New Regulations: Tax on Transfer of Land Possession and Use Rights, Registry of Ultimate Beneficial Owners
On 9 November 2017, the State Great Hural (Parliament) of Mongolia adopted amendments to the General Taxation Law, Corporate Income Tax Law, Personal Income Tax Law, Legal Entity Registration Law, and Land Law.
Tax on Transfer of Land Possession and Use Rights
Until recently, there has been no precedent for imposing taxes on the transfer of land rights and the transfer of shares of companies that hold land rights.
On 9 November 2017, the State Great Hural (Parliament) of Mongolia adopted amendments to the Legal Entity Registration Law, Land Law, Corporate Income Tax Law, and Personal Income Tax Law and legislated for the first time that any direct and indirect transfer of land possession and use rights by individuals and legal entities will be subject to tax. These new regulations will become effective from 1 January 2018.
We summarize the key elements of the new regulations as follows:
- Business entities will be subject to income tax at the rate of 30 percent on taxable income derived from a direct transfer of land possession and use rights whereas individuals will have to pay 10 percent income tax on the same income.
- Any transfer of shares by the Ultimate Owner of a company that holds land possession and use rights will be subject to a 30 percent tax. In such cases, the value of the land right will be proportioned to the number of shares transferred by the Ultimate Owner.
- The Ministry of Finance will approve a detailed methodology for determining taxable income from direct and indirect transfers of land possession and use rights.
- Income derived from transferring land possession and use rights between family members free of charge will be exempt from personal income tax.
- Holders of land possession and use rights must pay the applicable taxes prior to the transfer and must submit a bank receipt evidencing the tax payment along with an application for the transfer of land rights.
- If land right holders fail to declare and pay applicable taxes, the land authority will terminate the land rights and claim for repayment of damages.
- Companies that hold land possession and use rights must withhold or deduct the applicable taxes and pay such to the State budget within 7 business days after the relevant transaction was made.
We expect that the methodology to be approved by the Finance Minister will provide for more detailed rules and clarifications on determining taxable income and withholding taxes.
New Requirement to Register Ultimate Beneficial Owners
Companies that hold land possession and use rights must provide information about their Ultimate Owners with their registered tax offices within 1 June 2018.
The term “Ultimate Owner” includes persons who directly or indirectly owns the largest number of shares or voting rights. Where another legal entity is a shareholder (rather than an individual), disclosure of beneficial ownership further up the chain of legal entities is required until the ultimate owner is identified.
