Land rights for foreign investors in Uzbekistan

1) Can a foreign company/foreigner acquire land in the host country, and what forms are permitted: ownership, long-term lease, sublease, servitude?

According to Articles 17 and 18 of the Land Code of the Republic of Uzbekistan, foreign citizens and legal entities, stateless persons, and enterprises with foreign investments may only own land plots on a leasehold basis, with the exception of land plots used by diplomatic missions and equivalent international organizations accredited in the Republic of Uzbekistan.

2) Are there restrictions on land categories (agricultural/non-agricultural, border areas, strategic plots, coastal zones) and on size/duration of ownership/use?

Legal entities and individuals acquire ownership rights to land plots through the privatization of non-agricultural land plots. In accordance with the Law “On the Privatization of Non-Agricultural Land Plots” No. ZRU-728 of November 15, 2021, the following land plots are not subject to privatization:

• those on which mineral deposits are located;
• are part of nature conservation, health, recreational, and historical and cultural areas, as well as forest and water funds, public use areas of cities and towns (squares, streets, driveways, roads, embankments, squares, parks, alleys, boulevards);
• on which state-owned objects are located that are not subject to privatization in accordance with the law;
• contaminated with hazardous substances and subject to biogenic contamination;
• provided in accordance with the procedure established by law to participants in special economic zones — for the period of operation of the special economic zone;
• on which apartment buildings are located, as well as land plots adjacent to apartment buildings;
• provided for the implementation of public-private partnership projects, social partnership agreements and contracts, as well as to legal entities for public needs.

Foreign citizens, stateless persons, foreign legal entities, enterprises with foreign investments, as well as state bodies, institutions, enterprises, and self-government bodies of citizens are not subject to privatization.

Land plots are leased by the Cabinet of Ministers of the Republic of Uzbekistan to enterprises with foreign investment, international associations and organizations, foreign individuals and legal entities for a period of up to 25 years.

3) How is land due diligence conducted: boundaries, cadastre, encumbrances, servitudes, disputes, mortgages, designated use, environmental and urban planning restrictions?

Due diligence is aimed at conducting a comprehensive check of the legal status of a land plot and the real estate objects located on it. 

The analysis covers:

• title documents and the legality of the establishment of rights;
• data from the state cadastral register, including the boundaries, area, and intended use of the plot, as well as the status of the real estate objects located on the plot;
• compliance of the use of the land plot with the requirements of land and urban planning legislation;
• the existence of encumbrances, prohibitions, and other restrictions.

4) Is it possible to change the designated use of land (re-zoning) for the project, what is the process, timing, risks of refusal, and possible appeals?

The transfer of land from one category of the land fund to another is carried out in cases of changes in the main intended use of land by the hokims of the regions and the city of Tashkent, with the exception of the transfer of agricultural land to another category of the land fund. The transfer of non-irrigated land from the agricultural land category to another category of the land fund is carried out in exceptional cases by decision of the Cabinet of Ministers of the Republic of Uzbekistan, taking into account soil and reclamation conditions, economic conditions, water supply to the land, as well as the availability of water resources and limits on them. This requires an order from the President of the Republic of Uzbekistan and the conclusions of the Ministry of Agriculture of the Republic of Uzbekistan, the Ministry of Water Resources of the Republic of Uzbekistan, and the Cadastre Agency under the Ministry of Economy and Finance of the Republic of Uzbekistan. Each authority shall, within one month, submit its opinion on the advisability or inadvisability of implementing the proposed proposal, which shall be submitted to the President of the Republic of Uzbekistan for consideration every six months, together with the draft decree.

However, in the following cases, the transfer of land to another category may be refused:

• when transferring fertile irrigated land of special value, with soil productivity above the average for the region, to another category;
• when transferring forest land from the forest fund;
• when proposals are made to change the category of land provided for use that is not included in the reserve of the district hokimiyat.

Rejected proposals to change the category of land shall not be subject to reconsideration.

5) What mechanisms exist to protect rights: registration of title, title insurance (if available), contractual penalties, international arbitration, investment agreements/stabilization clauses?

In the Republic of Uzbekistan, any right to real estate, its transfer, restrictions, and encumbrances are subject to state registration.

For additional protection of the legitimate interests of the acquirer of rights to a land plot, the contract (lease, deed, sale and purchase of a privatized land plot) may provide for guarantees of the parties, contractual penalties, the procedure for terminating the contract, along with conditions for collateral and contract extension.

In the event of unresolved issues with the land plot between the parties, disputes concerning real estate (land plot) in the territory of the Republic of Uzbekistan or rights thereto shall be subject to the exclusive jurisdiction of the courts of the Republic of Uzbekistan, including cases involving foreign persons.

Furthermore, foreign investors are guaranteed the application of the legislation in force on the date of investment if subsequent legislation of the Republic of Uzbekistan worsens the investment conditions. Legislation shall not have retroactive effect in cases where its enforcement causes damage to the investor or investments.

In cases of expropriation of land for public needs investors are guaranteed adequate compensation.

6) What are the tax and payment aspects: land tax, lease payments/indexation, VAT/profit tax on disposal, incentives for priority investment projects, transfer pricing in land transactions?

The Tax Code of the Republic of Uzbekistan stipulates that payments to the budget for the use of land plots are made in the form of land tax or land rent. Tax rates and indexation vary depending on the region in which the land plot is located. The value-added tax (VAT) rate in Uzbekistan is set at 12%.

Tax incentives

Tax incentives for investment projects based on investment or other equivalent agreements may be provided in the form of exemption from land tax, property tax, and water resource tax, depending on the type of project and the amount of direct foreign investment made.

Transfer pricing

Transfer pricing means the formation of commercial and/or financial conditions and/or results of activities of related parties that differ from the conditions and results that would have been obtained in comparable economic conditions by independent persons.

In accordance with Article 177 of the Tax Code, the State Tax Committee of the Republic of Uzbekistan, within the framework of tax control over transfer pricing, verifies the completeness of the calculation and payment of the following taxes:

   1. income tax;
   2. personal income tax;
   3. subsoil use tax;
   4. value added tax;
   5. excise tax.

With regard to VAT, tax control over transfer pricing is exercised if one of the parties to the transaction is a legal entity or individual entrepreneur who is not a taxpayer of the relevant tax.

Tax control over transfer pricing may also be exercised in relation to transactions between participants in special economic zones and persons who are not such participants.

Authors: Bakhodir Karimov, Sitora Kozimjanova.