Recent changes in legislation

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1 Tax Alert / Issue No. 4/ October 2016 Presidential Decree on improvement of business climate / New free economic zone to be created in Samarkand region / New benefits for joint-stock companies / 18 new projects added in Localization Program / Changes in export of certain agricultural products / New edition of the Law On Labour Protection Recent changes in legislation In this issue, we have summarised notable recent amendments in the Uzbek legislation Presidential Decree on improvement of business climate Presidential Decree No. УП-4848 of 5 October 2016 approved the Program of measures aimed at creation of favourable conditions for development of business activity, protection of private property and improvement of business climate (Program). In this newsletter we describe the most notable measures included in the Decree. Program envisages development of draft legislative acts, including Law to combat corruption (to be prepared by November 2016), Law on Ombudsman on protection of rigts and interests of business entities (by 1 st quarter 2017), Law on public procurement (by 2 nd quarter 2017), Law on administrative procedures (by 2 nd quarter 2017), Law on public-private partnership (by 3 rd quarter 2017);

2 Effective 1 January 2017, the Decree abolishes all types of unscheduled audits of business entities, except for audits due to liquidation of legal entity or short-term audits carried out exclusively by decision of the Republican Council on coordination of regulatory authorities; abolishes all types of cross audits of business entities, including those under criminal investigation; exempts business entities and their employees violating legislation for the first time from administrative and criminal liability, as well as from application of penalties and financial sanctions (except for late payment interest) if such entities voluntarily eliminate deficiencies and compensate damages, except for cases of harm to human life and/ or health; exempts first-time violators carrying out unrecorded business activity, from administrative and criminal liability in case of voluntary compensation of damages, registration as business entity and obtaining necessary permits within one month from the date of violation detection; abolishes criminal liability in the form of deprivation of right to carry out business activities; provides newly established manufacturing enterprises with foreign investment a right to apply the rates of taxes and other obligatory payments (except for the resource taxes and customs payments) effective at the date of their state registration for a period of 5 years. This right shall be applicable to all enterprises with foreign investments, regardless of the investment size; abolishes the requirement to register export contracts with state customs authorities, except for export contracts for specific goods( e.g. goods requiring export/ import licence; goods not covered by benefits; and goods prohibited for export); prescribes that issuance of certificate of origin for exported goods to an applicant that previously obtained certificate for identical goods shall be carried out within one business day. New free economic zone to be created in Samarkand region Establishment of a new free economic zone in Urgut district of Samarkand region is being considered. Currently, 40 industrial enterprises, including 19 joint ventures, operate in the industrial zone in Urgut district employing about 1,200 people. In 2017, it is planned to launch 78 new projects on industrial production and create around 3,400 jobs in the district. New benefits for joint-stock companies Additional benefits to joint-stock companies with foreign investments were introduced into the Tax Code by virtue of the Law of the Republic of Uzbekistan No. ЗРУ-411 of 23 September Specifically, joint-stock companies were included into the list of enterprises exempt from payment of state dues in courts of general jurisdiction and economic courts on claims of violations of their rights and legitimate interests (Articles 329 and 330 of the Tax Code). 2 PwC

3 In addition, Article 377 of the Tax Code describing procedure for application of tax benefits by enterprises with foreign participation was amended. Previously, all enterprises were required to have at least 33% of foreign participation in order to be eligible for exemption from payment of income tax, property tax, tax on improvement and development of social infrastructure, unified tax payment, and compulsory contributions to the Republican Road fund for a certain period depending on amount of investment. The amended Article 377 lowers the foreign participation threshold to 15% in respect of joint stock companies, while the threshold for other types of enterprises remains at 33%. 18 new projects added in Localization Program Resolution of the Cabinet of Ministers No.334 of 30 September 2016 introduced amendments the Program for localization of manufacturing of finished products, components and materials for the period Specifically, 18 new projects on production of electronic devices, domestic appliances and other aggregates. Enterprises participating in projects included into localization programs are eligible for various exemptions and benefits for a period of 3 years. Such exemptions (subject to certain limitations) include relief from payment of: customs payments (except for customs clearance fees) for imported technological equipment, spare parts and components not produced in the country, used in localized production; income tax, unified tax payment (for entities applying simplified taxation regime) in part related to the localized production; property tax on fixed assets used for localized production. If you are interested in receiving the updated list of projects included in Program please let us know. Changes in export of certain agricultural products Presidential Resolution No. PP-2603 of 19 September 2016 decreases the share of currency proceeds from export of fresh fruits and vegetables, grapes, melons, watermelons and gourds, that is subject to mandatory sale, to 25% (previously 50%). Also, at least 30% prepayment is now required for exporting of fresh, dried or processed fruits and vegetables, grapes, melons, watermelons and gourds. The remaining part shall be confirmed by letter of credit or guarantee of firstclass foreign bank (previously, export of dried or processed fruits and vegetables was made either under 100% prepayment or letter of credit/ guarantee of first-class bank). Effective 20 September 2016, specialized foreign trade company JSC "Uzagroeksport" is granted a right to export and sell fresh fruits and vegetables, grapes, melons, watermelons and gourds through direct export contracts as well as commission agreements with farming enterprises without prepayment, letter of credit or guarantee by first-class foreign bank to: foreign joint ventures and trading houses of JSC "Uzagroeksport"; leading foreign companies and importers who are reliable and longterm partners, in accordance to the list approved by the Cabinet of Ministers. 3 PwC

4 New edition of the Law On Labour Protection New edition of the Law "On Labour Protection" was approved by the Law of the Republic of Uzbekistan No. ЗРУ-410 of 22 September New edition of the Law was published on 23 September 2016 and will enter into force in 3 months from this date. Among the most notable changes in the Law are the following. Enterprises are now allowed to outsource function of labour protection to professional service providers in the field of occupational safety. Mechanism of audit of labour protection at enterprises is introduced to assess quality of labour protection systems and their compliance with effective legislation in this area. The Law introduced the list of positions subject to (re)assessment in respect to their working conditions at least once in 5 years. This list includes positions granting certain benefits and compensations, positions occupied by people with disabilities, positions at hazardous objects etc. 4 PwC

5 Let s talk For a deeper discussion of how this issue might affect your business, please contact: Michael Ahern, Partner, Tax michael.ahern@kz.pwc.com Otabek Muhammadiyev, Director, Assurance otabek.muhammadiyev@uz.pwc.com Jamshid Juraev, Director, Tax jamshid.juraev@uz.pwc.com Audit Organization PricewaterhouseCoopers LLC 88A, Mustaqillik prospekt, Mirzo-Ulugbek district, Tashkent , Republic of Uzbekistan T: +998 (71) , F: +998 (71) , PwC. All rights reserved. Not for further distribution without the permission of PwC. "PwC" refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm's professional judgment or bind another member firm or PwCIL in any way. The material contained in this alert is provided for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this alert. 5 PwC