General legal newsletter for March 2022

Some of the most notable legal developments in Uzbekistan in March 2022 were new measures to accelerate privatization, to improve corporate governance in LLCs and JSCs, and to introduce control over the attraction of foreign loans by state-owned enterprises. There were also some changes in the tax and foreign currency control legislation and the rules for leasing state-owned agricultural lands.  

 1.  ACCELERATION OF PRIVATIZATION 

The President has issued a Resolution on accelerating privatization, which, among others, provides for the following:

• lists of state shares and real property planned to be privatized in 2022 (Annex 1 and Annex 2 to the Resolution);
• 25 flour mills of “Uzdonmakhsulot” JSC, a company dominant in grain processing, will be gradually privatized by 1 July 2022; the rest – by the end of the year;
• by the end of 2022, the state shares in two large banks, “Asakabank” JSC and “Uzpromstroybank” JSC, will be put up for sale with the attraction of ADB, EBRD, and IFC;
• by 1 October 2022, IPO for “Qishloq Qurilish Bank” JSC will be conducted; by 1 July 2023 - for “Agrobank” JSC, “Aloqabank” JSC, “Microcreditbank” JSC, “National Bank of Uzbekistan” JSC, and “Xalq Bank” JSC;
• by 1 April 2023, measures will be taken to privatize large mobile network operator “Universal Mobile Systems” LLC;
• the Ministry of Construction, the Agency for the State Cadaster, and other state agencies have been instructed to study land plots specified in Annex 3 to the Resolution and to ensure their privatization through electronic trades or, if impossible, their lease;
• a new privatization method, an invitation to negotiations, has been introduced. It implies that no starting price for privatized assets is announced with all terms of privatization being agreed through negotiations based on submitted applications. At the discretion of the State Tender Commission, professional organizations (international consulting, audit, or investment companies; investment banks; or other specialized organizations) may be engaged for privatizing particular assets through negotiations. Where assets worth more than USD 10 mln are privatized with the involvement of a professional organization, a decision on accepting a particular offer is made by this organization without the engagement of the State Assets Management Agency or other state bodies;
• where a purchase price for privatized assets is paid in installments and the amount of the first payment is less than 35% of the purchase price, an annual interest equal to the main rate of the Central Bank of Uzbekistan is charged on a non-paid amount.

Presidential Resolution No. PP-168 of 18 March 2022

 2.  CORPORATE GOVERNANCE IN LLCs AND JSCs   

A Law introducing changes into the legislation on limited liability (LLC) and joint-stock companies (JSC) has been adopted. It, among others, envisages that:

• the mechanism of a “golden share”, allowing state representatives to veto most important decisions in specific fully or partially privatized companies, has been abolished;
• in JSCs, the term of appointment of supervisory board members has been extended from 1 year to 3 years. The same has been done for the JSCs’ chief executive officer, members of the executive body, and a fiduciary manager, though there now appears to be some inconsistency in the amended Law on JSCs;
• in JSC, the establishment of a revision (audit) committee is now optional;
• shareholders owning at least 5% of shares of JSC are now allowed to attract an audit organization for checking alleged violations in a transaction between JSC and its affiliated party. Earlier, shareholders owning at least 10% of shares could do this;
• in LLCs, the functions of the executive body may now be transferred to another legal entity based on a contract of fiduciary management.

Law No. ZRU-760 of 29 March 2022

 3.  ATTRACTION OF FOREING LOANS BY STATE-OWNED ENTERPRISES 

The Cabinet of Ministers has adopted a Resolution regulating the attraction of foreign loans by country’s largest state-owned companies, including JSC “Navoi Mining and Metallurgical Combine”, JSC “Almalyk Mining and Metallurgical Combine”, JSC “Uzbekneftegaz” and entities it controls, JSC “Uzkimyosanoat” and entities it controls, and others, as provided in Annex 1 to the Resolution. The Resolution envisages that starting from 1 May 2022, a risk-based approval process will be in place for these enterprises for attracting foreign loans. The following procedure has been established:

• a specialized information system of the State Assets Management Agency will quarterly determine a financial risk category of all the relevant enterprises – “low”, “medium”, or “high”, based on financial information obtained from these enterprises and the state tax authorities;
• where a “low-risk” enterprise intends to attract a foreign loan for any amount or a “medium-risk” enterprise intends to attract a foreign loan for up to USD 20 mln, they will have to notify about that the Republican Commission for Open and Transparent Implementation of Public Procurement Procedures (through the Ministry of Finance);
• where a “medium-risk” enterprise intends to attract a foreign loan for more than USD 20 mln or a “high-risk” enterprise intends to attract a foreign loan for any amount, a relevant approval from the above Commission is needed (obtained through the Ministry of Finance);
• moreover, the Commission quarterly sets upper limits for foreign loans service costs (interest rate, commission fees, total remuneration). These limits may not be exceeded, unless the Commission allows otherwise.

Resolution of the Cabinet of Ministers No. 107 of 9 March 2022

 4.  CHАNGES IN TAX AND FOREIGN CURRENCY CONTROL LEGISLATION 

A Law introducing changes to the Tax Code, the Law on the Foreign Currency Control, and some other legal acts has been adopted. Some of the relevant changes include:

• fines for untimely receipt of foreign currency under foreign trade agreements have been decreased by 50%;
• fines for tax evasion, concealment of objects of taxation and the number of employees, a violation of the rules for digital labelling, untimely submission of tax reports, and some other infringements have been increased;
• administrative liability for some actions, including overdue accounts receivable and accounts payable, has been abolished;
• it is now the state tax authorities and not criminal courts who will administer cases related to improper accounting leading to underestimation of payable taxes and state fees; non-provision of documents or information requested by the tax authorities based on results of a desk tax audit; and some other infringements;
• till 1 January 2024, a number of tax incentives will apply to companies registered and operating in particular districts of the Surkhandarya region;
• from 1 January 2020 till 1 November 2022, land and property tax exemptions apply to fish, livestock and poultry farms suffered from the Sardoba dam failure in the Sirdarya region.

Law No. ZRU-758 of 11 March 2022

 5.  LEASE OF AGRICULTURAL LANDS  

The President has issued a Decree providing for simplification of the procedure for the lease of state agricultural lands. In accordance with it, results of open electronic tenders for the right to lease agricultural land will no longer have to be approved by regional executive authorities (the Cabinet of Ministers of Karakalpaksatan or regional khokimiyats). A relevant lease agreement shall, thus, be concluded based on results of a tender without further authorization being required.

Presidential Decree No. UP-91 of 24 March 2022

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Have a good day!

Sincerely,
Kosta Legal Law Firm