Regulations on the Income Taxation of a Permanent Establishment of a Foreign Company
The regulation governing the taxation of the income of a Permanent Establishment (“PE”) of a foreign legal entity in Mongolia is based on the Law on Corporate Income Taxation of Mongolia (“CIT Law”) and the Double Taxation Treaties concluded between Mongolia and foreign countries.
Article 4.1.6 of the CIT Law defines a Permanent Establishment as a place where the business activities of a foreign legal entity are regularly carried out within the territory of Mongolia, or where income is derived in Mongolia. This includes forms such as a place of management, branch office, warehouse, or place of trade and services. Furthermore, corporate income tax shall be imposed on foreign legal entities earning income in Mongolia, and a Permanent Establishment falls directly within the principal taxable object.
Accordingly, the taxation of the income of a Permanent Establishment of a foreign company constitutes a legal framework implemented through the interaction of Mongolia’s domestic tax legislation and international treaty regulations. In practice, the key issues involve the proper determination of the tax base and ensuring that the allocation of profits corresponds to the actual business activities carried out in Mongolia.
