Investment and Tax Guide 2014 Reach, Relevance and Reliability

Investment and tax guide 2014 Reach, relevance and reliability

The information given in this document is of a general nature and should be treated as such. Please consult with an expert before taking any action based on it.

Tajikistan Tax & Legal Contents

Foreign investment regime…………...……………………………………………………4 Types of business presence……………………………………………………...…………5 Employment regulation....…………………………………………………………………7 Taxation………………..…………………………………………………………...... 9 Other taxes ………………………………………………………………………..……..15 Local taxes..…………....…………………………………………………………………19 Transfer pricing………...…………………………………………………………………21 Tajik-sourced income of non-resident companies……...………………………………..22 Taxation of individuals……………………………………………………………………24 Customs duties……………………………………………………………………………26 Tax administration………………………………………………………………………..28 Taxation of subsoil users………………………...………………………………………..30 Special tax regimes………………………...... ………………………………………..32 Contact us………...……………………………………………………………………...33 This guide is designed as a basic reference guide to Tajik’s tax and legal environment for businesses interested in doing business in Tajikistan. Law and practice continue to evolve in Tajikistan, and whilst all reasonable care has been taken to ensure that this guide provides a practical explanation of the current rules, readers are urged to obtain up to date formal advice before undertaking any action. Deloitte accepts no responsibility for any errors contained in this guide, whether caused by negligence of otherwise, or for any loss, however caused, sustained by any person who relies on it. Foreign investment regime

General Investment benefits Tajikistan is keen to attract foreign investment and The Investment Law envisages investment benefits has adopted in May 2007 the Law on Investment such as tax remissions, customs preferences and which is aimed at attraction and effective use of issue of state grants as gratuitous assignment of material and financial resources, high technology, property, means and land as an ownership for own managerial experience, providing of favorable usage by legal entities. conditions for investment activity. Nationalization / expropriation The Investment Law is aimed at attracting The current law envisages protection for foreign local and foreign investors. It contains a range investments against nationalization / expropriation. of investment guarantees, such as security, Expropriation of property belonging to citizens and reinvestment and publicity of activity of state legal entities is made on the basis of legislation bodies in relation to investors. Investment rights on nationalization in accordance with the such as freedom to import equity capital, property Constitution of the Republic of Tajikistan (“RT”) and and documentation to carry out investments the with the compensation of value of nationalized remittance of funds abroad in connection with property and other payments for caused losses. exporting foreign investors’ profits and equitable Compensatory payment must be at fair market compensation in the event of expropriation are value and should be paid in freely convertible also covered under the Investment Law. currency according to timelines coordinated by the Also the Investment Law has been considered parties. as providing freedom of monetary transactions, According to the investigation work performed by stability in the legal regime, free access to open- the World Bank and IFC for 2013, Tajikistan ranks source information, intellectual property rights 141st out of 183 economies on the ease of doing observance and access to international arbitration. business index. However Tajikistan stands 25th in Since 1996, Tajikistan has developed and the ranking amongst 183 in terms of investors’ 2 implemented a three-year public investment protection . programs (PIP) - the program of investment of The legal framework continues to develop and public funds (both debt and equity) in the priority along with measures to discourage corruption sectors of the economy. According to the head and update tax legislation, the Government of of the State Committee on Investments and the RT in March 2013 passed a new law on the State Property Management of the Republic Investment Agreement, which aims to attract new of Tajikistan, as of July 1, 2012 the portfolio of foreign investors into target sectors by co-investing government investment projects embodied in and regulate relationships between investors and the territory of Tajikistan consists of 60 projects Government based on the investment agreement. totaling USD 1.9 billion1. Exchange control At present time main part of investment Tajikistan has adopted a liberal exchange system, projects being implemented with foreign and in general, there are no restrictions on direct investments from Russia, China, Canada, converting or transferring funds associated with Kazakhstan, USA and UK, among them such an investment into freely usable currency and at a investors as – Gazprom, Tethys Petroleum, Inter market rate. Foreign exchange is widely available, RAO UES, Zijin Mining, Gulf International Minerals, and the local currency, the Tajik somoni, is freely Adjind International, Hyatt and others. exchangeable at banks and exchange offices. Tajik The State Committee on Investment and State somoni (TJS) is the only permitted instrument for Property Management of the RT regularly put settlements within the territory of the RT. Residents out on its website the list of investment offers and nonresidents may hold both hard currency and in priority areas of economy of the RT, also TJS accounts in authorized banks and may import information on procedures for participation in the and exchange currency within the regulations set tenders can be found at this website (www.gki.tj). by the legislation of the RT.

1Source: www.tajik-gateway.org 2Source: www.doingbusiness.org

4 Investment and tax guide Type of business presence

General Joint stock company (JSC) Tajik legislation provides for a number of An open joint stock company (OJSC) may different forms through which business have an unlimited number of shareholders. activities may be carried out. The main types The minimum charter capital of OJSC is set at of business organizations are Limited Liability 1000 times minimum wages or TJS 250,000 Companies, open and closed joint stock (approximately USD 53,190) should be fully companies, sole proprietorship, branches paid in. representative offices of foreign companies and Subject to elaborate disclosure requirements, other forms of partnerships. The most common an OJSC is the only form of legal entity whose types of business presence in Tajikistan for shares may be openly traded similar to a foreign companies are: western “public” company. • Limited liability companies; A closed joint stock company (CJSC), which • Open and closed joint stock companies; is the type of JSC, is limited to a maximum of 50 shareholders. The minimum charter capital • Representative offices and branches. is no less 400 times minimum wage or TJS Limited liability Company (LLC) 100,000 (approximately USD 21,270). A CJSC is often the structure preferred by minority The most flexible type of company in Tajikistan partners in a joint venture as the JSC Law is an LLC. The minimum capital requirements grants greater rights to minority shareholders for the LLC should be no less 400 times than the law governing an LLC. minimum wage or TJS 100,000 (approximately The main features of a CJSC are the following: USD 21,270) effective in the RT on the registration date of a company. The equity • A CJSC may engage in any type of activity participation of the owners is determined by not prohibited by the domestic legislation their capital contribution. and, accordingly, may obtain a license to do so when required by the law; The main features of LLCs are as follows: • Shares are only distributed among its • An LLC has the right to engage in any type founders or another predetermined group of of activity not prohibited by the domestic persons a CJSC may not conduct an open legislation and, accordingly, may obtain a subscription for shares to an unlimited group license to do so when required by the law; of persons; • An LLC have a right to place obligations and • If the number of shareholders is more than other emissive securities; 50, it should be reorganized as an OJSC; • Participants govern the LLC through stockholders’ meetings; • Shareholders govern the CJSC through a shareholders’ meeting which must be held at • Participants elect an executive body (sole or least once a year. collective); Branch and representative office • Without the consent of other participants, a participant is entitled to leave the company According to the Tajik Civil Code, both and to be paid its pro-rata share of the net branches and representative offices are assets; referred to as subdivisions of a foreign legal • Participants enjoy the right of preemption entity which are located at a place other in acquiring the contributions of fellow than the head office of a legal entity. A participants; representative office can only represent the interests of the legal entity. A branch, in • An LLC with one participant may not act as contrast, can perform all or a part of the legal the sole participant of another LLC; entity’s functions, including representation • The number of participants may not exceed 30. and entrepreneurial activities.

5 Investment and tax guide Registration requirements State registration of a branch / RO of a foreign legal entity The state registration of legal entities is under the authority of the Ministry of Justice of the The following documents must be submitted to RT and its territorial subdivisions (hereinafter — the Ministry: the “Ministry”). • application claim; The following list of documents must be • constitutive documents of the parent entity submitted to the Ministry for the registration: (Par). The constitutive documents must be • application claim; notarized by the state notary; • drafts of constitutive documents of the entity • decision of the Par to: to be registered; • decision of founders to: - incorporate a branch / RO - incorporate a legal entity - approve the Regulation of a branch / RO - approve constitutive documents - appoint the Head of a branch / RO - appoint the head of a legal entity • egulation on a branch / RO; • extract from the Unified Registrar on State • power of attorney issued by the Par to the Registration (if the founder is a legal entity). head of a branch / RO; • data on an individual (if the founder is an • documents confirming a legal address. individual); • documents confirming a legal address; • document confirming contribution of the state duty (a receipt or a payment order). • documents confirming contribution of a charter capital; The registration of a branch/RO also takes • document confirming contribution of the approximately 10 days similar to registration of state duty (a receipt or a payment order). legal entities (please see above). The state registration process takes approximately 10 days. Within this period the Ministry has to inform the statistical and tax authorities on the state registration of a legal entity.

6 Investment and tax guide Employment regulation

General The monthly salary of an employee may not be set below the minimum wage established The Tajik Labor Code, adopted on 15 May by the President of the RT (currently TJS 250 or 1997, applies to all employment relationships approximately USD 53). in Tajikistan, including those involving Tajik nationals, foreign nationals, stateless persons Regular working hours may not exceed 40 and employees of foreign international hours per week. Overtime work should not organizations and legal entities. exceed four hours in two consecutive days and is limited to 120 hours per year. Employment agreement Minimum annual paid vacation is 24 calendar The relations between employer and employee days. Women are entitled to 70 calendar days’ are based on an employment agreement. An paid maternity leave both prior to, and after, employment agreement must contain certain giving birth. In addition, women are entitled provisions set out in the Tajik Labor Code, for an unpaid leave until the child reaches which are essentially designed to protect the age of three years (unpaid for the second 18 rights of employees. months) and during this period the employee is Employment agreements may be concluded entitled to resume her employment. for either an indefinite or fixed term (not Procedure for termination of more than 5 years). An indefinite term employment contracts employment agreement is the default option under the Labor Code while a fixed- Specific provisions for the termination of term agreement may only be concluded if employment agreement are stipulated in certain legislative requirements are met. An the Labor Code. Under the Labor Code an employment agreement is considered to be employment agreement may be terminated for an indefinite term if it does not establish based on the following upon request of a fixed term. Employees have the right to the employee or employer, termination of conclude employment agreements with several employment agreement and mutual decision employers. of the parties. Employees can terminate their employment at any time by giving two weeks’ The probation period under a contract cannot written notice to the employer. exceed three months. Certain categories of employees, for example employees under 18 The specific grounds for termination of an years old or interns, must not be subject to a employment by an employer are listed in the probation period. Labor Code and some of these described below.

7 Investment and tax guide In the event that employment is terminated due to staff redundancy or liquidation of the company, the employees must be personally notified in writing at least two months in advance. Where an employment is terminated due to the employee’s unsuitability for the job, the employee must be notified at least one month in advance. If unsuitability arises due to the employee’s poor health, the employer should transfer that employee (subject to his/ her consent) to another position within the company more suitable in terms of health conditions. If the employee rejects the transfer, or if there is no such position available, the employment agreement can be terminated. Employment (work) permits Employment of foreign nationals in Tajikistan is governed by the Immigration and Labor law. Issuance of permits is limited by the quotas for hiring foreign workers that are determined annually by the President and Government of the RT. Before a foreign national can work in Tajikistan as an employee a work permit must be obtained. The work permit allows a foreign national to be employed in the RT for one year. In order to receive the work permit a foreign national should submit the package of documents to the Migration Service under the Ministry of Internal Affairs of the RT. The Migration Service has 15 calendar days to review and issue a decision – either to allow a foreign national to be employed, or to deny a request. The requirement to obtain work permit does not apply to certain categories of foreign employees, for example, employees of diplomatic corps and international organizations, students, head and employees of a foreign company working in the RT under the intergovernmental investment agreements, investors with capital not less than USD 500,000, journalists accredited in the RT.

8 Investment and tax guide Taxation

General Taxable income As of January 1, 2013, a new Tax Code was Taxable income is defined as gross income adopted by the Government of the RT. received by a taxpayer less deductions allowed by the Tax Code. A list of Tajik taxes, levies, and general tax principles are established by the Tax Code. Foreign companies have to pay CIT on profits Under the Tax Code, all taxes and levies are related to the source in Tajikistan. Resident classified either as state or local. legal entities are liable for CIT on their worldwide profits. As a basic legal principle, taxes and levies, their rates, tax collection procedures and Income tax incentives may only be established in Income includes both sales income (i.e. total accordance with the laws of Tajikistan. proceeds from the sale of goods, works, Under the new tax regime, the main taxes services and property rights) and non-sales applicable to investment activities are as income. follows: Non-sales income includes goods, works, • Corporate income tax; services and property rights received free of charge, except in case of such property and • Value added tax; goods received by the non- profit entity and • Road tax; used for noncommercial purposes. Non-taxable • Payroll related tax; income, of which the legislation provides an • Land tax; exhaustive list, also includes property and property rights received as a contribution to a • Property tax; company’s charter capital, income received by • Mining taxes; the taxpayer-issuer from the stock floatation • Tax withheld at the source of payment from and dividends received by the resident entity incomes of non-residents. from participation in Tajik companies. Corporate income tax (CIT) Deductible expenses Taxpayers Expenses are considered deductible for CIT purposes if they meet following general criteria: CIT applies to Tajik legal entities and foreign legal the expenses must be incurred in the course entities carrying out business activities through a of a taxpayer’s income generating activity and permanent establishment (PE) in the RT. supported by relevant documentation. They Tax rate must not be listed as one of the specifically non-deductible expenses provided in the tax The CIT rate is established at the following law. Additional deductibility criteria applying to rates: certain types of expenses are noted below. • 15%, but not less than 1% of gross income Business trips — for entities involved in production of Business trip expenses are deductible within the goods (as of January 1, 2015, the tax rate limits fixed by the Government of the RT. will be 14%); Interest • 25%, but not less than 1% of gross income — for other type of entities (as of January 1, Any interest expenses paid or incurred by the 2015, the tax rate will be 24%); taxpayer in the course of its business activities are generally deductible. Some expenses are • 25%, but not less than 1% of gross income deductible within the established limits: — for profit received by a non-resident from • Interest deductions should not exceed the the sale or assignment of property and/or 3-fold amount of interest calculated using property rights which are not attributable the National Bank refinancing rate effective to a Tajik PE. at the tax period. 9 Investment and tax guide Interest expenses incurred and paid in relation Charitable payments to purchase or creation of depreciable fixed Actual charity expenses could be deducted assets would increase the value of the fixed within the amount of 10% of taxable income. assets. Depreciation Interest payable on loans from foreign and affiliated sources is subject to thin The Tax Code identifies depreciable assets, capitalization. both tangible and intangible with the value exceeding TJS 800 (approximately USD 168). Thin capitalization There are five depreciation groups under the Thin capitalization rules restrict the deductibility Tax Code: of interest charged on “foreign controlled debt”. The rules apply to loans of a Tajik Group Types of assets Maximum company from non-resident or a legal entity depreciation exempted from the CIT, which owns, directly rate or indirectly, more than 25% of the Tajik company’s share capital. 1 Automotive road building 20% machines, special equipment, Maximum deductible amount of interest computers and peripheral expenses is limited to the amount of interest equipment, data processing income plus 50% of aggregate income less all equipment etc. allowable deductions except for interest. 2 Trucks, buses, special-purposes 15% Doubtful debt vehicles and trailers, machines and equipment for all industries, The taxpayers are entitled to deduct reserves foundry engineering press- for doubtful debt created in connection with forging equipment construction supply of goods, works and services, if income equipment, agricultural gained from such services was included into machinery and equipment, cars aggregate annual income in the earlier periods. office furniture. In principle, a taxpayer may deduct doubtful 3 Power equipment, turbine 8% debt reserve for CIT purposes when the equipment, electric motors and outstanding debt actually was written off in diesel generator sets electricity accounting ledgers. transmission means, pipelines. 4 Building, constructions, railway 7% The reserve for doubtful debts as at the end of transport structures, river and the reporting (tax) period may not exceed 10% lake passenger vessels. of revenue for the period. 5 Other depreciable assets not 10% Banks, credit associations, microcredit listed in other groups. depositary institutions may deduct created reserves for doubtful debt subject to Under the Tax Code expenses on intangible certain rules of the National Bank of the RT. assets are deductible for CIT purposes at the Deductions on reserves may not exceed 90% rate of 10% that is established for the 5th of allocations to loans loss reserves (excluding group. Intangible assets involve intangibles standard credits, leasing credits, credits without such as licenses, inventive patents, trade marks, debt security, related party credits) under the copyrights, software, which are used during a certain rules provided by the National Bank and period of not less than 12 months if they have the Ministry of Finance. a restricted useful life. 10 Investment and tax guide If the value of the asset tax group is less than Taxes 50 calculation index (approximately 420 USD) Deductions of the following taxes and the full balance of the asset group should be payments are disallowed: deducted. 1) PIT or CIT liability paid on the territory of the A depreciation charge can be deducted in Tajikistan or in other countries; calculating the CIT liability, starting from the first day of a month following the month when 2) Penalty and fines payable to the state an asset is put into operation. budget of the RT or other country. Repair expenses Tax exemptions The Tax Code provides for a deduction of Exemptions are provided for: expenses incurred in connection with repair of • Non profit religious, charitable, budgetary fixed assets. organizations, intergovernmental The maximum deduction of repair expenses organizations and international is limited to 10% of the balance of each tax organizations, excepting profit received from group of fixed assets at the end of the current business activity; tax period. Excess repair expenses should be • Gratuitous compensations, property, added to the costs of the tax depreciation membership fees, donations and grants group. received by the non-profit organization; Expenses on exploratory and preparatory • The National Bank of the RT and Deposit works for mining operations Insurance Fund; Expenses on exploratory and preparation • Enterprises having no less than 50% of the works for mining operations are included staff — disabled persons, as well as no less into the tax group of fixed assets and are 50% of remuneration expenses covering subject to deduction for CIT purposes by disabled persons’ pensions. depreciation at the rate of 15%. The same rules apply to expenses on intangible assets Also the Tax Code provides the tax relief to the related to acquisition of mining rights including newly created manufacturing company under exploration and production of mineral condition that during the 12 month period resources. from the registration the founders make certain volumes of investments: Research and development expenses • Tax relief for 2 years, if investment’s volume Certain types of research and development — USD 200-500 thousand; costs connected with income generating activity are fully deductible. Such expenses • Tax relief of 3 years, if investment’s volume should be confirmed by the primary documents USD 500 thousand-2 million; on research and development, technical • Tax relief of 4 years, if investment’s volume and economic assessment and (or) Acts of USD 2 million-5 million; acceptance. • Tax relief of 5 years, if investment’s volume Loss carry-forward more than USD 5 million. Losses incurred by legal entities as a result Tax period of their economic activities could be carried forward for a period of up to 3 calendar years. The tax period for CIT is a calendar year. Losses from sale of property (except of property Tax assessment which is used in business activities or property The taxpayer is obliged to calculate monthly which is tax exempt) are carried forward advance payments no later than 15th separately from the tax loss from regular of each month. activities and could be offset only against profit from the similar activities. 11 Investment and tax guide Monthly advance payments should not be less Services and works are generally deemed to be than: supplied at the place of business of the supplier • 1/12 of CIT liability for previous tax year unless another specific treatment is applicable. multiplied by the coefficient 1.1; and In particular, specific treatment applies to the following: • 1% of the gross revenue for reporting • Services related to immovable property are month. deemed as supplied where the property is Timing located; • Services related to moveable property are The annual CIT return is due by 1 April of the deemed as supplied at the location where following year. Any tax obligations due must these services are actually performed; also be paid in full by 10 April. • Cultural, sports, arts, educational, Value added tax (VAT) advertising, entertainment, recreation services and provision of personnel are Taxpayers deemed as supplied at the location where VAT applies to companies (including these services are performed; representative offices and branches of non- • Services or works related to transportation resident companies), individual entrepreneurs, are deemed as supplied at the location and any entity making VATable supplies in the where the transportation was actually country and importing goods into Tajikistan. performed; Under the Tax Code, a business entity carrying • Leases of movable property, except for on economic activity is required to register for motor vehicles, consulting, audit, legal, VAT purposes in Tajikistan if its total turnover engineering, marketing, information- processing, accounting and other similar exceeds TJS 500,000 or approximately USD services, transfer of rights to intellectual 105,000 during a period of no more than 12 property (patent, license, trademarks, calendar months. copyright and etc.). These services are Taxable supplies deemed to be supplied at the place of business of the buyer. VAT is charged on the majority of sales of goods, works and services supplied in Tax rates Tajikistan, including those supplied free-of- The VAT rates are 0%, 5% and 18%. charge. VAT is also imposed on most imports into the RT. Transfer of property rights and The 0% rate applies to export of goods outside certain self-supplies, donation or exchange of Tajikistan, except for the export of raw cotton, goods are also subject to VAT. ginned cotton, cotton yarn, initial aluminum, jewel stones and jewelry, goods manufactured Place of supply in Free Economic Zones. These rules are used to determine whether In order to confirm the 0% rate, a taxpayer goods, works or services are supplied in should prove the export by providing a set of Tajikistan and thus, subject to the Tajik VAT. documents to the tax authorities as prescribed in the Tax Code. Under the Tax Code a place of supply of goods is a place, where goods are delivered The 5% rate applies to taxable supply (except at the disposal or, if delivery includes goods of import) of catering, wholesale and retail transportation, the place of supply of goods trade companies, sales and supply agencies, is a place where transportation starts. The Tax construction firms. In case of 5% VAT the Code envisages that supply of electric energy, companies may not claim offset of input VAT. heat energy and gas is executed at the place of This rate is effective until January 1, 2016. receipt of goods; in case of export such goods 18% rate applies to all other taxable sales of are treated as being sold in Tajikistan. goods, works and services in Tajikistan.

12 Investment and tax guide VAT exemptions • import of precious metals and jewel stones by the National Bank of the RT and the Activities which are exempt from VAT include, Ministry of Finance of the RT; in particular: • import of industrial-engineering and • supply or lease of real estate (with the agricultural equipment and its components exceptions provided by the Tax Code); in accordance with specification approved by • supply of financial services in accordance the Government of the RT; with specification approved by the Ministry • import of medicaments, medical and of Finance and the National Bank of the RT pharmaceutical equipment and medical (with exceptions provided by the Tax Code); instruments according to the list provided by • supply of the national and/or foreign the Government of the RT; currencies as well as securities; • import of goods for execution of investment • supply of religious and ritual services by projects of the Government of the RT within religious organization; grant (or credit) agreements; • supply of medical services by the state • import of goods for building of important organizations excluding services in objects defined by the Government of the cosmetology, dentistry and health resort; RT; • supply of educational services financed from • import of goods and equipment (excluding the state budget; excisable goods) for the purposes to produce • supply of goods, performance of works and primary aluminum by the manufacturer rendering of services as humanitarian aid under the list set by the Government of the and transfer of goods free of charge for the RT; benefit of the state; • import of special-purpose goods for disabled • supply of goods, performance of works persons under the list provided by the and rendering of services by penitentiary Government of the RT. institutions of the the RT; Taxable value • supply of special-purpose goods for disabled persons under the list provided by the The value of a taxable transaction shall be Government of the RT; determined on the basis of the price payable • supply and export of precious metals and for supplies or imports, which the taxpayer jewel stones, as well as jewelry made receives or has the right to receive from a off precious metals and stones, and also customer. The latter includes any duties, taxes, aluminum and ore concentrate, scrap of and/or other fees excluding VAT. ferrous and nonferrous metals, ginned The taxable value of imported goods is the cotton, cotton yarn and raw cotton. customs value of those goods including all Revenue from supply of the transportation transport, insurance and other expenses services where one of the point of departure incurred during their import, as well as the total or destination is Tajikistan and another is amount of customs fees and taxes payable at outside Tajikistan, including transportation the import of these goods, except for VAT. of passengers and baggage, international The amount of VAT payable to the budget on transportation of goods, also supply of fuel and taxable turnover is determined as being the other articles of consumption using during the difference between the output VAT accrued on performance of such transportation services, as taxable turnover upon issuance of an invoice well as certain services relating to arrangement and the amount of creditable input VAT paid to of transportation is not subject to VAT. a supplier. The following imports are exempted from VAT Input VAT cannot generally be offset when on import: incurred on exempt activities, and should • import of national and/or foreign currencies instead be included as part of the cost of as well as securities; goods, works and services.

13 Investment and tax guide VAT incurred on purchases and expenses Road Tax which relate to both VATable and non-VATable Taxpayers activities must be apportioned. Only the part which is deemed to relate to VATable activities Payers of the road tax are the taxpayers subject may be offset as input VAT. The VAT amount to taxation under general tax system. which is not creditable shall be deducted for Tax base CIT purposes. Road usage tax base includes taxpayer’s total VAT invoices expenses. If the total actual expenses are less VAT payers are required to issue a VAT invoice than 70% of the gross revenue, the road tax (schet-factura) to the recipient of goods, work should be applied to the tax base that equals or services at the time of delivery of goods or 70% of the gross revenue. services. The Tax Code requires that certain Such expenses as construction expenses, specific information is shown in a schet-factura. purchase of fixed assets and other capital The VAT invoice (schet-factura) should be expenses should be excluded from the tax issued in four copies. base. VAT invoices are published by the authorized Tax rates typography under the order of the Ministry of Finance. VAT invoice is a document subject to Road usage tax rate are as follows: the strict reporting and has respective serial • 0.5% — for trade, procurement activities number and protection from falsification. and supply and sales agency; Timing • 2% — for other activities. The tax period for VAT calculation is a calendar As of January 1, 2015 the road usage tax rate month. Payers of VAT are required to file will be: monthly VAT returns and pay corresponding VAT due to the budget no later than the 15th • 0.25% — for trade, procurement activities day of the month following the reporting and supply and sales agency; month. • 1% — for other activities. Reverse charge That tax will be abolished as of January 1, 2017. If foreign companies, which do not have a Tax allowances Tajik tax registration, supply goods, works or services in Tajikistan and these supplies are Religious, non-commercial organizations, as deemed to be made in Tajikistan according to well as budget organizations are exempt from the place of supply rules, the remittance of VAT the road tax. is made through a withholding mechanism. Tax payments and filing returns The tax-registered buyer of these goods, works and services is required to withhold VAT from Tax payers are required to file monthly returns the amount payable to the foreign supplier and and pay corresponding tax due to the budget remit the tax to the budget. no later than the 15th day of the month following the reporting month. Agents with a Tajik tax registration that supply goods, works, services in the RT on behalf of their unregistered foreign principals should account for Tajik VAT as tax agents. Tajik VAT should be added by tax agents to the net value of the goods at the appropriate VAT rate and remitted to the state budget.

14 Investment and tax guide Other taxes

Land tax Due dates for payment of land tax are by the February 15th, May 15th, August 15th, Taxpayers November 15th. Land tax applies to land users who own land or have a temporary or permanent right to its use. Deadline for submission of land tax calculation by legal entities is the March 1st of the Taxable base reporting year. Land tax is established in accordance with Excise tax the cadastral value of the land, its quality and location of land, ecological features of land Taxpayers plots and the purpose the plot is used for. Excise tax is payable by companies and Land tax is levied on the area of land in individual entrepreneurs making and/or question. Certain exemptions from land tax are importing excisable goods into Tajikistan as well provided, with respect to historical or cultural as carrying out some types of communication sites, national parks and land used by the state. services. In cases of joint ownership, the tax base Excisable goods is determined based on each taxpayer’s proportionate share of the land. The primary categories of excisable goods are: spirit, alcoholic and nonalcoholic beverages, Tax allowances tobacco products and tobacco substitutes, Several tax exemptions are available for land mineral oil, petroleum products, bitumenols, occupied, for example, by disabled people, mineral wax, liquefied gas, tires and tire retirees, and state authorities as well as for the protectors, automobiles and other vehicles land used for national parks and reserved area. used for carriage of people and gold, platinum Tax rates and silver ware. The Government of the RT set the land tax Transactions subject to excise tax rates for each location every 5 year depending Excise tax is generally imposed on excisable on cadastral value of the plot. However goods sold in Tajikistan and on excisable goods authorized state body annually adjust land tax imported into Tajikistan. rate taking into account the inflation rate for previous year. Under the Tax Code activities which are subject to excise tax include, in particular: Land tax rate may vary from TJS 1.09 to TJS 676.53 per hectare (approximately USD 0.2 • Mobile phone services of all standards; -143) depending on the location and function • Telegraph communication and IP of the land. communication services; Under the Tax Code depending on the size • Telematics services; of the land plots the land tax rate should be calculated in following way: • International and long- distance • Up to 800 square meter — basic land tax telecommunication services through mobile rates; network. • Over 800 up to 2000 square meter — Tax allowances double land tax rates; Under the Tax Code exports of excisable Tajik • Over 2000 square meter — fivefold land tax goods outside of Tajikistan are free from excise rates. tax. To obtain this exemption, a taxpayer must Tax payments and filing returns comply with certain customs export procedures and present documentation evidencing the The tax period for land tax is a calendar export of the goods. year, most taxpayers must make advance tax payments quarterly. 15 Investment and tax guide Tax rates Tax on simplified system The tax rates vary depending on the category Taxpayers of excisable goods. The rates are periodically The legal entities and individual entrepreneurs adjusted by the tax authorities. The tax base is with annual revenue for preceding financial determined by either the quantity of excisable year up to TJS 500,000 or approximately USD goods or the value of such goods depending 105,000 calculated based on the cash method on whether the tax rates are specific (i.e. are entitled to use a simplified system of a fixed amount per unit) or ad valorem (a taxation for small businesses. percentage of the sales price). However, the simplified system of taxation The 3% rate applies to some types of excisable cannot be applied by: communication activity. • Individual entrepreneurs who are taxed Excise tax should be charged at the date of based on the patent tax regime; sale, which is generally deemed to be the date • Entities taxed under the special tax regime when the goods are dispatched. In respect of for agricultural producers; excisable services, excise tax should be charged when the services are performed and invoice • Entities which apply special regime for the for such services are issued. gambling activity. A producer of excisable goods may deduct In case of exceeding the limit of gross revenue excise tax paid on the purchase or import of a taxpayer should submit an application to excisable goods used in production of those the tax authorities for transfer to general tax goods. regime. Tax payments and filing returns Transition from the general regime to the simplified regime and inversely should be A tax period is the calendar month. Deadlines implemented from January 1 of the calendar for tax payments and submission of tax returns year. vary. They primarily depend on the category The tax payers using the simplified system of of excisable goods. For example, in case of taxation are exempt from CIT, road tax, VAT production of excisable goods and performing (excluding VAT on import and reverse charge excisable services the tax payment should be VAT) as well as PIT related to incomes of the proceeded and tax report should be submitted individual entrepreneurs. Other taxes should be until the 10th of a month; due date for import paid in accordance with general requirements of excisable goods is set by the customs of the Tax Code. legislation. Excise tax reports and payments must be made at the location of the taxpayer Tax base and tax rate and by all separate subdivisions which carry out The tax base is the revenue gained during a transactions subject to excise tax. reporting period, excluding excise tax and sale Certain alcohol and tobacco products, both tax, and calculated based on cash method. domestic and imported, require an advance The tax rates are set as follows: payment of an excise tax by means of an • 5% — for production activity; excise stamp, which must be attached to each excisable item prior to its sale. • 6% — for other activities.

16 Investment and tax guide Tax payments and filing returns Sales tax (ginned cotton and The tax period is a calendar quarter. Deadline aluminums) for payment and submission of a tax return Taxpayers is 10th of the month following the reporting Sales tax is applicable to certain transactions quarter. with ginned cotton and aluminums. Unified tax for agricultural producers Taxpayers engaged in supply, import and Taxpayers export of ginned cotton and aluminums as well as the legal entities and individuals carrying The unified tax apply to companies and private out processing or transfer for processing of entrepreneurs engaged in the production mentioned goods are subject to the sales tax. of agricultural products without further reprocessing. Supply of ginned cotton and aluminums are exempt from VAT. The taxpayers reselling the Under this regime, the agricultural producers taxable goods are entitled to offset the sales are exempt from the following taxes: tax paid upon purchase of these goods. • VAT, excluding VAT on import and reverse Taxable base and tax rate charge VAT; Generally, the taxable base is a cost of realized • Road tax; and processed taxable goods, which is •; CIT calculated based on prices of taxable goods set at London Metal Exchange and Liverpool • Land tax. Cotton Association taking into account the Tax base and tax rates quality and sort of the goods. Unified tax for agricultural producers is Sales tax rates are established at: established in accordance with the cadastral • 10% for ginned cotton; value of the land, its quality and location of land, ecological features of land plots. • 3% for aluminums. Unified tax is levied on the area of the land in Tax payments and filing returns question. Amount of the unified tax is derived The tax payment should be made before by multiplying land’s square by the fixed tax supply of taxable goods or within 3 days after rates. The tax rates vary from TJS 4.08 to TJS receiving of the payment from a customer. 253.39 per hectare (approximately USD 0.8 -54) depending on the location and type of the land. The customer within 10 days from the purchase date of taxable goods should provide Tax payments and filing returns the tax authorities with a copy of payment The tax period for the unified tax is a calendar documents. year, most taxpayers must make advance tax A taxpayer must file the monthly tax return no payments quarterly. later than the 15th of the month following the The due dates are the 10th of March (15% reporting month. of annual tax obligation), 10th of June (30% Water royalty of annual tax obligation), 10th of September (50% of annual tax obligation), 10th of Taxpayers December (100% of annual tax obligation). The tax payers are legal entities and individual entrepreneurs using water for generation of The deadline for submission of the unified tax electricity in the RT. calculation is established not later 1 March of reporting year.

17 Investment and tax guide Tax object and tax base Tax rate Entities or private entrepreneurs using the The tax rate equals 0.06 calculation index water facilities for the purposes of generation (approximately TJS 2.4 or USD 0.5) for each of electricity are subject to royalty. 1000 kilowatt-hour of generated electricity at The tax base is determined as a quantity of the end of a tax period. generated electricity less transmission losses. Tax payments and filing returns Tax allowances The tax period is a calendar month. The Use of water facilities for generation of deadline for payment and submission of a tax electricity at the capacity that is less than 1000 return is the 15th of a month following the kilowatt is exempt from the royalty. reporting month.

18 Investment and tax guide Local taxes

Real estate tax The real estate tax amount also should be adjusted by regional coefficients, which vary Taxpayers from 0.09 to 1.0 depending on the location of Real estate tax applies to individual the immovable property. entrepreneurs and legal entities that own or Tax payments and filing returns use immovable property. The tax period is a calendar year. Nevertheless, Tax object and tax base advance tax payments must be calculated and The objects of taxation include residential paid not later than the 15th of February, 15th buildings, apartments, cottages, buildings, of May, 15th of August and 15th of November installations, facilities, and other constructions of a reporting year. Advance payments are located on the territory of the RT. accrued in the amount of not less than 25% of the tax amount of reporting year. The tax is based on the size of immovable The deadline for submission of the calculation property adjusted by the coefficients of payments for real estate tax is March 1st of established by the Tax Code. the current year. Tax allowances Transport tax The property of religious organizations Taxpayers and various types of public organization is tax exempt, as well as property owned by Entities and individuals who are registered participants of wars, heroes of labor, and owners of a transport vehicle are subject to participants of Chernobyl disaster and other transport tax. local events, disabled persons are subject to The transport vehicles include cars, motorcycles exemption. or buses, steamship, boats, and locomotives Entities having 50% and more of the staff — and other. disabled persons are not subject to real estate tax. Taxable base Tax rates The taxable base for movable property is the engine capacity in horse-powers. Real estate tax rate depends on the location, functional use, size of the property and other Tax allowances factors. The maximum rate is currently used Under the Tax Code the following vehicles are in major towns of the RT including Dushanbe, exempt from tax: Kulyab, Khudjant and Kurgan-Tyube. 1. Tractors used in agriculture as well as Rate Types of immovable property combine harvesters and special machines 3% Residential building up to 90 square including cotton harvesting machines; meter 2. Buses and trolleybuses owned by companies 4% Residential building over 90 square whose main activity is transportation of meter passengers; 12.75% Estate property used for trade, catering 3. Special medical transport vehicle; activity and domestic services up to 250 square meter 4. Industrial railway transport, excluding locomotives; 15% Estate property used for trade, catering activity and domestic services over 250 5. Cycle-car and cars with manual control used square meter by the disabled people; 9% Estate property used for other activity 6. One car owned by participants of wars, up to 200 square meter heroes of labor, and participants of 12% Estate property used for other activity Chernobyl disaster and other local events. over 200 square meter

19 Investment and tax guide Tax rates The amount of tax payable depends on vehicle’s engine capacity determined in horse- powers.

# Taxable object Tax rates in percent to calculation index effective at the date of payment (TJS 40) 1 Motorcycles and motor 2.5% scooters 2 Pickups and vans 6% 3 Cars 7.5% 4 Buses (up to 12 places) 7.5% 5 Buses (13-30 places) 8.5% 6 Buses (over 30 places) 9.5% 7 Trucks and other 11% vehicles with tonnage 10 tons 8 Trucks with tonnage 12.5% 10-20 tons 9 Trucks with tonnage 13.5% 20-40 tons 10 Trucks with tonnage 14.5% over 40 tons 11 Tractors used in 2% construction work and agriculture 12 Steamship and boats 15% 13 Locomotives used in 1% railway

Tax payments and filing returns The deadline for submission of the calculation of vehicle owners’ tax is established until 1 April of the current year. The tax is payable to the local tax budget at the place of registration but not later than the date established for the annual technical check fixed by the State Automobile Inspectorate under the Ministry of Internal Affairs of the RT.

20 Investment and tax guide Transfer pricing

The current transfer pricing rules are included If it is established that the taxpayer’s price into the Tax Code. differs from the market price, the tax authorities have the right to assess additional Generally transfer pricing rules are substantially tax liabilities, late payment interest and based on the OECD Transfer Pricing Guidelines. penalties, based on a price equal to the market There are some categories of related parties, price. according to which the ownership of more Tajikistan uses the methodologies similar to than 20% constitutes main criteria for the OECD guidelines to determine arm’s length recognition of a related party. A court can prices, that are as follows: (1) the comparable recognize parties as being related on the uncontrolled price method; (2) the resale price grounds not specified in the law, e.g. if the method and (3) the cost plus method. relationship between such parties have an impact on a transaction. The law provides detailed guidelines on how to apply each method. Preference is given to the The transfer pricing control may be applied first method, while the other two methods may by the tax authorities to review taxpayers' be used only in the absence of comparables, or transaction of the following types: information about relevant prices in the market • related party transactions; in question. • “barter” transactions; The burden of proof that prices do not meet • cross-border transactions (i.e. a “foreign the arm’s length principle falls on the tax trade transaction”), where one of the party is authorities. the resident of certain “low tax” jurisdiction; The information required to determine the • one of the transaction party is using a tax market prices of goods, works and services benefit or tax privilege regime; should be obtained from the official and publicly • transaction price applied by a taxpayer available sources, for example database of deviates by more than 30% from the state bodies, local authorities and information market price. provided by the taxpayers, experts, appraisers.

21 Investment and tax guide Tajik-sourced income of non-resident companies

Withholding tax • rendering of services by a non-resident through hired personnel during continuous Tajik-sourced income of a foreign legal entity 90 calendar days in the consecutive twelve- which is not associated with a permanent months period; establishment in Tajikistan (“PE”) may be • participation of a non-resident in a joint subject to withholding tax at source. For partnership created in accordance with the taxation purposes, a Tajik entity or a foreign legislation of the RT; company with a registered PE making the relevant payments to a foreign company • holding of exhibitions for fee by a non- resident; without a PE has to withhold tax from the Tajik- sourced income. • authorization of a non-resident or resident to act on behalf of a non-resident in The Tax Code defines the term “permanent conclusion of contracts. establishment” as a place of activity, through Withholding tax is applied to the following which a foreign company fully or partially types of Tajik-sourced incomes: engages in business activities in Tajikistan. The term is used exclusively for tax purposes and Rate Types of income does not affect the legal status of an entity. 12% Dividends, interest and royalties The following criteria can expressly consider 6% Income from insurance premiums, business activity as a PE: payable under insurance and re-insurance • a place of production, processing, package agreements and supply of the goods; 5% telecommunication or freight services in international communication and • a place of management (a branch, a transportation between the RT and other representative office, an office, a factory, a states laboratory, an agency, a shop, storehouse); 6% telecommunication or freight services • a mine, an oil or gas well, a quarry or in international communication and transportation between the RT and other any other place of extraction of natural states under the marine freight resources; 15% Other types of income • a place connected with pipelines, gas pipelines, exploration and mining Withholding tax is applicable, regardless of the development, installation and maintenance form of payment, and includes payments in- of equipment; kind, or by way of mutually offsetting liabilities between the buyer and seller. • a place connected with the operation of game-playing machines, computer network Tajikistan has double tax treaties with the more than 25 countries: Azerbaijan, Armenia, and communications channel; Belarus, Romania, Czech Republic, Indonesia, • a permanent base used by nonresident for Iran, Kazakhstan, Kyrgyzstan, Moldova, purposes to carry out the business activity. Pakistan, Poland, Russia, Belgium, Austria, Luxemburg, Brunei, India, China, Latvia, Turkey, The “PE” term also includes: Turkmenistan, Switzerland, Japan, South Korea, Ukraine, and United Arab Emirates. • making a collection of insurance premiums and/or carrying out insurance or re- It should be noted that the provision of the insurance of risks by an authorized agent of double tax treaties prevail over the Tajik a non-resident in the RT; domestic law.

22 Investment and tax guide Double tax treaties Resident legal entities have the right to apply provisions of a DTT automatically (i.e. without written application to the tax authorities) in respect of payment of dividends, interests and royalty to non-residents on the basis of a Certificate of residency in the relevant DTT country. To claim the benefit of a DTT at the time of paying other type of Tajik–sourced income, a foreign legal entity must provide confirmation document to the payer that it is a tax resident of that foreign country and submit a claim on application of DTT’s provisions to the tax authorities, along with supporting documentation that should include, among other, constituent documents, copies of agreements, invoices, and any other relevant documents. The claim must be approved by the tax authority within 15 work days. If confirmation is not provided prior payment, and the foreign company suffers a withholding rate greater than that provided by the treaty, it is possible to claim a refund in following tax periods. Net profit tax Pursuant to tax legislation net profit earned by the foreign legal entity through a permanent establishment in Tajikistan is subject to “branch profit” tax at the rate of 15%.

23 Investment and tax guide Taxation of individuals

Personal Income Tax (PIT) – insurance premium payments under insurance contract made by employer Taxpayers to employee According to the tax legislation both Tajik – payments made by an employer on residents and non-residents-individuals behalf of an employee for his education are subject to personal income taxation. or its dependent’s education and on Nonresident individuals are subject to taxation reimbursement of expenses of an only on income from sources on the territory employee not related to main work of the RT. • Compensation for an activity not related to Income tax rates employment: Tax rate of personal income depends on – interest income monthly minimal salary and is due is taxable – dividends at the fixed rate of the annual income less – rental revenue permitted deductions. – royalties # Taxable income (on Tax rate and tax – Income from write off of the debt average for a month) amount • Other compensations. 1 Less than calculation No PIT Deductions and exemptions index –“CI” (approx. USD 9) Personal deductions 2 CI- TJS 140 (USD 29) 8% from taxable The PIT tax rate applies to taxable income after income exceeding CI the following types of deduction: 3 In excess of TJS 140 13% plus PIT • Personal deduction amounts to one CI or TJS calculated on TJS 40 (approximately USD 8) for each month 140 of his/her accumulated income during the 4 Income of non- 25% calendar year. The personal deduction is resident individual allowed to an employee working on the principal place of work; Moreover, pursuant to the Tax Code if an • Personal monthly deduction of 10 CI or TJS employee is having two jobs at a time, 400(approximately USD 85) is granted to employer should withhold PIT at the rate persons who are equated to participants of 13% without allowed deductions, except of the Great Patriotic War and participants of social tax. of other military campaigns, the disabled persons as well as citizens-suffered from Taxable income consequences of nuclear emergency; The taxable income is defined as gross income, • Social tax withheld at source of income from less permitted deductions and exemptions. For gross revenue at the rate of 1% is deductible personal income tax purposes, gross income is for PIT purposes. comprised all types of compensations, both in cash and in-kind including: Exemptions • Compensation for employment services, in Non-taxable income includes, but is not cash or in-kind including but not limited to: limited to: – income in the form of a benefit from • State allowances, including subsidies, low-interest loan pensions, state bonuses, scholarships, funeral expenses, maternity leave and – write-off of debt or liabilities unemployment benefits, as well as addressed of an employee social assistance, one-off payments, – gratuitous assignment of goods, works or humanitarian and charitable aid including services made by an employer grants on natural disaster and so on; to employee 24 Investment and tax guide • Income of non-citizen of the RT received from Social tax official diplomatic or consular work; Tax payers • Cost of property received as a gift or inheritance; Social tax applies to the following tax payers: • Value of gifts received from legal entities 1) Individual entrepreneurs and legal entities in the amounts up to 100 CI or TJS 4,000 — employers, including PE of non-residents (approximately USD 850), prizes (winnings) paying remuneration to individuals-residents derived at the international competitions under labor contracts and, paying to up to 500 CI or TJS 20,000 (approximately individuals-residents for rendered services USD 4,255), prizes received at the state under civil agreements; competitions up to 100 CI or TJS 4,000 2) salaried individuals; (approximately USD 850) per year; 3) individual entrepreneurs-residents. • Winnings from government obligations and The following are examples of payments which state lottery issued by Ministry of Finance of are not subject to social tax: the RT up to TJS 50 (approximately USD 11) per one obligation or lottery; • salary payments to foreign nationals working in the RT within investment projects with the • Certain cash and in-kind distributions, Government of the RT; in accordance with legislation, e.g. per diems special uniforms, personal protection • payments connected with the transfer of equipment, prophylactic dietotherapy, property rights or any other proprietary footwear, and so on; rights; • Payments under obligatory employer's liability • income exempted from the PIT under the tax insurance for health and life trespass to an legislation. employee; Employers and employees, as well as individual • The reimbursement of certain expenses entrepreneurs, are liable to pay social tax as incurred in the course of business trips and follows: supported by the proper documentation. • Employers (insurers) — at a rate of 25% of Tax returns the gross remuneration; • Employees — residents of the RT (insured) — Where tax has been withheld in full at source at a rate of 1% of their gross remuneration; by a tax agent, individual taxpayer does not need to file a tax declaration. However, a • Individual entrepreneurs — at a rate of 1% of tax declaration will be required if a taxpayer gross revenue. has other sources of income subject to filing Payments and reporting obligation. The calculation period for social tax is calendar Deadline for submission of an annual PIT month. declaration is the 1st April of the following tax year. The total amount of tax due, based on a Due dates for payment of social tax and tax return, must be paid no later than 10 April submission of tax return are set until 15 of the of the following tax year. month following the reporting month. Tax withholding Tax agents should submit tax returns on withheld PIT and pay the tax amount not later than the 15th of the month following the reporting month.

25 Investment and tax guide Customs duties

Customs duties imposed on most goods Determining the customs value imported into Tajikistan and certain goods The customs value is defined as the invoice exported from Tajikistan. Customs duties are value, increased by the following items: normally levied on the customs value of taxable goods in accordance with the Commodity • Actual costs of transportation, loading, Nomenclature of Foreign-Economic Activities unloading and insurance activities performed as well as import customs duties are levied up until goods cross the Tajik border; according to the classification code and the • commissions and/or brokers’ fees paid. country of origin of the goods imported. Customs preferences Import duty rates are normally expressed as a Tajikistan is a member of the Customs Union percentage of the value of goods imported, since February 1999. Tajikistan also concluded known as "ad valorem" duties. However, bilateral agreements about free trade with they may also be expressed as a set monetary Armenia, Belarus, Kyrgyzstan, Kazakhstan, amount per unit or kilogram of the declared Russia and Uzbekistan. The exempted duty goods — “specific“ duties. Finally, they may rates apply to goods manufactured in countries be expressed as greater or the sum of two — which signed free trade agreements with the “combined“ duties. RT. “Zero” import duty rates may also apply to goods manufactured in developing countries. The applicable rates established by the government range from 0% to 15%. World Trade Organization (WTO) The negotiations on Tajikistan’s accession to Basic import custom duty rates are not the World Trade Organization (WTO) had been constant and may vary depending on the completed and in 2013 the RT became a full country of origin of the goods, type of goods member of the WTO. and occasionally on other factors, for example goods imported from countries-members Thereafter, Tajikistan must follow WTO rules as of Eurasian Economic Community and from well as the terms and conditions of accession less developed countries are exempted from as agreed during negotiations. custom duty. Export customs duties Value added tax At the present time no custom duties levied under export of goods. However custom VAT of 18% is levied on import of goods based legislation contains provisions on export on the total customs value of goods, including custom duties, which should be applied by customs duty, to be paid upon their import into the Government of the RT in order to regulate Tajikistan. foreign economic activity of the country. Customs fees Export customs duty’s rates are established by the Government of the RT. A customs fees are also levied upon import of Exemptions goods into Tajikistan. Goods such as national currency of the RT, Custom legislation establishes the following securities, gold, silver, platinum and other types of customs fees: precious metals imported by the National • Custom clearance fee of USD 10 — USD Bank of the RT and the Ministry of Finance of 900 depending on the custom value of the RT, as well as humanitarian aid and goods imported goods; transferred to state bodies free of charge, medicaments, agricultural equipment, goods • Fee for customs support services — USD 3 intended for building of important objects per 10 kilometer; according to a government approved list should be exempted from import customs duties. • Fee for storage of goods at customs warehouse — USD 1 applies to one item of These exemptions apply to imported vehicle per day and USD 0.01 applies to 50 technological equipment which is classified as kilogram of other types of goods per day. fixed production assets. 26 Investment and tax guide Special customs regimes The Customs Code envisages different customs regimes. The main customs regimes are “Inward processing”, “Re-export”, “Temporary importation” and “Bonded warehouse” which stipulate full or partial exemption from import customs duties and VAT. For example, full relief may be granted in respect of the goods that are imported into Tajikistan for processing that are then subsequently exported. Foreign goods may be imported under a temporary import regime. This regime provides for either full or partial exemption from import duties and VAT for 2 years. Once the specified time period expires, the goods must either be exported from the RT or transferred to customs regime “Release for free circulation” with payment of appropriate customs duties and VAT on import.

27 Investment and tax guide Tax administration

Overview Desk (raid) tax audit The key principles of the Tajik tax system, Generally, a raid tax audit may be conducted as including types of taxes, the rights and to certain taxpayers in respect of the following obligations of the tax authorities and taxpayers tax matters: and procedural aspects of tax administration, are set out in the Tax Code of the RT. • tax registration of taxpayers, existence and credibility of information re location of the The Tajik tax system is administered by the taxpayer; Tax Committee of the Government of the RT. • correctness of application of cash registers; This broadly consists of inspectorates, who • observance of rules related to bottling, carry out day to day operations such as tax labelling of excise stamps, realization of registration, tax audits and tax collections, excisable goods. and tax directorates, which supervise the tax inspectorates and perform various other Periodicity of tax audits functions. The authorities of these bodies are The comprehensive and targeted tax audits based on geographical areas (e.g. city or region). may be carried out no more than once a year. Tax audits The taxpayers with gross revenue for a previous The tax audit is the main method of controls year exceeding TJS 15 million (approximately applied by the tax authorities in respect to USD 3 million) shall be audited not more than taxpayers. once per two years. According to the Tax Code, the tax authorities Under the Tax Code an initial full scope and are entitled to carry out field tax audit and targeted tax audits of a small-scale entity shall desk tax audit of taxpayers (individual and be carried out after 24 calendar months from corporate). the date of its state registration. Field tax audit Duration of tax audits A field tax audit (sometimes referred to as The duration of a field tax audits should not documentary audit) is carried out at the office exceed 30 working days, although it can be or business premises of a taxpayer at the extended for 30 working days in “exceptional initiative of the Head of an auditing tax body. cases”. An audit period starts running from the day the decision regarding the field tax audit is A field tax audit includes the following types of audit: issued and handed over to a taxpayer. • comprehensive tax audit (covering all taxes), The tax audit of a small scale entity should be carried out during 10 working days. The • targeted tax audit (covering just specific type of taxes); and duration of the desk tax audit shall not exceed 15 working days. • counter tax audit (covering only transactions with a particular counterparty).

28 Investment and tax guide Tax audit report • Conducting of business activities without No later than 15 working days after completion VAT registration (if it is obligatory for this of the tax audit, the tax authorities must issue taxpayer) is subject a penalty of 25% of the a tax audit report. The report must contain the VAT amount due; audit findings, specifying what provisions of the • Late filing of a tax eturnr is subject to Tax Code have been violated or the absence of a penalty 1-100 CI or TJS 40-4,000 a violation. (approximately USD 8-850) depending on the If a taxpayer disagrees with the facts, conclusion delay period; or suggestion set out in the tax audit report, he may file a written objection together with • Obstruction of a tax audit is subject to supporting documents within the 30 calendar penalty of 15-50 CI or TJS 600-2,000 days after issuance of a tax audit act. (approximately USD 130-425); Penalties and interests • Failure by a tax agent to withhold or remit tax may result in a penalty equal to 25-200 CI The Tax Code and Administrative Code set out sanctions which may be imposed on taxpayers or TJS 1,000 -8,000 ( approximately for tax violations. USD 210-1,700); The legislation of the RT establishes the • Full or partial non-payment as a result following penalty rates for the most common of decreasing of a tax base or incorrect tax violations: calculation is subject to penalty of 25% of the understated tax amount. If the default • Late payment of taxes is subject to interest at 0.08% for each day of non-payment of a tax; repeated within one year, the penalty is 40% of the understated tax amount; • In case of violation of tax registration requirements the penalty could be imposed • The failure to file VAT invoices with in the amount that vary from 10 CI to 300 understatement of VAT or overstatement of CI or TJS 400 — 12,000 (approximately USD VAT offset is subject to a penalty of 25% of 85-2,550); the understated or overstated VAT amount.

29 Investment and tax guide Taxation of subsoil users

Overview Royalties apply to subsoil users involved in mining operations including extraction and In accordance with the provision of the Tax processing of natural resources. Code the special taxes are levied on subsoil users, who concluded subsoil contract with the Royalty rates depend on the type of minerals competent authority of the Government of the and production/sales volumes. RT. The rates of royalty for some minerals are The subsurface users are subject to the taxes shown below. described below. Types of minerals Rate (%) • Subscription bonus; Petroleum, natural gas, gas 6 • Commercial discovery bonus; condensate • Extraction royalty; Coal, peat 4 Ferrous materials (iron, manganese, 4 • Water royalty. chrome, vanadium) Subscription bonus Nonferrous materials (copper, lead, 6 zinc, tin at alias) It is one — time fixed payment for the right to use subsurface within the territory set out in a Precious metals (gold, silver, platinoid) 6 license. Diamonds and precious stones 8 Taxpayers holding a license for exploration and Semiprecious stones 8 production are subject to subscription bonus. Radioactive raw materials 5 The rate of the bonus is set by the Government Mining and nonmetallic raw materials 5 of the RT and fixed in the relevant subsoil use Sand used in whiteware and cement 7 contract. industries Loam for cement industry 5 The 50% of the bonus amount should be paid out within 30 calendar days from the date of Loam 6 issuance the document confirming the right to Chalk 5 use the subsoil and the remainder 50% of the bonus should be paid out within 30 calendar The royalty is assessed monthly, with payment days from the effective date of the subsoil use due within 15 days following the reporting contract. month. Tax returns should be submitted until Commercial discovery bonus 15th of the month following the reporting month. Commercial discovery bonus applies to a taxpayer who declares a discovery of a mineral Production sharing regime deposit on the contractual territory under a In accordance with the Law On Production prospect and exploration license. Sharing Agreements (PSA) the Tajik The bonus rate is also set by the Government Government may grant an investor with of the RT and should be paid out within 90 the exclusive right to prospect, develop and calendar days from the date issue of the produce mineral resources from a subsurface production license or after a confirmation from for a certain period of time. the state body regarding the reserves. Total Production output under the PSA is Extraction royalty subject to allocation between an Investor and the Government in accordance with the terms Royalty is a regular payment of subsoil users for of the PSA, provisions of the Law of the RT “On production of mineral resources. PSAs” and the Tax Code.

30 Investment and tax guide The PSA tax legislation provides for two modes The investor also is exempt from VAT in respect of production sharing: of goods imported on the territory of the RT and minerals produced under the PSA. 1) Production shares of an investors and the Government is calculated based on operating The Tajikistan’s practice of PSAs is not wide and currently a few PSA is in effect in Tajikistan. cost of the Investor incurred under the PSA. First PSA was concluded with Tethys Petroleum All operating costs incurred in carrying out the Limited in 2008 to develop oil and gas obligations under the PSA shall be recoverable condensate field located in Kulob. in the form of a “Compensation output”, which should not exceed 70% of total In 2012 the Government of the RT signed PSA production output for each reporting period; with Somon Oil (subsidiary of “Santos” and “DWM Petolium”) to develop oil deposits located 2) The order of allocation of production output in Sogda region. between parties of the PSA depends on geological evaluation and estimation of Recently the PSA with Tethys Petroleum Limited, costs for development of a mineral deposit, Total and China National Petroleum Corporation engineering design, and a project’s feasibility was concluded, in accordance to which the Government of the RT granted the right to study. develop Bokhtar oil deposit for newly created The CIT is never payable under PSAs. company — “Bokhtar Operating Company”.

31 Investment and tax guide Special tax regimes

The Tajik legislation provides for the following types of special tax regimes: • Hydro-energy sector Companies engaged in the construction of the hydroelectric stations are entitled to apply special tax regime, which provides some exemptions from taxes. • Cotton industry In accordance with tax legislation the special tax regime could be applied by the start-up companies engaged in complete cycle of the processing of cotton-fibre to final product. • Free Economic Zone (FEZ) Taxpayers registered within FEZ are entitled to apply tax privileges under the this tax regime.

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Dushanbe Bishkek Turusbekova St. 109/1 Business Center S.A.S., office 307, 24a, Ayni Street, Bishkek, 720001, Kyrgyz Republic Dushanbe, 734012, Republic of Tajikistan Tel.: +996 (312) 39 40 80 Tel.: +(992) 44 600 62 00 Fax: +996 (312) 39 40 81 Fax: +(992) 44 600 62 01 Republic of Uzbekistan Iskakbayeva Gaukhar Tashkent Tax Director Business Centre «INKONEL» 75 Mustakillik Ave. Email.: [email protected] Tashkent, 700000, Republic of Uzbekistan Tel.: +998 (71) 120 44 45/46 Republic of Kazakhstan Fax: +998 (71) 120 44 47 Almaty Republic of Turkmenistan 36 Al-Farabi Ave, Ashgabat Almaty Financial District, Building B, Yimpash Business center, Almaty, 050059, Kazakhstan Turkmenbashy Shayoly, 54, Office # 408 Tel.: +7 (727) 258 13 40 Ashgabat, 744017, Republic of Turkmenistan Tel.: +(993 12) 45 81 59 Fax: +7 (727) 258 13 41 Fax: +(993 12) 45 81 59 Vladimir Kononenko Osmanova Dilya Head of Tax & Legal Department Tax Partner Email: [email protected] Email: [email protected]

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