What are the licensing and quotation requirements for the export of goods from Uzbekistan?
What preferences in import customs duties are applied to the goods imported by foreign investors?
What act shall provide legal protection to foreign investors from amendments into the law, which might possibly deteriorate conditions of investment?
What procedures and requirements are there for approval of Feasibility projects for the investment projects?
Is there convertibility of the local currency? What percentage of currency proceeds is required for the sale to the government? What rate is used while transaction is taking place?
Is there an Agreement between the UK and Uzbekistan governments on mutual protection of investments?
Is there any concession on electricity payment for the foreign investors in Uzbekistan?
Is there any concession in VAT payment for foreign investors?
Is there tax on dividends allocated to shareholders outside the country?
What type of investment activity is allowed in Uzbekistan?
What tax concessions are provided for foreign investors?
What are the licensing and quotation requirements for the export of goods from Uzbekistan?
Regulation: there is no licensing and quotation requirement except for those goods that are covered under export control. Export customs duties were fully abolished. Maximum rate of import customs duties was established at the rate of 30%, 65 product groups were covered by import customs duties (average rate was 28%), products that are not included into this group are imposed at the minimum rate of 3%. “Zero” import customs duties are imposed on the imported products originated from the customs territories of Free Trade Zone Agreement signed among CIS countries. This regime is applied in trade with Azerbaijan, Armenia, Republic of Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Ukraine, Tajikistan and Turkmenistan.
What preferences in import customs duties are applied to the goods imported by foreign investors?
Regulation: In accordance with the Article 33 of the Law of Uzbekistan №470-I dated of 29 August 1997 on Customs Tariff, the following goods are exempt from customs duties at import:
-originated and imported from the territories of the states with whom the Republic Uzbekistan has entered into agreement on free trade;
-imported for purposes of manufacture by the foreign investors and for personal use of members of the enterprise with whom due labour contract has been signed;
-imported by the investors who have directly invested more than 50 million USD in the economy of Uzbekistan if the goods are identified as of their own manufacture;
-technological equipment;
-for realisation of investment projects, financed under the guarantee of the Government;
-imported for the newly built or reconstructed enterprises, which are specialized in production of popular consumer goods;
-imported for the purposes of contribution by foreign investors in a Charter Capital of the enterprise.
According to the Resolution №4 of the Cabinet of Ministers of the Republic of Uzbekistan of 7 January 2004, there is 0 (zero)% import duties payment for the import of goods for own needs of companies, machine tools, technological equipment, including equipments for production of construction materials and components, lumber, wood-materials.
Import customs duties have also been abolished for computers, software and computer components up to 1 January, 2006.
Moreover, on 14 of January 2004 the Cabinet of Ministers adopted Resolution №18, according to which companies shall be exempt for up to five years starting from 1 January 2004, from payment of import customs duties for the goods of technological equipment and spare parts, materials and components that are not produced in Uzbekistan but are necessarily used during technological process of localization program.
What act shall provide legal protection to foreign investors from amendments into the law, which might possibly deteriorate conditions of investment?
The Law «On guarantees for foreign investors» №611- I dated 30 April 1998 shall provide guarantees and protection of the rights of foreign investors involved in investment activity on the territory of Uzbekistan. Article 3 of the Law foresees 10-year protection for foreign investments from deterioration of investment conditions if such have occurred as a result of amendments, made into the acting legislation.
Besides, the Law shall guarantee the rights from nationalization or expropriation of the property and discriminatory acts as a result of action by any legal entity.
What procedures and requirements are there for approval of Feasibility projects for the investment projects?
Procedures and requirements for the Feasibility projects are underlined in the Resolution of the Cabinet of Ministers №538 dated 2 December 2003. According to the above Resolution, consideration of feasibility projects depends on sources of financing of the investment project. For details of this question the applicant is kindly requested to address the Agency for foreign economic relations of Uzbekistan.
Is there convertibility of the local currency? What percentage of currency proceeds is required for the sale to the government? What rate is used while transaction is taking place?
Yes, there is full convertibility of national currency since 13 October 2003 when the Government of Uzbekistan, Central Bank and IMF mission admitted commitment of Uzbekistan within the Article VIII of IMF Statute Agreements. In accordance with the Resolution №245 dated 29 June 2000, all entities involved in export of their products are subject to 50% currency proceeds sale to Central Bank. The rate of sale is established at the rate of interbank exchange emission which means that Central Bank does not have any influence on regulation of this rate.
However, enterprises with foreign investments who are specialised in production of popular consumer goods and whose share in the charter capital is more than 50%, are provided with 5 year period exemption from currency proceeds sale obligation from the time of registration of the enterprise.
Is there an Agreement between the UK and Uzbekistan governments on mutual protection of investments?
Yes, the governments of Uzbekistan and the United Kingdom signed the Agreement on mutual protection of investments on 24 November 1993.
Is there any concession on electricity payment for the foreign investors in Uzbekistan?
Unless if not provided in a special government decree for extremely important investment projects, all enterprises are entitled to payment of generally established electric power rate.
Is there any concession in VAT payment for foreign investors?
Regulation: According to the paragraph 5 of the Decree of the President of Uzbekistan №2598 dated from 28 April 2000, enterprises and organizations, which are delivering the goods or services to foreign companies, involved in exploration of oil and gas or other entrails shall be exempt from VAT.
Paragraph 6, part two of the article 71 of Tax Code and paragraph 1 of the Decree of the President of Uzbekistan №1919 dated from 19 January 1998, foresees that technological equipment, imported into the territory of Uzbekistan by foreign investors as a share in the Charter Capital of the enterprises, is exempt from VAT payment.
In accordance with paragraph 1 of the Decree of the President №2143 dated from 24 October 1998, raw materials imported for the use in production of the company specialised in manufacture of child footwear are exempt from VAT payment.
Is there tax on dividends allocated to shareholders outside the country?
The Uzbek law regulates profit tax and related matters and dividends of foreign shareholders are subject to taxation, though profit of foreign owned entity in Uzbekistan, as a resident in the country, may get concessions or benefits under certain regulations. The Convention between The government of the United Kingdom of Great Britain and Northern Ireland and The government of the Republic of Uzbekistan for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains (the Statutory Instrument 1994 №770) explains important aspects on avoidance of double taxation on the territories of the two States. Article 10 of the Agreement establishes that dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
It is essential to note, that article 7 of the Law «On guarantees for foreign investors» №611- I dated 30 April 1998 shall provide guarantees for repatriation or removal of profits and dividends by the foreign investors to or out of Uzbekistan.
What type of investment activity is allowed in Uzbekistan?
A foreign investor is entitled to engage in investment activity in Uzbekistan through:
- Equity participation in companies, banks, trusts, cartels, associations, and other enterprises established together with Uzbek resident legal entities;
- Establishment of an enterprise with 100% foreign capital;
- Portfolio investment through the acquisition of bonds, shares and share certificates, and other securities issued by Uzbek companies or the Government;
- Total or partial acquisition of rights for land plots, rights for real estate including land utilization rights, concession rights effecting the utilization of underground resources, etc.
Potential foreign investors are offered different forms of capital investments - creation of joint ventures, firms with 100% foreign capital, acquisition of a part or full stake of shares of privatised firms and etc., and also great number specific projects in different industries of economics: in industrial complex, agriculture, transport, telecommunications, construction, health care, tourism.
What tax concessions are provided for foreign investors?
The climate in the area of tax concessions for foreign investors in Uzbekistan is the most favourable among former Soviet Republics. Particularly, the investors are provided with the following tax benefits:
- 7-year grace period for profit tax - if a foreign investment is made on the project(s) listed in the Government Investment Program;
- 5-year grace period for profit tax from the date of launching production - if more than 25% of the products are goods for children;
- 2-year grace period for profit tax from the date of launching production - if share of 50% or more of the company's paid-up charter fund is a foreign capital and the company produces export-oriented and import-substituting products;
- 50% profit tax reduction - if a company exports 30% or more of the total sales volume of its products (works, services);
- 30% profits tax reduction - if a company exports from 15% to 30% of the total sales volume of its products (works, services);
- Property tax exemption - if the company's exports constitute 50% or more of the total volume of sale of its own products (works, services);
- 50% property tax reduction - if the company's exports constitute 25% to 30% of the total sales volume of its products (works, services);
- 30% property tax reduction - if the company's exports constitute up to 25% of the total sales volume of its products (works, services);
- Profits tax exempt for the period of 3 years from the date of launching production and 50% reduction of profit tax during next two years if the company is established in rural areas;
- Grace period from taxes on land for two years for enterprises with foreign investment if such enterprises are engaged in production activity:
Total tax profit rate is 20%.
Tax profit rate for production enterprises with foreign investments with 50% or more shares in the Charter Capital is established depending on the size of a share of the foreign investor in the Charter Capital of the enterprise:
16% profits tax - if 50% or more of the company's paid-up charter fund is foreign capital and comprises of $ 1,000,000 or more;
Moreover, if an enterprise with foreign investment receives over 60% of its revenues from the sales of its products or services, then it will be deemed a production enterprise with foreign investment. Enterprises with foreign investment are granted a variety of tax, customs and other preferences and concessions.
In addition, if the enterprise utilizes in its production at least 70% local equipment and raw materials, it will be granted a reduced profit tax rates with the following reducing coefficients:
- less than 70% - 0.70 (reducing ratio);
- 70%-80% - 0.80;
- 80%-90% - 0.75;
- when more than 90% - 0.70.
Besides the above mentioned, the foreign companies engaged in exploration and prospecting of entrails are provided with the most favoured nation treatment which ensures:
- Exclusive right for prospecting and exploratory works with further development of any of the fields discovered in indicated territory through creation of joint venture, on conditions of concession or production sharing;
-Priority right on granting of new territory for continuing of prospecting and exploratory works in a case if in territories stipulated in the contract for implementation of works resources having commercial value have not been detected;
-The property right and unrestricted export foreseen by the constituting documents of joint venture or concession agreement of a part of extracted hydrocarbon, and also products of their processing on the basis of tolling;
- Guarantee for reimbursement of actual costs on prospecting and exploratory works in discovering deposits of industrial value, in case of transfer them for further mining to the National holding company "Uzbekneftgas".
Foreign companies involved in exploratory works on oil and gas are exempt from:
- All kinds of taxes, deductions and payments effective in the territory of the Republic of Uzbekistan, for the period of explorations and prospecting;
- Customs duties in import of equipment, material-technical resources and services needed for exploratory and other relevant works;
Joint ventures on extraction of oil and gas with foreign companies, involved in prospecting and exploratory works on oil and gas, are exempt from:
Payment of the profit tax for the period of seven years from beginning of production of oil or gas. On expiration of the indicated term, the rate of the profit tax of the indicated joint ventures will be set at the rate of 50 % from the current rate;
Payment of tax on property and on the incomes of the foreign participants from individual share in joint ventures;
Mandatory surrender of a part of the foreign earnings from sales of product obtained as a result of activity in extraction and refining of oil and gas, for the period of return of the invested capital for prospecting and exploratory works.
Attraction of the foreign investments in development of regions of Uzbekistan:
With the aim to further encourage attraction of foreign investments in creation of joint productions in regions of the Republic of Uzbekistan, Cabinet of Ministers in the Resolution №459 dated from 23 November 2001 approved the program of creation of companies with foreign investments in the regions of the republic.
Production enterprises with foreign investments newly created in a countryside, are exempt from tax on the incomes (profit) for the period of three years from the moment of launching production, and on the expiration of this term within the subsequent two years the rates of tax on the incomes (profit) for companies with the foreign investments is set at the rate of 50 % from the current rate.
Moreover, in order to diversify the form of favourable conditions for establishment and development of private sector, small and medium size businesses, enterprises with foreign investment in the regions, especially on the territory of the Republic of Karakalpakstan and Khorezm region and on all types of production enterprises, registered and having activity on the territory of the Republic of Karakalpakstan and Khorezm regions shall be exempt from 50% profit tax until 2005.
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