Tiryakioglu Law Office | Foreign Direct Investment and Turkmenistan

According to an official Turkmen Gazette dated 16.01.2009, foreign investment in Turkmenistan has increased by 4.8 times when compared to the previous year. When this figure is evaluated in the context of the UNCTAD Investment Brief No. 1, 2009, it reveals that although foreign investments all over the world last year decreased by 21%, presumably due to the influence of the global financial crisis, the amount of foreign investments in Turkmenistan has remained resilient.

The Law on Foreign Direct Investment in Turkmenistan sets out a legal framework that regulates the activities of foreign investors and enterprises with investments in Turkmenistan. According to the law, “foreign investment” is the appropriation of extraterritorial capital into a Turkmen business entity, which gives rise to civil rights allocated to a “foreign investor” in the form of cash, securities, property rights, objects having pecuniary valuation, and intellectual property rights. The legislation defines a “foreign investors” as a foreign legal entity, including its branch and representative offices in Turkmenistan; international organization; a foreign country; foreign individual, as well as a stateless person, at the moment of making investments is resident of a foreign country; and a Turkmen citizen that has permanent residency outside Turkmenistan.

A Foreign Direct Investment could constitute a foreign investor entirely owning an enterprise or partaking in equity with Turkmen legal entities or individuals in the form undertaking at least a 10% share (interest, investment) in the authorized capital of an established or new enterprise in Turkmenistan, which may include investments into the capital assets of a foreign legal entity’s branch based in Turkmenistan (Article 1). If the portion of foreign investor's shares in the authorized capital of the company is less than 10 %, this is considered to be a portfolio investment, which cannot constitute a Foreign Direct Investment, per se.

It should be noted that “construction work” by a foreign construction company in performance of a contract is also not considered foreign direct investment given that the company does not invest funds. On the other hand, the operations of a foreign construction company carrying out work at its own expense could be accepted as foreign direct investment.

a) equity participation in enterprises owned jointly with legal entities and individuals in Turkmenistan;

b) establishment of enterprises, wholly owned by foreign investors, subsidiaries of foreign legal entities or acquisition of functioning enterprises;

c) acquisition of movable and immovable property, excluding that limited in the civil circulation by the legislation of Turkmenistan;

d) provision of foreign loans;

e) acquisition of property and non-property rights (Article 3).

Foreign investments are not only regulated by the national instruments, but also by bilateral and multilateral international agreements. Turkmenistan adheres to the principle of protection of foreign investments and is party to a number of international conventions and agreements in this sphere. For instance, the Washington Convention of 1965 on the regulation of investment disputes between states and citizens of other countries (ICSID) and the Kiev Agreement of 1992 on Settlement of Disputes between CIS Countries. Turkmenistan has also concluded with a number of countries agreements on Cross-Support and Protection of Investments as well as a number of double taxation treaties.