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General legal newsletter for January 2021

In January 2021, a number of very important changes were introduced in Uzbek legislation. Hence, based on the plans outlined in the Presidential Decree of 24 July 2020, the country’s judicial system was reformed. Further, a Law notably changing the PPP legislation and paving the way for implementing more PPP projects was adopted. A requirement to store personal data of Uzbek citizens in Uzbekistan was introduced. A new Resolution streamlining the order of conducting tax inspections was passed by the Cabinet of Ministers. Other notable developments were in the spheres of public procurement, export activities, and land seizure.

1. REFORM OF THE JUDICIAL SYSTEM

Following the Presidential Decree No. UP 6034 of 24 July 2020 on the improvement of the country’s judicial system, changes were introduced into the Code of Administrative Liability and the Code of Administrative Court Proceedings, the Civil, Criminal, and Economic Procedural Codes. The following novelties were, among others, brought in:

courts of general jurisdiction were established in all the regions of Uzbekistan and Tashkent instead of separate civil, criminal, and economic courts;
powers to consider cases of administrative offences (cases of not a public nature) were transferred from administrative to criminal courts;

the procedure of supervisory review of cases (the so-called supervisory instance of courts) was abolished for all categories of cases. It is now substituted by “repeated cassation claims”, which may be submitted to the Chairman of the Supreme Court, the General Prosecutor, or their Deputies;
cassation claims may now be submitted only after a relevant case was considered in an appellate instance; cassation claims are considered by specialized collegiums of the Supreme Court;
the limitation period to bring a cassation claim was extended from 1 month to 1 year for all categories of cases;
the jurisdiction of economic and administrative courts was extended to investment disputes and competition cases;
large investors i.e. investors who have invested more than USD 20 mln may bring an investment dispute directly to the Supreme Court as a court of the first instance.

Following these changes, the Plenum of the Supreme Court issued a Resolution clarifying particular aspects of these changes.

Law No. ZRU-662 of 12 January 2021, Law No. ZRU-663 of 12 January 2021, Law No. ZRU-665 of 12 January 2021
Resolution of the Plenum of the Supreme Court No.1 of 15 January 2021

2. DEVELOPMENTS IN THE LEGISLATION ON PPP AND CONCESSION PROJECTS

The President signed a Law introducing, among others, the following changes into the legislation related to public-private partnership (“PPP”) and concession projects, starting from 22 January 2021:

concession projects are now a sub-type of PPP projects and are regulated by the Law on PPP with the Law on Concessions having been repealed;
the concept of a “public partner” was changed and now, not only Uzbekistan, represented by its bodies, may act as a public partner, but also state agencies, local executive bodies, legal entities or associations of legal entities, as authorised by the Cabinet of Ministers, in their own capacity;
the Cabinet of Ministers may now (as the President) resolve to implement a PPP project based on direct negotiations (without holding a tender);
projects implemented based on decrees of the President of Uzbekistan where foreign investments are attracted under investment agreements with the Government of Uzbekistan or PPP agreements are exempted from the restriction of the Law on the Foreign Currency Controls on pegging prices for goods, works, and services sold/rendered locally to foreign currencies or currency units;
the request for expressions of interest stage is no longer a separate stage of preparing a PPP project; it was merged with the request for qualifications stage;
the concept of a “special purpose company” was introduced into the Law on PPP: PPP agreements may now be concluded with such companies;
the concept of a “direct agreement” was introduced into the Law on PPP; such agreements may be concluded between lenders and public or private partners and may provide for: rights and obligations of lenders in connection with replacement or removal of a private partner (management of a private partner); the obligation to pay lenders those fees/payments that have to be paid to a private partner in case of replacement/removal of the private partner; terms for mitigating risks of the termination of a PPP agreement; payments in case of early termination of a PPP agreement; the procedure for exchanging information on the implementation of a PPP project and on ensuring rights and obligations of the parties;
it was set in the Law on PPP that Uzbekistan may provide additional support and guarantees for implementing a PPP project by concluding a “government support agreement” with a private partner or in the manner set forth in a PPP agreement; in government support agreement, Uzbekistan is represented by the Ministry of Finance; such agreements enter in force on the date the relevant Presidential or Cabinet of Ministers’ resolution on their approval is adopted unless otherwise is provided in the relevant Resolution;
it was clarified that local municipalities allocate land plots for implementing PPP projects on a direct basis, without holding an auction;
private partners are now expressly allowed to pledge their rights to land plots to lenders;
the procedure for amending and terminating PPP agreements was clarified; amendment and termination of a PPP agreement shall now be coordinated with the PPP Development Agency and the Cabinet of Ministers, where the value of the agreement exceeds particular thresholds.

Law No. ZRU-669 of 22 January 2021

3. PERSONAL DATA LAWS

New Article 27¹ was added to the Law on Personal Data. According to it, starting from 14 April 2021, owners and operators of databases processing personal data of citizens of Uzbekistan with the use of information technologies, among other things, on the Internet, must ensure that such data is collected, systematized, and stored in databases on technical means that are physically located on the territory of Uzbekistan and are included in the State Register of Databases of Personal Data. Prior to the introduction of the Article, there were no requirements as to the physical location of data storages in Uzbek law. It is yet not quite clear how this requirement will interplay with other requirements/exemptions of the Law.

Article 13 of the Law No. ZRU-666 of 14 January 2021

4. TAX INSPECTIONS

Following the Road Map for Combating the Shadow Economy and Improving the Tax and Customs Administration approved in October 2020, the Cabinet of Ministers approved a Resolution that sets (i) new regulation on the organization of the system for classifying taxpayers based on the assessment of relevant tax evasion risks and (ii) new unified regulation on conducting tax inspections.

(i) according to the Regulation on the Procedure for Managing Tax Evasion Risks and the Classification of Taxpayers based on the Degree of Tax Evasion Risks, tax evasion risks will be identified and assessed by the special automated program “The Identification, Analysis, and Assessment of Tax Risks”, which will collect relevant information from all possible legitimate sources, including, but not limited to, tax and financial returns, databases of state authorities, data shared by foreign states and institutions based on international treaties, and mass media. Based on the assessment, taxpayers will be divided into risk categories (low, medium, or high risk). The classification is expected to streamline tax inspections and to ensure that business entities duly performing tax obligations are not over-controlled. Taxpayers may provide relevant justifications/clarifications to challenge the attribution of them to a particular category.

(ii) the Regulation for Organizing and Conducting Tax Inspections represents a comprehensive document regulating the conduct of different types of tax inspections, including off-site tax inspections, on-site tax inspections, and tax audits. Many relevant rules are set with some of them being based on the introduced system for the classification of taxpayers. Hence, for example, the most stringent form of tax control– the tax audit – will generally be only applied to taxpayers with a high risk of tax evasion.

In addition to the above, it also follows from the Resolution that, among other things, the State Tax Committee was deprived of the right to temporarily suspend (for a period of up to 5 banking days) operations on bank accounts of business entities engaged in the sale of goods (works, services) without registering receipt documents.

Resolution of the Cabinet of Ministers No. 1 of 7 January 2021

5. PROTECTIONIST MEASURES IN PUBLIC PROCUREMENT

The Cabinet of Ministers approved a Resolution on measures to support local producers, which, among others, affects public procurement procedures. Hence, the Resolution provides for a list of 529 categories of goods, works, and services that must temporarily be purchased only from local producers (the “List”). Such goods, services, or works may be purchased from foreign entities only when a special permit for that has been obtained by public purchasers, following the procedures set in the Resolution.

Where goods, works, or services not included into the List are being procured, if two or more local producers participate in the bid, such local producers shall have a preference over foreign bidders for 15% of the foreign bidders’ bidding price.

A Regulation on the procedure for the inclusion/exclusion of good/services to the List was also approved. As per the Regulation, local producers and public purchasers may submit relevant suggestions to the Center for Managing the State Cooperation Portal under the Ministry of Economic Development through the relevant state portal. In cases where, based on relevant suggestions, some goods/services are considered to be included into the List, the Center shall make sure that relevant goods/services are produced by 2 or more commercially successful local entities. After the Center reviews and approves a suggestion, it shall obtain relevant positive opinions from a number of state bodies, including the Ministry of Investments and Foreign Trade, the Antimonopoly Committee, the State Customs Committee, the Committee on Statistics, and the State Agency “Uzstandard”.

It is to note that the above protectionist rules do not apply to cases of the procurement procedures and contracts funded by international financial institutions and foreign state financial organizations as well as to the procedures and contracts implemented based on decisions of the President or the Cabinet of Ministers.

Resolution of the Cabinet of Ministers No. 41 of 29 January 2021

6. EXPORT SUPPORT MEASURES

The President signed a Decree on export promotion incentives for 2021. The following measures are envisaged by the Decree:

export support offices will be established in all regions of the country to provide constant assistance to business entities - exporters at all stages of their export and import activities;
starting from 1 April 2021, 50% of the exporters’ costs incurred abroad in connection with (a) the opening and maintenance of trading houses, (b) the lease of offices, retail and warehouse premises, and (c) the organization of advertising campaigns may be compensated by the Export Promotion Agency under the Ministry of Investments and Foreign Trade. Corresponding regulations establishing the compensation procedure are yet to be adopted;
it is acknowledged that starting from 1 February 2021, funds of the Export Support Fund in the amount of USD 100 mln will be provided to eligible local business entities - exporters as pre-export financing for the purchase of necessary raw materials and the production of relevant export-oriented products.

Presidential Decree No. PP-4949 of 14 January 2021

7. FINES FOR ILLEGAL SEIZURE OF LAND

The responsibility for illegal seizure of land plots was toughened with relevant changes being introduced into the Code of Administrative Responsibility and the Criminal Code. Hence, now, illegal seizure of a land plot will result in a fine for a responsible official in the amount of 100-150 times the baseline calculation value (“BCV”) or approx. USD 2,324.4 – 3,486.6. Where a land plot was seized and buildings and structures on it were demolished without payment of a market-rate compensation to the owner with some insignificant damage being caused to him (up to approx. USD 2,324.4), the amount of the fine is 150-200 times the BCV or approx. USD 3,486.6 - 4,648.8. Punishment becomes stricter where more significant damage is caused to the owner. For example, in cases where a person commits a violation after administrative responsibility measures for the same action have already been applied to him and the violation causes very large damage to the owner of a land plot and relevant buildings, a punishment in the form of imprisonment from 5 to 8 years may be applied.

Prior to 14 January 2021, the Article 241¹¹of the Code of Administrative Responsibility provided that in cases where buildings, facilities, structures, or plantings on land plots seized from business entities were demolished without prior payment of relevant compensation, some relatively low fine had to be paid by a responsible official.

Law No. ZRU-667 of 14 January 2021

8. WORK PERMITS FOR EMPLOYEES OF FOREIGN ENTERPRISES AND JOINT VENTURES

The Regulations on the Procedure for Attracting and Using Foreign Labor in the Republic of Uzbekistan was amended to extend the scope of relevant exemptions given to foreign enterprises (i.e. Uzbek companies wholly owned by foreign residents/legal entities) and joint ventures (i.e. Uzbek companies partially owned by foreign residents/legal entities). Based on the introduced changes, foreign citizens employed as top heads of foreign enterprises and joint ventures do not need to obtain a work permit for the period of up to 3 months from the date, on which the relevant employment contract was executed.

Resolution of the Cabinet of Ministers No. 5 of 8 January 2021

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Kosta Legal Law Firm

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