Direct private foreign investment: benefits and preferences

An amendment was introduced into the List of branches of economy, which extended the benefits provided for direct foreign investments in compliance with the Decree No. УП–5094 signed by the President of the Republic of Uzbekistan on June 23, 2017.

We would like to remind that this List had been approved by the Decree of the President of the Republic of Uzbekistan No. УП—3594 dated April 4, 2005 and turned into a significant step at the time aimed at attracting foreign investments into the Republic. This Act established a significant List of benefits and privileges for certain branches of economy.

 A number of changes have been introduced into this Decree since 2005. The current version the document stipulates that enterprises attracting direct private foreign investments and specializing in the production of goods (rendering services) in the sectors of the economy identified in the List are exempt from paying corporate income tax, property tax, tax on the development of social infrastructure, a single tax payment for micro-firms and small enterprises, as well as effecting mandatory deductions into the Republican Road Fund. Those specified tax privileges are provided for under the following volumes of direct private foreign investments:

from US$ 300 thousand up to US$ 3 million – for a period of 3 years;

more than US$ 3 million up to US$ 10 million – for a period of 5 years;

more than US$ 10 million – for a period of 7 years.

 These tax benefits shall be applied under the following conditions:

-  location of those enterprises under review in all the cities and rural residential areas of the Republic except the City of Tashkent and Tashkent province;

-  effecting private direct foreign investments by foreign investors without provision of guarantees by the Republic of Uzbekistan;

-   share of foreign participants in the Statutory capital of the enterprise should exceed 33%, and make up not less than 15% in Joint-Stock companies;

- foreign investments will have to be made in the form of freely convertible currency or new modern technological equipment;

- channelling not less than 50% of income received as a result of provision of those benefits during the period of their application for re-investing with the  objective of an enterprise’s further development.

 The procedure for application of the aforesaid benefits shall be specified by the relevant Provision “On the procedure for application of tax benefits for enterprises attracting direct private foreign investments” (Ministry of Justice registration No.2822 dated August 8, 2016).

 It’s important to admit in addition that the Decree envisages some key moves for protecting and securing guarantees for foreign investors:

-   With deterioration of investment conditions by subsequent legislation the aforesaid benefits and privileges remain in force therein for the entire period they have been provided for.

-   The investment proviso provided for in Article 3 of the Law of the Republic of Uzbekistan “On the guarantees and measures for protection of the rights of foreign investors” [i] shall be applied in the following cases:

• raising the income tax rate on profit received in the form of dividends paid out to foreign investor;
• introduction of additional requirements, which deteriorate the procedure for repatration or decrease the amount of foreign investor’s income (profit) transferred overseas, except cases of termination by the State of foreign investor’s repatriation resources on conditions of indisciminatory application of legilsative acts in the event of insolvency or bankruptcy of an enterprise with foreign investments or protection of the rights of creditors, criminal deeds or administrative delinquencies committed by foreign investors – physical entity or such other need to suspend such a repatriation in accordanace with the legal or arbitration judgement;
• introduction of quantitative restrictions on the volumes of investments and such other additional requirements on the scope of investments, including in the form of increasing the minimum amount of foreign investments at the enterprises with foreign invesmtments;
• introduction of restrictions on the share of foreign investor’s participation in the Statutory funds of the Republic’s enterprises;
• introduction of additional procedures for formalizing and extention of foreign investors’ visas, as well as such other additional requirements on effecting foreign investments.

 With the occurrence of any of the enlisted types of investment deterioration therein the foreign investor informs a relevant authorized body on the application of the aforesaid guarantee[ii].

 Hence, what branches of economy have been included into this List, approved in the President’s Decree №УП—3594, which provides for an opportunity to apply that number of benefits and privileges?

 This List, which included eight branches of economy in 2012, had been extended up to twenty branches, while tourism and hotel services were added up in May 2017. Hence, until quite recent time the List covered 21 branches of economy: