Legal aspects of the operation of a foreign NGO/NPO/IO in Tajikistan

This article describes various aspects of the operation of a foreign NGO/NPO/IO (not-for-profit organization) with an office in Tajikistan. It also speaks about the setting-up and liquidation of its operations in Tajikistan.

For the purposes of this article, NGO is a foreign or international not-for-profit organization and /or non-government organization, or a foreign corporation with non-for-profit status, and will be referred to below as the “Organization” or the “Office”.

REGISTRATION

Forms of legal presence

Organizations can register their legal presence in Tajikistan in the form of a representative office or a branch office.

Under Tajik law, a representative office or a branch is not a legal entity but a separate subdivision of it, which acts in the name of the legal entity, of which it is a part (through an appointed manager acting on the basis of the Regulations and the specific Power of Attorney). Assets allotted to them are those of its head-office legal entity. While a branch is entitled to carry on, in part or in full, the functions of its head-office legal entity, a representative office’s activity is restricted to the representation and protection of the rights of the legal entity. In practice though the borderline between these two forms may blur.

Sometimes, but rarely, an Organization may exist without its office being registered- as would normally be the case (see below) – but on the basis of an agreement with the Government (e.g. ICRC).

Which organ can register?

Currently, there are two options for registration. An office can be registered with the Companies Registrar at the Tax Committee or with the Ministry of Justice.

Overall, an office registered with the Companies Registrar may be subject to less control over its activities. On the other hand, registration with the Ministry of Justice may be more straightforward.

Documents required for submission

The following documents shall be prepared for submission in case registration is with the Companies Registrar:

application in a provided form;
decision of an authorized body of the foreign/international entity to (i) set up its office in Tajikistan (ii) approve the bylaws (Regulation) and (iii) appoint local manager of the Office;
a copy of the passport of the local manager;
a power of attorney issued in favor of the local manager;
a document confirming due registration of foreign/international entity abroad (abstract from the register or similar document);
document evidencing the acquisition of the legal address in Tajikistan (primarily this would be a preliminary lease agreement);
confirmation of the payment of the registration fee;
a power of attorney issued in favor of a local representative to deal with registration locally.

The following documents shall be provided, in addition to the above-listed, in case registration is with the Ministry of Justice:

legal address must be confirmed by the local government office;
notarized copies of constituent documents of the foreign/international organization;
copy of the bylaws/Regulations of the office;
certificate of good conduct in relation to the local manager, issued by the department of internal affairs.

Timelines

5 to 10 days, however, in practice, deadlines are rarely observed.

Fees

Fees for registration with the Companies Registrar are appr. USD 160 and for registration with the Ministry of Justice appr. USD 580.

Post-registration steps

Tax ID, etc.

Obtaining Tax ID, Social Security Number and Registration with Statics Office usually takes up to 3 days. In case of registration with the Companies Registrar, all these steps are dealt with and are completed along with the completion of the registration of the office (as opposed to the option with the Ministry of Justice where such steps will need to be taken after the office is registered).

Bank Account

The following documents are required for opening a bank account:

an application letter (in a provided form);
copies of the Certificate of State Registration and/or Abstract from the Register;
Office Tax ID;
Office Regulation/Bylaws;
POA for local manager;
original copies of passports for local manager and/or chief accountant;
copy of the decisions on appointment of the local manager and/or chief accountant;
information letter from relevant tax office for the purposes of opening a bank account;
completed and signed specimen signature cards.

Some local banks may require that a central bank or a similar authority in the head office’s location provides a letter (permit) to the effect that the office may have accounts with banks in Tajikistan.

Accreditation

Office will need to undergo its personnel accreditation with Ministry of Foreign Affairs. The special entity to deal with the issue of accreditation is the State Unitary Enterprise “TajikDipService” (http://tds.tj/ru/personnel-registration/).

Documents required for submission:

application;
copy of the Regulations/Bylaws;
copy of the Abstract;
list of employees with their addresses and positions;
copies of passports for each employee (including copy of visa, if the employee is a foreigner);
profile form for each employee (in the provided form);
2 photos of 3×4 size (one of which in electronic format).

Accreditation takes up to 3 working days and costs USD 27 (per employee).

TAX PAYER STATUS

Organizations are exempt from corporate income tax, except for income derived from their business activity. Typically, Organizations are exempted additionally under foreign aid, cooperation and technical assistance agreements with the Government of Tajikistan (ratified by the Parliament). Such exemptions would normally extend to VAT as well as individual income tax and social tax in respect of income of foreign expatriate staff.

APPROVALS AND PROCESSES BEFORE HIRING

Here are the approvals and registration processes which normally should be in place for the Organization to hire an expatriate/ third country national in Tajikistan.

Visa for third country national (expat)
Employment contract
Rental contract in respect of the expat’s place of residence in Tajikistan
Registration with police
License to hire foreign personnel
Work permit
Tax ID

Visa

The following two categories of visas are the most relevant here since they are the ones widely used: work visa (M – type) and business visa (K – type).

Work visa (M – type) is issued by Tajik embassies and counselor offices located in the home country or country of stay of an expat, representative offices of the Ministry of Foreign Affairs of the RT on the territory of Tajikistan and consular office at the airport of Dushanbe. Work visas are issued as a single-entry visa for the term indicated in the confirmation of invitation. Confirmation of invitation is a document based on which an expat/third country national can obtain visa of the relevant category from Tajik embassy or consular office. For obtaining the confirmation of invitation, the hosting organization shall turn to the Main Consular Department of the Ministry of Foreign Affairs of Tajikistan. The Consular Department prepares and issues the confirmation in original to the hosting organization, and sends its copy to the embassy processing the application of the expat. Work visas are issued for the period of not more than 3 months.

Business visa (K – type) is issued by Tajik embassies and Tajik oversees consular offices on the basis of the request of the hosting/inviting entity for the period indicated in the request, but for not more than 3 months. Business purpose is exemplified as follows: 1) participation in business negotiations, meetings, symposiums, forums, conferences, tenders, auctions, exhibitions, fairs, cultural and sporting events; 2) signing of contracts with legal entities and individuals of the RT, creation of joint ventures, studying the domestic market, installation, repair and further maintenance of equipment, internships andprovision of consulting servicesand audit.

To obtain visa one needs to follow the steps set out at www.visa.gov.tj. The approximate processing time for visa is 20 working days. The period for processing can be extended, if necessary, but for not more than 10 working days.

Consular fees range between USD 50 to USD 220 depending on the visa period and number of entries. Also, a stamp duty of app. USD 5 applies. Visas can be extended up to 1 year.

Before the turn of the Pandemic, it was also possible to obtain e-K-type visa, i.e. via https://www.evisa.tj/index.evisa.html. As things become normal, this option would become available again. All information on the steps to follow is available at the above e-address.

Normally, an expat would be required to obtain work visa, M – type visa. Expats working for ‘international organizations’ would be relieved from the having to obtain a work permit, nor license for hiring a foreign labor would be required of an organization itself. Not many (if at all) Organizations are treated as international organizations. Nevertheless, current practice, which has settled for a while now, is that expats successfully apply for a business visa, K-type visa. Thus, the practical benefit of such visa is that it spares the necessity to acquire a work permit and the license for hiring a foreign labor.

Employment contract

An employment contract will need to be in place prior to the initiation of the application process for M-type visa. The employment contract can be with the HQ or Organization’s branch; however, it is recommendable to have a contract with the former. This is because (1) having labor contract with the local Branch will provide more exposure for expat’s income to taxation in Tajikistan (2) while the contract with the HQ will be more difficult to track and will better go in line with the position that expat’s income is exempted under the Agreement (if any in existence). In addition, obtaining business visa (K – type) does not require the submission of the labour contract which gives another practical reason for opting for business visa rather than work visa.

Rental contract in respect of the expat’s place of residence in Tajikistan

Upon arrival in Tajikistan and before applying for a residence card and taxpayer’s identification number, an expat shall find a place of residence and conclude a rental contract.

In practice, after conclusion of a rental contract, the owner of the rented apartment may be required to turn to the tax authorities and pay the tax on income from the rental agreement (13% tax for the period of at least three months in advance).

Registration with police

An expat must be registered with internal affairs bodies at the place of its residence within 10 working days from the date of arrival. Hosting Organization (its local Branch), is in charge of registering the passport of the expat, and shall submit, along with the application, the following documents to the relevant bodies: original copy of the passport (with visa) of the expat; and a copy of the passport of the owner of the rented apartment.

Hosting Organization shall notify the registration authorities when the expat changes its place of stay. This should be done within 3 calendar days. The fee charged for the residence card is about USD 20-30, depending on the expat’s citizenship.

Registration is evidenced by certificate (sticker) issued by the registration authority and attached to the blank page of the passport of the expat. Registration is granted for the period of the validity of the Tajik visa. In practice, registration takes from 1 to 2 days.

License to hire foreign personnel

Under the Tajik legislation, activities related to employment of foreign citizens in Tajikistan are subject to licensing. The intention of the Law of the Republic of Tajikistan “On Licensing of Specific Types of Activities”, dated 17 May 2004 No 37 (the “Licensing Law) has been to target specialized employment agencies, i.e. assisting in finding a job in Tajikistan (or abroad). On this basis, in our opinion, Hosting Organizations wishing to hire a foreign national should not qualify here. Despite that, as a matter of practice, Ministry of Labour insists on any organization seeking work permit for its prospective staff to first acquire a license in its own name. Hosting Organization may thus be required to obtain a license to hire an expat in Tajikistan – but only if the expat will qualify for a work visa and will need to obtain a work permit.

The procedure for acquiring license as follows:

The licensing authority is the Migration Service under the Ministry of Labour, Migration and Employment of Population of Tajikistan.

In order to obtain a license for attracting foreign labour, the Hosting Organization (applicant) shall submit the following documents to the licensing authority:

Letter addressed to the Head of the Migration Service at the Ministry of Labour
Certificate on State Registration in Tajikistan
Local Tax ID
Extract from Unified State Register
Passport of the local director (copy)
Conclusion of the Labour and Employment Agency under the Ministry of Labour on approval of the request of the Hosting Organization for attracting foreign labour
Order on appointment of the in-house lawyer of the Hosting Organization (copy) (in case if the Hosting Organization does not have an in-house lawyer, it shall appoint a lawyer, or find anyone from its staff with a lawyer’s diploma, since in the case at hand a legal consulting firm cannot act as the Hosting Organization’s lawyer)
A copy of the lease agreement in re office
Information Letter from the Statistics Committee
List of all locally hired employees
Regulations of the Hosting Organization (i.e. local Branch or Representative Office)
Document confirming the payment of fee for consideration of the application for license.

This type of license is issued for a period of up 3 years.

The licensing authority shall adopt a decision within 30 days from the moment of receipt of the application with all the required documents.

Fee for consideration of the application for a license for attracting foreign labour is 4 Calculation Indices (TJS 240), and for issuance of the license 10 Calculation Indices (TJS 600).

Work permit

A work permit entitles an expatriate/third country national to work in Tajikistan. Such permit is granted for the period of up to 1 year. In certain cases, work permit is not required. For example, individuals working and operating in diplomatic representative offices and international organizations. Most of the Organizations will not qualify as “international organization”, for the letter is “an organization established by states or governments”.

An application for a work permit may be filed by the expat himself, or by the Hosting Organization.

The following documents shall be submitted to the Migration Service under the Ministry of Labour, Migration and Employment of Population for obtaining a work permit:

Application
Passport
Visa
Registration with the police
Confirmation of payment of the state fee
Two 3×4 color photos
Health certificate obtained from a medical institution within Tajikistan (Form 029)
Copy of the invitation letter or employment contract with the Organization (in practice, the second one is requested)
HIV certificate from a medical institution within Tajikistan
Copy of the license to hire foreign personnel
Tax ID
Extract /Certificate of registration from the registration authority (e.g. Ministry of Justice, State Unified Registry at the Tax Committee)
Copy of the passport of the director of the Organization.

The Migration Service has 15 days to consider the application and issue work permit. The fee to be paid for a work permit is 60 Calculation Indices (TJS 3600) for one year.

Tax ID

An individual is qualified as a taxpayer in Tajikistan, if it receives a taxable income in Tajikistan. Income from employment in Tajikistan is generally taxable. A person who is a taxpayer in Tajikistan needs to acquire local Tax ID.

The following documents shall be submitted to the tax authorities:

Application of an approved form
Copy of the expat’s passport (notarized Tajik translation)
Visa of the expat
Rental contract (together with receipts confirming the payment of the relevant tax by the landlord)
Passport of the owner of the apartment rented.

Registration at the tax authorities and issuance of the Tax ID is carried out within 3 working days and free of charge.

TAXATION OF EXPATRIATES

Generally speaking, income of any individual who obtains the status of a tax resident in Tajikistan (i.e. having been present in Tajikistan for more than 182 days in any 12-month period) shall be legally liable on its world-wide income. Where an individual stays in Tajikistan less than that period s/he is considered to be tax non-resident of Tajikistan. Whether tax authorities are competent enough to appreciate this rule or in a position to actually track such income and enforce relevant tax liability are separate questions. As a matter of the Tax Code, if there is a legal tax liability there is an obligation to declare the income and where the income is not thus declared or under-declared (and to the extent local tax authorities are able to verify such information) tax authorities may exercise their right to impose penalties in addition to the collection of ascertained or assumed amounts of taxes or sometimes employ arbitrary approach in determining tax liability.

Individual Income tax. Income of the residents is taxed at 13% (applicable generally); and non-residents’ income is taxed at 25%. For individual income tax purposes, gross income comprises all types of compensation, both in cash and in kind. Individuals are considered residents of Tajikistan if they are present in Tajikistan for more than 182 days in any 12-month period. The year of residence is considered as the calendar year in which the 12-month period ends. These are deducted by an employer/payor of the income.

Social tax. Employers are required to pay social security contributions in the form of a social tax at the rate of 25% of the total payroll cost of the employer. The social tax is also due on amounts (other than salaries) paid to resident individuals for services rendered by them. Employees pay social tax at the rate of 1% of their employment income. The tax is withheld by the employer. Taxable income includes salary, benefits in kind, pensions from private funds and other income as defined for individual income tax purposes. The social tax is also due on amounts (other than salaries) paid to resident persons for services rendered to an employer. The applicable rate is 1%.

As such there is no special tax regime for expats working in Tajikistan, but employment income of expats is taxed with individual income tax and social tax (as described above). Individual income tax is applicable to income received by non-resident individuals working in Tajikistan, in the form of compensation, paid by and at the expense of employers, for incurred expenses for material, social and non-tangible benefits, including expense for food, accommodation, studies of children in educational institutions, expenses in connection with holidays, including holiday trips by family members. Income of non-resident expatriates is taxable at the rate of 25%.

LOCAL STAFF

In Tajikistan, labour legislation remains to be generally pro-employee. The Labour Code is the main legal act which regulates labour issues.

Labour contracts. Under employment contract an employee is obligated to provide works on one or several of her/his professions, specialties or positions of certain qualification and the Employer is obligated to remunerate for such works and ensure the minimum employment conditions prescribed by the law. An employment contract must have the following mandatory clauses:

place of work;
employee function (duty);
starting day of work;
period of employment contract;
amount of remuneration;
duration and working regime; and
duration of holiday.

Fixed Term vs Open-ended Contracts. An employment contract may last for an indefinite or a fixed period of time, though the employer must provide justification if the contract term is fixed (e.g. a fixed term contract is justified for seasonal jobs).

It is the general requirement of the law that an employer should offer an open-ended contract unless it can legitimately justify such the conclusion of such contract was not possible (due to, e.g. nature of work or otherwise). Foreign employers tend to offer fixed-term contracts even though their projects last longer. Such practice may be risky. When they extend fixed term contracts on the same terms this, in Tajik law, transforms the contracts into unlimited contracts.

The main difference between annually renewed and open-ended (or unlimited) contracts is that in the first case severance does not have to be paid since the contracts will expire naturally. There may be specific cases where such difference may be important, e.g. pregnancy or employee with children.

Probation. A contract may contain a provision on probation period, which must not exceed three (3) months. During the probationary period either party may terminate relations providing written notice to that effect. Probation period cannot be put into the contract if an employee was hired as a result of the contest. The Labor Code provides that probation period cannot be put into the contract if an employee was hired as a result of the contest. Our interpretation of this is that the ‘contest’ (1) must be specifically mentioned in the law as a ground for hiring and (2) the procedure for such contest should be in the law.

Foreign and international organizations almost invariably hire through a competitive process by advertising a job position. However, it is not utterly clear if such process should qualify as a contest and thus disallow for the probation clause to be included in the employment contract.

Our interpretation of this is that until such time that the law does not specify a contest as a ground for hiring and the procedure for such contest (as is, for example, for civil servants), probation clause could still be in the contracts with organizations which advertise and select for positions prior to hiring.

Work hours. Working hours shall not exceed 40 hours per week. Employees working in hazardous conditions are entitled to a reduced week of 35 hours. Overtime and extra working hours must not exceed 4 hours during two days in a row (and 2 hours for those working in hazardous conditions). For any employee the total amount of extra working hours during one year must not exceed 120 hours. For employee working in shifts, the length of each shift may not exceed 12 hours.

Salary. Salaries are agreed upon in labour contracts subject to the minimum monthly rate currently being TJS 400. Depending on geographic location and conditions of work, allowances and premiums may apply. Overtime and night shifts shall be compensated at multiple salary rates. Salaries must be paid at least once a fortnight (i.e. semi-monthly) and be paid in TJS.

Annual leave. Employees are entitled to a minimum of 24 calendar days of annual paid leave. Extended leave shall be granted to employees in harmful and difficult working conditions.

Termination. Termination of the contract by an employee is subject to two weeks’ notice. Termination of the contract by an employer must be reasoned and is allowed in cases provided for by the Labour Code of Tajikistan and subject to two months’ notice to an employee. In certain cases, termination of the contract is prohibited (e.g. pregnancy, children under age of 3).

Labour unions. Employee shall be entitled to form their representative union and an employer shall have duty to assist achieving that goal. Where employee representative union has been established, it shall have the right to participate in the discussion of the issues of social and economic development of the company, provide opinion on the decisions which may have a bearing on the employee interests, participate in the preparation of the labour by-laws of the company and have other rights as may be provided in the collective agreement or the bylaws of the company.

SERVICES CONTRACTS WITH INDIVIDUALS

It is an often-considered option and even a matter of existing practice for an organization to hire individuals not as a staff but to use other service providers. This is especially the case for foreign companies and organizations and international organizations operating in Tajikistan. It may appear advantageous to use what for them may be a conventional approach, however, such options need take into account local context, legal framework and practice so that they can take an informed decision and preempt troubles.

Using services of the freelances in Tajikistan (e.g. interpreters) is a wide practice and is convenient from the standpoint of an organization hiring such services. There are no obligations which would usually arise where the organization actes as an employer by having an employment contract with the services provider. Thus, while hiring freelances in Tajikistan may be a better option in comparison to hiring an individual and making him a staff member, from the standpoint of taxation, these options do not differ from one another. Both the freelancer and an employee will cost to the organization the same amount of taxes. Payroll (social) tax will be the same, at 25% rate and, additionally, 1% will be deducted from the amount payable to the freelancer/employee. Individual Tax will be equally the same: 13%.

Apart from hiring an employee or a freelancer, there are other options for an organization to hire individual service providers: 1) hiring individual entrepreneur working under what is called ‘patent’ tax system (the “Patent holder”); (2) individual entrepreneurs working under what is called ‘certificate’ tax system (the “Certificate holders”).

These two options may be more attractive for an organization primarily for tax considerations.

The tax system under which an individual’s activity will fall (Patent Holder or Certificate Holder) will depend on the kind of activities involved. Government established the list of activities the engagement in which will automatically bring an individual into the realm of the patent tax system. This list is inclusionary, i.e. any activity, which is on the list makes an individual concerned liable to become a Patent Holder. Any activity which is not on the list makes an individual concerned liable to become a Certificate Holder. For both cases, an activity in question must be a regular activity of a person with an independent status. In other words, such activity, on substance, should not be that one would find in employment relationships.

There are other differences between the Patent Holder and Certificate Holder which has to do with the overall size of the income earned in a calendar year, ability to hire labor and some others.

Patent Holders are not required to submit tax reports. They are obliged to draw up an annual reconciliation act together with the relevant tax authority, before 1 March of the year following the reporting year. Certificate Holders have to submit tax declarations within 10 days of the reporting period (on a quarterly basis for simplified tax and on a monthly basis for social tax).

The below chart summarizes available tax system for each of the option.

Available options for tax purposes	Income Tax	Social Tax
Certificate Holder	6% (payable on gross income)	1% (payable on gross income)
Patent Holder	Up to 600 TJS	Up to 118 TJS

Employee	13%	25% +1%

There are certain risks associated with the use services of Patent Holders or Certificate Holders. Tax authorities may scrutinize the Patent Holders’ or Certificate Holders’ relations with an organization to ascertain if the primary purpose of the use of these arrangements was to minimize its tax obligations. For these purposes they would consider if the organization is main hirer of the services and whether it is a primary income for the services received from the organization.

Also, if the relations between the organization and such services providers bear the characteristic of an employment relations. For example, it may appear that, as matter of fact or on the basis of the contract, Patent Holder of Certificate Holder should follow the organizations’ internal work regime and/or the services are continuously provided at the location of the organization, periodicity of payment of the remuneration, and the treatment of such services providers similarly to staff members (e.g. internal pension or providence fund, provision of meals in the office, etc.).

If any one of the above tests is satisfied, tax authorities may recharacterize into employment relations and, as a result, the individuals would, for tax purposes, be treated as staff-members. In practical terms, such re-characterization may result in additionally assessed taxes for the relevant period (Individual Income Tax at 13% and Social Tax at 25% for the organization and 1% for a Service Contractor) and the penalties (interest and fines, more likely for the organization rather than for the Service Contractor).

Penalties may include the amounts of the taxes that would have applied should the relevant Service Contractors were local staff-members of the organization, for the actual period of provision of their services. Penalties may include default interest and fines. The interest rate is 0,05 % of the amount underpaid. A fine may amount to TJS 11,000 (appr. USD 1000)

REPORTING

The Organization will need to comply with the following reporting requirements:

monthly and quarterly reporting on individual income tax (in respect of its employees and individual contractors);
monthly and quarterly reporting on social tax (in respect of its employees and individual contractors);
monthly and quarterly statistics reports.

An Organization registered with the Ministry of Justice will need to report to the Ministry as follows:

annually, until 1 April, provide a report on its activities;
annually publish financial reports – on the Organization’s website or on the website of the Ministry of Justice (this latter option assumes that the report should be sent to the Ministry of Justice, for publication- see the link to where they are polished https://adliya.tj/ru/reports-of-public-organizations).
report on the funding it receives. The requirement (set out by Government Resolution No 149) is not utterly clear and the question is whether reporting should be each time it receives the funding (e.g. several wire-transfers in relation to the one and same project), or it should be per project only. In practice, the former is the case;
provide any information upon request of the Ministry.

LIQUIDATION

Liquidation of the Organization (i.e. local branch) usually involves the following main steps:

adoption of the decision (normally at HQ level) on closing/ liquidation of the branch in Tajikistan (including on appointment of the liquidator and on staff reduction);
notification of the Registration Authority, Employment Service, Tax Office, the contractors and the employees;
drawing up the liquidation balance sheet;
obtaining clarence from tax and customs offices;
termination of contracts and settlements of payments with the contractors and employees;
registration of the liquidation of the branch with the Registration Authority; and

archiving documentation.

NGOs