This memorandum describes the legal, regulatory framework and specific features of the conclusion of a franchise agreement in the Republic of Uzbekistan.

II. Regulatory acts of the franchise agreement

Civil Code of the Republic of Uzbekistan (Civil Code);
The Law “On Trademarks, Service Marks and Places of Origin of Goods” dated 30.08.2001, No. 267-II;
The Competition Law dated 06.01.2012 No. ZRU-319;
The Law on Trade Secrets dated 11.09.2014 No. ZRU-374;
The Law on Trade Names dated 18.09.2006 No. ZRU-51;
Resolution of the Cabinet of Ministers on the Regulation on the state registration of the Franchise Agreement dated 04.11.2010 No. 244;
Regulations on Registration of Intellectual Property Transfer (Licensing) agreements dated 17.06.2005, reg. number 1481;
Regulation on the Preparation, Filing and Approval of Applications for Registration of Trademarks and Service Marks, registered on 29.07.2009, reg. number 1988.

III. Legal definition of franchise

Civil Code of the Republic of Uzbekistan defines a franchise agreement as a Comprehensive business license Agreement (Franchise Agreement). According to the franchising agreement (1) one party (franchisor) undertakes to grant to (2) the other party (franchisee), for a fee, a set of exclusive rights (the license complex).

Set of exclusive rights may include:

the right to use the franchisro’s brand name and protected commercial information;
also other objects of exclusive rights:
1. trademark;
2. service marks and inventions, etc., provided for by the contract, in the franchisee’s business activities.

Terms:

franchisor — the rightholder of a set of exclusive rights (license complex) that provides the franchisee with a set of exclusive rights for use on a reimbursable basis;
franchisee – is the legal user of the franchisor ‘s exclusive rights complex, using it for business activities.

IV. General requirements of the franchise agreement

In accordance with Civil Code, the franchise agreement must be concluded in writing. Moreover, the franchise agreement itself, significant amendments and additions to it, as well as the termination of its actions are subject to state registration (“Registration”).

For Registration purposes, it is necessary to apply to the state body that carries out the registration of a franchisor (see paragraph V).

Note!

Non-compliance with the written form and non-registration of the franchise agreement entails the invalidity of the agreement.

Legal form of the business organizations

It is worth to note that the Civil Code strictly limited the participants in this agreement and determined that only (1) commercial organizations and (2) citizens registered as entrepreneurs (individual entrepreneurs) can be parties to the franchise agreement.

In practice, the most optimal organizational and legal form is considered an LLC.

Mandatory pre-sale disclosure obligations

Uzbek legislation does not define the procedure for disclosure of specific information by the franchisor before signing a franchise agreement.

The Civil Code generally establishes the obligations of the franchisor to transfer information under the contract, in particular: the obligation to transfer technical and commercial documentation, providing other information necessary for the franchisee to exercise the rights granted to him under the franchise agreement, as well as instructing the franchisee and his employees on issues related to the exercise of these rights.

Subject of the franchise agreement:

The franchising agreement provides the use of: (1) the license complex; (2) business reputation; (3) the franchisor’s commercial experience to a certain extent (with the establishment of a minimum and (or) maximum amount of use); (4) with or without specifying the territory of use in relation to a certain field of activity: the sale of goods received from the franchisor or produced by the franchisee, the provision of services, the performance of works, the implementation of trading activities, etc.).

Term

The franchise agreement may be (1) fixed-term with a specific period or (2) indefinite, concluded for an unspecified period.

Sublicense

The Civil Code determines that the franchising agreement may provide for the right of the franchisee to allow the use of the license complex or part thereof provided to him to other persons on the terms agreed by him with the franchisor or defined in the franchise agreement. Similarly, the agreement may contain the obligation of the franchisee to issue a certain number of sublicenses within a certain period of time, with or without specifying the territory of their use.

Note!

Upon termination of the franchise agreement, the sublicense agreement also terminates.

Payment

The Civil Code does not restrict the parties to the franchise agreement to choose the form of payment. The parties may determine the payment in the form of (1) fixed one-time or (2) periodic payments, (3) deductions from revenue, (4) margins on the wholesale price of goods supplied to it by the franchisor for resale, or in another form provided for by the comprehensive business license agreement.

V. Registration requirements relating to the franchise agreement

As noted above, Franchise agreements, significant changes and additions to them, as well as their termination, are subject to state registration with the registering authority that registered the franchisor.

If the franchisor is registered in a foreign country, the Registration is carried out by the registration authority of the Republic of Uzbekistan, which carried out the state registration of the franchisee.

To register, documents shall be submitted to the “Center for Public Services” at the place of registration of the franchisee. Registration is carried out within no more than 3 working days from the date of submission of documents to the registration authority.

Registration of a franchise agreement

The following documents are attached to the Registration application:

a copy of the document confirming the status of each of the parties to the franchising agreement (certificate, patent, extract from the relevant state register of a foreign state for a foreign franchisor or relevant replacement documents);
three copies of the franchise agreement signed by the parties must be stitched, the sheets numbered, they must not contain erasures, attributions, crossed-out words or other unspecified corrections.;
payment of registration fee;
Power of attorney (if the authorized person is a third party).

Registration of amendments and additions to the franchise agreement

The following documents are attached to the Registration application:

three copies of significant amendments and additions to the franchise agreement signed by the parties;
when making amendments and additions to the franchise agreement on the basis of a court decision – a copy of this act;
payment of registration fee.

Registration of termination of the franchise agreement

In accordance with the Civil Code, each of the parties has the right to cancel an indefinite franchise agreement at any time by notifying the other party 6 months in advance, unless the contract provides for a longer notice period.

The franchise agreement is terminated in the event of termination of the right to a brand name included in the license complex, without replacing it with a new brand name.

The following documents are attached to the Registration application:

three copies of the agreement on termination of the franchise agreement signed by the parties;
upon termination of the franchise agreement on the basis of a judicial act, a copy of this act is submitted instead of the agreement on termination of the franchise agreement.

In case of termination of the franchise agreement due to the expiration of its term, the applicant submits to the registration authority only an application.

Upon liquidation of the franchisor or franchisee, the franchise agreement must also be terminated and registered.

For the registration of the franchise agreement, a registration fee is paid to the bank account of the registering authority in the amount of 1/3 of the basic calculated amount (as of the date of writing this memorandum, 1 BRB = UZS 270.000 and as a result the fee will be = UZS 90,000 (approximately $9).

The state registration of the sublicense agreement is carried out in accordance with the procedure established for the state registration of the franchising agreement.

VI. Protecting the Brand and other Intellectual Property

Uzbek legislation, in order to protect an intellectual property object, requires registration of the relevant part of the franchise agreement (or license agreement), including exclusive rights to intellectual property objects, with the Intellectual Property Agency under the Ministry of Justice of the Republic of Uzbekistan. In this case, the license agreement will be an integral part of the franchise agreement.

In case of non-compliance with this requirement, the relevant part of the contract-license agreement (if other terms of the contract can independently remain in force) or the franchise agreement as a whole is considered not concluded and invalid.

If the intellectual property object is not registered on the territory of the Republic of Uzbekistan, the registration of intellectual property rights and its transfer under a franchise agreement are carried out at the discretion of the parties to the agreement.

Commercial secret

Commercial secrets are regulated by the Civil Code and the Law “On Commercial Secrets”. It is worth noting that persons who own a trade secret (information of commercial value in scientific, technical, technological, industrial, financial, economic and other spheres due to its unknown to third parties, to which there is no free access on a legal basis) are obliged not to disclose it, transferred, in accordance with the contract and must take measures to protect confidentiality.

For the disclosure of trade secrets, persons guilty of violating the legislation on trade secrets may be held administratively/criminally liable.

VII. Competition Law

The Civil Code establishes that the franchise agreement may be exclusive and contain the following conditions:

the obligation of the franchisor not to issue other similar complex business licenses for their use in the territory assigned to the franchisee or to refrain from direct independent activity in this territory;
the obligation of the franchisee not to compete with the franchisor in the territory of the use of a comprehensive business license;
refusal of the franchisee to obtain other complex business licenses from competitors (potential competitors) of the franchisor;
the franchisee ‘s obligation to coordinate with the franchisor the location of the commercial premises used in the exercise of the exclusive rights granted under the contract, as well as their external and internal design.

In addition, the Civil Code determines the invalidity of the terms of the exclusive contract if they give the right:

to the franchisor to determine the price of sale of goods by the franchisee or the price of works (services) performed (rendered) by the franchisee, or to set an upper or lower limit of the specified prices;
to the franchisee to sell goods, perform works or provide services exclusively to a certain category of buyers (customers) or exclusively to buyers (customers) who have a location (place of residence) in the territory specified in the contract.

VIII. Currency Controls and Taxation

Currency

If a franchise agreement is concluded with a foreign entity, then the agreement will be considered as a foreign trade contract and is subject to registration in the Unified Information System of Foreign Trade Operations.

It is worth noting that all payments on the territory of Uzbekistan are made in the national currency. However, payments under foreign trade contracts can be made in foreign currency.

In general, there are no special restrictions on repatriation or other currency transactions.

Taxation

According to the Tax Code of the Republic of Uzbekistan, when paying royalties to a non-resident who does not have a permanent establishment, the franchisee will be considered a tax agent for income tax and the tax is withheld at a rate of 20% for each payment of income, if there is no international agreement between the franchisor’s country and the Republic of Uzbekistan providing for the avoidance of double taxation or the application of a reduced tax rate.

IX. Liability

Subsidiary liability

The Civil Code determines that in case of non-conformity of the quality of goods (work, services) sold (performed, rendered) by the franchisee under the franchise agreement, the franchisor bears subsidiary responsibility for the claims imposed on the franchisee.

Joint responsibility

To claims imposed on the franchisee as a manufacturer of products the franchisor is jointly responsible with the franchisee.

The franchisor does not bear any responsibility for the other claims presented to the franchisee.

Franchising in Uzbekistan: everything you need to know

Related posts