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Benefits and preferences for foreign investors

Benefits and preferences for enterprises with participation of foreign capital

During the years of independence, a favorable business environment has been formed in the republic, a wide system of legal guarantees and privileges for foreign investors has been introduced.
Fundamental Laws, Decrees, Resolutions of the President and the Government, aimed at providing benefits and preferences to foreign investors, as well as stimulating activities of enterprises with participation of foreign capital have been adopted.
Such documents include laws of the Republic of Uzbekistan “On foreign investments”, “On investment activity”, “On guarantees and measures of protecting the rights of foreign investors”, “On free economic zones” and others.

 

Reduction of taxable income (Article 159 of the Tax Code of the Republic of Uzbekistan)

Taxable income of legal entities is reduced by the amount of:

funds allocated for modernization, technical and technological re-equipment of production, purchase of new technological equipment, expansion of production in the form of new construction, reconstruction of buildings and structures used for production needs, as well as repayment of loans received for these purposes, reimbursement of the value of the leased object, less depreciation accrued in the relevant tax period, but not more than 30 percent of taxable profit. The taxable profit is reduced for five years, starting from the tax period in which the above-mentioned expenses are made, and for technological equipment – from the moment of its commissioning. In case of sale or gratuitous transfer of new technological equipment within three years from the moment of its acquisition (import), the effect of the specified benefit is canceled with renewal of obligations to pay corporate income tax for the entire period of application of the benefit. This privilege is applied by taxpayers engaged in the production of goods (work, services);

 

Exemptions from payment of value added tax

Exempted from value added tax (Articles 208-209, 211 of the Tax Code of the Republic of Uzbekistan):

  • turnover on the sale of property transferred as investment liabilities in accordance with the contract concluded between the investor and the authorized state body for managing state property;
  • provision of services under a financial lease (leasing) agreement in terms of the interest income of the landlord (lessor);
  • import of technological equipment imported into the territory of the Republic of Uzbekistan according to the list approved in accordance with the legislation, as well as components and spare parts, provided that their supply is stipulated by the terms of the contract for the supply of technological equipment. In case of sale or free transfer of imported technological equipment for export within three years from the moment of its import, this benefit is canceled with renewal of obligations to pay value added tax;
  • import of property imported as investment obligations in accordance with the contract concluded between the investor and the authorized state body for managing state property.
 

Benefits for tax on property of legal entities (Article 269 of the Tax Code of the Republic of Uzbekistan)

When calculating the tax on the property of legal entities, the taxable base is reduced by the average annual residual value (average annual value) of machines and equipment that have been in operation for no more than ten years.

 

Exempted from tax on property of legal entities (Article 269 of the Tax Code of the Republic of Uzbekistan)

newly created enterprises – within two years from the date of state registration. This exemption does not apply to enterprises established on the basis of reorganized legal entities, as well as legal entities operating in the territory of other enterprises using equipment leased from these enterprises.

 

Benefits on paying customs duty:

The following are exempt from customs duties (Article 33 of the Law of the Republic of Uzbekistan “On customs tariff”):

  • property imported into the Republic of Uzbekistan by enterprises with foreign investments with a share of foreign investments in the authorized capital of at least thirty-three percent for their own production needs, within two years from the date of their state registration;
  • property imported for the personal needs of foreign investors, citizens of foreign countries and stateless persons who permanently reside outside the Republic of Uzbekistan and are located in the Republic of Uzbekistan in accordance with labor contracts concluded with foreign investors;
  • goods imported by foreign legal entities that have made direct investments in the economy of the Republic of Uzbekistan worth more than fifty million USD, provided that the imported goods are products of their own production;
  • goods, works and services intended for conducting activities under the production sharing agreement and imported into the Republic of Uzbekistan in accordance with the project documentation by a foreign investor or other persons participating in the performance of the production sharing agreement, as well as products imported by the investor belonging to him in compliance with the production sharing agreement;
  • technological equipment imported into the territory of the Republic of Uzbekistan, according to the list approved in accordance with the legislation, as well as components and spare parts, provided that their supply is stipulated by the terms of the contract for the supply of technological equipment. In case of sale or free transfer of imported technological equipment for export within three years from the moment of its importation, this benefit is canceled with renewal of obligations to pay customs for the entire period of application of the benefit;
  • goods originating and imported from the states with which the free trade regime is established.

Enterprises attracting foreign direct investment and specializing in manufacturing products in the sectors of the economy listed below are exempted from legal income tax, property tax, improvement tax and development of social infrastructure, single tax payment for micro firms and small enterprises, as well as mandatory deductions to the Republican Road Fund (Decree of the President of the Republic of Uzbekistan No. DP-3594 of 11.04.2005):

  1. Products of the radio electronic industry and production of components for computers.
  2. Light industry
  • manufacturing finished cotton, woolen and blended fabrics, as well as knitted fabrics);
  • manufacturing finished garment, knitwear, hosiery and textile haberdashery;
  • manufacturing natural leather, leather haberdashery, footwear industry.

    3.Silk industry:

  • manufacturing silk fabrics and finished silk products.

    4.Building materials industry:

  • manufacturing new types of building materials specified in the Annex No. 1a to the Decree of the President of the Republic of Uzbekistan of 24.03.2005. No. DP-3586.

    5.Industrial production of poultry meat and eggs.

    6.Food industry:

  • production of finished industrial-processed food products from local raw materials (with the exception of alcoholic, non-alcoholic beverages and tobacco products).

    7.Meat and dairy industry:

  • production of finished types of meat and dairy products, cheese and butter, as well as products for processing of animal viscera.

    8.Processing and canning fish and fish products

    9.Chemical industry.

    10.Petrochemical industry

    11.Medical industry, as well as production of medicines for veterinary medicine

    12.Production of packaging materials

    13.Construction of power plants on the base of alternative energy sources.

    14.Coal industry:

  • coal enrichment;
  • production of coal briquettes;
  • shale industry.

    15.Production of electro ferroalloys and hardware for production purposes.

    16.Mechanical engineering and metalworking:

  • mechanical engineering
  • tractor and agricultural machinery;
  • construction, road and municipal engineering;
  • mechanical engineering for the light and food industry and household appliances.

    17.Machine tool and instrumental industry.

    18.Glass industry, porcelain industry and faience industry.

    19.Microbiological industry.

    20.Manufacturing toys.

    21.Tourism:

  • hotel services;
  • tourism services;
  • organization of theme parks (an amusement park, an ensemble of parks organized on one or several themes, providing services aimed at meeting the needs of visitors at different ages).

    22.Waste management.

The specified tax benefits are provided with the volume of direct private foreign investment:

  • from 300 thousand USD to 3 million USD – for a period of 3 years;
  • — over 3 million USD to 10 million USD – for a period of 5 years;
  • over 10 million USD – for a period of 7 years

    The above tax benefits are subject to the following conditions:

  • location of these enterprises in all cities and rural settlements of the republic, except for the city of Tashkent and Tashkent region;
  • private foreign investment by foreign investors without a guarantee of the Republic of Uzbekistan;
  • the share of foreign participants in the authorized capital of the enterprise must be at least 33 percent;
  • foreign investment in the form of freely convertible currencies or new modern technological equipment;
  • direction of not less than 50 percent of the income received as a result of provision of these benefits during the period of their use, to reinvest with the aim of further development of the enterprise.

Guarantees for newly created enterprises with foreign investments (Decree of the President of the Republic of Uzbekistan No. DP-4434 of 10.04.2012)
 

Newly created enterprises with foreign investments in which the foreign investor’s contribution in cash is at least 5 million USD, if the tax legislation changes, they are entitled to apply for 10 years from the date of their state registration the norms and provisions for the payment of corporate income tax, tax value added (turnover on the sale of goods, works, services), property tax, tax on the improvement and development of social infrastructure, unified social payment, single tax payment, as well as mandatory contributions to the Republican Road Fund and the extrabudgetary Fund for reconstruction, overhaul and equipment of secondary schools, professional colleges, academic lyceums and medical institutions that operated on the date of their state registration.

Within the framework of investment projects worth over 50 million USD and a foreign investor’s share of at least 50 percent, the construction of the necessary external, outside the production site, engineering and communication networks is carried out at the expense of budget funds and other internal sources of financing (Decree of the President of the Republic of Uzbekistan No. DP-4434 of 10.04.2012).

The following additional benefits and preferences are established for manufacturing enterprises with foreign investments, exporting products of own production for freely convertible currency:

  • export customs duties on products of own production have been abolished;
  • granted the right to export their own products without prepayment and opening a letter of credit, subject to the guarantees of authorized banks serving customers and respecting the terms of receipt of foreign exchange earnings provided for by current legislation;

Foreign companies engaged in oil and gas prospecting and exploration, as well as foreign contractors and subcontractors attracted by them are exempt from payment of:

  • all types of taxes and mandatory deductions to state trust funds for the period of geological exploration;
  • customs payments (except for customs clearance fees) when importing equipment, material and technical resources and services required for prospecting, exploration and other related works

From compulsory sale of proceeds in foreign currency are exempt (Resolution of the Cabinet of Ministers of the Republic of Uzbekistan No. 245 of 29.06.2000 “On measures for further development and strengthening the over-the-counter foreign exchange market”):

  • for a period of 5 years from the date of registration of an enterprise with foreign investments, specializing in production of consumer goods, in which the share of foreign capital in the authorized capital exceeds 50 percent. These enterprises are considered to be specializing in production of consumer goods, if the share of domestic production of these goods is more than 60 percent of the total revenue from economic activity.
  • foreign exchange earnings from the export of goods (works, services) of own production by micro firms, small enterprises, with the exception of enterprises exporting goods from the list below:
No. Name of goods HS code
1. Agricultural products and  wild plants* 07, 08, 0904, 12
2. Natural gas 2711 21 **
3. Copper matte, cement copper (sedimentary copper) 7401
4. Copper rods and profiles 7407
5. Copper wire 7408

From August 1, 2018* 25% of incoming foreign exchange earnings from exports of agricultural products and wild plants are subject to mandatory sale;

** Including transit.

Also, in accordance with the Decree of the President of the Republic of Uzbekistan No. DP-4609 of 07.04.2014. extended to January 1, 2017 a moratorium on tax audits of financial and economic activities of small businesses that pay taxes and other obligatory payments in a timely manner, as well as ensure sustainable growth rates and profitability of production (with the exception of unscheduled inspections during the liquidation of legal entities, within the framework of criminal cases, as well as related to using budgetary and centralized funds and resources).

In accordance with the Decree of the President of the Republic of Uzbekistan No. DP-5495 of 01.08.2018 “On measures of radically improving the investment climate in the Republic of Uzbekistan”, the following is provided:

  • a conscientiously operating investor and a business entity shall be compensated for property damage arising from the trust in the validity of an administrative act of an official body of a state body (official) taken against them, relying on the legal force of which, used the property, made a deal or otherwise used the benefits and advantages provided, in the event of subsequent recognition of this act as invalid or its cancellation;
  • the issue of cancellation or change of the administrative act of a state body (official), in cases where it affects the legitimate interests of a faithful investor and business entity, is considered in a judicial proceeding, except if its preservation creates a threat to public interests.

    Approved by:

  • reduction of the minimum amount of the share of foreign investments in the authorized capital of an enterprise with foreign investments from 30 to 15 percent;
  •  the abolition of the requirement for the mandatory participation of a foreign legal entity as a member of an enterprise with foreign investments;
  •  reducing the minimum amount of the authorized fund of an enterprise with foreign investments from 600 million soums to 400 million soums;
  •  reducing the amount of the state duty for state registration of enterprises with foreign investments three times;
  •  determination of the minimum authorized capital of the joint-stock company as 400 million soums.

    From October 1, 2018, the following land allocation mechanisms for investment activities will be introduced:

  • long-term lease of non-agricultural land for a period of up to 50 years, but not less than the period specified in the application, for the implementation of investment projects;
  • realization through an auction of the right of permanent ownership of land for the construction of real estate (hotels, shopping facilities, entertainment complexes, consumer services, construction of educational institutions, medical organizations, road infrastructure, etc.);
  • cancellation of the obligatory procedure for concluding export contracts for fruit and vegetable products at prices not lower than the prices published by Uzagroexport JSC, as well as customs clearance of fruits and vegetables held without concluding an export contract, on the basis of an invoice, at prices not lower than the prices indicated on the official website of Uzagroexport JSC;
  • granting the right to foreign citizens and stateless persons who have invested in the Republic of Uzbekistan in the amount of at least 8500 times the minimum wage established in the Republic of Uzbekistan at the time of making investments in the form of acquiring shares and shares of business entities, as well as creating a foreign enterprise, to receive multiple three-year visa with the possibility of an unlimited number of extensions of their validity, without having to leave the territory of the Republic of Uzbekistan.