Tax and customs support measures for pharmaceutical industry

On 5 March 2026, pursuant to the Decree No. UP-35of the President of the Republic of Uzbekistan (hereinafter – “RUz”) “On additional measures to stimulate production and improve research and development processes in the pharmaceutical industry” (hereinafter - “UP-35”), a set of measures was approved to support the development of the pharmaceutical and biotechnology sectors, including tax and customs incentives, as well as other forms of financial support.

In this review, we summarized the provisions of UP-35 that in our opinion are the most significant from a tax perspective. For a comprehensive list of all changes, we recommend referring to the text of UP-35.

Key objectives of UP-35

UP-35 is aimed at establishing a competitive pharmaceutical and biopharmaceutical ecosystem in the RUz, through:

• increasing the production volume and export of pharmaceutical products;
• promoting the localization of high-tech manufacturing;
• transforming the innovative scientific and production pharmaceutical cluster “Tashkent Pharma Park” into a regional research and production hub in biotechnology and pharmaceuticals - “BioPharma City”;
• expanding scientific research and the implementation of full-cycle technologies.

Tax incentives for manufacturers of pharmaceutical products, growing of medicinal plants, and their processing

Until 2040, business entities implementing investment projects aimed at producing pharmaceutical products, growing medicinal plants, or processing them are exempt from paying:

• land tax on land plots used for implementing investment projects — for a period of three years from the start date of the investment project;
• corporate income tax within the framework of the investment project — for a period of three years from the date the investment project is commissioned;
• property tax with respect to immovable property constructed within the framework of the investment project – for a period of three years

The incentives apply provided that the share of income from the exempt activity is at least 60% of the taxpayer's total income.

The Ministry of Investment, Industry, and Trade of the RUz and the Agency for the Development of the Pharmaceutical Industry under the Ministry of Health of the RUz provide tax authorities with information on the start dates of investment projects and their commissioning.

Previously, residents of the Tashkent Pharma Park pharmaceutical cluster enjoyed tax incentives similar to those applicable to special economic zones (hereinafter - “SEZ”). UP-35 introduces a different format for supporting investment projects: a three-year exemption from land tax, corporate income tax, and property tax. Unlike the SEZ regime, the application of specified incentives does not envisage territorial affiliation with the SEZ or the fulfillment of special conditions as determined by the SEZ regime and is implemented within the framework of investment projects in the pharmaceutical industry.

Preferential withholding tax rate on income of non-residents when transferring technologies and trademarks to produce medicines and medical products

Until 1 January 2030, non-residents that do not operate in the RUz through a permanent establishment will be subject to a reduced withholding tax rate of 5% on royalty income from the transfer of technologies used in the production of medicines and medical products, as well as on income from the use of trademarks, unless a relevant double tax treaty (hereinafter - “DTT”) provides for a lower tax rate.

However, as we understand, if the relevant DTT provides for a lower withholding tax rate on income for non-residents with respect to royalties, then upon fulfilling the conditions of the DTT (including proof of tax residency and beneficial ownership of the income), the DTT rate may be applied, which will take precedence over the rate of 5%.

Deduction of expenses for free of charge transfer of pharmaceutical products

Free of charge transfer of pharmaceuticals and medical products (with a short shelf life but not less than 6 months) donated as humanitarian aid to the Ministry of Health of the RUz or state medical institutions is recognized as an economically justified expense for corporate income tax purposes. In this case:

• the cost of pharmaceuticals and medical products provided and accepted for deduction is determined based on the actual cost of production or purchase, excluding trade markups;
• in the event of overpricing, counterfeiting, repeated use, or failure to comply with established procedures, the corresponding expenses are excluded from deductible expenses for corporate income tax purposes. Additional taxes, fines, and penalties apply in accordance with legislation.

It is worth considering that under the general provisions of the tax legislation of the RUz, the recognition of the value of such transferred goods as deductible expenses for corporate income tax purposes is, as a rule, permitted only on the basis of relevant decisions of the President or the Cabinet of Ministers of the RUz. However, within the framework of pharmaceutical industry support measures established by UP-35, no separate decision from the President or the Cabinet of Ministers of the RUz is required to deduct expenses incurred in the form of humanitarian aid.

At the same time, it is important to note that UP-35 does not introduce any special provisions governing the VAT treatment of free of charge transfers. As a general rule, such transfers may be recognized as sales for VAT purposes and, accordingly, may require the accrual of VAT in accordance with the Tax Code of the RUz.

Deduction of value added tax (“VAT”) on the sale of imported goods below the customs value

The difference between the VAT paid upon import and the VAT calculated based on the sale of imported goods, including medical products, for which a reference price is applied, is recognized as a deductible expense for corporate income tax purposes in accordance with Article 305 of the Tax Code of the RUz (hereinafter - the "TC of the  RUz").

However, when selling goods at a price below the customs value, negative VAT consequences remain, since the amount of VAT actually paid upon the import exceeds the VAT amount calculated based on the sale price. Accordingly, the seller is required to pay VAT to the budget for the difference between the customs value and the selling price from its own funds.

Customs exemptions for manufacturers of dietary supplements and cosmetics

Starting from 1 April 2026, manufacturers of dietary supplements and cosmetics are exempt from customs duties on the import of technological equipment and other goods not produced in the RUz. This exemption applies to items included in a list as approved by the Cabinet of Ministers of the RUz and is established under paragraph 5 of Decree of the President of the RUz No. UP-55 dated 21 January 2022, “On additional measures to accelerate the development of the pharmaceutical industry of the Republic of Uzbekistan for 2022–2026.”

Before the adoption of UP-35, such customs exemptions for the above-mentioned imported goods were granted only to manufacturers of pharmaceutical products and entities carrying out wholesale distribution of pharmaceutical products, i.e., manufacturers of dietary supplements and cosmetics were not explicitly designated as eligible beneficiaries of these exemptions.

To ensure the full implementation of the measures set out in UP-35, the Ministry of Economy and Finance of the RUz, in cooperation with the Agency for the Development of the Pharmaceutical Industry under the Ministry of Health of the RUz, has been instructed to submit to the Cabinet of Ministers of the RUz, within three months, a draft law providing for amendments and additions to the TC of the RUz.

How can EY help?

We would be pleased to assist you in the following areas:

• Providing consulting services on the applicability of new legislative requirements and benefits to your company;
• Assessing the impact of these legislative changes on existing business structures, including the tax treatment of existing and planned transactions;
• Reviewing and updating the company’s accounting and tax policies in light of recent legislative developments;
• Preparing and submitting inquiries to regulatory authorities regarding the interpretation and application of new legislative provisions requiring clarification.

We hope you find this information useful. We would be happy to consult you on these changes in more detail and discuss them with you if you have any questions.