Doing Business In Uzbekistan

Business visas. Business visas areissued to foreign individuals arriving inUzbekistan for business purposes (e.g.,for a business trip or negotiations, tosign contracts or to attend conferences,symposiums, forums, exhibitions,concerts or cultural, scientific, sportingor other events).Investment visa. An investment visa maybe issued to shareholders/ participantsor founders of enterprises with foreigninvestments and to members of theirfamilies for a period of three years, at theend of which it may be extended.In addition, foreigners who have investedat least USD 3 million in production orservice industries in Uzbekistan andshareholders/participants or foundersof enterprises with foreign investmentsmay apply for a 10-year residencepermit under a simplified procedure.A foreigner with a residence permitdoes not need to obtain visas and workpermits to live and work in Uzbekistan.Work visas. Work visas are issued toforeign individuals arriving in Uzbekistanfor employment. A work confirmationmust be submitted to Uzbek foreignaffairs authorities in order to obtain awork visa (subject to planned changes).See the ”Work Confirmation” sectionbelow for details.Issuance of visas. Visas are issuedabroad by Uzbekistan consulates (theConsular Department of the Embassyof Uzbekistan). Generally, businessvisas are issued based on a letter ofinvitation from a local Uzbek company,or a representative office of a foreigncompany, submitted to the ConsularDepartment of Uzbekistan.8Doing business in UzbekistanUnless exempt from visas as mentionedabove, citizens of the following countriesare eligible to obtain an entry visa toUzbekistan through the “EVISA.MFA.UZ” system or obtain tourist visas undersimplified procedures at Uzbek consularoffices: Albania, Algeria, Angola,Bahrain, Bangladesh, Bolivia, Cambodia,Cameroon, Cape Verde, China (includingHong Kong), Colombia, Cote d’Ivoire,Ecuador, Egypt, Fiji, Gabon, Ghana,Guyana, India, Iran, Jordan, Kingdomof Bhutan, Kiribati, Kuwait, Laos,Lebanon, Macedonia, Maldives, MarshallIslands, Mauritius, Micronesia, Morocco,Nauru, Nepal, Oman, Palau, Paraguay,Peru, Philippines, Republic of Korea,Qatar, Samoa, Saudi Arabia, Senegal,Seychelles, Solomon islands, SouthAfrica, Sri Lanka, Suriname, Thailand,Tonga, Tunisia, United States ofAmerica, Uruguay, Vanuatu, Venezuelaand Vietnam.The electronic visa is valid for 30 daysfrom the date of issue. The processingtime for electronic visa applications is2 (two) working days, excluding theday the application is submitted. Theelectronic visa is sent to the e-mailaddress of the foreign citizen asindicated in the application submittedvia the “EVISA.MFA.UZ” web portal.2.2. Forms of legalpresence availablein UzbekistanThere are a number of legal formsavailable for foreign and local investorswishing to establish a presence inUzbekistan, including but not limited tojoint stock companies, limited liabilitycompanies, representative offices,permanent establishments of foreignentities, etc.Should you require more information onthe nature and uses of various businessforms in Uzbekistan, EY offers taxand legal advice on how to structurea specific business in Uzbekistandepending on the investor’s particularindustry or commercial plans, as well asa full range of company formation andregistration services.In this section we give details of thefour types of business entities mostcommonly used by foreign investors.2.2.1. Joint stock companies (JSCs)A JSC is a legal entity that is separateand distinct from its shareholders. As ageneral rule, a JSC’s shareholders arenot liable for the JSC’s liabilities. A JSCmay have one or more shareholders.Generally, there is no minimum chartercapital requirement for a JSC. However,regulations governing certain activitiesnormally subject to licensing (e.g.,banking and insurance activities) set outminimum capital requirements for JSCs.Since establishing a JSC is a verytime-consuming and highly regulatedprocess, investors usually prefer to optfor an LLC when deciding on their formof presence in Uzbekistan. However,for certain types of businesses (suchas banks) the JSC is the only availablevehicle for establishing a presence inUzbekistan.

2.2.2. Limited liability companies(LLCs)Like a JSC, as a general rule, an LLC isa legal entity in which the participantsare not liable for the company’sliabilities and bear the risk of lossesfrom the company’s activities only tothe extent of their contributions to thecharter capital. An LLC may have oneor more participants. An LLC may notbe established by one entity that in turnhas only one shareholder/ participant,unless the former entity is a JSC.Similarly to a JSC, an LLC may, as analternative fund-raising option (besidesequity-based financing), issue bondssubject to similar requirements as thoseset for bonds issued by JSCs.The main difference between these twotypes of entities is that an LLC does notissue shares. Instead, participants haveownership (participating) interests inthe company. Unlike a JSC, participantsof an LLC bear strict liability for thedisclosure of confidential informationconcerning the activities of the LLC. Inaddition, the supreme governing bodyof an LLC is the general meeting of itsparticipants. There is also an option tocreate a supervisory board of an LLC.As a general rule, as in the case ofa JSC, there is no minimum capitalrequirement for an LLC. However,regulations governing certain activitiesnormally subject to licensing (e.g.,insurance activities) may require LLCsto comply with the minimum capitalrequirements for those specific types ofbusiness.2.2.3. Representative offices (RO)An RO is a structural subdivision ofa legal entity that is established ata different location from that of thelegal entity and carries on its activitiesbased on accreditation received fromthe government (a process describedin Section 2.3.2 “Accreditation ofrepresentative offices” below). Since anRO does not constitute a legal entity,all rights and obligations are assumedby the legal entity that establishedthe RO (the main legal entity). It isexplicitly stated in the law that an ROcannot conduct business activities.An RO is established exclusively torepresent and protect the interests ofthe main legal entity, and its activitiesmust be limited to marketing andnon-transactional support for the headoffice. If any commercial activities areconducted through an RO, the RO’saccreditation may be cancelled by thestate authorities.Doing business in Uzbekistan9

2.2.4. BranchesUzbek law does not explicitly restrict/prohibit the establishment of branches inUzbekistan by foreign entities. However,in view of the virtual non-existence ofregulations governing the registrationand activities of branches of foreigncompanies, in practice, the Uzbekauthorities refuse to register branchesof foreign legal entities.We are aware of a draft law that wouldenable the registration of branches offoreign companies in Uzbekistan in thefuture, but it remains unclear when thelaw might be passed.2.2.5. PEsAlternatively, it is possible to registera permanent establishment (“PE”) of10Doing business in Uzbekistana foreign legal entity for tax purposesin Uzbekistan. This is done purely fortax registration purposes for a specificproject, and a PE does not constitute alegal form.2.3. Establishing a legalpresenceAs a rule, all legal entities andrepresentative offices in Uzbekistanmust be registered or accredited withthe appropriate government authorities.2.3.1. State registrationState registration in Uzbekistan iscarried out based on a “one-stop- shop”principle whereby all registrationdocuments must be submitted to asingle centre for the provision of publicservices to business entities (“OneStop-Shop Centre”). Upon submittinga complete set of documents, providedthat the authorities do not raise anyissues, the LLC should be registered withjustice, tax and statistics authorities - allat the same time.There is an option to submitdocuments to the One-Stop-ShopCentre electronically through the“e-government” web portal. However,this requires the use of an electronicdigital key, which means that, inpractice, legal entities established byforeign entities cannot yet be registeredthrough the e-government portal, sinceforeign legal entities founding an Uzbekentity are not currently allowed to obtainan electronic digital key.

Uzbek law requires a standard set ofdocuments, i.e., statutory documentsprepared in the Uzbek language, to besubmitted in order to complete the stateregistration of a legal entity.In addition, under recent legislativechanges a foreign General Directoris now required to have a PersonalIdentification Number of an Individual(the “PINFL”), which is issued by aOne-Stop-Shop Centre upon submissionof a notarized copy of the foreignGeneral Director’s passport, a 3x4 cmphotograph and a power of attorney(if the documents are submitted by aperson acting on the General Director’sbehalf). That number must be indicatedin the application when registering anLLC. The procedure by which a foreigncitizen may obtain a PINFL has not yetbeen established, meaning that there isno specific statutory timeline for issuinga PINFL to a foreign citizen.Documents submitted to the One-StopShop Centre must be accompanied by abank document confirming payment ofthe state registration fee (the amountof which depends on the type of theentity to be registered, e.g., rangingfrom one minimum wage amount onthe date of issue for an LLC to 4 timesthe minimum wage for insurancecompanies). The documents mustalso be duly signed, sealed, notarizedand, where appropriate, legalizedor apostilled. Otherwise, the Uzbekauthorities may reject the documents,which would delay the registrationprocess considerably. Under Uzbek law,the registration of a legal entity shouldtake no more than 30 (thirty) minutes.In practice, this timeframe is observed,provided that documents are completeand duly signed and meet the statutoryrequirements.2.3.2. Accreditation of representativeofficesThere is a separate procedure forestablishing representative officesof foreign entities in Uzbekistan.Representative offices of foreign legalentities are subject to accreditation withthe Ministry of Investments and ForeignTrade of the Republic of Uzbekistan (the“Accreditation Authority”).household may not be indicated as thelegal address of a legal entity.The location of a legal entity is not onlythe place where it is registered, but alsoaffects the court where documents arefiled for litigation and the tax authorityto which certain tax and other paymentsmust be made.Under Uzbek law, governmentauthorities (including tax authorities)require legal entities and ROs to bepresent at the legal addresses indicatedin their foundation documents and in theregistration records of the authorities.An RO is considered to be accreditedfrom the date of issuance of a certificateof accreditation by the AccreditationAuthority. Generally, accreditation isgranted to an RO for a term of 1 to 3years, which may be extended uponthe company’s request. As a rule, theextension of accreditation is a relativelystraightforward process.If an entity is not actually present at itslegal address, i.e., the tax authoritiescannot find anyone representing theentity at the time of their visit, the entitymay be subject to an administrative fine,and its corporate bank accounts may beseized.2.3.3. Location (legal address)Foreign legal entities (non-residents)carrying on activities in Uzbekistanthrough ROs as well as Uzbek legalentities and individuals (residents)may open and use bank accounts inUzbekistan in both national and foreigncurrencies.A legal entity’s location is the addressindicated in its foundation documents(the charter and, if there is morethan one participant/shareholder, thefoundation agreement).Under Uzbek law, the location of alegal entity is the place where itsstate registration takes place. Thefoundation documents may establishthat the location of a legal entity is theplace where its permanently operatinggoverning body (i.e., its director orboard of directors) is situated orthe place where its main business isconducted. Please note that a private2.3.4. Opening a bank accountfor companies and individualsUzbek legal entities (residents) mayopen and use foreign currency accountswith foreign banks outside Uzbekistansubject to decisions of the Presidentor the Government of Uzbekistan orinternational agreements allowing theopening and use of accounts in nationalor foreign currency with banks abroad.Doing business in Uzbekistan11

3Overviewof tax rulesin Uzbekistan12Doing business in Uzbekistan

In the sections that follow we describe the most important taxes in force in Uzbekistan. There are a number ofother less significant or industry-specific taxes such as excise tax and a number of taxes on “subsurface users”,i.e., oil, gas and mining companies. It is important to conduct a thorough review of any proposed businessactivity to determine the actual taxes that apply to it.3.1. Changes to theTax Code of Uzbekistanin 2022The new Uzbek Tax Code, which cameinto effect from 1 January 2020,The Uzbek Tax Code has undergonesubstantial changes with a number ofnew concepts introduced in 2022.Among the main changes effective from1 January 2022 are: (i) implementationof the transfer pricing rules, thecontrolled foreign company (CFC)concept and the tax consolidationregime for CIT purposes; (ii) theintroduction of a special rental tax onmineral extraction, new definitions andrates for depreciable assets, cancelationof the limits on tax loss carry-forwards,the introduction of a ‘dividend tax’ forPEs of non-residents, etc.Anticipated changes in tax legislation.Effective from 1 April 2022 until 31December 2024, a number of taxbenefits are being introduced forsecurities holders:(i) For individuals - both residents andnon-residents of Uzbekistan — sharedividend income is expected to beexempt from personal income tax(PIT).(ii) F or legal entities that are nonresidents of Uzbekistan — dividendincome on shares is expected to besubject to a 5% corporate incometax (CIT) in the same way aslegal entities that are residents ofUzbekistan.(iii) For individuals and legal entities –both residents and non-residentsof Uzbekistan – interest income oncorporate bonds is expected to beexempt from PIT and CIT.In order for these benefits to beimplemented, government bodies havebeen instructed to submit a draft lawsetting out appropriate amendments tothe Tax Code.3.2. Personal income tax(PIT) and social taxEY offers advice and support withall aspects of tax compliance forindividuals and employers as well aspayroll processing. EY also provides taxand legal assistance to high-net-worthindividuals.Taxpayers and residencyBoth residents and non-residents ofUzbekistan are subject to personalincome tax. Residents are taxed on theirworldwide income, while non-residentsare taxed only on their Uzbek sourceincome.A resident is generally defined as:(i) an individual who is physicallypresent in Uzbekistan for over183 days in any period of up to 12months beginning or ending in acalendar year for which tax residencyis determined(ii) an individual who is physicallypresent in Uzbekistan for less than183 days, but more than in anyother state in a calendar yearAccordingly, non-residents are generallythose individuals who do not meet theabove tests.Taxable incomeIncome of individuals consists ofemployment income, property income,in-kind income and other types ofincome. In general, all types of income,including benefits in kind, are taxable inUzbekistan unless they are specificallyexempt. Income that is specificallyexempt from tax includes alimony, statepension income, etc.RatesGeneral personal income tax is levied ata flat rate of 12% for residents, while fornon-residents a flat rate of 20% applies.Dividends and interest payable to taxresident individuals are subject to tax atthe rate of 5%, while for non-residents thetax rate for dividends and interest is 10%.Doing business in Uzbekistan13

It should be noted that, from1 April 2022 to 31 December 2024,individuals, both residents andnon-residents of Uzbekistan, areexempted from personal incometax on:(i) share dividends;(ii) interest income on corporatebonds.Tax complianceThe tax year in Uzbekistan isthe calendar year. A withholdingobligation is placed on Uzbek legalentities, individual entrepreneurs(where applicable), foreign legalentities operating in Uzbekistanthrough permanent establishmentsor representative offices, etc. (‘taxagents’) which make salary-relatedpayments to individuals and providebenefits to employees. Tax agents areresponsible for the proper assessment,withholding and remittance of personalincome tax. Tax agents are also obligedto file monthly reports on income paidto their employees and tax withheldthereon by the 15th of the monthfollowing the reporting month andmust submit an annual return togetherwith their annual financial statements.Personal income tax must be paid tothe budget at the time income is paid,but not later than the deadline for thesubmission of monthly reports.1A foreign citizen who becomes a taxresident of Uzbekistan is obliged tofile an annual tax return not later than1 April following the reporting yearon his/her worldwide income. The taxassessed in the annual tax return (i.e.,any outstanding liability) must be paidby the individual not later than 1 Junefollowing the reporting year. If foreignindividuals who are tax residentspermanently leave Uzbekistan, theyare also obliged to file a ‘departure’ taxreturn not later than one month beforedeparture and the resulting tax liabilitymust be paid within fifteen days of filingthe ‘departure’ tax return.Individual entrepreneurs with annualrevenue below UZS 100 million(approx. USD 9,230) must also paypersonal income tax on the basis ofan annual return or pay a fixed tax. Theamounts of the fixed tax vary based onthe type and location of activity.Controlled foreign company (CFC)rules for individualsA CFC is a foreign legal entity (notclassed as a tax resident of Uzbekistan)or a foreign unincorporated entitywhose controlling persons are Uzbektax-resident individuals. Specifically:(i) F or a CFC with corporate statuscontrolling persons are individuals:— whose share in the foreigncompany exceeds 50% in 2022(25% from 2023)—w hose share in the foreigncompany exceeds 10% if theshares of all other personsrecognised as tax residentsof Uzbekistan exceed 50%in total, or—w ho exercise control over theforeign company (regardless oftheir participation share)(ii) For a CFC without corporatestatus the controlling person isits founderIf a tax-resident individual is recognisedas a controlling person of a CFC, heor she is obliged to include retainedearnings of that CFC in his/her annualtaxable income and pay relevant tax.In addition, Uzbek tax residents mustnotify the tax authorities (1) of theirparticipation in foreign legal entitiesand the establishment of foreignunincorporated entities, and (2)of CFCs of which they are controllingpersons.Mandatory payments to social fundsSocial taxEmployers are required to assess andpay social tax at the current rate of12% (25% in the case of state-fundedorganizations) of gross payroll (i.e., atthe employer’s expense). The assessedamount of social tax must be paid tothe budget on a monthly basis (notlater than the monthly tax returnfiling deadline). Similarly, a cumulative ot later than 15 February following the reporting year (or not later than 25 March following the reporting year for companies with foreign investments andNnon-residents operating through a PE).14Doing business in Uzbekistan

return must be submitted to the taxauthorities on a monthly basis not laterthan the 15th of the month followingthe reporting month, and an annualreturn must be submitted together withthe annual financial statements.Employee pension fundcontributionsEmployers must make monthlymandatory contributions to individualfunded pension accounts of localemployees (foreign citizens withoutUzbekistan residence permits aregenerally not subject to suchcontributions) at the rate of 0.1% oftheir gross employment income.These contributions are deductiblefrom amounts of personal income taxpayable by tax agents.Other individual taxesProperty taxThe property tax is imposed onbuildings and apartments possessed byindividuals. The rates vary from 0.25%to 1.5% applied to the cadastral valueof the property.Land taxAn individual granted permanentpossession of a land plot is subject toland tax at a fixed rate depending onthe location of the land. For example,in the city of Tashkent, the rates varyfrom UZS 500 (approximately USD0.046) to UZS 1,280 (approximatelyUSD 0.118) per square metre perannum, depending on the location ofthe land plot.3.3. Corporate incometax (CIT)EY offers the following servicesin the area of corporate income tax: Advisory and structuring Assistance with tax complianceof legal entities at every step ofthe process Tax review and due diligence services Other tax-related servicesDepreciation for tax purposesTo qualify as a fixed asset for taxpurposes, an asset must be defined assuch under accounting legislation.For tax purposes, assets may bedepreciated up to the maximum ratesshown in the table below:Type of fixed tures10%Taxpayers for CIT purpose

8 Doing business in Uzbekistan Business visas. Business visas are issued to foreign individuals arriving in Uzbekistan for business purposes (e.g., for a business trip or negotiations, to sign contracts or to attend conferences, symposiums, forums, exhibitions, concerts or cultural, scientific, sporting or other events). Investment visa.