Mongolia payroll and tax overview.

Mongolia is an East Asian country landlocked to the north by Russia and to the south by China. One of the largest nations in the world by landmass, Mongolia has a population of over 3 million, with over 45% of its inhabitants located around its capital, Ulaanbaatar. An independent state since the early 1920s, Mongolia eventually transitioned to a democratic governmental system, and became a market economy in the 1990s. Livestock and agriculture have always been historically important to the Mongolian economy but the industrial sector has grown in the 21st century with the development of the retail services, real estate, and transportation sectors. Discovery of rich mineral deposits, including copper, coal, tin, and gold, stimulated growth in Mongolia in 2007 but the country was affected by the 2008 global economic crisis and is still working to recover. Despite adversity, Mongolia is developing its business profile with initiatives to stimulate foreign investment including the establishment of free trade zones across the country. The trend towards business-friendly policies has had positive effects: in 2019, Mongolia’s GDP reached an estimated $13.7 billion with 4.8% growth - one of the fastest growth rates in the region. Mongolia is a member of the UN, the G77, and the Asian Infrastructure Investment Bank and was ranked 81 on the World Bank’s Ease of Doing Business Survey 2019.

Why Invest in Mongolia?

Mongolia offers interested financiers a number of reasons to invest. These include:

• Investment Support: Mongolia’s government is engaged in efforts to support investment in the country. In 2013, a law was passed to protect the rights and interests of investors, including establishing certain financial guarantees, and creating a more stable tax environment.
• Business Infrastructure: Mongolia’s internal infrastructure is making it easier for businesses to operate on a regional and global scale. Mongolia is an essential part of China’s ambitious ‘One Belt One Road’ initiative - a new trade route linking East Asia to Europe and Africa.
• Mining Potential: Investment in Mongolia continues to be driven by the country’s mining industry. In 2016, global copper and coal prices began to recover - prompting a range of investment initiatives in the country. Projects to exploit Mongolia’s untapped mineral deposits could hold trillions of dollars of revenue.
• Strategic Location: As the 18th-largest country in the world, Mongolia offers businesses a healthy domestic market - but also excellent access to a number of lucrative markets across the region, including Russia and China.
• Political Stability: Unlike some Asian business destinations, Mongolia represents a relatively stable business environment. Parliamentary republics, government’s efforts to reduce regulatory friction for investors, and eliminate corruption, are on going.

Foreign Direct Investment in Mongolia

The Government of Mongolia welcomes foreign investment, incentivising investors in key strategic industries for the development of the national economy. The Government has implemented strict fiscal policies to provide a stable macroeconomic environment for businesses to succeed. Local and foreign national investors are treated equally.

Registering a Company and Establishing an Entity in Mongolia

The company is not required to have a legal entity established in order to process a payroll.

Business Banking in Mongolia

It is not mandatory to make payments to both employees and the authorities from an in-country bank account.

What Are the Working Days and Working Hours in Mongolia?

The working week in Mongolia is Monday to Friday. The working day for commercial offices is usually eight hours, typically from 0900 to 1800 hours. Lunch breaks are usually one hour.

Basic Facts about Mongolia

General Information

Mongolia lies at the heart of East Asia and is the world’s second-largest landlocked country. With strong cultural links to neighbouring Russia, China and Kazakhstan, Mongolian civilisation has been historically nomadic, and represented by a mix of ethnicities, cultures, and religions. Once a vast empire ruled by the infamous Genghis Khan, Mongolia was absorbed by China in the 16th century, before becoming part of the Soviet Union in the early 20th century. Mongolia went through a peaceful democratic revolution in 1990, emerging on the world stage as a multi-party republic in 1992. Mongolia’s natural environments are varied: the majority of the country is characterised by grassy plains, bordered by northern mountain regions, and the southern Gobi desert. Mongolian summers are hot and sunny, but winters can be extremely cold, thanks to weather fronts descending from Siberia. Horses are prevalent in Mongolia’s culture, thanks to a nomadic tribal tradition, which endures to this day.

Full Name: Mongolia

Population: 3 million (UN, 2018)

Capital: Ulan Bator

Primary Language: Mongolian

Main Religion: Buddhism

Monetary Unit: 1 Togrog (tugrik) = 100 Mongos

Main Exports: Copper concentrates, de-haired cashmere, textiles and hides.

GNI per Capita: US $4,103 (World Bank, 2018)

Internet Domain: .mn

International Dialing Code: +976

The tax year runs from 1st January to 31st December.

All companies are required to register with the Mongolian Central Registration Office and tax and social insurance authorities. The incorporation process takes around three weeks to be completed.

There is no requirement for a third party to make any tax and/or social security filings on behalf of a client.

Income Tax in Mongolia

Monthly income tax contributions are paid on the 10th of the following month. The penalty for late payment is penalized at 0.1 % by each day of delay and the total amount of penalty shall not exceed 50% of the due tax.

Social Security in Mongolia

All employees are required to contribute to the Mongolian social security (“SHI”) system at a rate of 12.5% of gross salary, capped at MNT 525,000 per month. Employers are responsible for withholding employee SHI contributions and paying them to the SHI department on a monthly basis. Additionally, there is an employer SHI component which is also payable monthly, at a rate of between 13.5% - 15.5% depending on the sector in which the company operates.

The employer will receive Social and Health Insurance Record Books for each employee from the authorities when the contract of employment is established, and will maintain records of monthly social and health insurance contributions in accordance with applicable regulations.

The book must be filled out on a monthly basis by the employer and be verified by a social insurance officer.

Reporting Tax in Mongolia

Monthly

The following reports must be filed on a monthly basis:

• Social benefit report (ND-7) ,
• Social benefit payment computation sheet (ND-8).

Employers shall deduct insurance from an employee’s monthly earnings and remit it to social insurance authority on an employee’s behalf. The employer shall prepare a monthly report (ND-7, 8) and submit it to the social insurance authority by the 5th of following month.

Quarterly/Yearly

• Report of withholding tax return for wage, salary other comparable income - (TT-11);
• Information of withholding tax return for wage, salary other comparable income-((TT-11(1))

Employers shall prepare and file withholding tax return ((TT-11, 11(1)) to the tax authority on a quarterly and annual basis. The 20th of April, July and October are dates for the submission of the quarterly report; 10th of February of next year for annual report.

All reports and returns can be submitted by both parties either client or payroll provider.

It should be signed by the employer or can be signed by a representative of the payroll provider based on previous authorization provided by client.

New Employees in Mongolia

The following information is required for setting up a new start:

• Clients orders for hiring new employee
• Employment contract
• Passport/ID card
• Salary details
• Account information

The following information is required when setting up an expat new start:

• Clients orders for hiring new employee
• Employment contract
• Residency information
• Work period in Mongolia
• Passport/ID card
• Salary details
• Account information

The deadline for expat new starts to be registered with local authorities is the same as the registration for local employees.

Leavers In Mongolia

Payment for leavers must be made on the last day of work. It is not necessary to inform the authorities of a leaver.

Mongolian payroll is processed in a Pay As You Earn system, with personal taxes and social security withheld and deducted by employers - and paid to the relevant authorities each pay cycle. Mongolian income tax is charged at a flat rate of 10% for all salaries - with a personal tax allowance of MNT 84,000.

Residency status should be factored into the payroll process, especially when managing a global employee population: ‘resident’ taxpayers are charged on income earned from within Mongolia and worldwide, while ‘non-resident’ taxpayers pay tax only on income earned within Mongolia.

Social security contributions cover Mongolia’s statutory pension scheme, medical insurance, benefit insurance, and unemployment insurance. Contributions to social security are made by both employers and employees.

Employers in Mongolia must provide payslips to employees each pay cycle, although it is acceptable to provide these online. Payroll reports must be kept for a minimum of 5 years for payroll purposes, and a minimum of 10 years for accounting purposes. Mongolia’s payroll laws can represent a compliance challenge for foreign businesses. This being the case, it is often advisable to engage a global payroll provider to take advantage of compliance expertise and ensure employees in Mongolia are paid accurately, and on time.