Tax Implications of Bankruptcy in Uzbekistan

1) What taxes are due during bankruptcy proceedings?

During bankruptcy proceedings, all types of taxes and mandatory payments that a legal entity pays before the bankruptcy procedure must be paid. 

Tax legislation provides for the following types of taxes to be paid by both legal entities and individuals:

1) value added tax (VAT);

2) excise tax;

3) corporate income tax;

4) personal income tax;

5) tax for subsoil use;

5-1) special rent tax for the extraction of minerals;

6) tax for the use of water resources;

7) property tax;

8) land tax;

9) social tax.

2) What happens to outstanding tax liabilities during bankruptcy proceedings?

During bankruptcy proceedings, all taxes and mandatory payments applicable to a legal entity are accrued continuously. 

However, from the moment the court decides to declare the debtor bankrupt and commence liquidation proceedings:

• the due date for the fulfillment of all monetary obligations of the debtor, as well as deferred obligations for taxes and fees of the debtor shall be deemed to have occurred;
• accrual of penalties (fines, fines) and interest on all types of the debtor's debts ceases;
• the accrual of property tax, land tax, as well as penalties and fines on previously accrued and uncollected tax and levy obligations is suspended;
• part of the proceeds from the sale of the debtor's property used to repay the debt is exempt from value added tax and income tax.

3) Are the founders (shareholders) of the bankrupt enterprise liable for the tax debts on a subsidiary basis?

Yes, founders (shareholders) may bear subsidiary liability for the company’s tax debts if it is proven that their actions or inactions led to bankruptcy. This may include cases where the founders abused their rights or engaged in actions aimed at transferring the company’s assets.

4) What are the tax consequences of the sale of the bankrupt's assets?

When selling the property of a bankrupt entity, from the moment the court decides to declare the debtor bankrupt and initiates liquidation proceedings, the portion of the proceeds from the sale directed towards debt repayment is exempt from value-added tax and income tax. In particular, a legal entity recognised as bankrupt will be exempt from paying VAT and income tax on the sale of property if such sale is made for the purpose of debt recovery.

5) What tax risks do purchasers of the bankrupt's assets face?

There are three (3) main risks associated with the purchase of bankruptcy property:

1. Considering that from the moment a legal entity is recognised as bankrupt and liquidation proceedings commence, a part of the proceeds from the sale of the debtor's property to repay debts is exempt from value added tax, this in turn will lead to a break in the VAT chain. In particular, the purchaser of the bankrupt's property is deprived of the rights to a VAT credit for the purchased property;

2. If the bankrupt's property has not yet been customs cleared, the purchaser may run the risk of paying mandatory customs duties when acquiring it;

3. If the purchaser acquires excisable goods from a bankrupt, the risk of excise tax payment may also arise due to non-payment of excise tax by the bankrupt.

Author: Shokhrukh Ilkhomov