Value-added tax (VAT)
As part of the gradual incorporation of Kyrgyzstan into the Eurasian Economic Union and the harmonisation of tax legislation between the member countries, the VAT part of the Tax Code has been amended.
In Kyrgyzstan, VAT is assessed on taxable supply and taxable imports. Input VAT assessed on purchases used for business purposes is generally offset against output VAT on taxable supplies. The VAT rate is 12%. Certain supplies are eligible for zero-rate VAT; there are also VAT-exempt turnovers (see below).
All taxpayers registered for VAT purposes are required to charge VAT on their taxable supply and to calculate and report their VAT liabilities. The threshold for obligatory registration as a VAT payer has been increased to 8 million Kyrgyzstani som (KGS). Even if an entity is not required to register for VAT purposes, it may still do so voluntarily by submitting an application to the appropriate tax committee.
Place of supply of goods
Goods and services are subject to VAT if they are deemed to be supplied in Kyrgyzstan under the place of supply rules. According to these rules, transactions are deemed to be made at the place where transport of the goods begins if the goods are transported by the supplier and at the place where the goods are transferred to the customer in all other cases. The rules regarding services are more complicated. Services that are not specifically mentioned are deemed to be supplied at the place where the service provider has established a place of business. Certain other services are deemed to be supplied at the place of the purchaser.
Import of goods
Generally, imports of goods are subject to VAT.
Non-deductible input VAT
The input VAT is not allowed for offset if it is subject to payment in connection with the receipt of goods, works, or services not related to entrepreneurial activity, or if it relates to inputs for VAT-exempt supplies.
Certain supplies are zero-rated for VAT purposes. These include exports (except for certain limited types of export), international transportation, and services connected with the service of transit air flights related to international transportation. Supply of goods, works, or services for official use of diplomatic and consular representations is taxable, but may be refunded, provided that certain conditions are met.
Certain supplies are VAT-exempt, including supplies and exports of gold and silver alloy and refined gold and silver; supplies of pharmaceuticals; land plots; supplies and import of jet fuel consumed by international air carrier operators; vehicles powered only by an electric motor produced at local enterprises; component parts for installation of tractors and vehicles; residual buildings and construction; insurance, pension, and financial services; and export of works and services. When a taxpayer generates both taxable and exempt supplies, input VAT proportional to the ratio of the exempt supply to the total supply is disallowed for offset.
Entities operating machine-tractor stations and trade-logistic centres for agricultural purposes can be exempt from income tax, VAT (including import VAT on certain properties), and sales tax.
Certain imports are VAT-exempt, including imports of technological equipment, if used for one’s own production purposes. A preferential offset method of VAT settlement in respect of certain fixed assets imported to Kyrgyzstan is also available.
The current Tax Code does not have any provisions on reverse-charge VAT.
VAT liability calculation and VAT offset carryforward
In general, the VAT liability of a taxpayer is calculated as output VAT (i.e. VAT charged by a taxpayer) less input VAT (i.e. VAT paid by a taxpayer to its suppliers) in a reporting period. The excess of input VAT over output VAT may generally be carried forward against future VAT liabilities.
The tax period for VAT is a calendar month. The submission of the VAT declaration is due by the 25th day of the month following the reporting period (except for major taxpayers, for which it is due by the end of the month following the reporting period). Payment of the VAT liability is due by the 25th day of the month following the reporting period.
Obligatory implementation of e-invoices is expected for all VAT payers, importers, and exporters starting from 1 July 2020.
Sales tax is assessed on Kyrgyz legal entities or foreign entities operating through a PE in Kyrgyzstan for any sales of goods or rendering of services. The sales tax mechanism differs from VAT, i.e. sales tax is levied for whole sales turnover and does not take into account the purchases (input turnover).
Sales tax rates are as follows:
- In case of sale of goods, works, or services that are VATable and VAT exempt that are paid for in cash:
- Trading activities: 1%.
- Other activities: 2%.
- In case of sale of goods, works, or services that are VATable and VAT exempt that are paid for via non-cash settlement: 0%.
- In case of sale of goods, works, or services not outlined above:
- Trading activities: 2%.
- Other activities: 3%.
- 2% for banks.
- 5% for mobile communication activities.
The Kyrgyzstan Tax Code further defines ‘trading activities’ as activities on sale of goods purchased for re-sale purposes.
The tax period of sales tax is a calendar month. Taxpayers have to submit tax returns and make payments of sales tax at the place of tax registration by the 21st day of the month following the reporting month.
Customs duties and regimes
According to the Customs Code, the customs value of goods imported to the customs territory of Kyrgyzstan is determined by applying the following methods:
- Transaction value of imported goods.
- Transaction value of identical goods.
- Transaction value of similar goods.
- Deductive method.
- Computed method.
- Provisional method.
Based on the Kyrgyzstan customs legislation, the rates of customs duties may be:
- Ad valorem: Charged in percentage to customs value of the taxable goods.
- Specific: Charged within established size for unit of the taxable goods.
- Combined: Including both above mentioned types.
The rates in percentage range from 0% to 65%.
Generally, all entities or persons have equal rights to import and export or transfer goods into the Kyrgyzstan territory, including when carrying out foreign trade activity, except in special cases as stipulated by legislation and international treaties.
Import of certain goods (e.g. weapons, nuclear materials) is subject to licensing.
Temporary import relief
There is a temporary import regime under which foreign goods are used in Kyrgyzstan with full or partial conditional exemption from the payment of customs duties and taxes and without application of non-tariff regulatory measures. The term of the 'temporary import' customs regime may not exceed two years.
Customs duties incentives
Certain items are exempt from customs payments, including:
- Transportation vehicles used in the international conveyance of passengers and goods and items of material and technical supply in transit.
- Goods imported in the customs territory or imported from the customs territory for official and personal use by official state representatives of foreign states.
Kyrgyzstan provides preferential rates or exemptions on the importation (and export) of certain goods, including goods originating from the states that form free trade zones or a customs union with Kyrgyzstan and goods originating from developing countries, included on a special list provided by the government.
Documentation and procedures
Kyrgyzstan pays close attention to formalities/documentation, so it is necessary to furnish the customs authorities with a set of required documents. For import, such documents usually include cargo customs declaration, invoices, contracts, etc.
Warehousing and storage
There is a bonded warehouse customs regime in Kyrgyzstan. Under this regime, imports entering into Kyrgyzstan may be stored in special facilities or special areas that have the status of a customs warehouse under the customs legislation of Kyrgyzstan. This regime implies exemption from customs duties and taxes.
Generally, most goods (unless otherwise specifically provided for) can be placed under the bonded warehouse customs regime. The period for storage of goods at a bonded warehouse is determined by the person placing the goods into the customs warehouse but cannot exceed three years from the date when the goods were placed under the bonded warehouse customs regime.
The re-export regime is similar to that used in international practice. It is defined as a customs regime under which goods previously imported into Kyrgyzstan are exported without payment or with a refund of the paid amounts of import customs duties and taxes and without applying the non-tariff regulatory measures with respect to the goods in compliance with Kyrgyz legislation.
There are certain conditions under which goods can be re-exported. Customs duties and taxes are not charged for goods declared as goods intended for re-export. However, if the goods do not meet the re-export criteria, customs duties and taxes are paid in the amount that would be payable if the goods, at their importation, were declared for release for free circulation, as well as interest on them paid at the National Bank rates, as if deferment was provided with respect to the amounts at placement of the goods under the customs regime of re-export.
Certain goods manufactured in Kyrgyzstan or imported to Kyrgyzstan are subject to excise tax. These include certain alcohol and alcoholic drinks, fortified drinks, beer, tobacco goods, platinum, and oil products.
The rates of excise tax are adopted annually by the Kyrgyzstan government and range from KGS 30 for 1 litre of beer (pre-packaged and not packaged) to KGS 5,000 for 1 ton of fuel. In 2018, the rates of excise tax for tobacco goods increased to KGS 460 per 1 kg, and for cigars to KGS 115 per 1 unit. Note that the excise tax rate for cigarettes and cigarillos increased in 2018 to KGS 1,250 and KGS 920 per 1,000 units, respectively.
From January 2020, the excise tax rates for ethyl alcohol and certain types of alcoholic beverages have been increased as follows:
- Vodka and alcoholic beverages, fortified drinks increased from KGS 70 to KGS 100 per litre. The excise tax on this category of alcoholic beverages will be KGS 120 per litre in 2021, KGS 140 per litre in 2022, and KGS 160 per litre from 2023.
- Ethyl alcohol is set at KGS 100 per litre (previously it was KGS 70 per litre). In the next three years, the excise tax will increase by KGS 20 annually.
- Cognac increased from KGS 52 KGS to KGS 70 per litre. This amount will be KGS 80 per litre in 2021, KGS 90 per litre in 2022, and KGS 100 per litre from 2023.
- Low-alcohol drinks is set at KGS 200 per litre (previously it was KGS 70 per litre).
There are no stamp taxes in Kyrgyzstan.
Subsurface use taxes
The subsurface use taxes consist of separate bonus and royalty taxes on subsurface users, both Kyrgyz legal entities and branches of foreign legal entities. Under Kyrgyz legislation, subsurface users are legal entities and individuals who perform exploration and/or extraction of mineral resources except for specialised water supply organisations for the selection and use of groundwater and organisations for the selection of groundwater for drinking water supply to settlements, as well as for rural producers in livestock, crop production, and fish farming fields.
The government, depending on the type of mineral resources, establishes the bonus rates.
The royalty rates are estimated either as a percentage of sales turnover (1% to 12%) or in absolute terms in Kyrgyzstani som, depending on the type of mineral resources.
The employer is obligated to withhold and transfer to the budget the income tax from its employees’ gross remuneration less allowable deductions. The income tax rate is 10%.
The social security system in Kyrgyzstan is comprised of the Pension Fund, Obligatory Medical Insurance Fund, and Employees Recovery Fund. The employer pays social contributions at 17.25% of employees’ gross remuneration from its own funds.
The employer is also required to withhold social contributions at 10% out of the salary that is payable by the employees to the Pension Fund and State Saving Fund.
Tax on crypto mining
The tax on crypto mining was added to the Kyrgyzstan Tax Code that entered into force from 22 of August 2020. Companies and individual entrepreneurs engaged in crypto mining activities should pay tax on crypto mining at the rate of 15% instead of the following taxes:
- Profit tax.
- VAT on taxable supplies.
- Sales tax.
As per the Tax Code, crypto mining is an activity that uses software and hardware to perform computing operations that ensure the functioning of the register of transaction blocks (blockchain) by entering information about operations performed between users into a distributed register (according to pre-defined rules and principles), which requires continuous power supply. Crypto mining can be accompanied by the creation of a virtual asset that comes into the possession of the person who performs mining, as a reward for confirming transactions in the distributed registry.
Based on the Decree of the Kyrgyzstan Government #625 dated 25 December 2020, the form of the crypto mining tax return FORM STI-163 was approved.
The base of taxation for crypto mining is the accrued amounts for electricity consumed during mining, including VAT and sales tax. The tax period for tax on crypto mining is one calendar month.
There are two local taxes in Kyrgyzstan, property tax and land tax.
Property tax is a local tax payable quarterly by legal entities owning transport vehicles and immovable property in Kyrgyzstan, including apartment houses, apartments, boarding houses, holiday inns, sanatoria, resorts, production, administrative, industrial, and other buildings or facilities. Certain real estate may not be subject to this tax according to special lists approved by the government.
In respect of immovable property, the tax rate is established by the city or local authorities at a rate not to exceed 0.8% of the taxable base, except for apartment houses and apartments designated solely for residence, for which the rate may not exceed 0.35% of the taxable base. For transport vehicles, the tax is computed in Kyrgyzstani som, depending on engine volume and year of production.
Land tax is paid quarterly by legal entities on the area of owned land. The basic rates are provided in the Tax Code, depending on the location and purposes of the land. The basic rates may range from KGS 0.9 to KGS 2.9 per square metre.
The Tax Code does not provide an environmental or green tax in Kyrgyzstan. However, the Decree of the Kyrgyzstan Government #625 dated 10 September 2015 stipulates the payments / duties for environmental pollution at the following rates:
- for air emissions in the amount of 3.24 KGS per ton of pollutants;
- for the discharge of pollutants with wastewater into the environment in the amount of 10.5 KGS per ton of pollutants;
- for the placement of waste and mining dumps in the environment in the amount of 3.24 KGS per ton of waste and dumps.