Uzbekistan, Republic of

Inventory valuation

Uzbek legislation permits the application of the weighted average cost method (AVECO) and the first in first out (FIFO) method for the valuation of inventory for tax purposes.

Capital gains

A capital gain is, generally, the difference between the sale price or amount realised for a business asset and its acquisition price, reduced by the incidental costs of sale and acquisition and depreciation costs. That said, there is no specific definition of capital gains in Uzbek tax legislation. The capital gain/loss is included in taxable profits by Uzbek legal entities and PEs of foreign legal entities.

In the context of a non-resident with no PE in Uzbekistan, the gain/income received from sale of property within Uzbekistan is calculated by deducting the acquisition price of the property from its selling price, as confirmed by an official document. Capital gains of non-resident companies are subject to WHT at 20% as 'other' income. The obligation to withhold and pay the tax on income of a non-resident of the Republic of Uzbekistan is levied on the buyer of the property, a tax agent. In the absence of the documents supporting the acquisition price, WHT on capital gains from the sale of property shall be assessed based on the sales price.

Dividend income

Dividends paid by a domestic subsidiary to: (i) a non-resident are subject to 10% WHT and (ii) a resident are subject to 5% WHT at the source. The net dividends received by its domestic parent company are then excluded from the parent’s CIT base. Such net dividends received by a foreign parent company are taxed in accordance with the respective country’s internal legislation or DTT provisions (if Uzbekistan has a DTT with this country).

Income of non-residents subject to WHT (including income in the form of dividends, interest, and royalties) is to be paid without withholding of WHT at source or with application of a reduced WHT rate as provided by a tax treaty, provided that there is a tax certificate confirming that non-residents are registered for tax purposes in the state with which Uzbekistan has the effective tax treaty (with certain exemptions).

For Uzbek legal entities paying out dividends, a new mechanism of tax credit was introduced to avoid cascade taxation of dividends.

Until 31 December 2028:

• Income of individuals, both residents and non-residents of Uzbekistan, in the form of dividends from shares they own, is exempt from PIT.
• For non-resident legal entities, income in the form of dividends from shares they own is subject to a CIT rate of 5%.

See the Withholding taxes section for a list of countries with which Uzbekistan has an applicable tax treaty.

Interest income

Interest income paid to non-residents is subject to WHT at the source at the rate of 10%. Such net interest income received by foreign companies is taxed in accordance with the respective country’s internal legislation or DTT provisions (if Uzbekistan has a DTT with this country). Similar to other types of income of non-residents subject to WHT (including income in the form of dividends and royalties), interest income is to be paid without withholding of WHT at source or with application of a reduced WHT rate by automatic application of a DTT, provided that there is a relevant residence certificate.

As per the Tax Code, as of 1 January 2020, interest paid to residents (except payments to non-profit and budget organisations) is not subject to taxation at source and should be included in the income of the recipients and is subject to taxation in the manner specified by the Tax Code.

Interest income of legal entities (both residents and non-residents) on corporate bonds is exempt from CIT.

Until 31 December 2028, income of individuals and legal entities, both residents and non-residents of Uzbekistan, in the form of interest on corporate bonds, is exempt from PIT and CIT.

See the Withholding taxes section for a list of countries with which Uzbekistan has an applicable tax treaty.

Royalty income

Royalty income includes payments for:

• copyrights to works of science, literature, and art, including copyrights to software and databases, drawings, design or model, plan, secret formula, technology or process, audio-visual works, and objects of adjacent rights, including performances and phonograms
• patents, trademarks, or other similar types of rights, and
• information regarding industrial, commercial, or scientific experience (know-how).

Royalty income of Uzbek legal entities and PEs of foreign legal entities is included in taxable profits.

Royalties paid to non-resident companies with no PE are subject to WHT at 20% as 'other' income. The obligation to withhold and pay the tax on income of a non-resident of the Republic of Uzbekistan is levied on the payer of the royalty, a tax agent.

Foreign income

Gross foreign income of a resident corporation (e.g. income from its foreign branch) should be included in its aggregate income on an accrual basis, regardless of remittance date. Expenses incurred abroad in relation to such foreign income can be deducted, subject to provisions of the Uzbek Tax Code. Foreign income tax paid on such income should be credited against the Uzbek CIT only if this branch is registered in a country with which Uzbekistan has a DTT. There are no deferrals for foreign income to be recognised for Uzbek tax purposes.