|                                                                                                                                                             |  | TURKMENISTAN'S TAX SYSTEM                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsPublicationsSourcesof FinanceLeadsand EventsExchangeRatesState ExportsOtherSources** |  | June 1998by Irina  BegjanovaKnowing what taxes to expect and how they are calculated is a challenge in most NIS countries,
where tax regulations are  usually in transition and difficult to interpret.  Turkmenistan is no
exception. The country's  tax code is currently being revised and existing tax legislation is based
on several laws and regulations amended by presidential decree.  It is possible, though, to identify
some key pieces of the tax puzzle which are most relevant to foreign companies.  Until the new
tax law is adopted, legislation of importance to the foreign investor includes: value-added, profit,
and property taxes; special taxation for small enterprises; and favorable taxation in free economic
zones. Foreign investors should also be prepared to register with the State Chief Tax
Inspectorate (SCTI) before beginning operations in the country.State Tax Service
The State Tax Service of Turkmenistan administers the country's tax system.  The tax
service has a wide range of powers and reports directly to President Saparmurat A. Niyazov. 
U.S. companies should remember that the tax service can: suspend a company's ability to make
bank transfers if a tax inspection team believes it is being prevented from investigating a
company's activities; withdraw overdue taxes from a local bank account if it finds that a company
has not paid its taxes in a timely manner; and order law enforcement officials to freeze a
company's assets and bring a suit against the company.  A fine of 0.3 percent is charged for each
day taxes are overdue.Types of Taxes
Foreign companies, their branches or representative offices, and foreign individuals doing business
in Turkmenistan must pay value added tax (VAT) of  20 percent.  VAT must be
paid every 10 days (payments greater than 5 million Turkmen manat), monthly (payments between
2.5 and 5 million manat), or quarterly (payments less than 2.5 million manat). VAT is not levied
on cargo transiting the country, urban mass transit, apartment rental, a variety of services,
industrial property copyright operations, medical services, and sales of medicine, medical items,
and equipment.Foreign investors, their subsidiaries, and representative offices are subject to a 25 percent
profit tax. Those engaged in operating commodity, stock, or labor exchanges, or
brokerage and intermediary activities are charged a profit tax of 45 percent. Profit tax is paid once
a year.Newly created enterprises are exempt from profit tax payments during the first year of profitable
operation if 70 percent of the profit is derived from production of agricultural commodities,
consumer goods, or building materials. During the second year of profitable operation, such
enterprises are charged 50 percent of the profit tax.  This privilege is not extended, however, to
enterprises that lease state-owned equipment, are created on the basis of abolished state
enterprises, are newly privatized, or are joint-stock enterprises with state equity participation
exceeding 50 percent.Also exempt from the profit tax are religious organizations, businesses that employ the
handicapped (not less than 50 percent of the total number of employees) or produce items for the
handicapped, and designated educational organizations.  A foreign firm that invests more than 30
percent of a joint venture's working capital in hard currency is exempt from profit tax payments
while it is recovering its initial investment.  Finally, certain other exemptions are available to
representative offices.A property tax of 1 percent per annum is charged for commercial assets. 
Enterprises with foreign investment, branch offices, and representative offices of foreign
companies are all subject to property taxes. Property tax may also be paid in the following
manner: first quarter, at a 25 percent rate; first half of the year, at a 50 percent rate; first three
quarters of the year, at a 75 percent rate.An excess payroll tax of 50 percent is levied on the amount of an enterprise's
overall salary fund that exceeds its nontaxable salary fund.  The nontaxable salary fund is
calculated using the company's payroll list, the country's official monthly average salary, and
coefficients that vary depending on the sector of the Turkmen economy.  The nontaxable overall
salary fund may vary depending on the economic efficiency of an enterprise.  The following
enterprises are exempt from the excess payroll tax payment: enterprises involved in crop
cultivation and cattle breeding; enterprises operating in free economic zones; and casinos, as well
as audio- and video-rental and slot-machine businesses.Free Economic Zones
Turkmen and foreign companies with operations in Turkmenistan's free economic zones are
exempt from profit tax for the first three years of operation.  An enterprise with foreign investors
whose investment was more than 30 percent in hard currency (excluding equipment and
technology) pays 50 percent of the profit tax rate during the following three years and 30 percent
during the subsequent 10 years of operation.  Profits reinvested in export-oriented production,
high technology, scientific research, environmental protection, training, or infrastructure
development within the free economic zones are tax exempt.Dual Taxation
Turkmenistan has no dual taxation treaty with the United States.  Technically, the dual taxation
convention between the Soviet Union and the United States is still in force, although this fact has
few practical consequences. For more information, visit BISNIS Online at http://www.mac.doc.gov/bisnis/cables/980423tu.htm.Irina Begjanova works at the American Embassy in Ashgabat.This report is provided courtesy of the Business Information Service for the Newly
Independent States (BISNIS)