Uzbekistan, Republic of
The new Tax Code introduced that, generally, tax incentives can be provided by the Tax Code only.
However, benefits for certain taxes, except VAT, excise tax, and tax for subsoil use, can be provided by the President of Uzbekistan, but only in the form of reduction of the established tax rate and not by more than for 50% and not for the period of more than three years.
Tax incentives in free economic zones
The free economic zones of Navoi, Urgut, Gijduvan, Kokand, Termez, Namangan, Sirdaryo, Bukhoro-agro, and Khazarasp; the pharmaceutical free economic zones of Nukus-pharm, Zaamin-pharm, Kosonsoy-pharm, Sirdaryo-pharm, Boysun-pharm, Bustanlik-pharm, Andijon-pharm, and Parkent-pharm; the special industrial zones of Angren and Djizzak; the fish production zone of Balik ishlab chikaruvchi; the free touristic zone of Charvak; and the special industrial hub of mechanical and electrical engineering in the region of Andijan are exempt from:
- land tax, property tax (for legal entities), and water usage tax
- customs payments (except for VAT and customs processing fee) for construction materials not produced in Uzbekistan and imported for implementation of projects as per the investment agreement for the period of construction
- customs payments (except customs processing fee) at importation of technological equipment not produced in Uzbekistan, as per approved list, and
- customs payments (except customs processing fee) at importation of raw materials, and materials and components used in production of goods intended for export.
Participants of free economic zones are also entitled to deferred payment of VAT on import of goods for a period of up to 120 days.
Tax incentives in certain zones
Effective from 14 September 2021, certain territories of the Fergana region have been selected as territories with a special tax regime: Sokh district, Chungar mahalla of Rishtan district, as well as Shakhimardan mahalla, Yordan and st. Tashtepa - two mahallas of Khosilot of Fergana region. The tax rates for corporate income tax rate, personal income tax, social tax and turnover tax is set at 1% in these territories.
In addition, a coefficient of 0.1 is applied to the tax rates for property tax, land tax and tax for the use of water resources, in relation to immovable property and land plots located in separate territories, as well as water resources used in these territories.
Tax incentives for foreign direct investments
As per the Tax Code, enterprises attracting direct foreign investments may be exempt from payment of property tax, land tax, and water usage tax, subject to certain criteria, including share of foreign participation, type of activity (as per the pre-approved list), location of the enterprise, etc.
Entities attracting foreign direct investments are granted tax exemptions for specific periods, which vary depending on investment amount.
The above tax incentives are granted if the following conditions are met (without limitation):
- Enterprises shall be specialised in production of goods or provision of services/works in certain industries as per approved list.
- The enterprises are located in any city or rural area settlement of Uzbekistan, except for Tashkent region and Tashkent city (exception is provided to companies providing travel services and waste management services).
- Republic of Uzbekistan does not provide sovereign guarantees for such foreign investment.
- Share of foreign capital of enterprises should not be less than 33%.
- Investment should be made in hard currency or new/modern technological equipment.
- At least 50% of the respective tax savings should be reinvested for further development of enterprises.
Incentives for oil and gas exploration and extraction companies
Foreign companies carrying out oil and gas exploration works, as well as their foreign contractors/subcontractors engaged in such works, are exempt from payment of all forms of taxes and contributions to non-budget funds during the exploration period. Exemption of VAT and custom duties when importing equipment, material, and technical resources and services necessary for the exploration and related works will be abolished as of 1 October 2020.
Resident corporations supplying materials and rendering services to foreign companies carrying out oil and gas exploration will not be exempt from VAT as of 1 October 2020.
Moreover, the seven-year CIT holiday envisaged for oil and gas production joint ventures is also abolished from 1 October 2020.
Incentives for electrical and agricultural engineering industry
Companies in the electrical industry are granted tax benefits for the period from 1 April 2021 to 1 January 2024 in the form of a 50% reduction in income tax and property tax rates. These benefits can be used by entities where the amount of revenue from the sale of electrical products at the end of the reporting period is at least 80% of the total revenue.
Until 1 January 2022, domestic manufacturers of agricultural machinery are exempted from customs payments (except VAT and customs duties) when importing spare parts and components not produced in the Republic of Uzbekistan in accordance with the established procedure. Also, they were granted a deferment of payment of VAT for a period of 270 days, starting from the date of placing goods in the 'release for free circulation' (import) customs regime when importing components, raw materials, and materials for the production and maintenance of agricultural machinery.
Until 1 January 2024, the rates of the CIT and property tax for enterprises of the electrical industry are reduced by 50%.
Incentives for carrying out export activities
If the share of export sales in total revenue from sale of goods (works, services) exceeds 15% (excluding export of certain raw materials such as natural gas, oil, precious metals, etc.), the CIT rate applicable to income from export sales is set at 0%. Furthermore, for exporters, an accelerated seven days VAT refund process is introduced.
From 1 April 2021, 50% of the expenses of domestic exporters related to the opening and maintenance of trading houses, office rent, retail and warehouse premises, and advertising campaigns will be compensated at the expense of the Export Promotion Agency under the Ministry of Investment and Foreign Trade.
From 1 June 2021, participants in foreign economic activity engaged in the import of goods for more than three years, who have fulfilled their obligations under customs payments, but due to their financial situation are not able to pay in due time, are granted the right to pay customs payments in instalments. At the same time, the amount of taxes or customs payments paid in instalments should not exceed 50% of the total amount of taxes paid in the last three years.
Incentives for textile industry
New tax incentives are introduced from 1 January 2020 as follows:
- Property tax exemption by 1 January 2023 for enterprises with export share comprising at least 60% in the total revenue from sale of finished clothing and knitwear products.
- Reducing the taxable base for CIT for seven years on the amount of investments for the construction of modern cleaning and sewage facilities for enterprises in the textile, clothing and knitwear, leather and footwear, and fur industries.
- Land tax exemption by 1 January 2023 for organisations that use modern automated systems for slaughtering livestock, and leather processing enterprises.
- Reduced PIT for 50% of the established rate (for Uzbek sourced income) for foreign consultants of 'Uztextilprom' and 'Uzcharmsanoat' associations, as well as foreign specialists-employees of textile, sewing, knitting, leather, footwear, and fur industries.
Textile enterprises should now pay VAT at importation of cotton, artificial and synthetic fibres, wool, raw materials, etc. At the same time, exemption from other customs payments (excise tax and customs duty) at importation of the above goods remains effective and extended to all textile enterprises (previously, limited to the members of 'Uztextilprom' association).
Incentives for tourism industry
Until 31 December 2021, tour operators, travel agents, and accommodation facilities were granted the following incentives:
- CIT at the rate reduced by 50%.
- Exempted from land tax and property tax on legal entities.
- Social tax was reduced to 1%.
- A partial subsidisation of air and railway tickets expenses in the amount of 30% of their cost.
- Until 1 September 2023 the Touristic Duty shall not be charged.
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.
- Items of material and technical supply and equipment, fuel, food, and other property exported outside the customs territory to support the activities of the vessels of the Republic of Uzbekistan and vessels rented (chartered) by legal entities and individuals of the Republic of Uzbekistan engaged in marine fishing, as well as their products, imported into the customs territory.
- Goods subject to revenue of the state.
- 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.
Starting from 1 October 2021, legal entities are exempt from customs duties on import of natural gas to Uzbekistan.
Starting from 1 October 2021, legal entities are exempt from customs duties on import of natural gas to Uzbekistan.
Starting from 1 January 2022, legal entities carrying out geological exploration works, as well as their contractors and subcontractors shall be exempt from:
- periodic customs payments on temporary importation of special exploration equipment for the period of prospecting, exploration and development of deposits;
- customs duty on importation of equipment, material and technical resources, and special equipment not produced in Uzbekistan and required for carrying out prospecting, exploration and development works (as per an approved lists).
Exemption from customs payments provided earlier by the Presidential Decree to foreign entities engaged in exploration works is extended to local entities involved in exploration works.
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.