Doing business in Mongolia: Taxation and Payroll

Tax Figures

Corporate Income Tax

Up to MNT 3 billion, a marginal tax rate of 10% applies. Above this amount, the marginal rate is 25%.

For the sale of shares, a corporate tax return must be filed within 10 days. Taxpayers file returns and execute payments on a self-assessment basis although generally an annual return must be submitted by February 15 of each year.

Income Tax Rate

All income: 10%

Individuals are granted a standard personal tax credit of MNT 84,000 per annum individuals to deduct against the tax payable on their annual income.

Payroll Tax

Not specified

Sales Tax

10% although some goods such as fruits & vegetables are exempt from VAT.

Withholding Tax

Dividends, interest and royalties are all taxed at 10%. A withholding tax of 20% is applicable to all foreign entities.

Other Tax

Interestingly, there is no capital gains tax or provision for tax consolidation in Mongolia.

Income Tax (Personal Allowance)

There is no income bracket which is not taxed however a personal tax credit of MNT 84,000 per annum is provided for individuals to deduct against the tax payable on their annual income.

Time to prepare and Pay Taxes

148 hours

Employers Social Security and statutory contributions

Pensions: Employer contributes 7% of salary
Medical Insurance: Employer contributes 2% of salary
Benefit Insurance: Employer contributes from 0.4-3% of employee’s salary
Unemployment Insurance: Employer contributes 0.2% of salary

Employees Social Security and statutory contributions

Pensions: Employee contributes 7%
Medical Insurance: Employee contributes 2%
Benefit Insurance: No employee contribution
Unemployment Insurance: Employee contributes 0.2%

Payroll

There are specific rules for payroll and taxation in Mongolia, depending upon whether your employees are foreign nationals or local Mongolians who require Mongolia payroll. The primary concerns for a foreign company that needs to comply with tax laws in Mongolia are: Individual income tax (IIT) for employees in Mongolia, social security costs, fringe benefits tax, and value added tax.

Mongolia is known for its flexible policies surrounding employment of foreign workers and thus appropriate payroll is important for any companies wishing to employ in Mongolia.

Remote Payroll

A remote payroll in Mongolia operates when a foreign company, i.e. a non-resident company, payrolls a resident employee in Mongolia. Under Mongolian law both Mongolian and foreign-owned entities are allowed to have employees based in Mongolia. This applies to both local and foreign employees. A good option, therefore, for a non-resident company to payroll its employees (local and foreign) in Mongolia is to use a fully outsourced service like a GEO or FESCO which will employ and payroll the staff on their behalf.

Local Payroll Administration

In some cases, a company will register their business in Mongolia under one of the forms available, (RO, LLC or JV) but may prefer to have another company administer its payroll, which can be achieved through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

Larger companies with a longstanding commitment to Mongolia may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Mongolian payroll, and can fulfill all tax, withholding, and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Mongolian employment laws.

Setting up payroll in Mongolia

Currency

Mongolian tögrög (also stylised as Tughrik) (MNT) is the official currency.

Employee Information Required

To set up new employees for payroll purposes, the following must be included:

Employment contract
Passport or ID Card
Salary details
Account information

Social Security Registration

Companies must register with relevant social insurance departments of the appropriate district. The registration needs to be completed in person, upon which a social insurance code will be assigned by the District Social Insurance Department. The service is free and it is no longer required that a paper copy of the certificate of social insurance registration be obtained.

Documentation Required for New Employees