Turkmenistan

Trade in Services

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Foreign Direct Investment Policy

1. In January 2013, Turkmenistan created the Agency for Protection from Economic Risks to oversee international investments in Turkmenistan. The agency is responsible for conducting a comprehensive review of foreign companies wishing to enter Turkmenistan's market, which includes an assessment of the financial and political risks associated with allowing the company to do business in Turkmenistan. According to the 2008 Law on Foreign Investment, all foreign and domestic companies and foreign investments must be registered at the Ministry of Finance and Economy. The Cabinet of Ministers of Turkmenistan and its authorised state body develop and implement public policies to attract foreign investment, investment coordination and assistance to foreign investors. The Agency for Protection from Economic Risks under the Ministry of Economy and Development makes a decision on whether to provide any investment-related services to potential foreign investors based on criteria such as the financial status of the investor.
    
2. Turkmenistan is a signatory to the United States–Central Asia Trade and Investment Framework Agreement (TIFA), a treaty with investment provisions, which has been in force since 2004 with the US, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. TIFA also acts as a regional forum to improve the investment climate and expand trade within Central Asia.
    
3. In 2018, Turkmenistan's president put out a seven-year economic and social development plan for 2018–2024, which demonstrates intent to continue with reforms to improve the country's macroeconomic prospects. Among other things the plan aims to encourage greater participation by the private sector and reduce the dominance of the public sector. This includes the privatisation of state-owned enterprises, the creation of special economic zones and simplifying administrative procedures and regulations in an attempt to attract domestic and foreign private investment.
    
4. Turkmenistan has entered into a five-year Country Partnership Strategy (CPS) with the Asian Development Bank (ADB), and this should aid in the country's reform initiatives until 2021. The ADB aims to help Turkmenistan to become a catalyst for regional cooperation and integration by helping it to diversify its markets and reposition itself as a trade and transport hub. The ADB stated that the CPS will support the country in three ways: promoting energy trade, diversifying non-hydrocarbon sectors by enhancing connectivity through investments in transport infrastructure and spurring the private sector, and providing knowledge on economic diversification and reforms. 
    
5. The Government of Turkmenistan has not undergone an investment policy review by the Organisation for Economic Cooperation and Development or the World Trade Organization (WTO). While Turkmenistan has expressed interest in exploring the WTO accession process and has created an intergovernmental commission in January 2013 to review the benefits of accession, the country has not yet formally applied to join. Nevertheless, Turkmenistan has signed bilateral investment agreements with 19 countries (Belgium, Mainland China, Egypt, France, Georgia, Germany, Iran, Israel, Luxembourg, Romania, Russia, Slovakia, Spain, Switzerland, Turkey, Ukraine, the United Arab Emirates, the United Kingdom and Uzbekistan) and a further eight have been signed but are not yet in force (Armenia, Azerbaijan, Bahrain, Indonesia, Italy, Malaysia, Pakistan and Tajikistan).
    
6. The Petroleum Law of 2008 (last amended in 2012) regulates offshore and onshore petroleum operations in Turkmenistan, including petroleum licensing, taxation, accounting and other rights and obligations of state agencies and foreign partners. The Petroleum Law supersedes all other legislation pertaining to petroleum activities, including the Tax Code.
    
7. According to the Land Code (2004), foreign companies or individuals are permitted to lease land for non-agricultural purposes, but only the president has the authority to grant the lease. Foreign companies may own structures and buildings.
    
8. Incoming foreign investment is regulated by the Law on Foreign Investment (last amended in 2008), the Law on Investments (last amended in 1993) and the Law on Joint Stock Societies (1999), which pertains to start-up corporations, acquisitions, mergers and takeovers. 
    
9. Turkmenistan adopted a Bankruptcy Law in 1993. Other laws affecting foreign investors include the Law on Investments (last amended in 1993), the Law on Joint Stock Societies (1999), the Law on Enterprises (2000), the Law on Business Activities (last amended in 1993), the Civil Code enforced since 2000 and the 1993 Law on Property.
    
10. Most foreign investment is governed by project-specific presidential decrees, which can grant privileges not provided by legislation. Legally, there are no limits on the foreign ownership of companies. Although Turkmenistan regularly amends its laws, ostensibly to meet international standards, the country often fails to implement investment-related legislation. A lack of established rule of law and an opaque regulatory framework remain serious problems limiting inward investment.
     
11. Tax and investment incentives may be negotiated on a case-by-case basis. The president has often issued special decrees granting taxation exemptions and other privileges to specific investors. However, since adopting a new edition of the Tax Code in 2004, this practice has been significantly reduced. Cross-border transactions are normally scrutinised by tax authorities during statutory tax audits in view of withholding tax and reverse-charge VAT implications. Foreign tax credits are available to tax residents of Turkmenistan based on the provisions of the respective tax treaties.
     
12. Private entities in Turkmenistan have the right to establish and own business enterprises. The 2000 Law on Enterprises defines the legal forms of state and private businesses (state enterprises, sole proprietorships, cooperatives, partnerships, corporations and enterprises of non-government organisations). The law allows foreign companies to establish subsidiaries, although the government does not currently register subsidiaries. The Civil Code of Turkmenistan and the Law on Enterprises govern the operation of representative and branch offices in Turkmenistan and all firms must be registered with the Ministry of Finance and Economy. 
     
13. Turkmenistan's legislation is not clear about acquisitions and mergers involving foreign parties, nor does it have specific provisions for the disposition of interests in business enterprises, either solely domestic and those with foreign participation. Governmental approval is necessary for acquisitions and mergers of enterprises with state shares.
     
14. On January 1, 2012, Turkmenistan's banks switched to International Financial Reporting Standards. Government agencies transitioned to National Financial Reporting Standards in January 2014. Despite these positive steps, Turkmenistan remains one of the most-closed economies in the region and some financing of large projects remains off the banks' books.
     
15. The nature of government-awarded contracts may vary in terms of the requirements for ownership of a local enterprise. All contractors operating in Turkmenistan for a period of at least 183 days a year must register at the Main State Tax Service. National accounting and international financial reporting standards apply to foreign investors. In the energy sector, Turkmenistan precludes foreign investors from investing in the exploration and production of its onshore gas resources. The government owns all land in Turkmenistan. The State Migration Service of Turkmenistan requires that citizens of Turkmenistan make up 90% of the workforce of a company owned by a foreign investor.
     
16. Although there is no specific legislation requiring foreign investors to receive government approval to divest, in practice they are expected to co-ordinate such actions with the government. Moreover, there are several tax examinations, licence extension permits, and customs clearance and visa issuance obstacles that investors face. In most cases, the government has insisted on maintaining a majority interest in any joint venture.
     
17. There are no legal limits on the foreign ownership or control of companies. In practice, the government has only allowed fully owned foreign operations in the oil sector and, in one case, in cellular communications. Foreigners may establish and own businesses and engage in business activities within the boundaries of domestic laws, but repatriation of revenues is very challenging because currency conversion remains a major issue in the country. According to the Law on Foreign Investments, foreign investors, especially those operating in the free economic zones, may enjoy some incentives and privileges including licence and tax exemptions, reduced registration and certification fees, land leasing rights and extended visa validity.
     
18.  On October 9, 2017, Turkmenistan introduced a new Law on Free Economic Zones (FEZs). The law provides simplified administrative procedures for establishing new ventures and provides significant tax, customs, licensing and other regulatory benefits. The following types of zone can be established: commercial, industrial, technical, service (specialising in financial, banking, tourist recreational and other services), logistics, agro-industrial and zones with combined activities.

Sources: WTO – Trade Policy Review, International Trade Administration, US Department of Commerce, Asian Development Bank

Special Skills Requirements

An invitation to a foreign specialist to hold a position of the head of a company, division, department, workshop or similar unit must be accompanied by copies of documents confirming the work positions held by such a specialist within the last five years. The sponsor (the inviting organisation) must submit the application for a work permit to the State Migration Service. A work permit is usually issued for one year and should be renewed each subsequent year. There is no maximum number of work permit renewals. Foreign individuals or stateless persons can apply for residence permits if they have resided in Turkmenistan for two years.

Visa Requirements

In accordance with the law, citizens of all countries require a visa to visit Turkmenistan. There are 19 types of visa: diplomatic, official, business (two types), investment, work, family, sports (two types), humanitarian, private (two types), student, tourist, transit (two types), health, driver's and exit. To obtain a tourist visa for Turkmenistan, all foreign nationals must supply an invitation letter issued by an agency licensed in Turkmenistan. A work permit is required if a person arrives in the country for business (employment) purposes and intends to stay in the country for more than one month. A business stay in the country for 30 days or less does not require a work permit. The State Migration Service controls access to the country and monitors the movement of foreign citizens. All visitors staying for more than three working days, excluding the day of entry, are required to register with the State Migration Service on entry. Representatives of foreign businesses seeking to enter Turkmenistan for the first time may have difficulty obtaining an entry visa unless invited by a government agency or by a local business partner. 

Travel to most border areas requires a special permit. A special permit, issued prior to arrival by the Ministry of Foreign Affairs, is required if visiting the following places: Atamurat, Cheleken, Dashoguz, Serakhs and Serhetabat.

Foreign citizens and stateless persons may enter and stay in Turkmenistan on the basis of an entry visa to Turkmenistan, unless otherwise stipulated by international treaties to which Turkmenistan is a signatory. For members of diplomatic missions, consular offices and other equivalent representative offices of foreign states and international organisations in Turkmenistan and foreign journalists accredited in Turkmenistan and their families, an accreditation card issued by the Ministry of Foreign Affairs of Turkmenistan and written or electronic requests from these missions, agencies or organisations is required.

Sources: Government sources, State Migration Service of Turkmenistan, Fitch Solutions

Fitch Solutions Risk Summary

ECONOMIC RISK
Turkmenistan's economic growth prospects will remain flat over the coming years owing to its heavy reliance on hydrocarbon and electricity exports and a narrow economic base. Despite a ramp-up in demand for gas from Mainland China, Turkmenistan's gas exports to the country are unlikely to increase significantly as a substantial part of this demand will be met by liquefied natural gas imports from Australia over the near term. Over the longer term, however, gas exports to Mainland China are likely to pick up following the completion of Line D of the Central Asia–Mainland China Pipeline set for 2020. The TAPI gas pipeline construction has also started in Afghanistan and will lead to new gas markets for the country. However, its completion date cannot be estimated at this stage. Furthermore, Turkmenistan has shown a willingness to conduct reforms over the coming years as seen from its ambitious seven-year plan, and the government is likely to adopt them at a gradual pace, which will be positive for the business environment.

OPERATIONAL RISK
Turkmenistan imports the vast majority of its industrial equipment and consumer goods. The government's foreign exchange reserves and foreign loans pay for industrial equipment and infrastructure projects; however, the country's exports remain heavily exposed to fluctuations in global oil and gas prices due to the narrow basket of key export products. The abundant gas deposits underneath the Karakum Desert, which occupies 70% of the land area of Turkmenistan, remain the backbone of the economy. Logistics risks remain elevated due to the lack of sufficient overland connectivity and limitations in utilities infrastructure. Regional infrastructure development projects in the energy space bode well for logistics capacity enhancements in the years ahead. Furthermore, labour market risks remain elevated due to foreign worker limitations and relatively uncompetitive domestic skills development.

Source: Fitch Solutions

Fitch Solutions Political and Economic Risk Indicies

Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
7.77 (2019)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions

Treaties and Agreements between Hong Kong and Turkmenistan

• Turkmenistan has a bilateral investment treaty with Mainland China that entered into force on June 4, 1994.
•  A double tax agreement (DTA) between Mainland China and Turkmenistan and its corresponding protocol came into force on May 30, 2010. The DTA will apply to taxes withheld at source from income derived on or after January 1, 2011, as well as other taxes collected in any taxable year starting January 1, 2011.

Source: UNCTAD

Visa Requirements for Hong Kong Residents

HKSAR passport holders require a visa for Turkmenistan for up to 90 days stay. All foreigners require a visa to enter Turkmenistan and transit visas are the only visas issued without a letter of invitation. Permits are needed to visit the border regions of Turkmenistan. The nearest embassy to Hong Kong is in mainland China. The Embassy of Turkmenistan requires that the applicants submit their visa applications directly as they may require an in-person appointment.

The following areas are termed ‘class one’ border zones and entry without documentation is not possible: Eastern Turkmenistan Farab, Atamurat (Kerki) plus adjoining areas, Kugitang Nature Reserve, Tagtabazar and Serkhetabat. Northern Turkmenistan Entire Dashoguz region including Konye-Urgench, Dargan-Ata and Gazachak. Western Turkmenistan Bekdash, Turkmenbashi, Hazar, Dekhistan, Yangykala, Gyzyletrek, Garrygala, Nokhur and surrounding villages. Ashgabat, Mary, Merv, Turkmenabat and Balkanabat are not restricted, but anywhere outside these areas should be listed on a general visa, thus giving permission to go there.

Sources: State Migration Service of Turkmenistan, Fitch Solutions
Date last reviewed: March 3, 2020