Information and Reference Guide

2014

71 Erkindik Avenue, Bishkek, 720040, Kyrgyz RepublicPhone: +996 (312) 66 60 60, 66 63 63 +996 (312) 66 22 21, 66 22 50Fax: +996 (312) 66 27 88E-mail: lawyer@k-a.kg Website: www.k-a.kg

106, Chui Avenue, Bishkek720002, Kyrgyz RepublicPhone: +996 (312) 62 38 44E-mail: info@invest.gov.kg Website: www.invest.gov.kg

Kalikova & Associates Law Firm, 2014.All rights reserved.

INVESTMENT PROMOTION AGENCY UNDER THE MINISTRY OF ECONOMYOF THE KYRGYZ REPUBLIC

INVESTMENT PROMOTION AGENCY UNDER THE MINISTRY OF ECONOMYOF THE KYRGYZ REPUBLIC

2014

4 Business in the Kyrgyz Republic: Legal Aspects

TABLE OF CONTENTS

FOREWORD 7

1. KYRGYZSTAN: AN OVERVIEW 81.1 Geography 8

1.2 History 8

1.3 Population and Language 9

1.4 Links to Other Countries 9

1.5 Political System 11

1.6 Judicial System 11

1.7 Economy 12

1.8 Foreign Affairs 15

2. INVESTMENT CLIMATE 192.1 Legal Framework for Investment Activities 19

2.2 State Guarantees to Foreign Investors 20

2.3 Settlement of Investment Disputes 21

3. LEGAL STATUS OF FOREIGN NATIONALS 223.1 Visa and Registration Requirements 22

3.2 Basic Rights, Freedoms, and Obligations of Foreign Nationals 25

4. FORMS OF BUSINESS 264.1 BranchesandRepresentativeOfficesofForeignLegalEntities 26

4.2 Legal Entities 27

4.3 Registration of Legal Entities 29

4.4 Business Reorganization and Restructuring 29

4.5 Business Closure 30

4.6 Business Activity without Creating a Legal Entity 31

4.7 Free Economic Zones 32

5. LICENSES AND PERMITS 34

6. TAXES AND CHARGES 386.1 ProfitTax 39

6.2 IncomeTax 42

6.3 ValueAddedTax 42

6.4 ExciseTax 45

6.5 SalesTax 46

6.6 Miningtaxes 46

6.7 Landtax 47

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6.8 Propertytax 48

6.9 Deductions to the Social Fund of the Kyrgyz Republic 49

6.10 Mandatory fees and other charges 49

6.11 SpecialTaxRegimes 50

6.12 DoubleTaxationTreaties 51

7. ACCOUNTING AND AUDIT 52

8. CURRENCY EXCHANGE CONTROL 53

9. BANKING SYSTEM 54

10. EMPLOYMENT RELATIONS 59

11. REAL PROPERTY 65

12. INTELLECTUAL PROPERTY 70

13. ANTI-MONOPOLY REGULATION 73

14. ENVIRONMENTAL PROTECTION 77

15. CUSTOMS REGULATION 79

16. TECHNICAL REGULATION 81

17. INSURANCE 84

18. SECURITIES MARKET 86

19. REGULATION OF SPECIFIC INDUSTRIES 8819.1 Electric power industry 88

19.2 Mineral resources 96

19.3 Telecommunications 101

19.4 Microfinance 108

CONCLUSION 110

INFORMATION ABOUT THE INVESTMENT PROMOTION AGENCY UNDER THE MINISTRY OF ECONOMY OF THE KYRGYZ REPUBLIC 111

INFORMATION ABOUT KALIKOVA & ASSOCIATES LAW FIRM 112

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FOREWORD

Dear Reader,

Thisinformationandreferenceguide(updatedyearly)coversthelegalaspectsofdoingbusinessinKyrgyzstan.Thispublicationwasdevelopedtohelppotentialinvestors,who,havingenteredthemar-ket of this country, frequently face issues related to starting and running their business in Kyrgyzstan, forinstance,investorprotection,taxandlicensingrequirements,andmanyotherregulationareas.Thiseditionrepresentsanattempttoanswermanyofthesequestions,but,moreimportantly,itisanattempt to serve as a useful reference for those who are interested in doing business in Kyrgyzstan.

Thisguidewaspreparedbythequalifiedexpertsandexperiencedlawyerspracticingininvestmentpromotion and investor protection as well as invarious areas of commercial law and whom, consult withcompaniesengagedinthefollowingfields:mineralresourcesexplorationandmining,bankingandfinance,energy,telecommunications,hotelbusiness,constructionandrealestate,pharmacyand a number of other sectors of economy. We are committed to continued professional develop-ment and this publication is evidence of our continuous search for new possibilities of professional growth.

We thank our readers and want to emphasize that this information and reference guide has origi-nated not only from our eagerness for professional growth, but also from our desire to make our country, Kyrgyzstan, more open to businesses.

ThispublicationistheproductofcooperationbetweentheInvestmentPromotionAgencyundertheMinistryofEconomyoftheKyrgyzRepublicandKalikova&Associateslawfirmwhojoinedtheiref-forts to contributetowards building a better future of Kyrgyzstan.

Thispublicationisalsoaccessibletoaworldwideaudienceonlineat:www.invest.gov.kg and www.k-a.kg.

Yours respectfully,

Investment Promotion Agency under the Ministry of Economy of the Kyrgyz Republic,

Kalikova & Associates Law Firm

http://www.invest.gov.kghttp://www.k-a.kg

8 Business in the Kyrgyz Republic: Legal Aspects

1. KYRGYZSTAN: AN OVERVIEW

1.1 Geography

TheKyrgyzRepublicislocatedinCentralAsiaandhasanareaof199thousandsquarekilometres,or77,540squaremiles.Thislandlockednationstretches900kmeasttowestand410kmnorthto south.

TheKyrgyzRepublicisamountainouscountrywith94.2%ofitsterritorylocated1,000metresand40.8%located3,000metresabovesea.Theaverageheightabovesealevelis2,750metres,thehighest point is 7,439 metres, and the lowest point is 401 metres1.TheKyrgyzRepublicbordersKazakhstantothenorth,Uzbekistantothesouth-west,Tajikistantothesouth,andChinatotheeastand south-east2.

Theclimateiscontinental;airtemperaturevariesfrom-40inthewinterto+40inthesummer.Thelandscapeincludesallnaturalzonescommonforthenorthernhemisphere,exceptthetropics.Therepublicisoneofthe20countrieswiththerichestwaterresourcesintheworld.

By its administrative and territorial system the Kyrgyz Republic belongs to unitary states and consists of7oblasts(Regions),(Chui,Issyk-Kul,Talas,Naryn,Jalalabat,OshandBatken)and2citiesofna-tionalstatus(BishkekandOsh).ThecapitaloftheKyrgyzRepublicisBishkek.

1.2 History

Thefirststatesappearedwithintheterritoryofthepresent-dayKyrgyzRepublicinthe2ndcenturyB.C.ThemostancienthistoricaldocumentsonKyrgyzstatehoodwerewrittenbyawell-knownChi-nese historian and chronicler Sim Xian that dates back to 201 B.C.3

By the late 7th to early 8thcenturyA.D.theKyrgyzpeoplehadbecomeasignificantforcerespectedby the powerful nations of Central Asia, and by the fourth decade of the 9th century they founded avastnomadicempireknownastheKyrgyzKaganate.Thetraditionalandculturalbackgroundofthe Kyrgyz people and the ethnonym Kyrgyz, which is interpreted by the Kyrgyz people themselves as forty maidens, each a traditional ancestress of a family line, support the assumption that the Kyrgyz Kaganate consisted of 40 tribes.

Between 1870 and 1880 the territory of Kyrgyzstan became part of the Russian Empire. In 1918, KyrgyzstanbecamepartoftheTurkestanAutonomousSovietSocialistRepublicoftheRussianSovietFederative Socialist Republic. As a result of the State Division of Soviet Central Asian Republics, in 1924,theKaraKyrgyz(since1925Kyrgyz)AutonomousRegionwasestablishedwithintheRussianSovietFederativeSocialistRepublic;in1926,theterritorywastransformedintotheKyrgyzAutono-mous Soviet Socialist Republic within the Russian Soviet Federative Socialist Republic, and in 1936 intotheKyrgyzSovietSocialistRepublicwithintheUnionofSovietSocialistRepublics4.

In 1991, Kyrgyzstan proclaimed itself an independent and sovereign state known as the Republic of Kyrgyzstan, and since the 5thofMay,1993,ithasbeenofficiallynamedastheKyrgyzRepublic.

1 http://www.welcome.kg/ru/news/443.html2 http://kyrgyzstan-tourism.com/index.php?option=com_content&task=view&id=80&Itemid=903 http://mfa.kg/common/about-kyrgyzstan_ru.html4 Kyrgyz Statehood. Century Statistics. Bishkek, 2003.

http://www.welcome.kg/ru/news/443.htmlhttp://kyrgyzstan-tourism.com/index.php%3Foption%3Dcom_content%26task%3Dview%26id%3D80%26Itemid%3D90http://mfa.kg/common/about-kyrgyzstan_ru.html

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1.3 Population and Language

As of the 1st of March, 2013, the Kyrgyz Republic had a population of a little over 5 million 680.2 thousand people5.ThedensityofthepopulationintheKyrgyzRepublicis28peoplepersquarekilo-metre. About 90 nationalities live in the country. As of the beginning of 2012, the indigenous people, theKyrgyz,represent72.2%,theUzbeks14.43%,andtheRussians6.9%ofthepopulation.

Urbanization(yearof2012): Urbanpopulation:33.9% Ruralpopulation:66,1%

Thepermanentpopulationofthecountryascomparedtothesameperiodlastyear(5,571.2thou-sandpeopleasofMarch1,2012)increasedby109thousandpeople,or2.0percent.

Agedistribution(2012): 0to4661,099; 5to9531,475; 10to14500,771; 15to19571,581; 20to24591,024; 25to29496,992; 30to34391,306; 35to39347,170; 40to44325,531; 45to49303,373; 50to54274,872; 55to59188,393; 60to64128,882; 65to6956,844; 70andmoreyearsofage182,575.

ThenationallanguageoftheKyrgyzRepublicisKyrgyz,whiletheofficiallanguageisRussian.Bothlanguagesarebeingusedonequaltermsandareemployedforadministrativepurposes;however,under the legislation of the Kyrgyz Republic6, the Kyrgyz version of a document is considered to be its originalversion.Initsofficialrelationswithforeignnations(receptions,meetings,developmentandratificationofdocuments)theKyrgyzRepublicusesthenationallanguage,whileinrelationswiththeCIScountriesitalsousestheofficiallanguage.

1.4 Links to Other Countries

Therelativelysmallsizeofthecountrymakestravelwithiniteasy.Aflightfromthenorthtothesouthof the country lasts about one hour.

ThetotallengthofroadsintheKyrgyzRepublicis34,000km,including18,810kmforgeneraluseroadsmaintainedby theroadunitsof theKyrgyzMinistryofTransportandCommunicationsand15,190 km roads of cities, villages, agricultural, industrial and other enterprises.

5 www.stat.kg6 The Law of the Kyrgyz Republic On National Language