Other Insights

31.05.2024

Incentives for investors in Uzbekistan

To conduct business in the Republic of Uzbekistan, an investor needs to create a business entity. Business entities with the participation of foreign capital may be created in any organizational and legal form that is not prohibited by the legislation of the Republic of Uzbekistan.

29.12.2023

Microfinancing environment in Uzbekistan

Within the meaning of Article 5 of the Law “On non-bank credit organizations and microfinance activities” No. 765 adopted on 20 April 2022 [https://lex.uz/uz/docs/5972413] (hereinafter – “the Law”) microfinancing organizations are allowed to provide following serviсes which are considered as microfinancing activities:

28.10.2021

The procedure for conclusion of Public Private Partnership Agreement in Uzbekistan

Under the Law “On Public-Private Partnership” No. 527 dated 10.05.2019 (hereinafter – the “Law”) public-private partnership (hereinafter – the “PPP”)

31.05.2024

Review of the Law of the Republic of Uzbekistan “On Investments and Investment Activities”

Review of the Law of the Republic of Uzbekistan “On Investments and Investment Activities”

The Law of the Republic of Uzbekistan “On Investments and Investment Activities” dated December 25, 2019, No. ZRU-598 (hereinafter – the “Law”) is developed as a normative act systematically combining the norms contained in the Laws “On Foreign Investments”, “On Investment Activities” and “On guarantees and measures to protect the rights of foreign investors.” The last three laws are not in force anymore.

The Law reflects new forms of investment that was not provided in previous laws, particularly copyrights, patents, trademarks, utility models, industrial designs, trade names, know-how, business reputation, goodwill.

A business reputation (goodwill) is an intangible benefit, which is an assessment of the activities of the individual and business entity in terms of its business skills. Business reputation is expressed as the difference between the business’s purchase price and the price of its equities. Goodwill is used in accounting to reflect the market value of the company deducing the net book value of equity.

Guarantees of the rights of subjects of investment activity.

One of the attractive aspects of the Law is a guarantee against unfavorable changes in the legislation for the investors. The law establishes that legal acts, worsening the investment activities do not apply to the investors for 10 years from the date of investment. At the same time, the investor is authorized to apply the provisions of the new legislation that improve its investment conditions. This guarantee previously existed in the various bylaws and was restricted in law enforcement and subjects, i.e. it could be applied by newly established enterprises with foreign investments concerning the taxes and other obligatory payments, worsening the conditions of the investor's business activities.

It is worth emphasizing that the guarantee against adverse changes in the legislation applies in the following cases:

the introduction of norms that complicate the repatriation procedure or reduce the amount of investor income (profit);
the introduction of quantitative or other restrictions on the size of investments;
the introduction of restrictions on the equity participation of a foreign investor in the authorized capital;
complications of procedures for issuing and renewing visas of foreign investors;
and the introduction of any additional requirements for performing investment activities.

Incentives and benefits.

The Law reflected new types of state benefits in the form of an investment tax credit and investment subsidy.

Investment tax loan (ITL) is a form of change in the tax payment deadline for a specified period, during which the investor may reduce the amount of tax that is due for payment, followed by a gradual repayment of the loan amount and accrued interest under the Tax Code of the Republic of Uzbekistan. However, the ITL is not yet added to the new Tax Code of the Republic of Uzbekistan. Therefore, the order of its application remains vague.

Investment subsidy (IS) - financial assistance provided by the Government in the form of tax and customs privileges, or the construction of external engineering networks and communications connected to the object of investment activity. The application for obtaining IS shall be submitted to the Government by the Ministry of Investment and Foreign Trade depending on the results of the joint review of the investor’s application with the Ministry of Finance. It is assumed that the procedure for providing IS will be regulated by a separate regulation of the Cabinet of Ministers or the Ministry of Finance.

The Law is enriched by a new chapter establishing the order and conditions of concluding the investment agreement with the Government of the Republic of Uzbekistan, as well as the procedures for termination of such agreement. These and other questions of the conclusion of the investment agreement will be considered separately.

Investment activity of residents of the Republic of Uzbekistan abroad. Another novelty in the Law was enabling the individuals and business entities - residents of the Republic of Uzbekistan, and not just enterprises with foreign investments, to carry out investment activities outside the Republic of Uzbekistan in the form of:

creation of companies with the participation of investments of individuals and business entities - residents of the Republic of Uzbekistan, as well as subsidiaries, branches, representative offices and other separate divisions in compliance with the requirements of the legislation of a foreign state;
acquisition of property or property rights;
in any other form that do not contradict the legislation of foreign states and the relevant international treaties of the Republic of Uzbekistan.

Specifics of such investment activity, their relevance to operations related to the movement of capital, and other special conditions will be considered in our other articles.

Dispute Resolution

Unlike the previous version, the Law establishes a rather peculiar method of multi-tiered dispute resolution. In case of failure to reach an agreed resolution of the disagreement through negotiations, the dispute shall be resolved through mediation. The mediation in Uzbekistan has not yet become a popular way for resolving disputes due to two factors: first, the relatively recent legitimization of this method (the Law on Mediation was adopted on July 3, 2018, No. ZRU-482); second, mediation is not an effective enforcement mechanism in Uzbekistan.

Further, in case of failure to reach consensus through mediation, the dispute should be resolved through litigation. Now, the state courts have preliminary jurisdiction over disputes arising from investment agreements. The state courts review the dispute under the legislation of the Republic of Uzbekistan and make a decision, which can be appealed in the higher courts of the judicial system of the Republic of Uzbekistan.

Finally, if the investment dispute was not yet settled and the parties have exhausted all other methods established by the Law, then they may file a final suit for international arbitration. Article 67 of the Law states “if it is impossible to resolve investment disputes in the manner prescribed by the first and second parts of this article (through negotiation, mediation, and adjudication), such a dispute can be resolved through international arbitration, if an international treaty of the Republic of Uzbekistan ( BIT ) and (or) the agreement concluded between the investor and the Republic of Uzbekistan, provides for a corresponding and valid arbitration clause. ”