Foreign companies can conclude contracts in cooperation with citizens of Turkmenistan:
- civil law;
- with an individual entrepreneur – an individual; and
- legal entities.
In this article, we will try to provide the most in-depth analysis of the identified problem and answer the question: if your partner or contractor is from Turkmenistan, what is the best way for him to be formalized, what contract to conclude with him, what form of organization of his economic activity should he choose?
Civil law agreement with an individual resident of Turkmenistan
The contract is concluded in a free form, indicating the type of services provided, the amount of remuneration, the term of the contract and the terms of payment for services under the contract. The contract must be drawn up in two languages: Russian and Turkmen.
To receive remuneration, a resident must have a valid foreign currency account in the banks of Turkmenistan. To date, such accounts are opened at the Bank of Turkmenistan for Foreign Economic Affairs or the Turkmen-Turkish Bank. However, the bank may refuse to open a foreign currency account at its discretion. To withdraw money, a resident must provide the bank with a copy of the agreement and the original passport. Money can be withdrawn only for the first time from the account, for further withdrawal of money, they will be asked to open a bank card and make a deposit of 130 US dollars (EUR 114), which will be credited to the card. The card is valid, and can be freely used locally and abroad.
The income tax is paid once a year, or twice a year (once every six months) to the tax authority at the place of registration. The tax is 10% of the amount of income of individuals (personal income tax) and is paid in national currency at the CBT rate. A fee of 5 manat (EUR 1.25) for betterment levies is also paid to the budget. More information about the taxation of individuals can be found in Chapter 6 of the Tax Code of Turkmenistan.
Agreement of a civil law nature with an individual entrepreneur – an individual
Registration of an Individual Entrepreneur
To register as an Individual Entrepreneur (hereinafter: “IE”), an individual must:
- pass a 4-day paid training at the School of Entrepreneurship of the Union of Industrialists and Entrepreneurs of Turkmenistan – 160 manats (EUR 41);
- register with the Pension Fund at the place of registration;
- register with the Tax Office at the place of registration and receive a tax certificate with an assigned tax number and a Patent for entrepreneurial activities as an individual entrepreneur;
- Open an account/accounts with the Bank (at the sole discretion of the individual entrepreneur);
- if it is planned to engage in a licensed type of activity – obtaining a license from the relevant regulatory body.
Taxation in a simplified manner is valid for individual entrepreneurs, for the types of activities established by the Cabinet of Ministers of Turkmenistan (Article 200 of the Tax Code).
The following tax rates apply:
- 2% of total turnover income;
- 0.3% for betterment levies;
- employee income tax – 10% – from the salary of employees (charged by the employer);
- landscaping – 5 manat (EUR 1.25) – from the salary of employees (charged by the employer);
- 20% of the accrued wages – social insurance (paid by the employer);
- 575 manat (EUR 144) (floating rate) pension contribution for self-employed entrepreneurs.
Currency and fiscal regulation
De jure, currency regulation is based on the Law of Turkmenistan On currency regulation and currency control in foreign economic relations. When concluding a contract for payment of an amount up to 10,000 US dollars (EUR 8752) for goods/services for personal needs, an individual entrepreneur can transfer money without registering a contract at the State Commodity and Raw Materials Exchange of Turkmenistan (hereinafter: “GTSBT”) only to the account of a foreign legal entity with the provision of the appropriate package of documents.
For the sale and purchase of goods for commercial purposes under international transactions, contracts are subject to mandatory registration by the GTSBT. The amount per unit of goods/services should not exceed the amount of similar goods previously registered on the exchange. If a product/service is carried out through the GTSBT for the first time, then the amount should not exceed the market price for a similar product in online stores and/or the amount on the website of the manufacturer/distributor.
Civil law contract with legal entities
Legal entities are usually registered in the form of individual enterprises (1 founder) or economic companies (from 2 to 50 founders, both individuals and legal entities). The authorized share capital of individual entrepreneurs is 2,500 manats (EUR 627), while for business entities it is 5,000 manats (EUR 1,253). Registration procedure on average takes 1.5-2 months. Legal entities with foreign investments (respectively founders) are not registered. Business entities must provide monthly reports, balance sheets twice a year, and mandatory audit reports at the end of the year. It is obligatory to have a legal address before registration (including a lease agreement). A bank account is opened on the last step (after registration with the tax authorities, the pension fund and the city statistics office). While it is impossible to carry out registration, re-registration, liquidation of the legal entity without the physical presence of all founders, even on the basis of a notarized power of attorney. Another notable fact is that there is no market for selling a share/part of a business. Legally, the founder enters or either withdraws on the basis of an application for entry or exit, confirmed by a notary.
The following tax rates apply:
- 2% of turnover;
- 3% farming fees from profits;
- 1% fees on profits;
- 0.5 betterment levies from profits;
- 20% social insurance for each employee from accrual;
A similar fiscal and currency regulation is applied for individual entrepreneurs, except that even for their own needs, currency transactions must be registered by the GTSBT. It should be noted that there are other organizational and legal forms for creating a business, such as Open joint-stock company (OJSC), closed joint stock company (CJSC), Joint venture (JV), public–private partnership (PPP) etc. But these forms of legal entities are established less often, and used mainly for large scale projects with the participation of the government, because there is no securities market and active stock exchanges. Registration and activity of enterprises is regulated by the Law of Turkmenistan on Enterprises. In addition, there are no registered free economic zones in the country.
Thus, in practice, the conclusion of civil law contracts with freelance specialists for one-time services does not contradict the current legislation. While there is a hope that in the near future there will be significant updates on legal and fiscal regulations that will benefit the freelance community.
The content of this article is intended to provide general guidance on the subject and not legal advice.