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Uzbekistan Broadens Foreign Investor Tax Breaks

Tuesday 11 December 2012

TASHKENT – The government of Uzbekistan has broadened tax breaks for enterprises with private foreign investment, in a decree published on Tuesday. The new regulations only apply to those enterprises located outside the capital, Tashkent, and the Tashkent region.

Tax exemptions will now be extended to enterprises with a minimum 30% direct private foreign investment in 20 industries, up from 8 previously. The new businesses on the list include construction of renewable energy power stations, packing material production, and the petrochemical industry. Under a 2005 decree, enterprises in Uzbekistan with direct foreign investment and a charter capital of over $150,000 are exempt from paying taxes on profit, property, urban development, improvement of social infrastructure and payments to the road construction fund. The exemptions are valid from 3 to 7 years depending on the amount of foreign investment.

Uzbekistan corporate tax rate is 9%. Small and Medium sized businesses (SME) are entitled to single unified tax of 7%. Banks are taxed at rate 15%.

In addition, the decree stipulates that a company must be at least 33% owned by a foreign partner to apply for the tax breaks, down from the previous minimum 50%. The new regulations also allow such enterprises to reinvest only a minimum 50% of profit made by exemption from taxes, down from the previous 100%.

Tax Incentives in Uzbekistan

Legal entities engaged in specific activities may be granted a temporary exemption from profit tax, property tax, certain social infrastructure taxes, the unified tax payment and obligatory payments to the road fund. Additionally, companies that expand general production capacity, reconstruct industrial structures, modernise production facilities and equipment, etc., may be eligible to reduce their taxable base by deducting expenses incurred for a period of 5 years.

Uzbekistan government stimulates internal production by number of sectors of the national economy and provides various tax incentives for local producers and net exporters:

  • income, directed to capital investments and purchase of equipment, is exempt from profit and other taxes;
  • income directed to recover loan and leasing proceeds shall be tax exempted to that amount;
  • income received under the localization programs;
  • income of companies, included into the National Investment Program or under PSA;
  • income of EFI with amount of foreign investment above $300,000 (from 3-7 years);
  • income of companies working in textile and automobile industry;
  • agricultural firms shall be exempted for 3 years from the moment of registration;
  • import of production equipment is exempt from import, VAT and property taxes;
  • exporting companies (reduced tax from 15 to 50%).

SME and IFIs working in rural areas shall receive additional tax and other privileges.

Companies investing in mining sectors (including oil & gas) could get 7 year tax holiday under special governmental acts. Companies employing more than 50% of handicaps are exempt from corporate tax.

Trading companies and food industry using bank plastic cards shall receive a tax discount 10% of the current rate.

Foreign companies, getting profits in Uzbekistan without having a permanent tax status, shall be withheld with profit tax at source of payment. Private enterprises are taxed only one time (without tax on dividend).

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