Investment and tax guide 2014 Reach, relevance and reliability

Transcription

1 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

2 Contents Foreign investment regime... 4 Types of business presence... 5 Employment regulation... 7 Taxation Other taxes Local taxes Transfer pricing Tajik-sourced income of non-resident companies Taxation of individuals 24 Customs duties 26 Tax administration..28 Taxation of subsoil users Special tax regimes Contact us

3 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.

4 Foreign investment regime General Tajikistan is keen to attract foreign investment and has adopted in May 2007 the Law on Investment which is aimed at attraction and effective use of material and financial resources, high technology, managerial experience, providing of favorable conditions for investment activity. The Investment Law is aimed at attracting local and foreign investors. It contains a range of investment guarantees, such as security, reinvestment and publicity of activity of state bodies in relation to investors. Investment rights such as freedom to import equity capital, property and documentation to carry out investments the remittance of funds abroad in connection with exporting foreign investors profits and equitable compensation in the event of expropriation are also covered under the Investment Law. Also the Investment Law has been considered as providing freedom of monetary transactions, stability in the legal regime, free access to opensource information, intellectual property rights observance and access to international arbitration. Since 1996, Tajikistan has developed and implemented a three-year public investment programs (PIP) - the program of investment of public funds (both debt and equity) in the priority sectors of the economy. According to the head of the State Committee on Investments and State Property Management of the Republic of Tajikistan, as of July 1, 2012 the portfolio of government investment projects embodied in the territory of Tajikistan consists of 60 projects totaling USD 1.9 billion 1. At present time main part of investment projects being implemented with foreign direct investments from Russia, China, Canada, Kazakhstan, USA and UK, among them such investors as Gazprom, Tethys Petroleum, Inter RAO UES, Zijin Mining, Gulf International Minerals, Adjind International, Hyatt and others. The State Committee on Investment and State Property Management of the RT regularly put out on its website the list of investment offers in priority areas of economy of the RT, also information on procedures for participation in the tenders can be found at this website ( Investment benefits The Investment Law envisages investment benefits such as tax remissions, customs preferences and issue of state grants as gratuitous assignment of property, means and land as an ownership for own usage by legal entities. Nationalization / expropriation The current law envisages protection for foreign investments against nationalization / expropriation. Expropriation of property belonging to citizens and legal entities is made on the basis of legislation on nationalization in accordance with the Constitution of the Republic of Tajikistan ( RT ) and with the compensation of value of nationalized property and other payments for caused losses. Compensatory payment must be at fair market value and should be paid in freely convertible currency according to timelines coordinated by the parties. According to the investigation work performed by the World Bank and IFC for 2013, Tajikistan ranks 141st out of 183 economies on the ease of doing business index. However Tajikistan stands 25th in the ranking amongst 183 in terms of investors protection 2. The legal framework continues to develop and along with measures to discourage corruption and update tax legislation, the Government of the RT in March 2013 passed a new law on the Investment Agreement, which aims to attract new foreign investors into target sectors by co-investing and regulate relationships between investors and Government based on the investment agreement. Exchange control Tajikistan has adopted a liberal exchange system, and in general, there are no restrictions on converting or transferring funds associated with an investment into freely usable currency and at a market rate. Foreign exchange is widely available, and the local currency, the Tajik somoni, is freely exchangeable at banks and exchange offices. Tajik somoni (TJS) is the only permitted instrument for settlements within the territory of the RT. Residents and nonresidents may hold both hard currency and TJS accounts in authorized banks and may import and exchange currency within the regulations set by the legislation of the RT. 1 Source: 2 Source: 4 Investment and tax guide

5 Type of business presence General Tajik legislation provides for a number of different forms through which business activities may be carried out. The main types of business organizations are Limited Liability Companies, open and closed joint stock companies, sole proprietorship, branches representative offices of foreign companies and other forms of partnerships. The most common types of business presence in Tajikistan for foreign companies are: Limited liability companies; Open and closed joint stock companies; Representative offices and branches. Limited liability Company (LLC) The most flexible type of company in Tajikistan is an LLC. The minimum capital requirements for the LLC should be no less 400 times minimum wage or TJS 100,000 (approximately USD 21,270) effective in the RT on the registration date of a company. The equity participation of the owners is determined by their capital contribution. The main features of LLCs are as follows: An LLC has the right to engage in any type of activity not prohibited by the domestic legislation and, accordingly, may obtain a license to do so when required by the law; An LLC have a right to place obligations and other emissive securities; Participants govern the LLC through stockholders meetings; Participants elect an executive body (sole or collective); Without the consent of other participants, a participant is entitled to leave the company and to be paid its pro-rata share of the net assets; Participants enjoy the right of preemption in acquiring the contributions of fellow participants; An LLC with one participant may not act as the sole participant of another LLC; The number of participants may not exceed 30. Joint stock company (JSC) An open joint stock company (OJSC) may have an unlimited number of shareholders. The minimum charter capital of OJSC is set at 1000 times minimum wages or TJS 250,000 (approximately USD 53,190) should be fully paid in. Subject to elaborate disclosure requirements, an OJSC is the only form of legal entity whose shares may be openly traded similar to a western public company. A closed joint stock company (CJSC), which is the type of JSC, is limited to a maximum of 50 shareholders. The minimum charter capital is no less 400 times minimum wage or TJS 100,000 (approximately USD 21,270). A CJSC is often the structure preferred by minority partners in a joint venture as the JSC Law grants greater rights to minority shareholders than the law governing an LLC. The main features of a CJSC are the following: A CJSC may engage in any type of activity not prohibited by the domestic legislation and, accordingly, may obtain a license to do so when required by the law; Shares are only distributed among its founders or another predetermined group of persons a CJSC may not conduct an open subscription for shares to an unlimited group of persons; If the number of shareholders is more than 50, it should be reorganized as an OJSC; Shareholders govern the CJSC through a shareholders meeting which must be held at least once a year. Branch and representative office According to the Tajik Civil Code, both branches and representative offices are referred to as subdivisions of a foreign legal entity which are located at a place other than the head office of a legal entity. A representative office can only represent the interests of the legal entity. A branch, in contrast, can perform all or a part of the legal entity s functions, including representation and entrepreneurial activities. 5 Investment and tax guide

6 Registration requirements The state registration of legal entities is under the authority of the Ministry of Justice of the RT and its territorial subdivisions (hereinafter the Ministry ). The following list of documents must be submitted to the Ministry for the registration: application claim; drafts of constitutive documents of the entity to be registered; decision of founders to: - incorporate a legal entity - approve constitutive documents - appoint the head of a legal entity extract from the Unified Registrar on State Registration (if the founder is a legal entity). data on an individual (if the founder is an individual); documents confirming a legal address; documents confirming contribution of a charter capital; document confirming contribution of the state duty (a receipt or a payment order). 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. State registration of a branch / RO of a foreign legal entity The following documents must be submitted to the Ministry: application claim; constitutive documents of the parent entity (Par). The constitutive documents must be notarized by the state notary; decision of the Par to: - incorporate a branch / RO - approve the Regulation of a branch / RO - appoint the Head of a branch / RO egulation on a branch / RO; power of attorney issued by the Par to the head of a branch / RO; documents confirming a legal address. document confirming contribution of the state duty (a receipt or a payment order). The registration of a branch/ro also takes approximately 10 days similar to registration of legal entities (please see above). 6 Investment and tax guide

7 Employment regulation General The Tajik Labor Code, adopted on 15 May 1997, applies to all employment relationships in Tajikistan, including those involving Tajik nationals, foreign nationals, stateless persons and employees of foreign international organizations and legal entities. Employment agreement The relations between employer and employee are based on an employment agreement. An employment agreement must contain certain provisions set out in the Tajik Labor Code, which are essentially designed to protect the rights of employees. Employment agreements may be concluded for either an indefinite or fixed term (not more than 5 years). An indefinite term employment agreement is the default option under the Labor Code while a fixedterm agreement may only be concluded if certain legislative requirements are met. An employment agreement is considered to be for an indefinite term if it does not establish a fixed term. Employees have the right to conclude employment agreements with several employers. The probation period under a contract cannot exceed three months. Certain categories of employees, for example employees under 18 years old or interns, must not be subject to a probation period. The monthly salary of an employee may not be set below the minimum wage established by the President of the RT (currently TJS 250 or approximately USD 53). Regular working hours may not exceed 40 hours per week. Overtime work should not exceed four hours in two consecutive days and is limited to 120 hours per year. Minimum annual paid vacation is 24 calendar days. Women are entitled to 70 calendar days paid maternity leave both prior to, and after, giving birth. In addition, women are entitled for an unpaid leave until the child reaches age of three years (unpaid for the second 18 months) and during this period the employee is entitled to resume her employment. Procedure for termination of employment contracts Specific provisions for the termination of employment agreement are stipulated in the Labor Code. Under the Labor Code an employment agreement may be terminated based on the following upon request of the employee or employer, termination of employment agreement and mutual decision of the parties. Employees can terminate their employment at any time by giving two weeks written notice to the employer. The specific grounds for termination of an employment by an employer are listed in the Labor Code and some of these described below. 7 Investment and tax guide

8 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

9 Taxation General As of January 1, 2013, a new Tax Code was adopted by the Government of the RT. A list of Tajik taxes, levies, and general tax principles are established by the Tax Code. Under the Tax Code, all taxes and levies are classified either as state or local. As a basic legal principle, taxes and levies, their rates, tax collection procedures and tax incentives may only be established in accordance with the laws of Tajikistan. Under the new tax regime, the main taxes applicable to investment activities are as follows: Corporate income tax; Value added tax; Road tax; Payroll related tax; Land tax; Property tax; Mining taxes; Tax withheld at the source of payment from incomes of non-residents. Corporate income tax (CIT) Taxpayers CIT applies to Tajik legal entities and foreign legal entities carrying out business activities through a permanent establishment (PE) in the RT. Tax rate The CIT rate is established at the following rates: 15%, but not less than 1% of gross income for entities involved in production of goods (as of January 1, 2015, the tax rate will be 14%); 25%, but not less than 1% of gross income for other type of entities (as of January 1, 2015, the tax rate will be 24%); 25%, but not less than 1% of gross income for profit received by a non-resident from the sale or assignment of property and/or property rights which are not attributable to a Tajik PE. 9 Investment and tax guide Taxable income Taxable income is defined as gross income received by a taxpayer less deductions allowed by the Tax Code. Foreign companies have to pay CIT on profits related to the source in Tajikistan. Resident legal entities are liable for CIT on their worldwide profits. Income Income includes both sales income (i.e. total proceeds from the sale of goods, works, services and property rights) and non-sales income. Non-sales income includes goods, works, services and property rights received free of charge, except in case of such property and goods received by the non- profit entity and used for noncommercial purposes. Non-taxable income, of which the legislation provides an exhaustive list, also includes property and property rights received as a contribution to a company s charter capital, income received by the taxpayer-issuer from the stock floatation and dividends received by the resident entity from participation in Tajik companies. Deductible expenses Expenses are considered deductible for CIT purposes if they meet following general criteria: the expenses must be incurred in the course of a taxpayer s income generating activity and supported by relevant documentation. They must not be listed as one of the specifically non-deductible expenses provided in the tax law. Additional deductibility criteria applying to certain types of expenses are noted below. Business trips Business trip expenses are deductible within the limits fixed by the Government of the RT. Interest Any interest expenses paid or incurred by the taxpayer in the course of its business activities are generally deductible. Some expenses are deductible within the established limits: Interest deductions should not exceed the 3-fold amount of interest calculated using the National Bank refinancing rate effective at the tax period.

10 Interest expenses incurred and paid in relation to purchase or creation of depreciable fixed assets would increase the value of the fixed assets. Interest payable on loans from foreign and affiliated sources is subject to thin capitalization. Thin capitalization Thin capitalization rules restrict the deductibility of interest charged on foreign controlled debt. The rules apply to loans of a Tajik company from non-resident or a legal entity exempted from the CIT, which owns, directly or indirectly, more than 25% of the Tajik company s share capital. Maximum deductible amount of interest expenses is limited to the amount of interest income plus 50% of aggregate income less all allowable deductions except for interest. Doubtful debt The taxpayers are entitled to deduct reserves for doubtful debt created in connection with supply of goods, works and services, if income gained from such services was included into aggregate annual income in the earlier periods. In principle, a taxpayer may deduct doubtful debt reserve for CIT purposes when the outstanding debt actually was written off in accounting ledgers. The reserve for doubtful debts as at the end of the reporting (tax) period may not exceed 10% of revenue for the period. Banks, credit associations, microcredit depositary institutions may deduct created reserves for doubtful debt subject to certain rules of the National Bank of the RT. Deductions on reserves may not exceed 90% of allocations to loans loss reserves (excluding standard credits, leasing credits, credits without debt security, related party credits) under the certain rules provided by the National Bank and the Ministry of Finance. 10 Investment and tax guide Charitable payments Actual charity expenses could be deducted within the amount of 10% of taxable income. Depreciation The Tax Code identifies depreciable assets, both tangible and intangible with the value exceeding TJS 800 (approximately USD 168). There are five depreciation groups under the Tax Code: Group Types of assets Maximum depreciation rate 1 Automotive road building machines, special equipment, computers and peripheral equipment, data processing equipment etc. 2 Trucks, buses, special-purposes vehicles and trailers, machines and equipment for all industries, foundry engineering pressforging equipment construction equipment, agricultural machinery and equipment, cars office furniture. 3 Power equipment, turbine equipment, electric motors and diesel generator sets electricity transmission means, pipelines. 4 Building, constructions, railway transport structures, river and lake passenger vessels. 5 Other depreciable assets not listed in other groups. 20% 15% 8% 7% 10% Under the Tax Code expenses on intangible assets are deductible for CIT purposes at the rate of 10% that is established for the 5th group. Intangible assets involve intangibles such as licenses, inventive patents, trade marks, copyrights, software, which are used during a period of not less than 12 months if they have a restricted useful life.

11 If the value of the asset tax group is less than 50 calculation index (approximately 420 USD) the full balance of the asset group should be deducted. A depreciation charge can be deducted in calculating the CIT liability, starting from the first day of a month following the month when an asset is put into operation. Repair expenses The Tax Code provides for a deduction of expenses incurred in connection with repair of fixed assets. The maximum deduction of repair expenses is limited to 10% of the balance of each tax group of fixed assets at the end of the current tax period. Excess repair expenses should be added to the costs of the tax depreciation group. Expenses on exploratory and preparatory works for mining operations Expenses on exploratory and preparation works for mining operations are included into the tax group of fixed assets and are subject to deduction for CIT purposes by depreciation at the rate of 15%. The same rules apply to expenses on intangible assets related to acquisition of mining rights including exploration and production of mineral resources. Research and development expenses Certain types of research and development costs connected with income generating activity are fully deductible. Such expenses should be confirmed by the primary documents on research and development, technical and economic assessment and (or) Acts of acceptance. Loss carry-forward Losses incurred by legal entities as a result of their economic activities could be carried forward for a period of up to 3 calendar years. Losses from sale of property (except of property which is used in business activities or property which is tax exempt) are carried forward separately from the tax loss from regular activities and could be offset only against profit from the similar activities. 11 Investment and tax guide Taxes Deductions of the following taxes and payments are disallowed: 1) PIT or CIT liability paid on the territory of the Tajikistan or in other countries; 2) Penalty and fines payable to the state budget of the RT or other country. Tax exemptions Exemptions are provided for: Non profit religious, charitable, budgetary organizations, intergovernmental organizations and international organizations, excepting profit received from business activity; Gratuitous compensations, property, membership fees, donations and grants received by the non-profit organization; The National Bank of the RT and Deposit Insurance Fund; Enterprises having no less than 50% of the staff disabled persons, as well as no less 50% of remuneration expenses covering disabled persons pensions. Also the Tax Code provides the tax relief to the newly created manufacturing company under condition that during the 12 month period from the registration the founders make certain volumes of investments: Tax relief for 2 years, if investment s volume USD thousand; Tax relief of 3 years, if investment s volume USD 500 thousand-2 million; Tax relief of 4 years, if investment s volume USD 2 million-5 million; Tax relief of 5 years, if investment s volume more than USD 5 million. Tax period The tax period for CIT is a calendar year. Tax assessment The taxpayer is obliged to calculate monthly advance payments no later than 15th of each month.

12 Monthly advance payments should not be less than: 1/12 of CIT liability for previous tax year multiplied by the coefficient 1.1; and 1% of the gross revenue for reporting month. Timing The annual CIT return is due by 1 April of the following year. Any tax obligations due must also be paid in full by 10 April. Value added tax (VAT) Taxpayers VAT applies to companies (including representative offices and branches of nonresident companies), individual entrepreneurs, and any entity making VATable supplies in the country and importing goods into Tajikistan. Under the Tax Code, a business entity carrying on economic activity is required to register for VAT purposes in Tajikistan if its total turnover exceeds TJS 500,000 or approximately USD 105,000 during a period of no more than 12 calendar months. Taxable supplies VAT is charged on the majority of sales of goods, works and services supplied in Tajikistan, including those supplied free-ofcharge. VAT is also imposed on most imports into the RT. Transfer of property rights and certain self-supplies, donation or exchange of goods are also subject to VAT. Place of supply These rules are used to determine whether goods, works or services are supplied in Tajikistan and thus, subject to the Tajik VAT. Under the Tax Code a place of supply of goods is a place, where goods are delivered at the disposal or, if delivery includes goods transportation, the place of supply of goods is a place where transportation starts. The Tax Code envisages that supply of electric energy, heat energy and gas is executed at the place of receipt of goods; in case of export such goods are treated as being sold in Tajikistan. Services and works are generally deemed to be supplied at the place of business of the supplier unless another specific treatment is applicable. In particular, specific treatment applies to the following: Services related to immovable property are deemed as supplied where the property is located; Services related to moveable property are deemed as supplied at the location where these services are actually performed; Cultural, sports, arts, educational, advertising, entertainment, recreation services and provision of personnel are deemed as supplied at the location where these services are performed; Services or works related to transportation are deemed as supplied at the location where the transportation was actually performed; Leases of movable property, except for motor vehicles, consulting, audit, legal, engineering, marketing, informationprocessing, accounting and other similar services, transfer of rights to intellectual property (patent, license, trademarks, copyright and etc.). These services are deemed to be supplied at the place of business of the buyer. Tax rates The VAT rates are 0%, 5% and 18%. The 0% rate applies to export of goods outside Tajikistan, except for the export of raw cotton, ginned cotton, cotton yarn, initial aluminum, jewel stones and jewelry, goods manufactured in Free Economic Zones. In order to confirm the 0% rate, a taxpayer should prove the export by providing a set of documents to the tax authorities as prescribed in the Tax Code. The 5% rate applies to taxable supply (except of import) of catering, wholesale and retail trade companies, sales and supply agencies, construction firms. In case of 5% VAT the companies may not claim offset of input VAT. This rate is effective until January 1, % rate applies to all other taxable sales of goods, works and services in Tajikistan. 12 Investment and tax guide

13 VAT exemptions Activities which are exempt from VAT include, in particular: supply or lease of real estate (with the exceptions provided by the Tax Code); supply of financial services in accordance with specification approved by the Ministry of Finance and the National Bank of the RT (with exceptions provided by the Tax Code); supply of the national and/or foreign currencies as well as securities; supply of religious and ritual services by religious organization; supply of medical services by the state organizations excluding services in cosmetology, dentistry and health resort; supply of educational services financed from the state budget; supply of goods, performance of works and rendering of services as humanitarian aid and transfer of goods free of charge for the benefit of the state; supply of goods, performance of works and rendering of services by penitentiary institutions of the the RT; supply of special-purpose goods for disabled persons under the list provided by the Government of the RT; supply and export of precious metals and jewel stones, as well as jewelry made off precious metals and stones, and also aluminum and ore concentrate, scrap of ferrous and nonferrous metals, ginned cotton, cotton yarn and raw cotton. Revenue from supply of the transportation services where one of the point of departure or destination is Tajikistan and another is outside Tajikistan, including transportation of passengers and baggage, international transportation of goods, also supply of fuel and other articles of consumption using during the performance of such transportation services, as well as certain services relating to arrangement of transportation is not subject to VAT. The following imports are exempted from VAT on import: import of national and/or foreign currencies as well as securities; import of precious metals and jewel stones by the National Bank of the RT and the Ministry of Finance of the RT; import of industrial-engineering and agricultural equipment and its components in accordance with specification approved by the Government of the RT; import of medicaments, medical and pharmaceutical equipment and medical instruments according to the list provided by the Government of the RT; import of goods for execution of investment projects of the Government of the RT within grant (or credit) agreements; import of goods for building of important objects defined by the Government of the RT; import of goods and equipment (excluding excisable goods) for the purposes to produce primary aluminum by the manufacturer under the list set by the Government of the RT; import of special-purpose goods for disabled persons under the list provided by the Government of the RT. Taxable value The value of a taxable transaction shall be determined on the basis of the price payable for supplies or imports, which the taxpayer receives or has the right to receive from a customer. The latter includes any duties, taxes, and/or other fees excluding VAT. The taxable value of imported goods is the customs value of those goods including all transport, insurance and other expenses incurred during their import, as well as the total amount of customs fees and taxes payable at the import of these goods, except for VAT. The amount of VAT payable to the budget on taxable turnover is determined as being the difference between the output VAT accrued on taxable turnover upon issuance of an invoice and the amount of creditable input VAT paid to a supplier. Input VAT cannot generally be offset when incurred on exempt activities, and should instead be included as part of the cost of goods, works and services. 13 Investment and tax guide

14 VAT incurred on purchases and expenses which relate to both VATable and non-vatable activities must be apportioned. Only the part which is deemed to relate to VATable activities may be offset as input VAT. The VAT amount which is not creditable shall be deducted for CIT purposes. VAT invoices VAT payers are required to issue a VAT invoice (schet-factura) to the recipient of goods, work or services at the time of delivery of goods or services. The Tax Code requires that certain specific information is shown in a schet-factura. The VAT invoice (schet-factura) should be issued in four copies. VAT invoices are published by the authorized typography under the order of the Ministry of Finance. VAT invoice is a document subject to the strict reporting and has respective serial number and protection from falsification. Timing The tax period for VAT calculation is a calendar month. Payers of VAT are required to file monthly VAT returns and pay corresponding VAT due to the budget no later than the 15th day of the month following the reporting month. Reverse charge If foreign companies, which do not have a Tajik tax registration, supply goods, works or services in Tajikistan and these supplies are deemed to be made in Tajikistan according to the place of supply rules, the remittance of VAT is made through a withholding mechanism. The tax-registered buyer of these goods, works and services is required to withhold VAT from the amount payable to the foreign supplier and remit the tax to the budget. 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. Road Tax Taxpayers Payers of the road tax are the taxpayers subject to taxation under general tax system. Tax base Road usage tax base includes taxpayer s total expenses. If the total actual expenses are less than 70% of the gross revenue, the road tax should be applied to the tax base that equals 70% of the gross revenue. Such expenses as construction expenses, purchase of fixed assets and other capital expenses should be excluded from the tax base. Tax rates Road usage tax rate are as follows: 0.5% for trade, procurement activities and supply and sales agency; 2% for other activities. As of January 1, 2015 the road usage tax rate will be: 0.25% for trade, procurement activities and supply and sales agency; 1% for other activities. That tax will be abolished as of January 1, Tax allowances Religious, non-commercial organizations, as well as budget organizations are exempt from the road tax. Tax payments and filing returns Tax payers are required to file monthly returns and pay corresponding tax due to the budget no later than the 15th day of the month following the reporting month. 14 Investment and tax guide

15 Other taxes Land tax Taxpayers Land tax applies to land users who own land or have a temporary or permanent right to its use. Taxable base Land tax is established in accordance with the cadastral value of the land, its quality and location of land, ecological features of land plots and the purpose the plot is used for. Land tax is levied on the area of land in question. Certain exemptions from land tax are provided, with respect to historical or cultural sites, national parks and land used by the state. In cases of joint ownership, the tax base is determined based on each taxpayer s proportionate share of the land. Tax allowances Several tax exemptions are available for land occupied, for example, by disabled people, retirees, and state authorities as well as for the land used for national parks and reserved area. Tax rates The Government of the RT set the land tax rates for each location every 5 year depending on cadastral value of the plot. However authorized state body annually adjust land tax rate taking into account the inflation rate for previous year. Land tax rate may vary from TJS 1.09 to TJS per hectare (approximately USD ) depending on the location and function of the land. Under the Tax Code depending on the size of the land plots the land tax rate should be calculated in following way: Up to 800 square meter basic land tax rates; Over 800 up to 2000 square meter double land tax rates; Over 2000 square meter fivefold land tax rates. Tax payments and filing returns The tax period for land tax is a calendar year, most taxpayers must make advance tax payments quarterly. 15 Investment and tax guide Due dates for payment of land tax are by the February 15th, May 15th, August 15th, November 15th. Deadline for submission of land tax calculation by legal entities is the March 1st of the reporting year. Excise tax Taxpayers Excise tax is payable by companies and individual entrepreneurs making and/or importing excisable goods into Tajikistan as well as carrying out some types of communication services. Excisable goods The primary categories of excisable goods are: spirit, alcoholic and nonalcoholic beverages, tobacco products and tobacco substitutes, mineral oil, petroleum products, bitumenols, mineral wax, liquefied gas, tires and tire protectors, automobiles and other vehicles used for carriage of people and gold, platinum and silver ware. Transactions subject to excise tax Excise tax is generally imposed on excisable goods sold in Tajikistan and on excisable goods imported into Tajikistan. Under the Tax Code activities which are subject to excise tax include, in particular: Mobile phone services of all standards; Telegraph communication and IP communication services; Telematics services; International and long- distance telecommunication services through mobile network. Tax allowances Under the Tax Code exports of excisable Tajik goods outside of Tajikistan are free from excise tax. To obtain this exemption, a taxpayer must comply with certain customs export procedures and present documentation evidencing the export of the goods.

16 Tax rates The tax rates vary depending on the category of excisable goods. The rates are periodically adjusted by the tax authorities. The tax base is determined by either the quantity of excisable goods or the value of such goods depending on whether the tax rates are specific (i.e. a fixed amount per unit) or ad valorem (a percentage of the sales price). The 3% rate applies to some types of excisable communication activity. Excise tax should be charged at the date of sale, which is generally deemed to be the date when the goods are dispatched. In respect of excisable services, excise tax should be charged when the services are performed and invoice for such services are issued. A producer of excisable goods may deduct excise tax paid on the purchase or import of excisable goods used in production of those goods. Tax payments and filing returns A tax period is the calendar month. Deadlines for tax payments and submission of tax returns vary. They primarily depend on the category of excisable goods. For example, in case of production of excisable goods and performing excisable services the tax payment should be proceeded and tax report should be submitted until the 10th of a month; due date for import of excisable goods is set by the customs legislation. Excise tax reports and payments must be made at the location of the taxpayer and by all separate subdivisions which carry out transactions subject to excise tax. Certain alcohol and tobacco products, both domestic and imported, require an advance payment of an excise tax by means of an excise stamp, which must be attached to each excisable item prior to its sale. Tax on simplified system Taxpayers The legal entities and individual entrepreneurs with annual revenue for preceding financial year up to TJS 500,000 or approximately USD 105,000 calculated based on the cash method are entitled to use a simplified system of taxation for small businesses. However, the simplified system of taxation cannot be applied by: Individual entrepreneurs who are taxed based on the patent tax regime; Entities taxed under the special tax regime for agricultural producers; Entities which apply special regime for the gambling activity. In case of exceeding the limit of gross revenue a taxpayer should submit an application to the tax authorities for transfer to general tax regime. Transition from the general regime to the simplified regime and inversely should be implemented from January 1 of the calendar year. The tax payers using the simplified system of taxation are exempt from CIT, road tax, VAT (excluding VAT on import and reverse charge VAT) as well as PIT related to incomes of the individual entrepreneurs. Other taxes should be paid in accordance with general requirements of the Tax Code. Tax base and tax rate The tax base is the revenue gained during a reporting period, excluding excise tax and sale tax, and calculated based on cash method. The tax rates are set as follows: 5% for production activity; 6% for other activities. 16 Investment and tax guide

17 Tax payments and filing returns The tax period is a calendar quarter. Deadline for payment and submission of a tax return is 10th of the month following the reporting quarter. Unified tax for agricultural producers Taxpayers The unified tax apply to companies and private entrepreneurs engaged in the production of agricultural products without further reprocessing. Under this regime, the agricultural producers are exempt from the following taxes: VAT, excluding VAT on import and reverse charge VAT; Road tax; CIT; Land tax. Tax base and tax rates Unified tax for agricultural producers is established in accordance with the cadastral value of the land, its quality and location of land, ecological features of land plots. Unified tax is levied on the area of the land in question. Amount of the unified tax is derived by multiplying land s square by the fixed tax rates. The tax rates vary from TJS 4.08 to TJS per hectare (approximately USD ) depending on the location and type of the land. Tax payments and filing returns The tax period for the unified tax is a calendar year, most taxpayers must make advance tax payments quarterly. The due dates are the 10th of March (15% of annual tax obligation), 10th of June (30% of annual tax obligation), 10th of September (50% of annual tax obligation), 10th of December (100% of annual tax obligation). The deadline for submission of the unified tax calculation is established not later 1 March of reporting year. Sales tax (ginned cotton and aluminums) Taxpayers Sales tax is applicable to certain transactions with ginned cotton and aluminums. Taxpayers engaged in supply, import and export of ginned cotton and aluminums as well as the legal entities and individuals carrying out processing or transfer for processing of mentioned goods are subject to the sales tax. Supply of ginned cotton and aluminums are exempt from VAT. The taxpayers reselling the taxable goods are entitled to offset the sales tax paid upon purchase of these goods. Taxable base and tax rate Generally, the taxable base is a cost of realized and processed taxable goods, which is calculated based on prices of taxable goods set at London Metal Exchange and Liverpool Cotton Association taking into account the quality and sort of the goods. Sales tax rates are established at: 10% for ginned cotton; 3% for aluminums. Tax payments and filing returns The tax payment should be made before supply of taxable goods or within 3 days after receiving of the payment from a customer. The customer within 10 days from the purchase date of taxable goods should provide the tax authorities with a copy of payment documents. A taxpayer must file the monthly tax return no later than the 15th of the month following the reporting month. Water royalty Taxpayers The tax payers are legal entities and individual entrepreneurs using water for generation of electricity in the RT. 17 Investment and tax guide

18 Tax object and tax base Entities or private entrepreneurs using the water facilities for the purposes of generation of electricity are subject to royalty. The tax base is determined as a quantity of generated electricity less transmission losses. Tax allowances Use of water facilities for generation of electricity at the capacity that is less than 1000 kilowatt is exempt from the royalty. Tax rate The tax rate equals 0.06 calculation index (approximately TJS 2.4 or USD 0.5) for each 1000 kilowatt-hour of generated electricity at the end of a tax period. Tax payments and filing returns The tax period is a calendar month. The deadline for payment and submission of a tax return is the 15th of a month following the reporting month. 18 Investment and tax guide

19 Local taxes Real estate tax Taxpayers Real estate tax applies to individual entrepreneurs and legal entities that own or use immovable property. Tax object and tax base The objects of taxation include residential buildings, apartments, cottages, buildings, installations, facilities, and other constructions located on the territory of the RT. The tax is based on the size of immovable property adjusted by the coefficients established by the Tax Code. Tax allowances The property of religious organizations and various types of public organization is tax exempt, as well as property owned by participants of wars, heroes of labor, and participants of Chernobyl disaster and other local events, disabled persons are subject to exemption. Entities having 50% and more of the staff disabled persons are not subject to real estate tax. Tax rates Real estate tax rate depends on the location, functional use, size of the property and other factors. The maximum rate is currently used in major towns of the RT including Dushanbe, Kulyab, Khudjant and Kurgan-Tyube. Rate Types of immovable property 3% Residential building up to 90 square meter 4% Residential building over 90 square meter 12.75% Estate property used for trade, catering activity and domestic services up to 250 square meter 15% Estate property used for trade, catering activity and domestic services over 250 square meter 9% Estate property used for other activity up to 200 square meter 12% Estate property used for other activity over 200 square meter The real estate tax amount also should be adjusted by regional coefficients, which vary from 0.09 to 1.0 depending on the location of the immovable property. Tax payments and filing returns The tax period is a calendar year. Nevertheless, advance tax payments must be calculated and paid not later than the 15th of February, 15th of May, 15th of August and 15th of November of a reporting year. Advance payments are accrued in the amount of not less than 25% of the tax amount of reporting year. The deadline for submission of the calculation of payments for real estate tax is March 1st of the current year. Transport tax Taxpayers Entities and individuals who are registered owners of a transport vehicle are subject to transport tax. The transport vehicles include cars, motorcycles or buses, steamship, boats, and locomotives and other. Taxable base The taxable base for movable property is the engine capacity in horse-powers. Tax allowances Under the Tax Code the following vehicles are exempt from tax: 1. Tractors used in agriculture as well as combine harvesters and special machines including cotton harvesting machines; 2. Buses and trolleybuses owned by companies whose main activity is transportation of passengers; 3. Special medical transport vehicle; 4. Industrial railway transport, excluding locomotives; 5. Cycle-car and cars with manual control used by the disabled people; 6. One car owned by participants of wars, heroes of labor, and participants of Chernobyl disaster and other local events. 19 Investment and tax guide

20 Tax rates The amount of tax payable depends on vehicle s engine capacity determined in horsepowers. # 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% tons 9 Trucks with tonnage 13.5% 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 railway 1% 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

21 Transfer pricing The current transfer pricing rules are included into the Tax Code. Generally transfer pricing rules are substantially based on the OECD Transfer Pricing Guidelines. There are some categories of related parties, according to which the ownership of more than 20% constitutes main criteria for recognition of a related party. A court can recognize parties as being related on the grounds not specified in the law, e.g. if the relationship between such parties have an impact on a transaction. The transfer pricing control may be applied by the tax authorities to review taxpayers' transaction of the following types: related party transactions; barter transactions; cross-border transactions (i.e. a foreign trade transaction ), where one of the party is the resident of certain low tax jurisdiction; one of the transaction party is using a tax benefit or tax privilege regime; transaction price applied by a taxpayer deviates by more than 30% from the market price. If it is established that the taxpayer s price differs from the market price, the tax authorities have the right to assess additional tax liabilities, late payment interest and penalties, based on a price equal to the market price. Tajikistan uses the methodologies similar to the OECD guidelines to determine arm s length prices, that are as follows: (1) the comparable uncontrolled price method; (2) the resale price method and (3) the cost plus method. The law provides detailed guidelines on how to apply each method. Preference is given to the first method, while the other two methods may be used only in the absence of comparables, or information about relevant prices in the market in question. The burden of proof that prices do not meet the arm s length principle falls on the tax authorities. The information required to determine the market prices of goods, works and services should be obtained from the official and publicly available sources, for example database of state bodies, local authorities and information provided by the taxpayers, experts, appraisers. 21 Investment and tax guide

22 Tajik-sourced income of non-resident companies Withholding tax Tajik-sourced income of a foreign legal entity which is not associated with a permanent establishment in Tajikistan ( PE ) may be subject to withholding tax at source. For taxation purposes, a Tajik entity or a foreign company with a registered PE making the relevant payments to a foreign company without a PE has to withhold tax from the Tajiksourced income. The Tax Code defines the term permanent establishment as a place of activity, through which a foreign company fully or partially engages in business activities in Tajikistan. The term is used exclusively for tax purposes and does not affect the legal status of an entity. The following criteria can expressly consider business activity as a PE: a place of production, processing, package and supply of the goods; a place of management (a branch, a representative office, an office, a factory, a laboratory, an agency, a shop, storehouse); a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; a place connected with pipelines, gas pipelines, exploration and mining development, installation and maintenance of equipment; a place connected with the operation of game-playing machines, computer network and communications channel; a permanent base used by nonresident for purposes to carry out the business activity. The PE term also includes: making a collection of insurance premiums and/or carrying out insurance or reinsurance of risks by an authorized agent of a non-resident in the RT; rendering of services by a non-resident through hired personnel during continuous 90 calendar days in the consecutive twelvemonths period; participation of a non-resident in a joint partnership created in accordance with the legislation of the RT; holding of exhibitions for fee by a nonresident; authorization of a non-resident or resident to act on behalf of a non-resident in conclusion of contracts. Withholding tax is applied to the following types of Tajik-sourced incomes: Rate Types of income 12% Dividends, interest and royalties 6% Income from insurance premiums, payable under insurance and re-insurance agreements 5% telecommunication or freight services in international communication and transportation between the RT and other states 6% telecommunication or freight services in international communication and transportation between the RT and other states under the marine freight 15% Other types of income Withholding tax is applicable, regardless of the form of payment, and includes payments inkind, or by way of mutually offsetting liabilities between the buyer and seller. Tajikistan has double tax treaties with the more than 25 countries: Azerbaijan, Armenia, Belarus, Romania, Czech Republic, Indonesia, Iran, Kazakhstan, Kyrgyzstan, Moldova, Pakistan, Poland, Russia, Belgium, Austria, Luxemburg, Brunei, India, China, Latvia, Turkey, Turkmenistan, Switzerland, Japan, South Korea, Ukraine, and United Arab Emirates. It should be noted that the provision of the double tax treaties prevail over the Tajik domestic law. 22 Investment and tax guide

23 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

24 Taxation of individuals Personal Income Tax (PIT) Taxpayers According to the tax legislation both Tajik residents and non-residents-individuals are subject to personal income taxation. Nonresident individuals are subject to taxation only on income from sources on the territory of the RT. Income tax rates Tax rate of personal income depends on monthly minimal salary and is due is taxable at the fixed rate of the annual income less permitted deductions. # Taxable income (on average for a month) 1 Less than calculation index CI (approx. USD 9) Tax rate and tax amount No PIT 2 CI- TJS 140 (USD 29) 8% from taxable income exceeding CI 3 In excess of TJS % plus PIT calculated on TJS Income of nonresident individual 25% Moreover, pursuant to the Tax Code if an employee is having two jobs at a time, employer should withhold PIT at the rate of 13% without allowed deductions, except of social tax. Taxable income The taxable income is defined as gross income, less permitted deductions and exemptions. For personal income tax purposes, gross income is comprised all types of compensations, both in cash and in-kind including: Compensation for employment services, in cash or in-kind including but not limited to: income in the form of a benefit from low-interest loan write-off of debt or liabilities of an employee gratuitous assignment of goods, works or services made by an employer to employee 24 Investment and tax guide insurance premium payments under insurance contract made by employer to employee payments made by an employer on behalf of an employee for his education or its dependent s education and on reimbursement of expenses of an employee not related to main work Compensation for an activity not related to employment: interest income dividends rental revenue royalties Income from write off of the debt Other compensations. Deductions and exemptions Personal deductions The PIT tax rate applies to taxable income after the following types of deduction: Personal deduction amounts to one CI or TJS 40 (approximately USD 8) for each month of his/her accumulated income during the calendar year. The personal deduction is allowed to an employee working on the principal place of work; Personal monthly deduction of 10 CI or TJS 400(approximately USD 85) is granted to persons who are equated to participants of the Great Patriotic War and participants of other military campaigns, the disabled persons as well as citizens-suffered from consequences of nuclear emergency; Social tax withheld at source of income from gross revenue at the rate of 1% is deductible for PIT purposes. Exemptions Non-taxable income includes, but is not limited to: State allowances, including subsidies, pensions, state bonuses, scholarships, funeral expenses, maternity leave and unemployment benefits, as well as addressed social assistance, one-off payments, humanitarian and charitable aid including grants on natural disaster and so on;

25 Income of non-citizen of the RT received from official diplomatic or consular work; Cost of property received as a gift or inheritance; Value of gifts received from legal entities in the amounts up to 100 CI or TJS 4,000 (approximately USD 850), prizes (winnings) derived at the international competitions up to 500 CI or TJS 20,000 (approximately USD 4,255), prizes received at the state competitions up to 100 CI or TJS 4,000 (approximately USD 850) per year; Winnings from government obligations and state lottery issued by Ministry of Finance of the RT up to TJS 50 (approximately USD 11) per one obligation or lottery; Certain cash and in-kind distributions, in accordance with legislation, e.g. per diems special uniforms, personal protection equipment, prophylactic dietotherapy, footwear, and so on; Payments under obligatory employer's liability insurance for health and life trespass to an employee; The reimbursement of certain expenses incurred in the course of business trips and supported by the proper documentation. Tax returns Where tax has been withheld in full at source by a tax agent, individual taxpayer does not need to file a tax declaration. However, a tax declaration will be required if a taxpayer has other sources of income subject to filing obligation. Deadline for submission of an annual PIT declaration is the 1st April of the following tax year. The total amount of tax due, based on a tax return, must be paid no later than 10 April of the following tax year. Social tax Tax payers Social tax applies to the following tax payers: 1) Individual entrepreneurs and legal entities employers, including PE of non-residents paying remuneration to individuals-residents under labor contracts and, paying to individuals-residents for rendered services under civil agreements; 2) salaried individuals; 3) individual entrepreneurs-residents. The following are examples of payments which are not subject to social tax: salary payments to foreign nationals working in the RT within investment projects with the Government of the RT; payments connected with the transfer of property rights or any other proprietary rights; income exempted from the PIT under the tax legislation. Employers and employees, as well as individual entrepreneurs, are liable to pay social tax as follows: Employers (insurers) at a rate of 25% of the gross remuneration; Employees residents of the RT (insured) at a rate of 1% of their gross remuneration; Individual entrepreneurs at a rate of 1% of gross revenue. Payments and reporting The calculation period for social tax is calendar month. Due dates for payment of social tax and submission of tax return are set until 15 of the 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

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

27 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

28 Tax administration Overview The key principles of the Tajik tax system, including types of taxes, the rights and obligations of the tax authorities and taxpayers and procedural aspects of tax administration, are set out in the Tax Code of the RT. The Tajik tax system is administered by the Tax Committee of the Government of the RT. This broadly consists of inspectorates, who carry out day to day operations such as tax registration, tax audits and tax collections, and tax directorates, which supervise the tax inspectorates and perform various other functions. The authorities of these bodies are based on geographical areas (e.g. city or region). Tax audits The tax audit is the main method of controls applied by the tax authorities in respect to taxpayers. According to the Tax Code, the tax authorities are entitled to carry out field tax audit and desk tax audit of taxpayers (individual and corporate). Field tax audit A field tax audit (sometimes referred to as documentary audit) is carried out at the office or business premises of a taxpayer at the initiative of the Head of an auditing tax body. A field tax audit includes the following types of audit: comprehensive tax audit (covering all taxes), targeted tax audit (covering just specific type of taxes); and counter tax audit (covering only transactions with a particular counterparty). Desk (raid) tax audit Generally, a raid tax audit may be conducted as to certain taxpayers in respect of the following tax matters: tax registration of taxpayers, existence and credibility of information re location of the taxpayer; correctness of application of cash registers; observance of rules related to bottling, labelling of excise stamps, realization of excisable goods. Periodicity of tax audits The comprehensive and targeted tax audits may be carried out no more than once a year. The taxpayers with gross revenue for a previous year exceeding TJS 15 million (approximately USD 3 million) shall be audited not more than once per two years. Under the Tax Code an initial full scope and targeted tax audits of a small-scale entity shall be carried out after 24 calendar months from the date of its state registration. Duration of tax audits The duration of a field tax audits should not exceed 30 working days, although it can be extended for 30 working days in exceptional cases. An audit period starts running from the day the decision regarding the field tax audit is issued and handed over to a taxpayer. The tax audit of a small scale entity should be carried out during 10 working days. The duration of the desk tax audit shall not exceed 15 working days. 28 Investment and tax guide

29 Tax audit report No later than 15 working days after completion of the tax audit, the tax authorities must issue a tax audit report. The report must contain the audit findings, specifying what provisions of the Tax Code have been violated or the absence of a violation. If a taxpayer disagrees with the facts, conclusion or suggestion set out in the tax audit report, he may file a written objection together with supporting documents within the 30 calendar days after issuance of a tax audit act. Penalties and interests The Tax Code and Administrative Code set out sanctions which may be imposed on taxpayers for tax violations. The legislation of the RT establishes the following penalty rates for the most common tax violations: Late payment of taxes is subject to interest at 0.08% for each day of non-payment of a tax; In case of violation of tax registration requirements the penalty could be imposed in the amount that vary from 10 CI to 300 CI or TJS ,000 (approximately USD 85-2,550); Conducting of business activities without VAT registration (if it is obligatory for this taxpayer) is subject a penalty of 25% of the VAT amount due; Late filing of a tax return is subject to a penalty CI or TJS 40-4,000 (approximately USD 8-850) depending on the delay period; Obstruction of a tax audit is subject to penalty of CI or TJS 600-2,000 (approximately USD ); Failure by a tax agent to withhold or remit tax may result in a penalty equal to CI or TJS 1,000-8,000 ( approximately USD 210-1,700); Full or partial non-payment as a result of decreasing of a tax base or incorrect calculation is subject to penalty of 25% of the understated tax amount. If the default repeated within one year, the penalty is 40% of the understated tax amount; The failure to file VAT invoices with understatement of VAT or overstatement of VAT offset is subject to a penalty of 25% of the understated or overstated VAT amount. 29 Investment and tax guide

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

31 The PSA tax legislation provides for two modes of production sharing: 1) Production shares of an investors and the Government is calculated based on operating cost of the Investor incurred under the PSA. All operating costs incurred in carrying out the obligations under the PSA shall be recoverable in the form of a Compensation output, which should not exceed 70% of total production output for each reporting period; 2) The order of allocation of production output between parties of the PSA depends on geological evaluation and estimation of costs for development of a mineral deposit, engineering design, and a project s feasibility study. The CIT is never payable under PSAs. The investor also is exempt from VAT in respect of goods imported on the territory of the RT and minerals produced under the PSA. The Tajikistan s practice of PSAs is not wide and currently a few PSA is in effect in Tajikistan. First PSA was concluded with Tethys Petroleum Limited in 2008 to develop oil and gas condensate field located in Kulob. In 2012 the Government of the RT signed PSA with Somon Oil (subsidiary of Santos and DWM Petolium ) to develop oil deposits located in Sogda region. Recently the PSA with Tethys Petroleum Limited, Total and China National Petroleum Corporation was concluded, in accordance to which the Government of the RT granted the right to develop Bokhtar oil deposit for newly created company Bokhtar Operating Company. 31 Investment and tax guide

32 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. 32 Investment and tax guide