🇲🇳 MN- Procedures for Granting Tax Incentives to IT Companies Ready for Submission to the Government

ULAANBAATAR, MONGOLIA – Following recommendations from the National Council of Mongolia, the government is preparing to submit a comprehensive framework to support the country’s burgeoning information technology (IT) sector. The proposed measures, which include tax and non-tax incentives, are set to play a pivotal role in fostering growth and innovation within Mongolia’s IT industry. The new procedures also cover the operation of a virtual zone, where tech companies will benefit from a more favorable regulatory environment. These procedures are now finalized and ready for government submission, marking a significant step in the country’s pursuit of tech-driven economic development.

Aims of the IT Tax Incentive Procedures

The overarching goal of the proposed procedures is to stimulate the growth of the IT sector in Mongolia, which is increasingly viewed as a critical driver for the country’s economic diversification. With digital technologies evolving rapidly, the government recognizes the importance of fostering an environment that encourages technological innovation.

The measures aim to:

• Encourage investment in high-tech industries.
• Support local IT companies through tax relief and regulatory flexibility.
• Facilitate the creation of new jobs and businesses in the tech sector.
• Enhance Mongolia’s competitiveness in the global digital economy.

By introducing these incentives, Mongolia hopes to create a thriving IT ecosystem that will attract both local and international companies, providing them with the necessary tools to innovate and expand.

Key Features of the Proposed Incentives

The finalized procedures focus on two primary areas of support: tax incentives and non-tax incentives. While the specific details are still being finalized, the key provisions outlined by the National Council include:

1. Tax Incentives:
   • Income Tax Reduction: IT companies operating within the designated virtual zone will be eligible for reduced income tax rates.
   • Tax Holidays: Companies may receive a temporary exemption from certain taxes to help offset initial operating costs, encouraging more startups to enter the sector.
   • R&D Credits: Businesses engaged in research and development will be incentivized through tax credits, aimed at supporting innovation in emerging technologies.
2. Non-Tax Incentives:
   • Regulatory Flexibility: The creation of a virtual zone will allow IT companies to operate under simplified regulations, reducing bureaucratic hurdles and operational delays.
   • Financial Support: Access to government-backed loans, grants, and venture capital will be available for companies in the IT sector, particularly for those investing in advanced technologies.
   • Infrastructure Development: The government plans to invest in infrastructure that supports the tech sector, including high-speed internet access, data centers, and tech hubs.

These incentives are designed to provide a comprehensive support system for IT companies at various stages of their development, from startups to established firms.

Role of the National Council in the Initiative

The National Council, chaired by Prime Minister Oyun-Erdene Luvsannamsrai and supported by Minister of Digital Development and Communications, Baatarkhuu Tsend, has been instrumental in developing this initiative. The Council includes representatives from various sectors, including government, private industry, and academia, ensuring a broad base of expertise and perspective in crafting the policies.

Through its strategic guidance, the Council has already delivered several key documents, including:

• The National Strategy for Developing the Information Technology Industry: A roadmap for the growth of Mongolia’s IT sector, outlining long-term goals and priorities.
• Operational Procedures for the Virtual Zone: Guidelines for the establishment of a special regulatory environment where IT companies can thrive.
• Procedures for Providing Tax and Non-Tax Support: Detailed frameworks for granting tax breaks, financial support, and easing of regulatory requirements for companies in the sector.

These documents collectively form the foundation for the government’s policy toward the IT industry and will serve as a guide for the implementation of the proposed incentives.

Impact on Mongolia’s IT Sector

The introduction of these tax incentives and non-tax supports is expected to have a transformative effect on Mongolia’s IT sector. By offering financial relief and a more favorable business environment, the government aims to:

• Attract Foreign Investment: Reduced tax burdens and the virtual zone will make Mongolia an attractive destination for international IT companies seeking to expand in Asia.
• Foster Domestic Innovation: Local startups will benefit from tax relief and access to funding, enabling them to compete in global markets and drive technological advancement.
• Create High-Quality Jobs: With the growth of the IT sector, the country is likely to see a rise in high-paying tech jobs, contributing to an overall improvement in living standards.

What’s Next?

The finalized procedures will now be submitted to the Government of Mongolia for review and approval. Once approved, the next step will involve the operationalization of the virtual zone and the official rollout of the tax incentives and non-tax supports. The government is optimistic that these measures will significantly boost the IT sector’s growth, positioning Mongolia as a regional leader in technology and innovation.

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