TAXES IN TURKMENISTAN

Hello my friends!

Want to find out information about taxes in Turkmenistan?

You have come to right place. In this article I will give a brief overview of current taxes in Turkmenistan. Let's move on.

Taxes in Turkmenistan are regulated by the Tax Code of Turkmenistan which was adopted in 2004 (the “Tax Code”). Some other duties and fees, which are going to be mentioned in this article, are regulated by the relevant norms and legislations.

Here is the list of some of the main taxes that are applicable to companies and/or individuals:

            1. Corporate income tax;

            2. Value added tax;

            3. Personal income tax;

            4. Property tax;

            5. Withholding tax;

            6. Subsoil use tax;

            7. Excise tax;

            8. Advertisement duty;

            9. Dwelling duty and more...

Let's have a closer look at each of the taxes that I have listed above.

 

Corporate income tax

Below is the table which illustrates the main things we need to know about corporate income tax as who are taxpayers, the tax base, the rate and the periodicity.

Who?	From what?	How much?	How often?
Resident companies	Worldwide income	8% (state owned share capital < 50%) 20% (state owned share capital >50%) 50% (state insurance companies and credit institutions)	Quarterly
SMEs	Worldwide income	2% of gross revenue	In advance, upon cash receipts
FLEs	Turkmenistan sourced incomes	20%	Quarterly/Semi-annually
Companies operating under Petroleum Law*	Income from petroleum operations conducted in Turkmenistan	20%	Annually

*For simplicity purpose I will call them Petroleum Companies from hereon.

 

Other FAQs on Corporate Income Tax:

Q: Is interest deductible for tax purposes?

A: Yes, generally fully deductible.

 

Q: Thin capitalization rules apply?

A: No.

 

Q: What about capital gains?

A: They are treated as normal income and taxed at the standard tax rates.

 

Q: How about dividends?

A: Dividends are taxed at source of payment at 15% rate.

 

Q: Do transfer pricing rules exist?

A: Yes, though there are no explicit clauses in the legislation.

 

Q: Is there group taxation in Turkmenistan?

A: No.

 

Q: Can we carry forward our losses?

A: 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. Losses cannot be carried backward.

 

These are generally the type of questions I am asked about Corporate Income Tax in Turkmenistan, but of course this is just a brief overview.

If you have more concrete questions about Corporate Income Tax rules in Turkmenistan please feel free to drop me a message at consulmst@gmail.com and I will be happy to look into it.

Let’s move to this another yet popular type of tax we have all heard about – Value Added Tax aka VAT.  

 

Value Added Tax

VAT is an indirect tax. VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while VAT registered businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government. A business pays the government the tax that it collects from the customers after offsetting against the tax collected, the tax that it has paid to its suppliers on eligible acquisitions. 

The main criterion for interpreting and applying VAT is the place of supply of goods, performance of works or rendering of services.

Following entities are not VAT liable:

1. Central Bank of Turkmenistan;
2. Petroleum Companies;
3. Local SMEs and individual entrepreneurs who operate under the simplified tax regime.

 

Standard rate is 15%.

VAT at a zero-rate is applied to certain types of supplies including exports of goods (except hydrocarbons), international transportation, sale of own produce agricultural goods and some other supplies.

 

Exemptions from VAT include among many:

• Supply of certain medical goods;
• Rendering of insurance and re-insurance services;
• Certain banking services
• and some more…

The amount of VAT incurred is called the input VAT and can be offset against VAT payable or the output VAT. Certain criteria which is detailed in the Tax Code must be met in order for the VAT paid to be recognized as input VAT.

VAT incurred for allowed CAPEX costs may be capitalized under certain circumstances.

This is pretty much all you may want to learn about Turkmenistan VAT at this point.

Let’s briefly touch some other taxes and duties effective in Turkmenistan. I have fitted the brief info about other taxes in the table below.

 

What?	From what?	How much?	Extra notes
Customs duties	Imported goods	2% of customs value	Not applied to Petroleum Companies.
Subsoil tax	Proceeds from sale of mineral resources	22% - natural and associated gas; 10% - crude oil 0%-50% - other mineral resources	Not applied to Petroleum Companies.
Property tax	Average annual net book value of tangible assets used for business and located in Turkmenistan	1% annually	SMEs and Petroleum Companies are exempt
Excise tax	Production and import of certain goods (alcohol, tobacco, fuel)	22%-121%   or fixed fee per unit	Excise rate vary based on the type of goods. Petroleum Companies are exempt.
Advertisement duty	Expenses related to commercial advertising	3%-5%	The rate depends on the location of the taxpayer within Turkmenistan. Petroleum Companies are exempt.
Dwelling duty	Taxable profit	1,5% - resident companies and FLEs 0.3% of gross income – individual entrepreneurs 5 manat monthly – individuals	Petroleum Companies are exempt.
Contribution to State Agriculture Development Fund	Taxable profit	3%	Petroleum Companies and government-financed entities are exempt
Contribution to Ashgabat development fund	Taxable profit	0.5%	For companies located in Ashgabat only. Petroleum Companies are exempt
Vehicle ownership duty	Threshold value for calculating tax	1x to 6x of threshold value	Applied to legal persons and individuals
Car park owner’s duty	Area	TMT 0.9 – TMT 1.5 per m2
Vehicle sale duty	Threshold value for calculating tax	5x to 8x of threshold value	Petroleum Companies are exempt

There is no land tax in Turkmenistan.

Certainly, there are some other taxes which may be applied to legal and physical persons in Turkmenistan but I hope this will be enough at the introductory stage.

Let me quickly mention individual taxation here as well.

 

Personal Income Tax (PIT)

 

Resident physical persons are liable to 10% of PIT. This PIT is usually withheld at the source of payment by the employer and transferred to budget on their behalf.

 

Resident means that that an individual was present in Turkmenistan for 183 days and more in aggregate within a given calendar year.

 

Non-resident individuals are taxed only on their income sourced from Turkmenistan, subject to the terms of any applicable double tax treaty.

 

Partnerships are transparent, and their income is taxed in the hands of the partners.

 

PIT rate for individuals – 10%.

For individual entrepreneurs working under simplified taxation system – fixed patent fee plus additional patent fee 2% of gross income.

 

Other FAQs on Personal Income Tax:

Q: Are capital gains taxed?

A: Capital gains are generally treated as income and taxed at the standard rate.

 

Q: What about gains arising on securities?

A: Gains arising on securities are generally exempt from tax. Funds received from alienation of securities are taxed.

 

Q: And dividends?

A: Dividends received are taxable.

 

PIT can be summarized in more detail of course but this information should be enough for getting yourself familiarized with it. If you have more queries on PIT feel free to message me at consulmst@gmail.com.

 

Pension Insurance Contributions (PIC)

PIC is usually the cost borne by the employer for their employees. PIC rate is 20% of the total remuneration provided to local employees. Certain payroll expenses are exempt.

A 3.5% obligatory professional pension insurance is levied on employers whose employees operate under hazardous conditions (there is a certain approved list of such occupations).

There is also a voluntary pension insurance (not less than 2%) and medical insurance (3%) which are calculated from the total remuneration. Certain payroll expenses are exempt. These are borne by the employee and is deducted from salaries payable.

Different pension insurance rates and rules apply to certain kinds of entities and individuals, e.g. farmers, self-employed, individual entrepreneurs.

Now, the section which will follow is going to be of the most interest to foreign investors and businesses. I will try to touch the basics of the understandings of Permanent Establishments (PE), withholding tax for non-resident FLEs, double taxation treaty agreements (DTA).

Let’s start with the question whether there are any tax incentives for foreign investors looking into doing business in Turkmenistan at the first place.

As you may already learned from this article, Petroleum Companies enjoy numbers of tax privileges, so if you are looking into the hydrocarbons industry then taxation wise this is going to be relatively simple.

SMEs also benefit from the simplified taxation regime, however FLEs cannot be classified as SME for tax purposes, hence this is applicable to local companies only.

There are certain incentives available for companies operating within the special national touristic zones. 

 

Permanent Establishments (PE)

Another yet important matter foreign businesses must understand.

PE is said to be established if the FLE is located in a permanent place in Turkmenistan where it fully or partially performs its business activities for more than 45 days within a given 12-month period. This applies to the activities which are performed through an authorized person as well (physical or legal).            

Places in Turkmenistan from which exploration, development and extraction of mineral resources take place and place in Turkmenistan where construction takes place are considered as PE from day one.

The above criteria are as given in the Tax Code, however in some circumstances the PE definition and criteria given in the applicable DTAs may be applied.

 

Withholding Tax (WHT)

Incomes sourced from Turkmenistan by FLEs which do not have PE in Turkmenistan are generally subject to WHT at the source of payment at a 15% general rate and 6% for lease payments of sea vessels and aircrafts without personnel.

If FLE with no PE is a resident of the country with which Turkmenistan has DTA then withholding tax may be either reduced or eliminated according to the terms of the DTA.

The table below lists the countries with which Turkmenistan has effective DTAs in force:

 

No	Country
1	Austria*
2	Belgium*
3	Germany*
4	USA*
5	France*
6	Japan*
7	Armenia
8	Bahrain
9	Belorussia
10	Georgia
11	India
12	Iran
13	Kazakhstan
14	China
15	Malaysia
16	UAE
17	Pakistan
18	Russia
19	Romania
20	Slovakia
21	Tajikistan
22	Turkey
23	Uzbekistan
24	Ukraine
25	Latvia
26	Switzerland
27	Estonia
28	Lithuania
29	Croatia
30	Moldova
31	Korea
32	United Kingdom
33	Hungary
34	Finland
35	Saudi Arabia
36	Azerbaijan
37	Check Republic
38	Kyrgyzstan
39	Singapore

*USSR treaties honored by Turkmenistan

Found your country in the list? You may be looking for the DTA itself. Email me at consulmst@gmail.com to get your copy.

My dear friends, with this information we wrap up our introduction to taxes in Turkmenistan. Be on the lookout for the ‘Resource’ page on my website and you will be able to find information about on taxes in Turkmenistan, financial reporting in Turkmenistan, IFRS, bookkeeping and accounting, HR & payroll and audit and more.

For any other matter you are welcome to email me at consulmst@gmail.com and visit my LinkedIn profile at https://www.linkedin.com/in/maksat-sahatov-7aa47487/. 

 

Last update: September 2020