Ulaanbaatar GMT +8
Ernst & Young TMZ LLC
Certified Tax Consultants
Suite 200
Naiman Zovkhis Building Seoul Street 21 Ulaanbaatar Mongolia
Indirect tax contacts
Martin Richter +852 2629 3938 (resident in Hong Kong) martin.richter@hk.ey.com
Khishignemekh Regzedmaa +976 11 314032 khishignemekh.regzedmaa@mn.ey.com
Myagmarsuren Lkhagvadorj +976 11 314032 myagmarsuren.lkhagvadorj@mn.ey.com
A. At a glance
Name of the tax
Value-added tax (VAT)
Local name Value-added tax (VAT)
Date introduced 1 July 1998
Trading bloc membership Mongolia and Japan economic partnership agreement (EPA)
Administered by Ministry of Finance of Mongolia (https://www.mof.gov.mn/) Mongolian Tax Authority (http://www.mta.mn) (MTA)
VAT rates
Standard 10%
Other Zero-rated (0%) and exempt
VAT number format
VAT return periods
Thresholds
Registration
Tax identification number (TIN) with 7 digits
Monthly
Mandatory MNT50 million (annual taxable turnover)
Voluntary MNT10 million
Recovery of VAT by non-established businesses No
B. Scope of the tax
VAT applies to the following types of transactions of individuals and legal entities:
• All types of goods sold in Mongolia
• All types of works and services provided in Mongolia
• All types of goods, works and services provided to customers in another country
• All types of goods, works and services received from suppliers in another country
The term “sale” refers to a transfer of the ownership of goods to another person or the perfor mance of services. The term “goods” includes all types of property other than money capital, and the term “services” includes any activity.
The provision of services includes but is not limited to the following:
• Providing electricity, heat, gas, water, sewers, postal services, communication and other utilities
• Leasing, possessing or using goods
• Renting immovable and movable property (other than rental of houses for residential purposes) or allowing possession or use of them in other forms
• Selling, transferring or leasing new inventions, new product designs, patents, copyrightprotected work, trademarks, know-how, software and other proprietary information
• Performing work and services provided for repayment of debts owed to other entities
• Sale of goods and provision of works and services by a nonresident person to a resident
• Organization of lottery, paid quiz or gambling games
• Providing intermediary services (intermediary of special rights, trade representation, commission and similar services)
• Receiving interest, fines and penalties arising from misconduct or noncompliance
• Offsetting of any debts through the transfer of goods, performance of works or provision of services
C. Who is liable
In general, a taxable person (or VAT agent) is any individual or legal entity (including a foreign legal entity and individual) that 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. Any individual permanently or temporarily employed under a labor contract is deemed not to be a VAT taxable person.
Taxable persons must be registered for VAT when taxable turnover exceeds MNT50 million in a given financial year (subject to certain anti-avoidance measures).
Exemption from registration. If a taxable person has not reached the registration threshold of MNT50 million within a given financial year, the taxable person is exempted from VAT.
Individuals and entities engaged exclusively in VAT-exempt goods, works and services specified in VAT law may not be registered as a VAT agent.
Individuals and entities whose business activity is exclusively VAT exempt, shall submit the fol lowing evidence in online and paper form to the MTA annually by the 10th of the January: application for exemption from registration as an agent, proof of exemption for goods, works and services, business license, electronic payment receipt, contract, source document, etc.
Voluntary registration and small businesses. Taxable persons can voluntarily register for VAT when taxable turnover reaches MNT10 million. Supporting documents are required to prove the expect ed sales reach MNT50 million in the next 12 months, such as contracts and sales orders, etc.
Group registration. Group VAT registration is not allowed in Mongolia.
Non-established businesses. A “non-established business” is a business that does not have a fixed establishment in Mongolia.
Foreign legal entities or individuals that sell goods, perform work or render services in the territory of Mongolia will be subject to VAT. As such, the recipient of the services or goods must act as a tax agent and withhold the VAT under the Mongolian reverse-charge VAT system. Foreign legal entities and individuals are not entitled to recover any input tax (VAT on purchase) unless they have permanent establishment that is registered for Mongolian VAT purposes.
Tax representatives. Tax representatives are not required in Mongolia.
Reverse charge. Reverse-charge VAT is applied to payments for works and services supplied by foreign legal entities and individuals not registered as taxable persons in Mongolia to Mongolian legal entities or individual entrepreneurs. Under the reverse-charge mechanism, the liability to impose, pay and report VAT rests with the recipient of the supply that acts as a tax agent.
However, input tax incurred on reverse-charge VAT paid on services provided by nonresidents is non-recoverable in Mongolia. See Section F. Recovery of VAT by taxable persons for more detail.
Domestic reverse charge. There are no domestic reverse charges in Mongolia.
Digital economy. There are no specific rules relating to the taxation of the digital economy. Normal VAT rules apply. Nonresidents that provide electronically supplied services are not required to register and account for VAT in Mongolia. The local customer self-accounts for the VAT via the reverse-charge mechanism. This applies for both business-to-business (B2C) and businessto-consumer (B2C). The customer must act as a tax agent and withhold the VAT under the reverse-charge mechanism. See the Non-established businesses subsection above.
There are no other specific e-commerce rules for imported goods in Mongolia.
Online marketplaces and platforms. No special rules exist for online marketplaces and platforms in Mongolia.
Registration procedures. Individuals and legal entities shall submit a request letter to register and application form ТТБ-01-А for VAT registration to the relevant tax office within 10 business days from the date the documents proving the threshold has been met. Non-exhaustive proof of documents includes bank statements, cash receipt orders, sales contracts, company certificates and electronic invoices.
The registration application for VAT agent is filled in and submitted to the tax authority within 10 working days after the threshold is met by either online or by paper. Log into online portal (https://e-tax.mta.mn) where individuals and companies can apply online for the registration of VAT and upload the following documents: sales agreement, bank account statement, invoices and state registration certificate to prove sales revenue. The application is subject to verification from the tax administration who may request additional supporting documents to verify sales. The MTA shall register a taxable person as a VAT agent within three working days after receiving the application of the person specified in VAT law and issue a certificate.
Deregistration. An individual or legal person registered for VAT shall be excluded from the taxable persons’ registry and their certificate shall be canceled if it has been proven by financial statements for a business entity or organization or by income and tax sheet for an individual taxable income amount for the subsequent 12 months after being registered for VAT is less than MNT50 million.
Changes to VAT registration details. A VAT agent should keep their VAT registration details up to date. Taxable persons may change their information details in the tax online portal. The taxable person is obliged to notify the MTA about any changes on the taxable person’s reg istration certificate within seven days. Details that the taxable person must update for its tax registration are business structure, information of the business owner, amount of owner’s equity, licenses issued to taxable persons and transferred to ownership, name of company, type of business, etc.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero rate.
The VAT rates are:
• Standard rate: 10%
• Special rates: 0-10%
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods (works and services) unless a specific measure provides for the zero-rate or an exemption.
Examples of goods and services taxable at 0%
• Goods exported from the territory of Mongolia and declared with the customs organization
• Passenger and cargo transportation services rendered from the territory of Mongolia to foreign countries, from foreign countries to the territory of Mongolia, as well as from foreign countries to third countries transiting through the territory of Mongolia, pursuant to the international treaties to which Mongolia is a signatory
• Services provided in a foreign country (including tax-exempt services)
• Any rendering of services (including “nontaxable services”) to a nonresident person
• Any services of air navigation management, technical and fuel services, and cleaning that shall be provided for both foreign and domestic airplanes conducting international flight and sale, food and drink services provided for air crew members or passengers during flight
• State medals and coins manufactured domestically on the order of the Government or the Bank of Mongolia
• Mining finished products that are exported (the government approves list of final mining prod ucts)
Examples of goods and services taxable at special rates 0%-10%
• Imported and manufactured gasoline and diesel fuel only. The government shall set the exact rate considering the specifics of the sector.
The term “exempt” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
Examples of exempt supplies of goods and services
• Passengers’ personal use goods (subject to permitted amounts and approval by customs authority)
• Goods received through humanitarian and grant aid from foreign governments, NGOs and international or humanitarian organizations
• Special purpose appliances, equipment and machinery designed for physically challenged per sons
• Civil passenger airplanes and spare parts thereof
• Revenues from the sale of establishments used for housing or portions thereof
• Blood, blood products and organs to be used for purposes of specified treatment
• Gas fuel, gas fuel containers, equipment, special purpose machineries, mechanisms and related mechanics
• Sale of gold
• Experimental products related to research and scientific work
• Mining products other than mining finished product that was exported
• Cereal, potatoes, seeds, vegetables and fruits domestically grown and sold by farmers and domestically produced flour
• Asset-backed loan portfolio or claiming rights derived from financial leasing arrangements transferred by banks, nonbanking financial institutions (NBFI) or other legal entities to other banks, special purpose companies or mortgage corporations
• Imported woods, timbers, cut materials, planks, wooden pieces and semi-processed wooden materials
• Exported cashmere and leather that has been raw processed (cleaned and brushed)
• Import of special purpose machinery, equipment, parts, raw materials, and chemical or explosive substances imported by contractors and subcontractors to be used for crude oil and nontraditional crude oil industry for the first five years of an exploration period or for exploration periods of less than five years
• Import of equipment, tools and accessories for renewable energy production and research
• Currency exchange
• Banking services, such as the receipt or transfer of money, or any dealing with money, any security for money or any note or order for the payment of money and the operation of any savings account
• Services of insurance, reinsurance and registration of property
• The issuance, transfer or receipt of any securities and shares, and underwriting of such securi ties
• The issuance of loans
• The provision or transfer of an interest related to a social and health insurance fund
• Loan interest, financial lease interest, dividends, loan guarantee fees or insurance premiums by banks, NBFIs or saving and loan cooperatives
• Rental of residential houses and apartments
• Medical services
• Services of religious organizations
• Services provided by a government organization; this shall include public services provided by the government, its agencies and budgetary organizations
• Public transportation services
• Tour operating services
• Weapons and special equipment imported for the needs of the armed forces, police, state security, enforcement of court decisions, state special protection organizations and the anti-corruption agency
• Notary services
• Goods imported for the use of diagnosis and treatment of COVID-19 such as diagnostic tests, medicine, medical equipment and disinfectants
Option to tax for exempt supplies. The option to tax exempt supplies is not available in Mongolia.
E. Time of supply
The moment when VAT becomes due is called the “time of tax imposition,” also known as the time of supply.
For taxable persons, the time of tax imposition is the earliest of the following dates:
• The date when the seller receives the payment for goods, works or services
• The date when a payment receipt and an invoice is issued for sales of products and services
• The date when the purchase of goods, works or services is exercised
Deposits and prepayments. The time of supply for a deposit, prepayment and advance payment is the end of the calendar month (VAT return period) in which the prepayment is received, even if the supply has not yet been made. This treatment applies to both supply of services and goods.
Continuous supplies of services. There are no special time of supply rules in Mongolia for con tinuous supplies of services. As such, the general time of supply rules apply (as outlined above).
Goods sent on approval or for sale or return. There are no special time of supply rules in Mongolia for supplies of goods sent on “approval” or for “sale or return” conditions. As such, therefore the general time of supply rules apply (as outlined above), and when the goods are sold, and it can be reversed with approval of the buyer. Mongolia employs an electronic VAT system where all supplies of goods and services are recorded. The seller can request a return of the goods to the buyer through the electronic VAT system.
Reverse-charge services. There are no special time of supply rules in Mongolia for the supply of reverse-charge services. As such, the general time of supply rules apply (as outlined above).
Leased assets. Leased assets are subject to VAT. The time of supply rule for the supply of leased assets that results in a transfer in ownership shall be in accordance with the agreed schedule for the finance lease payment.
Imported goods. Imported goods are subject to customs VAT at the time of customs clearance. Payment of import VAT is required for imported goods to enter into Mongolian territory. The time of supply for imported goods shall be at the earliest date of the following operation:
• The day when the vendor receives a sales revenue
• The day when payment receipt invoiced for goods and services sold
• The day when goods and services purchased
F. Recovery of VAT by taxable persons
A taxable person may recover input tax, which is VAT charged on goods (works and services) supplied for carrying out activities within the scope of VAT. A taxable person generally recovers input tax by deducting it from output tax, which is VAT charged on supplies made.
Input tax includes VAT charged on goods (works and services) in Mongolia, VAT paid on the import of goods and VAT paid to the Mongolia budget by a buyer acting as a tax agent with respect to the acquisition of goods (works and services) from a foreign legal entity.
The time limit for a taxable person to reclaim input tax in Mongolia is one month. The claim for input tax credit must be made in the monthly VAT return on self-assessment basis, provided the supporting documents are maintained.
If the amount of input deduction for a given month exceeds the amount of tax payable in the same period, the tax administration shall apply the following methods:
• Offset against the potential tax payable in the subsequent periods if any
• Offset against the other types of tax payable
• Refund in cash
Nondeductible input tax. Input tax cannot be recovered on purchases of goods (works and services) and property rights that are not used for making supplies within the scope of VAT (for example, goods purchased for private use by an entrepreneur).
Examples of items for which input tax is nondeductible
• Personal expenses
• VAT paid for the spare parts of auto vehicles
• Reverse-charge VAT paid on services provided by nonresidents
• VAT incurred on mineral exploration and pre-mining operations
• VAT incurred for the purpose of tax-exempt supplies
Examples of items for which input tax is deductible (if related to a taxable business use)
• Inventory
• Utility bills
Partial exemption. If a Mongolian taxable person makes both exempt supplies and taxable supplies, the taxable person must account for them separately. Input tax directly related to taxable supplies is recoverable in full, while input tax directly related to exempt supplies is not recover able and must be expensed for Mongolian profit tax purposes. Input tax that may not be directly attributed to taxable or exempt supplies (such as VAT on business overhead costs) must be apportioned. The statutory method of apportionment is a pro rata calculation, based on the value of taxable supplies made compared with the total turnover of the business.
Approval from the tax authorities is not required to use the partial exemption standard method in Mongolia. Special methods are not allowed in Mongolia.
Capital goods. Input tax incurred on capital goods of businesses is allowed for input credit for taxable supplies (excluding tax-exempt supplies). The input tax shall be claimed on a straightline basis with following periods:
• Building and construction: 10 years
• Plant and equipment: 5 years
• Mineral exploration assets: 5 years
• All other non-current assets: input tax is claimed in the period in which it incurs
Refunds. The VAT refund application must be sent to the appropriate tax authority. The appropri ate tax authority will review, confirm the ending balance, and submit its proposal to the MTA within 15 working days. The MTA will review the application and proposal within seven working days and submit its opinion including name of the taxable person, registration number, bank account, refundable amount within two working days to the Ministry of Finance who will refund the amount within 45 days after the receipt of opinion. However, a refund of VAT shall not exceed 30% of the total VAT revenue to be paid into the state budget in a given month, quarter or year. Thus, a refund may take some time if the amount is sizable.
The VAT law requires the tax authorities to pay a refund no later than 45 days following the positive decision regarding the VAT refund claim of a taxable person. In practice, however, refund payments are often delayed.
Pre-registration costs. Input tax is recoverable only if it was incurred after the individual or legal entity is registered as a taxable person with the MTA.
Bad debts. Output tax accounted for supplies that do not get paid by the recipient (i.e., a bad debt) cannot be recovered in Mongolia.
Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities, is not recoverable in Mongolia.
G. Recovery of VAT by non-established businesses
Input tax incurred by non-established businesses in Mongolia is not recoverable.
H. Invoicing
VAT invoices. In general, a taxable person must provide a VAT invoice. Invoices must be issued in Mongolian, but bilingual invoices may also be issued in Mongolian and any other language.
Credit notes. Credit notes are not allowed in Mongolia. A separate document is not issued for discounts, refunds and agreed price changes, etc. In practice, taxable persons must cancel the previous VAT invoice issued, and then reissue it with the different (agreed) amount. Also, if necessary, the submitted VAT return must also be amended.
Electronic invoicing. Electronic invoicing in Mongolia is allowed, but not mandatory. Mongolia uses an electronic VAT system to reduce noncompliance. It is mandatory for all businesses (pro viding services or goods) to enter sales information into the system, regardless of their VAT status or type of services, goods and work.
Simplified VAT invoices. Simplified VAT invoicing is not allowed in Mongolia. As such, full VAT invoices are required.
Self-billing. Self-billing is not allowed in Mongolia.
Proof of exports. Goods exported from Mongolia as well as some types of work and services related to exports are subject to a 0% VAT rate in Mongolia. To confirm the applicability of the 0% rate, the supplier must attach a customs declaration as supporting documentation. For works and services, a written agreement, invoice and bank statement should be attached as supporting documentation.
Foreign currency invoices. Invoices cannot be issued in a foreign currency in Mongolia. All invoices must be issued in the domestic currency, which is the Mongolian tughrik (MNT).
Supplies to nontaxable persons. For supplies from VAT-registered businesses to private consum ers, a “payment receipt” must be issued by the seller for B2C transactions each time when goods or services are supplied. The payment receipt is generated from the designated equipment with unique payment number, date of payment, name and address of the seller and description, code and quantity, and price and amount of the payment.
Records. In Mongolia, examples of what records that must be held for VAT purposes include all the primary supporting documents related to tax returns such as invoices, remittance and sales receipts, and other relevant accounting details.
Record retention period. All tax records must be held for a maximum of four years for tax records according to statute of limitations of four years.
There is no specific requirement regarding whether taxable persons can keep records locally in Mongolia or outside Mongolia. However, upon a tax inspection, hard and original copies of the accounting records are required.
Electronic archiving. Electronic archiving is not allowed in Mongolia. All records must be held in physical (i.e., paper) form. While in practice, taxable persons aren’t required to keep their VAT receipts in paper form because they are already in the VAT system, it is recommended to keep paper copies, because electronic archiving is not legally accepted in Mongolia.
I. Returns and payment
Periodic returns. Taxable persons must file VAT returns on a monthly basis. Taxable persons must submit a monthly VAT return by the 10th of the following month. The submission process is online. Taxable persons fill in lines with the amount of sales and expenses. The purchases and sales must match the electronic invoice system for the taxable person to be able to submit.
Periodic payments. The VAT amount per VAT return must be paid within the 10th day of the following month. VAT payable under the reverse-charge mechanism is accounted in the same VAT return. Online portals automatically issue unique numbers assigned to each tax invoice. With the tax invoice number, taxable persons make payments via online banking or at any local bank branch. Tax invoices with special numbers and barcodes can be downloaded from the tax depart ment portal.
Electronic filing. Electronic filing is mandatory in Mongolia for all taxable persons. There is no requirement to transmit a hard copy of a VAT return to the MTA, but the taxable person shall keep a copy for further reference. Taxable persons need an online account on the e-filing system to submit their VAT return. They must log on to the tax department portal (https://etax.mta.mn) for filing VAT returns online. Compute tax payable by uploading VAT purchases and sales from the E-barimt system (online receipt registration system of VAT). The taxable person will need to authorize it before they submit a VAT return and can digitally sign the file. The filing process is completed and verified (by the MTA), and the status of the tax return is “Verified.”
Payments on account. Payments on account are not required in Mongolia. Special schemes. No special schemes are available in Mongolia.
Annual return. Annual returns are not required in Mongolia.
Supplementary filings. No supplementary filings are required in Mongolia.
Correcting errors in previous returns. The taxable person (or agent) can make a self-amendment to information in the VAT return submitted to the e-filing system, by sending an online request to the MTA to correct any errors or omissions from prior filings. Once permission is granted by the MTA, the taxable person resubmits the return online.
Digital tax administration. There are no transactional reporting requirements in Mongolia.
J. Penalties
Penalties for late registration. If an individual or legal entity that has exceeded the threshold for registration has not registered with the respective tax authority, then a competent state inspector shall assess and impose the VAT due and additionally impose an administrative penalty equal to the assessed VAT due.
Penalties for late payment and filings. Failure to remit tax to the MTA is subject to a daily late payment penalty of 0.1% of the due tax. Late payment shall start from due date of 10th of the following month.
Penalties for errors. Failure to charge tax on taxable goods and service is subject to a penalty equal to 30% of the due tax. Errors include the failure to register as VAT agent when threshold is met and failing to impose VAT on supplies, when registered for VAT.
Failure to notify material changes to a taxable person’s VAT registration details to the tax author ities shall be subject to the penalty of MNT100,000 for an individual and MNT1 million for an entity.
Penalties for fraud. A penalty for tax evasion is due tax and an additional 30% of due tax as penalty. Types of tax evasion are concealed taxable income, understated taxable income or overstated expenses in the accounting records and destroyed/omitted accounting records on purpose. The penalty for a tax advisor is USD150 (approx. MNT418,000) for an individual, USD1,500 (approx. MNT4,178,000) for an entity, if guilty for assisting any fraudulent activity.
Personal liability for company officers. Company directors can be held personally liable for errors and omissions in VAT declarations and reporting in Mongolia. The penalty for a company officer is MNT100,000-500,000 for an individual.
Statute of limitations. The statute of limitations in Mongolia is four years. This covers tax reim position, imposing of penalties and fines, tax credit and exemptions. Any voluntary correction or adjustment to VAT returns can be made for the periods including the current and preceding tax year only but it is not allowed for amendments beyond such periods.