Review of significant changes in taxation for 2023 in Uzbekistan

Changes in taxation for 2023 in Uzbekistan

VAT.

1. From January 1, 2023, the tax rate is reduced from 15% to 12%. The period of in-house tax audits on the validity of the amount of VAT is reduced from 60 to 30 days.
2. From April 1, 2023, the following VAT exemptions are excluded:

• geological services provided within the framework of the annual state development programs and reproduction of the mineral resource base funded by the state budget;
• turnover of the sale of postage stamps marked postcards and envelopes;
• turnover of the realization of the research and innovative work for budget funds account.

3. From July 1, 2023 exemptions provided for the services of the National Guard security units are excluded.
4. Public authorities and management may become VAT taxpayers based on the decision of the President or the Cabinet of Ministers.
5. From January 1, 2023, the amount of tax paid (payable) on goods (services) actually received, which is not accepted for offset due to the suspension of the certificate, in the event of renewal of the certificate, is subject to adjustment (offset) both for the taxpayer and its buyers for the period in which the certificate was suspended.
6. Taxpayers, who are registered with the Interregional State Tax Inspectorate as large taxpayers, may set off VAT amounts, that are subject to reimbursement from the budget, against VAT when importing goods. VAT set Off will be made by tax and customs authorities  The taxpayer - a participant in foreign economic activity, when registering a customs declaration, must make a note on the payment of VAT on imports at the expense of the amount subject to reimbursement.

Excise Tax.

1. From February 1, 2023, excise tax rates for petroleum products, as well as for alcohol and tobacco products, are indexed (increased) by 10%.
2. January 1, 2023 excise tax rates:
   1. on the production of alcoholic products (except low-alcohol drinks) is calculated based on the share of ethyl alcohol contained in excisable products. At the same time, the unit of measurement for the produced alcoholic products is “liter” (previously dall”).

• In 2022, the excise tax rate on vodka, cognac, and other alcoholic products was set at 138,000 soums per 1 dal (or 13,800 soums per 1 liter).
• In 2023, the excise tax rate for these products is set at 34,500 soums per 1 liter of anhydrous ethyl alcohol contained in excisable goods. For example, the share of ethyl alcohol in vodka is 40%, the amount of excise tax per 1 liter will be 13,800 soums (34,500 soums x 40%), and from February 1, 2023 - 15,200 soums (38,000 soums x 40%).

1. on rectified ethyl alcohol from food raw materials, rectified ethyl alcohol from the ether-aldehyde fraction, and the head fraction of ethyl alcohol will increase by 5 times and will amount to 7,450 soums per 1 liter.
2. on the import of alcohol and tobacco products will be reduced by 5%.

Income Tax.

1. Profits from the sale of goods (services) for export are subject to taxation at a zero rate, regardless of the share of export income in total income since November 1, 2022. At the same time, such a rate will not be applied to profits received from the provision of services to non-residents of Uzbekistan from January 1, 2023.
2. The right to reduce the income tax rate by 50% is granted to the following categories of taxpayers:

• taxpayers who switched to paying income tax for the first time after September 1, 2022 - within one tax period following the year in which the taxpayer switched to paying tax, provided that the tax period, in which the reduced tax rate is applied, the total income of the taxpayer did not exceed ten billion soums;

At the same time, these taxpayers have the right to determine the tax base in a simplified manner in the amount of 25% of total income.

Ex. The taxpayer switched to paying income tax on October 1, 2022 (i.e. after September 1, 2022). In this case, the taxpayer during 2023 (one year) is entitled to pay income tax at a rate of 7.5%, provided that in 2023 his total income did not exceed 10 billion soums.

• taxpayers, whose total income during the current tax period after September 1, 2022, exceeded ten billion soums for the first time - during the current and subsequent tax periods, provided that the total income did not exceed a hundred billion soums.

Ex. The total income of the taxpayer for the first nine months of 2023 exceeded ten billion soums for the first time. The taxpayer pays income tax at a rate of 7.5% for all of 2023 and applies a reduced rate (7.5%) in 2024 (2 years) if its total income in 2023 or 2024 does not exceed a hundred billion soums.

The reduced tax rate does not apply on tax for the use of subsoil and excise tax, as well as in the event of liquidation of the taxpayer, and (or) detection of facts of division (splitting) of income from the sale of goods (services) of the taxpayer between two or more business entities, who split the income to apply reduced tax rates.

3. Since stripping works carried out at mineral deposits are carried out for the future, they are transferred to a separate group of depreciation assets. These expenses shall be deducted from the total income of the taxpayer in the form of depreciation deductions by applying the depreciation rate for this depreciable asset, but not more than 33% of the amount of accumulated expenses per year.
4. In 2022, the net profit remaining at the disposal of a non-resident working through a permanent establishment, after payment of tax, was treated as dividends and was subject to taxation at a tax rate of 10%. It was clarified that a non-resident is now entitled to apply the reduced tax rate provided for by the international treaty on income in the form of dividends. If an international treaty on taxation of income in the form of dividends provides for several reduced tax rates, the lowest of them is applied.
5. From January 1, 2023, under a foreign trade contract for the purchase (sale) of equipment, which provides for installation and (or) commissioning services and other similar services by a non-resident, if the cost of the services provided is not indicated separately, then the taxable income of a non-resident is determined based on the market value of such services (previously - 20% of the cost of equipment).
6. From January 1, 2023, a taxpayer may submit a certificate on the amount of advance payments for income tax by the 15th day (previously the 10th day) of the first month of the next quarter, based on the expected amount of profit in the current quarter.

Sales Tax.

1. Turnover tax rates are unified by setting a single rate of 4% for all categories of taxpayers.

At the same time, reduced tax rates for enterprises located in hard-to-reach and mountainous areas remain at 1%, in other settlements – at 2% (including e-commerce), and in cities with a population of 100,000 people or more – at 3%.

2. VAT payers may voluntarily choose to pay the tax in a fixed amount. At the same time, if the total income does not exceed 500 million soums, the right to choose to pay a tax in a fixed amount of 20 million soums per year is granted, if the total income exceeds 500 million soums - 30 million soums per year.
   • Tax in a fixed amount is paid monthly in equal installments no later than the 15th day of the month following the calendar month.
   • To switch to the payment of this tax, the taxpayer must notify the tax authority at the place of tax registration no later than 10 days before the beginning of the next month. Considering that this rule comes into force on January 1, 2023, taxpayers switching to paying tax for the first time in a fixed amount can submit a notification to the tax authorities no later than January 25, 2023.
   • Newly created taxpayers have the right to choose to pay tax in a fixed amount upon state registration.
   • Cancellation of the payment of the tax in a fixed amount can be made from the beginning of the next tax period.
   • When switching to paying tax in a fixed amount during the tax period, the amount of tax is determined by dividing the fixed amount by twelve and multiplying the result by the number of months remaining until the end of the current tax period.
   • If during the tax period, the total income of a taxpayer of a tax in a fixed amount exceeds 500 million soums, then the amount of tax in a fixed amount is recalculated starting from the month of its excess until the end of the current tax period based on the tax rate established for taxpayers with a total with an income of over 500 million soums.
   • When switching from paying tax in a fixed amount to paying VAT and income tax during the tax period, the amount of tax in a fixed amount is subject to payment, taking into account the last calendar month in which the transition to the payment of these taxes was made.
   • Dividends paid to VAT payers in a fixed amount are not subject to income tax and personal income tax.
   • At the same time, when switching to VAT payment on a voluntary or mandatory basis, such taxpayers are not granted the right to offset VAT on the balance of goods purchased with VAT.
3. Taxpayers, including newly created legal entities and individual entrepreneurs, whose total income during the tax period exceeded a billion soums, are transferred to the payment of VAT and income tax from the day the specified amount of total income is reached.

Personal Income Tax and Social Tax.

1. For personal income tax, the amount of non-taxable income increases from 15 million soums to 80 times the minimum wage (or 73.6 million soums) when individuals direct their income to repay mortgage loans along with the exclusion of the requirement for the cost of housing (today 300 million soums).
2. From April 1, 2023, personal income tax benefits in terms of income directed to pay for long-term life insurance will be excluded.
3. Personal income tax rates for individual entrepreneurs paying tax in fixed amounts are indexed(increased) by 10%.
4. Changes have been made to the deadlines for submitting annual tax returns on personal income tax and social tax, which are set no later than February 15 of the next year. Based on the results of 2022, annual tax returns must be submitted no later than February 15, 2023.
5. The minimum rental rates established for individuals, to calculate personal income tax, were increased by 10%).

Corporate Property Tax.

1. The tax rate established for the objects provided for in the fourth part of Article 415 of the Tax Code of Uzbekistan is increased from 0.5 to 0.6%. A reduced tax rate for legal entities has been introduced since 2020 for objects that were previously granted tax benefits.
2. From July 1, 2022, the procedure for taxing objects for which the legislation can apply enforcement measures by establishing increased tax rates on the property of legal entities was excluded.
3. In particular, the following deadlines for submitting tax reports and paying taxes (advance payments) are set as follows:

• submission of tax reports - no later than March 1 of the year following the reporting tax period. Within the same period, the final payment of tax for the tax period is made, taking into account advance payments;
• submission of a certificate on the amount of tax for the current tax period (advance payments) - no later than January 20 of the current tax period;
• payment of advance payments by turnover taxpayers - no later than the 20th day of the third month of each quarter. For other taxpayers, the deadlines for making advance payments remain until the 10th day of each month, while for January, they pay no later than January 20th.

Personal Property Tax.

1. For the property tax of individuals, the tax rates in force in 2022 are increased by an average of 10% for the objects provided for in paragraphs 1-3 of the first part of Article 422 of the Tax Code. This is because the amount of the cadastral value of objects of taxation (tax base), determined by the authorities that carry out state registration of rights to real estate in 2018, is retained for individuals.
2. The practice of applying a limit on the growth of the tax amount in relation to the previous year remains in 2023 for individuals who have housing stock (including parking spaces that are inextricably linked with an apartment building). In particular, in 2023, the amount of tax calculated on the basis of the cadastral value determined in 2018 cannot exceed the amount of tax assessed for 2022 by more than 1.3 times.

For reference: This restriction applies to all real estate objects owned by individuals, starting from 2018, to prevent a sharp increase in the tax burden after the transfer of property tax from inventory value (until 2018) to property taxation based on cadastral value.

At the same time, the practice of applying a limitation on the amount of tax on the property of individuals in relation to the previous year in terms of non-residential real estate objects is canceled. This rule is introduced to create equal conditions for the taxation of real estate objects according to their functional purpose (non-residential premises), regardless of whether they belong to an individual or legal entity.

The restriction does not apply to land plots used by individuals in entrepreneurial activities from 2022.

3. From July 1, 2022, the procedure for taxing real estate objects, for which the legislation can apply measures of influence by establishing increased tax rates provided for legal entities, is excluded.

Land Tax.

1. The basic land tax rates for non-agricultural land, in force since 2022, are increased by 10% on average. At the same time, the procedure for determining the specific amount of tax rates by local government bodies based on base rates, with the use of increasing and decreasing coefficients, depending on their economic development, is preserved.
2. The amount of tax on non-agricultural land plots occupied by real estate objects of the housing stock should not exceed the amount of tax accrued in 2022 by more than 1.3 times.
3. Bringing the reduced tax rate for legal entities to the base tax rate continues in 2023 by increasing the amount of the reduced coefficient from 0.25 to 0. 3 applied to tax rates for legal entities in relation to land occupied by individual objects provided for in Article 429 of the Tax Code. A reduced tax rate for legal entities was introduced in 2020 for objects that were previously granted tax benefits.
4. To ensure equality in the taxation of agricultural land, individuals who own agricultural land are subject to the procedure for calculating and paying land tax provided for dekhkan farms. The amount of land tax for them is calculated by the tax authorities based on the standard value of land determined by the law. At the same time, the standard cost of land plots is determined on average for the irrigated or non-irrigated land of the district (city), respectively.

In the event of deterioration or improvement in the quality of agricultural land (decrease or increase in the quality score), dekhkan farms and individuals who have agricultural land are subject to the procedure provided for by parts nine and ten of Article 429 of the Tax Code.

5. From July 1, 2022, the procedure for taxing objects for which the legislation can apply intervention by establishing increased rates of land tax for legal entities will be canceled.
6. Changes were introduced to deadlines for submitting tax reports and paying taxes on non-agricultural lands, as follows:

• submission of tax reports and certificates of land plots owned by a legal entity that is not subject to taxation - no later than January 20 of the current tax period;
• payment of the tax by turnover taxpayers- no later than the 20th day of the third month of each quarter. For other taxpayers, the tax payment deadlines remain until the 10th day of each month, while for January, they pay no later than January 20th.

Tax for the Use of Water Resources.

1. The payment of tax for the use of water resources is introduced for individuals who have:

• non-residential immovable property objects intended for entrepreneurial activity and (or) for income generation at tax rates established for individual entrepreneurs.
• agricultural land at the tax rates established for dekhkan farms.

This norm was introduced to create equal conditions for the taxation of water resources used in business activities by individual entrepreneurs and individuals in non-residential premises, as well as dekhkan farms and individuals for irrigation of agricultural land.

For this category of taxpayers, the tax will be calculated by the tax authorities.

2. Tax rates in force in 2022 are indexed by 10% on average.
3. Timelines were changed:

• submission of tax reports for legal entities of Uzbekistan (except for agricultural enterprises), which is established no later than March 1 of the year following the reporting tax period. Within the same period, the final payment of tax for this tax period, including advance payments, shall be made;
• tax authorities shall deliver tax payment notice no later than March 1 of the year following the tax period.

4. Two deadlines for paying the tax for the use of water are established:

• by October 1 - 70% of the annual tax amount determined by the tax authorities based on the volume of water used by the agricultural enterprise in the previous tax period for irrigating agricultural land and breeding fish. In the absence of information on the volume of water used by the agricultural enterprise in the previous tax period, the tax amount is determined according to the water consumption standards approved by the authorized body in the field of water use and water consumption;
• by December 15 - the remaining tax amount.

Tax for the Use of Subsoil.

1. A new procedure is established, as part of the taxation for the use of subsoil on ferrous, precious, non-ferrous, and radioactive metals, as well as rare elements (hereinafter referred to as “metals”), according to which:

• the object of taxation is the volume of actual sales of mined (extracted) metals;
• the tax base is the value of the volume of actual sales of mined (extracted) metals.

2. The tax base for gas condensate is determined similarly to the procedure provided for natural gas and oil.
3. The fiscal perimeter is specified for metals and hydrocarbons, for which the Netback mechanism is applied. At the same time, when determining the tax base for these types of minerals, the amount of expenses associated with the transportation and (or) processing of the extracted minerals, including their processing on a give-and-take basis, is determined by the taxpayer together with the tax authorities. The amount of these expenses can be adjusted based on the results of the calendar year, similarly.
4. The tax rate for iron is reduced from 5 to 2%.

Other Changes.

1. From April 1, 2023, customs duty privileges for property imported into the customs territory by enterprises with foreign investments with at least a 33% share of foreign investments in the authorized capital for their own production needs are canceled, unless otherwise provided by investment agreements concluded between by a foreign investor and an authorized state body in the field of state regulation of investments and investment activities until January 1, 2023.
2. To preserve fixed assets and other property necessary for the implementation of financial and economic activities, the period for levying tax debts on the property of a taxpayer with tax debts is extended from 30 to 60 days.
3. Taxpayers of VAT and income tax with a total income of up to ten billion soums are entitled to installment payment of tax debts by notification for 6 months (except for legal entities with a state share in the authorized capital of 50 percent or more, subsoil users and producers of excisable goods).

At the same time, interest-free installments are provided once during the calendar year.

4. The period of application of the zero rates of customs duty for certain goods imported into the territory of Uzbekistan is extended until 1 January 2024.
5. The amounts of taxes (penalties, fines) overpaid by a legal entity in liquidation or overcharged from it are subject to offset by the tax authority against the payment of tax debts on other taxes. If the taxpayer fails to submit an application, the amount of overpaid or overcharged taxes (penalties, fines) is deducted from the personal card of the taxpayer, which was excluded from the Unified Register of Taxpayers.
6. Tax incentives provided to budgetary organizations on income from the sale of goods (services) are extended until 1 January 2024.

Source: Ministry of Finance of Uzbekistan