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General legal newsletter for October 2020

In October 2020, some of the most notable developments were in the spheres of de-statization and privatization, combatting the shadow economy, and state support for exporters and businesses in the tourism industry. There were also changes in such sectors as power energy, nuclear energy, and forestry. Measures were also taken to enhance the protection of shareholders of joint-stock companies and to improve the monitoring of foreign currency transactions.

1. STRATEGY FOR MODERNIZING THE CONSTRUCTION INDUSTRY

On 27 October 2020, the President signed Decree No. UP-6096 providing for further reduction of the state participation in Uzbekistan’s economy and improvement of the competitive environment. It is stated in the Decree that the activities of more than 3,000 state-owned enterprises (SOEs) have been studied and it has been decided to transform and to privatize many of them.

SOEs listed in Annexes 1 and 2 to the Decree will be transformed. This implies, among other things, the development of a budget plan for 2021 and a 3-years business plan for each of the listed SOEs as well as the inventory of these SOEs’ investment projects with the projects that have not yet started or for which the sources of financing have not yet been identified being suspended. It is also envisaged that in 32 large SOEs listed in Annex 1, including JSC "Uzbekneftgaz", JSC "Uztransgaz", JSC "Uzbektelecom", JSC "Uzavtosanoat", JSC "Uzbekistan Airways", and JSC "Uzbekistan Airports", (i) the International Financial Reporting Standards will start to be applied; (ii) international credit ratings will be obtained; (iii) a strategy of financial recovery will be developed; (iv) modern systems of corporate governance, an audit of procurements, internal compliance, and anti-corruption compliance will be established; (v) qualified foreign experts will be attracted for taking positions in the supervisory and management boards.

Annexes 3, 4, and 5 to the Decree list state assets subject to privatization through public trades:

Annex 3 lists state shares in 62 companies, including LLC “Coca-Cola Ichimligi Uzbekistan” (57%), JSC “Insurance Company Kafolat” (49.3%), JSC “Uzagrolizing” (88.8%), etc., that will be privatized after relevant targeted privatization programmers are developed by the State Tender Commission (a specialized collective body, of which the Prime Minister, the Head of the State Assets Management Agency, the Head of the Antimonopoly Committee, and other state officials are members). It is envisaged that such programs will be developed with the assistance of international consultants by 1 July 2021.
Annex 4 lists state shares in 479 companies in a variety of industries that will be privatized without a targeted program i.e. following the general privatization procedure set by Uzbek law.
Annex 5 lists 15 real estate objects, mainly in Tashkent.

In the case of the state assets listed in Annexes 4 and 5, public trades will start to be conducted after 1 November 2020.

The following privatization plans are also mentioned in the Decree:

separate plans on privatizing markets and trade centers as well as non-core assets of SOEs and state-owned banks will be developed within 3 months from the date of the Decree;
by 1 February 2021, a plan for transferring special economic zones to private management and for their gradual privatization will be developed (it is not yet clear how that is envisaged to be implemented);
by 1 December 2020, a plan for the effective use of state property abroad e.g. its privatization, lease, or transfer into fiduciary management will be developed.

Some other important measures provided for in the Decree include the following:

incentives provided to SOEs that distort competition will be reviewed and canceled;
the Cabinet of Ministers will prepare a strategy for further reforming of SOEs in 2020-2025 and will develop new unified rules for privatizing state assets within 3 months from the date of the Decree;
the electronic system “E-ijro auksion” will be improved for conducting privatization trades;
the practice of selling state property at a zero redemption value will be replaced by selling state assets for UZS 1 with the imposition of investment obligations;
the Cabinet of Ministers will approve lists of SOEs transformed into state institutions, SOEs transformed into branches of other SOEs, and SOEs that remain to be state-owned within 2 weeks from the date of the Decree.

Presidential Decree No. UP-6096 of 27 October 2020

2. CHANGES FOR JOINT-STOCK COMPANIES

The Law on Joint-Stock Companies and Protection of Shareholders' Rights was amended as follows:

with regard to management liability:

now, persons managing shares under fiduciary management contracts have the same level of liability for property damages and losses of a company as the company’s director and members of the supervisory and management boards;
the list of illegal actions entailing liability of the company’s director, executive and supervisory board members, was extended to include (i) the breach of procedures set in the Law for the information disclosure; (ii) proposing or making a decision on large transactions, related-party transactions, as well as transactions with their affiliates for the purpose of gaining profit by company’s director, executive and supervisory board members or their affiliates, which caused losses to the company;

with regard to transactions with affiliated parties:

in addition to information on transactions with affiliated parties, covering written notifications, decisions made, information on parties that made such decisions, company’s annual reports shall also include information on the nature of the conflict of interests arising from such transactions;
the criterion for the mandatory examination of such transactions by an independent external audit organization prior to their execution was changed. The examination is now mandatory for transactions equal or exceeding 10% of the company’s net assets. Previously, it is the value of the net assets of an affiliated party that was used as a benchmark;
a company is obliged to disclose information about a transaction concluded between it and an affiliated party on the Single Portal of Corporate Information as well as on the company's official website within 72 hours from the moment of entering into the transaction.

Law No. ZRU-640 of 5 October 2020

3. MONITORING OF FOREIGN CURRENCY TRANSACTIONS

The Regulation on the Procedure for Monitoring the Reasonableness of Transactions in Foreign Currency Conducted by Legal Entities and Individuals was amended. The relevant monitoring is performed by the tax authorities, which collect information on particular categories of foreign currency transactions from commercial banks and the customs authorities as well as from available sources. The following changes were introduced:

a procedure for the interaction between the tax authorities and business entities that conduct monitored foreign currency transactions was set. In case it has been detected that a business entity has committed a violation, the tax authorities send a request to provide documents and information on relevant currency transactions to the entity in the electronic form to its personal account or, if the entity does not have the account - in a written form by a registered mail. The business entity must submit the requested documents and information within 5 business days from the day it has received the request. If it has confirmed that there is a violation indeed, the tax authorities may take measures within their competence or transfer the case to law enforcement agencies, including the Department for Combating Economic Crimes under the General Prosecutor's Office;
the list of offshore zones was extended (foreign currency transactions involving entities and banks in such zones are subject to special reporting by banks). The following zones were added: American Samoa, Aruba, Dominica, Guatemala, Kiribati, Monaco, the Channel Island of Alderney, Pitcairn, San Marino, Saint Martin, Uruguay, and the Philippines.
the customs authorities will now inform the tax authorities on all cases of unjustified overstatement and understatement of the invoice value of goods being imported or exported. Previously, the customs authorities reported only cases, where the invoice value of imported goods was overstated.

Resolution of the State Tax Committee, the State Customs Committee, and the Board of the Central Bank No. 2467 of 12 October 2020

4. MEASURES TO COMBAT THE SHADOW ECONOMY

The President signed a Decree aimed at combatting the shadow economy and simplifying compliance with the tax legislation in a number of sectors, including trade, catering, road transportation, the construction and repair of residential real estate, provision of accommodation services. The Decree provides that starting from 1 January 2021:

until January 1, 2022, the income of small businesses operating in public catering received from individuals through bank cards and contactless payments is not included in their gross income for taxation purposes;
the turnover tax on persons engaged in the provision of real estate services will be reduced from 25% to 13%
construction organizations will be allowed to hire employees for a fixed term without entering into a contract and to pay them in cash, provided that some requirements set in the Decree are met.

A number of other measures are also described, including the creation of special regional commissions for combatting the shadow economy, consisting of top officials of each region, and the expansion of the network of ATMs and multifunctional self-service terminals across the country.

The Decree also approved a Road Map for Combating the Shadow Economy and Improving the Tax and Customs Administration. The Road Map provides for, among other things, the following plans:

incentives that distort the competitive environment will be abolished;
the state registration and the system of taxation of entities engaged in electronic commerce will be simplified;
the system of anti-corruption compliance will be established in ministries, agencies, and state-owned enterprises;
mandatory anti-corruption examination of investment projects financed by the state will be introduced;
a pilot project on digital labeling of excisable products will be implemented;
a classification system for goods and services sold in Uzbekistan will be developed for identification purposes;
measures of responsibility for intentional tax evasion will be strengthened;
tax control will be implemented based on risk categories of taxpayers;
the legislation on transfer pricing will be improved;
the legislation on calculating and refunding VAT will be improved;
a system of post-customs clearance audit will be introduced;
the system of the registration of rental agreements with the tax authorities will change to cover rental arrangements of legal entities;
a system for continuous monitoring of a number of employees of construction companies will be created.

Presidential Decree No. UP-6098 of 30 October 2020

5. TEMPORAL INCENTIVES FOR EXPORTERS

The President signed a Decree that provides for the following temporary changes in previously introduced measures for supporting exporters (remain effective till 1 January 2022):

the compensation of interest on export loans that was available to exporters – producers only may now also be received by exporters – trade intermediaries;
the compensation of interest on export loans will be provided regardless of the relevant interest rate and the size of the loan in the amount as follows:

up to 50% of interest expenses on loans in national currency, but not more than 10 percentage points,
up to 50% of interest expenses on loans in foreign currency, but no more than 5 percentage points;

the limit set for credit guarantees of the State Fund for Supporting Entrepreneurship for export loans will be up to 50% of the loan amount and not more than UZS 8 bln (previously, UZS 4 bln);
now, the above compensations and guarantees will be available for additional export loans, provided the credit history of an exporter is positive;
the commission charged for the provision of the guarantees of the State Fund for Supporting Entrepreneurship will be reduced from 1% to 0.5%.

It is also provided by the Decree that the Fund for Supporting Exporters is established under the Agency for Promoting Export under the Ministry of Investments and Foreign Trade. Financial resources of the Fund will be used by the Agency for financing commercial banks for providing loans to exporters. The amount of each loan provided by banks shall not exceed USD 1 mln and each loan shall not be extended for more than 1 year. Exporters who have taken such a loan are not allowed to claim the above compensation of interest on the loan.

Presidential Decree No. UP-6091 of 21 October 2020

6. INCENTIVES IN THE TOURISM SECTOR

The Cabinet of Ministers adopted a Resolution aimed at supporting businesses in the tourism industry, including tour operators, travel agencies, and tourist accommodation providers (hotels, sanatoriums, etc.). In accordance with the Resolution, tourist businesses will be provided with a compensation of interest on loans, if the relevant interest rate exceeds the base rate of the Central Bank. Not more than the amount equivalent to 10 percentage points will be compensated. The following interest payments are covered:

the interest accrued from 1 June 2020 to 1 January 2022 on loans for the construction of accommodation facilities provided prior to the adoption of the Resolution;
the interest on loans provided to take measures in order to comply with new sanitary and hygienic standards;
the interest accrued from 1 June 2020 to 31 December 2020 on loans for replenishing working capital in the amount of up to UZS 1 bln.

It is also provided in the Resolution that the interest accrued from 1 March 2020 to 1 June 2020 on loans for the construction of accommodation facilities provided before the adoption of the Resolution will be reimbursed in full.

The Resolution also approves the Regulation on the Temporary Procedure for Granting Subsidies for Covering Expenses of Tour Operators, Travel Agents, and Accommodation Providers. In accordance with the Regulation, some additional subsidies may be received by tour operators and travel agencies organizing tours in Uzbekistan for foreign citizens as well as by accommodation providers.

Resolution of the Cabinet of Ministers No. 602 of 6 October 2020

7. LICENSING IN NUCLEAR ENERGY

The Cabinet of Ministers adopted the Regulation on the Procedure for Licensing Activities in the Field of the Use of Nuclear Energy. Some of the activities subject to the licensing include: the design and construction of nuclear installations and storage facilities; the operation of sources of radiation; the design and manufacturing of equipment for nuclear installations and storage facilities, and sources of radiation; the use, transportation, and storage of radioactive substances and nuclear materials; provision of services related to the use of nuclear energy.

Only legal entities may apply for licenses (in particular cases, the status of an “operating company” is required as provided in the Law on the Use of Nuclear Energy for Peaceful Purposes). The State Committee for Industrial Safety is a licensing authority. The term of validity of licenses is unlimited. The state fee payable for obtaining the license is 14 times the baseline calculation value (BCV) (approx. USD305). Decisions on the issuance of the license are made by the licensing authority within 30 days upon the applicant’s submission of all required documents.

Resolution of the Cabinet of Ministers No. 663 of 28 October 2020

8. SAFETY RULES FOR USING ELECTRICAL EQUIPMENT

The Technical Safety Rules for Using Electrical Equipment were approved. The Rules are mandatory for the entities (i) generating electricity, (ii) transmitting and distributing electricity, and (iii) engaged in the research, design, construction, installation, and repair activities related to the production and distribution of electricity.

Among other things, the Rules provide for:

the requirements for specialists working with electrical equipment,
rules for performing maintenance works;
rules for operational management;
mandatory technical measures for ensuring safety, including the requirements for installing warning signs.

Compliance with the Rules will be checked by the Inspection for Control in the Electric Energy Industry under the Ministry of Energy.

Resolution of the Cabinet of Ministers No. 638 of 9 October 2020

9. DEVELOPMENTS IN FORESTRY

Recently, to improve the efficiency of the use of forest lands, a Presidential Decree was adopted allowing the lease of forest lands not covered with forests to individuals and legal entities for agricultural purposes. In October 2020, the President signed another Decree which provides for the following measures of support for those who lease such lands:

for lands leased in 2020-2022 – zero lease payments for a period from 1 to 10 years depending on cultivated plants;
starting from 1 January 2021 – provision of subsidies if persons registered as unemployed are hired;
starting from 1 January 2021 – provision of compensations if irrigation facilities are constructed or reconstructed; etc.

The Decree also provides for the Concept for the Development of the Forest Management System by 2030 and the Road Map for the implementation of the Concept. Some measures envisaged by the Road Map are:

implementing public-private partnership projects with the use of forest lands;
establishing environmentally friendly and waste-free production facilities in forests by attracting foreign investment;
creating forest plantations;
developing the trees seed production;
developing technologies for growing medical plants with the use of “in-vitro” methods;
combating desertification, including in the Aral Sea region;
increasing the tourism potential of forests;
introducing innovative technologies in forestry;
conducting a complete inventory of forests and forming a unified database of forest plantations.

Presidential Decree No. PP-4850 of 6 October 2020

10. TAX REPORTING

The State Tax Committee amended the Regulation on Forms for Tax Reporting. Starting from 1 January 2021, (i) a new form for reporting on the property tax will have to be used by legal entities – payers of the property tax, as provided in Annex 7 to the Regulation, (ii) legal entities that have switched to the international financial reporting standards will have to submit information on the main indicators of their activities using on a new form provided in Annex 13 to the Regulation.

Resolution of the State Tax Committee No. 3221-1 of 20 October 2020

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