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Mongolia currently has a very good property tax regime that promotes growth within the property sector.
Mongolian Property taxes are easy to understand and follow, there are only a few taxes that are applicable but be aware that the tax regime will differ depending on whether the property is owned by a corporate or personal entity. It will further defer depending on whether you are a registered Mongolian resident entity or a non resident foreign entity.
The differences between the various tax regimes can be quite stark, for instance, if you are a landlord, legally resident in Mongolia and the property is held into your own name, you will only be liable to 10% income tax on your rental income, if on the other hand, you purchase the property in the name of a foreign company based abroad, you would then be liable to a 30% tax rate (20% income + 10% VAT). While it may seem that it is relatively easy at this stage to evade property taxes in Mongolia, the government is getting increasingly apt at communication between its different departments and is also starting to send out inspectors to check on the status of tax payments.
It is your responsibility as a landlord to register your lease, it is the government’s responsibility to go and knock on doors and find people who have not registered their lease. Don’t forget it is a small community and word quickly goes round as to where expats live. It is of course heavily recommended that you pay all applicable taxes at all time. If a property management company is paying taxes on your behalf, make sure that this is the case and you keep all the receipts in case of a tax audit. Fines in case of convicted tax evasion can be relatively high.
The burden of making sure that landlords is paying the relevant taxes is also now being gradually transferred to large mining companies and so forth. Should you wish to rent out your residential property in Ulaanbaatar to a mining expat, the mining company will often withhold the income and VAT tax payments that may be applicable and pay them on your behalf to the Mongolian Tax Authorities.
This is relatively forward in terms of taxes as you only have a 2% stamp duty that is applicable on the full declared purchase price. This is normally split between the buyer and the seller but is also generally open to negotiations.
Be aware that if you purchase an immovable property, the sellers will often want to “gift” you the property or declare a lower purchase price, while this means that in the short term, it may mean a lower tax bill for the seller and maybe even a lower cost to the purchaser (notary and certificate change fees are proportionally related to the size of the purchase) you might end up paying a lot more when the time comes for you to sell the property if a capital gains tax is introduced or rather enforced (as it is rumoured that it will be soon).
Be aware that the process of gifting properties is currently coming under a lot of scrutiny by the tax office as it is a common tax evasion technique. This is the only taxes that will be applicable on the purchaser side beyond the notary and immovable property fees which are around 200USD each depending on the size of the transaction.
The 2% stamp duty mentioned earlier, this is usually split between seller and buyer but open to negotiations. There is no separated capital gains tax in Mongolia but you are liable to the 10% income tax derived from the sale of your property, or rather a capital gains tax. This is very clearly stated according to Mongolian tax laws but so far is rarely enforced as the system is not yet fully established.
Essentially, this is a disguised capital gains tax. If you are not a registered Mongolian resident, you are than potentially liable to a 20% income tax (or capital gains). It is expected that by 2011 or 2012, the computer systems used by the tax office and the property registration office will be upgraded and the Mongolian Tax Authority will be able to enforce this income tax much more effectively.
10% income tax on the amount derived from the property, essentially the lease amount. Payable quarterly. You can make tax deductions on this amount if you carry out renovations and permanent changes to the property. Beware that furniture purchases cannot be deducted from taxes. Only physical work to the property, services cannot also be deducted from the amount, this is important if you take a property management service etc..
Also bear in mind that it is better for you to rent properties excluding all utilities otherwise you will be liable to pay taxes on the amount you receive for utilities payments. This income tax payment is raised to 20% if you are not a resident entity in Mongolia. This is either as a corporation or as an individual. 0.6% annual payment, this is applicable only on revenues derived from retail or commercial property, not residential. It is a tax on the full purchase price the property is declared at.
This tax also applies on property that is used as an office space, even if your own. Each registered Mongolian corporation needs to have a registered office space so always better to rent an office space or have one that has a low declared purchase value. 10% VAT payment. Again much discussion about this, only applicable if you are a Mongolian registered corporate entity (Not applicable to individuals).
According to Mongolian tax lawyers and relevant Mongolian articles of law, it is applicable to revenues derived from property as long as it is an amount equivalent to or over 10million MNT per year. You would then have to become a registered Mongolian VAT payer and obtain a VAT number from the Mongolian Tax Authority. Tenants are not liable for the payment of any taxes linked to the property they may be renting.
