News of Uzbekistan tax and customs legislation

In December 2022, the legislative acts updating and amending the Tax Code of the Republic of Uzbekistan (the “TC RUz”) and the Customs Code of the Republic of Uzbekistan (the “CC RUz”) were passed¹. Changes are effective starting from 1 January 2023 unless stated otherwise.

Some of the amendments provided by these Laws were already announced earlier in 2022 by the relevant Presidential Decrees and after the adoption of the Laws the changes were duly incorporated in the Uzbek legislation.

In this review, we have summarized what are, in our opinion, the most significant changes. However, for a complete list of changes, we recommend also reviewing the text of the relevant legislative acts, as well as the effective TC RUz and CC RUz. 

Value added tax (VAT)

• VAT rate was reduced from 15% to 12%.
• In-house tax audits in relation to input VAT refund are shortened from 60 to 30 days without issuing an order by the tax authorities.
• The VAT paid (payable) on the goods (services) actually received but not accepted for VAT offset due to the VAT payer’s certificate suspension, in case of the certificate renewal, is subject to adjustment (offset) both for the taxpayer and its purchasers during the period when the certificate was suspended.
• Large taxpayers are granted the right to offset VAT which is subject to refund against import VAT automatically. To perform such offset , when making a customs сlearance, a taxpayer must make a note about the payment of import VAT at the expense of the amount to be refunded.

Excise tax

• Starting from 1 February 2023, excise tax rates on petroleum products, as well as on alcohol and tobacco products are indexed by 10%. The fixed tax rate was reduced by 5% for certain goods (e.g., cigarettes with a filter, cigarettes without a filter, cigarillos, beedi, kretek).
• The excise tax on the production of alcohol beverages (except for low-alcohol beverages) is calculated based on the proportion of ethyl alcohol contained in excisable products. At the same time, the unit of measurement for alcohol production is "liter" (previously "dall").
• The excise tax rate on rectified ethyl alcohol made of food raw materials, rectified ethyl alcohol made of ether aldehyde fraction and the head fraction of ethyl alcohol will increase fivefold and amount to 7,450 sums / liter.

Corporate income tax (CIT)

• Starting from 1 November 2022, profits from the exported goods (services) are subject to CIT at 0% rate, regardless of the share of export income in total income. At the same time, the 0% CIT rate does not apply to profits received from the provision of services to non-residents of the RUz operating through permanent establishments from 1 January 2023.
• The right to reduce CIT rate by 50% is granted for the following categories of taxpayers:

- Taxpayers of revenue tax who transited to paying CIT for the first timeafter 1 September 2022 –such reduction can apply within the next tax period following the year in which the taxpayer started paying CIT, provided that the taxpayer’s total income does not exceed 10 billion sums in the tax period in which the reduced tax rate applies.

At the same time, these taxpayers have a right to determine the tax base in a simplified manner in the amount of 25% of their total income.

- Taxpayers whose total income after 1 September 2022 exceeded 10 sums billion for the first time during the current tax period – such reduction can apply during the current and the subsequent tax periods, provided that the total income does not exceed 100 billion sums in tax periods in which the reduced tax rate applies.

The reduced CIT rate does not apply to the taxpayers of subsoil use and excise tax and to liquidation of the taxpayer, and (or) identification of facts of division (splitting) of the taxpayer’s income from sale of goods (services) between two or more business entities for the purposes of reduced CIT rate.

• Stripping costs incurred at mineral extraction fields have been transferred to a separate group of depreciation assets and will be deducted after the start of mining or completion of stripping works by applying a depreciation rate determined at the discretion of the taxpayer, but not higher than 33% of the amount of accumulated expenses for the group of depreciable assets.
• The procedure for calculating the taxable income of a non-resident from the provision of services for the installation and (or) commissioning of equipment, training of personnel etc. was cancelled (previously the taxable income of a non-resident is calculated at 20% of the contract value if no separate service value is specified in the contract for the supply of such equipment). Instead, the taxable income of a non-resident will be calculated based on the market value of the specified services.

“Dividend tax” for permanent establishments of non-residents

• Starting from 2022, net profit remaining at the disposal of a non-resident operating through a permanent establishment in the RUz after payment of tax is considered as a dividend and subject to a 10% tax (which is higher than the withholding tax applicable to dividend payments by legal entities under a number of double tax treaties (DTT) concluded between the RUz and other countries).
• Clarifications have been made providing that a non-resident operating through a permanent establishment in the RUz has the right to apply a reduced tax rate on dividend income provided by the relevant DTT. If the DTT contemplates several reduced tax rates, the lowest of them can be applied.

Personal income tax (PIT) and social tax

• Starting from 1 April 2023, PIT benefits in relation to income of individuals directed to pay for their long-term life insurance are cancelled.
• PIT rates for individual entrepreneurs paying tax in fixed amounts are indexed on average by 10%.

Property tax for legal entities

• The reduced property tax rate continues to gradually increase to the base tax rate from 0.5% to 0.6% in 2023 in relation to the objects stipulated by the fourth part of Article 415 of the TC RUz (i.e., on public railway tracks, major pipelines, communication and power transmission lines, as well as structures that are an integral technological part of these facilities, real estate and construction-in-progress, for which a decision of the Cabinet of Ministers of the RUz on their conservation has been adopted).
• Starting from 1 July 2022, the procedure for taxing the objects for which legislation can apply measures of influence by establishing the increased rates of property tax has been abolished (e.g., in relation to empty buildings, unused production areas, non-residential structures, as well as objects of construction-in-progress).

Property tax for individuals

• The tax rates which were in effect in 2022, are indexed by an average of 10% for the objects stipulated in paragraphs 1-3 of the first part of Article 422 of the TC RUz (e.g., residential houses and apartments, suburban buildings, etc.).
• Starting from 1 July 2022, the procedure for taxing objects for which legislation can apply measures of influence by establishing the increased rates of property tax has been abolished (e.g., in relation to empty buildings, unused production areas, non-residential structures, as well as objects of construction-in-progress).

Land tax

• The basic land tax rates for non-agricultural land, which were in effect in 2022, are indexed by an average of 10%.
• The reduced land tax rate continues to gradually increase from 0.25% to 0.3% in 2023 in relation to the objects stipulated in the Article 429 of the TC RUz (e.g., in relation to land plots used by legal entities, whose sole participants are public associations of persons with disabilities and whose total number of persons with disabilities make up at least 50% of total headcount, and the payroll of persons with disabilities is at least 50% of the total payroll fund).
• Starting from 1 July 2022, the procedure for taxing objects for which legislation can apply measures of influence by establishing the increased rates of land tax has been abolished (e.g., in relation to empty buildings, unused production areas, non-residential structures, objects of construction-in-progress, as well as artificial reservoirs inefficiently used for breeding/growing fish). 

Water use tax

• The payment of water use tax is introduced for individuals who have:
  • non-residential real estate objects intended for entrepreneurial activity and (or) deriving of income - at tax rates established for individual entrepreneurs;
  • agricultural land - at the tax rates established for agricultural farms.
• Tax rates which were in effect in 2022 are indexed by an average of 10%.

Subsoil use tax

• For ferrous, precious, non-ferrous and radioactive metals, as well as for rare and rare earth elements:
  • the object of taxation is the volume of actual sales of mined (extracted) metals;
  • the tax base is the value of the volume of actual sales of mined (extracted) metals.
• The tax base for gas condensate is determined similarly to the procedure envisaged for natural gas and oil.

The approach to determine the tax base for metals and hydrocarbons, calculated as the sale price less the cost of transportation and (or) processing, has been clarified: the TC RUz envisages that the amount of expenses related to the transportation and (or) processing of extracted minerals, including their processing on a tolling basis, is determined by the taxpayer together with the tax authorities and may be adjusted according to the results of the calendar year in a similar manner.

• The subsoil tax rate on iron is reduced from 5% to 2%.

Revenue tax

• Revenue tax rates are unified with a fixed single rate of 4% for all categories of taxpayers except for some enterprises (e.g., for wholesale/retail trading located in hard-to-reach and mountainous areas the rate is 1%, in other settlements – 2%, etc.).
• Revenue taxpayers may elect to pay the tax in a fixed amount:
  • If the total income does not exceed 500 million sums - a fixed amount of 20 million sums per year applies;
  • if the total income exceeds 500 million sums - a fixed amount of 30 million sums per year applies.
• Taxpayers, including newly created legal entities and newly registered individual entrepreneurs, whose total income during the tax period exceeded 1 billion sums, switch to paying VAT and CIT from the date of reaching the specified amount of total income.

Other changes

Other changes are mainly related to the customs legislation and tax administration, in particular:

• Starting from 1 April 2023, customs duty preferences in relation to property imported into the customs territory by companies with foreign investments (having a share of foreign investments in the charter capital of at least 33%) for their own production needs are cancelled, unless otherwise envisaged by investment agreements concluded between a foreign investor and the public investment regulation authority until 1 January 2023.
• For preservation of the fixed assets and other property necessary for conducting financial and economic activities, the period of collection of tax arrears on the property of a taxpayer having a tax debt is extended from 30 to 60 days. 
• CIT and VAT payers with a total income of up to 10 billion sums have a right to pay their tax debts on installments basis within a period of up to 6 months.
• The period of application of the zero rate of customs duty for certain goods (e.g., sunflower oil, chicken meat, whole grain products, etc.) imported into the territory of the RUz  is extended until 1 January 2024.

How can EY help?

We will be glad to provide our assistance in the following areas:

• Consulting services regarding the applicability of new regulatory requirements to your company.
• An assessment of the impact of these legislative changes on existing business structures, including taxation of both current and planned transactions.
• Revision and update of the company’s tax accounting policy, taking into account legislative changes.
• Preparation of relevant queries to the regulatory authorities on the application of new legislative rules that may require clarifications.

We hope that you found this overview helpful. We will be glad to advise you on these changes in more detail and discuss them should you have any questions.

Authors:

• Dilovar Mavlonov
• Maryna Tarnavska