|                                                                                                                                                             |  | KYRGYZSTAN ADOPTS NEW FOREIGN INVESTMENT LAW                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsPublicationsSourcesof FinanceLeadsand EventsExchangeRatesState ExportsOtherSources** |  | February 1998by Irina MukhambaevaOn September 24, 1997 the Government of Kyrgyzstan adopted a new "Law on Foreign
Investments in the Kyrgyz Republic."  The law draws heavily on international models in areas
such as investment protection and taxation and represents an important step forward for
commercial law in Kyrgyzstan.  Kyrgyz Government officials contend that the law establishes
equal conditions for both domestic and foreign companies, although some current investors have
been less than enthusiastic since it also abolishes the former system of tax holidays for joint
ventures and foreign enterprises.Almas Chukin, Deputy Chairman of the Kyrgyzstan State Property Fund and one of the
authors of the new law, said that the law's adoption brings Kyrgyzstan into conformity with
international standards, since it was modeled on the multilateral agreement on investments of the
Organization for Economic Cooperation and Development.Investment Protection and Tax Benefits
Section two of the new law provides that it will be subordinate to international agreements ratified
by the Kyrgyz Parliament, such as the "Agreement on Trade Relations Between the United States
of America and the Republic of Kyrgyzstan."  The new foreign investment law also guarantees
protection of investments from expropriation, nationalization, and related actions.  Additionally,
the law was drafted to protect investors against bureaucratic delays imposed by agencies of the
Kyrgyz Government which prevent a foreign investor from benefiting from an investment.  Should
such delays occur, an investor's losses will be reimbursed by the Kyrgyz Government.The foreign investment law's authors relied on World Bank recommendations that the protection
of investments is more important to investors than tax benefits.  Chukin points out that while the
old system allowed tax holidays of up to five years, the actual activities of large foreign investors--such as the gold mining concern, Kumtor--were determined by special  agreements and not by
law.   As a result, the old law became, in effect, a  vehicle for tax avoidance rather than an
effective measure to promote foreign investment.Identical Treatment
The new law provides for equal treatment of both foreign and domestic investors engaged in
manufacturing, and may enable access to identical tax benefits, as well.  A producer may transfer
losses to the next period for bookkeeping and use accelerated depreciation to reduce profits-tax
liability.  Also, companies may be freed from value-added tax on equipment delivery.  Tax benefits
granted to joint enterprises, which are currently in effect under the old tax holiday system, will
remain valid until their terms expire.Currently, there are 2,200 joint ventures or enterprises with foreign capital in Kyrgyzstan,
including 597 fully foreign enterprises.  Most of the joint ventures are Russian.  Canada has the
largest value of investments in Kyrgyzstan, as a result of the Canadian company Cameco's gold
mining projects.  In addition, many Turkish, Chinese, Kazakhstani, and Indian businessmen have
enterprises in Kyrgyzstan.  The total sum of all the charter funds of these ventures is 1 billion
Kyrgyz som, or $5.8 million.  These businesses import and/or produce 95 percent of all alcohol in
Kyrgyzstan, 92 percent of pasta products, 67 percent of sugar, 96 percent of jewelry, and 48
percent of textiles.  For more information on doing business in Kyrgyzstan, visit BISNIS Online
at www.mac.doc.gov/bisnis/ country/cntasia.htm#Kyrgyzstan.Irina Mukhambaeva works for BISNIS in Bishkek, Kyrgyzstan.This report is provided courtesy of the Business Information Service for the Newly
Independent States (BISNIS)