalties for the late submission of Financial Statements are also a factor of the monthly minimum wage (usually 3 to 5 times), and thus are likely to be affected.


Application of Withholding VAT (“Reverse Charge”)

Recent guidance suggests that under the revised VAT law (effective from 1 January 2016), the MNT 50.0 million VAT threshold is not applicable for income earned by non-residents.  As such, 10% WHT VAT should apply even where the service fee payment made to a non-residents is less than MNT 50.0 million (approx. USD 25k). 

Under the previous VAT law, service fee payments to non-residents that were below the registration threshold (then MNT 10.0 million) were not subject to WHT VAT. 


Increase of Customs Duty rate on Certain Goods

In a bid to encourage the use of local suppliers, customs duty has increased on certain imported goods which are directly competitive with a domestically produced equivalent.  As well as food stuffs (eggs and meat products amongst others), certain construction materials including cement, doors and windows are caught by the changes.  The increase ranges from 6.5-20% depending on the good, and the law is effective from 1 May 2016.  

 

Updates on General Tax Law of Mongolia

Effective from 1 September 2016, penalties for loss of compensation will be capped at 20% (previously 50%).  Other updates to the General Tax Law mainly relate to the administrative responsibilities of taxpayers and state tax inspectors.

 

Updates on Corporate Income Tax Law of Mongolia

From 1 January 2017, taxpayers with 3 or more staff who operate in certain soums and provinces may be eligible for the following CIT credits:
        
  - If more than 550km away from Ulaanbaatar – 50%;        
  - If more than 1000km away from Ulaanbaatar – 90%
 
Please note that the above tax credit shall not be granted to taxpayers operating in the following sectors:
  - Mineral exploration and use;
  - Sale and import of alcohol;
  - Tobacco plants, production and import of tobacco;
  - Oil production, wholesale, gasoline and diesel fuel trade, import; 
  - Communication services;       
  - Installation of power plants, production, sale and distribution of power;
  - Civil aviation;
  - Road construction, maintenance;
  - Radioactive minerals and nuclear energy activities.

Submission of Financial Statements under the new Accounting Law 

Under revisions to the Accounting Law, Financial Statements are now required to be submitted biannually (previously quarterly). The submission deadline for the first 6mths of the year remains 20th July, with annual Financial Statements submitted by 20th February following the year end. This change applies to all entities who are required to prepare Financial Statements in accordance with IFRS. 

Small and Medium-sized enterprises not are not bound by IFRS may continue to submit Financial Statements annually by 20th February of the following financial year.

The Ministry of Finance will assess the criteria for those entities which fall under IFRS.


Updates on Royalties Imposition on Coal and Iron Ore

The coal price on which royalties are calculated shall be the contract price. However, where the contract price is deemed not reasonable, the market price shall be confirmed by the following source: http://en.sxcoal.com 

The iron ore price used for the purposes of calculating royalties shall be the contract price. Where the contract price is deemed not reasonable, the following market price shall be used www.umetal.com.

These changes shall apply from 1 February of 2016.

Upcoming Key Dates
Please be aware of the following key events in the coming months.  The ASEM Summit in particular is expected to cause widespread disruption in UB with the increased number of visitors and the heightened security.

Mother’s and Children’s Day	1 June 2016
Mongolian Legislative Election	29 June 2016
Naadam Holiday	11-15 July 2016
11th ASEM Summit (ASEM11)	15 -16 July 2016

 

Did You Know

In the 1700’s, England placed a tax on bricks. Builders soon realized that they could use bigger bricks (and thus fewer) to pay less tax. The government soon reacted and placed a larger tax on bigger bricks. This tax was abolished in 1850.

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You have received this message from KPMG Mongolia. If you have any questions, please send an email to mminjin@kpmg.com and emoore1@kpmg.com.