UZBEKISTAN LEGAL NEWSLETTER FOR DECEMBER 2023

In December 2023, the Law “On the State Budget for 2024” was adopted and some taxes were changed in light of this new budget. Some other important developments included reforms in procedures for appealing court decisions, the establishment of the Fund for Industrial Development, the launch of the “140 Advanced Industrial Enterprises” program and the “industrial mortgage” scheme.

 1.  STATE BUDGET 2024

On 25 December 2023, the Law “On the State Budget for 2024” was adopted. It, among other things, provides the following indicators for 2024:

• GDP growth is projected at 5.6−5.8% with growth in industry amounting to 6%, growth in the service sector – 6.1%, and growth in agriculture – 4%;
• inflation is expected to reach 8-10%
• the total revenues of the consolidated state budget are projected to amount to UZS 375 trln (approx. USD 30 bln), while the total expenditures – UZS 427.6 trln (approx. USD 34.7 bln);
• the limit of the consolidated budget deficit for 2024 is 4% of GDP;
• the maximum net volume of government securities issued on behalf of Uzbekistan shall not exceed UZS 25 trln (approx. USD 2 bln);
• the maximum total amount of external borrowings attracted on behalf of Uzbekistan shall not exceed USD 5 bln.

Law No ZRU-886 of 25 December 2023

 2.  CHANGES IN TAXES FOR 2024

Following the adoption of the state budget for 2024, as per established practice, a Law introducing changes to and determining the tax policy for 2024 has been adopted. Some key points of the Law are as follows:

• tax rates for most taxes have remained unchanged, including those for corporate income tax (15%, for certain categories - 20%), personal income tax (12%), social tax (for budgetary establishments  - 25%, for other entities  - 12%), turnover tax (4%), and VAT (12%);
• starting from 1 January 2024, the excise tax on alcohol and locally manufactured tobacco products was increased (with the excise tax on imported tobacco products being reduced). Starting from 1 April 2024, the excise tax on carbonated drinks and energy and tonic drinks will be introduced;
• starting from 1 April 2024, a road charge will be introduced for trucks weighing more than 10 tons;
• the exemption from tax on dividends for individuals and the application of a lower tax rate of 5% to dividends payable to legal entities have been extended till 31 December 2028 (should have expired on 31 December 2024);
• starting from 1 April 2024, VAT exemptions for the following will be abolished: (i) the import and turnover related to the sale of medicines, medical and veterinary products, raw materials used for the production of medicines, medical and veterinary products; (ii) medical and veterinary services; (iii) water supply, sewerage, sanitation, and heat supply services provided to the population;
• starting from 1 April 2024, VAT will apply to foreign individuals providing services on the territory of Uzbekistan;
• starting from 1 January 2024, the statute of limitations for tax obligations was reduced from 5 years to 3 years;
• some procedural rules for conducting a desk tax audit have been changed.

Law No. ZRU-891 of 28 December 2023

 3.  CHANGES IN PROCEDURES FOR APPEALING COURT DECISIONS

The President has signed Laws introducing amendments to the Economic Procedural Code, the Civil Procedure Code, and the Code on Administrative Proceedings. The following changes have, among other things, been introduced:

• decisions of courts of first instance may now be appealed to either courts of appeal (within 1 month from the date of a decision) or courts of cassation (within 6 months from the date a decision enters into force). Previously, decisions courts of first instance had first to be appealed to courts of appeal and only after that might be appealed to courts of cassation;
• decisions of courts of appeal and courts of cassation may not be challenged in the course of a revision procedure i.e. in courts of revision. A revision claim against a decision of a court of first instance as further reconsidered in a court of appeal or a court of cassation may be filed within 1 year from the date the relevant decision of the court of first instance enters in force;
• courts of appeal and cassation may not return cases for reconsideration to courts of first instance, but shall make final decisions on brought claims;
• courts of revision may return cases for reconsideration to courts of appeal and courts of cassation in the following two cases:

             - a relevant court decision affects the rights and obligations of persons not involved in the case;
             - failure of a court to make a decision on any of the declared claims.

More detailed schemes of the old and new appeal procedures can be found here.

Law No. ZRU-887 of 25 December 2023
Law No. ZRU-888 of 25 December 2023
Law No. ZRU-889 of 25 December 2023

 4.  ESTABLISHMENT OF FUND FOR INDUSTRIAL DEVELOPMENT

The President has signed a Decree on the establishment of the Fund for Industrial Development (FID) under the Fund for Reconstruction and Development (FRD). FID is expected to attract funds in the amount of USD 1 bln, including USD 200 mln from FRD. Its main goal is generally the financing and assistance with the implementation of projects aimed at manufacturing innovative, export-oriented and high-value products. FID will finance projects whose value exceeds USD 4 mln in the following ways:

• through providing loans to commercial banks, extending further loans to sponsors, or purchasing equipment or real estate required for a project as a part of the “industrial mortgage” scheme (as described below). Financing extended by banks for one project shall be in the range from USD 1 mln to USD 10 mln;
• through paying compensations covering up to 50% of costs for conducting marketing studies, developing project feasibility documentation, attracting foreign experts, certifying products (up to USD 20,000);
• through financing the participation of a subsidiary of FRD in project SPVs (up to 25% of equity);
• through acquiring bonds of manufacturing enterprises where specific financial thresholds are met.

Applications for financing shall be submitted through the National Industrial Portal of Uzbekistan and are considered by the Ministry for Investments, Industry, and Trade. Final decisions on financing are taken by a specialized governmental commission based on submissions of the Ministry.

Presidential Decree No. PP-397 of 18 December 2023

 5.  "140 ADVANCED INDUSTRIAL ENTERPRISES" PROGRAM AND "INDUSTRIAL MORTGAGE" SCHEME

The Cabinet of Ministers has adopted a Resolution on measures for the implementation of the "140 Advanced Industrial Enterprises" program and the "industrial mortgage" support scheme.

The Program, monitored by the Ministry for Investments, Industry, and Trade, envisages holding an open competition to select 140 large investment projects for the creation of manufacturing enterprises across the following industries: electronics, textile, leather shoes, machine building, jewelry, construction materials, furniture, chemistry, and food. Projects shall meet the following criteria to qualify: (i) the creation of at least 100 jobs; (ii) the market share of imported products similar to those intended to be manufactured currently exceeds 50%; (iii) the use of modern manufacturing equipment. Preference is given to projects implemented in less developed regions as well as projects implemented based on cooperation with foreign brands. Preferential loans of FID of up to USD 10 mln will be available for projects selected to participate.

The “industrial mortgage” scheme became operational starting on 1 January 2024. It envisages the provision of preferential loans to potential investors for purchasing real estate for implementing manufacturing projects as to be secured by the purchased real estate. To support the scheme, the government will facilitate that land plots and production areas with all necessary permits being available (“ready-made business”) are put up for trades. Projects in the spheres falling under Class C of the National Classifier of Economic Activities of Uzbekistan (except for projects in alcohol and tobacco) are eligible to participate in the scheme (some other requirements apply).

Resolution of the Cabinet of Ministers No. 684 of 26 December 2023

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Have a good day!

Sincerely,
Kosta Legal Law Firm