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Changes in Taxation
Below is the brief summary of the most important updates, which will take place as of 1 January 2008.
Major changes in legislative acts
The major change in the legislation as of 1 January 2008 is the introduction of the new Tax Code of Republic of Uzbekistan.
Another important document effective as of 1 January 2008 is the Presidential Resolution No.1111-744 of 12 December 2007 (hereinafter referred to as “Resolution 744”), which updated rates for certain taxes and obligatory payments.
Below we outline the most notable changes enforced by these two legislative acts.
General
The new Tax Code shall be deemed the primary document to prevail over all other tax related legislative acts. It now contains provisions that in the past were covered by regulation documents of the Ministry of Finance, the State Tax Committee and other state agencies. In this regard, we expect that a number of regulation documents will soon be abolished.
Corporate income tax
The new Tax Code has combined the corporate income tax (CIT) provisions set previously by the respective Instruction and Regulation on production cost composition. Thus, the taxable base has been defined in more details.
As per the Resolution 744, the general CIT rate for 2008 remains 10% consistent with the previous year. The CIT rate for commercial banks is reduced from 17% in 2007 to 15% in 2008, provided that the resulted saving is utilised for increasing the banks’ ‘equity ratio’.
Consistent with 2007, reduced rates are available to enterprises exporting goods (works, services) of own production for freely convertible currency, provided that the export share criteria are met.
Taxation of non-residents
Foreign legal entities (non-residents) carrying on activities in Uzbekistan via a permanent establishment (PE) are subject to CIT at 10% in 2008. Taxable base for non- residents acting via PEs is similar with the one set for Uzbek legal entities; however, the list of nondeductible expenses is expanded to include royalty and other payments for the use of assets or intellectual property of the non-residents; service commission fees; interest on loans provided by the non-residents; expenses not related to the PEs’ activity; expenses not supported by appropriate documents; management or administration costs incurred by the non- residents outside of Uzbekistan.
Non-residents acting via PEs are also subject to the net profits tax which is assessed at 10% on profits retained after the payment of CIT.
As regards non-residents whose activities have not lead to PE creation in Uzbekistan, the taxation principles have remained consistent with the previous years. There is one notable provision though, stating income which is not subject to taxation in Uzbekistan (as income not related to sources in Uzbekistan): income of non-residents received from import-export of goods; income from provision of services related to opening and maintaining correspondent bank accounts including banks transfers and settlements with international payment cards; income from provision of services outside of Uzbekistan.
Unified tax payment
As per the Resolution 744, the unified tax payment rates for 2008 are set as follows:
Micro firms and small enterprises producing excise-liable goods or extracting minerals are no longer subject to unified tax payment; those are the payers of the standard set of taxes.
VAT
The most notable change in the value added tax procedures is the place of sale criterion re-applied when determining taxable turnover. Thus, provision of services or sale of goods where place of sale is outside of Uzbekistan would not be deemed VAT-able turnover. While it is quite obvious for goods, place of sale in respect of services can be different depending on the type of services provided.
Personal income tax
As per the Resolution 744, the 2007 personal income tax rates remain unchanged. However, size of the first bracket is increased from 5 to 6 times of the minimum annual wage
Taxation of subsurface users
Subsurface users, except for those operating under production sharing agreements, are subject to the following three taxes:
Subsurface use tax. The payers are both the legal entities extracting minerals and legal entities processing minerals. The taxable base for this tax would be the value of extracted (processed) minerals. The rates differ depending on the type of minerals extracted. The complete list of rates is available in our office.
Excess profits tax. The payers are subsurface users extracting/producing: cathode copper, cement, polyethylene granules and natural gas. The taxable base is the difference between the price set by legislation (stipulated by the Resolution 744) and the selling price. The tax rates are 60% for cathode copper and 75% for cement, polyethylene granules and natural gas.
Signing and commercial exploration bonuses. It is a one-off payment for subsurface users. The taxable base is the value of extracted minerals based on the price set at the stock exchange.
Excise tax on excise-liable goods produced in Uzbekistan
Certain excise tax (on petrol, diesel, jewellery, UzDaewoo Cars, natural gas) rates have been slightly changed.
Pension fund obligatory contribution from turnover
As of 1 January 2008 the rate of the contribution to the Pension fund from turnover is set at 1%. In the previous years this rate was 0.7%.
Water use tax and land tax
As of 1 January 2008 the rates for water use tax and land tax have been indexed by 1.2 times compared to the 2007 rates.
Fuel consumption tax from individuals
As of 1 January 2008 the fuel consumption tax rate is increased from UZS 80 per litre to UZS 100 per litre.
Unified customs payment
As of 1 January 2008, unified customs payment previously paid by individuals importing goods in Uzbekistan is no longer applicable. Instead these individuals would be subject to a standard set of customs payments.
Other changes
According to the new Tax Code PEs would be subject to the following taxes (in addition to CIT):
property tax in respect of fixed assets related to their activities, which are recorded in their accounting as per the Uzbek accounting laws, and real estate they own. Non-residents which do not have PEs in Uzbekistan would charge Uzbek property tax on real estate they own which is located in Uzbekistan. Given that the bolded phrase is not added to the PE taxable property definition, it can be that PEs would be taxed on their property worldwide;
land tax in respect of land plots they have in ownership, possession or use.
These taxes would also be payable by foreign individuals in respect of real estate and land plots, respectively, which is in their ownership and located in Uzbekistan.
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