In 2014 the Kyrgyz Republic made one more step towards the group of ex-USSR countries focused on cooperating with the Russian Federation and joined the Customs Union (also known as the Eurasian Economic Union). Joining procedures were finalized in May 2015. By the end of summer of 2017 Kyrgyzstan implemented the uniform technical standards of the Customs Union (CU) and ratified its uniform Customs Code in December 2017.
Below follows a list of specific benefits which a business can exploit thanks to Kyrgyzstan’s CU membership.
A combination of Kyrgyz national tax privileges with the general rules of the Customs Union makes Kyrgyzstan the optimal country to import into CU any equipment, rolling stock and similar capital assets. With the right planning the zero import duty rate can be achieved, complemented by the zero rate VAT and the zero rate of Profit Tax on subsequent exploitation of the equipment.
Because Kyrgyzstan is part of the ‘common customs area’ of the CU, if goods are custom cleared for import into Kyrgyzstan, they may be distributed throughout the whole territory of the CU without the need for any additional customs clearance. Kyrgyz VAT rate is 12% (on imported goods it has to be initially paid at the customs). When the goods are resold into Russia the VAT differential will become payable but only when the goods are sold (which de-facto provides a grace period). Kyrgyzstan is a popular entry point for Chinese goods into the CU. Good quality customs brokerage services are available in the country.
Imported semi-finished products can be assembled or otherwise finished within Kyrgyzstan and lawfully acquire the «Made in Kyrgyzstan» status. If the import duty on the semi-finished product is lower than on the finished one, this provides a perfect financial planning opportunity. Also worth noting is that unique tax privileges are available for production businesses (there rate of the Profit Tax is zero if the sales volume reaches a certain threshold, and assembly and finishing businesses do fit into the definition of «production»).
Because there are no customs barriers within the CU, if you are planning an industrial project in Kyrgyzstan (Eg. mining), it may be cheaper and more efficient to source equipment for it in Russia or Kazakhstan or Belarus than import it from outside the CU. If you combine this with the tax privileges on leasing existing in Kyrgyzstan (5% Profit Tax rate), the result can be good for your project’s bottom line.
Many companies choose Kyrgyzstan as the location for their manufacturing facilities if their product will predominantly be sold within the CU markets. Besides it being within the common customs area with the main markets of the CU, the incentives are: cheap but qualified labour force, low taxes, ease of getting a lease of industrial land or premises, quick plugging into the gas and electricity grids.
A number of producers use Kyrgyz free economic zones to further optimize their taxation.
Heavily regulated businesses, such as production of pharmaceuticals or chemical production, will benefit from being located in Kyrgyzstan thanks to its bureaucracy being more flexible and business-friendly than in other CU States, when it comes to permits and regulatory oversight.
Kyrgyzstan has no exchange controls. If you plan to sell your imported products in Russia or Kazakhstan, it would make sense to set up the importing company under Kyrgyz jurisdiction and bank locally. Unlike in Russia which is notorious for its ultra-strict capital flight controls, Kyrgyz law does not require any «transaction passports» or similar paperwork to be completed in order for the company to be allowed to make a payment abroad. Only AML/CFT controls are in place. Thus it is much easier to arrange shipments through Kyrgyzstan to avoid cumbersome payment control procedures.