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Income Tax in Uzbekistan



Both residents and non-residents are subject to tax in Uzbekistan. Residents are taxed on their worldwide income; non-residents are taxed on income from sources in Uzbekistan.

Personal income tax rates
The personal income tax (PIT) rates are as follows:

Taxable Income
Tax Rate (%)
Up to 1 time the minimum annual wage
0
From 1 to 5 times the minimum annual wage
7.5
From 5 to 10 times the minimum annual wage
17
More than 10 times the minimum annual wage
23

Personal income of non-resident individuals from sources in Uzbekistan is taxed at the following withholding rates:

Taxable Income
Tax Rate (%)
Dividends and interest
10
Transportation (freight) services
6
Other income (including royalty, employment income, etc.)
20

Residency Rule

An individual is a resident if one of the following two tests is met:
· Individual resides in Uzbekistan on a permanent basis.
· Individual is present in Uzbekistan for 183 days or more during any 12-month period ending in a current tax period.

Taxable Income

Employment income
Taxable income of an individual includes the following items:
· Income from employment, including:
o   All payments accrued and paid to individuals under employment or civil contracts.
o   Motivation payments (e.g. annual bonuses, professionalism and tutorship allowances, long-service premiums).
o   Compensation payments (e.g. hardship and overtime allowances, per diems exceeding statutory norms).
o   Payments for time off (e.g. various vacation pay, attendance of qualification courses).
· Income in the form of material benefits, including, without limitation:
o   Payments for goods/services made by employers in favour of their employees (e.g. utilities, food allowance).
o   Gifts, goods (works or services) donated.
o   Discounts to employees for goods (works or services) produced.

Equity compensation

There are currently no special rules for the taxation of stock option plans. Tax treatment is based on the general provisions of the tax law, which do not prescribe taxation of the income unless an employee exercises one's option and purchases stock at the below-market cost.

Business income

Individuals receiving income from entrepreneurial or similar activities are supposed to be properly registered as individual entrepreneurs. Individual entrepreneurs are subject to fixed tax that varies depending on the activity and location. If applicable, individual entrepreneurs are subject to payment of PFC in the amount of one MMW and other taxes, including:
· Customs duties.
· Taxes and special payments for subsoil users.
· Water tax.
· Excise tax.
· Contributions to Road Fund for the acquisition and (or) the temporary importation of vehicles.

Capital gains

Capital gains of residents are taxed at the generally applicable PIT rates. Capital gain from sale of immovable property is taxed at the minimum PIT rate, currently 7.5%. Taxable basis shall comprise the difference between the sales price and the acquisition price (in case the acquisition price cannot be determined, taxable base should comprise sales price of the asset, while for immovable property taxable base shall be the difference between sales price and inventory value of the property).

Capital gains of non-residents from sale of property located in Uzbekistan are taxed at the 20% rate. In case of absence of the documents supporting the acquisition prices of such property, PIT will be assessed on the sales price.

Dividend income

Taxable income of an individual includes dividend income. Dividends reinvested in the same entity (i.e. the payer of dividends) are exempt from PIT.
Dividends received by both residents and non-residents are taxed at the 10% rate.

Interest income

Taxable income of an individual includes interest income. However, interest income received from bank deposits is exempt from PIT.
Interest income received by both residents and non-residents is taxed at the 10% rate.

Rental income

Taxable income of an individual includes rental income. Income of residents from rent of property is taxed at the minimum PIT rate, currently 7.5%, on the contract price. However, the rental fee shall not be less than the fixed rate established for 1 square metre.
Rental income received by non-residents should be taxed at source of payment at the 20% rate.

Royalty income

Royalty income is defined as payments for:
· the use of or right to use an object of science, literature, and art work, and
· the use of patent, trademark, design or model, plan, secret formula or process, or for information (know-how) concerning industrial, commercial, or scientific experience.

Income of residents is taxed at the generally applicable progressive PIT rates. Royalty income of non-residents should be taxed at the 20% rate.

Other income

Taxable income of an individual also includes, without limitation, prizes and lottery winnings.

Exempt income

The following is a representative list of items exempt from personal taxation:
· State pensions.
· Payment by an employer for medical treatment (however, medical insurance paid by an employer is taxable).
· Compensation for work-related injuries.
· Business trip allowance within the established norms.
· Insurance coverage received.
· Money and property inherited.
· Bank interest from deposits with banks.
· Dividends reinvested in the same entity (i.e. payer of dividends).
· Part of salary (or other taxable income) that is paid for an employee’s self-education or education of an employee's children under 26 in Uzbek higher education institutions.
· Long-term life insurance premiums if these are paid to legal entities that have an Uzbek insurance licence.
· Income received gratuitously from close relatives in the form of shares and stock.

Deductions from Income

Personal deductions

There are no personal deductions under Uzbek law. However, income directed for some purposes may be viewed as exempt for PIT purposes and is effectively a deduction.

Standard deductions

There are no standard deductions under Uzbek law.

Personal allowances

Certain categories of individuals are either fully exempt from PIT (e.g. diplomats) or granted a monthly deduction of four times the statutory MMW (e.g. veterans, disabled people, widows/widowers with children, women with many children).

Business expenses

The only other deductions available relate to income derived from entrepreneurial activities and represent expenses and mandatory payments and charges associated with such activities.

Losses

Uzbek legislation does not provide for any treatment of losses for individuals.



Corporate Tax

Resident corporations pay corporate income tax (CIT) on their worldwide income, whereas non-residents (i.e. foreign legal entities that have a permanent establishment [PE] in Uzbekistan or have income from sources in Uzbekistan not associated with a PE) pay CIT on income resulting from activities/sources in Uzbekistan.

Non-resident corporations are taxed directly at the level of their Uzbek PE, if there is one, or via WHT at the source of payment of the Uzbek-source income.

CIT is charged on taxable profit calculated as a difference between gross income and deductible expenses reduced by applicable incentives granted by the Tax Code, other laws, or presidential decrees.

The CIT rate is set annually by presidential decree. In 2017, enterprises (i.e. legal entities) are generally subject to CIT at the rate of 7.5%. Commercial banks are subject to CIT at the rate of 15%.

Companies providing mobile services are taxable on excess profits through differentiated CIT rates as follows:
· If profitability is lower than 20%, the CIT rate is 7.5%.
· If profitability is higher than 20%, 50% of the CIT rate is charged on profits exceeding the 20% level of profitability.

Simplified tax regime

An optional simplified tax regime is available for micro-firms and small businesses, which prescribes payment of one of the following taxes: unified tax payment (UTP), unified land tax (ULT), or fixed tax for certain types of entrepreneurs. For these taxpayers, the UTP, ULT, or fixed tax replaces the CIT, value-added tax (VAT), water-use tax, IDT, property tax, and other local taxes and duties.

Excise and customs duties remain applicable for this group of taxpayers (unless a specific exemption applies). However, micro-firms and small businesses producing excise-liable goods or engaged in subsurface extraction may not opt for the UTP regime.
UTP is obligatory for companies engaged in catering, retail, and wholesale, irrespective of headcount.

The general UTP rate is 5%.

ULT is payable by agriculture companies, and the rate is 0.95% of normative value of agricultural land.

Local income taxes

There is a local tax on accounting profit (less CIT), an infrastructure development tax (IDT), which is charged at a maximum rate of 8%.
IDT is reported jointly with CIT on a quarterly basis.

Taxable Income

Inventory valuation

Uzbek legislation permits the application of the weighted average cost method (AVECO) and the first in first out (FIFO) method for the valuation of inventory for tax purposes.

Capital gains

Capital gains arising from the disposal of tangible and intangible assets are calculated as the difference between the selling price and the net book value of an asset. The capital gain is included in taxable profits (unless specifically exempt), and the capital losses are deductible (only if the disposed asset had been used for business purposes for three or more years). This is applicable to Uzbek legal entities and PEs of foreign legal entities.

Capital gains of non-resident companies are subject to WHT at 20% as 'other' income. The obligation to withhold and pay the tax on income of a non-resident of the Republic of Uzbekistan is levied on the buyer of the property, a tax agent.

In the absence of the documents supporting the acquisition price, WHT on capital gains from the sale of property shall be assessed based on the sales price.

Dividend income

Dividends paid by a domestic subsidiary are subject to 10% WHT at the source. The net dividends received by its domestic parent company are then excluded from its CIT base. Such net dividends received by a foreign parent company are taxed in accordance with the respective country’s internal legislation or DTT provisions (if Uzbekistan has a DTT with this country).

Income of non-residents subject to WHT (including income in the form of dividends, interest, and royalties) is to be paid without withholding of WHT at source or with application of a reduced WHT rate as provided by a tax treaty, provided that there is a tax certificate confirming that non-residents are registered for tax purposes in the state with which Uzbekistan has the effective tax treaty (with certain exemptions). Such WHT exemption/rate reduction used to be granted through a preliminary approval by the Uzbek tax authorities.



Interest income

Interest income is subject to 10% WHT at the source. The net interest income received by companies is then excluded from its CIT base. Such net interest income received by foreign companies is taxed in accordance with the respective country’s internal legislation or DTT provisions (if Uzbekistan has a DTT with this country). Similar to other types of income of non-residents subject to WHT (including income in the form of dividends and royalties), interest income is to be paid without withholding of WHT at source or with application of a reduced WHT rate by automatic application of a DTT, provided that there is a relevant residence certificate.

Royalty income

Royalty income includes payments for:
· usage and granting of the right to use works of science, literature, and art, including software programs, audio-visual production, and objects of related rights, including performances and soundtracks, and
· usage of a patent (certificate) confirming the right to an industrial property object, a brand (service mark), a trademark, design or model, plan, secret formula or process, or information (know-how) concerning industrial, commercial, or scientific expertise.
Royalty income of Uzbek legal entities and PEs of foreign legal entities is included in taxable profits.

Royalties paid to non-resident companies with no PE are subject to WHT at 20% as 'other' income. The obligation to withhold and pay the tax on income of a non-resident of the Republic of Uzbekistan is levied on the payer of royalty, a tax agent.

Foreign income

Gross foreign income of a resident corporation (e.g. income from its foreign branch) should be included in its aggregate income on an accrual basis, regardless of remittance date. Expenses incurred abroad in relation to such foreign income can be deducted, subject to provisions of the Uzbek Tax Code. Foreign income tax paid on such income should be credited against the Uzbek CIT only if this branch is registered in a country with which Uzbekistan has a DTT. There are no deferrals for foreign income to be recognised for Uzbek tax purposes.

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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.

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This blog is Created by CA Anil Kumar Jain.