HomeReportsBureau of Economic and Business Affairs2017 Investment Climate Statements...Tajikistan

# 					2017 Investment Climate Statements: Tajikistan			

 In this section										/

													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

Tajikistan presents limited opportunities for investors who are willing to put significant research and effort into market development, and who have experience with the region. The Government of Tajikistan has expressed interest in attracting more U.S. investment, but is still working to implement reforms that will allow them to become a more competitive investment destination.

In 2016, the Tajik government continued to face economic challenges, including banking sector instability, with several banks on the verge of collapse. Russia’s economic downturn continued to negatively impact Tajikistan’s economy. According to government statistics, remittances in 2016 were equivalent to 28 percent of GDP – a significant drop from 2014 when remittances were roughly equivalent to 50 percent of the country’s GDP. Tajik authorities and international experts forecast that continued ruble devaluation and slowing of the Russian economy, along with new restrictions placed on migrant employment in Russia, will likely continue to decrease Tajikistan’s remittance inflow in 2017. Reduced opportunities for migrant labor could result in markedly higher unemployment in Tajikistan.

Over the last two years, the National Bank of Tajikistan (NBT) has faced strong headwinds in terms of managing the value of the somoni. Between 2015 and 2016, the official somoni:dollar exchange rate slipped from 5.4:1 to 7.9:1. In first quarter 2017, it slipped to 8.4:1. The government expects the somoni to slide to 9.2:1 by the end of the year. Somoni depreciation has cut into real incomes, which slipped more than 40 percent percent between 2015 and 2016. Since small and medium-sized businesses have limited access to finance in the local banking system, the depreciation of the ruble and somoni made dollar-based debt even more unattractive. The rate of non-performing loans to regulatory capital reached 131.4 percent and the rate of non-performing loans to total gross loans soared to 54 percent in commercial banks as of December 2016. U.S. Embassy contacts report the share of non-performing loans is actually greater than 70 percent.

Tajikistan’s regulatory environment also lacks predictability. In spite of having over 200 different strategies and sectoral development programs, the Tajik authorities do not have the capacity to develop forecasts and implement plans that respond to circumstances in the country’s real economy.

The government recently introduced both a 2016-2030 National Development Strategy and a 2016-2020 Mid-Term Economic Development Strategy. Both emphasize the importance of investment as a driver of growth. The President of Tajikistan conducts annual meetings of the Consultative Council on the Improvement of the Investment Climate in Tajikistan, but the council has had a limited impact on the investment and business climate in the country.

Tajikistan became the 159th member of the World Trade Organization (WTO) March 2, 2013. From 2014-2016, the Tajik Government worked on and developed the WTO post-accession plan, which requires adaptation and amendment of the legislation and regulation aspects for the post-accession period. Tajikistan is still considering joining the Russian-led Eurasian Economic Union. Should they apply for membership and be accepted, it could result in higher trade tariffs and greater difficulty for U.S. firms to invest in Tajikistan. In 2016, China became the leading partner of Tajikistan in terms of investment, joint projects and state guaranteed loans.

*Table 1*

							1. Openness To, and Restrictions Upon, Foreign Investment					

**Policies towards Foreign Direct Investment**

Tajikistan has traditionally courted state-led investment and external loans from larger regional neighbors, including China, Russia, and Iran. In 2016, the Tajik government made a noticeable effort to increase Gulf State investment in the country, but generally failed to generate significant FDI flows. Qatar expanded its presence in Tajikistan’s real estate market ($200 million) and is building Central Asia’s largest mosque in the heart of Dushanbe ($100 million). China provided financing for the construction of a new $200 million government office building and Saudi Arabia provided financing for a $200 million parliamentary complex, both in Dushanbe.

Anecdotally, dozens of both foreign-owned and jointly-foreign-owned companies in Tajikistan have complained to resident European and U.S. officials about continual inspections and arbitrary and discriminatory application of the tax code to exact burdensome payments.

Despite a general deterioration in the investment climate, progressive legislative action on a few issues may yield positive results. A cotton fiber tax was abolished in June 2016, the sales tax was reduced by 1 percent in January 2017, and a simplified tax system means that a larger population of small-scale entrepreneurs is now eligible for more favorable tax treatment.

Tajikistan’s Investment Law (Article 4) guarantees equal rights for both local and foreign investors. According to this law, foreigners can invest by jointly owning shares in existing companies with other Tajik companies or Tajik citizens; by creating fully foreign-owned companies; or by concluding agreements with legal entities or citizens of Tajikistan that provide for other forms of foreign investment activity. Foreign firms may acquire assets, including shares and other securities, as well as land and mineral usage rights. Foreign firms may also exercise all property rights to which they are entitled, either independently or shared with other Tajik companies and citizens of Tajikistan. Most of Tajikistan’s current international agreements provide most-favored-nation status.

Although Tajik law recognizes the sanctity of contracts, the country’s judicial system is opaque and enforcement is poor. The country’s tax policy is neither predictable nor always favorable to legitimate business interests. The Tajik government typically takes an opportunistic interest in private companies that turn a profit. As one businessperson put it, “birds are only permitted to fly with the government’s permission.”

Tajikistan’s legal code does not discriminate against foreign investors by prohibiting, limiting, or conditioning foreign investment. To receive permission and licenses for operation, however, a foreign investor must navigate a complicated, cumbersome, and often corrupt bureaucratic system.

Several Tajik government agencies are responsible for investment promotion, but they frequently have competing interests. The State Committee on Investments and State Property Management of the Republic of Tajikistan (www.amcu.gki.tj ) chiefly facilitates FDI. President Rahmon announced the creation of a separate Investment Agency in January 2017.

Tajikistan has established several formal mechanisms to maintain open channels of communication with existing and potential investors. With EBRD support, the government established a Consultative Council on Improvement of Investment climate in 2007. This annual Council provides a formal venue for dialogue with donors, international financial institutions, and members of the private sector (http://cc.ehost.tj/ ). President Rahmon participated in the Council in January 2017. The government also established in January 2015 a National Entrepreneurship Day (NED), which is annually celebrated in October. Nevertheless, investors continue to claim that many of their complaints to the government go unheeded.

**Limits on Foreign Control and Right to Private Ownership and Establishment**

Tajkistan’s legislation provides a right for all forms of foreign and domestic ownership to establish business enterprises and engage in remunerative activity. There are no limits on foreign ownership or control of firms and no sector-specific restrictions that discriminate against market access. Local law considers all land and subsoil resources to belong exclusively to the state.

Tajikistan’s legislation allows for 100 percent foreign ownership of local companies. In the context of jointly-owned companies, local partners generally seek to possess a controlling share (51 percent or more) at the initial stage of business development and may seek to increase their stake over time.

All sectors of Tajikistan’s economy are open to foreign participation with the exception of aviation, defense, security, and law enforcement which require special government permission for the operation of such types of businesses or services. Tajikistan does not restrict foreign investment; it does not mandate local stakeholder equity positions or local partnering. In some cases licenses are required. There are no mandatory IP/technology transfer requirements.

Tajikistan’s government maintains an investment screening mechanism for inbound foreign investment, issuing approval or rejection statements. The State Investments and Property Management Committee is responsible for filing and coordinating foreign investment project proposals as they pass through the review pipeline. The government takes particular interest in determining whether the proposed project may impact the county’s national security and/or economic performance.

Investors must submit their proposals for screening to all relevant government agencies. This process can be lengthy and cumbersome. The State Committee on Investments and State Property Management circulates the investor’s proposal among the relevant government offices and ministries with instructions to review and express their formal opinion. If a ministry objects to the proposed investment activity, it submits an official note to the State Committee. This procedure applies to investment projects involving privatization of state property, but not to investment projects involving the private sector.

Screening proposals often involve background checks on the company, the person(s) representing the company, and identification of a financial source to comply with anti-money laundering regulations. U.S. businesses have not identified screening mechanisms as a barrier to investment.

The purpose of the investment screening process is to ensure that a proposed investment/project does not violate Tajik laws. If a proposal is rejected during the review process, the Tajik government may flag it as “incomplete.” Applicants may appeal the government’s decision by submitting a wrongful rejection claim to the Tajik Economic Court.

**Other Investment Policy Reviews**

The United Nations Conference on Trade and Development (UNCTAD) presented a draft Investment Policy Review of Tajikistan on November of 2015 to stakeholders from the government, local and international private sector, and civil society and development partners. However, the final version of the report is not available to the public. Tajikistan has not conducted a WTO Trade Policy Review and the WTO has not scheduled a review for Tajikistan in 2017.

**Business Facilitation**

In 2016, the Tajik Government placed particular emphasis on attracting investment from China and Gulf States. President Rahmon heads the country’s Consultative Council to Improve the Investment Climate, which is meant to identify strategies to accelerate business development.

Although the Tajik government has simplified the business registration process by adopting a single-window registration system, that process still requires significant legal and human resources, government connections, and time. The Tax Committee is the primary agency responsible for business registration (www. andoz.tj ). In addition to obtaining the state registration, a company must also register with the Social Protection Agency (www.nafaka.tj ); Statistics Agency under the President of Tajikistan (www.stat.tj ); Ministry of Labor, Migration, and Employment (www.mehnat.tj ); Sanitary-Epidemiological Service at the Ministry of Health of Tajikistan (www.moh.tj ); as well as with local authorities, municipal services, and other agencies. According to the country’s regulations, registering a business should take less than five business days; in reality it may take 10 or more days. All businesses must be notarized by the Government of Tajikistan.

The State Committee on State Property Management and Attraction of Investments is the key agency that collects information and project proposals from investors. However, numerous other agencies are involved in the investment coordination process, making it cumbersome.

According to Tajik legislation, micro enterprises have less than 10 employees, small enterprises 11 to 50 employees, and medium enterprises 51 to 100 employees. The international donor community, in coordination with the government, funds a number of projects which stimulate development of MSMEs in Tajikistan.

**Outward Investment**

The Tajik government does not promote outward investments. Private companies from Tajikistan invested in Kazakhstan, Russia, and UAE in 2016, primarily in trade, real estate, and business development.

The Tajik government does not restrict domestic investors from investing abroad.

							2. Bilateral Investment Agreements and Taxation Treaties					

Tajikistan signed bilateral investment treaties (BITs) with Austria, Azerbaijan, Belarus, China, the Czech Republic, France, Germany, India, the Islamic Republic of Iran, the Republic of Korea, Kuwait, Lithuania, the Republic of Moldova, Mongolia, the Netherlands, Slovakia, Spain, Switzerland, and Turkey. These BITs are in force. It has also signed BITs that have not yet come into force with Algeria, Armenia, the Belgium-Luxembourg Economic Union, Indonesia, Kazakhstan, Kyrgyzstan, Pakistan, Qatar, the Russian Federation, the Syrian Arab Republic, Thailand, Turkmenistan, Ukraine, the United Arab Emirates, and Vietnam. BIT information is available at: http://investmentpolicyhub.unctad.org/IIA/CountryBits/206 

Tajikistan’s other investment agreements include: the Eurasian Investment Agreement with Belarus, Kazakhstan, Kyrgyzstan, and the Russian Federation (came into force December 2, 2015); the Economic Cooperation Organization Investment Agreement (not yet in force); the European Community-Tajikistan Partnership Agreement with the European Union; the Commonwealth of Independent States Investor Rights Convention with Armenia, Belarus, Kazakhstan, Kyrgyzstan, and the Republic of Moldova; the Energy Charter Treaty; and the Organization of the Islamic Conference Investment Agreement.

Tajikistan became a signatory to the Trade and Investment Framework Agreement between the United States, Uzbekistan, Turkmenistan, Kyrgyzstan, Kazakhstan, and Tajikistan in 2004, but Tajikistan and the U.S. have not signed a Free Trade Agreement or bilateral investment treaty.

Tajikistan currently has bilateral agreements to avoid double taxation with Russia, Belarus, Ukraine, Azerbaijan, Turkey, United Kingdom, Belgium, Bahrain, Kuwait, South Korea, Thailand, Austria, Finland, Luxembourg, and China.

Although Tajikistan is not a member of the Eurasian Economic Union (ECC), and therefore not a party to its trade agreements, it nevertheless pledged in 1992 to uphold certain USSR treaty obligations, including an Income Tax Treaty that entered into force in 1976.

Although Tajikistan adopted a new national tax code in January 2013, its tax system remains internally inconsistent and administratively burdensome. Investors should be aware that they will be required to pay social security taxes on non-Tajik employee’s salaries, and that any financial transfers from parent companies to branches within Tajikistan will be taxed as revenue.

Investors who qualify for a value-added tax (VAT) exemption on imported materials should be aware that applications for exemption must be submitted no later than January 1 and that any exemptions granted will expire December 31 of that year. In practice, exemptions are often not granted until October, leaving a short window within which to take advantage of it. While the exemption applies retroactively for the calendar year, the Tajik government has said the tax code has no legal mechanism to authorize refunds of VAT paid prior to the date the exemption was granted.

The U.S. government has a bilateral income tax treaty with Tajikistan, but the Tajik government does not want to recognize this treaty and believes that Tajikistan and the United States should sign a new treaty that formally recognizes Tajikistan’s independence (https://www.irs.gov/businesses/international-businesses/tajikistan-tax-treaty-documents ).

							3. Legal Regime					

**Transparency of the Regulatory System**

Tajikistan’s regulatory system lacks transparency. Executive documents – presidential decrees, laws, government orders, instructions, ministerial memos, and regulations – are often inaccessible to the public. Businesspeople and investors must purchase access to commercial legal databases (Adliya) to obtain updated legal and regulatory information. Each ministry has its own set of unpublished regulations and these may contradict the laws and/or regulations of other ministries.

Proposed laws and regulations are seldom published in draft form for public comment. Although the Tajik government solicited public comment on the 2013 Tax Code, it did not modify the draft law based on the input received.

TajikStandard, the government agency responsible for certifying goods and services, calibrating and accrediting testing laboratories, and supervising compliance with state standards, lacks experts and appropriate equipment. TajikStandard does not publish its fees for licenses and certificates, or its regulatory requirements.

Tajikistan officially plans to adopt international accounting standards, but doing so will likely require the government to find a donor to provide the expertise and funding. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.

The Tajik central government is the highest rule-making and regulatory authority. On a case by case basis, the central government will delegate some regulatory functions to state, regional, or local levels.

Regulatory procedures are not transparent. Tajikistan’s Law on Accounting and Financial Reporting requires all companies to adhere to national accounting standards. (Domestic companies must adhere first and foremost to national standards. If the company also operates internationally, then it is in its interest to abide by international standards as well.)

The Office of General Prosecution, Anti-corruption Agency, Tax Committee, and State National Security Committee oversee government and administrative procedures.

No regulatory system and enforcement reforms have been announced in 2016. The Tajik government announced tax code reforms in 2012 and introduced a new tax code in January 2013.

The Tajik government’s 2013 tax code was adopted largely without private sector and donor community input. Consequently, it did little to encourage business development.

Government agencies submit proposed draft regulations to working group commissions, which are headed by government representatives. Once cleared, draft regulations receive final review by the relevant Ministries.

Legally the enforcement process is reviewable and could be made accountable to the public. In practice, however, Tajikistan’s regulations are seldom enforced. Regulations are not reviewed on the basis of scientific or data-driven assessments. Tajikistan archives its laws, regulations and policies at www.mmk.tj.

**International Regulatory Considerations**

Tajikistan is a member of the CIS (Commonwealth of Independent States). To date, Tajikistan has decided against membership in the Eurasian Economic Union.

CIS and U.S. technical norms are incorporated in the regulatory system that governs Tajikistan’s cotton sector. Tajikistan is a WTO member and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade.

**Legal System and Judicial Independence**

Tajikistan has a civil legal system. The parties to a contract can seek enforcement by submitting their claims to Tajikistan’s Economic Court. Tajikistan has written laws on commercial activities and contracts. Tajikistan’s economic courts review economic/commercial disputes.

Legally, the judicial system is independent. In practice, the executive branch interferes in judiciary matters. The current judicial process is neither fair nor reliable. Outcomes tend to be decided by the government’s executive branch.

Legally, regulation and enforcement actions are appealable and appeals should be adjudicated in the national court system. In practice, national courts typically carry out executive preferences, leaving business and commercial interests vulnerable to government interference.

**Laws and Regulations on Foreign Direct Investment**

Several government websites provide information on laws/regulations:

- President’s website –  www.president.tj 
- Parliament’s website –  http://ru.parlament.tj/ 
- Government’s newspaper website –  www.jumhuriyat.tj 
- Tax Committee under the Government of Tajikistan –  www.andoz.tj 
- Ministry of Finance –  www.minfin.tj 

The Tajik Government introduced two new amendments to the Laws of Republic of Tajikistan in 2016—one titled “On Investment,” the other “On Inspection of the Enterprises.”

The government also established the New Coordination Council of Inspection Agencies. According to the proposed draft decree, inspections will now be guided by an initial risk assessment. Historically, inspections have been undertaken without any justification whatsoever.

The government’s Action Plan for the Improvement of Investment Climate of Industry Sector, Support of Introduction Entrepreneurship, and Development of National Production for 2016-2018 was approved July 27, 2016.

The Tajik government does not offer a “one-stop-shop” website for investment that provides relevant laws, rules, procedures, and reporting requirements for investors

**Competition and Anti-Trust Laws**

The State Agency for Anti-Monopoly Policy and Enterprise Support is responsible for providing support for entrepreneurship and regulating prices for products of monopolistic enterprises, as well as preventing and eliminating monopolistic activity, abuse of dominant market position, and unfair competition.

In November 2016, the State Agency for Anti-Monopoly Policy and Enterprise Support received a notification on the transaction deal between AKFED (Aga Khan Fund for Economic Development) and Swedish Group Telia Sonera on 100 percent sale of shares of mobile company TCELL to AKFED. The deal cannot be finalized until the Anti-Monopoly Agency completes its review and approves it. In March 2017, Telia Sonera cancelled the deal between Akfed and TCELL due to Anti-Monopoly agency delays.

**Expropriation and Compensation**

The Government of Tajikistan can legally expropriate property under the terms of Tajikistan’s Law on Investments, Law on Privatization, Civil Code, and Criminal Code. The laws authorize expropriation if the Tajik government identifies procedural violations in privatizations of state-owned assets or determines a property has been used in anti-government or criminal activities, as defined in the Criminal Code. Under the Law on Joint Stock Companies, the government may request that a court cancel the private purchase of shares in state-owned enterprises (SOEs) if it determines that there was a violation to the procedure within the original sale

Tajikistan has a history of expropriating land on the grounds that the properties involved were illegally privatized following Tajikistan’s independence. Following an investigation by government anti-corruption, anti-monopoly, and other law enforcement agencies, the State Committee for Investments and Property Management can issue a finding that the asset was illegally privatized, and request that the Tajik court system order its return to government control. Local domestic law requires owners to be reimbursed for expropriated property, but the amount of the compensation is usually well below the property’s fair market value.

In several cases, Tajik officials have used government regulatory agencies to pressure businesses and individuals into ceding properties and business assets. The Tajik government has not shown any pattern of discrimination against U.S. persons by way of illegal expropriation. All privately owned operations are vulnerable to expropriation actions.

The Tajik government may threaten to impose inflated and baseless taxation charges on companies, and use this as leverage to negotiate the transfer of some share of a company to the government. In cases of expropriations, claimants and others have generally not had access to due process.

**Dispute Settlement**

*ICSID Convention and New York Convention*

Tajikistan is not a member state of the International Centre for the Settlement of Investment Disputes (ICSID) Convention.

*Investor-State Dispute Settlement*

Tajikistan became the 147th country to sign and ratify the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).

Tajikistan acceded to the Convention on August 14, 2012, but it entered into force on November 12, 2012 – 90 days after the deposit of the signed text at the UN and in accordance with Article XII (2) of the Convention.

Tajikistan signed the Convention with a number of reservations regarding types of arbitration agreements and decisions that can be recognized and implemented in Tajikistan.

One of the reservations established that Tajikistan does not apply the provisions of the Convention to disputes with immovable property. A similar reservation was established by Norway, which acceded to the Convention in 1961.

Another reservation established that Tajikistan apply the Convention only to disagreements and decisions “arising after the entry into force of the Convention and to decisions made in the territory of third countries.”

The decision to accede the Republic of Tajikistan to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards was adopted by the Majlis Namoyandagon of the Majlis Oli of the Republic of Tajikistan on May 31, 2012.

Tajikistan is not a member state at the International Center for Settlement of Investment Disputes. In 2011, Tajikistan also joined the Cape Town Convention on International Interests and Mobile Equipment. The Cape Town Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment, together usually referred to as the Cape Town Treaty, is an international treaty intended to standardize transactions involving movable property, particularly aircraft and aircraft engines. The treaty creates international standards for registration of ownership, security interests (liens), leases and conditional sales contracts, and various legal remedies for default in financing agreements, including repossession and the effect of particular states’ bankruptcy laws.

There have been no claims by U.S. investors under a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA), because Tajikistan does not have a BIT or an FTA with the United States.

Disputes involving foreign investors have primarily centered on the implementation of tax incentives. In the last ten years, three foreign investors have reported they were unable to utilize the promised value-added tax exemption on imported items. Tajik procedures require businesses seeking exemption to submit in January of the calendar year a list of goods to be imported; the exemption then expires at the end of December in that same year.

In practice, the Tajik government often does not approve such exemptions before October of each year, causing firms to incur substantial costs due to the delay. Firms that have paid the VAT and filed for reimbursement have been told that the Tajik government lacks a legal mechanism to refund the money.

The government has also been involved in disputes with the governments of Iran and Russia over revenue sharing arrangements at the jointly-owned Sangtuda-1 and Sangtuda-2 hydroelectric power plants.

It takes an average of 430 days to obtain a resolution on a commercial dispute/contract enforcement proceeding in Tajikistan: 40 for filing and service, 120 for trial and judgment, and 270 for enforcement of the decision.

*International Commercial Arbitration and Foreign Courts*

Tajikistan’s Third Party Arbitration Courts (TPAC) settle disputes between parties outside of the formal legal system. Decisions from TPAC bodies are recognized by Tajik courts. In practice, however, these courts are primarily used to resolve disputes over agricultural plot demarcations as part of the land reform process, and do not serve as venues to resolve non-agricultural commercial disputes.

Tajikistan has signed bilateral agreements with several countries on arbitration and investment disputes, but local domestic courts do not always properly enforce or recognize awards.

**Bankruptcy Regulations**

Under Tajikistan’s Law on Bankruptcy (2003), both creditors and debtors may file for an insolvent firm’s liquidation. The debtor may reject overly burdensome contracts, and may choose whether or not to continue contracts supplying essential goods or services, or avoid preferential or undervalued transactions. The law does not provide for the possibility of the debtor obtaining credit after the commencement of insolvency proceedings. Creditors have the right to demand the debtor return creditors’ property if that property was assigned to the debtor less than four months prior to the institution of bankruptcy proceedings. Tajik law does not criminalize bankruptcy.

							4. Industrial Policies					

**Investment Incentives**

According to statements by President Rahmon, there are 240 tax, regulatory, and legal incentives for businesses. In practice, businesses and investors cannot access most of these incentives.

The Tajik Government has officially expressed an interest in attracting FDI but has taken little practical action to do so. In 2016, Tajikistan’s Government approved an ambitious National Development Strategy 2016-2030, which highlights the critical role of private sector investment. According to this strategy, the Tajik government plans to attract as much as $55 billion in FDI by 2030. Given the country’s business and tax environment, however, this plan appears to be more aspirational than realistic. The State Committee on Investments and State Property Management’s website lists government-promoted investment opportunities (amcu.gki.tj/eng/).

**Foreign Trade Zones/Free Ports/Trade Facilitation**

The Tajik government has established four Free Economic Zones (FEZs), which offer reduced taxes and customs fees to both foreign and domestic businesses. To be eligible for preferential tax treatment, manufacturing companies must invest a minimum of $500,000, trading companies $50,000, and service and consulting companies $10,000.

**Performance and Data Localization Requirements**

According to the Tajik Law on Audits, for local companies at least 70 percent of the workforce must be local employees. If the CEO of the company is foreign, then the percentage of local staff should be at least 75 percent. This requirement is sometimes waived.

In June 2015, the Minister of Labor, Migration and Employment announced that for large-scale projects to be implemented in Tajikistan, which are signed between the Government of Tajikistan and either a company registered in another country or a government of another country, at least 80 percent of the workforce must be locally hired. Depending on the qualifications of the local labor force, this requirement may be increased to 90 percent.

Tajik legislation permits foreigners to hold senior management and directorial positions. Aviation is perhaps Tajikistan’s most politically sensitive sector, yet the government permits a foreigner, Thomas Wallham, to serve as the CEO for the country’s flagship privately-owned airline, Somon Air.

It is possible to obtain visas and residence/work permits, but applicants are required to provide documentary support, and most permits cannot exceed one year.

Relevant ministries must review and approve all investment proposals.

The government does not practice forced localization policy. Tajikistan abandoned its plan to require IT providers to turn over source code and provide access for surveillance purposes in 2009, due both to lobbying from telecom providers and appreciation of the high cost of creating and maintaining such a monitoring system.

The government does not impede the transmission of customer or other business-related data outside the economy/country’s territory unless the data violates anti-terrorist and anti-extremist laws and policies.

Tajikistan’s Telecommunication’s agency is building a single gateway for all internet and voice data. This may impede offshore storage of data.

							5. Protection of Property Rights					

**Real Property**

The Tajik government uses a cadaster system to record, protect, and facilitate acquisition and disposition of property, but it needs improvement. Even when secured interests in property do exist, enforcement remains an issue. Investors should be aware that establishing title may be a more involved process than in Western countries because title histories can be difficult to find.

The government passed mortgage legislation in March 2008 which allows parties to use immovable property as collateral. The government also adopted revised Land Code amendments in August 2012.

According to local domestic law, all land belongs exclusively to the state; individuals or entities may be granted first- or second-tier land use rights. The government restricts foreigners’ first-tier land use rights to 50 years, while Tajik individuals and entities have indefinite first-tier land use rights. Foreigners may request second-tier land use rights from the government similar to the first-tier rights of Tajik individuals and entities (50 years). Tajik first-tier land use rights holders may also grant foreigners lease agreements for up to 20 years. Ownership of rural land use rights can be particularly opaque, since many nominally privatized former collective farms continue to operate as a single entity. Many of the new owners do not know where their land is and do not exercise their property rights.

Officially, all of Tajikistan’s land is clearly demarcated by title and affiliated either with state-ownership or allocated for private usage.

Land in Tajikistan cannot be sold. All land is the property of the state. If land is not being used according to the purpose of lease, then authorities can revert it to other owners.

**Intellectual Property Rights**

While Tajikistan is a signatory to several international conventions that protect intellectual property rights (IPR), including the World International Property Organization (WIPO) Convention, the country has signed only eight of the 26 WIPO treaties, including the Patent Law treaty and Trademark Law Treaty. Tajikistan’s enforcement of IP violations needs strengthening (regulatory authority is divided between the Ministry of Economic Development and Trade, the Ministry of Interior, and the Ministry of Agriculture). Most software and other media products sold in Tajikistan are unlicensed copies, and many “brand name” consumer goods are counterfeit.

No new IPR related laws or regulations were enacted in 2016, though the Tajik government did formulate an action plan for the implementation of World Trade Organization (WTO) obligations, which includes IPR enforcement provisions as part of the Trade Related Aspects of Intellectual Property Rights (TRIPS) requirements.

Article 156 of the Criminal Code allows for seizures of counterfeit goods. The Tajik Ministry of Interior has declined to report statistics on criminal cases opened for consumer fraud from 2013 onward. Information on successful prosecutions is likewise unavailable.

As part of its WTO membership, Tajikistan pledged to improve IPR enforcement. At the end of 2015, the government established a Working Group under the Ministry of Economic Development and Trade to work on legal regulation that would ban the use of unlicensed software by state entities. The Tajik government is currently developing an implementation work plan and attempting to attract technical assistance.

In early 2016, the Tajik government adopted a 2014-2020 National Strategy for the Development of Intellectual Property, and seeks funding from outside donors to implement the strategy. Pirated software and audio-visual media remain widely available in Tajikistan.

As part of its WTO accession process, Tajikistan amended Article 441 of its Customs Code to provide ex officio authority to its customs officers to seize and destroy counterfeit goods. The “Department on Disclosing and Seizing of Counterfeit Products within the Customs Service of Tajikistan” has the responsibility to detect IPR-related violations. According to the department’s own data, there were no seizures of counterfeit products by the Customs Service in 2015. Currently, the Customs Service has only three IPR products registered in its customs registry. Tajikistan’s Law on Quality and Safety of Products requires IPR violators to pay all expenses for storage, transportation, and destruction of counterfeit goods.

To register a patent or trademark with the National Center for Patents and Information (NCPI), applicants must submit an application with all relevant information on the IP, and pay a fee. The NCPI (www.ncpi.tj ) will search its records for conflicts and, if none are found, register the IP within 30 days from the time the application is received. In general, the registration of a trademark might take four to seven months, while obtaining a patent for an invention could take up to two years.

Tajikistan’s weak implementation of its IP laws makes it difficult for investors to protect their rights. IPR enforcement has the potential to improve if the Tajik government effectively implements its action plan to comply with WTO TRIPS requirements.

Tajikistan was removed from the watch list of the USTR’s Special 301 report in 2016 but the U.S. government continues to press the government of Tajikistan to issue an order prohibiting the use of unlicensed software in government ministries.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

*Resources for Rights Holders*

U.S. EmbassyEconomic SectionDushanbe-ICS@state.govAmerican Chamber of Commerce in Tajikistan+992 (93) 577 23 23 +992 (93) 577 29 29Director@amcham.tjInfo@amcham.tj

Public list of local lawyers: https://tj.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/

							6. Financial Sector					

**Capital Markets and Portfolio Investment**

Foreign portfolio investment is not a priority of the Tajik government. Tajikistan lacks a securities market. According to government statistics, portfolio investment in Tajikistan by the beginning of 2016 totaled $44 thousand. The Tajik government does not regard this sector as a significant part of the national economy. Tajikistan does not have an effective regulatory system to encourage and facilitate portfolio investment. There is little liquidity in Tajikistan’s capital markets. Tajikistan has not established policies to facilitate the free flow of financial resources into product and factor markets.

Tajikistan does not have an official stock market. The National Bank of Tajikistan and Commercial banks in 2015 facilitated the creation of the new Central Asian Stock Exchange, but it is early development stages of development (http://case.com.tj/ ).

Tajikistan does not place any restrictions on payments and transfers for current international transactions, per IMF Article VIII. It regards transfers from all international sources as revenue, however, and taxes accordingly.

Yes, per IMF Article VIII, the government refrains from restrictions on payments and transfers for current international transactions.

Credits are allocated on market terms, but commercial banks are also under considerable pressure by the governing elites and their family and friends to provide favorable loans for commercially questionable projects. Much of the loan may be lost through corrupt channels. An estimated 70 percent of Tajikistan’s commercial loans are non-performing.

The private sector offers access to several different credit instruments. Foreign investors can get credit on the local market, but those operating in Tajikistan do not obtain local credit because of comparatively high associated interest rates.

**Money and Banking System**

There are 104 credit institutions, including 18 banks, 38 microcredit deposit organizations, 14 microcredit organizations and 34 microcredit funds function in the Republic of Tajikistan as of December 31, 2016. Tajikistan has 437 bank branches, up by 5 since 2015.

Tajikistan’s banking system is in a state of crisis. Its commercial banks have no liquidity and more than 70 percent of its loans are estimated to be non-performing. President Rahmon publicly stated that the government would solve the banking crisis, and pledged $500 million to do so. Some international observers have questioned how the government will be able to meet the pledge without taking steps that would lead to future inflation and balance of payment pressure. Total liabilities of commercial banks rose by $66 million in 2016 to $2 billion.

Over 70 percent of Tajikistan’s commercial loans are estimated to be non-performing. Total assets of country’s largest banks equaled $2.72 billion as of December 31, 2016.

The National Bank of Tajikistan is the country’s central bank (www.nbt.tj ). Foreign banks are allowed to establish operations in the country subject to National Bank regulations. The United States used to have correspondent banking relations with several Tajik commercial banks. Today only AgroInvestBank has correspondent relations with a U.S bank.

To establish a bank account, foreigners must submit a letter of application, a passport copy, and Tajik government-issued taxpayer identification number.

**Foreign Exchange and Remittances**

*Foreign Exchange*

Tajikistan traditionally does not restrict conversion or transfer of monies if these sums are deemed to be reasonable. Until 2015, “reasonable” meant no more than $10,000 per transaction. Because of the current economic and financial crisis, the National Bank is now determining “reasonableness” on a case-by-case basis.

Tajikistan places no legal limits on commercial or non-commercial money transfers, and investors may freely convert funds associated with any form of investment into any world currency. However, in 2016 the National Bank of Tajikistan exercised more strict control of foreign currency operations and outflows due to the economic and financial crisis. According to National Bank regulations, anyone seeking to exchange an amount exceeding 1500 somoni (approximately $200) must register the exchange, and present a passport and an explanation of the reason for the exchange (e.g., business trip abroad).

Businesses often find it difficult to conduct large currency transactions due to the limited amount of foreign currency available in the domestic financial market. Investors are free to import currency, but once it is deposited in a Tajik bank account it may be difficult to withdraw.

In December 2015, the National Bank reorganized foreign currency operations and shut down all private foreign exchange offices in Tajikistan. Since that time, only commercial bank exchange offices have been allowed to exchange foreign currency, which requires registration of a foreign passport and other personal information.

The government’s policy has been to support a stable exchange rate. The National Bank maintained an exchange rate at 4.75 somoni per U.S. dollar from mid-2011 until early 2014.

Defending the somoni:dollar exchange rate has depleted Tajikistan’s foreign currency and gold reserves, leaving the government with little capacity for future currency interventions, and consequently the somoni has lost value. By January 2016, the somoni:dollar exchange rate reached 8:1. By April 2017, the somoni has slipped to 8.5:1. The Tajik government intends to let the somoni slip to 9.16:1 by the end of the year, though some question whether the government has or will have the resources to prevent a more significant slide.

*Remittance Policies*

There have been no recent changes or plans to change investment remittance policies, although the National Bank mandated the payment of remittances to be made in somoni, (as opposed to in rubles or Kazakh tenge) in early 2016. There are no official time or quantity limitations on the inflow or outflow of funds for remittances. Tajikistan’s tax code classifies all inflows as revenue and taxes them accordingly.

**Sovereign Wealth Funds**

Tajikistan does not have a sovereign wealth fund. The country does have a “Special Economic Reforms Fund,” but, according to official statistics, it is empty.

							7. State-Owned Enterprises					

State-owned enterprises (SOEs) are active in travel, automotive/ground transportation, energy/mining, metal manufacturing/products, food processing/ packaging; agricultural, construction, building and heavy equipment; services; finance; and information and communication. The government divested itself of smaller SOEs in successive waves of privatization, but retained ownership of the largest Soviet-era enterprises and any sector deemed to be a natural monopoly.

The government appoints directors and boards to SOEs, but their actions are not governed or reviewed by any internal control procedures. Tajik SOEs do not adhere to the OECD Guidelines on Corporate Governance for SOEs. Third party market analysts regard SOEs as closely connected to the Tajik government. When SOEs are involved in investment disputes, it is highly likely that the domestic courts will find in the SOE’s favor. Court processes are generally non-transparent and discriminatory.

The State Committee for Investments and State-Owned Property Management maintains a database of all SOEs in Tajikistan, but does not make this information publicly available.

Major SOEs include:

- Travel: “Tajik Air,” “Dushanbe Airport,” “Kulob Airport,” “Qurghonteppa Airport,” “Khujand Airport,” and “Tajik Air Navigation;”
- Automotive & Ground Transportation: “Tajik Railways;”
- Energy & Mining: “Barqi Tojik,” “TajikTransGas,” “Oil, Gas, and Coal,” and “VostokRedMet;”
- Metal Manufacturing & Products: “Tajik Aluminum Company (TALCO),” and “AluminSohtMon (TALCO subsidiary);”
- Agricultural, Construction, Building & Heavy Equipment: “Tajik Cement;” Food Processing & Packaging: “Konservniy Combinat Isfara;”
- Services: “Dushanbe Water and Sewer,” “Vodokanal Khujand,” and “ZhKX (water utility);”
- Finance: “AmonatBonk (savings bank),” “TajikSarmoyaguzor (insurance),” “TajikSugurta (insurance);”
- Information and Communication: “Tajik Telecom,” “Tajik Post,” and “TeleRadioCom”

In sectors that are open to both the private sector and foreign competition, SOEs receive a larger percentage of government contracts/business than their private sector competitors. As a general rule, private companies cannot compete successfully with SOEs unless they have good government connections.

SOEs purchase goods and services from, and supply them to, private sector and foreign firms through the Tajik government’s tender process. Tajikistan has undertaken a commitment, as part of its WTO accession protocol, to initiate accession to the Government Procurement Agreement (GPA). At present, however, Tajik SOEs are not covered under the GPA.

Per government policy, private enterprises cannot compete with SOEs under the same terms and conditions with respect to market share (since the government continually increases the role and number of SOEs in any market), products/services, and incentives. Private enterprises do not have the same access to financing as SOEs. Most lending from state-owned banks is politically directed.

Local domestic law makes SOEs subject to the same tax burden and tax rebate policies as their private sector competitors, but the Tajik government regularly writes off SOE tax debts via administrative orders or decrees. SOEs are afforded material advantages, including preferential access to land and raw materials that are not granted to private enterprises.

SOEs have budget constraints under Tajik law. The Ministry of Finance, Agency for State Financial Control and Fight with Corruption, and Accounting Chamber are responsible for enforcement.

**Privatization Program**

The Tajik government conducted privatization on an ad-hoc basis in the 1990s, and then again in the early 2000s. The government plans to split national electrical utility Barqi Tojik into three public/private partnerships, responsible for generation, transmission, and distribution, by the end of 2020, but progress has been slow.

Foreign investors are able to participate in Tajikistan’s privatization programs.

There is a public bidding process, but privatizations historically have been non-transparent. Privatized properties have been subject to re-nationalization, often on the grounds that the original privatization process was conducted illegally.

							8. Responsible Business Conduct					

The Tajik government officially protects consumer rights through its Law on Consumer Protection. Citizens may file lawsuits against violators of consumer rights with the court system. Tajikistan’s state Labor Union is charged with safeguarding labor and employment rights. In practice, enforcement is rarely carried out. The Tajik government does not fairly enforce domestic law to protect individuals from adverse business impacts.

The Tajik government lacks corporate governance, accounting, or executive compensation standards to protect shareholders. The Tajik government does not encourage public disclosure of these issues. The Tajik government does not enforce corporate governance practices.

There are no independent NGOs, investment funds, worker organizations/ unions, or business associations in Tajikistan that promote or monitor RBC.

The Tajik government does not encourage adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. Tajikistan was suspended from the EITI in March 2016.

							9. Corruption					

Tajikistan has enacted anti-corruption legislation, but enforcement is highly selective, and generally ineffective in combating corruption of public officials. Tajikistan’s parliament approved new amendments to the Criminal Code in February 2016. Now, individuals convicted of crimes related to bribery may be released in return for payment of fines (roughly $25 for each day they would have served in prison had they been convicted under the previous criminal code).

Tajikistan’s anti-corruption laws officially extend to family members of officials and political parties. Tajikistan’s laws provide conditions to counter conflict of interest in awarding contracts.

The Tajik government does not require private companies to establish internal codes of conduct that prohibit bribery of public officials. Prosecutions for corruption are primarily politically motivated.

Private companies do not use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.

Tajikistan became a signatory to the UN’s Anticorruption Convention in 2006. Tajikistan is not a party to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.

Tajikistan does not provide protection to NGOs involved in investigating corruption.

U.S. firms have identified corruption as an obstacle to FDI, and have reported instances of corruption in government procurement, award of licenses and concessions, dispute settlements, regulations, customs, and taxation.

*Resources to Report Corruption*

Contact at government agency responsible for combating corruption:

Sulaimon Sultonzoda HeadThe Agency for State Financial Control and Fight with Corruption78 Rudaki Avenue, Dushanbe992 37 221-48-10; 992 27 234-3052info@anticorruption.tj; agenti@anticorruption.tj(The agency requests that contact be made via a form on their website – www.anticorruption.tj )

United Nations Development Program39 Aini Street, Dushanbe+992 44 600-56-00registry.tj@undp.org

							10. Political and Security Environment					

Tajikistan has a recent history of politically motivated violence. Its civil war lasted from 1992 to 1997, resulting in the death of over 50,000 people.

Since the end of the country’s civil war in 1997, political violence has been rare. There was a minor uprising in September 2015.

Negative trends, including banking sector instability, a broke national bank, growing total debt, declining remittances, flat or declining exports of cotton and aluminum (Tajikistan’s key exports), growing unemployment (unofficially already at 25 percent-30 percent), rapidly expanding population (2.2 percent), a large unskilled labor force, low and declining FDI, a predatorial business and investment environment, rent seeking by the political elite, and vanishing arable soil (due to salination and poor planting regimes) are creating concerns that Tajikistan’s economy is slipping precariously close to failure.

							11. Labor Policies and Practices					

As of February 2015, the official unemployment rate in Tajikistan was reported as 2.5 percent, but this does not include the roughly one million citizens (12.5 percent of the population) that seasonally emigrate in search of work in other countries – primarily to Russia.

According to information provided by Ministry of Labor, Migration, and Employment of Tajikistan, Tajikistan has 5.144 million labor resources (i.e. people who could be employed). Due to demographic growth, the World Bank estimates that demand for jobs exceeds job growth by a ratio of two to one.

Unskilled labor is widely available, but skilled labor is often in short supply, as many Tajiks with marketable skills have chosen to emigrate due to limited domestic employment opportunities. Corruption in secondary schools and universities means degrees may not accurately reflect an applicant’s level of professional training or competency.

Due to its weak education system, Tajikistan’s domestic labor force is generally becoming less skilled, and is ill-equipped to provide international standards of customer service and management. Foreign businesses and nongovernmental organizations report difficulty recruiting qualified staff for their organizations in all specialties.

The Tajik Ministry of Labor and Social Protection announced a plan to expand its network of training centers at which Tajik workers can become more marketable. The curriculum at these centers is primarily focused on the migrant community, offering training in English, Russian language, culture and history, certification of a worker’s existing skills, and short term vocational training as welders, electricians, tractor operators, textile workers, and confectioners.

The Law on Investments stipulates that at least 70 percent of employees at foreign owned businesses must be Tajik nationals.

Article 36 of Tajikistan’s Labor Code gives employers the right to change workers’ contracts (remuneration, hours, responsibilities, etc.) due to fluctuating market conditions. If the worker does not accept the amended contract, the worker may be terminated, but is entitled to a severance payment equivalent to two months of salary payments.

Tajikistan’s Labor Code does not include any provisions for waiving labor regulations to attract or retain investments, but the Tajik government has waived the 70 percent requirement for the employment of Tajik workers in some cases.

There are no special regulations regarding treatment of labor in Tajikistan’s four free economic zones.

The labor market favors employers. Although the majority of workers are technically unionized, most are not aware of their rights, and few unions effectively advocate for workers’ rights. The Tajik government controls unions, and the national trade union federation has not had many disputes with the government. Tajikistan has no formal labor dispute resolution mechanisms. Although collective bargaining has been known to occur, it is rare. There have been no significant labor strikes in Tajikistan.

Tajikistan’s labor code regulates employer-employee relations. The domestic labor code is designed with reference to international labor standards but employers may frequently violate or misinterpret the procedure.

No strikes were officially registered in Tajikistan in 2016.

							12. OPIC and Other Investment Insurance Programs					

OPIC is active in Tajikistan. OPIC has supported a beverage bottling project in 2000, and currently provides loans to microfinance organizations. OPIC is also exploring financing campus expansion of the University of Central Asia.

Tajikistan signed an investment incentive agreement with the U.S. in 1992, with provisions for issuing investment insurance, loans, and guarantees administered by OPIC.

							13. Foreign Direct Investment and Foreign Portfolio Investment Statistics					

*Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy*

*Table 3: Sources and Destination of FDI*

Agency on Statistics at the President of Tajikistan

*Table 4: Sources of Portfolio Investment*

Tajikistan is not listed in the IMF’s Coordinated Porfolio Investment Survy (CPIS).

							14. Contact for More Information					

U.S. Embassy Dushanbe Economic Section109 “A” Ismoili Somoni Avenue,Dushanbe, Tajikistan[992] (37) 229-25-04dushanbe-ics@state.gov

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### On This Page

                    -  Executive Summary 
                    -  1. Openness To, and Restrictions Upon, Foreign Investment   
                    -  2. Bilateral Investment Agreements and Taxation Treaties   
                    -  3. Legal Regime   
                    -  4. Industrial Policies   
                    -  5. Protection of Property Rights   
                    -  6. Financial Sector   
                    -  7. State-Owned Enterprises   
                    -  8. Responsible Business Conduct   
                    -  9. Corruption   
                    -  10. Political and Security Environment   
                    -  11. Labor Policies and Practices   
                    -  12. OPIC and Other Investment Insurance Programs   
                    -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                    -  14. Contact for More Information   

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