January 27, 2020
Settlement of Accounts
According to Article 94 of the Civil Code of the Republic of Uzbekistan payments in the Republic of Uzbekistan are affected only in cash and non-cash forms. Settlement of accounts which are not related to performance of entrepreneurial activity between individuals, are executed in cash without limitation of amount, as well as in non-cash forms. Settlement of accounts between legal entities, as well as between individual entrepreneurs is executed exclusively in non-cash form. Non-cash settlements shall be performed exclusively through banks.
- Payment orders (applied documents are payment orders and payment demands);
- Letters of credit (applied documents are application for letter of credit and documents relating to title of goods);
- Encashments (applied documents are encashment instructions and documents relating to title of goods);
- Cheques (applied documents are cheques).
Payment order means an order of a client to the bank on transfer of monetary funds (in the amount specified in the order) to the bank account of a third party. Content and form of the payment order must comply with the requirements stipulated by the legislation.
- upon presentation by him of the documents provided for in the letter of credit, namely (1) the register of accounts, (2) shipping and (3) other documents; and
- when other conditions of the letter of credit are fulfilled, for example, receiving the acceptance of the representative of the payer.
The issuing bank shall examine conformity of the documents to the requirements stipulated in the letter of credit, without examination of the facts. Validity period of the letter of credit is determined in the contract concluded between the payer and the supplier. Additionally, the letter of credit shall specify name of the issuing-bank, type of the letter of credit, execution method and method of notification of the supplier on issuance of the letter.
In the Republic of Uzbekistan a letter of credit can be applied in the form of the (1) covered and the non-covered, (2) revocable and irrevocable letters of credit. Transfer of monetary funds by Uzbek exporters by means of a transferable letter of credit and other payment methods executed in favor of other legal entities is prohibited.
Encashment means form of payment which is aimed to secure for the creditor receipt of payments for the goods (services) supplied or provided to the debtor. Encashment payments shall be deemed completed not at the moment of writing off of the amount from the debtor’s account but only at the moment of depositing of the appropriate amounts to the creditor’s bank account. As a rule, Government bodies set out Encashment payments. In particular, those bodies are:
- the state tax service (in the collection of taxes and fees);
- customs authorities (on collection of unpaid customs payments and fines on time)
- and other bodies provided for by law.
Cheque is a form of security (negotiable paper) containing an unconditional instruction of the issuer of cheque to the bank to make payment to the holder of cheque in the amount specified in the cheque. The holder of cheque could be any individual or a legal entity. Cheque is not a means of payment. Issuance of a cheque does not mean a fact of payment, but only indicates the replacement of the preceding relations with the new one, which arises between the holder of cheque holder and the issuer of cheque or other entities responsible under the cheque. In practice, cheques are only accepted by banks from the legal entities for the payout of salaries to their employees.
Requirements stipulated in the legislation of the Republic of Uzbekistan as regards payment relations are generally aimed at:
- reduction of the off-bank hard currency circulation;
- settlement of accounts strictly in the national currency;
- avoiding delayed accounts receivable and accounts payable; and
- strict exchange regulation.
2.1. The Requirements of the Legislation for the Fulfillment of Stated Goals in the Foregoing Section hereof
Export-import transactions in the Republic of Uzbekistan are under special supervision of the government which is evidenced by a number of controlling functions performed by commercial banks and tax authorities of the country.
According to the legislation, main forms of payment on export-import transactions in the Republic of Uzbekistan are documentary letters of credit, bank transfers and encashment. Payments on export transactions shall at the choice of parties observe one of the following requirements:
- pre-payment (advance payment) of the exported goods;
- letter of credit;
- guarantee of the buyer’s bank; or
- insurance policy against political and economic risks.
The legislation also provides for the deadlines for the receipt of revenue or the return of goods for export operations. Such terms, depending on the features of the expert operation, should not exceed:
- 180 days from the date of actual export of goods exported by the founders – residents of the Republic of Uzbekistan to organizations abroad (trading houses, trade missions, subsidiaries, company stores, dealer networks and consignment warehouses), as well as business entities – members of the Chamber of Commerce and Industry of the Republic Uzbekistan to the Chamber of Commerce and Investment Houses;
- for export operations of electrical and household products of own production – 180 days from the date of processing of the cargo customs declaration;
- 120 days from the date of actual export of goods, works and services for other exporters; otherwise, the exporter shall pay a fine;
When registering goods for export, business entities enter data on foreign trade contracts and invoices in electronic form through the Unified portal of interactive state services using an electronic digital signature.
Payments on import transactions are referred to the exclusive competence of commercial banks of the Republic of Uzbekistan. The legislation of the Republic of Uzbekistan requires that payments on import transactions shall be executed exclusively from bank accounts in commercial banks of the Republic of Uzbekistan. Violation of payment requirement on export-import transactions constitutes an administrative delict.
In the event that exporters who delayed the receipt of revenue in foreign currency from abroad, as well as importers who did not ensure the import into the territory of the Republic of Uzbekistan and the registration of goods in the “release for free circulation” mode, performed work and provided services for more than 30 banking days (for small businesses and private entrepreneurship – 60 banking days), after the deadlines have passed, they pay a fine to the income of the republican budget of the Republic of Uzbekistan:
- in the equivalent of 10 percent of the amount of non-received currency funds or goods not executed in the “release for free circulation” mode (work not performed, services not rendered) – with a delay of up to 180 days from the established deadlines;
- additionally in the equivalent of 20 percent of the amount of non-received currency funds or goods not executed in the “release for free circulation” mode (work not performed, services not rendered), – with a delay of 180 to 365 days from the established deadlines;
- additionally in the equivalent of 70 percent of the amount of non-received currency funds or goods not executed in the “release for free circulation” mode (work not performed, services not rendered), – with a delay of more than 365 days from the established deadlines.
In the case of applying the penalties specified above, regardless of the deadline for collecting overdue receivables from foreign trade operations, repeated sanctions on the same subject of debt and the volume of actual export of goods (work, services) to the exporter are not applied.
Payments in the domestic market of Uzbekistan must be performed with observance of the following regulatory requirements:
(a) Prohibition of business entities with a state share in the authorized capital of 50 percent or more, product sales, works and services to consumers and customers without advance payment in the amount of at least 15 percent of the cost of the supplied products (works, services), with the exception of cases established by law , and
(b) prevention of overdue receivables arising in case of non-receipt of funds for goods delivered, services rendered and work performed after 90 days.
Overdue receivables entail the imposition of strict administrative or criminal measures on the head and chief accountant of the enterprise.
Additionally, for all types of payments, including those made in the domestic market the legislation prohibits settlements with third parties, which restriction significantly restricts cession (assignment) transactions.