#1MONGOLIA: International Taxation Issues By D.ULZIISAIKHAN Head of General Budget Division Ministry of Finance#2Contents 1. Economy and Tax System 2. Foreign Investment and Double Tax Treaties (DTT) 3. Mongolian Double Tax treaties 4. Treaty issues 5. Mongolia's mid term goal for DTTs policy 2#3Empty#41. Economy and Tax Revenue Tax revenue breakdown by taxes (as of 2014) Income taxes make up significant part of Mongolia's Budget Revenue (21%). CIT: There are 94 thousand private companies currently residing in Mongolia: VAT 30.0% ☐ 9% is foreign invested Capital tax 0.5%. Other 22.0% ◉ Top 100 tax payers make up about 80% of the total CIT revenue. ☐ 591 registered non profit PES PIT 8.1% Excise Tax PIT: Registered workforce - 1.4 million (as of Jan 2015) ☐ CIT 12.7% Customs 7.3% Mining 7.6% ☐ Royalty 11.8% Public servants - 12.55% Private 66.5% - Foreign residents - 0.5% Nomadic herders - 20.5% 4#5Empty#62. Foreign investment and DTTs Factors for increase of FDIS Big copper, coal and gold deposits had been discovered • Investment Agreements • Consistent tax system Double Tax treaties are + factor. Foreign direct investment has been the key for rapid economic growth Real GDP growth of 17% in 2011. • Budget revenue increased substantially Risks Economic dependence from international commodity prices = unstable revenue. Increased government spending 6#7Empty#82. Foreign investment and DTTS Construction 1% Chart Title Transportati on 1% Banking Sector 1% Others 9% Trade 17% FDI breakdown by Country (1990-2013.10.31) Total (million Country % USD) 1 Netherlands 29.96 4,225.3 2 China 26.65 3,757.6 3 Luxembourg 8.17 1,151.7 4 Virgin Islands 7.87 1,109.5 5 Singapore 5.14 724.9 6 Canada 3.53 498.1 7 South Korea 2.69 379.3 8 America 2.19 308.2 Mining Sector 9 Russia 2.11 297.7 71% 10 Australia 1.84 260.0 11 Hong Kong 1.62 228.5 12 Japan 1.47 207.1 13 Bermuda 0.91 129.0 14 Great Britain 0.83 116.7 15 Switzerland 0.73 103.1 Others 4.29 604.4 Total FDI 100 14,101.1 ☐ FDI to Mining sector is the biggest Most investments come from top 10 investing countries. There are no DTTs with Japan, USA, Hong Kong and Austria yet. 8#93. Mongolian Double Tax Treaties Mongolian DTT timeline 4 3 ОХУ C⭑ Турк Англи 2 Франц Люксембург = Герман Бельги Индонези Чех Кувейт Швейцарь Нидерланд Украйн Канад БНАСАУ 1 БНХАУ БНСУ Энэтгхэг Малайзи Вьетнам Польш Казакстан Киргиз Болгар Арабын Нэгдсэн Эмират Сингапур Беларус Австри 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Mongolia has actively signed Double Tax Agreements with most of its major economic partners through 1991- 2004. This network undoubtedly has helped Mongolia to attract foreign investment. Mongolia terminated 4 DTTs including Kuwait, Luxembourg, United Arab Emirates and Netherland. 9#103. Mongolian Double Tax Treaties Withholding taxes Domestic Rates UAE Treaty Dividends 20% 0% Termination of DTTS Kuwait Treaty 0% for at least 49% Luxembourg Treaty participation, 5% for 15/5/0 (3) others 0% for financial institutions, 10% for others 5 Netherland Treaty 0% for at least 10% participation, 15% for others 0% for financial institutions, 10% for others 5 10% for Financial Interests institutions, 20% for 0% 0% others 20% 10% 10 Royalties Technical 20% Exempted Exempted 5 Service LO 5 The treaties became a loophole for treaty shopping and tax planning resulting unnecessary revenue loss without contributing much to inbound investment; Major investors in the Mining sector had been aggressively treaty shopping Although the efforts to amend these treaties has undergone for about year, treaties has been terminated unilaterally; 10#11Time period for PE (Months) 3 4. Treaty Issues Time period required for construction-pe Mongolian DTTS Kuwait 6 Belgium, Canada, Germany, Indonesia, Italy, Luxemburg, Malaysia, Singapore, Switzerland, and Vietnam 12 India Austria, Belarus, Bulgaria, Czech Republic, France, Hungary, Kazakhstan, PR of Korea, Korea, Kyrgyzstan, the Netherlands, Poland, Ukraine, and United Kingdom 18 China and United Arab Emirates 24 Russia and Turkey Construction PE is one of the more controversial subjects OECD and UN model generally accept 6 to 12 months of construction period Mongolia has 3 treaties that have over Construction period over 12 months 11#125. Treaty Issues Overview of maximum source country taxation Dividends Interest Royalty Technical fees Non-Qualifying Qualifying 123456 Austria 10 Belarus 10 Belgium Bulgaria 15 10 Canada 15 China 55 525255 10 5/10 10 10 10 10 10 10 5 10 10 10 10 5/10 5 10 10 Czech 7 Republic 10 8 France 15 9 Germany 10 10 Hungary 15 11 India 15 12 Indonesia 10 13 Kazakhstan 10 14 Korea 5 15 PR Korea 10 16 Kuwait 0/5 155550U5US 10 10 10 5 10 10 10 5 15 15 15 10 10 10 10 5 10 10 10 5 LO 5 10 17 Kyrgyzstan 10 10 10 10 18 Luxemburg 15 0/5 10 5 19 Malaysia 10 10 10 20 Netherlands 15 0 10 21 Poland 10 10 10 25 28 22222222 Russia 10 10 10 23 Singapore 10 5 5/10 24 Switzerland 10 10 Turkey 10 10 10 26 Ukraine 10 10 10 10 27 UAE 0 0 0 United 15 Kingdom 29 Vietnam 10 51 5 7/10 255655DDD 5 10 105 domestic 10 10 10 10 10 10 12#135. International Taxation policy outlook Reforming its domestic tax laws in line with international best practices Reforming its treaty policy Treaty negotiations with new and old partners Government of Mongolia is currently working to reform its domestic tax laws and treaty policy. ☐ Once the reform is complete, Mongolia will be able to start negotiating treaties with new potential partners and amending the old treaties. 13#14THANK YOU FOR YOUR KIND ATTENTION 14