Specifics of Taxation of Electronic Services in Turkmenistan

1) What qualifies as electronic services for tax purposes? Is there a list of such services?

Under the tax law of Turkmenistan, “electronic services” are not defined as a separate legal category but fall within the general concept of services under Article 97 of the Tax Code, which broadly covers activities consumed at the time of their performance. The Tax Code does not provide an exhaustive list of electronic services. Instead, Article 99 sets out categories of services (e.g., consulting, advertising, IT, and telecommunications), which may be supplied either physically or electronically.

The notion of electronic services is clarified by the Law of Turkmenistan “On Electronic Documents, Electronic Document Management and Digital Services”, which defines digital services as services rendered using electronic information systems and telecommunication networks. Accordingly, electronic services should be understood as a method of delivery rather than a distinct type of service.

2) Is a foreign company providing services electronically required to register for VAT purposes?

Pursuant to Article 24 of the Tax Code of Turkmenistan, a foreign company is required to register as a taxpayer in Turkmenistan if it has a branch, representation, or creates a permanent establishment. In addition, even without a permanent establishment, registration is required in cases specified by law, including Articles 108(2) and 144(2).

According to Article 108(2), if a foreign company provides taxable services (including electronic services) in Turkmenistan but is not registered, VAT is generally calculated and paid by the customer acting as a tax agent. However, if it is impossible to withhold VAT or no tax agent exists, the foreign company must register and fulfill its VAT obligations independently.

Therefore, a foreign company providing electronic services is not always required to register for VAT, but it must register if VAT cannot be collected through a tax agent or if other conditions in the law apply.

3) How is the place of supply of electronic services determined?

Article 99 of the Tax Code states that, the place of supply of services is determined based on the nature of the service. As a general rule, the place of supply is the place where the supplier is established, or for an individual entrepreneur, their place of residence or permanent place of business.

However, Article 99 provides special rules for certain categories of services. In particular, for services such as advertising, consulting, legal, accounting, information and data processing services, software development, and telecommunications services, the place of supply is determined by the location of the customer. This means that the service is considered to be supplied where the recipient of the service is established or resides.

Since many electronic services fall within these categories, their place of supply is usually determined based on the customer’s location.

4) What VAT rates apply to electronic services?

In accordance with Article 103 of the Tax Code, the standard VAT rate is 15%, which applies to all taxable services, including electronic services.

However, there are exceptions provided by law. Article 105 provides for a 0% VAT rate for specific transactions (mainly export-related and certain international services), while Article 106 lists services and activities that are exempt from VAT.

In general, electronic services are subject to the 15% VAT rate. However, if an electronic service falls within the categories listed in Article 105 or qualifies as an exempt service under Article 106 (for example, certain educational or healthcare services), it may be zero-rated or exempt from VAT.

5) Are there any thresholds for mandatory tax registration?

The Tax Code of Turkmenistan does not establish any explicit turnover thresholds for mandatory tax registration. The obligation to register is instead linked to legal status and activities (e.g., carrying out taxable transactions, having a permanent establishment), rather than to reaching a certain level of income or turnover.

6) What reporting and filing obligations apply to providers of electronic services?

In Turkmenistan, providers of electronic services are subject to the general reporting and filing obligations established by the tax legislation, as there are no special rules specifically for electronic services.

Once registered as taxpayers, they must submit tax returns for each reporting period. For legal entities, the reporting period is monthly, and the tax return must be filed no later than the 20th day of the following month. For individual entrepreneurs, the tax period is annual, with reporting divided into two half-year periods.

In certain cases, foreign providers of electronic services are not required to file tax returns if their obligations are fulfilled through a tax agent. In such situations, the responsibility to report and provide information to the tax authorities lies with the person making payments to the foreign provider.

7) How are services supplied through marketplaces and platforms taxed?

Turkmenistan legislation does not contain specific tax rules for services supplied through marketplaces and digital platforms. Therefore, general tax rules apply.

The responsibility for taxation depends on the legal role of the parties. The actual service provider is considered the taxpayer and must fulfill tax obligations if it is registered or required to be registered.

If a foreign provider supplies services through a platform, the tax agent mechanism may apply, meaning that the person making the payment (customer or intermediary) may be responsible for calculating and paying tax.

Digital platforms themselves are not specifically treated as taxpayers or deemed suppliers under the legislation. They are generally regarded as intermediaries, unless they act in their own name.

8) What are the risks and penalties for non-compliance with tax rules?

In Turkmenistan, violations of tax legislation entail tax, administrative, and, in large amounts, criminal liability.

1. Tax liability.

a)  In case of violation by a taxpayer (tax agent) of the established deadline for tax payment, penalties are imposed on them (Article 70 of the Tax Code of Turkmenistan).

b)  A guilty unlawful act (action or inaction) of a taxpayer, tax agent and their representatives, as well as banking institutions, is recognized as a tax offense, for which financial sanctions are established by the Tax Code of Turkmenistan (Article 88 of the Tax Code of Turkmenistan).

c)  If a taxpayer evades compliance with tax requirements provided by the Tax Code of Turkmenistan, mechanisms of enforced fulfillment of tax obligations to the budget are applied:

• Adoption of a resolution imposing a prohibition on the taxpayer’s (tax agent’s) right to dispose of property;
• Drawing up an inventory of property;
• Forced sale of property through the State Commodity and Raw Materials
• Exchange of Turkmenistan or retail enterprises to cover debts to the budget.
• Filing a claim in court for foreclosure on the property of the taxpayer (tax agent).

2. Administrative liability.

Administrative liability arises for violations such as failure to provide or late submission of required tax information, incorrect reporting, or non-compliance with obligations related to tax calculation and payment. In particular, fines may be imposed for

• failure to submit accurate information for tax registration (Article 286 of the Code of Administrative Offences),
• failure to fulfill obligations on calculation and timely payment of taxes and other mandatory payments (Article 288),
• violation of deadlines for submitting tax declarations and reports (Article 300), and
• failure to provide information necessary for tax control or providing incomplete or distorted information (Article 301).

3. Criminal liability.

Criminal liability applies in cases of deliberate tax evasion, especially when committed in large or especially large scale.

• For individuals, intentional concealment or understatement of income or other taxable objects, as well as inclusion of knowingly false information in tax declarations leading to large-scale non-payment of taxes, is punishable by fines or corrective labor (Article 284 of the Criminal Code of Turkmenistan), with stricter penalties, including imprisonment, for repeated offenses or particularly large-scale violations.
• For legal entities, similar acts such as falsification or destruction of financial documents leading to tax evasion entail fines, disqualification from certain activities, corrective labor, or imprisonment (Article 285 of the Criminal Code of Turkmenistan), with increased sanctions for aggravated circumstances. 

Authors: Lachin Amandurdiyeva, Gulenar Akmyradova, Selbi Jorayeva, Emir Artykov