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General legal newsletter for August 2022

Some of the most notable legal developments in Uzbekistan in August 2022 were the adoption of the Law “On State Civil Service”, a Presidential Decree on measures to enhance the protection of property rights, a road map for partial privatization of some of Uzbekistan’s largest state-owned companies through IPO and SPO, further reforms in the waste management industry, and measures to support the development of Karakalpakstan.

1. LAW ON STATE CIVIL SERVICE

The Law “On State Civil Service” has been adopted. It comes into force on 10 November 2022 and is the first comprehensive Law regulating the matter. The Law applies only to state civil servants holding positions listed in a relevant state registry.

The Law, among others, prohibits state civil servants from doing the following:

engaging in business activities, establishing business entities, being their members/participants (except for holding shares of joint-stock companies within limits established by law), and/or performing management and administrative functions in them. A separate legal act is envisaged to be adopted to regulate how persons entering state civil service must suspend their business activities;
directly or indirectly (through representatives) acquiring shares in companies that are under the control of a state body where these civil servants work or with which they have connections or interest;
acquiring citizenship of foreign states;
opening and maintaining bank accounts abroad, except for accounts opened for education, internship, or medical purposes;
owning real estate or other property abroad, except for property purchased before entering state civil service;
receiving any remuneration, benefits, or gifts from individuals or legal entities for the performance or non-performance of duties in their interests.

State officials must report any conflicts of interest to their supervisors or a higher government agency, who must, in turn, take reasonable measures to eliminate such conflicts of interest.

Law No. ZRU-788 of 8 August 2022

2. STRENGTHENING THE PROTECTION OF PROPERTY RIGHTS

The President has signed a Decree providing for measures for greater protection of property rights. The Decree, among others, envisages the below:

(a) the following shall apply starting from 1 September 2022:

in case of the liquidation of a legal entity, its rights to a land plot (except for agricultural land plots) shall be distributed among its shareholders in proportion to their share (contribution) in the legal entity, unless otherwise provided by law, in legal entity’s constituent documents, or agreed by the shareholders;
the practice of providing some immovable property owned by the state as compensation for the seizure of a land plot for public needs shall be abolished (except for the provision of residential objects in apartment buildings in cases envisaged by law).

(b) the following shall apply starting from 1 January 2023:

the state registration of real estate transactions shall be carried out based on data from the integrated cadaster system “UZKAD”. The system will be integrated with the State Register of Rights to Real Estate, the Pledge Register, the Unified Register of Taxpayers, the Information System “Notary”, and other state information systems. The accuracy of relevant records will be guaranteed by the state.
the following will, among others, be compensated at the expense of central and local compensation funds: (i) damages caused to individuals and legal entities that acted based on illegally entered or untrue data from the State Register of Rights to Real Estate; (ii) losses caused to owners of the property as a result of illegal decisions and actions (inaction) of state bodies, their officials and employees, as determined by a court decision that has entered into legal force.

in the case where property pledged as collateral for a loan is sold, a buyer may, with the consent of a lender, be granted the right to pay the value of the property in installments within a period of up to 3 years;
the exemption of plaintiffs from paying court fees for claims for the recovery of property from someone else's illegal possession in civil courts (reservations apply);
the application of regressive court fees (the amount of the fees decreases in proportion to the increase in the amount of the claim) for claims on property ownership in economic courts.

(d) The Ministry of Justice and other state bodies have been instructed to develop:

a draft of a new Law “On Protection of Private Property and Guarantees of the Rights of Owners” and new laws on a lease of land and real estate;
amendments to legislation providing for liability for unreasonable debiting of funds from bank accounts of business entities;
a package of legal acts on the division of objects of state property into objects owned by the central government and objects owned by municipalities.

Presidential Decree No. UP-198 of 24 August 2022

3. PRIVATIZATION OF STATE-OWNED COMPANIES

The Cabinet of Ministers has approved a road map providing for procedures for partial privatization of 21 large state-owned companies through IPOs and SPOs. The relevant enterprises, among others, include JSC “Uzbekistan Airways”, JSC “Uzbekneftgaz”, JSC “UzAuto Motors”, several state-owned banks (“National Bank of Uzbekistan”, “Xalq Bank”, etc.) and insurance companies. IPOs and SPOs will be held on local and foreign stock exchanges in 2022-2023 with the involvement of international experts.

Resolution of the Cabinet of Ministers No. 446 of 15 August 2022

4. REFORMS IN THE WASTE MANAGEMENT INDUSTRY

The President has signed a Decree on further state support of sanitation enterprises and the development of the waste management sector. It, among others, provides for the following:

the abolishment of compulsory payments to the Republican Association of Specialized Sanitation Enterprises and the centers for the organization of sanitation services for privately owned sanitation enterprises;
till 1 January 2026, the rates of income tax and social tax for business entities engaged in the collection, removal, sorting, and recycling of wastes will be 1% (except for income tax on interest from funds deposited in commercial banks);
a period for which special vehicles and equipment operated by state-owned enterprises providing services in the area of municipal solid wastes may be transferred to private partners under PPP projects has been increased from 7 to 10 years;
the prolongation of exemption from customs payments (except for VAT and customs clearance fees) for special machinery, technical equipment, spare parts and components non-manufactured in Uzbekistan, as included in a special list, imported by organizations in the sphere of handling municipal, construction, and medical wastes till 1 August 2025.

Presidential Decree No. UP-189 of 11 August 2022

5. DEVELOPMENT OF KARAKALPAKSTAN

The President has signed a Decree on measures for accelerated development of entrepreneurship, innovative technologies, and infrastructure in Karakalpakstan. The Decree, among others, provides for the following:

from 1 January 2023 to 1 January 2028, the rates of income tax, turnover tax, property tax, and land tax for legal entities located and operating in Karakalpakstan will be reduced by 50%. The rate of social tax for such entities will be 1%. These incentives will not apply to so-called “large taxpayers”, permanent establishments, state-funded organizations, state-owned enterprises, and entities where the state share is 50% or more;

from 1 October 2022 to 1 January 2028, 70% of transportation costs for exporting products manufactured in Karakalpakstan to foreign countries and costs for transporting purchased raw materials within Uzbekistan for producing exported goods will be covered by the Export Promotion Agency, based on lists of products/materials approved by a special state commission;
from 15 September 2022 to 1 January 2025, where land in Karakalpakstan is requested to be allocated directly (without holding an auction) for the implementation of a large investment project, projects for USD 5 mln and more will qualify (previously, starting from USD 10 mln). The relevant applications are considered by the Council of Ministers of Karakalpakstan, which chooses the best proposals;
a list of mineral deposits and promising sites in Karakalpakstan sold at auctions in 2022–2023 has been approved.

Presidential Decree No. UP-213 of 31 August 2022

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Have a good day!

Sincerely,
Kosta Legal Law Firm