The Decree of the President of the Republic of Uzbekistan on establishing the free economic zone International Center for Industrial Cooperation “Central Asia”

On 6 August 2024, President Shavkat Mirziyoyev signed Decree No. PP-283 On Establishing the Free Economic Zone International Center for Industrial Cooperation “Central Asia” (hereinafter referred to as the “Decree”).

This Decree aims to implement the Agreement signed between the governments of the Republic of Uzbekistan (hereinafter referred to as the “RUz”) and the Republic of Kazakhstan (hereinafter referred to as the “RK”) on 9 November 2023 on establishing the free economic zone International Center for Industrial Cooperation “Central Asia” (hereinafter referred to as the “Center”). The purpose of the Center is to stimulate stable industrial development, enhance competitiveness and innovative activity of economic entities, join regional and international value chains, and create a favorable investment environment in the RUz.

Specifically, the Decree provides for the following features of the Center’s establishment and operation:

• 50 hectares of irrigated land plots in the Syrdarya region will be allocated for the Center under the category of land for industry, communication, transport, defense, and other purposes;
• The duration of the Center’s operation will be 30 years with the possibility of extension;
• Industrial cooperation within the Center will focus on the production of import-substituting products, with production activities carried out in accordance with the requirements defined by the legislative acts of the RUz;
• In addition to production activities, the Decree stipulates that products manufactured exclusively in the RUz and the RK will also be marketed within the Center, under the control of a production certificate;
• During the Center’s operation, its participants will benefit from specific tax, customs privileges, and other preferences determined for the participants of free economic zones (hereinafter referred to as the “FEZ”).

Thus, currently, there is no complete clarity regarding which specific tax and customs benefits the Decree was issued for (or whether the participants of the Center can take advantage of the full range of benefits provided by the general legislation of the RUz on FEZ).

To assess the potential consequences of this Decree from a tax and customs perspective, we have summarized the current privileges available to the FEZ participants in the RUz according to the Tax Code, Presidential Decree of the RUz No. PP-4853 On Additional Measures to Activate and Expand the Activities of Special Economic Zones dated 26 November 2016 and Law of the RUz No. ZRU-604 On Special Economic Zones dated 19 May 2020 (hereinafter referred to as the “Law on FEZ”):

• Exemption from property tax, land tax, and water resource usage tax depending on the amount of investment:
  • from USD 300 thousand to USD 3 million— for 3 years;
  • from USD 3 million to USD 5 million— for 5 years;
  • from USD 5 million to USD 10 million — for 7 years;
  • from 10 million USD — for 10 years;
• Exemption from corporate income tax depending on the amount of investment:
  • from USD 3 million to USD 5 million— for 3 years;
  • from USD 5 million to USD 15 million— for 5 years;
  • from 15 million USD — for 10 years;
• Exemption from customs payments (excluding VAT and customs clearance fees) for construction materials not produced in the RUz and imported in an established manner for the implementation of an investment project during the construction period;
• Exemption from customs payments (excluding customs clearance fees) when importing technological equipment not produced in the RUz, according to the list approved by Decree of the Cabinet of Ministers of the RUz No. 352 On Approval of the List of Technological Equipment, Analogues of Which Are Not Produced in the Republic of Uzbekistan dated 4 June 2021;
• Exemption from customs payments (excluding customs clearance fees) when importing raw materials, materials, and components used for the production and marketing of products for export into the RUz territory;
• Deferral of VAT payment for imported goods for up to 120 days;
• Simplified VAT reimbursement within seven days (the standard reimbursement period is 30 days, but under general rules, it can also be reduced to 7 days for large taxpayers, and even to one day for taxpayers with an “AAA” stability rating).

The Decree does not include instructions for the relevant ministries and departments to make changes to the legislative acts resulting from this Decree (for example, in the Law on FEZ and/or the Tax Code) regarding the Center’s activities, which would clarify the above uncertainty in some issues, and it is currently unknown whether such changes are planned. Thus, it is most likely that we will learn about the list of possible tax and customs privileges for the Center’s participants as well as the detailed conditions for their application from practical experience when implementing projects within the Center’s zone of operation.

Authors:

• Doniyorbek Zulunov
• Sergey Bachmanov
• Maryna Tarnavska