General legal newsletter for February 2023

Some of the most notable legal developments in Uzbekistan in February 2023 were the adoption of a Presidential Decree improving the tax policy and tax administration for business entities, the adoption of a new edition of the Law on Technical Regulation, measures to promote the use of renewable energy sources, and approval of an international agreement on preferential trade between Uzbekistan and Turkey.

 1.  THE TAX POLICY IN RELATION TO BUSINESS ENTITIES IS BEING CHANGED

The President has signed a Decree on improving the tax policy and tax administration in respect of business entities. For tax administration and other purposes, the Degree categorizes all business entities as follows:

• small business entities, which include (i) sole proprietors; (ii) micro-firms i.e. entities whose shareholders are natural persons and annual total income is below UZS 1 bln; and (iii) small enterprises i.e. entities whose annual total income is below UZS 1 bln and shareholders are legal entities as well as entities whose annual total income is from UZS 1 bln to UZS 10 bln;
• medium-sized business entities i.e. entities whose annual total income is from UZS 10 to UZS 100 bln;
• large business entities i.e. entities whose annual total income is UZS 100 bln or more.

Moreover, starting from 1 April 2023, the following will apply:

• once a year, medium-sized business entities may have up to 50% of their property insurance costs covered by the State Fund for Support of Entrepreneurship Activities (up to 20 times the baseline calculation value or approx. USD 530.9);
• for business entities with a total annual income of at least UZS 10 bln, a 20% quota in public procurement procedures will be introduced. An advance payment of 50% is paid to them under contracts with budgetary purchasers (i.e. generally, state establishments) within the framework of relevant procurement procedures;
• when evaluating proposals in the course of such public procurement procedures as the selection of the best offer and tender trades, amounts of VAT will not be taken into consideration.

Presidential Decree No. UP-21 of 10 February 2023

 2.  THE LAW ON TECHNICAL REGULATION IS ADOPTED

On 27 February 2023, a new edition of the Law “On Technical Regulation” was adopted. It enters into force on 29 August 2023 and, among other things, provides for the following:

- relevant responsibilities of manufacturers, sellers, and importers as well as the powers of involved state authorities are defined;

- the Uzbek Agency for Technical Regulation is designated as a regulator in the area;

- products, production processes, services, management systems, and personnel are identified as objects of assessment of conformity with technical regulations;

- systems of technical regulations are simplified and methodological guidance will now be issued for each regulation to clarify its requirements;

- confirmation of compliance with technical regulations may be mandatory or voluntary. Mandatory confirmation of compliance is done through the declaration of conformity or mandatory certification. Voluntary confirmation of compliance is done through voluntary certification;

- a warning is issued to natural and legal persons for violating technical regulations. If a relevant violation is not eliminated after the warning is issued, natural persons bear administrative responsibility, whereas legal entities may be subject to the following financial sanctions:

• up to 50% of the cost of sold production, if the violation is committed for the first time;
• up to 100% of the cost of sold production, if the violation is committed again within one year after the first violation.

Law No. ZRU-819 of 27 February 2023

 3.  PROMOTION OF RENEWABLE ENERGY SOURCES

The President has signed a Resolution promoting the use of renewable energy sources (RES) and energy-saving technologies in 2023. The Resolution, among other things, envisages the following:

- it is planned that in 2023, (i) RES facilities with a total capacity of 4,300 MW will be commissioned; (ii) additional 5 bln kW/h of electric energy will be produced and 4.8 bln cubic meters of natural gas will be saved by using RES facilities and energy saving technologies;

- business entities and foreign investors are allowed:

• to sell energy produced by RES facilities directly to: (i) state bodies and regional electric grids at tariffs set by law and (ii) other customers at prices agreed under relevant direct contracts;
• to install RES facilities on objects based on lease arrangements;

- for business entities that have installed RES facilities, the volume of energy transmitted to the common grid and the volume of consumed energy will be accounted in the billing system of JSC ‘Regional Power Grids”. Settlement of due payments will be made monthly;

- the company “Yashil Energiya” will be established for the installation and maintenance of law-capacity RES facilities on buildings;

- the energy produced by RES installations with a capacity of 300 kW or more will be transmitted to the common power grid only after these installations are registered with the Ministry of Energy;

- starting from 1 March 2023, (i) a “green energy” financial product will be introduced to allow entrepreneurs to finance the purchase and installation of RES facilities; (ii) no technical conditions will have to be obtained to connect RES facilities to the common electric grid if such RES facilities’ capacity does not exceed the capacity indicated in technical specifications;

- the following documents for 2023 have, among others, been approved:

• a list of projects for the construction of 27 high-capacity solar and wind power plants on the basis of PPP (Annex 1);
• a plan for the construction of low-capacity renewable energy installations on 20,000 social facilities and state institutions (Annex 2);
• a plan for the installation of solar panels on 11,000 buildings and structures of entrepreneurs and the construction of small photovoltaic stations (Annex 3);
• a plan for the construction of low-capacity renewable energy installations in the households of 37,000 residents (Annex 4);
• a plan for providing renewable energy installations for 765 multi-story buildings put into operation in 2023 (Annex 5);
• a target list of projects for the creation of small and micro-hydroelectric power plants in the regions of the Republic of Uzbekistan (Annex 6);
• a plan for the conversion of local heating systems of social facilities to coal fuel (Annex 7).

Presidential Resolution No. PP-57 of 16 February 2023

 4.  APPROVAL OF INTERNATIONAL AGREEMENT

The President has signed a Resolution on approval of the international agreement on preferential trade between Uzbekistan and Turkey concluded on 29 March 2022. The agreement, among other things, provides for the elimination or decrease of customs duties for the trade in specific agricultural and industrial products.

Presidential Resolution No. PP-65 of 22 February 2022

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Have a good day!

Sincerely,
Kosta Legal Law Firm