GENERAL LEGAL NEWSLETTER FOR JANUARY 2019
The new year began with new major changes within the system of public administration. The Ministry of Economy and Industry and the Ministry of Investment and Trade were established. The State Competition Committee was divided into three agencies. The overpowered National Agency for Project Management under the President transferred many of its functions and structural subdivisions to other state bodies, having focused on developing the e-government and the digital economy.
Businesses within the country are still worried about the abrupt changes in the tax system that happened at the end of 2018 and came into force in 2019. One of major novelties that requires further adaptation is related to the value added tax, being now payable by the majority of resident companies.
A significant change that also determines January 2019 is the government’s intention to offer a mechanism that will allow individuals and legal entities to privatize land plots. Currently, land within the country is owned by the state which allots separate plots for particular purposes without disposing of its ownership rights.
PRIVATIZATION OF LAND AND FURTHERANCE OF URBANIZATION
According to the Presidential Decree No. UP-5623 on Furtherance of Urbanization, from July 1, 2019, businesses and individuals will get the right to privatize land plots based on decisions of local municipalities.
Legal entities will be able to privatize land plots whereon their buildings, constructions or infrastructure facilities are located or to which they are adjacent to. Such land plots have to be necessary for relevant production activities. Individuals will be able to privatize land plots allotted to them for individual housing construction as well as land plots necessary for maintenance of their residential property.
Relevant changes will be fixed in the Law on Privatization of Non-Agricultural Land to be developed by the Cabinet of Ministers within 2 months from the date of the Presidential Decree.
The Decree also provides for the establishment of the State Agency for Urbanization and the Fund for Development of Urbanisation responsible for accumulating land privatization funds, developing city master plans and financing infrastructure development programmes.
Presidential Decree No. UP-5623 of January 10, 2019
ESTABLISHMENT OF CENTERS ASSISTING FOREIGN INVESTORS
From February 1, 2019, the Investor Support Centers will be established under district municipalities of Tashkent to assist foreign investors in implementing investment projects, including projects of public-private partnership. The Centers will provide necessary informational and practical help required in the course of making investments.
Resolution of the Cabinet of Ministers No. 4 of January 4, 2019.
REORGANIZATION OF MINISTRY OF ECONOMY AND OPERATION OF SMALL INDUSTRIAL ZONES
The Presidential Decree No. UP-5621 reorganizes the Ministry of Economy into the Ministry of Economy and Industry of Uzbekistan. It will seek to improve the Uzbekistan’s business environment, to reduce the size of the shadow economy, to encourage private businesses.
Until June 2019, the reorganized Ministry must develop and present a new concept for economic development of Uzbekistan till 2030.
The Decree also covers the matter of operation of small industrial zones. Hence, investment projects for than USD 7 mln must now be approved by the Ministry. It also provides that tax benefits will no longer be granted to new members of such zones.
Presidential Decree No. UP-5621 of January 10, 2019
OPTIMIZATION OF FUNCTIONS OF STATE AGENCY FOR PROJECT MANAGEMENT
The Agency for Project Management previously entrusted with numerous functions in various spheres of governmental activities has now lost many of its powers. Hence, the following functions have been transferred:
(i) to monitor public procurement – to the Ministry of Finance;
(ii) to control and license the development of architectural and urban planning documents – to the Ministry of Construction;
(iii) to control appraisal activities and appraisal standards – to the State Competition Committee.
Further, (i) the Center for the Examination of Projects and Import Contracts has been transferred the Ministry of Economy and Industry; (ii) the Center for Accreditation of
Conformity Assessing Organizations – to the Uzbek Agency for Standardization, Metrology and Certification. With that, the Center for Managing Projects related to the E-Government and the Digital Economy will be established by the Agency.
Presidential Decree No. UP-5624 of January 10, 2019
RESTRUCTURATION OF STATE COMPETITION COMMITTEE
Three new state bodies have been created on the basis of the State Competition Committee. The first one is the Capital Markets Development Agency that will develop the secondary capital market, contribute to strengthening corporate governance in public companies, protect rights and interests of investors carrying out operations with securities. The second agency is the Antimonopoly Committee that will focus on the competition regulation, enhancing the Uzbekistan’s competitive environment, controlling numerous natural monopolies, licensing commodity exchanges. The State Asset Management Agency will, in turn, serve as a centralized state property (shares) management unit, preparing some assets for privatization. Some functions, including the identification of ineffectively used or unused state-owned production facilities, have been distributed among the State Tax Committee, the State Cadastral Service and the State Committee for Investments.
Further steps have also been taken to improve corporate governance in state owned enterprises (SOE), including the abandonment of the practice to appoint the supervisory boards of major SOEs by formal legal acts and to assign their CEOs governmental titles.
Presidential Decree No. UP-5630 of January 14, 2019
IMPROVEMENT OF INVESTMENT ENVIRONMENT
The Presidential Decree No. UP-5635 provides for developing a strategy for improving the investment environment in Uzbekistan in the medium term as well as a legal act furthering attraction of foreign direct investments.
The state-owned Direct Investment Fund with the authorized capital of USD 1 bln has also been created by the Decree. It will focus on cooperating with local and foreign investors for implementing innovative and promising investment projects. The Fund is able to contribute up to 30% of the required investment amount for a particular project. Relevant decisions will be taken by a state-owned managing company.
Likewise, the Emirates-Uzbek Investment Company with the authorized capital of USD 1 bln has been established. Its shareholders are the Abu Dhabi Fund for Development (75%) and the Uzbek Fund for Reconstruction and Development (25%).Some other steps envisaged by the Decree include the provision of the so-called investment visas to founders of “companies with foreign investments” and members of their families for a period of 3 years with the possibility of extension. The individuals who have invested at least USD 3 mln will get the right to apply for the residence permit for a period of 10 years through a simplified application procedure. The mechanism will begin to work from March 2019.
Presidential Decree No. UP-5635 of January 17, 2019
STATE SUPPORT TO INVESTORS IN HOSPITALITY INDUSTRY
The recently adopted Presidential Resolution No. PP-4095 provides for measures for attracting investors for constructing hotels in Uzbekistan.
The state will assist investors by reimbursing part of investor’s constructions costs and expenses for equipping a new hotel. Standard compensation rates are provided by the Resolution (e.g. UZS 40 mln that is about USD 4,700 for each room of a 3-star hotel), whereas the procedure for claiming the compensation will be elaborated and approved by the Cabinet of Ministers within 2 months from the date of the Resolution.
The government is also ready to assist Uzbek businesses in financing royalty payments under franchise agreements with world renown hotel brands (based on relevant top-50 rankings).
It is further envisaged that investors will be able to claim land plots adjacent to constructed hotels to their private property with the exception of land plots being objects of cultural heritage and agricultural lands.
Some requirements related to obtaining permits in the hospitality sector have also been abolished or changed. Thus, now, hostels do not have to be certified, but have to be included into a special register. The requirement for hotels and hostels to obtain separate licenses for airport/railway/bus station transfer, retail and catering services provided as part of their hospitality services has also been abolished.
Special regulation for provision of tourism services within tangible cultural heritage sites (historical buildings, monuments, etc.) has been introduced. The Resolution establishes that tangible cultural heritage sites where tourist infrastructure facilities are located or are being created may be rented for the term of 10 - 30 years. Investors are exempted from paying rental fees for the first 5 years provided that the amount equal to the 5-year total rent is directed to restoration and preservation of such a cultural heritage site.
Investors can get the information about non-used infrastructural objects and land plots allotted for the construction of hotels on the websites of the State Investment Committee, the State Tourism Committee and the Uzbek Chamber of Commerce and Industry. Some land plots and state-owned facilities will be advertised and sold through the electronic public trade platform E-IJRO AUKSION.
Presidential Resolution No. PP-4095 of January 5, 2019
REFORMS IN ELECTROTECHNICAL INDUSTRY
The Association of Enterprises of the Electrotechnical Industry of Uzbekistan has been established after the liquidation of the dominant state-owned holding company Uzeltehsanoat. It will support development of the industry, the mobilization of foreign and domestic investment and related export activities. Enterprises in the industry can become members of the Association on a voluntary basis. Real estate and shares of SOEs owned by Uzeltehsanoat will be transferred to the state agency for state property management.
Further, the Road Map for implementation of 22 investment projects in the electrotechnical industry for USD 153.8 mln is going to be developed in the near future.
Presidential Resolution No. PP-4090 of January 4, 2019
NEW OPPORTUNITIES FOR JEWELRY MANUFACTURERS
In accordance with the Resolution of the Cabinet of Ministers No. 16 jewelry manufacturers may get the right to
(i) purchase precious metals and stones from producers – legal entities based on direct contracts i.e. not through commercial banks as it currently operates;
(ii) to produce ingots (precious metal bars) and to sell them through commercial banks and the Central Bank;
(iii) purchase scrap of precious metals and processed gemstones from legal entities and individuals on a contractual basis;
(iv) lease presidios metals from producers (probably, aт installment purchase is meant).
The Resolution also provides support for implementing the project for the creation of jewelry manufacturing facilities in Tashkent for USD 20 mln with the participation of a US company, privatizing some state property.
Resolution of the Cabinet of Ministers No. 16 of January 10, 2019
CREATION OF NEW FREE ECONOMIC ZONE IN ANDIJAN REGION
A new free economic zone (FEZ) has been created in the Andijan region to facilitate the production of pharmaceutical products, drugs, medical equipment, etc. The FEZ is created for 30 years with the possibility of further extension. It is planned to focus on attracting Indian pharmaceutical manufacturers and, possibly, to transfer management over FEZ to foreign experts.
Presidential Decree of January 14, 2019
REFORM IN MINING AND METALLURGICAL INDUSTRIES
A Concept for Reforming and Developing Large Mining and Metallurgical Enterprises is going to be developed till July 1, 2019, with new approaches to corporate governance, reporting and investment policies being elaborated for state-owned incumbents. Moreover, the taxing policy for the industry will be revamped and some benefits will be scrapped. Shares of the largest state-owned enterprises are going to be offered to potential investors on local and foreign stock exchanges – of the Uzbek Metallurgical Plant – in 2022, of the Almalyk Mining and Metallurgical Plant – in 2023 and of the Navoi Mining and Metallurgical Plant – in 2024.
The Navoi Mining and Metallurgical Plant, in particular, will be reorganized into a public company by December 2019, with the state share being transferred to external managers. Recourse reserves of the Plant will, in turn, be revaluated based on best international standards till March 2019. It is also planned that separate SOEs engaged in the extraction and processing of uranium and precious metals will be established based on Plant’s assets (no detailed clarification is provided in the legal act).
Presidential Resolution No. PP-4124 of January 17, 2019
REGULATIONS ON LICENSING CRYPTO EXCHANGES
Licensing requirements and procedures for crypto exchanges have been set. The licensing authority under adopted regulations is the National Agency for Project Management. Licenses are issued only to foreign entities establishing subsidiaries for performing the activity in Uzbekistan. To apply for the license, an applicant must have the authorized capital of 30 000 times the minimum monthly wage (about USD 725,000), the amount of 20 000 times the minimum monthly wage of which (about USD 483,000) must be reserved on a special bank account in Uzbekistan. It is also required to provide a proof that a functioning electronic system for bidding and trading is created.
All the documents submitted as part of the application are to reviewed within 30 days. A state fee is charged for issuing the license; its amount will be determined by the National Agency for Project Management.