The current tax legislation offers tax incentives for enterprises in oil and gas exploration/development projects, enterprises engaged in the production and export of goods for foreign currency (when export share exceeds 15%), and companies rendering certain services.
Before 2017, three economic zones have been operating in Uzbekistan. Namely, the Free Industrial Economic Zone in the Navoi region (established in 2009), Special Industrial Zone in Angren (established in 2012), and Special Industrial Zone in Djizzak (established in 2013).
In 2017, four new free economic zones, namely ‘Urgut’ in Samarkand region, ‘Gijduvan’ in Bukhara region, ‘Kokand’ in Ferghana region, and ‘Khazarasp’ in Khorezm region of Uzbekistan, as well as seven pharmaceutical free economic zones (Nukus-pharm, Zaamin-pharm, Kosonsoy-pharm, Sirdaryo-pharm, Boysun-pharm, Bustanlik-pharm, and Parkent-pharm), were established. Free economic zones will operate up to 30 years, with possibility of prolongation.
In accordance with the unified tax and customs regime introduced in 2016 for free economic zones operating in Uzbekistan, participants of free economic zones are exempt from:
- land tax, CIT, property tax (for legal entities), IDT, UTP for micro-firms and small enterprises, as well as mandatory contributions to the road fund and educational and medical institutions fund (for reconstruction, capital repair, and equipment), and
- customs payments (except for fees for customs clearance) for equipment, raw materials, and components imported for own production needs, as well as construction materials not produced in Uzbekistan and imported for implementation of projects as per the list approved by the Cabinet of Ministers of Uzbekistan.
The duration of the above incentives differs depending on the size of investment, as described below.
- From USD 300,000 to USD 3 million: Exemption is valid for three years.
- From USD 3 million to 5 million: Exemption is valid for five years.
- From USD 5 million to USD 10 million: Exemption is valid for seven years.
- More than USD 10 million: Exemption is valid for ten years; in the following five years, the income tax and unified tax rates are set at 50% of then effective tax rates.
The following incentives are extended to participants of operating free economic zones (previously, applicable only in respect to the ‘Navoi’ free economic zone):
- Exemption from customs payments (except customs clearance fees) on imported raw material and components for products required for production of exported goods for the whole period of free economic zones functioning.
- Payments in foreign currency within the free economic zones.
- Payments in foreign currency to Uzbek suppliers for goods, works (services), as well as use of preferable conditions and means of payment for exported and imported goods.
Furthermore, five small industrial zones in Tashkent were established. Participants shall be exempt from payment of property tax and CIT, as well as unified tax payment for a two-year period starting from registration of a participant. To apply the above exemptions, the following conditions should be met:
- The amount of investment by the participant is at least 3,000 times the MMW (currently approximately USD 64,000).
- Annual revenue of the participant is above 2,000 times MMW (currently approximately USD 43,000); otherwise, the above exemptions are forfeited and the participant should be responsible for payment of tax liabilities for the respective reporting year in accordance with effective legislation.
- Validity of the above exemptions shall be extended for an additional two years if at least 30% of produced goods are exported.
One more small industrial zone was established in Yangier town in Syrdarya region. It will also operate for 30 years with possible prolongation. Micro-firms and small enterprises operating in the small industrial zone shall be exempt from unified tax payment and customs payments (except for customs clearance fees) for imported equipment, raw materials, spare parts, and components for their own production needs in the framework of projects being implemented in the industrial zone, as well as metalware and construction materials as per the lists approved by the Cabinet of Ministers.
These exemptions are valid for the period of three years, provided that the investment amount is not less than 2,000 MMW (approximately USD 64,000) and annual revenue is not less than 1,000 MMW (approximately USD 22,000). Moreover, if equipment, raw materials, spare parts, and components, as well as metalware and construction materials imported with exemption from customs payments, are sold or transferred within three years after importation, customs payments shall be paid in full.
Incentives for oil and gas exploration and extraction companies
Foreign companies carrying out oil and gas exploration works, as well as their foreign contractors/subcontracts engaged in such works, are exempt from payment of all forms of taxes and contributions to non-budget funds during the exploration period. Additionally, import by these companies of equipment, material, and technical resources and services necessary for the exploration and related works is exempt from customs duties.
Resident corporations supplying materials and rendering services to foreign companies carrying out oil and gas exploration are exempt from VAT.
Furthermore, if foreign companies carrying out oil and gas exploration form joint venture companies for extraction of oil and gas at respective fields, such companies are granted a seven-year CIT holiday starting from the date of commencement of extraction.
Incentives for carrying out export activities
Enterprises exporting goods (works, services) of their own production for freely convertible currency may apply reduced rates of CIT as follows:
- If export share of total sales ranges from 15% to 30%, the effective rate shall be reduced by 30%.
- If export share of total sales is 30% or more, the effective tax rate shall be reduced by 50%.
This incentive is applied likewise in regards to property tax as follows:
- If export share ranges from 15% to 30%, the property tax rate is reduced by 30%.
- If export share is 30% or more, the property tax rate is reduced by 50%.
The incentive in both cases is subject to a restriction that it does not apply to wholesale/retail sale or intermediary companies, nor to revenues from the export of specific items such as cotton fibre, oil, gas, precious metals, etc.
Producers can also defer payment of their import VAT in respect of material and technical resources used for production of goods to be exported. The deferral is granted for up to 90 days without application of any interest.
Incentives for service companies
Micro-firms and small enterprises engaged in certain types of activity are exempt from CIT and UTP until 1 January 2020. The exemption is no longer applicable to entities providing financial and banking services, including but not limited to leasing, audit, tax consulting, accounting services, and other services, like realtor services or veterinary services.
Exemptions from customs duties
There are certain exemptions from payment of customs duties offered by the legislation for the following, without limitation:
- Vehicles used for the international transportation of goods, luggage, and passengers.
- National currency of the Republic of Uzbekistan, foreign currency (excluding those for numismatic purposes), as well as securities.
- Goods imported as humanitarian aid.
- Goods imported for charitable purposes, including technical assistance.
- Goods under transit regime.
- Goods imported by legal entities at the expense of loans granted by international and foreign governmental financial organisations under international agreements, and at the expense of grants.
- Property imported for production needs by foreign investors and enterprises with foreign investment with foreign participation of not less than 33% within two years after state registration.
- Property imported for personal needs of foreign investors, citizens, or stateless persons residing in Uzbekistan in accordance with labour contracts concluded with foreign investors.
- Goods imported into the customs territory by foreign legal entities that made direct investments in the economy of the Republic of Uzbekistan for a total amount equivalent to or more than USD 50 million, provided that the imported goods are products of their own production.
- Goods intended for works under the production sharing agreement and imported under the project documentation by a foreign investor or other persons engaged in the performance of the production sharing agreement, as well as goods exported by the investor under the production sharing agreement.
- Technological equipment imported according to the list approved in accordance with legislation, as well as components and spare parts, provided that their supply is stipulated by the terms of the contract (agreement). In case of sale or gratuitous transfer of imported technological equipment for export within three years from importation, this exemption is revoked along with restoration of obligations to pay customs duties for the entire exemption period.
Foreign tax credit
In accordance with international tax treaties of the Republic of Uzbekistan, legal entities/residents of Uzbekistan can obtain tax relief in respect of CIT paid outside of Uzbekistan. Depending on the provisions of a particular DTT, a credit or exemption may be claimed. In order to claim tax relief, legal entities should provide a copy of the tax payment order, confirmation from a competent tax authority, or any other document confirming payment of the tax outside of Uzbekistan.