December 24, 2020
Permanent establishment of non-residents in the Republic of Uzbekistan
A permanent establishment (hereinafter referred to as a “PE”) is a tax status by its legal nature and was created specifically for the purpose of solving tax issues of foreign legal entities. A permanent establishment is not an organizational and legal form according to the legislation of the Republic of Uzbekistan, and therefore is not an independent subject of civil turnover. A detailed analysis of the current legislation and current practice on various aspects of the activities of PE in Uzbekistan is provided below.
Initially, a representative office had the right to open bank accounts, but some representative offices (for example, airlines) were also PE. Afterwards, this right was also given to PE.
The previously effective Procedure for commercial banks to maintain accounts of non-residents in the national currency of the Republic of Uzbekistan (expired on 01.09.2020) established that the PE can make funds from its account in the national currency to pay for current expenses for their maintenance in the territory of the Republic of Uzbekistan (including rent payments; payments for utilities and other similar services; purchase of inventory to ensure current activities; payment for the lease of communication channels; payment for the shipment and delivery of goods, mail and periodicals; payments of wages and other remuneration to employees under employment contracts; travel expenses of employees; transfers of insurance premiums for mandatory and voluntary types of insurance; payment for treatment of employees in case of accidents and diseases), as well as for other purposes in accordance with the current legislation.
The current Instruction on bank accounts opened in banks of the Republic of Uzbekistan, namely clause 16, provides for opening deposit accounts in national currency not only to legal entities operating in Uzbekistan, but also for the PE, but it does not mention for what purpose the money in these accounts can be used.
In addition, the PE of a non-resident legal entity can open accounts in foreign currency. According to paragraph 18 of the Rules for conducting currency transactions in the Republic of Uzbekistan, the following funds may be credited to the foreign currency accounts of permanent institutions of non-residents:
- funds transferred from foreign accounts of non-residents who have established a permanent establishment;
- dividends, income, and other legally obtained funds of non-residents who have established a permanent establishment received as a result of investment activities in the Republic of Uzbekistan;
- funds acquired in the domestic foreign exchange market;
- transfers of current international transactions.
With regard to the definition of “other legally obtained funds”, it remains unclear whether it refers only to investment relations or also to current economic relations: the sale of goods, works, and services.
Funds in foreign currency accounts of permanent establishment of non-residents may be used by order of the account holder:
- for transfer to foreign accounts of a non-resident who has established a permanent institution;
- to pay the Bank Commission on transactions in foreign currency, expenses related to sending employees on a business trip outside the Republic of Uzbekistan (including in cash);
- for sale in the domestic foreign exchange market;
- for current international operations.
By its legal nature, the PE cannot act as an employer, since it exercises only tax rights and obligations. Accordingly, the employer is a foreign legal entity. According to part 3, article 36 of the Tax code of the Republic of Uzbekistan (hereinafter “TC RUz”) PE is the provision of services, including consultancy services performed by this foreign entity through its employees or other personnel employed by it for these purposes, provided that such activities continue (for the same or a related project entity or a related party of the foreign legal entity) not less than one hundred and eighty three days during any consecutive twelve-month period.
Item 3 of part 14 of the same article stipulates that the date of commencement of a foreign legal entity activities in the Republic of Uzbekistan for the application of TC RUz is the date of arrival in the Republic of Uzbekistan individuals – non-residents, the recruitment of an employee or other personnel of a foreign legal entity to fulfill the terms of the contract (agreement) specified in item 1 or 2 part 14.
Item 1 refers to the conclusion of any of the following contract (agreement) for:
- a) the provision of services in the Republic of Uzbekistan, including in the framework of the agreement on joint activities;
- b) granting authority to perform actions on his behalf in the Republic of Uzbekistan;
- C) purchase of goods in the Republic of Uzbekistan for use or sale on the territory of the Republic of Uzbekistan;
- d) purchase of services for the provision of services in the Republic of Uzbekistan.
Item 2 refers to the date of conclusion of the first employment contract (agreement, contract) for the purpose of carrying out activities in the Republic of Uzbekistan.
However, an alternative interpretation of the PE’s status as an employer is also possible. According to article 15 of the Labor code of the Republic of Uzbekistan (hereinafter referred to as the “LC RUz”), employers can be enterprises, including their separate structural divisions, represented by their managers.
In particular, the term separate structural divisions is given in the article 32 TC RUz: a separate structural division of a legal entity of the Republic of Uzbekistan is any division geographically separated from the legal entity, at the location of which is equipped with stationary workplaces. Recognition of a separate subdivision of a legal entity as such is made regardless of what powers it has and whether or not its creation is reflected in the constituent or other organizational and administrative documents of the legal entity. A workplace is considered stationary if it is created for a period of more than one month. The location of a separate subdivision of a legal entity of the Republic of Uzbekistan is the place where this legal entity carries out its activities through this separate subdivision.
In addition, article 20 of the previous version of the tax code of the Republic of Uzbekistan explicitly stated that the concept of “permanent establishment” is used only to determine the tax status and has no organizational and legal significance. However, such a direct indication is absent in the new version of the tax code of the Republic of Uzbekistan, which may leave room for an alternative interpretation.
Besides TC RUz gives the following definition of PE “permanent establishment of a foreign legal entity in the Republic of Uzbekistan shall have a permanent place of business” and the criteria of separateness of this “place” is not mandatory – for example, in the provision of services to individual physical persons (see item 2) part 3 of article 36 of the NC RU. It is clear that individuals cannot be defined as separate divisions.
Thus, the question of recognition of a PE as a “separate subdivision” of a foreign legal entity remains open. Hence, the conclusion about whether the PE can act as an independent employer in relation to individuals residents of the Republic of Uzbekistan, also remains uncertain.
Regulations on the procedure for attracting foreign labor force in Uzbekistan stipulates that the involvement of foreign labor force in Uzbekistan without permission (corporate work permit) is prohibited, and the issuance of entry visas to foreign nationals coming to Uzbekistan by invitation of legal entities to work on contracts and agreements for a term exceeding three months, on the basis of proof of right to work (employment authorization). Read more about this here.
This Regulation under the term employer means a legal entity operating on the territory of the Republic of Uzbekistan, or a citizen of the Republic of Uzbekistan, an individual entrepreneurs, as well as a foreign individuals permanently residing on the territory of the Republic of Uzbekistan, including their legal representative.
The regulation does not clearly identify the procedure for issuing permits to foreign companies that send their employees to Uzbekistan. However, the Presidential Decree PP-4408 recognizes the existing mechanism for attracting foreign labor to Uzbekistan as bureaucratic. In this regard, The Agency for external labor migration (authorized (responsible) body) is instructed to provide comprehensive assistance to qualified foreign specialists in the implementation of their right to work in the territory of the Republic of Uzbekistan.
In addition, according to The presidential Decree up-6044 from January 1, 2021, it is planned to cancel the corporate labor permit.
In the version of the PE bank account regime in national currency that was in effect until September 1, 2020, both administrative expenses of the PE (office maintenance and related expenses – equipment, property – see 1.1 of this memorandum) and production expenses were included. The current version does not contain details of the national currency account mode. We assume that the PE can enter into economic contractual relations with residents of the Republic of Uzbekistan: legal entities and individuals within the framework of a civil contract.
Historically, the lack of separate subjectivity and corresponding statistical codes prevented the independent import of goods, works and services by PE.
A declarant within the meaning of the Customs code of the Republic of Uzbekistan (CC RUz) is a person who declares goods and (or) vehicles on his own behalf or on whose behalf goods and (or) vehicles are declared.
At the moment, according to article 274 of the CC RUz, a declarant can be a foreign person, including a permanent establishment of a non-resident in the Republic of Uzbekistan, established in accordance with the legislation of the Republic of Uzbekistan.
When declaring goods, the declarant has the right to:
- inspect and measure goods under customs control, take samples and samples before submitting a customs Declaration and other documents required for customs purposes;
- be present during the customs clearance of goods and (or) vehicles, inspection of goods by customs officials when they take samples and samples;
- get acquainted with the results of studies of samples and samples of goods selected by customs officials;
- access to the customs control zone for performing customs clearance operations;
- receive information and advice from customs authorities on customs issues;
- notify the customs authorities of the intention to export goods and / or vehicles from the customs territory;
- draft documents required for customs purposes in the course of preliminary operations;
- place under the customs control, the declared goods and (or) vehicles on customs warehouses;
- access to the information systems of customs authorities intended for the submission of documents and information necessary for the Declaration of goods in electronic form.
When determining the customs value of goods, the declarant has the right to:
- prove the reliability of the information provided to the customs authority used in determining the customs value of the goods;
- if there is a need to clarify the declared customs value of the goods with the permission of the customs authority to use the declared goods, provided that the payment of customs duties or payment of customs duties in accordance with the customs value of the goods determined by the customs authority;
- appeal against the decision of the customs authority, actions (inaction) its officials in relation to the determination of the customs value of the goods in accordance with the procedure established by law.
The declarant may also have other rights in accordance with the legislation.
The declarant is obliged to:
- make a Declaration of goods and (or) vehicles;
- submit to the customs authority documents and (or) information necessary for customs purposes, including compliance with the requirements of veterinary, phytosanitary, environmental and other types of state control carried out by authorized bodies in respect of declared goods and (or) vehicles;
- present at the request of the customs authority goods and (or) vehicles transported across the customs border;
- at the request of the customs authority, carry out weighing and other determination of the quantity and quality of goods, as well as perform cargo operations in respect of the declared goods and (or) vehicles;
- make the correct calculation of customs payments;
- pay customs duties or provide security for their payment in accordance with Chapter 47 of this Code;
- be present at the request of the customs authority during the customs clearance of goods and (or) vehicles and provide assistance to customs officials in the production of customs clearance;
- comply with the requirements and conditions of the customs regime under which goods and (or) vehicles are placed;
- when declaring goods and (or) vehicles, promptly inform the customs authorities about the detected change, destruction, damage or loss of customs identification means, damage to packaging and packaging, non-compliance of goods with the information contained in shipping and other documents for customs control.
When determining the customs value of the goods, the declarant is obliged to:
- declare the customs value of the goods to the customs authority;
- at the request of the customs authority to provide information related to the determination of the customs value of the goods.
The costs incurred by the declarant in connection with the clarification of the declared customs value of the goods or the provision of additional information to the customs authority shall be borne by the declarant. An increase in the term of customs clearance of goods due to the determination of the customs value cannot be used by the declarant to obtain an actual deferral of customs payments.
The declarant may also bear other obligations in accordance with the legislation.
According to article 61 CC RUz the Customs regime of temporary importation regime under which goods imported into the customs territory for a certain period and temporarily used with conditional exemption from customs payments or payment of periodic customs payments and without application of economic policy measures. Placing goods under the customs regime of importation is carried out on the basis of the permission of the customs authority.
According to article 62 CC RUz the placement of goods under the customs regime of temporary importation is carried out in compliance with the following requirements and conditions:
- opportunities for customs authorities to identify temporarily imported goods;
- availability of permits of authorized bodies in the information system of customs authorities, if the goods are subject to control by these bodies.
The following goods are not subject to placement under the customs regime of temporary import:
- goods prohibited for import into the Republic of Uzbekistan;
- electricity, water, goods supplied through pipelines (oil, gas), as well as fuel;
- consumables and consumable samples, raw materials, semi-finished products;
- motor vehicles imported by legal entities and individuals of the Republic of Uzbekistan, with the exception of international cargo transportation, as well as cases established by the legislation and international treaties of the Republic of Uzbekistan (can be imported in single copies for advertising, demonstration, research purposes).
To place the goods under the customs regime of temporary importation, the declarant shall submit to the customs authority a cargo customs declaration and shipping documents.
In respect of goods whose temporary import is carried out in the presence of relevant documents of a permissive nature, the customs authority independently checks the availability of such documents in the information system of customs authorities.
Permission to place goods under the customs regime of temporary importation is issued without limitation of the validity period.
The term of temporary importation is two years from the date of placing the goods under the customs regime of temporary importation. You can extend it in relation to the following products:
- railway and air vehicles, as well as spare parts for them and transport equipment for their maintenance, temporarily imported on the basis of lease agreements between legal entities of the Republic of Uzbekistan and persons of foreign States. The term of their temporary importation is set based on the terms of the lease agreement;
- goods imported on the basis of leasing agreements. Temporary import of such goods is allowed for the duration of the lease agreement;
- goods imported in accordance with international treaties of the Republic of Uzbekistan. The term of temporary importation of such goods is established on the basis of the term of validity of the international Treaty of the Republic of Uzbekistan;
- goods imported under production sharing agreements and exploration agreements. Temporary importation of such goods is permitted for the duration of these agreements;
- goods for which periodic customs payments have been paid in full;
- goods for which there is a need to pay periodic customs duties for a further period of temporary importation in connection with the expiration of the benefits or with the transfer of ownership to other persons;
- goods imported on the basis of investment projects included in the state development programs of the Republic of Uzbekistan. Temporary import of such goods is allowed for the duration of the investment period;
- goods (except for goods intended to be left in the customs territory) imported for maintenance and elimination of defects during the warranty period under the terms of the contract (contract, agreement) for the import of goods (works and services). Temporary import of such goods is allowed for the duration of the warranty period;
- goods for which a longer period of temporary importation is established on the basis of separate decisions of the Cabinet of Ministers of the Republic of Uzbekistan.
Certain goods are subject to conditional exemption from customs duties and taxes of temporarily imported goods according to the List.
Accounting is an orderly system of collecting, recording and summarizing accounting information through continuous, continuous, documentary accounting of all business transactions, as well as the preparation of financial and other statements based on it.
According to article 6 of the Law of the Republic of Uzbekistan “On accounting” persons engaged in entrepreneurial activities without forming a legal entity, the local authorities, as well as offices, branches and other structural subdivisions of foreign legal entities located on the territory of the Republic of Uzbekistan, keep records and report in the manner prescribed by law.
That is, the PE does not fall under the list of direct subjects of accounting, but carries out accounting and reporting in accordance with the legislation. There is no direct veto on the PE keeping accounting records and using the chart of accounts. Since the PE is a subject of taxation, it is advisable for it to keep records of the tax base. Accounting practice allows that the PO can not only use the chart of accounts, but also make changes and additions to it as necessary.
Accounting standards define the minimum requirements for accounting and financial reporting. National accounting standards establish special requirements for the organization, accounting and preparation of financial statements (in the Republic of Uzbekistan there are 24).
Financial statements are systematized information about the financial position of an accounting entity at the reporting date, the financial result of its activities and cash flows for the reporting period.
The reporting period of the annual financial statements is the calendar year from January 1 to December 31. The reporting period for periodic financial statements prepared during a calendar year is the period from 1 January to the reporting date of the period for which the periodic financial statements are prepared, inclusive. The first reporting year for newly created legal entities is the period from the date of acquisition of the right of a legal entity to December 31 of the same year, and non-legal entities-from the date of their registration with state bodies to December 31 of the same year. If a legal entity (other than budget organizations) is registered after October 1, the first reporting year ends on December 31 of the following year.
Data on business transactions conducted prior to the registration or acquisition of the right of a legal entity are included in the financial statements of the first reporting year.
In addition, according to the Regulation “on the forms of invoices and the procedure for filling them in, submitting and accepting”, when selling goods (services), non-residents operating in the Republic of Uzbekistan through a permanent establishment are required to issue invoices to buyers of these goods (services).
It is not mandatory to issue an invoice in the following cases (if there are documents that replace the invoice):
- when providing a receipt for cash registers or virtual cash registers in cases of making payments for goods (services) sold in cash or by means of plastic cards of individuals;
- when an economic entity provides a receipt in a form that is a form of strict reporting issued when making monetary settlements with the population. Receipts are applied after their registration in tax authorities only in case of transfer of control and cash equipment for repair or in case of temporary absence of the electric power in point of sale (the place of rendering services);
- when processing cargo customs declarations (hereinafter referred to as SCD) for the export of goods;
- when making Bank transactions by issuing an extract from the client’s personal account;
- in case of mass free distribution of goods;
- when issuing travel tickets (including electronic ones) for the carriage of passengers by any type of vehicle;
- when making payments through the Bank for utility services rendered, communication services with the use of primary documents that are the basis for accounting.