GILS Corporate law: Kyrgyzstan

KYRGYZSTAN 

(1) Forms of doing business and Establishment

1.1. What are the options for establishing a company's presence in a country (branch, representative office, subsidiary, etc.), and what are their key advantages and limitations?

The legislation of the Kyrgyz Republic provides for the possibility for foreign companies to establish branches and representative offices. Representative offices and branches are not legal entities. They are endowed with assets by the legal entity that created them and operate based on approved regulations. A representative office represents and protects the interests of the legal entity, conducting transactions and other legal actions on its behalf.

While a branch performs all or part of its functions, including representative functions. The liability for the activities of the branch and representative office lies with the creating entity.

There are also a number of restrictions regarding branches and representative offices. The period of activity of a branch or representative office is limited by the activity of a parent company. Additionally, a branch or representative office cannot obtain a licence for certain types of activities or the provision of certain types of services. In this case, an individual can register a legal entity. The most commonly used organisational and legal forms in practice are limited liability companies (LLC) and joint-stock companies (JSC), further details of which are discussed in section 1.4. 

1.2. What is the process for creating a legal entity or another form of presence in the country, including the laws to follow, legal entities to be considered, documents required, stages and terms for registration? 

The initial stage in the process of establishing legal entities, branches, and representative offices is a state registration within the Ministry of Justice of the Kyrgyz Republic. The following documents are required to be submitted for the registration of a legal entity to the registering authority: 

In case participant is a foreign parent company: 

• registration application in a prescribed form;
• corporate decision/resolution on the establishment of the subsidiary;
• extract from the state register of the foreign parent company’s country or another document certifying that the foreign legal entity is a valid legal entity under the laws of its own country. The deadline for submission of such extract should not exceed 6 months from the date of its issuance;
• copy of the passport of the CEO/director of the subsidiary;
• consent of the owner of office;
• power of Attorney for authorised persons to take all necessary actions for registration of the subsidiary.

In case participant is a foreign citizen: 

• registration application in a prescribed form;
• corporate decision/resolution on the establishment of the company;
• copy of the founder's passport;
• copy of the passport of the CEO/director of the company;
• consent of the owner of office;
• power of Attorney for authorised persons to take all necessary actions for registration of the company.
• other information in accordance with the legislation of the Kyrgyz Republic.

The registration period within the Ministry of Justice takes 3 working days, after which an electronic Certificate is issued. However, there is an option of an accelerated procedure of registration of a legal entity where it is possible to carry out registration in 1 day. Upon receipt of the certificate of state registration with the indication of the taxpayer identification number (INN) from the justice authority, the legal entity can obtain a seal. Ordering and manufacturing of the seal is carried out upon application by the legal entity to private companies engaged in seal manufacturing. The next stage is the submission of documents for registration within the tax authority and social fund, which takes up to 5 working days. With the received document package, a current account is opened in a bank. It is necessary to make copies of all received documents from governmental authorities as well as a copy of the charter. Also, it is necessary to notarize a signature card for persons who will be authorised to manage the account.

In accordance with the legislation of the Kyrgyz Republic, the authorised capital determines the amount of property of the legal entity, guaranteeing the interests of its creditors. The authorised capital of a Joint Stock Company (JSC) cannot be less than KGS 100 000 , whereas the minimum authorised capital of a Limited Liability Company (LLC) is not determined by legislation and in practice the amount of authorised capital varies from KGS 100 to KGS 1000. 

1.3. What additional authorizations/approvals are required to create a legal entity or start operations, and how do they vary depending on the type of business (if any)? 

During the state registration process, a consent form from the property owner for the registration of the legal address is required. For the state registration of financial and credit institutions, their branches, and representative offices, consent from the National Bank of the Kyrgyz Republic or its territorial division is required. For certain legal entities to conduct their activities, obtaining licences and permits as provided by the Law "On the Licensing and Permitting System in the Kyrgyz Republic" is required.

1.4. What are the most common types of Legal Entities in your country and the differences between them in terms of taxation, liability, and management?

In the Kyrgyz Republic, there are various organisational and legal forms for conducting business. However, the most common forms of legal entities, which have several advantages, are Limited Liability Company (LLC) and Joint Stock Company (JSC) of open and closed types. There are differences regarding the number of participants: in an LLC, the number of participants should not exceed 30 individuals, whereas in a closed JSC, the number of participants should not exceed 50 individuals, and the number of participants in an open JSC is unlimited. Additionally, an LLC and a JSC cannot have another business entity consisting of a single person as their sole participant.

1.4.1. What are the shareholder structures of these types of legal entities? 

LLCs typically have the following governing bodies: the general meeting of participants and a collective (board) or sole (director) executive body. The highest governing body of an LLC is the general meeting of participants.

The executive body (collective or sole) is established to manage the day-to-day activities of the company and is accountable to the general meeting of participants. Their responsibilities are regulated by internal documents or the company's charter.

The establishment of a board of directors is not mandatory in an LLC and may be established by the decision of the general meeting of participants. Only a natural person (individual) can be a member of the board of directors. A member of the board of directors cannot simultaneously be a member of the executive body (collective or sole). 

1.4.2. What is the Shareholders’ responsibility in these types of legal entities? 

Regarding liability, participants of an LLC are not liable for the company's obligations and bear the risk of losses associated with the company's activities only to the extent of the value of their contributions. Participants of a JSC are not liable for the company's obligations and bear the risk of losses associated with its activities only to the extent of the value of the shares they own. 

1.4.3. What is the responsibility of the representatives in these types of legal entities? 

The board of directors and the executive body have their own competence on certain matters and bear responsibility in accordance with the general provisions of the law and the internal documents of the legal entity. Individuals representing the management body bear a material and disciplinary responsibility in accordance with the employment contract. 

1.4.4. Briefly, what are the characteristics of the other types of Legal Entities? 

Additionally, there are other forms of business entities such as: 

1. General Partnership: Participants (general partners) engage in entrepreneurial activities on behalf of the partnership according to the agreement between them and are jointly liable for its obligations with all their property. 

2. Limited Partnership: Alongside participants who conduct entrepreneurial activities on behalf of the partnership and are liable for its obligations with all their property (general partners), there are one or several participants (contributors, limited partners) who bear the risk of losses associated with the partnership's activities only to the extent of the contributions they have made and do not participate in the entrepreneurial activities of the partnership.

3. Partnership with Additional Liability: Established by one or several individuals, the capital of which is divided into shares of specified sizes by the founding documents. Participants of such a partnership bear subsidiary liability for its obligations with their property in an equal multiple to the value of the contributions made by them, as determined by the founding documents of the partnership. In the event of insolvency (bankruptcy) of one of the participants, their liability for the obligations of the partnership is distributed among the remaining participants in proportion to their contributions, unless another procedure for distributing liability is provided for by the founding documents of the partnership.

1.5. What are the operating costs associated with the maintenance of a legal entity or presence in the country?

Approximate operating costs associated with the maintenance of a legal entity on a monthly basis are: office rent or payment for a legal address provision, director's salary, accountant's salary, bank account maintenance costs, applicable taxes. All costs have an average estimate and may vary depending on the activities of the company.

(2) General taxation issues 

2.1. What tax obligations are associated with doing business in the country? 

The obligations associated with business taxation entail the payment of all taxes related to generating income. For all legal entities, the following taxes are required to be paid: Value Added Tax (VAT), Personal Income Tax, Land Tax, Excise Tax, Sales Tax, Property Tax, Profit Tax, Garbage collection tax and Subsoil Use Tax. Taxes are levied under either a general or simplified system, depending on the company's activities and tax regime

2.2. What tax and customs incentives are available in a country? 

The Kyrgyz Republic, in an effort to attract foreign investment, provides tax and customs benefits depending on the project and participation in priority sectors of the economy.

In some cases, companies operating within the territory of special economic zones may be exempted from paying taxes, fees, and duties. The annual payment to the administration of the zone should not exceed 0.2% of the total income. Customs duties on imports and exports will not be included in the cost of goods produced within the territory of the free economic zone. Additionally, products intended for export are exempted from quotas and licensing requirements, provided that they are indeed intended for export.

In addition, there are advantages in simplified entry and exit of foreign workers, simplified customs procedures, direct access to important infrastructures, including telecommunications, water supply, electricity supply and means of transport when operating in the SEZ. It should be noted that there are priority sectors of the economy, such as the High Technology Park, Creative Industries Park, where the state applies a special tax regime and incentives. Tax exemption preferences are applied when using renewable energy sources in activities. 

2.3. What are the accounting and reporting requirements for different types of presence, and how often must they be submitted? 

Requirements for submitting financial statements to government authorities depend on the chosen tax regime. Financial reporting by medium and large business entities must be submitted electronically to the authorised body by June 1 of the year following the reporting year. Tax reports can be monthly, quarterly and annually. The procedure for submitting statistical reporting to statistical authorities depends on the type of activity of the company.

Accounting is maintained in accordance with international accounting requirements.

2.4. What is the taxation of dividends for foreign investors? 

Taxation on dividends for foreign investors is set at 10%. 

2.5. What strategies exist for minimising tax liability when conducting international business?

There are different optimization options for each tax and each type of activity. For instance, international agreements are widely used for optimising the profit tax. Depending on the type of activity within the Kyrgyz Republic, special tax regimes can be applied, such as the High-Tech Park, Special Economic Zones (SEZ), Creative Industries Park (CIP) etc.

Our team considers each client’s request individually, taking into account all the elements and details of activities in the Kyrgyz Republic. 

(3) Regulatory and miscellaneous 

3.1. What are the general data protection and privacy requirements in the country, and how do they affect company operations? 

One of the main requirements is to obtain the consent of the data subject, expressed in written form on hard documents or in the form of an electronic document signed in accordance with the legislation of the Kyrgyz Republic on electronic signatures. Legal entities have the right to work with personal data after registering as the holder (owner) of a personal data array under the Law on personal data.

Individuals who become aware of personal data due to their official position undertake obligations and bear responsibility to ensure the confidentiality of this personal data. Such obligations remain in force even after these individuals have finished working with the personal data during the period of maintaining the confidentiality regime.

Moreover, it is important to note that there is a law on commercial secrets, the purpose of which is to protect commercial secrets and prevent unfair competition in the course of economic activities. By entering into this agreement, persons who have access to trade secrets are obliged to strictly comply with the requirements for its non-disclosure and to prevent the leakage of information to competing business entities.

3.2. What labour law features should be considered when hiring local and foreign employees? 

The Labour Code sets out the general rules governing working conditions for all employees. Special provisions are made for certain categories of employees. With regard to the recruitment of foreign employees, it should be noted that foreign citizens have the right to work in the Kyrgyz Republic on the basis of a legally obtained work permit. Employers, in turn, have the right to hire foreign citizens based on quotas for attracting foreign labour. In the process of obtaining quotas and work permits, the visa process takes place. 

This procedure consists of several stages: 

1. obtaining a quota for attracting foreign labour; 

2. obtaining an electronic work visa, which is necessary for entry into the territory of Kyrgyzstan;

3. confirmation of the existence of a work permit; and 

4. extension of the electronic work visa during the validity period of the work permit. 

As the Kyrgyz Republic is a full member of the Eurasian Economic Union (“EAEU”), in accordance with the Accession Treaty to the EAEU ratified by the Kyrgyz Republic, citizens of EAEU member states are exempt from obtaining work permits in the Kyrgyz Republic. Moreover, they can be hired without obtaining quotas. 

3.3. What are the requirements for currency regulation and currency control? 

The legislation of the Kyrgyz Republic does not contain restrictions on currency operations. Currency operations are conducted in accordance with the Constitutional Law "On the National Bank of the Kyrgyz Republic," the Law "On Banks and Banking Activities," and other regulatory legal acts of the Kyrgyz Republic on currency regulation. The National Bank determines the currency policy and regulation in the Kyrgyz Republic. The volume of import and export of foreign currency to and from the Kyrgyz Republic is not restricted. This condition only includes the declaration of currency and currency values.

3.4. What corporate law features should be considered when planning mergers, acquisitions, and company restructuring in the country? 

Changes in the corporate structure of a company associated with processes such as mergers, acquisitions, divisions, etc. entail state reregistration or termination of activities. Depending on the type of change, one or another procedure will be applied.

For the acquisition of shares in credit and financial organisations, the consent of the National Bank is required. Reorganisation of legal entities requires the approval of the State Antimonopoly Service. Competition legislation regarding private acquisitions specifies that the acquisition of a controlling stake in the shares (participation interest in the charter capital) of an economic entity holding a dominant position by any legal entity or individual requires prior approval from the antimonopoly authority.

3.5. What are the most efficient mechanics for dispute resolution?

Effective mechanisms for dispute resolution include resolving issues in the International Arbitration Court at the Chamber of Commerce and Industry of the Kyrgyz Republic. It is important to note that Kyrgyzstan is a party to the ICSID Convention - International Centre for Settlement of Investment Disputes, as well as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. Moreover, Kyrgyzstan has acceded to the Minsk Agreement, under which judgments of CIS courts are recognised and enforced by the courts of the Kyrgyz Republic.

 

Authors:

Elvira Maratova, Taalaibek Aizhamal.