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Wednesday, July 6, 2011

Mongolia Briefing is a magazine and daily news service about doing business in Mongolia. We cover topics relating to the Mongolian economy, the market in Mongolia, foreign direct investment and Mongolian law and tax. It is written in-house by the foreign investment professionals at Dezan Shira & Associates

Draft Bill on Tax Exemptions for Small and Medium Enterprises is Under Review by Parliament

By Elena Fehrbach

The Government of Mongolia has proposed a draft of the new bill amending taxation of the small and medium size entities (SME). The aim of the new bill is to support SME by providing more favorable and easy tax conditions. The new draft assumes amendments in the Law on VAT and the Law on Income Tax.

Summary of the suggested amendments to the Law on VAT

  • Increase of the VAT payer threshold to 50 million MNT (equivalent toUS$ 29 thousand) from current 10 million MNT (equivalent to US$5.8 thousand).
  • For private individuals or small-scale legal entities willing to be registered as VAT payers, the threshold will remain 10 million MNT.

The current version of the Law on VAT has been adopted in 1998 and never undergone any amendments. Since the economic situation in Mongolia has changed negatively over the course of last year coupled with significant appreciation of the local currency, the Government has decided to step in and attempt to support SMEs with new regulations.  Increase of the VAT payer threshold will exempt about 50 percent of current tax payers from VAT payment and registration.

According to the statistics provided by the Ministry of Finance, the majority of VAT payers had sales revenue between 50 million MNT  and 1,5 billion MNT at the end of 2013.

Summary of the suggested amendments to the Law on Income Tax

  • 90 percent of the amount of tax paid shall be paid back to those legal entities whose annual income does not exceed 1.5 billion MNT (equivalent to US$870 thousand).
  • The new amendment does not apply to the legal entities operating in the following sectors: mining, minerals, petroleum products import, oil export, communications, alcoholic beverages and cigarettes production or distribution.
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