Decree on Additional Incentives to Support IT Park Residents Involved in Export Activities within the Digitalization Sector

On 14 October 2024, President Shavkat Mirziyoyev signed Decree No. UP-157 On Additional Measures to Support Enterprises Engaged in Export Activities in Digitalization (“Decree No. 157”). This decree aims to further develop the software product sector, enhance remote services using digital technologies, and improve IT services in the country, while creating additional conditions to boost the export potential in information technology.

Decree No. 157 includes the following tax incentives:

• Exemption from corporate income tax:
• From 1 February 2025 to 1 January 2030, legal entities from countries without a double taxation agreement with Uzbekistan¹ will be exempt from corporate income tax for IT services provided to IT Park residents, including royalty income.
• To qualify for this exemption, an IT Park resident is required to achieve over USD 10 million of income from export services within a calendar year. The exemption will apply until the end of the calendar year in which this export threshold is met.

The wording of the Decree lacks clarity regarding the start date for the tax exemption, as the USD 10 million export threshold may be reached closer to the end of the calendar year. It remains unclear whether the exemption will apply only from the moment the threshold is reached or whether it can be applied retroactively for the entire calendar year. Additionally, questions arise about how tax refunds will be handled for amounts that need to be withheld from payments to foreign companies and remitted to the budget on the following day. To ensure the safe application of the exemption, IT Park residents and their foreign counterparts will need to review the terms of their current contracts.

• Reduced tax rate on dividends for non-residents:
  • From 1 February 2025 to 1 January 2040, founders of IT Park residents who are non-residents of Uzbekistan will be eligible for a reduced dividend tax rate of 5%. This incentive applies if more than 50% of the IT Park resident’s total income is represented by income from exports.
• Extension of the existing tax and customs benefits for IT Park residents (excluding value-added tax) to the period from 1 January 2028 to 1 January 2040.
  • Benefits are granted to legal entities whose export income constitutes more than 50% of the total income, as well as to legal entities providing IT educational services provided that more than 50% of their graduates aged over 18 years are successfully employed at export enterprises that are residents of the IT Park within a year.
• Permission to perform additional activities for IT Park residents:
  • In the context of organized educational services in information technology, residents are allowed to offer training in foreign languages, in addition to English, for up to 40% of their annual income from such services.
  • In the context of exporting information services via the Internet (business process outsourcing), educational activities related to business process outsourcing can constitute up to 40% of annual income from this service.
  • Export of services is permitted in Knowledge Process Outsourcing via the Internet.

Currently, in Uzbekistan, IT Park residents are granted the following tax and customs incentives, which are in effect until 1 January 2028:

• Exemption from all types of taxes and mandatory contributions to state targeted funds, as well as from social tax;
• Exemption from customs duties (excluding customs fees) on imported equipment, components, parts, units, technological documentation, and software that are not produced in Uzbekistan, for internal needs, according to approved lists;
• Tax benefits for personal income tax for employees with employment contracts with the IT Park residents.

Authors:

• Doniyorbek Zulunov
• Sergey Bachmanov
• Maryna Tarnavska