Value-Added Tax (VAT) is a key element of Kyrgyzstan’s tax system and plays a significant role in forming the state budget. It applies at all stages of production and sale of goods, services, and works, ensuring transparency in economic processes. Many entrepreneurs from neighboring countries establish LLC in Kyrgyzstan for foreign trade activities. Let’s explore the main aspects of taxation in Kyrgyzstan.
Standard VAT Rates in Kyrgyzstan
Kyrgyzstan has a standard VAT rate of 12%, which applies to most goods and services. Some transactions are subject to a zero rate (0%), particularly in cases of exported goods, allowing taxpayers to recover Tax paid at earlier stages.
VAT registration is mandatory for companies and individual entrepreneurs operating under the general tax regime.
VAT Exemptions and Benefits
The Tax Code of Kyrgyzstan provides several VAT exemptions for specific activities and supplies. The following are exempt from VAT:
- Real estate transactions: Sales of residential buildings, land plots, and other real estate objects.
- Agricultural products: Including processed products and animal feed.
- Utility services: Provided to individuals for household needs.
- Financial services: From the approved list, such as real estate sales by banks.
- Islamic finance-related products.
- Medical supplies: Medicines, vaccines, prosthetics, and orthopedic devices from the list approved by the Cabinet of Ministers.
These benefits apply to both residents and foreign suppliers under current legislation.
Key VAT Regulations in Kyrgyzstan
According to Article 263 of the Tax Code of Kyrgyzstan, the place of service provision is determined by the location of the buyer. This means that the export of certain services, such as:
- Consulting, accounting and legal auditing, engineering;
- Software development, database maintenance, electronic services
is exempt from taxation if the service is provided outside Kyrgyzstan.
Withholding VAT: Rules and Procedures
When importing services into Kyrgyzstan, local residents must act as tax agents. This means that when a Kyrgyz company or individual entrepreneur receives services from a foreign contractor, they must:
- Withhold 12% Value-Added Tax from the total payment amount.
- Remit this tax to the state budget.
This rule is established under Article 253 of the Tax Code of Kyrgyzstan.
Special Conditions for Residents of the High Technology Park (HTP)
Since April 2023, HTP residents have been exempt from the obligation to act as VAT withholding agents. This provides IT companies with an opportunity to optimize their tax expenses.
VAT Registration Requirements
VAT registration is required in the following cases:
- During initial tax registration of a legal entity or individual entrepreneur.
- When switching from the simplified tax regime to the general tax regime—effective from the beginning of the next month after submitting the application.
- Upon starting business activities—effective from the first day of the following month.
If a taxpayer misses the mandatory registration, they are still recognized as a VAT payer from the moment their obligation arises, which may lead to penalties.
Taxable and Non-Taxable Transactions
Taxable Transactions:
- Taxable supplies: Transfer of ownership of goods, execution of works, provision of services, and lease of property.
- Taxable imports: Importation of goods into the country.
Non-Taxable Transactions:
- Transfer of assets under trust management agreements.
- Business reorganizations.
- Losses within normal shrinkage limits.
- Loss of assets due to force majeure.
Determining the Tax Obligation Date
- For goods: Date of transfer of ownership.
- For services: Date of signing the act of completed work.
- For imports: Date established by customs legislation.
VAT Rates on Imports in Kyrgyzstan
- Standard Rate: 12% (applicable to most imported goods).
- Reduced Rate:0%, applicable to:
- Medical products and equipment.
- Educational materials.
- Humanitarian aid.
- Goods imported under government programs.
Tax Exemptions
VAT exemptions apply to goods imported under intergovernmental agreements and state programs.
VAT Calculation on Imports
VAT on imports is calculated based on the customs value of the goods, plus additional charges:
- Customs value of the goods.
- Customs duties.
- Excise taxes (if applicable).
- Other applicable fees (e.g., customs processing fees).
Example Calculation:
- Customs value of goods: 1,000,000 KGS
- Customs duty (10%): 100,000 KGS
- VAT Calculation: (1,000,000+100,000)×12%=132,000KGS(1,000,000 + 100,000) \times 12\% = 132,000 KGS(1,000,000+100,000)×12%=132,000KGS
- Total cost of the goods: 1,000,000+100,000+132,000=1,232,000KGS1,000,000 + 100,000 + 132,000 = 1,232,000 KGS1,000,000+100,000+132,000=1,232,000KGS
VAT on Imports in Kyrgyzstan and EAEU Regulations
Since Kyrgyzstan is a member of the Eurasian Economic Union (EAEU), imports from partner countries (Russia, Kazakhstan, Belarus, Armenia) are subject to special regulations:
- Tax is not paid at customs but is instead remitted to the tax authorities at the importer’s place of registration.
- The importer must submit a Value-Added Tax declaration within 20 days following the month the goods were received.
- Documentary confirmation is required to prove the goods’ EAEU origin (shipping documents, certificate of origin).
- The importer is responsible for VAT payment.
Advantages:
Simplified customs procedures.
No customs duties for goods that meet the EAEU origin requirements.
VAT on Imports from Third Countries
For imports from non-EAEU countries (e.g., China, Turkey, the U.S., EU countries), the standard tax rules apply:
Declaration of Goods:
Submission of a Cargo Customs Declaration (CCD).
Determination of Customs Value:
Includes:
- Cost of goods
- Transportation expenses
- Insurance fees
- Duties and excise taxes
VAT Payment and Release into Free Circulation:
It is paid at the time of customs clearance, along with other mandatory charges.
Applicable Tariffs:
Depending on the country of origin and type of goods, different customs duties and market protection measures may apply.
Penalties for Non-Payment or Delayed VAT Payment:
Fines may be imposed.
Confiscation of goods is possible in cases of tax evasion.
VAT Rate on Exports in Kyrgyzstan
For goods exported from Kyrgyzstan, a zero VAT rate (0%) applies. This means that the exporter is exempt from paying VAT but is still entitled to a tax deduction ( refund) for previously paid Value-Added Tax on goods and services related to export activities.
Important Points:
The zero VAT rate applies only if export is confirmed with the required documents.
The 0% tax rate does not apply to certain services provided within Kyrgyzstan.
Conditions for Applying the 0% VAT Rate
To qualify for the zero rate, the exporter must meet the following requirements:
Export must be confirmed by the following documents:
- Contract (agreement) with a foreign buyer.
- Customs declaration, confirming that the goods have been exported outside Kyrgyzstan.
- Transport documents (invoice, bill of lading, CMR, etc.).
- Bank documents confirming receipt of foreign currency proceeds into accounts in Kyrgyzstan.
Issuance of an export invoice:
- The invoice must include a note stating “Sale at a zero-VAT rate”.
Timely submission of tax reports:
- The VAT declaration must include details of export transactions for the relevant reporting period.
VAT Refund for Exporters
Exporters operating under the zero rate have the right to claim a refund on “input” VAT, paid on goods, services, and materials used in export activities.
VAT Refund Procedure:
- Submission of a tax declaration along with a request for VAT refund.
- A desk audit (review) by the tax authorities.
- If approved, it is refunded to the exporter’s bank account or credited against future tax liabilities.
Refund Processing Time:
- Tax authorities usually review VAT refund claims within 90 calendar days, but additional checks may be required.
VAT on Export of Services and Works
The zero rate does not apply to most services provided within Kyrgyzstan, except for:
- International transport services.
- Processing of raw materials under tolling arrangements for subsequent export.
- Export of digital services (in some cases, subject to documentation).
Tax Reporting and Filing Deadlines
Exporters must maintain accurate records of export transactions and submit tax reports within the required deadlines:
Declarations must be filed monthly, no later than the 25th of the following month.
If export documents are not submitted on time, the taxpayer must pay this tax at the standard 12% rate.
Conclusion
VAT is a key tax policy tool in Kyrgyzstan, supporting business growth and economic development. Proper Value-Added Tax administration ensures transparency in tax operations and integration into international economic processes.