Tax Implications of Bankruptcy in Turkmenistan

1) What taxes are due during bankruptcy proceedings?

Pursuant to Article 50(4) of the Tax Code of Turkmenistan, a liquidating legal entity is required to fulfill its tax obligations within two months from the commencement of the liquidation procedure. The specific taxes and applicable rates during bankruptcy proceedings may differ based on the organizational and legal structure of the enterprise. The taxes for non-resident owned companies include corporate income tax, a levy for urban and rural area development, contributions to the Ashgabat City Development Fund, value-added tax (VAT), property tax, and dividend tax.

2) What happens to outstanding tax liabilities during bankruptcy proceedings?

During bankruptcy proceedings, the liquidation commission is responsible for settling the outstanding tax liabilities of the liquidating entity, utilizing its financial assets, including those generated from the sale of its property. Should these assets be insufficient to fully discharge the tax obligations, the remaining debt must be covered by the founders or participants of the entity, insofar as they are liable under the law or the entity's founding documents. Any residual unpaid tax debt, after the fulfillment of these obligations, is classified as uncollectible and written off in accordance with the applicable legal procedures.

3) Are the founders (shareholders) of the bankrupt enterprise liable for the tax debts on a subsidiary basis?

The founders, participants, shareholders of a bankrupt enterprise may bear subsidiary liability for tax debts if such obligations arise under applicable law or the founding documents. The extent and conditions of this subsidiary liability are determined by the organizational and legal form of the enterprise in accordance with the governing law.

4) What are the tax consequences of the sale of the bankrupt's assets?

Pursuant to the Tax Code of Turkmenistan, the sale of a bankrupt enterprise's assets is subject to standard taxation, with tax liabilities terminating upon the liquidation of the business (Article 43). This includes income tax for small and medium-sized enterprises, as well as corporate income tax and VAT for enterprises owned by non-resident individuals and legal entities. 

5) What tax risks do purchasers of the bankrupt's assets face?

There are no potential risks involved in acquiring the assets of a bankrupt entity.

Authors: Ikbal Said Alauddin, Kerim Balkanov, Annamenli Rozymyradova