Specifics of Taxation of Electronic Services in Mongolia
1) What qualifies as electronic services for tax purposes? Is there a list of such services?
There are no qualifications for the electronic service, and it only classifies income earned by a non-resident from services provided directly or electronically to a Mongolian resident or permanent establishment as Mongolian-source income pursuant to Article 4.1.7.a part of the Corporate Income Tax Law of Mongolia (CIT law). Also, under Article 20.1 of the CIT law a taxable income earned in the amount 0-6 billion tugrugs for the given year shall be imposed with a 10 percent tax and taxable income over of 6 billion tugrugs for the given year shall be imposed with a tax equal to 600 million tugrugs plus 25 percent for taxable income exceeds 6 billion tugrugs in accordance with Articles 18.2, 18.3, 18.4 and 18.5 of the CIT Law.
Additionally, covered services include software licensing, database access, and technical or consulting services delivered remotely — with a preferential 5% rate pursuant to Article 20.2.9 of the CIT Law applying narrowly to software license fees and server rental income paid to a non-resident by a Mongolian entity whose primary registered activity is software development.
2) Is a foreign company providing services electronically required to register for VAT purposes?
Under the current law, a foreign company providing services electronically is generally not required to directly register for VAT in Mongolia, as the VAT obligation is shifted to the Mongolian recipient through the reverse-charge mechanism. In accordance with Article 11.1 of the VAT Law, services and works received from a non-resident — regardless of where they are supplied — are subject to VAT under the reverse-charge procedure, meaning the Mongolian resident buyer, not the foreign provider, bears the registration and remittance obligation. Under Article 5.2 of the VAT Law, mandatory VAT registration applies to a legal entity whose sales revenue from business activities has reached MNT 50 million, specifically from goods sold, work performed, or services provided in Mongolian territory — a threshold and territorial criterion that a purely foreign electronic service provider without a local presence would not ordinarily satisfy.
3) How is the place of supply of electronic services determined?
In accordance with Article 3 of the VAT Law, VAT applies to all works performed and services rendered in Mongolia, establishing the recipient's location within Mongolian territory as the primary determinant of taxability. Crucially, anchor the place of supply to the location of the Mongolian recipient rather than the location of the foreign supplier.
4) What VAT rates apply to electronic services?
The following entities, whose amount of sales has reached 50 million tugrugs or more and who are responsible for withholding value-added tax and paying to the government, shall be withholding value-added taxpayers:
1. those who sold goods, work, and services in the territory of Mongolia;
2. those who import goods, work, and services;
3. those who export goods, work, and services.
If the amount of sales of goods, work and services sold in the territory of Mongolia reaches 50 million tugrugs or more for a branch of a foreign business entity, as stated in the Law on Business Entity Income Tax, VAT shall apply.
If the electronic services are sold in the territory of Mongolia or imported to Mongolia, 10% VAT shall apply.
In case the electronic services are exported, the 0% VAT shall apply.
5) Are there any thresholds for mandatory tax registration?
Pursuant to Article 25 and Article 26.1 of the law on General Taxation, all legal entities with an obligation to pay or withhold taxes must be registered as taxpayers within 7 days in the integrated tax registration information database, and the General Authority for Taxation registers all newly established legal entities in the State Register as taxpayers, regardless of whether they have an immediate tax obligation, issuing a Taxpayer Identification Number and certificate. This general registration obligation carries no revenue threshold — it applies automatically upon entity formation.
6) What reporting and filing obligations apply to providers of electronic services?
As mentioned above, income generated by a non-resident from services provided directly or electronically to a resident or taxpayer in Mongolia qualifies as Mongolian-sourced income. So, to the electronic service providers, filing and reporting obligations are the same in general which is the taxable annual income of previous year is 6 billion tugrugs or more, the taxpayer shall submit to the tax authority the quarterly tax returns for the given tax year by the 20th day of the first month of the following quarter and the annual tax report by the 10th day of February of the next year in accordance with 26.1 of the CIT law.
7) How are services supplied through marketplaces and platforms taxed?
Please refer to answer 1.
8) What are the risks and penalties for non-compliance with tax rules?
Under Mongolia's legal framework, breaching tax laws is a serious offense that can have significant consequences.
According to the law on Violation of Mongolia (2017)
1) If the tax is not paid within the period established by law, the person or legal entity shall be fined in the amount of 0.1 percent of the unpaid tax for each day of delay.
2) A person or legal entity that pays taxes shall:
2.1. register as a taxpayer if the person or legal entity is legally obligated to pay or withhold tax;
2.2. open a personal file with the tax authority;
2.3. submit a tax return to the tax authority within the period established by law;
2.4. the owner or possessor of a taxable item other than income shall notify the tax authority within the period established by law after the owner or possessor of the item begins to own or possess the item, open a personal file, and make changes to the personal file;
2.5. maintain financial reports and records in accordance with the procedures specified in the General Tax Law;
2.6. Use cash registers, printing equipment, printing ink, receipt paper, and POS terminal machines that meet the requirements of the Mongolian standard;
2.7. A person who fails to fulfill his obligation to send payment receipts to the Unified Tax System Fund shall be fined one hundred and fifty thousand tugrugs (app. USD 41.92), and a legal entity shall be fined one million and five hundred thousand tugrugs (app. USD 419.25).
3) Taxpayers and legal entities:
3.2. Notify the tax authority within the period specified by law after the change in the information of the legal entity or the personal file, and make changes to the registration and personal file;
3.3. Failure to include the registration number issued by the tax authority in reports, information, customs declarations, payments, or other necessary documents issued in accordance with tax legislation shall result in a fine of one hundred thousand tugrugs (app. USD 27.94) for individuals and one million tugrugs for legal entities (app. USD 279.41).
4) Taxpayers:
4.1. Incorrectly specify the address of their permanent or temporary residence or place of business;
4.2. Fail to appear without good reason when summoned by the tax authority;
4.3. Evade payment of taxes, fines, and penalties by not declaring their place of residence when the court does not consider the taxpayer missing;
4.4. Fail to submit on time the certificates, copies of documents, and bank statements required for tax inspection purposes;
4.5. If an individual obstructs the seizure of assets for the purpose of collecting tax debts, the tax shall be reimbursed and shall be subject to a fine of four hundred thousand (app. USD 111.76), and a legal entity shall be fined four million tugrugs (app. USD 1,117.65).
5) A taxpayer:
5.1. fails to submit the required accounting records, balance sheets, tax information, and related documents;
5.2. Failure to allow access to premises or warehouses;
5.3. Failure to conduct an inventory;
5.4. Failure to conduct photography, inspection, seizure, or seizure of assets, a person shall be fined one hundred thousand tugrugs (app. USD 27.94), and a legal entity shall be fined five hundred thousand tugrugs (app. USD 139.70).
Authors: Bolormaa Volodya, Baigali Battulga
