Under the leadership and coordination of the Ministry of Finance, consultations on the Ministry’s proposed tax amendments started on March 5. The first session was held with business sector representatives regarding tax law reforms and amendments at the Mongolian National Chamber of Commerce and Industry.
Ministry of Finance is conducting a public discussion on revising 24 tax-related laws, including General Taxation Law of Mongolia, Laws on Corporate Tax, Personal Income Tax and Value Added Tax, in order to hear voices of taxpayers and collect best proposals from the relevant parties. The Government noted that no fundamental changes and revisions were made to tax laws in the last decade and the taxation law ‘package’ was created to improve tax environment and decrease some taxes. The taxpayers expect favorable environment from this tax reform.
According to the proposed tax law amendment, if the annual revenue of enterprises operating in Mongolia is lower than MNT 1.5 billion, the government will return 90 percent of paid taxes. Furthermore, small and medium sized enterprises which have MNT 50 million of annual revenue, will be able to pay only one percent tax from sale revenue. The proposed amendments would also reduce the number of reports required from SMEs. Companies with an annual income of over three billion MNT would be required to issue tax reports four times a year, and those with less than three billion MNT in annual income would be required to file reports twice per year. The amendments include major changes to the VAT law.
The proposed amendments expect to be discussed and voted on during the spring parliamentary session and, if approved, will come into force on January 1, 2019.
As we posted previously, the newly adopted Mongolia Value-Added Tax (VAT) law has come into effect since January 1, 2016.
According to the VAT law, “Any citizen and legal person, who is engaged in the import and export of goods as well as the sale and manufacturing of any goods, performance of work and rendering of services in the territory of Mongolia, shall be value-added taxpayers.” VAT shall be applicable for the following goods, works and services where operational income value reaches 50 or more million tugrugs:
- all types of goods, works and services sold within the territory of Mongolia;
- all types of goods, works and services imported from abroad to Mongolia; and
- all types of goods, works and services exported from Mongolia;
Furthermore, the VAT shall apply to the representative office of a foreign legal entity whose revenue of sold goods, performed works and rendered services in the territory of Mongolia, has reached 50 million tugrugs or more.
In almost all cases, the value-added tax shall be imposed at the rate of 10 percent of the taxable amount of imported, manufactured or sold goods, performed works and rendered services. However, some certain types of goods, work and services can be subject to zero (“0”) percent VAT. The payment of VAT must be within the first ten days of the following month.
The newly adopted law also creates an incentive system with the possibility of recovering up to 20 percent of paid taxes if certain conditions are met. Initial such tax returns are expected to refund in the first quarter of this year.
A conference with our Mongolian Tax Law specialists can help you determine whether your company may be able to take advantage of the 0% VAT, or the VAT recovery.
Mongolia recognizes 4 categories of commodities for purposes of cross-border trade. Items are classified as either:
An item classified as Forbidden is not allowed to pass through Customs whether by import or export. Narcotic s and related equipment for production or use are Forbidden.
Items which are not Forbidden, but which are subject to certain legal restrictions are Licensed. There must be an appropriate license for import or export. Some licenses are restricted to only export, or only import. Medical drugs and alcoholic beverages are examples of items which must be licensed. Imported or exported metals must also be accompanied by a license, however there is an exception for used aluminum drink cans. Other items which must have a license for export or import are toxic chemicals, blood and organs for donation, raw or processed uranium, firearms, historic or cultural items, and Mongolian pedigree cattle.
Some items which do not require a license are nevertheless subject to special taxation on import or export. As of September 09, 2016 changes to the law, such taxes on goat cashmere and camel wool are removed. Only processes and unprocessed timber remain subject to special taxation.
The new Value-Added Tax Law came into effect on 1 January 2016.
The new VAT law revised key terminology and broadened the types of activities which are subject to VAT. The VAT Law increased the threshold for the requirement to register as a VAT payer from 10 million MNT to 50 million MNT in an effort to support small and medium sized enterprises. Voluntary registration as a VAT payer remains possible if the income of the entity reaches 10 million MNT.
The Law also introduces a system of incentivizing taxpayers with the possibility of recovering up to 20 percent of taxes paid if certain conditions are met. It further attempts to improve the system and procedure for collating, processing and reporting data relating to the payment of VAT by creating a consolidated registration system.
The VAT rate of 10 percent remains the same, however, there have been some changes in the types of goods, work and services that are exempted from value-added tax and those that are subject to zero (“0”) percent VAT.