Tax Alert: 1 January 2014

Tax Code is amended as of 1 January 2014

By virtue of the Law of the Republic of Uzbekistan No.ЗРУ-359 of 25 December 2013 a number of amendments to the Tax Code were introduced as of 1 January 2014.  The most notable amendments are as follows.

Submission of corrected tax reports

According to Article 46 of the Tax Code a taxpayer has a right to resubmit tax reports within the statute of limitation which should be accompanied by an explanatory note commenting on the previously submitted tax report, the corrected data and its deviations.  In light of the changes introduced, there is no longer need for the accompanying explanation.

Financial sanctions are reduced by 5 times

As of 1 January 2014, a fine for concealment (understatement) of proceeds from the sale of goods (works, services) has been reduced from 100% to 20% of the concealed (understated) amount.  Besides that, all taxes and other obligatory payments charged on the concealed (understated) proceeds are also due for payment to the state budget.

Changes in Article 155

Paragraph defining the taxable object as a result of sale of property located in Uzbekistan is supplemented by provision saying that in case of absence of the documents supporting the acquisition prices of such property, withholding tax (WHT) would be assessed on the sales price.

Part 9 is reworded to read that a tax agent shall also be liable for paying WHT due (and late payment interest) in case of failure to withhold it in due order, as well as for inaccurate application of the tax treaty terms resulting in a lesser amount of WHT.  This additional trigger for the fine to be imposed on the tax agent is preconditioned by another amendment in Article 155, whereby income of nonresidents in the form of dividends, interest and royalty is to be paid without withholding of WHT at source or with application of a reduced WHT rate as provided by the tax treaty, provided that there is a tax certificate confirming that nonresidents are registered for tax purposes in the state with which Uzbekistan has the effective tax treaty.  Such exemption / rate reduction used to be granted through a preliminary approval by the Uzbek tax authorities.

Addition of new Article

New article 155(1) “Specifics of taxation of income of non-residents of Uzbekistan received from alienation of property” was added to the Tax Code.  This article shall apply in cases when shares (participation interest) in charter capital of an Uzbek company or real estate are sold by one nonresident to another nonresident company or individual.

The obligation on withholding and payment of WHT on income resulting from such disposal is imposed on the buyer that would be viewed as tax agent.  Taxable basis shall comprise the difference between the sales price and the acquisition price (in case the acquisition price cannot be determined, it would be the inventory value of the asset to be subtracted from the sales price).

List of Corporate Income Tax (CIT) benefits is reduced

As of 1 January 2014, some CIT benefits are abolished, e.g. exemption in respect of income received by investment funds directed at acquisition of shares of privatized companies; income received from sale and liquidation of fully depreciated assets.

Moreover, reduction of taxable base for CIT purposes is no more applicable (1) for funds directed to construction of colleges, academic lyceums, schools and preschool educational institutions, and (2) to commercial banks with respect to the amount of increase of time deposits of individuals, deposits on plastic cards and saving certificates.

Personal Income Tax (PIT) exemptions are revised

Income paid to family members of an employee with decease or to an employee due to the death of his/her family member is exempt from PIT in the amount of 12 times the minimum monthly wage (MMW) (previously the tax-free amount was 20 times the MMW).

Income of individuals from sale of non-residential premises and recurring sale of residential property shall be subject to PIT, if sale takes place more than 1 time (previously more than 2 times) in a consequent 12 months’ period.

Changes in Article 194

Article 194 was amended by additional paragraphs.  Thus, in case a real estate or shares (participation interest) in charter capital of an Uzbek company are sold by one foreign individual to another individual – resident or nonresident of Uzbekistan, or a legal entity – nonresident of Uzbekistan, the obligation on withholding of PIT on that income is imposed on the buyer who shall be viewed as tax agent.

This provision shall not apply when shares are sold at the stock exchange market, whereas it would be the clearing house of the stock exchange to withhold PIT in such a case.
 

List of Property Tax benefits is reduced

Article 269 is amended to exclude from the list of non-taxable property: property of legal entities used for needs of cultural, preschool and secondary institutions; property of agricultural enterprises; communication satellites; and property received under a financial lease arrangement.

Instead paragraph 16 of the list is reworded to read that non-taxable property shall include machinery and equipment in use no more than 10 years.

Value Added Tax (VAT) exemptions are revised

As of 1 January 2014, turnover from the following transactions are excluded from the list of exemptions: sale of property during privatisation; sale of fixed assets, intangible assets and construction in progress transferred as charter capital contributions; import of raw products, materials and feedstock for own production needs by companies with foreign investments specialising in manufacture of children shoes.

Addition of new Section

New section XVI(1) “Obligatory contributions to non-budget Fund of reconstruction, capital repairs and equipment of secondary schools, professional colleges, academic lyceums and medical institutions” was added to the Tax Code.  The section defines payers of these obligatory contributions, as well as other mandatory requisites.  (Previously, these contributions were regulated by a separate instruction.)

Foreign currency control legislation update

Resolution of the Cabinet of Ministers No.307 dated 13 November 2013 introduced amendments to the “Order of sale of foreign currency proceeds by economic entities” (Addendum No.1 to the Resolution of the Cabinet of Ministries No.245 dated 29 June 2000).

One of the most notable amendments defines that enterprises, which concluded foreign currency contracts for supply of goods (works, services) of their own production to be used in territory of Uzbekistan, shall treat the revenue received under such contracts as foreign currency proceeds.  Respectively, these foreign currency proceeds shall be subject to obligatory sale.

When performing obligatory sale of foreign currency proceeds economic entities are allowed to deduct expenses incurred in foreign currency for customs procedures outside of Uzbekistan, transportation, insurance, freight forwarding, commission, interest on loans issued by foreign banks and authorized banks of Uzbekistan, including interest of guarantors (except for interest on overdue and deferred loans), as well as the principal of the foreign currency loans that were issued for new construction, modernisation and technological renovation of the existing production until full debt repayment.

PwC would also like to remind you of approaching deadlines for PERMANENT ESTABLISHMENTS and PERSONAL INCOME TAX annual filings.

PERMANENT ESTABLISHMENT dates for 2013 tax filings are as follows:

Property Tax report is due before 25 January 2014;

  • Land Tax report is due before 15 February 2014;
  • Corporate Income Tax report is due before 25 March 2014.

PERSONAL INCOME TAX (PIT) return for 2013 is due before 1 April 2014.  In accordance with the Tax Code, Uzbek PIT is paid by tax residents - on their worldwide income, and non-residents – on their income received from Uzbek sources.  An individual is deemed to be tax resident if he/she spends 183 days and more during any consecutive 12-month period ending in a calendar year.  The Tax Code further states that if the foreign national has become tax resident prior to 1 April of the year following the reporting one (i.e. has arrived in Uzbekistan prior to October 2013 and stayed through 1 April 2014), he/she is required to file a PIT declaration for the year of arrival (i.e. 2013).

Please feel free to contact us with queries on the annual tax filing requirements or in case you need support on other tax issues.