January 28, 2020

Investing in Uzbekistan

Legislation

Investment legislation consists of the following main acts:

Law of the Republic of Uzbekistan dated December 25, 2019 No. ZRU-598″On Investments and Investment Activities”;
Law of the Republic of Uzbekistan dated 08.25.2015, No. ZRU-392″On Investment and Mutual Funds”;
Decree of the President of the Republic of Uzbekistan dated 09.01.2020 No. PP-4563″On measures to implement the investment program of the Republic of Uzbekistan for 2020-2022″;
Resolution of the Cabinet of Ministers of the Republic of Uzbekistan dated 05.17.2019, No. 414″On approval of the Regulation on the activities of investment and management companies”;
Decree of the President of the Republic of Uzbekistan dated November 24, 2018 No. UP-5583 “On additional measures to improve the mechanisms for financing projects in the field of entrepreneurship and innovation”;
Decree of the President of the Republic of Uzbekistan dated 01.08.2018 No. UP-5495″On measures to radically improve the investment climate in the Republic of Uzbekistan”;
Decree of the President of the Republic of Uzbekistan dated March 15, 2017 No. PP-2836″On improving the quality of development of pre-project documentation of investment projects”;
Decree of the President of the Republic of Uzbekistan dated March 14, 2017 No. PP-2831″On additional measures to increase the efficiency of design work in the basic sectors of the economy”;
Decree of the President of the Republic of Uzbekistan dated July 24, 2008 No. PP-927″On measures to improve the process of attracting and developing foreign investments and loans”;
Decree of the President of the Republic of Uzbekistan dated 05.03.2008 No. R-2945″On the formation of a Commission to analyze the fulfilment by investors of investment obligations under the Production Sharing and Exploration Agreements”;
The Resolution of the Cabinet of Ministers dated 05.15.2017, the number 285″On measures on improvement of the responsibility of organizations – initiators of projects for the timely and quality implementation of investment projects”;
Resolution of the Cabinet of Ministers of the Republic of Uzbekistan dated 01.03.2016 No. 61″On the procedure for transfer by a foreign investor of property newly created or acquired under production sharing agreements”;
Resolution of the Cabinet of Ministers of the Republic of Uzbekistan dated March 23, 2011 No. 84″On measures to strengthen structural units of state and economic management bodies and other organizations, as well as large enterprises responsible for initiating and implementing investment projects”;
Decree of the Cabinet of Ministers of the Republic of Uzbekistan dated June 25, 2009 No. 178″On improving the mechanism for the implementation of production sharing agreements and agreements on geological exploration”;
Resolution of the Cabinet of Ministers of the Republic of Uzbekistan dated 10.01.2007 No. 9″On approval of the Regulation on the procedure for the preparation and implementation of investment projects under the Clean Development Mechanism of the Kyoto Protocol”;
Decree of the Cabinet of Ministers of the Republic of Uzbekistan dated August 26, 2003 No. 368″On additional measures to accelerate the privatization of state low-profitable, unprofitable, economically insolvent enterprises and facilities”.

1.1. Bilateral Investment Agreements

According to the current legislation, if the bilateral investment agreements (treaties) of the Republic of Uzbekistan (BITs) establish different rules than those stipulated by the law, the BITs have the priority and the provisions that are most favourable for investors prevail. The state undertakes to carry out the following actions in accordance with the rules and procedure defined in the BITs:

providing guarantees of protection of investments and restoration of violated rights;
suspension of repatriation of funds of a foreign investor;
the provision of a fair and equitable regime that cannot be less favourable than the regime defined in the BITs;
imposing a restriction or ban on foreign investment in certain areas of the economy, as well as in the interests of national security;
providing enterprises with foreign investment (EFI) with all rights, guarantees and benefits.

The Republic of Uzbekistan has agreements on the promotion and mutual protection of investments with the following States

1.2. State regulatory bodies

The authorized state body in the field of state regulation of investments and investment activities is the Ministry of Investments and Foreign Trade of the Republic of Uzbekistan (MIFT).

The main powers of the MIFT are:

advising investors;
coordination of government activities in the field of investments;
interacting with international financial institutions and private companies on investment cooperation;
assisting domestic legal entities in attracting investments;
representing interests of the Republic of Uzbekistan in relation with foreign investors;
development of proposals for improving investment activities.

Moreover, in investment agreements with the Government, the MIFT acts on behalf of the Government of the Republic of Uzbekistan. The monitoring and control of the execution of investment agreements with the Government of the Republic of Uzbekistan is also carried out by the MIFT. The MIFT together with the Ministry of Finance is considering an investor’s application for an investment subsidy and makes a corresponding proposal to the Government.

Form of investment activity

investment activities can be carried out in the form of:

creation of legal entities or equity participation in their authorized funds, including acquisition of property and shares (shares);
acquisition of securities;
acquisition of concessions;
acquisition of property rights;
acquisition of the right to own and use land plots and other natural resources; and
in other forms.

Changing the forms of investments does not change their investments treatment.

2.1. EFI (Investment Status)

Enterprises with a share of foreign investment (EFI) have the right:

to open accounts in foreign banks;
to receive and repay loans in foreign currency.
to create branches with the rights of a legal entity;
to create representative offices that are not legal entities;
to participate in associations;
to use their property and property rights as security of their obligations.
to import products for their own production needs without a license and to export as well.
to establish the list, procedure for the formation and use of the funds of the enterprise.
to acquire a land plot.
to rent a land plot for non-agricultural purposes for up to fifty (50) years on the basis of investment contract or public-private partnership (PPP)
Lease a land plot of agricultural purpose and forest fund lands defined by the legislation for lease on the basis of an investment agreement or PPP for a period of not less than three and not more than forty-nine years.
Sublease agricultural land for the purpose of growing agricultural products.

EFI pays taxes and fees. Property imported into the Republic of Uzbekistan for its own production needs is exempted from customs duties for two (2) years from the moment of their state registration as legal entities.

In the event of withdrawal of a foreign investor from or liquidation of EFI, a foreign investor has the right to return his share in the property of the enterprise in cash or in commodity in accordance with its market value.

Warranties (general, additional)

The State guarantees:

non-interference of state bodies and officials in the activities of investors;
non-discrimination.
use of income from investment activities;
transfer of funds;
repatriation of assets;
non-application of retroactive legislative acts in cases where their execution is detrimental.
keeping legislation unchanged for a period of ten (10) years from the date of investment in the event of a worsening of investment conditions.

Additional guarantees and investment protection measures may include

provision of guarantees by the Government of the Republic of Uzbekistan;
assistance in financing investment projects;
creation of a special tax and payment regime.
protection against nationalization and requisition (expropriation) (except in cases of natural disasters, accidents, epidemics, epizootics and in other circumstances of an emergency nature).

3.1. Benefits and preferences

Benefits and preferences used for state support of investment may include:

transfer of state-owned objects or property rights;
tax incentives;
subsidizing interest rates on loans received for the implementation of the investment project.

Preferences may be granted by decision of the Council of Ministers of the Republic of Karakalpakstan, khokims of regions and the city of Tashkent, including in relation to municipal property, at the expense of the budget of the Republic of Karakalpakstan, local budgets of the regions and the city of Tashkent.

In order to support investors may be granted investment tax credit with decrease of the amount and payment by instalments.

The government may provide an investment subsidy to provide the engineering and communications conditions.

Also, when an investor imports equipment (specified in a certain list), analogues of which are not produced in Uzbekistan, such equipment is exempt:

from customs duty;
from the value added tax (PCM of 27.11.2020 No. 750).

However, it is important to keep in mind that the tax benefits do not apply to EFI newly created since 1 January 1997, which is not related to productive EFI.

More benefits and preferences, as well as more detailed information on them, can be found here

3.2. Governmental support

State support for investment is provided in the following ways:

provision of benefits and preferences;
provision of centralized investments for co-financing of an investment project;
advisory and informational support.

MIFT, independently or through Public Service Centres, organizes work in a one-stop-shop context, which includes:

receiving and advising on existing public services;
assistance in the preparation and execution of documents necessary for obtaining public services;
assistance in obtaining an electronic digital signature, electronic applications and other documents;
accompanying the investor in government bodies and local state authorities upon receipt of public services.

Investment contract

An investment agreement (hereinafter – IA) is a contract in writing that defines the rights, obligations and responsibilities of its parties. According to the IA, the parties undertake investment obligations to achieve the goals set in the agreement. Parties to the IA are

individuals, legal entities and state bodies of the Republic of Uzbekistan;
foreign legal entities, citizens (stateless persons), states, international organizations.

4.1. Investment agreement with the Government

The Government may enter into an IA to ensure the fulfilment of obligations by foreign investors. Upon the conclusion, the Government provide the foreign investors are with additional guarantees and support measures (advantages and benefits). Conclusion of the IA may be mandatory, if the Government provides advantages and benefits in the framework of State Support of Investment Activity.

Advantages and benefits are provided when investing:

in priority sectors of the country’s economy;
in export-oriented projects.

Additional tax incentives are provided to EFI only for a fixed period and limited duration. It is also forbidden to provide a foreign investor with exclusive rights that put him in a dominant position in the market.

4.1.1. Essential Conditions of IA with the Government

An Investment Agreement with the Government should include:

object and volume of investment, the start and completion dates of the project;
term and conditions of the investment agreement;
anticorruption and antitrust clause;
rights and obligations of a foreign investor;
obligations of a foreign investor to supply modern equipment and technologies;
rights and obligations of the Government, including on the provision of additional advantages and benefits;
information on sources of financing, project schedules, the procedure for technical supervision of the implementation of the investment project;
the procedure and deadlines for the submission by the foreign investor of reports on the progress in fulfilling his obligations;
liability of the parties for non-compliance with the terms of the investment agreement;
procedure for amending the agreement;
termination procedure;
dispute resolution clause.

The investment agreement with the Government may contain other conditions depending on the nature of the investment project, including:

mutual obligations of the parties to develop the production and social infrastructure of the territory;
the right of a foreign investor to export from the Republic of Uzbekistan its products and profit (income) produced as a result of fulfilling the terms of the agreement;
obligations of a foreign investor in hiring and training workers from among citizens of the Republic of Uzbekistan, conditions for using technologies, as well as for training employees of the created entity after the completion of the investment project.

4.1.2. Initiating Conclusion of IA with the Government

Initiation of a proposal to conclude the IA with the Government is carried out by a foreign investor independently or jointly with

government and
economic management bodies,
local executive authorities; or
commercial (business) entities.

4.1.3. Conclusion of IA (decision of the Government)

In order to subsequently submit to the Government for consideration, the MIFT receives the conclusions of the government regarding

legal examination of the draft investment contract,
financial and economic assessment.

Based on the results of a positive conclusion of the Government, the investment agreement is concluded in writing between a foreign investor and the Government represented by MIFT. The signed investment agreement enters into force on the date of the adoption of a decision by the President or the Government.

4.1.4. Termination of IA

The benefits and preferences within the framework of state support are terminated upon the expiration of the validity period of the IA, or by mutual agreement or unilaterally.

In case of termination of the contract, the investor pays the amount of taxes and payments not paid to the budget due to the benefits and preferences provided under the contract in the framework of state support.

In case of early unilateral termination at the initiative of the investor, the specified foreign investor pays the amount of taxes and payments not paid to the budget due to the privileges and preferences provided under the investment agreement in the framework of state support.

Investment disputes

It is important to note the recent changes in the legislation of Uzbekistan, which carry significant factors for any investor, namely, now cases on investment disputes will be considered by economic courts.

In turn, such disputes include the following:

disputes related to the conclusion, modification and termination of investment contracts;
disputes on invalidation of investment contracts;
disputes related to the execution of the investment contract;
disputes related to the investor’s performance of tax, customs, social, environmental and other obligations arising from the investment contract;
disputes related to the recovery of property provided to the investor under an investment contract, or the recovery of a penalty and (or) losses under such a contract.

Investing in Uzbekistan

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