GILS Corporate law: Uzbekistan
UZBEKISTAN
(1) Forms of doing business and Establishment
1.1. What are the options for establishing a company's presence in a country (branch, representative office, subsidiary, etc.), and what are their key advantages and limitations?
The legislation of the Republic of Uzbekistan provides for different organisational and legal forms of doing business, the most popular of which is the establishment of a subsidiary company in the form of a Limited Liability Company.
According to Article 52 of the Law “On Investments and Investment Activities” No. ЗРУ-598 dated December 25, 2019 (hereinafter referred to as the “Law on Investments”), enterprises with foreign investments have the right to establish subsidiary companies, branches, as well as representative offices and other separate units on the territory of Uzbekistan.
Subsidiary companies are independent legal entities that offer the advantage of limited liability, meaning the head company is not responsible for the subsidiary's debts and obligations beyond its investment. However, establishing a subsidiary may involve more complex legal and regulatory requirements compared to other options.
A branch of a company is its separate subdivision, which is located outside the location of the entity and performs all or part of its functions. A branch of a company carries out its activities on behalf of the head company. Responsibility for the activities of the branch of the company is borne by the head company. A branch is not an independent legal entity, all information about its existence, as well as about their number should be reflected in the constituent documents of the organisation.
Representative offices serve as extensions of the head company, primarily for marketing and promotional activities. They offer a lowcost option for market entry and can help in establishing business relationships. However, they typically have limited legal capacity, are not considered as a legal entity and cannot engage in commercial activities.
1.2. What is the process for creating a legal entity or another form of presence in the country, including the laws to follow, legal entities to be considered, documents required, stages and terms for registration?
Registration can be carried out 1. online through the automated system or 2. filed in person directly to the corresponding Public Service Center.
Registration of the company online is carried out in a real-time mode within approximately 30 minutes.
To register a company, constituent documents shall be prepared in the Uzbek language. According to Uzbekistan's legislation, there is no mandatory minimum size of the authorised capital for LLCs. It is important to note that the minimum requirements for the authorised capital may be set out in the licence requirements.
1.3. What is the process for creating a legal entity or another form of presence in the country, including the laws to follow, legal entities to be considered, documents required, stages and terms for registration?
Establishing a legal entity to do business in Uzbekistan is one of the most simplified and does not require consent or permits. It is worth noting that a licence, permit or notification will be required to operate in certain areas. According to the Law on Licensing, Permission and Notification Procedures № ЗРУ-701 dated July 14, 2021 (hereinafter referred to as the “Law on Licensing”), these are authorizations/approvals that may be required to create a legal entity or start operations:
1. Business licences or permits: Certain types of businesses may require specific licences or permits to operate legally;
2. Import/export licences: Companies engaged in international trade may need to obtain import/export licences to facilitate the movement of goods across borders;
3. Certifications: Certain industries, such as healthcare, manufacturing or transportation, may require certifications to demonstrate compliance with health and safety standards;
4. Approvals: Projects concerning construction and supply of energy may need to obtain approvals to ensure that their activities comply with local regulations;
5. Notifications of the commencement or termination of activities: Certain types of activities are carried out in the procedure of notification of authorised bodies.
1.4. What are the most common types of Legal Entities in your country and the differences between them in terms of taxation, liability, and management?
1.4.1.What are the shareholder structures of these types of legal entities?
1.4.2.What is the Shareholders’ responsibility in these types of legal entities?
1.4.3.What is the responsibility of the representatives in these types of legal entities?
1.4.4.Briefly, what are the characteristics of the other types of Legal Entities?
The most common types of legal entities are Limited Liability Companies (LLC) and Joint Stock Companies (JSC). Managing a JSC is much more complicated due to the legal requirements for registering the issue of shares and registering the issue of shares in the Central Securities Depository, publishing information about decisions made on the website of the JSC, forming a Supervisory Board, etc.
1.4.1. Shareholder structures:
- LLC is formed by multiple founders, but not more than 50 founders. Both residents and non-residents of the Republic of Uzbekistan can be shareholders of the LLC or JSC.
- JSC is represented by shareholders, owners of shares, which can be publicly traded or privately held. The number of shareholders in a JSC is unlimited and each shareholder is entered in the register of shareholders. Also, depending on the type of shares (common and preferred), the rights of shareholders may differ. Holders of preferred shares have the right to receive dividends as well as funds invested in shares in the event of liquidation of the JSC on a priority basis.
1.4.2. Shareholders' liability:
- LLC: LLC participants are not liable for its obligations and bear the risk of losses associated with its activities to the extent of the value of their contributions. LLC participants who have not fully contributed shall be jointly and severally liable for its obligations to the extent of the value of the unpaid part of the contribution of each LLC participant.
- JSC: Shareholders' liability is limited to the value of their shares. In case of financial difficulties, shareholders are not personally liable for the company's debts.
1.4.3. Representatives' liability:
- The management and responsibility of representatives in LLCs and JSCs are not practically different.
1.4.4. Characteristics of other types of legal entities:
Sole Proprietorship. A sole proprietorship is a commercial organisation established and managed by the owner - one individual. He is personally liable for the debts and obligations of the company. A sole proprietorship has separate property, can in its own name acquire and exercise property and personal non-property rights, incur obligations and participate in court.
Family enterprise. Family enterprise is another type of conducting activities with the formation of a legal entity. The activity of a family enterprise is based on the personal labour of its participants. The general meeting of the participants of the family enterprise is the supreme management body.
The total number of participants of a family enterprise and its employees may not exceed the average annual number of employees of small businesses established by law. At the same time, the minimum number of participants of a family enterprise shall be not less than two persons.
1.5. What are the operating costs associated with the maintenance of a legal entity or presence in the country?
The set of operational expenses depends on the industry of the company. Examples of operational expenditures include:
- fees for the use of licences, patents, or other intellectual rights;
- operational taxes and mandatory payments unrelated to financial activities;
- employee salaries, bonuses, and social contributions;
- rent for office space, manufacturing facilities, and equipment;
- utility payments;
- expenses for advertising, promotion, market research, and other marketing activities;
- costs for logistics, warehousing, and product delivery;
- maintenance expenses for equipment and machinery.
(2) General taxation issues
2.1. What tax obligations are associated with doing business in the country?
According to the Tax Code, businesses in Uzbekistan are subject to various taxes and fees, including corporate income tax, value-added tax (VAT), property tax, subsoil use tax, excise tax, water use tax and social security contributions. The specific tax liabilities depend on factors such as the type of business, its revenue, and the industry sector.
2.2. What tax and customs incentives are available in a country?
1. Tax holidays: Investors may be entitled to exemption from corporate income tax for a certain period after the implementation of an investment project.
2. Value-added tax (VAT) exemption: Investors engaged in certain types of activities may be exempt from paying VAT on the importation of goods and services for their projects.
3. Customs duty deferral: Investors may receive a deferral on paying customs duties on imported goods for use within their investment projects.
4. Preferential corporate income tax rates: Certain industries and types of businesses may benefit from preferential corporate income tax rates.
5. Land tax incentives: Investors may be eligible for exemptions or reductions in land tax payments depending on the purpose of land use and the location of the project.
6. Other incentives: Additionally, tax exemptions for certain taxes, except for value added tax, excise tax, subsoil use tax and special rent tax on the extraction of minerals, may be granted by decisions of the President of the Republic of Uzbekistan in the form of a reduction in the established tax rate.
2.3. What are the accounting and reporting requirements for different types of presence, and how often must they be submitted?
The requirements for accounting and reporting may vary for different types of presence in Uzbekistan and depend on the types of taxes paid by the company. Typically, they involve maintaining accounting records in accordance with legislation and international financial reporting standards. This includes recording income, expenses, assets, and liabilities, as well as preparing financial statements such as balance sheets, income statements, cash flow statements, and statements of changes in equity.
The frequency of reporting depends on the type and size of the organisation. For instance, larger organisations are often required to report quarterly, while smaller enterprises may only need to report annually or even less frequently.
Additional requirements may include having financial statements audited by an independent auditor and submitting tax reports to the tax authorities. In addition to tax reporting, companies may also submit statistical reports.
2.4. What is the taxation of dividends for foreign investors?
Taxation of dividends for foreign investors in Uzbekistan depends on the source of the dividends. Dividends received from Uzbekistan by a foreign company that has established a presence in Uzbekistan are subject to income tax at the rate of 5%, which is withheld by the tax agent at the time of dividend payment and transferred to the state budget no later than the date of dividend payment.
For taxpayers who have not established their presence in Uzbekistan, dividends are taxed at the rate of 10%, that are subject to change under Double Taxation treaties.
2.5. What strategies exist for minimising tax liability when conducting international business?
1. Take advantage of available tax incentives and exemptions provided by the legislation of Uzbekistan for certain types of activities or investments.
2. Establish an optimal company structure considering tax peculiarities.
3. Make use of existing bilateral tax treaties between Uzbekistan and other countries to avoid double taxation and optimise tax payments.
(3) Regulatory and miscellaneous
3.1. What are the general data protection and privacy requirements in the country, and how do they affect company operations?
According to the Law "On Personal Data" No. ЗРУ-547 dated July 2, 2019, a legal entity processing the personal data of citizens of the Republic of Uzbekistan using information technology must ensure the collection, systematisation, and storage of data on technical means physically located in the territory of the country and registered in the State Register of Personal Data Bases.
The confidentiality of personal data is mandatory to be observed by the owner and/or operator or any other person who has access to the data. Disclosure and dissemination of personal data without the consent of the subject or other lawful basis are prohibited.
Violation of these rules may lead to administrative and legal consequences, including fines and loss of trust from clients.
3.2. What labour law features should be considered when hiring local and foreign employees?
When hiring local and foreign employees, it is necessary to consider the following provisions of the Labour Code:
1. All workers, regardless of their citizenship, must conclude an employment contract with the employer. The contract should include terms of work, remuneration, work schedule, vacations, and other rights and obligations of the parties. Conclusion of a civil law contract actually regulating labour relations is prohibited;
2. The state annually establishes the minimum wage, and the monthly salary of an employee cannot be set below the minimum wage. The amount of the minimum wage from December 1, 2023 is UZS 1 050 000 per month;
3. Employer should keep records of overtime work, which is paid at least double time;
4. Employers are required to ensure the confidentiality of the personal data of all employees;
5. When hiring foreign workers, additional requirements related to obtaining work and residence permits must be observed, as well as compliance with immigration laws and regulations.
There is a special procedure for the attraction of foreign employees for work in Uzbekistan, requiring the foreign employee of the company to obtain a work permit. Generally, a work permit is issued for the period of up to one year.
3.3. What are the requirements for currency regulation and currency control?
In recent years, the legislation of Uzbekistan in the field of currency regulation has been reformed by taking measures to improve foreign exchange policy and foreign trade activities, which contributed to attracting foreign investment into the country's economy, increasing export potential, sustainable development of modern, export-oriented industries, as well as small businesses and private entrepreneurship. Thus, at the moment there is a free regime for the circulation of foreign currency in Uzbekistan, subject to some restrictions.
The main body of state currency regulation is the Central Bank of the Republic of Uzbekistan, which, in turn, within the limits of its powers, determines the rules for carrying out currency transactions, establishes the procedure for monitoring currency transactions carried out by residents and non-residents, including with currency control authorities, etc.
Please note that tariffs, prices for goods (work, services), including on national electronic trading platforms, as well as requirements for the size of authorised funds (authorised capital) of legal entities on the territory of the Republic of Uzbekistan are determined exclusively in the currency of the Republic of Uzbekistan.
Moreover, it is not allowed to link prices for goods (work, services) sold on the territory of the Republic of Uzbekistan to foreign currencies and conventional units.
3.4. What corporate law features should be considered when planning mergers, acquisitions, and company restructuring in the country?
Notification of the media and creditors
In accordance with the LLC Law, merger, consolidation, division, separation and transformation of a legal entity are forms of reorganisation. As a general rule, a company is considered reorganised, except in cases of reorganisation in the form of absorption, from the moment of state registration of legal entities created as a result of reorganisation.
After adoption of the decision on reorganisation, the company must notify in writing all creditors of the company known to it and publish in the mass media an announcement of the decision.
Antimonopoly authorization
The Republic of Uzbekistan strictly regulates competition relations related to control and suppression of actions that lead or may lead to restriction of competition on commodity or financial markets and exercises state control over economic concentrations.
In case of reorganisation of an economic entity by means of merger, acquisition or acquisition, the provisions of the Law of the Republic of Uzbekistan "On Competition" No. ЗРУ-850 dated July 3, 2023, in certain situations, require prior consent from the antimonopoly body of the Republic of Uzbekistan. An applicant may be denied preliminary consent if the granting of an application for preliminary consent to economic concentration may result in the emergence or strengthening of a dominant position of the relevant business entity or group of entities on a commodity or financial market and (or) restriction of competition
3.5. What are the most efficient mechanics for dispute resolution?
The main method of dispute resolution is dispute settlement through negotiations between the parties, which is reflected in the Economic Procedural Code of the Republic of Uzbekistan (hereinafter referred to as "EPC RUz"). According to Article 148 of the EPC RUz, a case may be initiated in court only after the parties have taken measures for voluntary settlement of their relations, including the claim procedure for dispute settlement. Also, Article 63 of the Law on Investments mentions negotiation as the primary method of dispute resolution. In case the parties to an investment dispute are unable to reach an agreed settlement through negotiations, such dispute shall be settled through mediation. However, the most common way is judicial settlement of disputes by applying to the competent court of the Republic of Uzbekistan. Uzbekistan has a system of civil, administrative and economic courts.
When disputes arise with foreign counterparties, the parties may also apply to arbitration courts to settle disputes. Currently, Tashkent International Arbitration Center (TIAC) and International Commercial Arbitration Court under the Chamber of Commerce and Industry of the Republic of Uzbekistan (ICAC under the Chamber of Commerce and Industry of the RUz) operate in Uzbekistan.
Authors: