The Law of Mongolia on Promotion of Economic Transparency (“Transparency Law”) was passed through Mongolian Parliament session on 7 August 2015, and became in effect on same day. The main purpose and scope of the Transparency Law is to formulgate a tax amnesty sheme for individuals or companies which historically did not comply reporting requirements of any tax return.
Taxes to be covered
The Transparency Law provides an exhaustive list of taxes which will be covered for the purpose of amnesty, therefore, consisting of 6 types of taxes and social & health insurance deduction:
Corporate income tax;
Personnel income tax;
Value added tax;
Excise tax; and
Mandatory social & health insurance deduction.
Dismissal of penalty or administrative sanction
Any monetary or administrative charges that would have been charged shall be dismissed “once” on both historical non-compliances of particular type of taxes, which also include due taxes, penalties, interests or any other responsibilities.
Deadline for filing
Any historical non-compliance happenned before 1 April 2015 shall be covered by tax amnesty program under the Transparency Law. Therefore, individuals or companies are encouraged to report or submit on a voluntary basis an one-off disclosure return or any kind for any of historical non-compliances it has in order to be benefited by the Transparency Law.
Furthermore, certain actions will need to be taken by the individuals or companies meeting the filing deadline of 31 december 2015 to enjoy the tax amnesty benefits under the Transparency Law.
Pursuant to Article 6.4 of the Transparency Law, it is stipulated that the implementation rules will be further approved by the Government of Mongolia. As such, after a long waiting, the Implementation Rules on Law of Mongolia on Promotion of Economic Transparency (the “Implementation Rules”) was passed through the Government session on 31 August 2015. We below summarize the key regulations under the Implementation Rules.
The main scope of the Implementation Rules is to specify procedural regimes for individuals or legal entities to voluntarily disclose, report and register the assets, income and business activities which are historically never registered or disclosed for taxation.
Individuals or legal entities need to take the following measures on a voluntary basis in relation to disclosing the hidden incomes, assets and business engagements in order to be benefited from the purpose and scope of Transparency Law before reaching the deadline of 31 December 2015.
those who are not registered as a taxpayer, or are not prepared and reported or wrongfully prepared and submitted balance sheet and financial statements, are encouraged to report a restated balance sheet and financial statement to the relevant tax authority;
those who are never registered as employers, or are never submitted or wrongfully prepared and submitted social & health insurance deduction reporting, or are wholly or partially not paid social & health insurance deduction, are encouraged to report and submit social & health insurance deduction statements to the relevant social insurance department, and pay social insurance fees;
those who are never registered a legal entity or its property rights to the registration authority, or wrongfully registered;
submit new financial statements to the relevant financial body in the event not submitted or wrongfully submitted;
declare a vehicle or goods to the Customs authority, which are historically not declared; and/or
if assets, incomes and business activities, other than above, are not registered, recorded and reported, those are encouraged to be registered, recorded and reported pursuant to the relevant rules.
Individuals or legal entities need to submit the relevant documents to the following authorities in taking measures of disclosing concealed incomes, assets, business activities:
The State registration authority;
Social insurance body;
Relevant financial body; or
Registration of the disclosed information
The State authority is required to record, register and archive the statements and information which are disclosed and submitted by individuals and legal entities according to Law of Mongolia on Corporate Secret.
The State authority shall keep secret, and shall not disclose the information in relation to individuals and legal entities in compliance with the Transparency Law.
Under this Implementation Rules, individuals and legal entities may update submitted financial statements time to time until 31 December 2015. Furthermore, for the purpose of sufficient implementation, information and statements may be submitted and recorded via electronic manner until 24h00m of 31st December 2015, despite working days. In case of impossibility of electronic submission, hard copy is also allowed.