Specifics of application of Double Taxation Treaties in Mongolia

1) Which principal Double Tax Treaties (DTTs) are currently in force in Mongolia?

Mongolia has bilateral Double Tax Treaties in force with 26 countries.

2) What types of income are covered by Double Taxation Treaties?

Types of income vary under each DTT, generally including income from immovable property, business profits, dividends, interest, royalties, technical fees, capital gains, independent and dependent personal services, directors’ fees, pensions and annuities, etc.

3) How is tax residency determined for DTT purposes in Mongolia?

Under DTTs, tax residency is determined based on the types of work and duration as follows:

• building sites, construction, assembly, or installation projects or supervisory activities in connection therewith - three (3)  months or longer within 12 consecutive months;
• furnishing of services, including consultancy, technical, management, supervisory and other services through its employees and other personnel engaged - 183 and more days  within 12 consecutive months.

4) How to properly prove tax residency status to apply treaty benefits?

To prove tax residency status, a Tax Residency Certificate is required from the respective tax authority.

5) How to determine which Double Taxation Treaty applies to a specific transaction?

The applicability of a DTT to a particular transaction is determined upon (i) the existence of an effective DTT between the countries of residence of the transacting parties, (ii) whether the specific activity within the transaction falls within the scope of definitions provided by the DTT, and (iii) whether the duration of the transaction satisfies any stipulated length requirements.

6) Do the provisions of the DTT take precedence over domestic tax law?

Yes, to the extent of relations governed under it.

7) What tax obligations does a resident have when receiving income from abroad under a DTT?

A resident shall pay tax at the rate specified under the applicable DTT. 

8) How are tax rates on dividends, interest, and royalties applied under a DTT?

The rates are usually between 5-10%.

9) What are the mechanisms for eliminating double taxation?

The affected person must apply to Mongolia’s Cabinet Member for Finance and Budget, or their authorized representative, within three (3) years /unless otherwise stated in the DTT/ of becoming aware of the relevant circumstance or potential circumstance.

10) What is the dispute resolution process and Mutual Agreement Procedure (MAP) under a DTT? 

If the competent authorities fail to reach an agreement within the specified period, they may resort to arbitration if it is specifically permitted by the DTT.

Author: Buyanjargal Tungalag