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Income Tax in Tajikistan



Individual - Taxes on personal income

Non-resident individuals are taxed on their Tajikistan-source income. Taxation is primarily administered through withholding; however, in certain limited instances, non-resident individuals are required to make a self-assessment. Under certain conditions or where provisions of a double tax treaty (DTT) are available, non-resident individuals may be exempt from taxation in Tajikistan.

Personal income tax rates:

Progressive rates of 8% to 13% are applied for calculating the income tax of individuals.

Employment income of non-residents is taxable at 25%.

Simplified tax system:

Simplified taxation is applicable for individual entrepreneurs if their gross annual income does not exceed 500,000 Tajikistan somoni (TJS). Under this regime, individual entrepreneurs are subject to tax at a rate of 5% or 6%, depending on the type of activity.

Income determination

Exempt income:

Among income specifically excluded from taxation are gifts from other individuals, state pensions, aliments, welfare, gains on the sale of real property (in certain cases), insurance payments, and other payments.

Individuals (residents and non-residents) are exempt from tax on capital gains on the sale of securities listed on the Tajikistan stock exchange.

Residence:

All Tajik citizens are considered tax residents in Tajikistan. In addition, foreigners who are present in Tajikistan for more than 182 days in a consecutive 12-month period are also considered residents.

Individuals who are tax residents in Tajikistan should undergo tax registration with the tax authorities at the place of domicile.

Tax administration

Tax returns:

Tax agents are obligated to report on withheld income tax at the source of payment not later than the 15th day of the month following the reporting month.

The following individuals are required to file tax returns before 1 April of the year following the taxable year: individuals who have income that is not taxed at the source, individuals who have foreign bank accounts, and certain other individuals as may be required by the law.

Payment of tax:

In general, withholding agents are required to report and make withholdings from the payments to individuals. Payments by the tax agents are due by the date of reporting.

Corporate - Taxes on corporate income:

All Tajik legal entities are subject to CIT in Tajikistan. Tajik residents are taxed on their worldwide income. Non-residents are subject to CIT in Tajikistan only on Tajikistan-source income. Non-residents operating through a permanent establishment (PE) are generally subject to the same CIT provisions.

As part of the gradual decrease of the CIT rate, starting from 1 January 2017, CIT is computed by applying the statutory 23% rate to taxable income (13% for enterprises producing goods), which is calculated based on gross income decreased by allowed deductions and losses carried forward from previous periods. CIT liability may not be less than 1% of aggregate income.

Simplified tax system:

The simplified tax system for small business entities (hereinafter ‘tax under the simplified system’) is a special tax regime under which income tax for small business legal entities or income tax for individual entrepreneurs shall be paid under a simplified procedure. The simplified tax regime is applied by small businesses with aggregate annual income that does not exceed TJS 1 million.

Taxpayers who pay the tax under the simplified system are not liable for:

·        Income tax, except for WHT.
·        Road tax.
·        Income tax from revenues of the individual entrepreneur, functioning according to the certificate, except for WHT.
·        VAT, except for the import VAT and reverse-charge VAT.

The tax base for applying tax under the simplified system is the aggregate income. For activities related to production of goods, the tax rate is 5%; for other activities, the tax rate is 6%.

Income determination:

Income tax is assessed on taxable income, which is the difference between gross income and allowed exemptions and deductions.

Professional participants who carry out activity on the Tajikistan stock exchange are exempt from income tax.

Inventory valuation:

Inventory accounting for tax purposes follows inventory accounting for financial reporting purposes. Public companies are required to apply International Financial Reporting Standards (IFRS). Other legal entities may apply IFRS or National Accounting Standards.

For tax purposes, the following inventory methods are permitted: last in first out (LIFO), first in first out (FIFO), and weighted average. For public companies, there can be a mismatch between the tax method and the book method, as LIFO is not permitted under IFRS. For other legal entities, the tax method will match the book method if the tax accounting follows National Accounting Standards.




Capital gains:

In general, capital gains on securities are taxed as business profits.

Exemption is available for capital gains on the sale of securities on the Tajikistan stock exchange.

Dividend income:

In general, dividends are subject to 12% income tax withheld at source. WHT exemption can only be applied to dividends paid as part of net income distribution to the government budget. Dividends withheld at source are not included in aggregate annual income.

In case dividends were not taxed at source, then such dividends should be included in annual aggregate income of a person receiving the dividends and taxed at the standard CIT rate.

Dividends received by residents and non-residents (investors) from securities listed on the Tajikistan stock exchange are exempt from taxation.

Interest income:

The Tax Code defines interest income as income received from any fees associated with a debt obligation, including tax liability, payments for any loans, and contributions on deposit (accounts). Interest income is subject to CIT in Tajikistan and should be included in annual aggregate income.

Royalty income:

Royalty income received by a resident entity should be included in the aggregate annual income and taxed at the standard CIT rate.

Royalty income received by a non-resident from a Tajikistan source is subject to WHT at the rate of 15%.

Foreign income:

Tajik residents are taxed on their worldwide income. Non-residents are subject to CIT in Tajikistan only on Tajikistan-source income. There are no provisions in the Tax Code for tax deferral.

Corporate residence:

Legal entities formed under Tajik law, as well as legal entities whose effective control (management) is in Tajikistan, are recognised as residents for CIT purposes.

Permanent establishment (PE):

Under general provisions of the Tax Code, any activity carried out through a fixed place on the territory of Tajikistan, including activity performed through a dependent agent, regardless of duration of such activities, will create a PE of a non-resident. 

Further, a non-resident legal entity having business activities in Tajikistan may also create a PE in the following cases:

·     'Services PE': A non-resident enterprise renders services in Tajikistan through employees or other personnel engaged by the non-resident for such purposes, provided that these activities continue for more than 90 calendar days within any consecutive 12-month period.
·        'Construction PE': A construction site, assembly facility, performance of supervisory activities (connected with such objects), or project works/design works.
·        'Agency PE': A non-resident will be considered as having a PE in cases where a resident or non-resident has the contractual authority to represent the non-resident’s interests in Tajikistan (i.e. act and/or sign contracts on behalf of the non-resident).




Corporate - Withholding taxes:

New requirements on tax residency certificates have been introduced and are effective from 1 January 2016. Thus, the tax residency certificates should be apostilled and legalised for the purpose of application of the DTTs.

Tajikistan-source income of non-residents is subject to WHT at its source at the rates shown in the following table:

Types of income at source of payment
Tax rate(%)
Dividends and interest
12
Insurance and reinsurance premiums
6
International transport and telecommunications
5 to 6
Royalties, rent, lease income, management fees, and other income
15


Tax administration

Taxable period:

The Tax Code prescribes a calendar year as the tax year.

Tax returns:

Annual CIT declarations are due by 1 April in the year following the tax year-end.
Taxpayers are required to submit their estimated calculation of monthly advance payments of CIT.

Payment of tax:

With respect to CIT, advance payments are due every 15th day of the month. Payment of any outstanding CIT liabilities is required not later than 10 April following the reporting tax period.
The settlement of minimum income tax should be made by 10 April following the reporting tax period in cases where it exceeds CIT liability.

Fines and interest penalties:

The fine for failure to file a tax return ranges from a minimum amount of 1 calculation index (CI), which is currently TJS 40, to a maximum fine of 100 CI, or TJS 4,000. The amount of the fine depends on the taxpayer’s category and should be assessed based on each ten days of delay. In the absence of tax returns, the tax authorities are entitled to assess taxes based on any information available.

Fines may be assessed in the amount of 10% to 20% of the understated tax liabilities. In severe cases, a violation may be considered a criminal offence.

A fine for failure to withhold and remit tax may be assessed in the amount of 3 to 200 CI (approximately TJS 120 to TJS 8,000) of the tax not withheld.

Interest penalties may apply to late tax payments in the amount of 0.08% of the underpaid tax amount for each day of tax underpayment.

Tax audit process:

Tajikistan tax authorities have the right to conduct regular tax audits (once per year for planned tax audits). Generally, there are two types of audits:

·     Planned tax audits. Planned tax audits are conducted according to the list of entities that fall under tax audit, published by the competent authority.
·        Unplanned tax audits. Reorganisation or liquidation of a legal entity, the expiration of the contract on subsoil use, validation of the VAT amount that is charged for a return, etc., may trigger an unplanned tax audit.

Documentary tax audits may be further subdivided into comprehensive (i.e. covering all taxes), thematic (covering only specific type of taxes), or cross-check (covering only transactions with a particular counterparty). Comprehensive and thematic audits may be conducted once a year.

The first planned documentary tax audit of a small business, implementing the simplified tax system, can be carried out only after 24 full calendar months from the date of its registration.

The tax authority sends or presents a notice of a tax audit to a taxpayer no later than ten working days before the start of the documentary tax audit unless otherwise provided in the Tax Code.

The period of tax audits, specified in issued orders, shall not exceed 30 working days from the date of receipt of the order, unless otherwise provided in the Tax Code.

Statute of limitations:

Taxpayers are allowed to make changes to prior period tax returns within the statute of limitations (three years). No fines should apply to corrections in this case.


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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.


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This blog is Created by CA Anil Kumar Jain.