GENERAL LEGAL NEWSLETTER FOR DECEMBER 2018

In December 2018, final for the passing year decisions were taken for improving the investment environment in Uzbekistan. Hence, the investment program for 2019 was adopted and 2019 was declared a year of active investment and social development. Other end-year developments include the transformation of a usual annual tax rates review into the total revamp of the national tax system, a number of changes in land registration and disposal procedures as well as numerous minor changes in sectorial regulations.

It is a notable event that in December, the US credit rating agencies Standard & Poor’s and Fitch assigned to Uzbekistan a sovereign credit rating. The long-term rating in foreign and national currencies is BB-, whereas the short-term rating in foreign and national currencies is B.

Government incentives for tourism sector investment

On January 5, 2019 the President of Uzbekistan issued the Decree No. UP-5611 “On Additional Measures for Accelerated Development of the Tourism Industry”. Read more

1. CHANGES IN TAX LEGISLATION

The Law introducing the following changes into the Tax Code came into legal force on January 1, 2019:

1. The corporate profits tax rate was reduced to 20% for commercial banks and to 12% for other businesses;
2. The dividends tax rate for residents was reduced from 10% to 5%;
3. The value-added tax with the standard rate of 20% will now applies to much more categories of businesses. With that, legal entities having the gross revenue of no more than UZS 3 bln are entitled to choose the simplified procedure for paying the value added tax. The standard rate of the tax in this case is 7%;
4. Lists of deductible and non-deductible expenses for taxation purposes were amended;
5. Legal entities were exempted from paying the fixed tax;
6. The way of levying the unified tax payment was changed. This tax is now collected from (1) legal entities having gross revenue of no more than UZS 1 bln; (2) sole entrepreneurs being managing partners in simple partnerships and having gross revenues of no more than UZS 1 bln; (3) family-owned enterprises having gross revenue of no more than UZS 1 bln; (4) sole entrepreneurs having gross revenue exceeding the established untaxed amount, but not more than UZS 1 bln; (5) non-commercial organizations having gross revenue of no more than UZS 1 bln. The standard tax rate has been decreased to 4 %. With that, the property tax, the land tax and the water use tax will now also have to be paid by these categories of taxpayers;
7. Insurance contributions to the off-budget pension fund were cancelled; whereas the single tax rate on personal income has been set at a flat rate of 12%, equal for all categories of individuals;
8. The excise tax now applies to mobile services as well as the retail sale of gasoline, diesel fuel and gas instead of the tax on the consumption of gasoline, diesel fuel and gas;
9. The State Road Fund was liquated and the relevant payments no longer have to be made.

The Law of the Republic of Uzbekistan № ZRU-508 of December 24, 2018.

2. NEW CERTIFICATION REQUIREMENTS

From December 1, 2019, some imported consumer goods, according to the approved list, will be subject to mandatory certification by organizations of the National Standardization Agency “Uzstandard” and organizations accredited by the Accreditation Centre under the National Agency for Project Management. The certification of products becomes mandatory for those products, where technical regulations for such products set mandatory safety requirements.

The Presidential Decree prohibits the import of goods – subjects to the sanitary, epidemiological and phytosanitary control from countries that have a bad sanitary, epidemiological and/or phytosanitary situation. The list of these countries will be approved by the Cabinet of Ministers.

Presidential Decree № PP-4059 of December 12, 2018.

3. LEGAL BASIS FOR ACTIVITIES OF INVESTMENT COMPANIES AND MANAGING COMPANIES

In order to encourage the inflow of foreign investment and to instigate investment activities within Uzbekistan, the Presidential Resolution No. UP-5583 has introduced and defined the basic concepts of “investment” and “management companies”. An investment company is a commercial organization that carries out activities related to the formation and accumulation of funds from qualified investors attracted by a management company for their further investment in innovative and other promising projects. A management company, in turn, is a commercial organization that manages investment contributions of an investment company in accordance with the agreement concluded between them.

It is provided that management and investment companies may be established in any legal form, their activities are not subject to licensing and the relevant relationship between management and investment companies may be governed by relevant agreements. The investment companies have the right to grant loans, including interest-free loans with or without security.

The relevant legal act regulating activities of investment and management companies in more details will be drafted in the near future. The Law on Partnerships will also be prepared until January 1, 2020.

Presidential Resolution № UP-5583 of November 24, 2018.

4. NEW APPROACH TO MANAGEMENT OF FREE ECONOMIC ZONES

The Presidential Decree provides that only those projects where the volume of export of manufactured products during the second financial year from the start of operations is expected to reach 25% within two years, and at least 50% in subsequent years may be placed in free economic zones (FEZs). Failure to comply with this requirement may lead to the loss of the status of the participant of FEZ with the cancellation of previously granted benefits.

Decisions on allotting land plots for implementing investment projects in FEZs taken by FEZs’ administrative councils are now sufficient for land allotment. Relevant decisions of the district/city Khokim (i.e. the Head of the Municipality) on land allotment are no longer required.

Privileges granted to participants of FEZs will now apply only to products manufactured within the territory of FEZs.

Until April 1, 2019, a more detailed Concept of Development of FEZs will be drafted.

Presidential Decree № UP-5600 of December 21, 2018.

5. REGISTRATION OF PROPERTY RIGHTS

The Resolution No. 1060 has set uniform rules for the state registration of rights to real estate for both individuals and legal entities through local centers for public services or the Single Portal of State Services. The registration is carried out by making an appropriate entry into the state register of rights to real estate and transactions with them in electronic form. This registry will become an official publically open source of information on registered rights to real estate.

In addition, a pretrial dispute resolution procedure has been introduced. For this purpose, special commissions are created under the State Cadastral Service and its territorial departments. They will be considering disputes arising from the state registration of rights to real estate objects within 10 days from the date of their receipt.

Resolution of the Cabinet of Ministers № 1060 of December 29, 2018.

6. CREATION OF NATIONAL EXPORT SUPPORT SYSTEM

The Presidential Decree No. PP-4075 has provided for creation of the national export support system. The system will assist in rendering informational and financial support to exporters. For these purposes, the Export Promotion Agency under the Ministry of Foreign Trade has been established. It is planned to spend at least USD 15 mln each year on its activities.

Moreover, the National Export-Import Insurance Company Uzbekinvest has been transferred to the Ministry of Foreign Trade. The company will insure export credits and operations.

Besides, it is provided that embassies of Uzbekistan abroad will establish trade missions.

Presidential Decree № PP-4075 of December 24, 2018.

7. DEVELOPMENT OF ECOTOURISM

Individuals and legal entities can now get land plots within water protection zones of reservoirs for long-term rent for developing ecotourism. The land will be provided for a period not exceeding 50 years through the electronic auction "E-IJRO AUKSION".

Resolution of the Cabinet of Ministers № 978 of December 3, 2018.

8. ISSUANCE OF GOVERNMENT SECURITIES

From December 2018, in order to develop the government securities market, the Ministry of Finance can issue treasury bills and bonds secured by governmental assets.

State securities will be issued with a coupon rate or with a “zero” coupon rate with a nominal value of UZS 1 mln. They will be placed among commercial banks and legal entities - residents of the Republic of Uzbekistan. The Central Bank is entrusted to place the securities and make repayments.

Resolution of the Cabinet of Ministers № 1016 of December 14, 2018.

11. TRANSIT TRAFFIC THROUGH UZBEKISTAN

The period during which transit vehicles must leave the country has been extended from 3 to 5 days from the date of entry. In addition, 47 new routes have been opened, intended for the transit movement of foreign road carriers through the territory of Uzbekistan.

It is also permitted to transfer goods from a foreign vehicle to a national one under customs control at customs warehouses located outside established transit routes.

Resolution of the Cabinet of Ministers № 1022 of December 15, 2018.

12. COMPULSORY HEALTH INSURANCE AND FINANCING OF MEDICAL INSTITUTIONS

From April 1, 2019, as an experiment, the introduction of a new system of financing medical organizations will begin in some parts of the country. It is based on the principles of payment for each “case of treatment” and per capita financing. From April 1, 2020, based on the analysis of results of the experiment, it is planned to begin widespread application of the system throughout the country.

Also from July 1, 2019, individual health care facilities will be transferred to private parties for outside management based on individual investment project.

Starting from January 1, 2021, the compulsory medical insurance will also be phased in.

Presidential Resolution № UP-5590 of December 7, 2018.

13. REVERSION OF BAN TO OPERATE FOR PRIVATE SECURITY FIRMS

It is planned to abolish the ban for private security firms to engage in security activities and the provision of security services for legal entities and individuals introduced in 2014. Relevant licensing requirements will be defined in a special legal act.

Presidential Decree № PP-4075 of December 24, 2018.