ON LEGAL STATUS OF SOME ASPECTS RELATED TO A FOREIGN COMPANY’S BRANCH AND REPRESENTATIVE REGISTRATION AND THEIR ACTIVITY IN TURKMENISTAN
In order to identify the legal status of the above issues it is necessary to explain the essence of the following concepts used in the legislation of Turkmenistan:
1. The term “a branch and an agency” as a subject of enterprise id defined by the Law of Turkmenistan “ On Enterprises” (Art.12) and the Law “ On Joint-Stock Companies”
The most readable formulation of a branch and an agency is given by the Civil Code of Turkmenistan in Article 56:
«an Agency is a separate subdivision of a legal entity, situated outside its seat and performing protection and representation of the interests of the legal entity, performing transactions and other legal actions on behalf of the legal entity”.
«a Branch is a separate subdivision of a legal entity, situated outside its seat and performing all or part of its functions including the functions of an agency.”
As far as the Civil Code identifies a branch and an agency as separate subdivisions of a legal entity, and as far as they do not fully correspond to the legal entity concept (CC of Turkmenistan, Art.48-50), they both perform their activity in compliance with the Charter approved by the founder (founder’s authority) and a power of attorney issued to the head of a branch or an agency
Specific characteristics of the above structures:
1. Within Turkmenistan an Agency only has representative capacity including advertisement of the company’s activity, participation in exhibitions, receiving and accommodating company representatives, whereas a Branch implements rather adequate range of economic activity and has the right to perform all types of commercial activity un-prohibited by the legislation.
Therefore a Branch and an Agency only perform in the name and at the expense of the primary corporation and per procurationem.
Types of a Branch activity should correspond with the types of economic activities stated in the State Classifier of the types of economic activities of Turkmenistan put into force on 2003.07.01, taking into account Methodological guidance on the use of this Classifier approved by the National Institute of State Statistics and Information of Turkmenistan (Turkmenmillihasbat) dated 12.05.2003.
It is important to note that a Branch and an Agency can only participate in tenders in Turkmenistan ex parte and at the expense of the primary corporation. Therefore a tender winner – the primary corporation will sign a contract with the customer. As a rule the Turkmen side requires form a contract holder (the prime corporation) to establish its branch in Turkmenistan for efficient resolution of issues arising in the country, including render of services.
2. An Agency is not imposed taxes and levies on its activity (on profit, on property and VAT) excluding allocations for social insurance for local employees and income tax which is withheld from the salary of local employees as a tax agent.
Налогообложение филиалов иностранных компаний отличается от налогообложения местных компаний, что закрепляется нормами Налогового Кодекса Туркменистана. Однако, с учетом Межправительственных соглашений об избежании двойного налогообложения, налоговое положение филиалов компаний из разных стран различаются.
A branch of a foreign company pays the following taxes:
3. On Foreign exchange regulation: Article 3 (Means of payment). The law “On the Unit of Money” approved in 8.10.1993 г. says: ”The only legal tender within the territory of Turkmenistan is Manat. Use of foreign exchange within the territory of Turkmenistan is regulated by other law of Turkmenistan and regulations of the Central Bank of Turkmenistan”.
Article 6 of the law of Turkmenistan “On Foreign Exchange Regulation” also states that “The only legal tender within the territory of Turkmenistan is Manat.”.
Therefore legal entities and individuals (non-residents) are not able to transfer foreign exchange from one account to another within Turkmenistan.
According to Article 1 of the law of Turkmenistan “On Foreign Exchange Regulation” physical and legal persons and entities without the status of legal entity both in the territory of Turkmenistan and outside and being non-residents of Turkmenistan are recognized as non-residents
A branch of a foreign company is obliged to open a manta account and can keep a foreign exchange account with the banks of Turkmenistan as a non-resident. The Decree of the President of Turkmenistan “On Measures to Regulate Foreign Exchange Transactions in the territory of Turkmenistan” № 5490 dated 7.01.2002 approved “Instruction on the Order for Foreign Exchange Transactions in the territory of Turkmenistan” This Instruction words different types of foreign exchange transactions in Turkmenistan. However this Instruction does not regulate the right of a branch or a representative office of a foreign company to receive foreign exchange in Turkmenistan. Only foreign exchange from abroad can be transferred to a foreign exchange account of a branch in Turkmenistan. A branch can only make payments abroad via its foreign exchange account, excluding specific cases, when the Government claims the branch pays for some services within the country in foreign exchange (eg. Rent of space, communication services etc.)
It should be mentioned that according to clause 3 of the Decree of the President of Turkmenistan №4715 dated 15.06.2000, “advance payment for imported goods, works and services to Turkmenistan is made only in case the Supplier can provide a guarantee of a prime foreign bank to reimburse funds in case of non-fulfillment of contract obligations by a foreign supplier (contractor) or in case of liquid collateral availability within the state”. This claim was also confirmed in the Decree of the President of Turkmenistan №4785 dated 01.08.2000.
It is necessary to note that according to Art.4 of the law “On Foreign Exchange Regulation” the Central Bank of Turkmenistan works out the order for exchange rate determination. The official exchange rate is applied to all accounting transactions in the accounting of all the companies.
That is why a Representation must purchase mantas in commercial banks via selling foreign exchange at the official rate, which is much lower than commercial rate at the moment. Whereas the branch has the right to charge both foreign exchange and local currency (manat) for its services, implemented works and economic activity performed. For example, a branch can render any services (backup service of the previously supplied equipment or other equipment), while a representation has no such rights.
4. As a rule a branch can employ unlimited number of persons based on its scope of work, whereas a representation can only employ office staff.
5. In general legal and actual status of a foreign company branch in Turkmenistan is higher that that of a representation.
Similar features of the above structures:
1. Both a branch and an agency are founded and registered in Turkmenistan for the period of 2 (two) years. It is possible to further repeatedly extend the period of a branch or an agency’s activity. The order for foundation, functioning and liquidation of a branch or an agency of a foreign company is set in the Decree of the President of Turkmenistan №2650 dated 06.06.1996 and in other legal acts and regulations.
2. State due for the registration of a branch or an agency is USD3000 (three thousand). For further two-year extension it is 25 (twenty five) % of the initial amount.
Any change in the constituent acts of a branch or an agency (e.g. Legal address) needs state registration, the state due is USD750 (25 % of the initial state due).
3. A branch or an agency is not legal entities of Turkmenistan. They perform their activity in compliance with the registered Charter and a Power of Attorney issued to the head of the branch (agency) by the managers of the parent company. The power of attorney can be valid within three calendar years according to the law of Turkmenistan “On the State Notarial System”
4. Documents to be submitted for the state registration of a branch or an agency of a foreign company in Turkmenistan are identical:
1. Application for the foundation of a branch or an agency. It should contain the objectives of their activity in the territory of Turkmenistan, information about the investor (company) and its current activity (signed by a founder).
2. A decision on the establishing of a branch or an agency (signed by the founder).
3. Regulation on the branch or an agency established in two copies in Russian and Turkmen (signed by a founder).
4. A questionnaire of the head of a branch or an agency. His/her picture (3*4) and passport copy must be attached.
5. A Power of Attorney issued to the head of a branch or an agency in Turkmenistan in a stated form.
6. A copy of the Charter of a foreign company – investor, certified by the consular office of Turkmenistan abroad or by the Ministry of Foreign Affairs of Turkmenistan.
7. An original statement from the document on official registration of a foreign investor, issued by the registration office in the home country of the investor.
8. A written confirmation of the availability of a legal address, issued by the khakimlik of a velayat or Ashgabat
9. Receipt on the payment of registration fee.
Documents are prepared in the language of the county of investor with related original stamps (fax copy is not acceptable), translated into Russian and Turkmen. Translation is certified by the agency implemented translation. As a rule documents are translated and certified by the Chamber of Commerce of Turkmenistan.
It should also be mentioned that for the registration of any company, enterprise or organization including those with foreign capital participation and branches and agencies of foreign companies, it is necessary to submit a package of documents to the Interdepartmental Commission at the Ministry of Economy and Finance of Turkmenistan.
For the registration of a foreign company’s branch the following documents should be submitted:
1. Application for the foundation of a branch. It should contain the objectives of its activity in Turkmenistan, information of the company-investor and its current activity (it is printed on a company’s letter head, signed by the authorized head of the company and stamped). A copy is not accepted. Our lawyers can prepare the draft of the application.
2. Decision on the foundation of a branch – in 2 copies (signed by the founder or other officer from the executive body of the company and stamped). In some companies the Board or Shareholders General Meeting take a decision on the foundation of a branch, in some cases this decision is taken by the authorized head of the company. In any case this option must be mentioned in the Charter of the company. Therefore the decision about a branch (an agency) foundation must be signed by the authorized body or a company representative. The decision must contain Decision on the branch foundation in Turkmenistan and decision on appointment the head of the branch with a general (or ordinary) license issued to him on behalf of the company. Our lawyers can prepare the draft of the Decision.
For the branches of foreign companies the main issue is the list of types of activities. Our lawyers can prepare the list of the types of activity selected from the State Classifier (see above) on the basis of authorized activity of a foreign company and coordinate this list with the local Statistics Department (in writing).
3. Regulation on the founded branch – two copies in Turkmen and in Russian (signed by the founder or an authorized person). To make it more convenient for the client out lawyers prepare the draft of the Regulation. The content shall be agreed with the client. Cover page of the Regulation (the first page) is standard and contains general information (company’s name, when, by whom and by what document the Regulation on the branch or an agency was approved). That is why the cover page in Turkmen and Russian in two copies is signed by the client and submitted to the lawyers to start the registration process. There may be some changes in the content of the Regulation during the registration process. As a rule the lawyers prepare the initial text of the Regulation in Russian with further translation into Turkmen.
4. Inquiry form (personal information) of the head of a branch or an agency in Turkmenistan with a passport copy and a picture of 3*4 attached. Inquiry form in Turkmenistan is standard and can be filled in by our lawyers. For this purpose we need the following information: passport, marital status, list of educational institutions, and description of work experience.
5. Power of attorney issued to the head of the branch in Turkmenistan prepared according to the standard norms in 2 copies. It is necessary to mention that this document must be legalized (in the embassy and in the consular department of the Ministry of Foreign Affairs). Our lawyers include expenses related to the power of attorney legalization into the total price of the services. In case a company concludes a contract with us for legal services it is necessary to issue a power of attorney to our lawyer for performing activity related to the registration of the branch. This power of attorney is issued for 2-3 months maximum and only stipulates activity related to the registration of a branch or other structure. If we have the power of attorney then the presence of the head of the branch during the period of registration is not necessary (under condition we are given all necessary documents). The power of attorney should be written on the letter head and has a stamp of the head office of the company. The head of the branch is usually given the General license. Nevertheless he must follow the Regulation of the branch with related rights and responsibilities.
6. Copy of the Charter of a foreign company - investor, certifies (legalized) by the consular office of Turkmenistan abroad or by the Ministry of Foreign Affairs of Turkmenistan. For the companies from CIS countries certification can be made by the notary office of the country where the company is registered. In case a foreign company submits documents without certification the lawyers must legalize them first in the embassy of the country where the company is registered and later in the consular department of the Ministry of Foreign Affairs of Turkmenistan.
7. An original statement from the document on official registration of a foreign investor, issued by the registration office in the home country of the investor. The statement must be certified (legalized) by the consular office of Turkmenistan abroad or by the Ministry of Foreign Affairs of Turkmenistan. It is necessary to submit all the documents related to the registration of your company in the home country. They differ by countries and we can provide related information. For the companies from CIS countries certification can be made by the notary office of the country where the company is registered.
8. Summary on the company’s activity (on a letter head, signed and sealed – the original). This document must be written on the letter head of the company, be signed by the authorized head, contain short information of the company’s activity and a short description of its future activity. You may mention what tenders your company is going to participate, what types of contracts you expect to be concluded etc.
Note: Advertising material (booklets, video clips etc.) should not be attached as necessary material for registration. An investor can submit it for the members of the Interdepartmental Commission.
9. Bank certificate on the financial situation of the foreign investor – original in two copies. This certificate is issued by the company’s bank and contains general information about the client’s history, its reliability, absence of debts and its financial discipline.
10. Written confirmation of the legal address, issued by Khakimlik of the velayat or of Ashgabat city. According to Article 55 of the Civil Code of Turkmenistan each company (branches and agencies) must write its legal address in the territory of Turkmenistan in the Regulation on the branch (or an agency). For this purpose a branch must conclude a contract for office rent or receive a guarantee letter from a lessor company. It is reasonable to make a rent contract. As a rule initially it is made for 3-6 months (approximate cost of 1 sq.m. of rented space is USD 10-14 per month minimum). Our lawyers provide assistance in finding the best office and making rent contracts. During the registration process the lawyers receive a written certification of the legal address form Ashgabat city hall (or from velayat) and submit it to the Interdepartmental Registration Commission.
11. Receipt on the payment of registration fee. The registration fee in amount of USD 3 000 is paid to the centralized budget of Turkmenistan. The payment may be both in cash and by bank transfer. Note: for cash transfer it is necessary to open an account with the Ministry of Economy and Finance of Turkmenistan and this process takes a while. We will not be able to receive registration documents (certificate, Regulation on the branch (agency), statement from the Unified State Registry) until cash is entered in the budget account (in amount of USD 3,000).
In case of cash payment the bank issues supporting documents to be submitted to the Ministry of Economy and Finance of Turkmenistan.
Consequently during the registration process our lawyers can prepare drafts of the following documents in addition to the support of the registration process:
2. Short information about the company’s activity,
3. Written confirmation of the legal address,
4. Regulation on the branch of a company (in Russian and in Turkmen),
5. Decision of the foundation of a branch,
6. Power of attorney (to the head and the lawyer),
7. To make a rent contract and to pay a state fee on behalf and at the expense of the client.
If there is no company’s representative in Turkmenistan, it is necessary to provide our lawyer with letterheads (the lawyers are to write a number of letters to register the branch (agency) with the tax inspection and a statistics department, to open Manat account with a bank, to order a round stamp etc.). For this purpose we need at least the scanned version of the letterhead. In the course of our activity we will provide you with copies of all the letters prepared and sent by our lawyers.
The lawyers will also provide rent documents and receipts for state duty payment in case they are entitled to perform these transactions.
5. And the last thing, it is necessary to keep in mind that despite the equal amounts of the state duty and equal number of the documents to be submitted for the registration, temporary and material expenses related to the registration of a branch are much higher than those of the agency registration. This is due to the fact that the branch (unlike the agency) performs an economic activity in Turkmenistan and the registration process is more complicated and takes more time.