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Spotlight on Uzbekistan: Kinstellar's regular look at the Uzbek market

January 2020 – Kinstellar’s regular look at the Uzbek market.

Law “On Investments and Investments Activities”

On December 11th the President Mirziyoyev signed the law “On Investments and Investment Activities” (the “Law”). The Law consolidated, inter alia, a number of legislative acts including the law “On Foreign Investments”, the law “On Guarantees and Measures of Protection of the Rights of Foreign Investors”, and the law “On Investment Activities”.  The new Law will enter into force on January 26, 2020.

The Law creates a comprehensive mechanism for regulation and protection of foreign and local investments, and covers a broad scope of matters, including guarantees for investors, state policy in regulating investment activities, rights and obligations of investors, regulation of investment agreements, and others.

The Law addresses contemporary issues faced by local and foreign investors. It reconfirms the commitment of Uzbekistan to protect rights of foreign investors by providing investor-favourable provisions in cases of conflicts with other legislation, the right to repatriate income, and by providing protection for investors from adverse changes in legislation and for the return of foreign investments in cases of termination of investment activities.

Another important aspect of the newly introduced Law was establishment of the procedure for the conclusion, execution and termination of investment agreements. The Law prescribes clear requirements for the terms of investment contracts, as well as additional rights and obligations of the parties.

In addition, the Law regulates such issues as attraction of foreign labour, freedom of movement, rights of foreign investors to insure their business in Uzbekistan, as well as rights and obligations of entities with foreign investments.

Law “On Investments and Investments Activities” No. ZRU-598 of 25.12.2019

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New Tax Code

New Tax Code (the “Code”) entered into force on January 1, 2020. The new Code considerably transforms the regulatory legal framework of taxation.

New Code introduces a mechanism of settling the tax disputes in the pre-trial procedure, establishes liability measures depending on the type of tax violation, strengthens the responsibility of tax authorities, provides a mechanism for refund of excessively collected tax.

Besides, provisions addressing the value added tax (VAT) have been improved in order to address the present-day challenges faced by businesses, alongside with the amendments to articles on income tax, and inaccuracies in the “economic feasibility” of expenses.

New tax reporting forms are planned to be introduced shortly in order to reflect the changes in the Code. In addition, the Code provides that all invoices should be issued electronically.

Certain types of products, services, as well as land and water tax rates are no longer included into the Code. For example, the rates for alcoholic beverages will be regulated by a Law “On State Duty” (to be adopted later), whereas excise tax, land tax, water tax rates, minimum rental rates for individuals leasing property, fixed income tax rates for individuals for individual entrepreneurs are regulated by the Law "On the State Budget of Uzbekistan for 2020".

Bonuses for subsoil users (subscription bonus and commercial discovery bonus), which are special payments, are transferred from the Tax Code to the Law “On Subsoil”.

At the same time, benefits on taxes and other obligatory payments, as well as reduced tax rates provided by the previous edition of the Tax Code remain valid until April 1, 2020; and the benefits provided by the decisions of the President of the Republic of Uzbekistan and the Cabinet of Ministers of the Republic of Uzbekistan, remain valid until their expiration.

Law on “Changes and Additions to Tax Code of the Republic of Uzbekistan” No. ZRU-599 of 30.12.2019.

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Transformation of the Largest State-Owned Bank into Joint-Stock Company

On November 30th, 2019, President Mirziyoyev signed a Decree “On Measures to Transform State Unitary Enterprise “National Bank for Foreign Economic Activity of the Republic of Uzbekistan” into a Joint Stock Company” (the “Decree”).

According to Decree, the National Bank for Foreign Economic Activity of the Republic of Uzbekistan (“NBU”) is to be transformed from state unitary enterprise into a joint-stock company. Ministry of Finance and Fund of Reconstruction and Development of the Republic of Uzbekistan were named as founders and shareholders of the bank.

The Decree prescribed new tasks for the NBU, which include active lending to large investment projects in prioritised sectors of the economy; introduction of innovative financial products; provision of banking services to small businesses and private entrepreneurship, as well as providing financial advice and information support on matters of foreign trade; development of retail banking services for the population; development of new services and expansion of  trade and export financing, supporting programs for improvement of export potential of Uzbekistan; provision of investment banking services to corporate clients, including the issuance and placement of securities in the domestic and foreign markets.

Presidential Decree “On Measures to Transform State Unitary Enterprise “National Bank for Foreign Economic Activity of the Republic of Uzbekistan” into a Joint Stock Company” No.PP-4540 of 30.11.2019.

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Presidential Decree “On Measures to Improve the System of Organizing and Conducting Exploration Works for Oil and Gas”

A Presidential Decree “On Measures to Improve the System of Organizing and Conducting Exploration Works for Oil and Gas” was adopted in November 2019, with a majority of provisions to enter into force in January 2020.

Pursuant to the Decree, the State Committee for Geology in concurrence with the Ministry of Energy, Ministry of Economy and Industry and the Ministry of Finance will develop and approve annual state programs for the development and reproduction of the mineral resource base of oil and gas. Such programs will include the implementation of international standards for the exploration works, and involve leading foreign consulting companies and experts.

A number of state unitary enterprises, which are part of State Committee for Geology, should be reorganized into Joint Stock Companies or Limited Liability Companies until July 1, 2020. The shares of reorganised entities will be transferred to the State Assets Management Agency.

Starting from January 1, 2020, the provision of subsoil plots containing strategic types of mineral resources specified in the resolution of the President of the Republic of Uzbekistan of No. PP - 3000 “On measures to accelerate the attraction of foreign investment in the geological exploration and development of deposits of strategically important types of solid minerals” dated May 24, 2017, is carried out on the basis of auction, that ensures the transparency of licensing; the initial cost of the right to use subsoil plots is determined in the amount of the subscription bonus rate - for geological exploration and the commercial discovery bonus rate - for mining. At the same time, the initial cost of the right to use subsoil plots should not be lower than the amount of expenses incurred by the State Committee for Geology for the exploration works.

The conclusion of investment agreements for field developments of strategic minerals is conducted after the evaluation of geological objects, preparation of tender documentation and holding a tender. All these steps should transparent, with the involvement of independent consultants, auditors and technical support from international organizations and financial institutions.

State Committee for Geology is now responsible for coordinating and implementing investment projects in the field of geological study of oil and gas sights, and involves potential foreign investors to such projects. However, of existing projects of JSC Uzbekneftegaz are exempted from this legislation.

Presidential Decree On Measures to Improve the System of Organizing and Conducting Exploration Works for Oil and Gas” No.PP-4522 of 18.11.2019.

For further information, please contact Joel Benjamin, the Managing Partner of the Central Asia practice of Kinstellar, at

e-mail

or Muborak Kambarova, a Counsel in our Tashkent office, at .