Taxation of international executives
Tax returns and compliance
Termination of residence
Economic employer approach
Types of taxable compensation
Salary earned from working abroad
Taxation of investment income and capital gains
Additional capital gains tax (CGT) issues and exceptions
Tax reimbursement methods
Calculation of estimates/prepayments/withholding
Relief for foreign taxes
General tax credits
Sample tax calculation
When are tax returns due? That is, what is the tax return due date?
What is the tax year-end?
What are the compliance requirements for tax returns in Mongolia?
Mongolia operates a self-assessment tax return filing system. All tax returns are to be filed on an individual basis.
Tax returns are due to be filed with the local tax office by 15 February following the end of the tax year. The balancing payments are due by the same date. There are no available extensions to file, or pay the tax due.
Residents are subject to income tax on their worldwide income. If the correct amount of personal income tax has been withheld from the individual’s employment or investment income (such as bank interest), there is no requirement to file a tax return. Residents are only required to lodge a tax return if they received income which had not been taxed in Mongolia at source (e.g. foreign investment income, Mongolian rental income etc.).
Non-residents are subject to tax on certain categories of income from Mongolian sources under the concept of limited tax liability. If their income from employment is subject to personal income tax withholding, the tax obligations have already been fulfilled and no Mongolian tax return needs to be filed.
What are the current income tax rates for residents and non-residents in Mongolia?
As a general rule, personal income tax is levied at a flat 10 percent rate for resident taxpayers. There are certain types of income which are either exempt or subject to final withholding tax.
The following income is subject to specific personal income tax rates:
Non-residents aer subject to a flat 20 percent tax rate on any Mongolian sourced income from 1 January 2018. Prior to this, non-resident tax rates were the same as residents.
For the purposes of taxation, how is an individual defined as a resident of Mongolia?
An individual taxpayer shall be considered a tax resident of Mongolia if:
Although the tax legislation is silent on the matter of splitting the tax year into a resident and non-resident period in the year of the individual’s arrival to and departure from Mongolia, in practice the Mongolian Tax Authorities accept a position wherby an inbound individual taxpayer is only considered a tax resident of Mongolia starting from the 184th day of their physical presence in Mongolia during their first year of tax residency.
Is there a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country/territory for more than 10 days after their assignment is over and they repatriate.
What if the assignee enters the country/territory before their assignment begins?
The number of days of the individual’s physical presence in Mongolia needs to be counted starting from their first entry to Mongolia in a given tax year; this includes any pre-assignment visits and business trips.
Are there any tax compliance requirements when entering or leaving the country/territory?
The individual taxpayer should be registered with the Mongolian Tax Authorities on arriving in Mongolia in order to obtain a tax reference number. It is also possible to obtain a Tax Book which may serve as evidence of tax payments made to the Mongolian Tax Authorities.
On departure from Mongolia, there are no additional tax requirements to comply with over and above the annual tax return filing process. Once all outstanding taxes have been settled with the Mongolian Tax Authorities, the taxpayer may be deregistered in Mongolia.
What if the assignee comes back for a trip after residency has terminated?
Any post-assignment trips to Mongolia will need be included when calculating the individual’s days of presence in Mongolia for the purposes of determining the tax residence position in the year of departure.
Do the immigration authorities in Mongolia provide information to the local taxation authorities regarding when a person enters or leaves Mongolia?
Yes, this information is provided where necessary. In addition, immigration documentation must be provided to the tax authorities when the individual is registered or deregistered for tax purposes.
Will an assignee have a filing requirement in the host country/territory after they leave the country/territory and repatriate?
The assignee may be required to file the annual personal income tax return in the year of departure – see above.
Do the taxation authorities in Mongolia adopt the economic employer approach to interpreting Article 15 of the Organisation for Economic Co-operation and Development (OECD) treaty? If no, are the taxation authorities in Mongolia considering the adoption of this interpretation of economic employer in the future?
Mongolia is not part of the OECD and has a very limited double taxation treaty network. This means that, in practice, most income derived from employment exercised in Mongolia would be taxable in Mongolia.
Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?
What categories are subject to income tax in general situations?
The following types of remuneration are subject to Mongolian personal income tax:
Intra-group statutory directors
Will a non-resident of Mongolia who, as part of their employment within a group company, is also appointed as a statutory director (i.e. member of the Board of Directors in a group company situated in Mongolia trigger a personal tax liability in Mongolia, even though no separate director's fee/remuneration is paid for their duties as a board member?
No unless the he or she visits or enters in Mongolia under HG visa.
a) Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in Mongolia?
No unless the he or she visits or enters in Mongolia under HG visa.
b) Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in Mongolia (i.e. as a general management fee where the duties rendered as a board member is included)?
Yes, if the cost is directly charged to the company in Mongolia. Where the cost is indirectly charged through a general management fee, CIT and VAT shall be applicable.
c) In the case that a tax liability is triggered, how will the taxable income be determined?
Are there any areas of income that are exempt from taxation in your country/territory? If so, please provide a general definition of these areas.
A tax credit may be deductible from Mongolian personal income tax of residents and non-residents who receive employment income. The amount of the tax credit is currently a maximum of MNT160,000 and is reduced for each income bracket. Individiuals with annual income of MNT36 million or more are not entitled to a tax credit. In addition, certain income is tax-exempt under the Personal Tax Law, including:
Are there any concessions made for expatriates in your country/territory?
Is salary earned from working abroad taxed in Mongolia? If so, how?
Individuals resident in Mongolia are taxable on their worldwide income, including their salary earned from working abroad. Where such income has not been already taxed in Mongolia by means of employer withholding, the individual is required to file an annual personal income tax return to report the foreign salary income and remit the tax due to the Mongolian Tax Authorities.
Where there is a double taxation agreement in place between Mongolia and the foreign country/territory, a tax credit may be available depending on the terms of the treaty.
Are investment income and capital gains taxed in your country/territory? If so, how?
Dividends, interest and rental income are subject to Mongolian personal income tax at the flat rate of 10 percent for residents and 20 percent for Mongolian sourced income of non-residents.
Total proceeds, as opposed to a gain, from the sale of immovable property are subject to Mongolian personal income tax at a flat rate of 2 percent.
The Mongolian legislation does not specifically discuss availability of capital losses; in practice, any capital losses (e.g. on the sale of shares) may be utilized to reduce the capital gains made in the same tax year, however, there is no facility to carry forward the losses to subsequent tax years.
There is no inheritance or gift tax in Mongolia.
Employment income includes also gifts made by an employer to an employee or employee’s family member. For taxation of employment income see comments above.
Are there capital gains tax exceptions in your country/territory? If so, please discuss.
What are the general deductions from income allowed in your country/territory?
The employee Social Security contributions (maximum MNT4,416,000 per tax year) are deductible in arriving at the individual’s taxable employment income for resident taxpayers. The social security contributions are not deductible when calculating taxable employment income for non-resident taxpayers.
What are the tax reimbursement methods generally used by employers in your country/territory?
The most common form of tax reimbursement is current year gross-up. This enables the tax payable by the employer and the income to which it relates to be dealt with together in the same year’s tax calculation.
How are estimates/prepayments/withholding of tax handled in your country/territory? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.
Currently no tax estimates or prepayments are required in Mongolia as the tax rate is a flat 10 percent rate or a flat 20 percent rate. Personal Income Tax is withheld from the individual’s salary by the employer and remitted to the Mongolian Tax Authorities on a monthly basis.
When are estimates/prepayments/withholding of tax due in your country/territory? For example, monthly, annually, both, and so on.
Is there any Relief for Foreign Taxes in your country/territory? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?
Mongolia currently has double taxation agreements with the following countries/territories:
No foreign tax credit is available in absence of a double taxation agreement.
What are the general tax credits that may be claimed in your country/territory? Please list below.
A tax credit may be deductible from Mongolian personal income tax of both resident and non-resident individuals who receive Mongolian employment income. From 1 January 2018, the tax credit available has changed, as detailed below.
|Annual taxable employment - income (MNT)||2017 credit||2018 credit
|Up to 6,000,000
|6,000,001 – 12,000,000||84,000
|12,000,001 – 18,000,000
|18,000,001 – 24,000,000
|24,000,001 – 30,000,000
|30,000,001 – 36,000,000
The sample tax calculation assumes that the individual is resident in Mongolia during their assignment which runs from 1 January 2017 to 31 December 2019, in US dollars (USD).
|Moving expense reimbursement||20,000||0||20,000|
|Interest income from non-local sources||6,000||6,000||6,000|
Exchange rate used for calculation: USD1.00 = MNT2,500.00.
Calculation of taxable income
|Days in Mongolia during year||365||365||365|
|Earned income subject to income tax|
|Moving expense reimbursement||50,000||0||50,000|
|Total earned income||427,500||390,000||427,500|
|Total taxable income||439,620||401,832||438,660|
Calculation of tax liability
|Taxable income as above||439,620||401,832||438,660|
|Income tax (federal and provincial) thereon||43,962||40,183||43,866|
|Non-refundable tax credits||84||-||-|
|Total income tax||43,878||40,183||43,866|
|Employee contribution to Pension Plan||0||0||0|
|Employee contribution to Employment Insurance (SHI)||2,880||3,168||3,840|