Foreign ownership restrictions / limitation of foreign investments and equity in corporations in Turkmenistan

1) Are there any restrictions on foreign ownership in companies?

The legal basis for foreign investment in Turkmenistan is based on the Constitution of the country, the Law of Turkmenistan "On Foreign Investments", the Law "On Investment Activity", as well as other regulatory legal acts.

Turkmen legislation allows various forms of participation of foreign investors:

• Partial participation in enterprises of Turkmenistan;
• Creation of enterprises fully owned by foreign investors (100% foreign capital);
• Acquisition of operating enterprises.

And there is only a minimum threshold for participation in the creation of an enterprise, which is 10%, and there is no maximum limit. This means that foreign capital can be up to 100%.

2) Is government approval required for foreign investment in local companies?

Yes, according to the requirements of the legislation of Turkmenistan, when foreign persons invest in local companies, it is necessary to obtain a conclusion from the Agency for the Protection of the Economy from Risks under the Ministry of Finance and Economy of Turkmenistan. This conclusion confirms the degree of reliability of the investor.

The Agency carries out comprehensive management and analysis of all possible potential:

• political;
• economic;
• financial;
• legal;
• industry;
• regional;
• naturally, natural risks for the national economy.

3) Which sectors are subject to special rules or restrictions for foreign investors?

The Law of Turkmenistan "On Investment Activity in Turkmenistan" directly prohibits investment in the following categories of objects and activities:

• Non-compliant with safety standards: investment in objects whose creation and operation do not comply with established seismic resistance, fire and explosion safety standards, as well as sanitary and hygienic, environmental and urban development requirements is prohibited. This provision is aimed at ensuring the safety of citizens, the sustainability of infrastructure and environmental protection;
• Infringing on legitimate interests: investments that may harm the legally protected rights and interests of citizens, legal entities and the state are prohibited. This norm serves as a broad legal instrument for preventing any investment activity that may negatively affect public or state interests.

Although there is no direct legislative regulation, there is a general tendency to limit the participation of foreign capital in specialized activities related to ensuring law and order, defense and security of the state. This demonstrates the state's strategic approach to maintaining sovereignty and control over key sectors that are vital for national security. Thus, despite the absence of specific prohibitions, investment in these areas by foreign capital may be difficult or impossible.

4) Can foreign persons own 100% of a limited liability company or joint-stock company?

Yes, according to the Law of Turkmenistan "On Enterprises" and the Law of Turkmenistan "On Joint-Stock Companies", both individuals and legal entities of Turkmenistan and foreign countries can be founders (participants).

At the same time:

• The share of each founder in the authorized capital must be at least 10% of the total property;
• There is no maximum limit on the share of participation. This means that foreign persons can own up to 100% of the share.

5) Are beneficial ownership rules applicable to foreign participants?

An important aspect of Turkmenistan’s legal system is the principle that international treaties of Turkmenistan take precedence over national legislation in case of discrepancies.

Turkmenistan is a member of the Eurasian Group on Combating Money Laundering and Terrorist Financing (EAG) and cooperates with the Council of Europe and other international organizations to implement international standards on beneficial ownership transparency.

Turkmenistan is also taking steps to increase transparency in this area, especially in light of international standards on combating money laundering and terrorist financing, such as the FATF (Financial Action Task Force) recommendations.

At the same time, the Law of Turkmenistan “On Combating Money Laundering, Terrorist Financing and the Financing of the Proliferation of Weapons of Mass Destruction” clearly regulates the requirements for recording information necessary to identify beneficial owners.

Thus, foreign participants wishing to do business in Turkmenistan should be prepared to be required to disclose information about their beneficial owners in accordance with local legislation and Turkmenistan’s international obligations.

6) Are there any quotas or thresholds on foreign ownership in strategic companies?

Turkmen law provides for quota and conditions of admission of foreign capital to the banking system (i.e., opening of credit institutions with foreign capital) which is determined by the Central Bank of Turkmenistan.

7) Is disclosure of foreign shareholders/participants required when registering a company?

Yes. When registering a company in Turkmenistan, disclosure of foreign shareholders or participants is required. The application for enterprise registration must include the following information:

• The name and legal address of the enterprise;
• The amount of the statutory (charter) capital;
• A list of all founders, including any foreign founders, with the following details:
  • For legal entities: name and legal address;
  • For natural persons: full name, place of residence, and identification document details.

8) Are there any restrictions on the acquisition of real estate by foreign legal entities?

The concept of property in Turkmenistan is primarily regulated by the Constitution of Turkmenistan, as well as other relevant laws and normative acts. Within this framework, the acquisition and limitations of property rights, particularly concerning foreign legal entities, are addressed under the general principles.

Firstly, as stipulated in Article 12 of the Constitution of Turkmenistan, property is inviolable. Turkmenistan recognizes the right to private property with respect to land, means of production, intangible assets, and intellectual values. Furthermore, Article 48 of the Constitution explicitly declares that private property is protected by law. Matters concerning property law, and specifically immovable property, are comprehensively regulated under the Land Code, the Law on Property, the Law on the Registration of Rights to Immovable Property and Transactions Related Thereto, and other pertinent legal instruments of Turkmenistan.

Pursuant to Article 26 of the Law on Property of Turkmenistan, foreign legal entities are entitled to acquire ownership of industrial and other enterprises, buildings, structures, and other assets within the territory of Turkmenistan, for the purpose of conducting commercial and other activities, in accordance with the procedures and principles stipulated by law. From this provision, it is evident that the law does not impose restrictions on the acquisition of the aforementioned types of immovable property by foreign legal entities.

However, the Land Code of Turkmenistan introduces specific regulations concerning the use of land by foreign legal entities within Turkmenistan. As stated in Articles 17 and 22 of the aforementioned Code, all land plots and shares within Turkmenistan, with the exception of land plots granted to citizens of Turkmenistan as private property, belong to the State of Turkmenistan. This signifies that the right of ownership over land is exclusively reserved for natural persons who are citizens of Turkmenistan. Other entities may utilize land only through rights of use or lease.

In this context, foreign legal entities, under Article 48 of the Land Code, may only lease land for a definite period for the purposes of:

A. Construction and non-agricultural needs;
B. Locating commercial points, warehouses, vehicle parking areas, and other temporary facilities.

It is important to note that such lease transactions can only be effected by a decision of the President of Turkmenistan.

9) Are there any business or office localization requirements for foreign investors?

The requirement for a physical business or office presence in Turkmenistan for foreign investors depends directly on the nature of their operational involvement within the country.

For Direct Operational Presence (Establishing a Company, Branch, or Representative Office):

If a foreign investor intends to establish a legal entity in Turkmenistan (such as an Economic Society, Joint Venture or JSC equivalent), a Branch Office, or a Representative Office, then yes, specific localization requirements apply.

Such entities must be formally registered and located in Turkmenistan in strict accordance with relevant legislation, including the Law on Enterprises, the Law on Joint Stock Companies, and other pertinent regulations.

This mandatory registration inherently requires a registered legal address within Turkmenistan, implying the necessity of securing and maintaining a physical office or business premises. This address serves as the official domicile for the entity and is crucial for receiving official correspondence and for compliance purposes.

For Indirect or Passive Investment (Shareholder or Head Company):

Conversely, if a foreign investor's involvement is limited to a passive role, such as acting as a shareholder or stockholder in a Turkmen company, or functioning as the head company of a registered branch or representative office in Turkmenistan, then no, the investor itself is generally not required to have a localized office or physical presence in Turkmenistan.

In these scenarios, the localization requirements fall upon the Turkmen legal entity or the registered branch/representative office that the foreign investor is involved with.

In summary, localization requirements in Turkmenistan are triggered by the establishment of an operational presence within the country. Foreign investors directly conducting business operations through a locally registered entity will need a physical office. However, those participating purely as equity holders or as the foreign parent of a local entity do not, themselves, need a physical presence in Turkmenistan.

10) Are sanctions or other restrictions applied to investors from specific countries?

As per our understanding of Turkmenistan's investment climate, there are no publicly accessible or officially published regulations that impose direct sanctions or explicit restrictions on investors specifically based on their country of origin.

Turkmenistan's legal framework generally aims to provide equal rights to all foreign investors conducting their activities within its territory, irrespective of their country of origin. The Law on Foreign Investments, for instance, does not contain provisions for such discriminatory treatment. Therefore, the rights and privileges granted to foreign investors are valid for all investors, regardless of their country of origin and without any restrictions.

Authors: Ikbal Said Alauddin, Serdar Amanov, Kerim Balkanov, Lachin Amandurdiyeva, Annamenli Rozymyradova