BUSINESS & ECONOMY

Foreign economic relations

The organizational and institutional base of external economic activities has been formed in Turkmenistan. The legislative base on its regulation contains such laws of Turkmenistan as “About External Economic Activities”, “About Foreign Investments”, ”About Investment Activity in Turkmenistan ”, “About Currency Regulation”, “About Order of Licensing of Export and Import of Goods” and the Decree of the President about Measures on External Economic Activities Regulation in Turkmenistan etc.

Positive neutrality and “Open doors” policy favor the expansion of external economic contacts of the country, further development of international cooperation, and step-by-step integration into the global economy.

Potential access of Turkmenistan to world markets in terms of further globalization of world economy, the necessity to find its own place in the world division of labor, pace and further integration are the main tasks of external economics activity of the country.

These tasks determine the main trends of foreign economic policy of Turkmenistan and include:

  • increase of export potential of the country, rise of its competitiveness, which is possible due to science intensive, resources saving, ecologically clean goods and services;
  • wide mobilization of investments to promote structural reconstruction in economics, the realization of industrial transnational projects and programs, the development of communications and transport systems and the creation of favorable conditions to attract new business partners;
  • involvement of small and medium-sized businesses into new kinds of economic activity to expand the range of goods and to stimulate competition. That will provide the country with final production and semi-finished products and widen export possibilities;
  • widening and modernization of industrial and construction sectors through attraction foreign investments and own capital investments;
  • maintenance of Turkmenistan positions in raw materials and goods in world markets and further developing export markets for final goods and services;
  • support of equal conditions in access of Turkmen goods and services to world markets;
  • to pursue tariff policy to create favorable conditions for own production, which do not deteriorate competitiveness in the national market;
  • development of scientific-technical cooperation with foreign partners.

Multiversion power infrastructure, which has been created in Turkmenistan will be of paramount importance in the nearest future. It includes both currently operating and under project transnational gas and power pipelines.

Foreign trade

Rapid development of the economy of Turkmenistan promotes the increase of foreign trade turnover from year to year, annual growth rates of which are made up on a very high level during recent 10 years.

In 2007 the foreign trade turnover of Turkmenistan totaled to 13,4 billion US dollars. Comparing with 2006, export increased by 2,2 billion US dollars and came to 8,9 billion US dollars and imports became 4,4 billion USD.

In 2007 trade surplus became 4,5 billion US dollars.

Russia, Kazakhstan, China, Turkey, Italy, Germany, Japan, Switzerland, France, Iran and other countries are main business partners of Turkmenistan.

Nowadays the production of Turkmenistan such as gas, oil, oil products, electric power, polypropylene, dry gas, ginned cotton, cotton yarn, textile and other production is adequately introduced in the world markets.

Rich mineral raw resources and their effective use make it possible to increase the export volume.

Gradual change of country from the producer of primary materials into the producer and exporter of final goods and services is the main factor in structural economic reformation of Turkmenistan. In this process the import of western technology, equipment and machines is stimulated. The share of the industrial and engineering products in the total value of imports has accounted for more than 70% in recent years.

Banking system

During the period of independence, two-level banking system, which includes the Central Bank and a commercial banking system, has been created in Turkmenistan.

Banking activities in Turkmenistan are regulated by the following laws: “About the Central Bank of Turkmenistan”, “About the Commercial Banks and Banking Activities”, “About Monetary Regulation” and others.

The first level of banking system is presented by the Central Bank of Turkmenistan. It exercises the monetary regulation and supervision over commercial banks of Turkmenistan and their affiliated branches.

The second level is represented by 5 state commercial banks and their 120 subsidiaries, 1 commercial bank, 3 joint-stock banks and 2 banks with foreign capital participation.

Banks carry out the following basic banking operations:

  • attraction of deposits;
  • money transfers;
  • credit granting;
  • financing of investment projects;
  • issuing guarantees and other liabilities for third parties;
  • attraction and allocation of financial capital and securities management;
  • provision of investment and consulting services for clients;
  • pledging and other operations with real estate;
  • mortgage lending.

At present new instruments of crediting are being developed in Turkmenistan. This is a micro crediting of private sector, credits for production.

For the improvement of residential housing mortgage lending under privileged terms is being rapidly developed. Mortgage credits are granted for 30 years with 1% of interest for the privileged period up to 5 years, i.e. during this period only interest is paid, but not a principal credit debt. At that entities and organizations are allowed to grant 50% discount out of housing price for the staff who takes a mortgage credit. Currently mortgage lending starts spreading intensively in countryside, small cities, districts and provinces centers.

National currency

National currency is manat, which was put into circulation on Novemeber 1 st, 1993.

The unification of national currency exchange rates was done on

May 1, 2008 and a result is a single rate of manat per dollar.

Current rate is:

1$=2.85 manats

The State policy in the field of intellectual property

During years of independence Turkmenistan made a great job in the field of protection of intellectual property rights.

Turkmenistan joined 9 international agreements in the field of protection of intellectual property, including:

  • Convention that establishes the World Organization of Intellectual Property;
  • Paris Convention for the Protection of Industrial Property;
  • Patent Cooperation Treaty;
  • Eurasian Patent Convention;
  • Madrid Protocol Relating to the Madrid Agreement concerning the International Registration of Marks;
  • Strasbourg agreement concerning the International Patent Classification;
  • Vienna Agreement on Establishing an International Classification of the Figurative Elements of Marks;
  • Nice Agreement concerning the International Classification of Goods and Services for the Purpose of the Registration of Marks;
  • Locarno Agreement establishing an International Classification for Industrial Designs;

The work for the improvement of patent legislation in the field of protection of industrial property rights is being carried out. In the nearest time, it is planned to develop and adopt five new laws of Turkmenistan, namely “On Inventions and Industrial Samples”, “On Trademarks, Service Marks and Names of Points of Good Origin”, “On legal Protection of Selection Achievements”, “On Protection from Unfair Competition”, “On Copyrights and Other Adjacent Rights”.

Turkmenistan attaches importance to the cooperation with all countries in the world in the field of protection of intellectual property as well as to the improvement of national legislation in this field taking into account requirements of TRAIPR (The Agreement on Trade-Related Aspects of Intellectual Property Rights), elaboration of new draft laws necessary for participation of Turkmenistan in the international agreements on copyrights, which are the integral part of intellectual property.

Protection of copyrights and other adjacent rights are regulated by Civil Code of Turkmenistan.

Effective management of economy by putting into operation of advanced science intensive machines and technologies is impossible without highly qualified experts able to solve set of tasks in the field of protection and application of various objects of intellectual property. That is why one of the respective tendencies of state policy of Turkmenistan should be the training of experts in the field of intellectual property and innovative activity in various state and commercial structures.

INVESTMENT POLICY OF TURKMENISTAN AS AN INSTRUMENT OF GENERAL ECONOMIC REFORMS

Basic principles of investment policy

Investment policy of the President of Turkmenistan Gurbanguly Berdimuhamedov is aimed at provision of manageability of all processes of changes, creation of diversified and steadily developing economy, integration of state programs with the investment projects, needs of society and commercial interests.

Principal tendencies of investment policy of Turkmenistan are as follows:

  • in oil and gas sector – creation of diversified system of entry of Turkmen energy products to the world markets by construction of branched system of pipeline and long-term cooperation with the leading international companies for the effective development of natural resources of oil and gas, deep exploration on onshore as well as offshore Caspian Sea in Turkmenistan for the purpose of increasing production, processing and export volumes;
  • in textile industry – it is planned to increase domestic processing volumes of cotton fiber by the establishment of new highly profitable textile enterprises, introduction of new technologies as well as production of competitive products for saturation of domestic and foreign markets;
  • in chemical industry – the further development of chemical productions is planned including construction of carbamide plants, chemical complex on production of potassium chloride, potassium sulfate, caustic soda and chlorine. It is also planned to develop an inexhaustible source of chemicals Garabogazgol bay;
  • in other fields of industry – diversification is chosen with the principal focus on reorientation of enterprises from raw materials producers into the enterprises producing final goods, combination development of export oriented and import replacing productions. Parameters and aims of investments` attraction for the development of country`s energy potential, petrochemical, metallurgic and building materials industries were determined based on the above;
  • in the agro industrial complex – along with the production and processing of crops, the investment policy stipulates further development of cotton growing as well as stocking and processing of wool and rawstock. Priority tendencies are the increase of crops production and establishment of highly technological system of crops processing – flour-grinding complexes, production of high quality provisions and full saturation of domestic market by them.
  • transport and communications field – principal flow of investments is aimed at the development of automobile, air, railway, river and marine transport, construction of highways and railway roads as well as improvement of telecommunications system and postal electric communication;
  • in the field of educational development – it is planned to modernize and expand material and technical base of schools, build new schools and preschool institutions, introduce new information and computer technologies, improvement of internet access;
  • in the field of health and medical industry development – it is planned to reconstruct existing and build new and modern specialized clinics, centers, sanatoriums and rapidly develop domestic pharmaceutical industry.
  • investment policy of the President in the field of urban development pursues several aims. It includes the improvement and landscape gardening of towns and residential areas, establishment of new parks, alleys, building of fountain and other architectural complexes, which are places of sightseeing of cities and favorite places of visits and recreation of residents.

Another aim is the creation of all necessary conditions for normal life of residents. In the frame of the program of the President of Turkmenistan “Construction of individual high apartments with increased comfort and better planning”, comfortable dwelling buildings are being built. Construction of administrative buildings, offices, trade and business centers and social and cultural establishments is continued;

  • currently non-state sector of the economy provides about 40% of gross domestic product. Taking into account great perspectives of this sector`s development, it is expected that by 2020 its share would reach 70% in GDP structure. It will be promoted by the investment policy of the country, which plans attraction of capital including foreign one into private sector of economy. Investments will be oriented to the creation of small and medium enterprises and productions, organization and support of farms as well as to training of newly establishing class of our country that is the entrepreneurs`. Government of Turkmenistan is carrying out works on the development of small and medium businesses and strengthening of farms. For this purpose the state offers lax credits up to 10 years with 5% of annual interest.

Turkmenistan is extremely interested in the attraction of foreign investments for:

  • development of national tourism zone of Avaza;
  • realization of National Program of the President of Turkmenistan on changing social and communal conditions of population in villages, settlements, cities in provinces and of province centers for the period up to 2020;
  • construction of Turkmen section of railway, which is a part of “International transport corridor of North-South”;
  • reconstruction of Seyidi Crude Oil Refinery;
  • organization of liquefied gas production;
  • construction of iodide-bromine plant;
  • construction of gas mains of Turkmenistan –China, Turkmenistan- Afghanistan- Pakistan-India, by Caspian and trans-Caspian gas pipelines;
  • construction of chemical plants;
  • construction of pipelines;
  • development of petrochemical industry;
  • construction of highways;
  • development of machinery construction;
  • development of agro industrial complex;
  • development production and processing of rawstock;
  • development of textile industry;
  • organization of foodstuffs production;
  • development of information technologies and establishment of techno-parks;
  • further education;
  • research, restoration and preservation of historical and cultural memorials.

Rights and obligations of investors

Legal aspects of activity of foreign investors and enterprises with foreign investors and enterprises with foreign investments in Turkmenistan are regulated by Law of Turkmenistan “On Foreign Investments”, “On Petroleum Resources’, “On Licensing of Definite Types of Activities”, “On Currency Regulation and Other Legal Acts and International Agreements Effective in Turkmenistan”.

According to the effective legislation, foreign investments may be realized in the following forms:

  • share in the enterprises of Turkmenistan;
  • establishment of enterprises, which are fully owned by foreign investors or acquisition of existing enterprises;
  • acquisition of movable and immovable property except for those limited on civil circulation by the legislation of Turkmenistan except for the following items limited for civil circulation by the legislation of Turkmenistan;
  • granting of foreign loans;
  • acquisition of property rights.

Foreign investor in Turkmenistan may be the following entities:

  • foreign legal entity including its branch and representative office in Turkmenistan;
  • international organization;
  • foreign legal entity and person without citizenship residing in the country of another state at the moment of making investments;
  • Turkmenistan citizen residing outside Turkmenistan.

Turkmenistan provides legal protection, guarantees and incentives to the enterprises with foreign investments from the day of investments` project registration.

Legislation of Turkmenistan provides for the following state guarantees for protection of foreign investments:

  • legal protection guarantee for the foreign investors;
  • compensation guarantee during revision of the foreign investor`s property;
  • guarantee of property and documental or electronic information;
  • payments transfer guarantee related to foreign investments;
  • intellectual property protection guarantee;
  • rights and obligations transfer of the foreign investor and enterprises to another entity;
  • guarantee on the return of foreign investments due to the end of investment activity.

Legal regime for the foreign investments and foreign investor`s activity may not be less favorable than the regime for property, property rights and investment activity of the legal entities and citizens of Turkmenistan.

Foreign investors are granted with freedom to choose amount, sources and structure of the capital of the enterprise during establishment.

If legislation of Turkmenistan causes bans and restrictions worsening activity of the foreign investors and enterprises with foreign investments, then the legislation of Turkmenistan effective during foreign investments registration will be applicable thereto.

Foreign investors and citizens are granted with right to transfer property overseas. Transfer of currency, payment documents and securities is regulated by the legislation of Turkmenistan “On Currency Regulation”.

Net profits will be as foreign investor`s property and can be reinvested at the investor`s discretion in Turkmenistan.

Foreign investors have the right to open accounts at the banks in Turkmenistan, either in local or foreign currencies.

Foreign investor has the right to operate with the currency of Turkmenistan for purchasing foreign currency on the domestic currency market.

State, local and public authorities do not have the right to interfere into economic activity of foreign investors and enterprises with foreign investments implemented in accordance with the legislation of Turkmenistan.

Foreign citizens employed on the enterprises with foreign investments, branches and representative offices of the foreign legal entity and family members in Turkmenistan due to investment activity have the right to do the following:

  • obtaining multiple visas for minimum one year;
  • free movement in Turkmenistan;

Investor has to do the following in cases of established order in the legislation of Turkmenistan:

  • submit declaration on amounts and sources of the investments;
  • receive necessary permissions and approvals for major construction works from the respective state authorities and special departments;
  • receive conclusion of the State Expertise for Investment Projects in the section on observation of the standards and norms of the seismic strength, fire and explosion safety, sanitary and hygiene, environment and town planning.

Investment entities should observe the following:

  • norms and standards regulated by the legislation of Turkmenistan;
  • avoid unfair competition and meet the requirements of the anti-monopoly regulation;
  • requirements of the state authorities and state officials within their competency;
  • submit accounting and statistical reporting as per the established order.

Labor legal relations between the enterprises with foreign investments, branch of the foreign legal entity and their employees including non-citizens of Turkmenistan are regulated by the legislation of Turkmenistan.

Wages and salaries, rewards and other money amounts received by the employees of the enterprises with foreign investments, branches of the foreign legal entity who are non-citizens of Turkmenistan may be transferred from Turkmenistan to oversees in accordance with the order established by the legislation of Turkmenistan.

Assessment of the contribution into the enterprise`s authorized fund and fixed assets of the branch of the foreign legal entity is made in the national currency of Turkmenistan and in order established by the legislation of Turkmenistan.

Foreign investors shall refrain from unfair competition including the establishment of enterprise in Turkmenistan for production of goods, which are in strong demand followed by cessation of its activity for the purpose of promotion of similar product of foreign origin at the market and conclusion of agreement on prices or on the share of markets for goods sale that limit the rights of other economic entities in Turkmenistan.

Benefits and privileges of investors

For the purpose of stimulation of intensification of investment activity in Turkmenistan, foreign investors are offered the following privileges on:

  • taxes;
  • licensing;
  • customs;
  • visas;
  • certification.

According to the Petroleum Law of Turkmenistan contractor is given a guarantee of rights protection in accordance with the principles of international law, legislation of Turkmenistan, licenses and agreements. All materials and equipments used for petroleum operations are exempted from customs duties and registration at the State Commodity Stock Exchange of Turkmenistan.

Contractor carrying out petroleum operations pays only the following taxes and payments:

  • profit tax of which volume is determined by the legislation of Turkmenistan. Procedure of determination of taxable profit amount is established by the agreement;
  • royalty for production of hydrocarbon resources, which is determined by the agreement.

There may be a bonus, which is paid once and whose size is determined by the agreement. Bonus may be paid when signing the agreement and when level of production determined by the agreement is achieved.

In accordance with the Code of Turkmenistan “On Land”, the land parcels are leased out for construction and other agricultural needs for the period up to 40 years.

The property imported into Turkmenistan is exempted from customs duties if:

  • it is a contribution of foreign investors into the charter fund of enterprise;
  • investment based on the international agreements and contracts concluded in accordance with the decisions of the Cabinet of Ministers of Turkmenistan. Property is exempted from customs duty for the period of investment project payback.

Enterprises with foreign investments have the right to export own products (works, services) without license and import products (works, services) for own needs.

Certification of equipment and materials imported into Turkmenistan by foreign investors, enterprises with foreign investments as well as by their contractors and subcontractors carrying out their activity on construction and operation of facilities in free economic zone shall be done without charging certification fees.

Enterprises with foreign investments may independently determine terms of realization of products (works, services) produced by them, except for products (works and services) for which prices are regulated by state.

For social and economic development of the country, the legislation of Turkmenistan may establish other privileges for foreign investors and enterprises with foreign investments in case of priority investment projects, concessions, providing stable economic growth, progressive structural changes of country`s economy, strengthening and increase of export potential as well as increase of employment level of population.

Procedure of state registration of enterprises with participation of foreign capital

According to the effective procedure of state registration of legal entities, the basis for registration and putting into the United State Registry of Legal Entities of the information on newly established enterprises with the participation of foreign investments and their independent structural subdivisions, branches and representations of foreign legal entities is the decision of founder(s) or decision of the Cabinet of Ministers (if enterprise is established with the state share in charter capital).

According to the law of Turkmenistan “On enterprises”, enterprises with participation of foreign capital carry out their activity in the following organizational and legal forms: individual enterprise, economic company and joint-stock company. Also, foreign companies have the right to establish in Turkmenistan subsidiaries with the right of legal entity as well as branches and representations, which are not legal entities.

According to the law of Turkmenistan “On enterprises” the decision of the state registration of entity or refusal of the registration shall be submitted during two weeks from the time of submission of required documents by founders of enterprises.

Taxes

One of the most important steps on the way to stable economic development of country in transition period is realization of reforms, which would provide favorable investment climate as well as development of medium and small businesses. One of these reforms is the revision of country`s Tax Code and adoption of new Tax Code of Turkmenistan in 2004.

With introduction of Tax Code, types and rates of taxes were decreased. Today, there are only 6 basic types of taxes in Turkmenistan that are in force and their rates are much lower that those of many other countries and small local dues are also in low rates.

Taxes shall be calculated and paid in national currency of Turkmenistan. Any operation in foreign currency for taxation purposes is converted into national currency of Turkmenistan as per rate of the Central Bank of Turkmenistan on the day of operation, for currencies having no rate the cross-rates to US dollars shall be applied. If international agreements of Turkmenistan stipulate other conditions, then provisions of international agreements shall prevail.

For taxation purposes legal entity shall be recognized as resident of Turkmenistan if:

  • it is created (established) in accordance with the legislation of Turkmenistan;
  • its principal management body is located in Turkmenistan.

Types and rates of taxes

  • value added tax – 15% and 0%;
  • property tax – 1%;
  • income tax:
  • 8% from the income for legal entity (LE) and residents of Turkmenistan (except LE, whose authorized fund fully belong to the state and persons exercising activity in accordance to the law of Turkmenistan “On Hydrocarbon Resources”);
  • 20% from income for other LE;
  • 2% from gross income of the LE with private form of ownership (except persons exercising activity in accordance to the law of Turkmenistan “On Hydrocarbon Resources”);
  • 15% - for incomes in the form of dividends and other means from participation in other LE;
  • 10% - tax from physical persons income.

Other taxes

Excises

Basic rates of excises for the following main goods:

For produced goods:

Beer – 10% from the cost

Wines and other alcohol drinks – 15%-40% from the cost

Petrol and diesel-fuel – 40% from the cost

For goods imported to customs territory of Turkmenistan:

Beer – 50% from the customs cost, but not less than 20 thousand manats per liter.

Wines and other alcohol drinks

  • up to 20% inclusively – 100% from custom cost, but not les than 100 thousand mantas per liter;
  • more than 20% - 100% from custom cost, but not less than 150 thousand mantas per liter;

Spirit used for preparing alcohol drinks – 4 USD for 1 pack;

Tobacco – 30% from custom cost, but not less than 0.5 USD for 1 pack;

Other industrially prepared tobacco and its industrial substitutes –

10 USD for 1 kg;

Taxes for the usage of subsoil with hydrocarbon resources in taxable operations:

  • natural and casing-head gas – 22%;
  • raw oil – 10%;
  • on taxable operations with other natural resources in accordance with the level of profitability:

Till 15 inclusively 0%

Over 15 till 17 inclusively 30%

Over 17 till 19 inclusively 32%

Over 19 till 21 inclusively 35%

Over 21 till 23 inclusively 40%

Over 23 till 25 inclusively 45%

Over 25 50%

Tax Code of Turkmenistan provides other dues and payments: due for advertising, targeted dues for beautification of territories of towns, settlements and villages; due from owners of parking bays; due from realization of car; dues from dog owners.

Elimination of double taxation

For the purpose of exclusion of double taxation cases, Turkmenistan concluded international agreements with a number of countries, such as Armenia, Belarus, Georgia, India, Iran, Kazakhstan, Pakistan, Russia, Slovakia, Turkey, Uzbekistan, Ukraine and Tadzhikistan.

Turkmenistan also recognizes agreements on avoidance of double taxation concluded by former USSR with such foreign countries as USA, Austria, FRG, UK, Japan, Belgium and France.

Turkmenistan recognizes priority of norms of international agreements over local legislation.

In case of necessity, the tax service office on the basis of inquiry of

LE – non-resident of Turkmenistan – gives the document that confirms their income tax payment in Turkmenistan.

In order to get income tax exemption or any other tax benefits, a taxpayer should apply to the State tax service office of Turkmenistan and show an official confirmation of the fact that he\she is a resident of the country, with which Turkmenistan has concluded the agreement on eliminating double taxation; the given agreement should be valid within relevant tax period (or its part).

Confirmation and applications can be sent either before tax payment or during three years after the tax period.

In the Tax Code of Turkmenistan, benefits on value added tax, income tax and property tax are provided for:

  • construction and construction-assembly operations concerning national tourist zones, services on receiving, housing and feeding tourists;
  • activities in the sphere of education;
  • agricultural enterprises;
  • production and realization of agricultural products;
  • activity of medical institutions and enterprises;
  • and others.
Gurbanguly Berdimuhamedov
(President)
 
 
Latest News

The delegation of Turkmenistan headed by the President of Turkmenistan Gurbanguly Berdimukhamedov attended the 65-th session of General Assembly of the United Nations in New York on 19-23 September, 2010.


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Quick Facts
Capital City :Ashgabat

Population : 5,097,028

Geographic Co-ordinates :
40 00 N, 60 00 E

Area - total: 488,100 sq km