DOING BUSINESS GUIDE IN KYRGYZSTAN 2010 2011,PARTNER LETTER 5. 1 COUNTRY PROFILE AND INVESTMENT CLIMATE 6,1 1 Introduction 6. Geography Climate 6,1 2 Government structure 7,Government structure 7. The President 7,The Jogorku Kenesh 7,The Government 8. Courts and Justice 8,1 3 Legal system 8,Legislative Framework 8. 1 4 People 8,Population 8,Age structure 8,Language 8. Religion 8,Education 8,Living standards 8,1 5 Economy 9. General description 9,Transportation 9,Telecommunications 9. Foreign Trade 9,2 BUSINESS ENVIRONMENT 10,2 1 Business Climate 10. Economic Development Plan 10,2 2 Free Trade Zones 10. 2 3 International Agreements 10,2 4 Regulations for business 10. Competition law 10,Consumer protection 10,Patents Trademarks and Copyrights 10. 3 FOREIGN INVESTMENTS 11,Investment Climate 11,Regulatory Legislation 11. Investment Incentives 11,Currency Control 11,Guarantees 11. 4 BANKING FINANCE AND INSURANCE 12,4 1 Banking System 12. 4 2 Special Financial Institutions and Capital Markets 12. 5 IMPORTING AND EXPORTING 13,5 1 Legislation 13,DOING BUSINESS GUIDE IN KYRGYZSTAN 2010 2011. 5 2 Import restrictions 13,5 3 Temporary import relief 13. 5 3 Customs duties incentives 13,5 6 Documentation and Procedures 14. 5 7 Warehousing and storage 14,5 8 Re exports 14,6 BUSINESS ENTITIES 15. 6 1 Legal Framework 15,6 2 Choice of entity 15,6 3 Forms of business entities 15. 6 4 Joint Stock Company 15,6 5 Partnerships and limited companies 15. 7 LABOR RELATIONS AND SOCIAL SECURITY 16,7 1 Labor market 16. 7 2 Labor relations 16,7 3 Working conditions 16,7 4 Social security system 16. 7 5 Foreign personnel 16,8 ACCOUNTING AND AUDIT REQUIREMENTS 17. 8 1 Accounting 17,8 2 Chart of accounts 17,8 3 Audit requirements 17. 9 TAX SYSTEM AND ADMINISTRATION 18,9 1 Tax System 18. 9 2 Direct and indirect tax burden 18,9 3 Principal taxes 18. 9 4 Income tax 18,Concepts of income tax 18,Classes of taxpayer 18. Taxable income 18,9 5 Tax Treaties 19,9 6 Tax Returns and Payments 19. 9 7 Withholding taxes 20,9 8 Tax Audits 20,9 9 Penalties 21. 9 10 Advance tax clarifications 21,10 TAXATION OF CORPORATIONS 22. 10 1 Corporate Tax System 22,10 2 Incentives 22,Special Economic Zones 23. 10 3 Taxable Income 23,10 4 Deductibility of expenses 24. 10 5 Related Party Transactions 25,10 6 Foreign Exchange 25. 10 7 Tax Computations 25,DOING BUSINESS GUIDE IN KYRGYZSTAN 2010 2011. 10 8 Other Taxes 26,Excise Tax 26,Sales tax 26,Property tax 26. 10 9 Branch versus Subsidiary 26,10 10 Holding Companies 27. 10 11 Subsurface Use Taxes 27,11 TAXATION OF INDIVIDUALS 28. 11 1 Territoriality and residence 28,11 2 Taxable income 28. 11 3 Non taxable income 28,11 4 Deductions 28,11 5 Taxation of non residents 29. 11 6 Tax Compliance 29,12 VALUE ADDED TAX VAT 30,12 1 Introduction 30. 12 2 Scope of VAT 30,Place of supply of goods 30,Imports of goods 30. 12 3 Zero rate VAT 30,12 4 Exempt supplies 30,12 5 Taxable amount 31. VATable supplies 31,VAT offset 31, VAT liability calculation and VAT offset carry forward 31. 12 6 Non deductible input VAT 31,12 7 VAT incentives 31. 12 8 Simplification measures 31,12 9 VAT compliance 31. Reverse charge VAT 31,PRICEWATERHOUSECOOPERS IN KYRGYZSTAN 32. APPENDIX A GENERAL TAX RATES 33,DOING BUSINESS GUIDE IN KYRGYZSTAN 2010 2011. PARTNER LETTER,1 January 2010, PricewaterhouseCoopers was created in 1998 through the merger of two firms Price Waterhouse and Coopers. Lybrand each with its historical roots going back some 150 years. PricewaterhouseCoopers www pwc com provides industry focused assurance tax and advisory services for public. and private clients More than 144 000 people in 149 countries connect their thinking experience and solutions to build. public trust and enhance value for clients and their stakeholders. In Central Asia we operate as a global organization capitalizing on our breadth and depth of knowledge fully shared. With the aid of modern technology we are able to draw upon the combined world wide knowledge and experience from. our offices all over the globe for the benefit of our clients. It is essential that we have the right resources committed to you so we deliver a consistent coordinated high quality. service on even the most complex international engagement We do this through PricewaterhouseCoopers integrated. worldwide network of country firms which are collectively managed to global quality standards by our leadership. But it is the way we leverage our network of firms skills and minds that really makes the difference to your business. We bring you the best thinking and the most relevant experience by working together across industries service lines. and national boundaries, The collective geographic and functional knowledge of our global network benefits not only our largest multinational. clients but also benefits many middle market and smaller companies who can take advantage of our deep industry. knowledge and international experience, The information contained in this publication is for general guidance only You should neither act nor refrain from. acting on the basis of such information The application of laws and regulations will vary depending on particular. circumstances and may also undergo frequent change You should take appropriate professional advice relating to your. particular circumstances and the current status of the laws and regulations PricewaterhouseCoopers disclaim all. responsibility including in negligence for all consequences of any person acting on or refraining from acting in reliance. on information contained in this publication,DOING BUSINESS GUIDE IN KYRGYZSTAN 2010 2011. 1 COUNTRY PROFILE AND INVESTMENT CLIMATE,1 1 Introduction. Geography Climate, Located in the heart of Central Asia Kyrgyzstan is a land locked country with an area of approximately 200 000 sq. km the world s 85th bordered by Kazakhstan Uzbekistan Tajikistan and China The country lies at the juncture of. two great mountain systems the Tien Shan and Pamirs thus only one eighth of the country is below 1 500 meters. 4 920 feet Hence the country s nickname is The Switzerland of Central Asia The scenic mountains Lake Issy. Kul the world s second largest mountain lake after Lake Titicaca and the presence of many rare animal species. such as the snow leopard Tien Shan bear Marco Polo sheep and red wolf all contribute to the country s natural. beauty and tourism potential,Total Area 199 900 sq km. Estimated Population 5 5 million 1 June 2011,Capital Bishkek 864 800 1 June 2011. Other Principal Cities,Osh 255 000 1 June 2011,Kyrgyz State Language. Russian Official Language,Kazakhstan China Tajikistan. Neighbouring states,Uzbekistan,Currency Kyrgyz Som KYRS. KYRS 44 59 USD 1,Exchange rate,31 July 2011, Recent archeological findings in modern Kyrgyzstan are said to date back to the second century B C The first Kyrgyz. state the Kyrgyz Khanate existed for many centuries and spread throughout the region including the current. Siberia and Mongolia The Kyrgyz people spread over this vast region began migrating south in the 13th century. and by the 16th century had settled into the territory currently known as Kyrgyzstan. In 1876 Kyrgyzstan was formally incorporated into the Russian Empire In 1924 following a brief period of. independence after the 1917 Bolshevik Revolution the country was designated the Kara Kyrgyz Autonomous. Region and a constituent part of the Union of Soviet Socialist Republics USSR In 1936 the Kyrgyz Soviet Socialist. Republic was established as a republic of the USSR. DOING BUSINESS GUIDE IN KYRGYZSTAN 2010 2011, The startling events of August 1991 in Moscow naturally triggered great changes in the republics of the USSR In. Kyrgyzstan the republic s Supreme Soviet declared the nation independent of the Soviet Union on 31 August 1991. and at the same time scheduled direct presidential elections for October 1991 The president who was suddenly. brought to power in 1990 Askar Akayev became the first elected president of Kyrgyzstan with 95 of the popular. vote By 24 March 2005 President Akayev was removed from the office and replaced by President Bakiyev in what. has been termed the Tulip Revolution, Kurmanbek Bakiyev was overthrown by the wave of opposition protest in April 2010 five years after himself. coming to power on the back of popular revolt A leading member of the opposition Roza Otunbayeva was chosen to. be leader of interim government formed after Kurmanbek Bakiyev was ousted National referendum on new. constitution was held on 27 June 2010 parliament election was held in October 2010 and president election will be. held in October 2011,1 2 Government structure,Government structure. The state power is represented and carried out by, the President the head of state and the highest official of the Kyrgyz Republic. the Jogorku Kenesh the Parliament of the Kyrgyz Republic the representative body which has legislative. the Government of the Kyrgyz Republic and subordinate bodies of executive power. the Constitutional Court of the Kyrgyz Republic the Supreme Court of the Kyrgyz Republic local courts and. judges of the Kyrgyz Republic,The President, According to the Constitution the President is elected for six year terms The President assigns the elections for. Jogorku Kenesh and local keneshs The President proposes candidates for judges of Supreme Court appoints and. relieves General Prosecutor from the post by the approval of Jogorku Kenesh appoints and relieves from the post. members of the Government in charge of defense and national security. The President also signs the laws may return laws to the Jogorku Kenesh with his objections for reconsideration. Additionally the President directs the foreign policy conducts negotiations and signs international treaties. The Jogorku Kenesh, The Jogorku Kenesh consists of 120 deputies which are elected for five year terms. The Jogorku Kenesh is responsible for approving the structure and members of the Government adopting laws. approving the national budget giving official interpretation of laws and ratifying and abrogating international. treaties Jogorku Kenesh assigns the election of the President. DOING BUSINESS GUIDE IN KYRGYZSTAN 2010 2011,The Government. The Government is responsible for directing and coordinating work of the ministries and other executive. authorities The Government reports and is accountable to the President and the Jogorku Kenesh Prime Minister is. nominated by the deputies of Jogorku Kenesh within 15 days from the first session of the Jogorku Kenesh Candidate. for the Prime Minister introduces plan structure and composition of the Government. Courts and Justice, Judicial power in Kyrgyzstan is exercised by means of the constitutional civil criminal administrative and other. forms of legal proceeding Juridical system consists of the Constitutional Court the Supreme Court and local courts. 1 3 Legal system,Legislative Framework, The Constitution shall have supreme legal force and direct application in the Kyrgyz Republic Laws and other. normative acts are adopted on the basis of the Constitution. 1 4 People,Population, Kyrgyzstan population is 554 million people The Kyrgyz people who comprise 71 of the country s population are. traditionally Sunni Muslim and speak Kyrgyz Today more than 90 ethnic groups reside in the country. Age structure,The age structure is as follows,0 19 years 41 1. 20 69 years 55 5,70 years and over 3 14, In September 1991 Kyrgyz was announced as the state language although in December 1991 the Russian language. was given official status Russian remains the de facto language of business and government in the country. There are two main religions in Kyrgyzstan Islam 75 and Orthodoxy 20. Basic education 1 9 grades is mandatory and free of charge Every citizen has the right to a free general secondary. education in state and municipal educational institutions. Paid education of citizens in state and other educational institutions is allowed. Living standards, Despite some growth of investments and general improvement of basic living standards most of the population is. still considered poor with an average salary of approximately USD 175 42 month. DOING BUSINESS GUIDE IN KYRGYZSTAN 2010 2011,1 5 Economy. General description, According to the Kyrgyz National Statistic Committee Kyrgyzstan s GDP for the first two quarters in 2011 is KGS. 103 492 mln approximately USD 2 321mln which is 5 5 greater than the GDP for the same period of 2010 This. growth is mainly connected with the increase in gold production and construction activities. However Kyrgyzstan is witnessing an increase in inflation which was at 7 2 compared to the December of the. previous year, Agriculture constitutes around one third of the GDP and more than one third of employment The mountainous. terrain accommodates raising livestock the largest agricultural activity The primary crops include cotton wheat. vegetables fruit and berries, While petroleum and gas reserves are negligible Kyrgyzstan is rich in mineral resources such as gold and other. precious metals The country also produces large quantities of hydropower generated from its water resources and. mountainous terrain,Transportation, There are no private roads in the Kyrgyz Republic The total length of roads is 34 000 kms According to the World. Bank 91 of roads in the country are paved, The Kyrgyz Republic is connected by road to Europe via Kazakhstan Uzbekistan and Russia The country also has. roads connecting it with China, The total length of the railroad system in the Kyrgyz Republic is 424 6 kms consisting of two unconnected lines a. Southern line 323 4 km and a Northern line 101 2 km which are both branches of the Trans Asian corridor. The Kyrgyz Republic has two airports meeting international standards Manas International Airport in Bishkek and. Osh International Airport Regular international flights to the following countries are offered from Manas. International Airport UK Germany China Turkey India Pakistan Korea UAE and Russia There are also nine local. airports that handle internal flights,Telecommunications. Telecommunications infrastructure is a fast growing area of the economy Currently there are 4 mobile service. Foreign Trade, In 2011 foreign trade was experiencing a growth exports increased by 18 2 and imports by 24 9 for the first. two quarters of 2011 in comparison with the same period of 2010 Main consumers are the UAE the US Russia. Switzerland Kazakhstan and Uzbekistan Principal exports are comprised of mineral resources and precious metals. DOING BUSINESS GUIDE IN KYRGYZSTAN 2010 2011,2 BUSINESS ENVIRONMENT. 2 1 Business Climate, The main business concern is whether the Government is capable of implementing its ambitious economic reforms. and eliminating corruption,Economic Development Plan. In 2009 the Kyrgyz Government published an updated Comprehensive Development Framework CDF for 2009. 2011 The governments targets under the CDF are rather ambitious including a thirty six percent increase of GDP. and reduction in poverty by 2011 The CDF contains the goals for strengthening the economic stability of the. country including modernization of the telecommunications and transport infrastructures implementation of. sound fiscal taxation and monetary policies etc,2 2 Free Trade Zones. There are several free trade zones Generally goods entering and goods traded within these zones are exempted. from duty If these goods are sold within Kyrgyzstan duties should be paid in full. 2 3 International Agreements, Kyrgyzstan is a party to various international agreements organizations more than 70 including the UN WTO. EBRD and OSCE Kyrgyzstan is also active in bilateral treaties with neighboring countries e g Kazakhstan. 2 4 Regulations for business,Competition law, The main law covering unfair competition and monopoly issues is the Law on Competition of 22 July 2011 effective. from 26 October 2011 The Law is aimed at supporting entrepreneurship through prevention restriction. suppression and regulation of monopoly activities,Consumer protection. The Law for the Protection of Consumer Rights of 10 December 1997 regulates the relationship between a. consumer and a seller provider of work and services A consumer has a number of rights including the right to. freely purchase commodities to consume works and services and to enjoy the high quality and safety of goods and. Patents Trademarks and Copyrights, The Law on Property Rights Trademarks provides for the protection of intellectual property The Government is. continuously taking steps to fight counterfeit goods that are imported to Kyrgyzstan. DOING BUSINESS GUIDE IN KYRGYZSTAN 2010 2011,3 FOREIGN INVESTMENTS. Investment Climate, The first President of the Kyrgyz Republic Askar Akayev made the attraction of foreign investments a priority and. supported the foundation of an administrative structure aimed specifically at improvement of the investment. climate Thus the Secretariat for Attraction of Foreign Investment the Secretariat was founded to identify and. remove barriers to foreign investment, At this point it appears that the current government continues the policy towards attracting foreign investment. Thus numerous companies from the financial telecom and mining sectors are continuing to express interest in the. commercial opportunities in Kyrgyzstan albeit on a relatively low scale. Regulatory Legislation, The Law of the Kyrgyz Republic on Investments which came into force on 27 March 2003 regulates the core. principles of the state investment policy The stated objective of the investment policy is developing a favorable. investment climate and attracting and stimulating domestic and foreign investments by providing a fair legal regime. to investors and guarantees for protection of investments in the economy of the Kyrgyz Republic. Investment Incentives, The Law on Investments potentially provides investment incentives for investors in priority sectors of the economy. and social sphere as well as in certain regions of Kyrgyzstan Benefits under investment contracts can theoretically. be obtained by concluding an agreement with the authorized government body In practice Kyrgyzstan has awarded. very few investment incentive agreements,Currency Control. The Kyrgyz currency control legislation is very liberal In particular neither import export of foreign currency nor. current payments current receipts and transfers of capital in and from Kyrgyzstan are restricted. Guarantees, The Law on Investments guarantees the ability of investors to freely repatriate investments property information. and profits in foreign currency in the form of dividends interest and other income including income resulting. from the termination or alienation of an investment. Other guarantees provided by the Law on Investments include a guarantee of protection against expropriation and. nationalization freedom of monetary operations and free access to open information. DOING BUSINESS GUIDE IN KYRGYZSTAN 2010 2011,4 BANKING FINANCE AND INSURANCE. 4 1 Banking System, Having about 22 commercial banks the Kyrgyz banking system is considered under developed with a potential for. significant growth, The European Bank for Reconstruction and Development the Asian Development Bank and the World Bank IFC are. active in project financing, Although the Kyrgyzstan banking sector s reliance on foreign debt is significantly lower than in neighbor countries. e g Kazakhstan the global liquidity crisis has negatively impacted Kyrgyzstan s economic growth rate. 4 2 Special Financial Institutions and Capital Markets. Non bank financial institutions continue to be an integral part of the financial sector The government develops a. legal basis for these institutions Thus in 2002 a new Law on Microfinance Organizations was adopted Generally. the capital market is not developed yet,DOING BUSINESS GUIDE IN KYRGYZSTAN 2010 2011. 5 IMPORTING AND EXPORTING,5 1 Legislation, The Customs Code entered into force from 1 January 2005 According to the Customs Code the customs value of. goods imported to the customs territory of the Kyrgyz Republic is determined by way of applying the following. Transaction value of imported goods,Transaction value of identical goods. Transaction value of similar goods,Deductive method. Computed method,Provisional method,5 2 Import restrictions. Generally all entities persons have equal rights to import into Kyrgyzstan and export from the Kyrgyzstan territory. of goods and means of transport as well as when carrying out foreign trade activity except for special cases. stipulated by the legislation and international treaties. Import of certain goods is subject to licensing e g weapons nuclear materials etc. 5 3 Temporary import relief, There is a temporary import regime under which foreign goods are used in the Kyrgyz customs territory with full or. partial conditional exemption from the payment of customs duties and taxes and without application of non tariff. regulatory measures The term of the temporary import customs regime may not exceed two years. 5 3 Customs duties incentives, Certain items are exempt from customs payments including transportation vehicles used in the international. conveyance of passengers and goods and items of material and technical supply in transit goods imported in the. customs territory or imported from the customs territory for official and personal use by official state. representatives of foreign states, Kyrgyzstan also provides preferential rates or exemptions on goods including goods originating from the states. which form free trade zone or customs union with Kyrgyzstan and goods originating from developing countries. included into special list of the government,DOING BUSINESS GUIDE IN KYRGYZSTAN 2010 2011. 5 6 Documentation and Procedures, Kyrgyzstan pays much attention to formalities documentation and thus it is necessary to furnish the customs. authorities with a set of required documents Normally for import such documents include cargo customs. declaration invoices contracts etc,5 7 Warehousing and storage. There is a bonded warehouse customs regime in Kyrgyzstan a customs regime under which into the customs. territory of the Republic of Kyrgyzstan goods are stored in special facilities or special areas that have the status of. the customs warehouse under the customs legislation of the Kyrgyzstan. Generally most goods unless otherwise specifically provided for can be placed under the bonded warehouse. customs regime The period for storage of goods at a bonded warehouse is determined by the person placing the. goods into the customs warehouse but cannot exceed three years from the date when the goods were placed under. the bonded warehouse customs regime,5 8 Re exports. The concept of the re export regime is similar to the one used in international practice and is defined as a customs. regime under which goods earlier imported into the customs territory of Kyrgyzstan are exported from this. territory without payment or with refund of the paid amounts of import customs duties and taxes and without. application of non tariff regulatory measures with respect to the goods in compliance with Kyrgyz legislation on the. state regulation of foreign trade activity, There are certain conditions under which goods can be re exported Customs duties and taxes are not charged on. goods declared as the goods intended for re export However if the goods do not meet the re export criteria. customs duties and taxes are paid in the amount which would be payable if the goods at their importation were. declared for release for free circulation as well as interest on them paid at the National Bank rates as if deferment. was provided with respect to the amounts at placement of the goods under the customs regime of re export. DOING BUSINESS GUIDE IN KYRGYZSTAN 2010 2011,6 BUSINESS ENTITIES. 6 1 Legal Framework, There is a comprehensive legislative framework governing all aspects of business entities including the Civil Code of. 8 May 1996 the Law on Investments of 27 March 2003 the Law on Joint Stock Companies the Law on Business. Partnerships and Companies and other laws and normative acts of the Kyrgyz Republic. 6 2 Choice of entity, Foreign investors making investments in the Kyrgyz Republic enjoy guarantees under the national regime for. economic activity applicable to Kyrgyz legal entities and individuals Foreign investors may structure their business. in Kyrgyzstan through a branch representative office joint stock company and partnership. 6 3 Forms of business entities, Under Kyrgyz company law commercial organizations can be established in one of the following forms. general partnerships,limited partnerships,limited liability companies. additional liability companies,open joint stock companies and. closed joint stock companies,6 4 Joint Stock Company. Joint stock companies are established based on the Law of Joint stock companies of 27 March 2003 The general. definition of a joint stock company is an entity engaged in activity with purpose to earn profit and involving funds. generated through the issuance and placement of shares The concept of joint stock companies is relatively similar. to the one used in international practice whereby shareholders are not responsible for obligations of the joint stock. company and incur the risk of losses within the limits of their investments The minimum capital should not be less. than 1 000 calculated indices approximately USD 2 243. The Ministry of Justice of Kyrgyz Republic is responsible for joint stock companies registration It is worth noting. that joint stock companies are obliged to distribute no less than 25 percent of the net profit as dividends unless. shareholders unanimously decide otherwise in the general meeting. 6 5 Partnerships and limited companies, Partnerships and limited liability companies are formed in accordance with the Law on Business Partnerships and. Companies of 5 June 1996 The state registration procedures are the same as for joint stock companies The Law. provides for four forms of an entity which are general partnerships limited partnerships limited liability.
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