CONCERNING APPLICATION OF PART 2 OF THE ARTICLE 144 OF TAX CODE OF TURKMENISTAN
I. Legal person – non-resident, who does not have any permanent representation in Turkmenistan in the capacity of a payer of the property tax:
1.Part 2 of the Article 144 (Rating of tax amount) of Tax Code of Turkmenistan is read as follows:
2.Legal person – non-resident of Turkmenistan, who’s activity is not conducted through the branch, representation or permanent representation and who possess the immovable property in Turkmenistan, is obliged to be registered for tax accounting in the corresponding tax service and independently execute all obligations on payment of tax on immovable property”.
In a state language part 2 of the Article 144 is read as follows:
«2. Türkmenistanyň çäklerinde şahamçanyň, wekilhananyň ýa-da hemişelik wekilhananyň üsti bilen iş alyp barmaýan we Türkmenistanyň çäklerinde gozgalmaýan emlägi bolan Türkmenistanyň rezidenti bolmadyk daşary ýurtly edara görnüşli tarap degişli salgyt gullugynda salgyt hasabyna durmaga we gozgalmaýan emläk üçin salgyt tölemek borjuny ýerine ýetirmäge borçludyr».
Thereby as in a state language, so in Russian, the text of this norm specifies the obligation of non-resident not establishing the permanent representation to register for tax accounting and independently pay property tax. From this norm two obligations are coming out: first – registration for tax accounting and second – independent payment of the property tax, if he possess an immovable property in Turkmenistan.
It is necessary to mention that specified obligations of non-resident occur only in case if he possesses an immovable property.
Here we have to understand two principal issues:
1. Who is the payer of property tax and
2. What is the subject of such type of tax.
As for the first issue, we have to refer to indent 5 of paragraph 2 of the Article 138 of Tax Code of Turkmenistan, which says that “at operation of the construction facility that was not put into operation in the established order or was not counted in the form of main means, the obligation on tax payment in relation to such facility shall be borne by the Client, the Contractor in such case shall be released from tax payment for such facility”. Thereby, incompleted construction facility may not be a property of the Contractor (construction company) and besides, in all similar cases the property tax for such facilities is paid by the Client. In this Article it is directly said that the Contractor is released from payment of tax for such facility.
As for the second issue relating to the object of taxation it is necessary to specify sub-paragraph b of paragraph 1 of the Article 139 (Object of taxation) of Tax Code of Turkmenistan, which says that the object of taxation is “b) for legal person – non-resident of Turkmenistan who’s activity in Turkmenistan is not implemented through branch office, representation or permanent representation – the immovable property for production purposes and located in Turkmenistan”
In a state language it sounds similar:
ç) Türkmenistanyň çäklerindäki işi şahamçanyň, wekilhananyň ýa-da hemişelik wekilhananyň üstünden amala aşyrylmaýan Türkmenistanyň rezidenti bolup durmaýan daşary ýurtly edara görnüşli taraplar üçin - önümçilik maksatly we Türkmenistanyň çäklerinde ýerleşýän gozgalmaýan emläk.
Therefore, any immovable property of non-production purposes is not an object of taxation for non-resident. In this part we have to admit referring to Article 138 of Tax Code of Turkmenistan that any and all uncompleted construction facilities by its nature may not be “the object of production purpose” until the construction of this facility is completed.
II. Concept “an immovable property” in accordance with legislation of Turkmenistan:
The Article 1 (Right of property) of Law of Turkmenistan “On property” dated 01.10.1993 says that:
“1. The right of property is an accepted and protected by law the capability of the party of property right (hereinafter referred to as “owner”) at his own discretion to possess, use and dispose of property objects.
1.The Owner shall have right to conduct any actions that do not contradict legislation of Turkmenistan in relation to its property.
2.The Owner shall have right to assign its right of property for use and disposal of its property to other persons…” Therefore, any property may be defined as belonging to the Owner, if there are all three elements defining the concept of property: possession, use and disposal. But, the basic element defining the property is the right of the Owner to dispose of its property that includes execution of all and any actions in relation to property, including the right to sell, gift, mortgage, issue promissory notes and etc.
It is also necessary to mention Article 4 (The objects of property right) of Law “On property”, where it is specified that “the objects of property may be land, its resources, water resources, forest resources, flora and fauna, mining leases, property complexes, buildings, facilities, housing and communal facilities, equipment, monetary funds and other objects of property of production, consumer, social, cultural and other purposes, items of culture, inventions, discoveries, industrial samples, trade marks and service marks, other results of the intellectual labor.”
Article 4 (Objects of accounting) of Law of Turkmenistan “On accounting” dated 20.12.1996 says that “The object of accounting is the capital of the enterprise (organization) and executed economic operations reflecting the condition and movement of material and monetary funds, obligations, investments within the process of its financial and economic activity, sources of formation”. As it can be seen from this text, the fundamentals of the accounting do not provide with the concept of accounting of the immovable property.
The text of the Article 12 (Active and passive capital of the enterprise (organization)) of Law “on accounting” is also interesting. It says that “The capital of the enterprise (organization) in accounting is divided to active and passive capital”.
Active capital is the collection of main assets, intangible assets, financial investments, tangible circulating assets, means on current accounts and monetary funds.
Passive capital consists of chartered (authorized), reserve, and special funds (fund-in-trust) and retained income that are forming the owned capital, and also loans, credits, current bills payable that comprise loan capital. As we can see from this text, the concept of “immovable property” is not applied by norms of accounting.
It is also necessary to consider Article 14 (Assessment and accounting of permanent assets and non-material resources) of Law “On accounting”. It specifies that “main assets are the complex of physical items and valuables in kind, acting within the long period of time.” The main assets are capital expenditures for land improvement (reclamation, drainage, irrigation and other works), and also land plots and nature management facilities under ownership of the enterprise (organization).
Immaterial resources are rights on “know how”, industrial designs, trademarks, PC software purchased through patents on invention, copyrights and other items bringing revenue that are in the property of the enterprise for more than one year. Thereby we may state that the immovable property is related to main means and does not comprise any separate group of material values for the accounting.
Then in the Article 14 it is specified that “the value of permanent assets and immaterial resources shall be paid on a monthly basis by depreciation accounting that is counted as the expenses of the production within the normative terms of their use. The depreciation accounting of main means is done notwithstanding the results of the economic activity up to full payment of the value of main means or their elimination. At full payment of depreciation charged, the main means are evaluated in accordance with the price of their possible use or selling. The norms of accumulated depreciation are established by the Cabinet of Ministers of Turkmenistan.”
Norms of depreciation of immaterial resources are defined by the enterprise (organization) taking into account the terms of their use. For immaterial resources, whose useful life is impossible to define, the norms of depreciation are defined to the term of up to 10 years, but not more that the terms of activity of the enterprise (organization).
And in the end we consider necessary to pay attention to articles 166 and 167 of Civil Code of Turkmenistan (part 2 Right of property, section 1 – Property). So, the Article 166 (The concept of property) says, that “the property is any subject and immaterial wealth that may be possessed, used and disposed by physical and legal persons and purchasing of which is possible without limitations, unless it is prohibited by law and does not contradict to norms of moral”.
The basic item is the Article 167 of the Civil Code of Turkmenistan, which defines the concepts “Movable and immovable things” and says:
1. The things may be movable and immovable.
2. The immovable things (immovable property) are: land plots, subsurface areas, separate water bodies and everything related to earth, i.e. facilities, the movement of which is impossible without damage, including forests, perennial plants, buildings, facilities.
3. Things not related to immovable property, including money and securities are considered as movable property.
Thereby in order to define the main issue – does the Contractor possess any immovable property in Turkmenistan – we have to know exactly that first of all, any object of immovable property of non-production purpose does not comprise the object of taxation for non-resident, who does not have a permanent representation in Turkmenistan, and secondly, in the article 167 of Civil Code of Turkmenistan it is specified that the immovable property includes buildings and facilities but not incomplete construction facilities.
And at last we consider necessary to notice “the Provision about the Client-Developer”, approved by the Decree of the Ministry of construction and construction materials industry of Turkmenistan № МС – 10 and dated May 14, 2003. It is necessary to mention that the most important are the following concepts:
The Client is legal or physical person, authorized by the investor (or himself is an investor) to implement the project for construction of the facility.
The Developer is legal person, who in accordance with the right on property or leasing possesses the land plot and who made a decision on implementation of the program for construction of complex of facilities on such land plot, who defines the methods of financial provision of construction and coordinates the works for implementation of such program.
The Contractor is physical or legal person, who executes the works or renders services under contractor’s agreement and/or state contract.
But in the text of this document we did not find any provisions or requirements that oblige non-resident, who executes the construction of the facility in the capacity of the Contractor, to register for tax accounting and independently pay property tax in relation the facility.