It is registered
in the Ministry of Justice
Kyrgyz Republic
On February 28, 2002 No. 36-02
of February 7, 2002 No. 29/p
About approval of the Instruction about procedure for application of Agreements (Conventions) on avoidance of double taxation and the prevention of tax avoidance on the income and the capital (property) concluded by the Kyrgyz Republic with foreign states
I ORDER:
1. Approve the Instruction about procedure for application of Agreements (Conventions) on avoidance of double taxation and the prevention of tax avoidance on the income and the capital (property) concluded by the Kyrgyz Republic with foreign states.
2. To management of fiscal policy (to Kasymaliyev A. A.) make registration of this order in the Ministry of Justice of the Kyrgyz Republic.
3. The state tax authorities under the Ministry of Finance of the Kyrgyz Republic to accept the enclosed Instruction to execution and to bring it to the attention of taxpayers.
4. To the chief of staff of the Ministry of Finance of the Kyrgyz Republic (to Sulaymanov M. A.) publish this Instruction in mass media.
5. Recognize invalid orders of the Ministry of Finance of the Kyrgyz Republic of March 23, 1999 as No. 105-p and of December 21, 2001 No. 356-p.
6. To impose control of execution of this order on the Deputy Minister of Finance of the Kyrgyz Republic Keldibekov A. K.
Minister B. Abildayev
Approved by the order of the Ministry of Finance of the Kyrgyz Republic of February 07, 2002 No. 29-p
Introduction
According to article 6 of the Tax Code of the Kyrgyz Republic (further "Code"), provisions of the interstate agreements and other acts ratified by the President of the Kyrgyz Republic or Jogorku Kenesh of the Kyrgyz Republic which participant is the Kyrgyz Republic have priority before Code provisions.
Now the Kyrgyz Republic signs Agreements on avoidance of double taxation and prevention of tax avoidance on the income and the capital (property) (further "Tax Agreements") with the CIS countries and foreign countries.
The main objectives of Tax Agreements are:
- elimination of double taxation of the income or property;
- protection of resident of one state against the discrimination taxation in other contracting state;
- non-admission of evasion from the taxation or abuses of provisions of Tax Agreements;
- mutual exchange of information between competent authorities of contracting states for ensuring accomplishment of provisions of Tax Agreements;
- distribution of the rights of the taxation between contracting states.
Tax Agreements become effective in day or for the 30th day after the direction of the last on time of the notification on completion of the contracting states of procedures for the introduction of Tax Agreements provided by Constitutions in force or in day of exchange of instruments of ratification and are applied according to the article "Entry into force" of the specific Tax Agreement.
This Instruction is developed for the purpose of explanation of the general principles of application of Tax Agreements. At the same time in each case, first of all, it is necessary to be guided by provisions of the relevant Tax Agreements.
1. The tax Agreement is applied to residents of the Kyrgyz Republic and residents of the contracting state, to persons who are residents of both contracting states, and also to other persons if it is specially provided by the relevant Tax Agreement.
Thus, provisions of the Tax Agreements signed by the Kyrgyz Republic with foreign states equally are applied both to residents of the Kyrgyz Republic, and to residents of the states with which Tax Agreements are signed.
2. Tax Agreements are applied to taxes on the income and the capital (property), depending on conditions of the specific Tax Agreement. In the Kyrgyz Republic such taxes are the income tax about physical persons and the income tax and the income of legal entities.
The specific list of the taxes falling under operation of Tax Agreements in each case is established in the article "Taxes to Which the Agreement Extends" of the relevant Tax Agreements. At the same time it must be kept in mind that in one Tax Agreements only the taxes levied from the income are stipulated, and the taxes levied from the capital (property) also are in addition provided in others.
3. The above-stated taxes include tax on total income and on income elements, on the general capital and on capital elements; tax on the income from alienation of personal and real estate, capital gain tax; the income tax from the salary or the salaries paid by the companies. Assignments from salary fund are not considered as taxes on the total amount of the salary.
4. In case of change of the tax legislation in one of contracting states, the Tax Agreement is applied to all identical or to significantly similar taxes which are levied after signature date of the Tax Agreement in amendment or instead of the taxes which are earlier stipulated in the Tax Agreement.
5. In the article "General Determinations" of the Tax Agreement number of the general provisions necessary for interpretation of the terms applied in the relevant Tax Agreement is grouped. These determinations if other does not follow from the text of the relevant Tax Agreement, mean the following:
1) "contracting state" or "other contracting state" - depending on context, the Kyrgyz Republic or foreign state with which the Tax Agreement is effective;
2) "competent authority" - the state body providing accomplishment of provisions of Tax Agreements. In the Kyrgyz Republic such body is the Ministry of Finance of the Kyrgyz Republic which is at the address: 720040, Bishkek, Erkindik Boulevard, 58; phones (312) 222720, 661856, the fax 661260, or his authorized representative, competent to certify residence of the legal entities and physical persons of the Kyrgyz Republic performing activities in contracting states, to perform exchange of information with competent authorities of contracting states, and responsible for application of Tax Agreements, the State tax authorities under the Ministry of Finance of the Kyrgyz Republic which is at the address are: Bishkek, the prospectus Feel 720040,, 219, phones (312) 218477, 218466.
The competent authority of the contracting state is specified in the relevant Tax Agreement;
3) "company" - any consolidation (economic unit) considered for the purpose of the taxation as corporate consolidation. In the Kyrgyz Republic the term "company" is implied as legal entities;
4) "person" - physical person or legal entity, any consolidation of persons;
5) "international delivery" - depending on conditions of the specific Tax Agreement, any transportation sea, river, the aircraft or land (automobile or railway) transport. International delivery is not the transportation performed only between the Items located in one contracting state (in the Kyrgyz Republic or in foreign state with which the Tax Agreement is effective).
Example.
According to article 3 of the Tax Agreement with the Republic of Belarus, transportation by the aircraft, automobile or by rail belongs to international delivery. At the same time the transportations performed by the Belarusian residents only in the territory of Kyrgyzstan are not international;
6) "national person" - citizens and legal entities of the Kyrgyz Republic or state with which the Tax Agreement, depending on context is effective;
7) "the company of the contracting state" or "the company of other contracting state" - the company managed by resident of the Kyrgyz Republic or the company managed by resident of the contracting state with which the Tax Agreement, depending on context is effective.
6. The terms which are not considered in the article "General Determinations", as a rule, are given separately in other articles of Tax Agreements. If value of any used term is specially not stipulated in the text of the relevant Tax Agreement, that its value in the contracting state should be treated by the legislation of this contracting state concerning taxes to which the Tax Agreement extends.
7. For the purposes of Tax Agreements the term "resident of the contracting state" means any person who by the legislation of this contracting state is subject in it to the taxation based on its legal address (place of registration), the place of management, the place of creation, residence, residence or any other criterion of similar nature. Are not residents of person which are subject to the taxation in the contracting state only concerning the income from sources in this contracting state or the capital (property) which is in it.
The procedure for determination of the status of residence of this or that person in the Kyrgyz Republic is established in Item 26 of article 9 of the Code.
8. If the physical person at the same time is resident of both contracting states, according to provisions of the majority of Tax Agreements, its status is determined in the following sequence:
+--------------------------------+ +----------------------------+ ¦физическое лицо имеет ¦ да ¦физическое лицо считается ¦ ¦постоянное жилище только +------¦резидентом того государства,¦ ¦в одном договаривающемся ¦ ¦где расположено его ¦ ¦государстве ¦ ¦постоянное жилище ¦ +--------------------------------+ +----------------------------+ ¦ Нет +--------------------------------+ +----------------------------+ ¦Физическое лицо имеет ¦ ¦физическое лицо считается ¦ ¦постоянные жилища в обоих ¦ да ¦резидентом того государства,¦ ¦государствах, но более тесные +------¦где расположен центр его ¦ ¦личные и экономические связи ¦ ¦жизненных интересов ¦ ¦(центр жизненных интересов) ¦ ¦ ¦ ¦оно имеет только в одном ¦ ¦ ¦ ¦договаривающемся государстве ¦ ¦ ¦ +--------------------------------+ +----------------------------+ ¦ нет +--------------------------------+ +----------------------------+ ¦Физическое лицо не имеет ¦ ¦физическое лицо считается ¦ ¦постоянного жилища ни в одном ¦ ¦резидентом того государства,¦ ¦из договаривающихся государств ¦ да ¦где оно обычно проживает ¦ ¦и невозможно определить центр +------¦ ¦ ¦его жизненных интересов, но ¦ ¦ ¦ ¦обычно оно проживает только в ¦ ¦ ¦ ¦одном договаривающемся ¦ ¦ ¦ ¦государстве ¦ ¦ ¦ +--------------------------------+ +----------------------------+ ¦ нет +--------------------------------+ +----------------------------+ ¦Физическое лицо обычно ¦ ¦физическое лицо является ¦ ¦проживает в обоих ¦ ¦резидентом того государства,¦ ¦договаривающихся государствах ¦ да ¦гражданином которого оно ¦ ¦или не проживает ни в одном из +------¦является ¦ ¦них, но является гражданином ¦ ¦ ¦ ¦только одного из этих государств¦ ¦ ¦ +--------------------------------+ +----------------------------+
9. According to provisions of free Tax Standing agreements if the legal entity is resident of both contracting states, it is considered resident of that contracting state where there is place of its effective management.
At the same time the term "effective place of enterprise management" means the place of the actual implementation of activities of this company and receipt by the company of the income from the activities, everyday (actual) management of this company, irrespective of the location of bodies of the highest control over this company.
10. If the status of legal entities and physical persons cannot be determined how it is specified in above-mentioned Items, then the matter is resolved by mutual consent at the level of competent authorities of the Kyrgyz Republic and other contracting state.
If competent authorities will not be able to reach consent by determination of the status of the legal entity, according to provisions of free Tax Standing agreements, such person will not be considered as resident in one of contracting states for receipt of the tax benefits provided by Tax Agreements at all.
11. Foreign legal entities and physical persons perform business activity in the Kyrgyz Republic without formation of permanent organization, or through permanent organization. As example of the physical person performing business activity the sales of goods in the markets of one contracting state by citizens of other contracting state can serve.
The term "permanent organization" is for tax purposes applied to determination of procedure of payments with the budget of the foreign legal entity. Availability of permanent organization in any specific state does not allow to consider the taxpayer the resident. But in this case in relation to the nonresident having permanent organization in the territory of the contracting state the same procedure for taxation of all income gained in this state as well as the procedure operating for residents is applied. However, in this case nonresidents unlike residents of this contracting state do not pay in the specified state taxes from the income arising in other countries from business activity.
12. For the purposes of Tax Agreements the term "permanent organization" means the permanent place of activities through which the resident of one contracting state (legal entity or physical person) performs fully or partially business activity in other contracting state.
The place of activities in the contracting state includes any rooms, means or installations used for carrying out business by the resident of other contracting state irrespective of, they are used only for this purpose or not. The place of activities can also exist and without the organization of the special room for conducting business activity of resident of other contracting state, it is enough have some geographical space at the order. Does not matter, belong or the rooms which are at the disposal of resident of other contracting state, means or installations are leased. For example, the place in the market, the mine or "office hotel" where the resident of other contracting state consistently occupies different rooms can be the place of activities in the contracting state.
Example.
The Kazakhstan dealer comes to Bishkek each two weeks for three days. It acquires goods in the large wholesale Almaty supermarket and implements at retail in stall in the market of Bishkek. The dealer has no permanent stall in the market. Every time when it comes to the market, management of the market allocates it stall. As the business activity of the Kazakhstan dealer is performed regularly in the market, such activities lead to formation of permanent organization in the Kyrgyz Republic, therefore, its income gained from sales of goods is subject to the taxation in Bishkek.
Also the place of activities can be at other company. For example, where the resident of other contracting state has constantly at the order some rooms or their part in the building which is not belonging to it.
The permanent organization can be considered existing if the place of activities has certain degree of permanency that is if it is not temporary. If the place of activities was organized not for temporary use, it can constitute permanent organization even if in practice it exists during very short period of time in view of specific nature of activities of resident of other contracting state or owing to special circumstances (for example, the death of the taxpayer, unsuccessful investments) it was liquidated. Where the place of activities was intended initially for short temporary use, but further is used during the long period of time, it becomes the permanent place of activities iretrospektivno - permanent organization.
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