As Mongolia prepares to appoint a new Prime Minister and Cabinet, significant tax code reforms are set to roll out, affecting both individuals and businesses.

• 📜 The draft, shaped by input from 13,000 taxpayers, 150 meetings, and 176,000 proposals, will soon be submitted to Parliament and is likely scheduled to take effect on January 1, 2026.

🔎 Key VAT Updates 

• Tiered Refunds: Consumers may receive VAT refunds based on purchase value, 100% for amounts up to ₮500,000, 50% for ₮500,000–₮800,000, and 20% above ₮800,000.
• Registration Threshold: Businesses with sales over ₮400 million must register as VAT withholding agents.
• Cash Purchases: VAT on cash purchases without receipts can now be deducted as “absorbed” VAT, offering some flexibility.

 🤵 Personal Income Tax

• Exemption: Employees earning up to ₮800,000 per month will be fully exempt from income tax.
• Incentives: Citizens relocating to rural areas and purchasing green homes will qualify for tax deductions up to ₮15 million.
• Extended Deadlines: Quarterly reports will be due by the end of the following quarter, and annual reports 2 months after the fiscal year ends, easing compliance pressures.

🏦 Corporate Tax Adjustments Target Growth and Fairness

• Progressive Rates: Companies with profits between ₮6 and ₮10 billion will be taxed at 15%, and those exceeding ₮10 billion at 25%.
• SME Support: The income threshold for a reduced 1% tax rate rises to ₮2.5 billion for the next 3 years.
• Foreign Digital Services: For the first time, VAT will apply to foreign electronic service providers who must register as withholding agents.

Looking Back & Forward: The 2019 tax reform led to a fivefold increase in company closures in Q1 compared to previous years, highlighting the importance of a more measured rollout this time. Lawmakers say these changes aim to modernize Mongolia’s tax system, boost compliance, and support economic growth. But for the reform to truly benefit citizens and businesses, it needs to go deeper, addressing underlying challenges and ensuring fair, sustainable support for both individuals and companies.