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Doing Business in Turkmenistan
Preface This guide has been prepared by Baker Tilly Turkmen, an independent member of Baker Tilly International. It is designed to provide information on a number of subjects important to those considering investing or doing business in Turkmenistan.
Baker Tilly International is the world’s 8th largest network of independent accounting and business advisory firms by combined fee income, and is represented by 156 firms in 131 countries and 26,000 people worldwide. Its members provide high quality accounting, assurance, tax and specialist business advice to privately held businesses and public interest entities.
This guide is one of a series of country profiles compiled for use by Baker Tilly International member firms’ clients and professional staff. Copies may be downloaded from www.bakertillyinternational.com.
Doing Business in Turkmenistan has been designed for general information. Whilst every effort has been made to ensure accuracy, information contained in this guide may not be comprehensive and recipients should not act upon it without seeking professional advice. Facts and figures as presented are correct at the time of writing.
Up-to-date advice and general assistance on Turkmenistan matters can be obtained from Baker Tilly Turkmen; contact details can be found at the end of this guide.
January 2014
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Doing Business in Turkmenistan
Contents1 Fact Sheet 2
2 Business Entities and Accounting 4 2.1 Legal Framework 4 2.2 Forms of Business Entities 4 2.3 Registration Requirements 7 2.4 Audit and Accounting Requirements 8
3 Finance and Investment 10 3.1 Sources of Finance 10 3.2 Investment Incentives 11 3.3 Foreign Exchange Issues 12
4 Employment Regulations 14 4.1 Labour Relations 14 4.2 Foreign Personnel 15 4.3 Pension and Other Benefits 15
5 Taxation 16 5.1 Corporate Income Taxes 16 5.2 Personal Taxes 17 5.3 Pension Insurance Costs 18 5.4 Withholding Taxes on Payments Abroad 19 5.5 Indirect Taxes 19 5.6 Other Taxes 20 5.7 Tax Registration 22 5.8 Tax Audits 22 5.9 Tax Treaties 22 5.10 Tax Incentives for Businesses 23
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1 Fact SheetGeography
Location South-central Asia
Area 491,210km2
Land boundaries Iran to the south-west, Afghanistan to the south-east, Uzbekistan to the east and north-east, and Kazakhstan to the north-west
Coastline 1,786km on the Caspian Sea to the west
Climate The climate is subtropical desert. The main features of the climate are high temperatures and extreme dryness in the summer period, and significant variations in temperature throughout the year
Terrain Karakum desert (80%), mountains, plains and hills (20%)
Time zone GMT +5
People
Population 5.614 million
Ethnic groups The majority of Turkmenistan’s citizens are ethnic Turkmen with sizeable minorities of Russians, Persians and Uzbeks. Smaller minorities include Kazakhs, Azeris, Balochis, Armenians, Koreans, and Tatars
Religion The dominant religion is Muslim (93.1%)
Language Turkmen is the official language, although Russian is widely spoken in cities as a “language of inter-ethnic communication”
Government
Country name Turkmenistan
Capital Ashgabat
Government type The Turkmenistan Constitution declares the country a democratic, secular presidential republic with independent legislative, judicial, and executive branches of power. The rule-of-law, democratic freedoms, and political rights are also proclaimed in the Constitution
According to Constitution, the President is the head of state, executor of power, and the highest official in Turkmenistan. The President is a guarantor of Turkmenistan’s national independence, neutrality status, territorial integrity, and observance of the Constitution and international agreements. The President is also the Supreme Commander of Turkmenistan’s Armed Forces. Subject to consent of the Mejlis (Parliament), the Constitution entitles the
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President to appoint and dismiss the Chairman of the Supreme Court, General Prosecutor, Minister of Internal Affairs, and Minister of Justice. The President of Turkmenistan is elected for the term of five years
According to Constitution, the Mejlis (Parliament) is the highest representative body, executing legislative authority. The Mejlis consists of 125 members elected for the term of five years
The Cabinet of Ministers (Government) is the executive and administrative authority, formed by the President. According to Constitution the President of Turkmenistan is the Chairman of the Cabinet of Ministers. The Cabinet of Ministers includes the Deputy Chairmen of the Cabinet of Ministers and Ministers
Judicial authority is executed by the Supreme Court of Turkmenistan and other courts. Judges are appointed by the President of Turkmenistan
Economy
GDP – per capita US$5,999 (2012 est.)
GDP – real growth rate 10.97% (2012 est.)
Currency (code) Turkmen Manat (TMT)
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2 Business Entities and Accounting2.1 Legal Framework
The Enterprises Law allows for the following types of business entities: state enterprises, individual enterprises, co-operative enterprises, joint venture companies, enterprises of non-government public organisations, economic societies and joint stock companies. Entities may join into partnerships, associations, concerns and other forms of joint business. Local and foreign companies may establish subsidiaries, branches and representative offices.
The Entrepreneurship Law allows national and foreign citizens, as well as stateless persons to carry out business as individual entrepreneurs. Other specific types of entities are allowed for in accordance with the Non-government Public Organisations Law, the Farm Economy Law, and the Religious Organisations Law.
2.2 Forms of BusinessEntities
2.2.1. Individual entity (IE)
An IE is a legal entity which belongs to one individual and may be established by the owner of business property.
The governing document of an IE is the charter approved by the owner.
The minimum charter capital is TMT1,250.
The activity of an IE is managed by its owner. The owner of an IE is responsible for its management but is permitted to transfer management functions to another person (a manager or an executive director). The owner of an IE remains fully responsible for the obligations of the enterprise.
2.2.2. Co-operative entity (CE)
A CE is a legal entity the activity of which is based on personal participation of a number of members.
The CE is funded by contributions from its members, income received and other sources. The minimum charter capital is TMT5,000.
A CE is managed by its members in general meeting. In order to conduct the activity of a CE the general meeting may form an executive body. The management procedures of a CE are determined by its charter.
A CE is responsible for its obligations within the limits of its property. Owners of a CE are jointly and severally responsible for the obligations of enterprise within the limits of their contributions.
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2.2.3. An entity of public organisation (EPO)
An EPO is a legal entity which is established by non-governmental organisations, religious organisations, charitable or other public funds. The activity of such an entity must be related to achieving the main goals and objectives of the establishing organisation.
An EPO is funded by the establishing organisation and any other founders via monetary and non-monetary contributions. The minimum charter capital is TMT5,000. The management procedures of an EPO are determined by its charter.
An EPO is responsible for its obligations up to the value of its assets. It is not responsible for the obligations of its founders. The responsibility of founders for the obligations of an EPO is limited to their contributions to the entity.
2.2.4. Economic society (ES)
An ES is a legal entity formed by the consolidation of at least two individuals or legal entities for the performance of a joint activity. An ES is established on the basis of an agreement concluded between its founders.
An ES is funded by founders’ contributions in the form of charter capital. The minimum charter capital is TMT5,000.
An ES is managed by its founders in general meeting. The management procedures of an ES are determined by its charter.
There are two types of ES. Either the founders have joint and several liability for the entity’s obligations or the founders are responsible for the entity’s obligations up to the amount of their contributions to the charter capital.
2.2.5. Joint venture company (JVC)
A JVC is a legal entity founded with the purpose of deriving benefit by combining the property of residents (individuals and/or legal entities of Turkmenistan) with the property of non-residents (individuals and/or legal entities of foreign countries).
A JVC is established on the basis of an agreement concluded between its founders. The share of each founder in the charter capital must be at least 10% of the common property.
A JVC is formed by consolidation of founders’ contributions to the charter capital, as well as profits. The minimum charter capital is TMT5,000.
The supreme body of a JVC is managed by its founders in general meeting. The management procedures and activity of a JVC are determined by its charter.
A JVC is responsible for its obligations up to the value of its assets.
Unless otherwise specified in foundation documents of a JVC, the founders’ liability is limited to their contributions to the charter capital.
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2.2.6. Joint stock company (JSC)
A JSC is a legal entity which is funded by contributions of individuals or legal entities to the charter capital. The charter capital is divided into shares.
A JSC may be created through establishment or via re-organisation of an existing legal entity. Government and local authorities may establish or act as co-founders of a JSC.
The governing document of a JSC is its charter. The minimum charter capital is TMT10,000.
Shares issued by a JSC must be registered with the authorised state body in the manner prescribed by the Securities Law.
A JSC is responsible for its obligations up to the value of its property.
The shareholders are not responsible for JSC obligations beyond the paid up value of their shares.
There are two types of a JSC: an open JSC and a closed JSC.
An open JSC has the right to conduct a public offering of shares and the shareholders of an open JSC may sell their shares without the consent of other shareholders. The number of shareholders of an open JSC is unlimited.
The shares of a closed JSC are distributed only among founders or other defined individuals or legal entities. A closed JSC is not entitled to conduct a public offering of shares. Shareholders of a closed JSC have the preferential right to purchase shares from other shareholders.
The number of shareholders of a closed JSC may not exceed 50.
2.2.7. Subsidiaries, branches and representative offices
Legal entities have the right to establish subsidiaries (legal entities), as well as branches and representative offices (neither of which are separate legal entities).
Subsidiaries have their own charter capital and their activity is regulated by their charter.
Branches and representative offices are endowed with the property of parent companies which established them.
The activity of a branch or representative office is regulated by the provisions approved by its parent company. Branches may carry out all of the parent company’s functions.
Representative offices generally fulfill the functions of representation and protection of its parent company interests. They may also perform advertising and promotion procedures and may sign contracts on behalf of the parent company, but they do not have the right to trade or engage in business.
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The term of existence of branches and representative offices is limited to the term of existence of the parent companies by which they were established.
2.2.8. Sole traders
The Entrepreneurship Law allows national and foreign citizens as well as stateless persons to carry out business as individual entrepreneurs. Individuals have the right to conduct business on the basis of a patent if such activity is included in the list of activities approved by the Government of Turkmenistan.
A patent is a document issued by the tax authority certifying payment of a fixed patent fee by the individual. The amount of the fixed payment fee depends on type of activity. If the individual conducts different types of activity, the highest fixed patent fee will apply.
See 5.5 for further details on patent fees.
2.2.9. Partnerships
As a means of achieving business goals, individuals and legal entities may join into a partnership. Rights and responsibilities of each member shall be defined in a partnership agreement. A partnership is not a separate legal entity in its own right and it is transparent for taxation purposes.
2.3 RegistrationRequirements
Newly established enterprises, as well as subsidiaries, branches and representation offices must follow the state registration procedure. State registration is carried out by the Ministry of Economy and Development of Turkmenistan. An application for state registration should be supported by certain required documents.
A decision on state registration of an enterprise shall be issued within two weeks of the date of submission of the required documents. Additional documents may be requested by the registration body which may lead to an increase in the registration time. Upon successful registration, a certificate of state registration is issued to the registered entity.
Registration of a branch or representative office of a foreign bank is subject to licensing or permission from the Central Bank of Turkmenistan.
Representative offices and branches are registered for a two year period in Turkmenistan.
The procedures and timing applicable for extension of the registration are similar to those for registration.
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2.4 Audit and AccountingRequirements
All entities operating in Turkmenistan, including branches and representative offices of foreign companies, must maintain accounting records and prepare financial statements in accordance with local legislation.
In 2010 the new Accounting Law was adopted; this provides for a phased transition to new financial reporting standards. Pursuant to this Law all credit institutions started transition on 1 January 2011 and adopted International Financial Reporting Standards (IFRS) from 1 January 2012. On 1 January 2013 some other entities and organisations started using the new National Financial Reporting Standards (NFRS). The NFRS are based on IFRS, and from 1 January 2014 all entities will be required to adopt NFRS.
Accounting records and financial statements must be maintained and prepared in the Turkmen language and in the national currency of Turkmenistan. Transactions made in foreign currency must be converted into national currency at the official exchange rate set by the Central Bank of Turkmenistan as of the transaction date.
The accounting records may be held by:
• Accountingdivisionofanentity
• Specialised(accountingorauditing)companyorindividualaccountant(outsourcing)
• Personallybytheheadofentityitself.
The last two options are prohibited for state owned entities and credit institutions regardless of the form of ownership.
All entities are required to maintain primary documents, accounting records, financial statements and other documents on paper and on a computerised accounting system.
The financial year in Turkmenistan is the calendar year.
Open JSCs, joint stock commercial banks, investment and other funds (including those with foreign capital participation) are required to publish their annual financial statements (including independent auditor’s opinion) not later than 1 July following the reporting year.
Entities operating under the Petroleum Law should maintain accounting records and prepare financial statements in accordance with relevant international practice and in accordance with the provisions of the Production Sharing Agreement or similar contract governing their operations. Such entities are permitted to maintain their accounting records in a foreign currency.
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There are two types of audit in Turkmenistan: mandatory and voluntary. Companies which are subject to mandatory annual audit include:
• Banks
• Creditinstitutions
• Commodityexchange,stockexchangesandotherexchanges
• Insurancecompaniesandorganisations
• Investmentinstitutions
• JSCs
• ESsandlimitedliabilitypartnerships(anoldlegalformwhichissimilartoanexisting ES)
• Enterpriseswithforeignparticipation,aswellastheirsubsidiaries,branchesand representative offices.
Other entities may opt to have their financial statements audited.
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3 Finance and Investment 3.1 Sources of Finance
3.1.1. Banking
The Central Bank of Turkmenistan is responsible for licensing, supervision and regulation of banking activity.
Loans (in national and foreign currency) from local banks are the most common source of business finance. In recent years factoring has also become popular as a short-term financing option among private companies.
As well as state owned banks there are joint stock banks, banks with foreign participation and representative offices of foreign banks operating in Turkmenistan.
3.1.2. Stock exchange
The legislation of Turkmenistan provides for the issuing, selling and circulating of shares, bonds and other securities, but in practice there is no Stock Exchange in Turkmenistan.
3.1.3. Other sources of finance
International donors are also active in Turkmenistan: notably the European Bank for Reconstruction and Development, the Asian Development Bank and the Islamic Development Bank.
The new Foreign Currency Control Law permits companies to raise finance via loans from banks and companies located abroad. Such borrowings are subject to registration with the relevant authorities in Turkmenistan.
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3.2 Investment IncentivesForeign investments in Turkmenistan are generally regulated by the Foreign Investments Law.
Foreign investment in Turkmenistan is promoted via various benefits and exemptions. Entities with foreign capital and branch offices of foreign legal entities have the right to export domestically manufactured goods, works or services, as well as to import goods, works or services for their own needs, without any licence.
Foreign investors and entities with foreign capital which carry out their businesses in one of the free economic zones have the right to lease land according to the payback period of their investment projects.
Entities with foreign capital, branch offices and representative offices of foreign legal entities which conduct construction works and exploitation of resources in the free economic zones are exempt from fees for registration of their investment projects. The exemption from charges for certification of equipment and materials imported to Turkmenistan applies to contractors as well as sub-contractors.
Foreign investors and entities with foreign capital which carry out their businesses in one of the free economic zones are also exempt from the following payments:
• Anyconsularandregistrationfees
• Feesforregistrationofagreements
• Licenseandlicenserenewalfees
• Landleasepayments
• Contributionstonon-budgetfunds.
Property imported into Turkmenistan which is intended to be invested in the charter capital of an entity with foreign capital, or to the permanent assets of the branch office of a foreign legal entity is exempt from customs duties and charges.
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Property imported to Turkmenistan by foreign investors or entities with foreign capital on the basis of an international agreement and a contract concluded under the Decision of the Cabinet of Ministers of Turkmenistan in the form of an investment, is exempt from the payment of customs duties and charges within the payback period of the investment project set by the relevant agreement.
A favourable investment regime is also provided to companies which operate under the Petroleum Law, conduct activity in free economic zones, and those involved in the development of the Awaza National Touristic Zone. For such companies the Government provides favourable tax, licensing, rent and customs regimes.
3.3 Foreign ExchangeIssues
The exchange rate in Turkmenistan is fixed against the US dollar at TMT2.85 to the US dollar.
In general, there are no restrictions on conversion of local currency into foreign currency and vice versa. Foreign investors may convert Turkmen Manats for repatriation. The purchase and conversion of local currency may be undertaken only through authorised Turkmen banks.
The Central Bank and authorised banks of Turkmenistan may participate in auctions of currency at the Interbank Foreign Exchange of Turkmenistan (IBFET). Authorised banks may purchase and sell foreign currency on their own behalf and on behalf of their customers.
Trans-border transactions related to the movement of capital in excess of the equivalent of US$20,000 are subject to registration with an authorised bank.
Payments among residents of Turkmenistan should be made in local currency, but exceptions may apply.
According to the Anti-Money Laundering Law any transaction exceeding US$20,000 is the subject of a mandatory control. Banks must inform the Financial Monitoring Department of the Ministry of Finance about such transactions. Additional information may be requested in support of the transaction.
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4 Employment Regulations4.1 Labour Relations
Labour relations in Turkmenistan are regulated by the Labour Code, Pension Law and other applicable legislative acts. The Labour Code provides for specific conditions, such as employment equality, working hours, compensation for overtime, holidays, minimum notice period and social allowances. Any employment agreement provision which is contradictory to the Labour Code is superseded by the appropriate provision of the Labour Code.
Any Collective Agreement between employee and employer may not be include provisions less beneficial to the employee than those in the Labour Code.
The Labour Code provides that parties can conclude the following types of employment agreements:
• Indefiniteterm
• Fixedterm.
Each employment agreement may be preceded by a probationary term agreement.
The standard working day in Turkmenistan is eight hours excluding a one hour lunch break and the standard working week is five days. Shift work is permitted for certain industries. The minimum age for employment is generally 16 while for industries with hazardous conditions it is 18. The working day is restricted for: 16 to 18 year-olds; disabled people; pregnant women; and some other groups of employees.
Labour legislation also requires compliance with minimum standards regarding health, safety and welfare at work.
Overtime should not exceed four hours during two consecutive days and may not exceed 120 hours during the year. Overtime is compensated at double the normal rate or via time off in lieu.
The annual basic paid leave allowance granted to employees is 30 days. However, the duration of basic paid leave for teachers, officials of all types of educational organisations and disabled people is 45 days.
Employees may terminate their contract of employment at any time by giving two weeks’ prior written notice to their employer.
If employment is terminated due to staff redundancy or company liquidation, the employer is required to notify every employee at least two months prior to actual termination and to compensate them in accordance with the Labour Code.
The national minimum wage in Turkmenistan is TMT440 per month.
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4.2 Foreign PersonnelForeign employees may work in Turkmenistan only if a work permit is obtained from the State Migration Service of Turkmenistan. The work permit is required in addition to an entry visa. The duration of a work permit is limited to one year, however it can be extended if a relevant application along with the required supporting documents are submitted to the Migration Service 45 days prior to expiration of the current work permit, otherwise a new work permit must be obtained. The general procedure for obtaining a work permit includes the preparation of a formal invitation by the hosting entity. This procedure is time consuming and entails significant paperwork.
Turkmenistan legislation also requires that the percentage of foreign employees shall not exceed 30% of total staff.
4.3 Pension and OtherBenefits
The Labour Code and other legislation provide for various types of social compensation and allowances. Employees are entitled to a temporary disability allowance at a rate ranging from 60% to 100% of their base salary, depending on the length of service. Maternity leave at full pay is provided for a period of 112 days. There is also a burial allowance.
Where an employment agreement is terminated due to the liquidation of a company or staff redundancy, employees are due compensation of one month’s average salary. If the employee cannot find a job within the next two months, they are usually entitled to an additional two months’ average salary.
Old age pensions are provided at the age of 62 for men with a 25 year employment history and at the age of 57 to women with a 20 year employment history.
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5 TaxationThe taxation information in this guide is correct at the time of publication and is updated annually. For up-to-date taxation information please refer to the correct Country tax Guide, which is updated monthly.
5.1 Corporate IncomeTaxes
Resident companies, defined as companies which are incorporated under the laws of Turkmenistan and have their principal governing body situated in Turkmenistan, are liable to corporate profit tax on their worldwide income.
Permanent establishments of foreign companies are liable to corporate profit tax on their income sourced in Turkmenistan, subject to the terms of any applicable double tax treaty.
The general rate of corporate profit tax for resident companies is 8%. The rate of corporate profit tax for other companies, including state owned companies and foreign branches, is 20%.
Capital gains are generally treated as income and taxed at the applicable rate. However, gains arising on securities are generally tax exempt.
Dividends received from domestic and foreign sources are taxed. The rate of tax on dividends is 15%. Dividends received which have already been taxed at the source of payment in Turkmenistan are non-taxable for corporate profit tax purposes.
Interest receivable is treated as income and taxed at the applicable rate.
Losses may be carried forward for relief against future profits for up to three years. There is no provision for losses to be relieved against the profits of earlier years.
Generally, there is no tax consolidation facility for groups of companies/businesses. However, such facility exists for partnerships subject to peculiarities of tax legislation. For partnerships, tax consolidation means assigning the duty to calculate and pay taxes for the entire partnership to one partner. Under Turkmenistan legislation, a partnership is not treated as a separate body corporate, but as a transparent entity and therefore all profits, losses and gains are directly attributable and taxable on the partners based on their share in the partnership. The responsible partner will fulfil the calculation and payment duties on behalf of all the partners.
The tax period is the calendar year. The reporting period is the quarter. The deadline for filing quarterly tax returns for companies with foreign capital is the 25th day of the month following the reporting period. For other companies the deadline is the 20th day of the month following the reporting period. The deadline for filing annual tax returns for companies with foreign capital is 15
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March following the tax year. For other companies the deadline is 1 February following the tax year.
The corporate profit tax liability for a calendar year is payable in monthly instalments throughout the year. Advance payments are due on the 25th day of each month. For the first month of each quarter, the advance payment should be equal to the advance payment calculated for the last month of the previous reporting period; for the second and third months of the quarter the advance payment should be one-third of the actual tax for the closed reporting period reduced by the amount of the tax for the previous reporting period of the current year. Actual tax payments for the quarter are due within five days of the quarterly tax return filing deadline.
Companies which operate under the Petroleum Law enjoy a special tax regime. They are liable for corporate profit tax only and exempt from all other direct taxes, VAT, dues, duties etc. Losses may be carried forward for a maximum of ten years. Deadlines for payment and filing are set out in the Production Sharing Agreements or similar contracts. Advance tax payments are not required. The special tax regime applies only to their activity related to the conduct of petroleum works: for other activities they are required to follow the standard tax procedures.
Small- and medium-sized entities (SMEs) which are legal entities in private ownership also enjoy a special tax regime. They are liable to revenue tax rather than profit tax. The rate of revenue tax is 2% of gross revenue generally without deduction. Dividend income, non-trading income and income from gambling are excluded from the revenue tax base. Quarterly tax returns are due to be filed by the 20th of the month following the reporting period. Annual tax returns are due by 1 February following the tax year. Advance tax payments are not required. Actual tax payments are due within five days of the deadline set for filing of quarterly and annual tax returns.
5.2 Personal Taxes Resident individuals are liable to income tax on their worldwide income. An individual is considered a resident if they are present in Turkmenistan for 183 days or more in aggregate within the tax year.
Non-resident individuals are taxed only on their income sourced from Turkmenistan, subject to the terms of any applicable double tax treaty.
The general rate of income tax is 10%. Employers withhold tax at source from the pay of employees. In certain cases individuals are required to calculate and pay income tax on their own account. For example, when individuals receive income from other individuals, when resident individuals receive income from sources outside Turkmenistan and when individual entrepreneurs and individuals receive income from rendering of professional services.
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Individual entrepreneurs working under the simplified taxation system are liable to a monthly fixed patent fee (the amount depends on the type of business activity) plus an additional patent fee, charged annually, of 2% of the gross revenue.
Dividends received are also taxable.
Capital gains are generally treated as income and taxed at the standard rate. However, gains arising on securities are generally exempt from tax.
There are generally no inheritance and wealth taxes. Gifts received from companies are tax exempt, if the value within the tax year does not exceed ten times the minimum wage. Gifts awarded by the President and the National Labour Union are also tax exempt.
5.3 Pension InsuranceCosts
There are two types of mandatory pension insurance – general pension insurance and professional pension insurance. Employers are required to make pension insurance contributions based on the monthly pay of their employees. The rates vary depending on the type of employer and/or those insured:
For domestic companies, permanent establishments of foreign companies, diplomatic missions, consular establishments of foreign countries, representative offices of international organisations located in Turkmenistan and individual entrepreneurs, the rate is 20% for each individual employed by them.
For farmers and individuals, the rate is 10% of the minimum wage for each individual employed by them.
The following insured persons are required to make pension insurance contributions, based on their monthly incomes, on their own account:
• Individualentrepreneursandindividualswhorenderprofessionalservices– payable at progressive rates varying from 15% to 80% of the minimum wage, depending on monthly income
• Self-employedindividuals–payableat10%oftheminimumwage
• Farmersengagedingovernmentcontractualwork–payableatprogressiverates varying from 10% to 20% of net income, depending on net income
• Otherfarmers–payableat10%ofnetincomebutnotlessthan15%oftheminimum wage.
Certain employers, such as the armed forces, military authorities and entities with hazardous and/or difficult working conditions, are also liable to professional pension insurance and are required to pay an additional 3.5%.
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Employees are not required to contribute to mandatory pension insurance contributions.
Employees may make a voluntary contribution of not less than 2% of salary to their personal pension accounts.
5.4 Withholding Taxes onPayments Abroad
Withholding tax is potentially payable regarding income sourced from Turkmenistan in respect of services provided which, according to the Tax Code, are considered to be provided in Turkmenistan.
The general rate of withholding tax is 15% although a rate of 6% applies to lease payments made in respect of sea vessels and aircrafts. Payments for tourism services and projects and circus services are exempt from withholding tax.
Withholding taxes may be reduced or eliminated under applicable double tax treaties.
5.5 Indirect Taxes Value added tax (VAT) is levied on the selling price of goods, works and services. The place of supply of goods, performance of works and services is the main criterion for application of VAT. The rate of VAT is 15%. Export of goods (except hydrocarbons), international transportation and sale of own-produced agricultural products are zero-rated. Some suppliers, such as SMEs, companies which operate under the Petroleum Law and individual entrepreneurs taxed under the simplified taxation system are exempt. Also some supplies are exempt, including certain banking services, medical goods and medical services. Businesses, other than those making exempt supplies, can generally recover VAT on costs incurred.
Generally, there is no VAT consolidation facility for groups of companies. However, such a facility exists for partnerships subject to peculiarities of tax legislation. For partnerships, VAT consolidation means assigning the duty to calculate and pay taxes for the entire partnership to one partner – see description under Corporate Income Taxes for further details.
The VAT period for companies is the calendar month. Monthly VAT returns are due to be filed by the 20th day of the month following the VAT period. Monthly VAT payments are due by the 25th day of the month following the VAT period.
The VAT period for individual entrepreneurs is the calendar year. The reporting period is the half-year. VAT returns are due to be filed by the 20th day of the month following the reporting period. VAT payments for the first half-year are due by 1 September of the current year. For the second half-year VAT payments are due by 1 March of the following year.
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5.6 Other Taxes 5.6.1 Property tax
Property tax is payable by the owners of property, plant and equipment and inventory used in production. The tax rate is 1% of the average annual net book value of the property, plant and equipment and the average annual book value (ie before depreciation) of inventory. Certain companies are exempt from property tax.
Property tax is deductible for corporate profit tax purposes.
5.6.2 Subsoil use tax
Companies and individuals carrying out extraction of mineral resources are liable to subsoil use tax, which is levied on proceeds from sale of mineral resources. The rate of subsoil use tax for hydrocarbon resources, natural and associated gas is 22% and 10% for crude oil. The rate of subsoil use tax for other mineral resources depends on the level of profitability and ranges from 0% to 50%.
Subsoil use tax is deductible for corporate profit tax purposes.
Companies which operate under the Petroleum Law are exempt from subsoil use tax. Instead, they are liable to subsoil use payments, being bonuses and royalties. Bonuses are paid in the form of lump-sum payments upon signing a Production Sharing Agreement or similar contract, upon commercial field discovery, upon achievement of certain petroleum production levels and upon other cases specified in a production sharing agreement or similar contract. Royalties, which are set by the parties to the agreement, are calculated as a percentage of the volume or value of production of hydrocarbon resources, and may be paid in specie or in kind.
5.6.3 Excise tax
Excise tax is levied on the production and import of excisable goods (such as alcoholic beverages, tobacco goods, fuel and cars). Tax rates depend on the type of goods and are set either as a percentage (10% to 100%) of the excisable goods value or as a fixed price per unit of excisable goods.
5.6.4 Advertisement duty
Companies and individuals are liable to advertisement duty on expenses directly related to commercial advertising. Tax rates are 3% to 5% depending on the locality.
Advertisement duty is deductible for corporate profit tax purposes.
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5.6.5 Dwelling duty
Resident companies, permanent establishments of foreign companies, individual entrepreneurs and individuals are liable to dwelling duty.
Resident companies and permanent establishments of foreign companies pay 1% of their profit, as calculated for corporate profit tax purposes. Individual entrepreneurs pay 0.3% of gross income, but not less than TMT2 per month. Individuals are required to pay a fixed fee of TMT2 per month.
5.6.6 Car park owners’ duty
Resident companies, permanent establishments of foreign companies and individual entrepreneurs providing car parking for a fee are liable to car park owners’ duty on the area of land intended for car parking. The amount of duty varies from TMT0.9 to TMT1.5 per square metre depending on the locality.
5.6.7 Vehicle sale duty
Resident companies, permanent establishments of foreign companies and individuals engaged in the sale of vehicles are liable to vehicle sale duty. The rates depend on the type of vehicle: for trucks the duty is eight times the minimum wage; for buses the duty is five times the minimum wage; and for light vehicles the duty is six times the minimum wage.
5.6.8 Contribution to the State Agriculture Development Fund
Resident companies and permanent establishments of foreign companies are liable to this contribution on their accounting profits at 3%. Companies which operate under the Petroleum Law, government-financed organisations, entities which have profits from production of agricultural products are exempt from this contribution.
5.6.9 Contribution to Ashgabat Development Fund
Resident companies and permanent establishments of foreign companies located in Ashgabat are liable to this contribution on their accounting profits at 0.5%.
5.6.10 Transfer taxes
There are no transfer taxes on transfers of real estate or securities.
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5.7 Tax RegistrationNewly established entities and individual entrepreneurs are required to register with the Turkmenistan tax authorities within 10 days of the date of state registration. Upon tax registration the taxpayer is provided with a universal tax identification number.
Administrative fines apply for late registration.
5.8 Tax Audits The tax authority may carry out cameral (preliminary) and documentary tax audits. A tax audit may cover up to five tax years preceding the start of the tax audit.
Cameral tax audits are conducted at the premises of the tax authority on the basis of tax returns, financial statements and other documents provided by taxpayers and tax agents.
Documentary tax audits may be scheduled or unscheduled and the selection of taxpayers may be based on complexity, themes or arising from the audit of another taxpayer (cross audits).
Scheduled tax audits are carried out on the basis of approved quarterly audit plans. Unscheduled tax audits are usually triggered by the law enforcement bodies, public authorities and local government bodies, in cases of reorganisation and liquidation of an entity, business shut-down or cross-audits.
Whereas the scope of complex tax audits covers all taxes and other mandatory payments to the state, the scope of thematic tax audits cover specific taxes or mandatory payments. Cross-audits are carried out for the purpose of reconciliation of the same documents and information to records of different taxpayers.
The frequency of conducting scheduled complex tax audits are:
• Onceayear–inrespectoftaxpayerswithsignificanttaxliabilities
• Everythreeyears–inrespectofothertaxpayers,includingSMEs.
Re-audit of previously audited tax periods is carried out by the superior tax authority on the basis of a resolution of that tax authority.
5.9 Tax Treaties Turkmenistan has international agreements on elimination of double taxation with 28 countries, see Appendix 1. The terms of applicable tax treaties take precedence over the Turkmenistan Tax Code.
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Doing Business in Turkmenistan
5.10 Tax Incentives forBusinesses
Tax incentives and privileges are available for SMEs and companies which operate under the Petroleum Law.
SMEs are exempt from VAT and property tax.
In the event of an adverse change of legislation, foreign investors are allowed to apply the laws which were effective at the time of their registration for ten years or for the payback period of the investment project declared at the time of registration.
Companies operating in designated national touristic zones are generally exempt from corporate profit tax, property tax and VAT in respect of income arising from tourism and related services.
Investment pension funds, organisations engaged in rehabilitation of disabled persons, educational institutions, enterprises of public associations of disabled persons, religious organisations, public health organisations or enterprises and companies rendering circus services are usually exempt from corporate profit tax, property tax and dwelling tax.
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Appendix 1List of Double Taxation Agreements
Austria
Armenia
Bahrain
Belarus
Belgium
China
Estonia
France
Great Britain
Germany
Georgia
India
Iran
Japan
Kazakhstan
Latvia
Malaysia
Pakistan
Romania
Russia
Slovakia
Switzerland
Tajikistan
Turkey
Ukraine
UAE
USA
Uzbekistan
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Doing Business in Turkmenistan
Member Firm Contact Details Contacts:
Batyr Taganov, [email protected] Sahatov, [email protected] Mineyev, [email protected]
Ashgabat office
94 Bitarap Turkmenistan Str. Ashgabat, 744000 Turkmenistan T: +993 (12) 21 88 20F: +993 (12) 21 88 20 www.bakertilly.tm
Global Office Juxon House100 St Paul’s ChurchyardLondon EC4M 8BUUnited Kingdom T: +44 (0)20 3102 7600 F: +44 (0)20 3102 7601 [email protected] www.bakertillyinternational.com
Baker Tilly is the trademark of the UK firm, Baker Tilly UK Group LLP, used under licence.
© 2014 Baker Tilly International Limited, all rights reserved
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