LAW PERSONAL INCOME TAX /Newly Drafted/
16, 2006 Ulaanbaatar
LAW OF MONGOLIA
PERSONAL INCOME TAX
(Newly drafted)
SECTION ONE
General Provision
Article 1. Purpose of the law
1.1. The purpose of this law is to regulate relations concerning imposition of tax on income of individuals and transference thereof to the budget.
Article 2. Legislation
2.1. The legislation on personal income tax (hereinafter referred to as "tax") shall comprise the General Taxation Law, this law, and other laws and legal acts enacted in conformity with them.
Article 3. Framework of the law
3.1. This law shall regulate relations concerning imposition of tax on income of individuals other than sole proprietorships whose income from work and services cannot be determined on each occasion.
Article 4. Definition of legal terminology
4.1. The following terms used in this law shall have the following meanings:
4.1.1. "Income earned in a foreign country" is income earned by a taxpayer through employment, business operations, and ownership, use, transfer, and sale of rights to movable and immovable property in a foreign country;
4.1.2. "Herdsman family" refers to a family that rears its private livestock on a regular basis and earns its primary income from its livestock benefits;
4.1.3. "Individual with livestock" refers to an individual who owns livestock other than those specified in subparagraph 4.1.2 of this law;
4.1.4. "Withholder" refers to an entity obliged to withhold tax imposed on taxpayer’s income in conformity with this law and transfer the withholding to the state and local budget.
SECTION TWO
Taxpayer
Article 5. Taxpayer
5.1. A citizen of Mongolia, foreign national and stateless person who resides in Mongolia and earns income subject to tax for the tax year or who is liable to pay tax under this law, even though the same income is not earned, shall be a taxpayer.
5.2. A taxpayer specified in paragraph 5.1 of this law shall be classified as either a permanent resident taxpayer of Mongolia or non-resident taxpayer of Mongolia.
Article 6. A permanent resident taxpayer of Mongolia
6.1. The following individuals shall be permanent resident taxpayers of Mongolia:
6.1.1. An individual with a residence in Mongolia;
6.1.2. An individual who resides in Mongolia for 183 or more days in a tax year;
6.1.3. A civil servant of Mongolia appointed to work overseas.
6.2. The period specified in subparagraph 6.1.2 of this law shall be calculated based on the number of days of a calendar year from the day of entry into Mongolia and in case of multiple entries, it shall be determined based on the total days of taxpayer’s stays in Mongolia.
6.3. A foreign national appointed at a foreign diplomatic mission, consulate, the United Nations, and their branches and his/her family members who reside in Mongolia shall not be considered residents of Mongolia.
Article 7. A non-resident taxpayer of Mongolia
7.1. An individual who has no residence in Mongolia and has not resided in Mongolia for 183 or more days in a tax year shall be a non-resident taxpayer.
7.2. Duration of a non-resident taxpayer’s stay in Mongolia shall be determined in conformity with paragraph 6.2 of this law.
SECTION THREE
Taxable Gross Income and Exempt Income
Article 8. Taxable gross income
8.1. The following income of a taxpayer earned in a tax year shall be subject to tax:
8.1.1. Salaries, wages, bonuses, incentives, and other employment income similar to these;
8.1.2. Income from activities;
8.1.3. Income from property;
8.1.4. Income from sale of property;
8.1.5. Income of a herdsman family and individual with livestock;
8.1.6. Income from creation of scientific, literary, and artistic works, invention, product design and useful design, organizing and participating in sports competition, art performance, and other income similar to these;
8.1.7. Income from remuneration for art performance, sports competition, and festival;
8.1.8. Income from quizzes, gambling, and lotteries;
8.1.9. Fringe benefits.
Article 9. Determining taxable gross income
9.1. The following procedures shall apply for determining taxable gross income:
9.1.1. Income earned by a permanent resident taxpayer of Mongolia in the territory of Mongolia and in a foreign country in a tax year shall be subject to tax;
9.1.2. Income earned by a non-resident taxpayer of Mongolia in the territory of Mongolia in a tax year shall be subject to tax;
9.1.3. If a taxpayer or someone on behalf of the taxpayer makes an investment or accumulation, the taxpayer shall be obliged to validate that the source of such investment and accumulation is included in his/her taxable gross income. If the taxpayer fails to do so, taxable gross income for the tax year shall be include the total value of investment and accumulation;
9.1.4. Taxable gross income earned in the form of goods, work, and services shall be determined on the basis of selling price of comparable goods, work, and services between non-related parties;
9.1.5. If related parties have sold goods, performed work, rendered services, and transferred property below or above fair market value, the tax authority shall determine the value of such goods, work, and services based on value of transactions of similar goods, work and services between non-related parties.
9.2. Income earned and expenses incurred in a foreign currency shall be converted to MNT based on the Bank of Mongolia’s exchange rate of that day.
Article 10. Related party
10.1. If the following relationships exist with a taxpayer, taxpayer shall be "a related party:"
10.1.1. The parent, child, grandparent, grandson, or granddaughter of the taxpayer;
10.1.2. The brother or sister of the taxpayer, or a child of a brother or sister;
10.1.3. The spouse of the taxpayer, or a parent, child, brother, or sister of that spouse;
10.1.4. A legal entity under the control of the taxpayer or the individuals specified in subparagraphs 10.1.1-10.1.3 of this law.
Article 11. Salaries, wages, bonuses, incentives, and similar employment income
11.1. Salaries, wages, bonuses, incentives, and similar employment income shall include the following income:
11.1.1. Base salary, additional wages, overtime pay, bonuses, incentives, vacation pay, pension, allowances, and other similar income a taxpayer earns in accordance with an employment contract entered with an employer;
11.1.2. Allowances provided by an employer to an employee or employee’s family member and other similar income;
11.1.3. Gifts provided by an employer to an employee or employee’s family member;
11.1.4. Salaries, wages, bonuses, and incentives of members of a board of directors, control committee, part-time committee, other committees, and task force and other similar income;
11.1.5. All types of bonuses and incentives issued by foreign and domestic business entities, citizens, and other entities;
11.1.6. Wages, bonuses, additional wages, allowances, and other similar income from employment based on contracts entered into with legal entities or individuals other than taxpayer’s primary employment.
Article 12. Income from activities
12.1. The following income from provision of professional services and conducting production and trade activities on an individual basis without establishing a legal entity shall constitute income from activities:
12.1.1. Income from professional services such as a medical practitioner, lawyer, advocate, architect, accountant, and teacher;
12.1.2. Income from production and trade through performance of work, production and sale of products, and provision of services on an individual basis;
12.2. Income from not regular business activities shall be included in income from activities.
Article 13. Income from property
13.1. The following income shall be included in income from property:
13.1.1. Leasing income;
13.1.2. Royalty income;
13.1.3. Dividend income;
13.1.4. Income from interest;
13.1.5. Income from use of properties that are in a taxpayer’s possession and ownership by others.
13.2. Leasing income shall include income earned by leasing movable and immovable property.
13.3. Royalty income shall include the following payments:
13.3.1. Payment for usage of copyrighted works specified in the Law on Copyright and Corresponding Rights;
13.3.2. Payment for usage of invention, product prototype, and useful design specified in the Patent Law;
13.3.3. Payment for usage of trademark specified in the Law on Trademark and Geographic Specification;
13.3.4. Payment for transference of technology specified in the Law on Transfer of Technology;
13.3.5. Payment for usage of information related to production, trade, and scientific experiment;
13.3.6. Payment for usage of other rights similar to those specified in subparagraphs 13.3.1-13.3.5 of this law.
13.4. Income from dividends specified in subparagraph 13.1.3 shall include monetary and non-monetary income and interest earned through profit sharing and income distribution by a legal entity with contributed capital.
13.5. Income from interest specified in subparagraph 13.1.4 shall include loan interest, bank account balance, interest on a savings account, fee for issuing a guarantee, notes payable (bond), and interest and fines earned in accordance with law and contract.
Article 14. Income from sale of property
14.1. Income from sale of property shall include the following income:
14.1.1. Income from sale of immovable property;
14.1.2. Income from sale of movable property;
14.1.3. Income from sale of stocks and securities;
Article 15. Fringe benefits
15.1. Fringe benefits shall include income from the following goods and services, not directly related to performance of employee’s duties, provided by an employer in addition to salaries, wages, bonuses, and incentives:
15.1.1. Provision of free or discounted transportation or provision of cash for transportation;
15.1.2. Provision of payment for utilities expenses and cash for housing and fuel;
15.1.3. Provision of cash for meals and entertainment;
15.1.4. Provision of a housekeeper, chauffeur, gardener, or other services;
15.1.5. Waiver of an obligation to pay an amount owed to the employer or to any other person;
15.1.6. Interest discount on a loan if the rate of interest is lower than the market rate for a loan;
15.1.7. Other income similar to those specified in subparagraphs 15.1.1-15.1.6 of this law.
15.2. The following fringe benefits provided by an employer to an employee to improve the employee’s working condition shall not be subject to gross taxable income:
15.2.1. Provision of meals provided for all employees on equal terms in a canteen, cafeteria, or dining room operated by the employer at the workplace during working hours;
15.2.2. Provision of a lounge or other services for employees who work at a remote workplace and provision of scheduled transportation for going to and returning from the workplace;
15.2.3. Interest discount on a loan provided for purchase and construction of an apartment for an employee if the interest rate is lower that that of a commercial loan;
15.2.4. Medical expenses.
15.3. Fringe benefit specified in paragraph 15.1 of this law shall be determined by total costs incurred by the employer in providing such benefits.
Article 16. Exempt income
16.1. The following income shall be exempt from tax:
16.1.1. Pension, benefits, payments, discounts, reimbursements, and one-time grant aid issued in accordance with laws of Mongolia;
16.1.2. Payment to a donor;
16.1.3. Per-diem expenses;
16.1.4. Proceeds from insurance;
16.1.5. Payments, interest, and penalties for government notes payable (bond)
16.1.6. Costs of labor safety clothing and uniform, antidote drinks, and other similar supplies provided in accordance with laws;
16.1.7. Aid provided by international organizations, foreign governments, legal entities, or individuals to the Government of Mongolia, local authorities, legal entities, and individuals in an emergency situation;
16.1.8. Salaries and additional wages of individuals specified in paragraph 6.3 of this law;
16.1.9. Income earned in a foreign country by a foreign citizen and his/her family members specified in subparagraph 16.1.8 of this law;
16.1.10. Income of an individual who lost over 50 percent of working capacity due to development challenge;
16.1.11. A Mongolian state prize, government prize, Mongolian people’s and honorary prize, and prize for scientific discovery;
16.1.12. Income of an individual who built or purchased a private apartment for residential purpose for the first time from his/her income or a loan from banking and financial organizations not exceeding MNT 30.0 million.
16.2. Exempt income shall not be included in gross taxable income.
SECTION FOUR
Determining Taxable Income
Article 17. Determining taxable income from salaries, wages, bonuses, incentives and other similar income
17.1. Taxable income of salaries, wages, bonuses, incentives and other similar income shall be determined as follows:
17.1.1. Deducting social and medical insurance premium from income specified in subparagraph 11.1.1 and 11.1.6 of this law;
17.1.2. Total income specified in subparagraphs 11.1.2-11.1.5 of this law.
Article 18. Determining taxable income from activities
18.1. Taxable income from activities shall be determined by deducting expenses specified in subparagraphs 12.1.1-12.1.3, 12.1.5-12.1.14, 12.1.17, 12.1.19-12.1.26 and principles specified in articles 12.2, 12.3, 12.5-12.8 and 13-15 of the Economic Entity Income Tax Law.
18.2. If expenses specified in paragraph 18.1 are not documented, not related to the activities, or are expended for personal use of a taxpayer, they shall not be deducted from taxable income.
18.3. Wages paid to taxpayer’s family members shall be pro-rated with social and medical expenses paid and included in expenses.
18.4. If a taxpayer expended a portion of goods produced, work performed, or services rendered for his or his family needs, it shall not be included in expenses.
18.5. If a taxpayer uses machinery, equipment, and facilities for family needs and business activities at the same time, the expense shall be calculated on a pro-rated basis.
Article 19. Determining taxable income from property
19.1. Taxable income from property shall be determined as follows:
19.1.1. Deducting cost of leasing from total lease income;
19.1.2. Total income from royalties;
19.1.3. Total income from dividends;
19.1.4. Total income from interest;
19.1.5. Total income from use of property by others.
19.2. In case a business entity with a taxpayer’s contributed capital is dissolved, the expense incurred in relation to contributed capital shall be deducted from sale proceeds of its remaining assets to determine the share received by the taxpayer.
Article 20. Determining taxable income from sale of property
20.1. Taxable income from sale of property shall be determined as follows:
20.1.1. Total proceeds from sale of immovable property;
20.1.2. Deducting purchase price of stock from the selling price to determine income from sale of stock;
20.1.3. Value of a prorated portion of stock for a taxpayer after deducting cost specified in subparagraph 20.1.2 of this law in case of joint ownership of stock;
20.1.4. Deducting purchase price of securities from the selling price to determine the income from sale of securities;
20.1.5. Deducting the purchase price and documented expenses incurred in relation to the purchase from the selling price to determine income from sale of movable property.
Article 21. Determining taxable income of a herdsman family and individual with livestock
21.1. Taxable income of a herdsman family and individual with livestock shall be determined by the number of livestock;
21.2. The number of livestock shall be converted to a head of sheep. A cow or horse shall be commensurate with 5 sheep, camel with 2 sheep, and a goat with 1.5 sheep.
21.3. The number of livestock subject to tax shall be determined based on the number of livestock counted at the end of the previous year.
21.4. If livestock subject to tax in that year is reduced due to disaster specified in subparagraph 4.1.2 of the Law on Disaster Management, the reduced number shall be deducted from the total number of livestock subject to tax based on certified document.
Article 22. Determining taxable amount of other income
22.1. Tax imposition on the following income shall be determined in the following principle:
22.1.1. Taxable income from creation of scientific, literary, and artistic works, invention, product design and useful design and organizing and participating in sports competition, art performance, and other similar income shall be its total value;
22.1.2. Taxable income from remuneration for sports competition, art performance, and festival shall be its total value;
22.1.3. Taxable income from quiz, gambling, and lottery shall be determined by the total value;
22.1.4. Taxable income of fringe benefit shall be determined by the total value.
SECTION FIVE
Tax Rate
Article 23. Tax rate
23.1. Total annual income determined as specified Articles 17-19 and subparagraphs 20.1.2-20.1.5 and 22.1.4 of this law shall be taxed at the rate of 10 percent.
23.2. Income specified in the following provisions of this law shall be taxed at the following rates:
23.2.1. Total income specified in subparagraph 20.1.1 of this law at the rate of 2 percent;
23.2.2. Total income specified in subparagraphs 22.1.1-22.1.2 of this law at the rate of 5 percent;
23.2.3. Total income specified in subparagraph 22.1.3 of this law at the rate of 40 percent.
23.3. Each head of sheep shall be taxed at the following tax rates as specified in paragraph 21.2 of this law:
|
No |
Administrative Unit |
Tax rate (in MNT) |
|
1 |
Capital City, Darkhan-Uul, Orkhon, Selenge, and Tuv aimags |
100 |
|
2 |
Arkhangai, Bayankhongor, Bulgan, Gobi-Sumber, Dornogobi, Dornod, Dundgobi, Umnugobi, Uvurkhangai, Sukhbaatar, Khuvsgul, and Khentii aimags |
75 |
|
3 |
Bayan-Ulgii, Uvs, Khovd, Gobi-Altai, and Zavkhan aimags |
50 |
SECTION SIX
Tax Credits and Exemptions
Article 24. Granting tax credits and exemptions
24.1. Tax credit equal to MNT 84,000 shall be deducted from tax imposed on annual income specified in subparagraphs 11.1.1-11.1.6 of this law.
24.2. Twenty sheep per member of a herdsman family shall be exempt from tax imposed on the family.
24.3. If a herdsman family builds a well at its own expense, a tax credit shall be granted by deducting the documented expenses incurred for building the well from tax imposed in accordance with paragraph 23.3 of this law.
24.4. Tax credit specified in paragraph 24.3 of this law shall be granted based on findings of a professional authority.
24.5. Tax imposed on income earned by a resident of Mongolia who produces or plants the following products shall be subject to 50 percent tax credit:
24.5.1. Cereals;
24.5.2. Potatoes and vegetables;
24.5.3. Fruit;
24.5.4. Fodder plants.
24.6. A tax credit equal to documented tuition payment shall be granted to a taxpayer’s birth or adopted child who attends domestic or foreign college, university, or vocational school.
24.7. A tax credit specified in paragraph 24.6 of this law shall apply to a student of college, university, and vocational school who has paid tax on income from employment in the course of study and paid tuition fee.
Article 25. Foreign tax credit
25.1. A tax credit shall be granted to an individual who paid tax in a foreign country based on agreements not to impose double taxation on income and property and prevent tax avoidance.
SECTION SIX
Tax Imposition, Payment to the Budget, and Reporting
Article 26. Tax imposition and payment to the budget
26.1. A withholder specified in subparagraph 4.1.4 of this law shall impose tax in the following principles:
26.1.1. Total income specified in Article 11 and paragraphs 12.2, 13.1.2-13.1.4, and 15.1 of this law at the rate specified in paragraph 23.1 of this law, total income specified in subparagraph 14.1.1 at the rate specified in subparagraph 23.2.1, total income specified in subparagraphs 8.1.6 and 8.1.7 at the rate specified in subparagraph 23.2.2, and total income specified in subparagraph 8.1.8 at the rate specified in subparagraph 23.2.3 of this law and transfer it to the relevant budget;
26.1.2. Tax specified in subparagraph 11.1.1 of this law shall be imposed at the end of every month and transferred to the budget upon deducting credit specified in 24.1 of this law;
26.1.3. Tax specified in subparagraphs 11.1.2-11.1.5 of this law shall be imposed for each case of issued income and transferred to the budget upon deducting the credit specified in 24.1 of this law;
26.1.4. Tax specified in subparagraph 11.1.6 of this law shall be imposed for each case of issued income and transferred to the budget upon deducting the credit specified in 24.1 of this law;
26.1.5. If a taxpayer is employed for an economic entity and organization under a labor contract is entitled to the credit specified in subparagraph 16.1.12 and paragraph 24.6 of this law, the tax authority shall deduct the credit from the taxpayer’s income at the end of the year when annual settlement takes place between the authority and the employer.
26.1.6. When a bank or financial institution calculates interest on the monetary savings account of a taxpayer, it shall impose tax at the rate specified in paragraph 23.1 of this law and transfer the withholding to the corresponding budget on each occasion.
26.2. The withholder shall make a note in the taxpayer’s income and tax registration form regarding transactions specified in subparagraphs 26.1.2-26.1.5 of this law.
26.3. A withholder shall transfer tax withheld from a taxpayer’s income to the relevant budget by the 10th of the following month in cases other than that specified in subparagraph 26.1.6 of this law.
Article 27. Payment of tax to the budget
27.1. A taxpayer shall determine his/her taxable income correctly in accordance with this law and pay tax due to the budget within the periods indicated below:
27.1.1. A herdsman family and individual with livestock shall pay income tax in two installments by July 15 and December 15;
27.1.2. Income from the sale of immovable property shall be taxed at the rate specified in subparagraph 23.2.1 of this law and paid to the budget by the 15th of the first month of the following quarter;
27.1.3. Income from leasing shall be taxed at the rate specified in paragraph 23.1 of this law and paid to the budget by the 15th of the first month of the following quarter;
27.1.4. Income specified in Article 12 and subparagraphs 13.1.5, 14.1.2, and 14.1.3 of this law shall be taxed at the rate specified in paragraph 23.1 of this law on a quarterly basis and paid to the budget by the 15th of the first month of the following quarter.
27.2. If a taxpayer earns income specified in Articles 12 and subparagraphs 11.1.6, 13.1.1, 14.1.2, and 14.1.3 of this law, the income shall be taxed at the rate specified in paragraph 23.1 of this law. If a taxpayer earns income specified in subparagraph 8.1.6, the income shall be taxed at the rate specified in subparagraph 23.2.2 of this law. The taxpayer shall make a note in the taxpayer’s income and tax registration form on each occasion upon confirmation by the corresponding tax authority and make final settlement with the authority at the end of a year.
27.3. A tax authority may have a herdsman family or individual with livestock pay tax in advance based on mutual agreement.
27.4. A herdsman family and individual with livestock shall pay tax to the corresponding budget in the territorial area where the livestock permanently exist.
Article 28. Timeframe for tax reporting
28.1. A withholder shall submit a quarter-to-date report of tax withheld as specified in Articles 11, 15 and subparagraphs 8.1.7, 8.1.8, 13.1.2-13.1.4, and 14.1.1 of this law by the 20th of the first month of the following quarter and year-to-date tax report by February 15 of the following year to the corresponding tax authority.
28.2. Income specified in article 15 and subparagraphs 8.1.6, 11.1.6, 12.1.1, 12.1.2, 12.2, 13.1.1, 13.1.5, 14.1.2 and 14.1.3 of this law shall be reported on an individual tax form and submitted to the tax authority by February 15 of the following year.
SECTION EIGHT
Other
Article 29. Registration of a taxpayer
29.1. The national taxation authority shall register a taxpayer in the following procedure:
29.1.1. The taxpayer shall register with a tax authority located in corresponding area and obtain a taxpayer’s registration number;
29.1.2. The taxpayer shall fill out a registration form to obtain the registration number;
29.1.3. The tax authority shall issue a certificate with registration number to a taxpayer;
29.1.4. The withholder shall make a note of the taxpayer’s registration number on the taxpayer’s income tax form each time the withholder pays income and submit a quarter-to-date report of income issued and tax withheld to the corresponding tax authority.
29.2. The General Department of National Taxation shall approve the design of a registration form and certificate specified 29.1.2 and 29.1.3 of this law.
Article 30. Entry into force
30.1. This law enters into force as of January 1, 2007.
30.2. Income specified in subparagraphs 13.1.3 and 13.1.4 of this law shall be subject to tax as of January 1, 2008.
SPEAKER OF THE STATE GREAT KHURAL
TS. NYAMDORJ
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