May 31, 2023

Regulation of currency operations in Uzbekistan

1. Introduction

2. Normative legal acts

3. The concept of residents and non-residents in the currency legislation

4. Operations of residents with capital movement

4.1. Accounts of residents with banks abroad

4.2. Investments of residents abroad

5. Monitoring

6. Regulatory sandbox in financial services

7. Liability for violation of legislation on currency regulation

 

  1. Introduction

Currency policy is an integral part of the general economic policy of the state aimed at strengthening the monetary and financial position of the country, maintaining its solvency and creditworthiness at a high level, ensuring the flow of currency from abroad on foreign economic turnover, combating capital flight abroad, attracting foreign capital and strengthening the national currency. In this article, we will describe the main and most important aspects of currency regulation in Uzbekistan.

 

  1. Normative legal acts

The following legislative acts regulate currency operations in the Republic of Uzbekistan:

  • The Law of the Republic of Uzbekistan of 22.10.2019 No. 573 “On Amendments and Additions to the Law of the Republic of Uzbekistan “On Currency Regulation” (hereinafter – the “Law on Currency Regulation”);
  • The Law of the Republic of Uzbekistan of 26.05.2000 No. 77-II “On amendments and additions to the Law of the Republic of Uzbekistan “On foreign economic activity of the Republic of Uzbekistan” (hereinafter – the “Law on foreign economic activity”);
  • The Law of the Republic of Uzbekistan No. 598 of 25.12.2019 “On Investments and Investment Activity” (hereinafter – the “Law on Investments”);
  • Criminal Code of the Republic of Uzbekistan;
  • Administrative Liability Code of the Republic of Uzbekistan;
  • Appendix (Regulation on the procedure for conducting certain currency operations related to capital movement) to the Resolution of the Board of the Central Bank of the Republic of Uzbekistan No. 2536 dated 23.12.2013 (hereinafter – the Resolution of the Central Bank No. 2536);
  • Resolution of the Board of the Central Bank No. 3281 dated 31.08.2020 “On Approval of the Rules for conducting currency transactions in the Republic of Uzbekistan” (hereinafter – “Resolution-3281”);
  • Regulation on the procedure for monitoring the reasonableness of currency transactions conducted by legal entities and individuals (Annex to the Resolution of the STC, SCC, CB Board) dated 12.06.2013 No. 2467 (hereinafter – “Resolution No. 2467“);
  • Regulation on the procedure for introducing a special legal regime in the field of financial services by the Central Bank of the Republic of Uzbekistan (Annex to the Resolution of the CB Board) No. 3391 dated 04.10.2022 (hereinafter – “Resolution No. 3391“);
  • Regulation on the procedure for notification of the creation of organizations abroad by legal entities of the Republic of Uzbekistan or participation in their authorized funds (capitals) (Annex to the Resolution of the Central Bank of the Republic of Uzbekistan No. 2457 dated May 17, 2013) (hereinafter – the “Resolution No. 2457“).

 

  1. The concept of residents and non-residents in the currency legislation

The mechanism of currency regulation of the Republic of Uzbekistan (hereinafter – “RUz”) establishes separate rules for residents and non-residents. In accordance with Article 6 of the Law on currency regulation, the residents of RUz are citizens of RUz, including those abroad, all legal entities established in accordance with the legislation of RUz, as well as their branches and representative offices located in and outside RUz, diplomatic, trade and other official representative offices, including those located outside RUz. Also, foreign citizens and stateless persons having residence permits in RUz are referred to the category of residents. As to non-residents, they include all persons not falling under the concept of a resident.

 

  1. Operations of residents with capital movement

Foreign exchange transactions are carried out through currency accounts in banks of RUz. According to Article 19 of the Law on currency regulation, the purchase and sale of foreign currency by residents and non-residents on the territory of RUz are carried out exclusively through the banks of RUz. At the same time, the Law on currency regulation allows residents to open accounts in foreign currency in banks of RUz (https://azizovpartners.uz/en/memos/5149/).

International currency operations are divided into current international operations and capital movement operations (https://azizovpartners.uz/en/memos/currency-regulation-in-uzbekistan/). Capital movement operations are carried out in accordance with the Resolution of Central Bank No. 2536. In accordance with this Resolution, commercial banks of RUz keep records of currency operations with capital movement. Such records are maintained by the bank where the resident’s main deposit account is opened (hereinafter – the “Main Servicing Bank”). In order to carry out such currency transactions, a resident shall provide the Main Servicing Bank with the following documents:

  • application;
  • copy of the document (contract, agreement, transaction, and (or) other documents) stipulating the performance of currency operation, as well as changes and additions made to it (in Russian or English); if the text of the document is in another language, it shall be legalized or apostilled in the established order and translated into the state or Russian language and translation shall be notarized.

In carrying out capital movement currency transactions, residents must comply with the following requirements:

  • make all settlements and payments under a single currency transaction through the Main Servicing Bank in accordance with the terms of the currency transaction;
  • notify the Main Servicing Bank if any changes are made to the terms of the currency transaction (extension of the contract, postponement of the payment period, changes in the debt repayment schedule, full repayment of the debt or termination of the contract, etc.).

4.1. Accounts of residents with banks abroad

According to Article 12 of the Law on currency regulation, there are no prohibitions for individuals regarding opening bank accounts abroad.

Meanwhile, resident legal entities can open bank accounts abroad only if there are one of the following documents stipulating the opening and purpose of accounts abroad:

  • a decision of the President of RUz;
  • a decision of the Government of RUz; or
  • an international treaty of RUz.

After opening accounts abroad, resident legal entities shall notify the tax authorities and the Central Bank of the following actions and facts:

  • on opening (closing) accounts;
  • on changes in account details; and
  • on the balances and turnovers on these accounts on a quarterly basis.

Transfer of funds from accounts in RUz to accounts abroad and vice versa is considered a capital movement operation. There are no restrictions on residents’ right to transfer foreign currency from their accounts outside of RUz to their accounts with banks in RUz. However, there are some restrictions related to funds transfers from residents’ accounts in commercial banks of RUz to accounts (deposits) abroad. In accordance with Clause 6.1 of CB Resolution No. 2536, the transfer of funds from the accounts of residents of RUz in commercial banks to accounts (deposits) abroad shall be carried out subject to the decisions of the President of RUz, the Cabinet of Ministers of RUz or international treaties of RUz.

Accounts of residents – legal entities with foreign participation in banks abroad                 

The legislation of RUz does not provide a separate regime for opening and using bank accounts outside RUz. For this reason, the above requirements also apply to legal entities with foreign participation registered in RUz.

4.2. Investments of residents abroad

Carrying out investment activity abroad by the residents is also a capital movement operation. In accordance with the Law on Foreign Economic Activity, such right of legal entities and individuals of RUz may be limited by the requirements of the currency regulation legislation. For example, the above requirement to open bank accounts abroad by a decision of the President of RUz or the Cabinet of Ministers of RUz or an international treaty of RUz also exists in the Resolution of the Central Bank No. 2536 with regard to the following currency transactions:

  • carrying out investment activities abroad in an amount of more than the equivalent of 10,000 U.S. dollars – transfer of funds from residents’ accounts with banks of RUz to form the authorized capital of foreign enterprises (or equity participation), to fill their branches abroad with operating assets;
  • granting loans and credits by residents of RUz to non-residents in monetary form or in the form of goods (services) and leasing objects;
  • transfer of funds from the accounts of residents of RUz in commercial banks of RUz to foreign accounts (deposits) and for the purchase of immovable property.

It should be noted that it is not clear from the text of Resolution No. 2536 of the Central Bank whether this requirement applies to transactions of legal entities and individuals or only legal entities. In addition, with respect to investments over 10,000 U.S. dollars, it is also not clear whether this requirement applies to each transaction individually or to several transactions in aggregate.

Under Resolution No. 2457, residents must notify the Ministry of Investments, Industry, and Trade within one month when carrying out investment activities outside RUz by establishing legal entities or participating in authorized funds. At such notification, residents must send to the Ministry-approved constituent documents of the organization abroad, legalized in accordance with the established procedure by a diplomatic or consular office of RUz abroad.

 

  1. Monitoring

Currency operations of legal entities and individuals in RUz are monitored for the validity of such operations in accordance with Resolution No. 2467. Such monitoring is carried out by the Central Bank (including commercial banks and their branches) together with tax and customs authorities.

Currency transactions with any of the following characteristics shall be monitored:

  1. under the contract the transfer of funds for the import of goods (works, services) in favor of non-residents registered in offshore zones (List of offshore territories: https://lex.uz/ru/docs/2186012#5064954), as well as to the accounts of non-residents in banks located in offshore zones;
  2. payment by residents to non-resident counterparties of a fine for non-fulfillment of obligations and non-compliance with the terms of delivery or payment stipulated by export-import contracts;
  3. payment under import contracts for work or services, royalties, and the transfer of dividends or repatriation of profits to foreign founders;
  4. payments to non-residents for the sale of their shares, stakes in the authorized capital of legal entities – residents of RUz and immovable property located in the territory of RUz;
  5. payment by a resident under a credit agreement (loan agreement) in favor of a non-resident (except for credits (loans) issued by international financial institutions and foreign banks);
  6. transfer of funds abroad to the accounts of individuals, carried out by an individual – a resident of RUz, if the amount of the transfer in one calendar year exceeds the equivalent of one hundred million sums;
  7. receipt of funds from abroad to the accounts of an individual – a resident of RUz from a foreign legal entity.

In the process of monitoring, legal enforcement measures are not applied and the activities of the business entity are not suspended

 

  1. Regulatory sandbox in financial services

In 2022, at the suggestion of the Central Bank of RUz, a regulatory sandbox regime was introduced in the sphere of financial services. Under the regulatory sandbox regime, individual entities are allowed not to comply with the norms of certain legislative acts for a limited period of time (for a period not exceeding three years). Thus, legal entities operating in the field of financial services can test their financial products, which at the moment cannot be presented to customers due to restrictions in the law. A regulatory sandbox regime may be introduced by the Central Bank of RUz in respect of:

  • banks;
  • non-bank credit organizations;
  • payment system operators;
  • payment organizations;
  • credit bureaus;
  • currency exchanges;
  • as well as other legal entities controlled by the financial regulatory authority (supervisory authority).

Financial services approved for approbation must meet one of the following criteria:

  • financial service is new for the financial services market of RUz;
  • consumer features of the financial service are improved relative to existing services;
  • there are restrictions or inaccuracies in the legislation that prevent the provision of financial services.

The regulatory sandbox regime is introduced based on the application of entities, and the list of entities that provide their services under the regulatory sandbox regime is posted on the website of the Central Bank to ensure transparency.

 

  1. Liability for violation of legislation on currency regulation

Below are the measures of liability that can be applied to violators of the legislation on currency regulation in relation to notification procedures, registrations, currency transactions, etc.

 

Subject

Administrative liability

Criminal liability
Legal entity only Violation of the order and implementation of currency and export-import transactions entails the imposition of a fine from 8 to 12 basic calculating amount (hereinafter – BCA) according to Art. 171 of the Administrative Liability Code of RUz.
Individuals and legal entities According to Art. 1711 of the Administrative Liability Code of RUz, the conclusion of a transaction contrary to the interests of RUz that caused damage, in the range from 100 to 300 BCA to the interests of RUz, entails the imposition of a fine from 75 to 100 BCA. According to Art. 175 of the Criminal Code of RUz, the conclusion of a transaction contrary to the interests of RUz that caused damage, in the range from 300 to 500 BCA to the interests of RUz, entails criminal liability in the following form:

  • Fine from 30 to 50 BCA
  • Restriction of freedom from 3 to 5 years
  • Imprisonment from 3 to 12 years
  • Deprivation of rights

 
Individuals and legal entities According to Art. 1793 of the Administrative Liability Code of RUz, violation of the legislation on combating the legalization of proceeds from crime, the financing of terrorism, and the financing of the proliferation of weapons of mass destruction entail a fine from 15 to 50 BCA. According to Art. 243 of the Criminal Code of RUz, legalization of proceeds from criminal activity is punishable by imprisonment from 5 to 10 years.
Individuals and legal entities In accordance with Art. 165 of the Administrative Liability Code of RUz, violations of the legislation on licensing, permitting, and notification procedures entail a fine from 3 to 25 BCA. Art. 190 of the Criminal Code of RUz establishes the following sanctions in connection with carrying out activities without a license, without a document of a permissive nature, or without sending a notification:

  • Fine from 25 to 100 BCA
  • Deprivation of certain rights for up to 5 years
  • Mandatory community service up to 400 hours

 
Individuals and legal entities The illegal entrepreneurial activity entails the imposition of a fine from 7 to 50 BCA. The amount of the fine depends on the amount of income received as a result of the offense.