Anticipated changes to tax and customs legislation in Uzbekistan

On 3 June 2024, President Shavkat Mirziyoyev signed Decree No. UP-85 On the Next Measures for Further Acceleration of Market Reforms and Harmonization of the National Legislation of the Republic of Uzbekistan with the Agreements of the World Trade Organization (hereinafter referred to as the ”Decree”).

According to this Decree, measures are being taken to create equal competitive conditions for foreign and domestic companies. In particular, it is planned to cancel or adjust support measures that created competitive advantages for domestic suppliers of goods and services.

We have noted the following planned changes in taxation:

• Starting from 1 January 2025, cancelation of tax benefits if their application is contingent on the sale of goods (services) for export;
• Gradual unification of the excise tax rate on the goods subject to the excise tax that are imported into the Republic of Uzbekistan (hereinafter referred to as the “RUz”) and produced in its territory:

• Development of regulatory acts and submission of suggestions to the Cabinet of Ministers of the RUz for the purposes of aligning the current customs duties, fees, and the procedure for determining the customs value with the requirements of the World Trade Organization (GATT 1994);
• Development of the draft resolution on the unification of existing customs tariffs with the Commodity Nomenclature for Foreign Economic Activity (version 2022) and its submission to the Cabinet of Ministers of the RUz;
• Submission of proposals to the Cabinet of Ministers of the RUz on increasing the effectiveness of legislation in relation to the application of customs duties to goods produced in the countries with which trade and economic relations do not provide for the most-favored-nation (MFN) treatment or goods for which the country of origin is not determined. 

In our view, from a taxation perspective, the possible cancelation of benefits for “export” proceeds is of particular interest. It is likely that the benefits provided by Article 337.1.6 (corporate income tax [hereinafter referred to as the “CIT”]) and Article 464.1.6 (turnover tax) of the Tax Code of the RUz may be subject to restrictions. We would like to recall the history of the application of the CIT incentive for exported goods and services:

• Until 1 April 2018, a reduced CIT rate was applied (if the share of export of own production was from 15 to 30%, the rate was reduced by 30%, and if the export share was 30% or more, the rate was reduced by 50%).
• From 1 April 2018, these benefits were canceled, and exporters paid CIT at the established rates (PP–3454 of 29 December 2017).
• From 1 January 2019, if the export share is more than 15%, taxpayers reduced the taxable profit by the profit attributable to export operations (UP-5587 of 29 November 2018).
• From 1 January 2020, with the adoption of the new Tax Code of the RUz, this benefit was preserved in the form of a 0% CIT rate on export profit.
• From 1 November 1 2022, taxpayers apply a 0% CIT rate to the profit attributable to export operations, regardless of the export share in the total volume of operations.

It should be noted that throughout the whole period of the benefit use, one of the key conditions for its application was the receipt of foreign currency proceeds within 180 days. Thus, the export benefit contributed also to improving the country’s trade balance by ensuring the inflow of foreign currency rather than only helped to develop export potential. It is also notable that the instructions to cancel the incentive for export proceeds and the instruction to hold inventory-taking and cancel ineffective benefits are included in different paragraphs of item 8 of the Decree. Therefore, it can be concluded that the export benefit was considered as effective.

The Decree provides neither for the cancelation of a zero VAT rate on export of goods and nor for the cancelation of VAT neutrality when providing services to foreign customers. Accordingly, in terms of VAT, the favorable tax regime for exporters remains the same as in many countries and contributes to attracting investors for the purpose of creating regional production and logistics hubs, as well as for the export of services (for example, the creation of shared service centers providing services in finance, IT, business administration, and document management).

For the full-scale implementation of the measures mentioned in the Decree, the Ministry of Justice of the RUz, together with the interested ministries and departments, has been instructed to submit proposed amendments and additions to legislative acts resulting from this Decree to the Cabinet of Ministers of the RUz within two months.

Conclusion

The application of certain tax benefits for CIT and turnover tax aimed at supporting the export of goods and services may be canceled. However, we turn your attention to possible alternatives, i. e., obtaining the status of a resident of an IT park or a special economic zone (SEZ). The residents of the IT park and SEZs are also exempt from CIT and several other taxes, provided certain criteria are met.

Authors:

• Doniyorbek Zulunov
• Sergey Bachmanov
• Maryna Tarnavska