A combination of Kyrgyz national tax exemptions and the general import taxation rules of the Customs Union (Russia, Kazakhstan, Belarus, Armenia, Kyrgyzstan) make Kurgyzstan the best country to import to the Union any equipment, rolling stock and similar capital assets.
If the deal structing is done correctly (Eg. it might be required not to «buy» the assets but to invest them into the capital of the newly formed company), it will be possible to achieve the nil rate of the import duty and the import VAT as well as make sure that the importer will use the asset with zero taxation of its profits (please see «Opportunities for International Tax Planning» for a more detailed description of tax privileges available to manufacturing businesses).
Because the Customs Union has a common customs border and any further distribution of imported goods is done without payment of further customs duties or indeed without any further customs clearance, Kyrgyzstan can be chosen as the country through which goods will be imported into the Customs Union.
For many years Kyrgyzstan has been a convenient entry point for goods from China for further distribution within the Customs Union, with full logistical support available from local customs brokers.
The rate of the Kyrgyz VAT (which has to be charged on imports also) is 12% which is lower than in Russia (18%). When goods get resold into Russia the difference in the VAT will still have to be paid (unless set off through a different trade flow), but this at least provides a payment delay.
Semi-finished goods and parts may be worked over / assembled within Kyrgyzstan (in free zones or elsewhere), to legally obtain the «Made in Kyrgyzstan» status. Tax exemptions are available for any manufacturing, finishing, assembly or packaging business.
A good number of companies are locating their manufacturing facilities in Kyrgyzstan with a view to the distrubution of their products within the Customs Union countries.
Positive factors include: cheap but reasonably qualified labour force, low taxes, ease of obtaining a lease of premises or land, availability of easy-to-plug-into electricity (the tariff is lower than in most other Customs Union States) and natural gas.
Some producers use one of Kyrgyzstan’s free zones for further tax efficiency.
Heavily regulated businesses, such as pharma or chemical production can benefit from easier bureaucracy in obtaining their licenses and permits, if placed in Kyrgyzstan.
It is much easier to pay for imported goods from Kyrgyzstan than from other Union countries: the Kyrgyz Republic has no exchange controls or capital movement restrictions (only AML checks are applied) and does not require to draw up extensive documentation to satisfy currency repatration controls, or risk criminal liability in case the goods do not get imported within the contract term.
Peculiarities of Kyrgyz tax law make Kyrgyzstan an ideal location to run a captive trading company taking care of the logistics and payments for the goods to be ultimately imported. If the end importer is a Russian company, the use of a Kyrgyz trader is preferable over any offshore entity because Kyrgyzstan is a white-list country in terms of Russian transfer pricing controls.
Kyrgyzstan’s membership in the Customs Union presents a unique opportunity to set up a hub for centralized import and further distribution of goods ordered by private customers on online platforms.
Location of the importing point in Kyrgyzstan can be especially beneficial given the plans of some Customs Union states to introduce high import duties and VAT on private parcels whose value exceeds a certain minimum value.
We are working on the legal aspects of this project now and encourage any interested companies to join us.