Tax liabilities of foreign companies in Uzbekistan. Permanent establishments (Ryskiyeva & Partners Law Firm)

Tax liabilities of foreign companies in Uzbekistan.

Permanent establishments

Any foreign company wishing to conduct business and receive income in Uzbekistan may face certain tax liabilities in Uzbekistan.

According to Article 36 of the Uzbek Tax Code, a permanent place of business of a foreign company in Uzbekistan may create a tax status for this company, which is called a «permanent establishment» (PE). A PE is not an independent legal entity, but is formed purely for taxation purposes of income of a foreign company in Uzbekistan. One should note that when concluding any agreement (contract), the party to this transaction shall be the foreign company itself, and not its permanent establishment in Uzbekistan.

A permanent establishment of a foreign company in Uzbekistan shall mean, in particular:

1) any place of management, branch, division, bureau, office, office, cabinet, agency, factory, workshop, shop, laboratory;

2) place of production, processing, assembly, packaging and packing of goods;

3) any place, including a warehouse, used as a retail outlet;

4) a mine (shaft), oil or gas well, quarry or any other place of extraction of natural resources;

5) an installation or facility (including its installation) used for exploration, development, extraction/mining and(or) exploitation of natural resources, but only on condition that the installation or facility has been used or is ready for use for more than 183 (one hundred eighty-three) days;

6) any place of activity (including control or observation) related to a pipeline, gas pipeline;

7) any place where activities related to the installation, adjustment and operation of gaming machines (including consoles), computer networks and communication channels, and attractions are carried out.

Also, a permanent establishment of a foreign company in Uzbekistan shall be considered as:

1) a construction site, a construction, installation or assembly facility or related supervisory (control) activity, provided that such site, facility or activity exists or continues for more than 183 days during any consecutive 12 (twelve) month period;

2) provision of services, including consulting services, performed by the foreign company through its employees or other personnel hired by it for these purposes, provided that such activity continues (for the same or related project of a person or related party of the foreign company) for at least 183 days during any consecutive 12 month period.

If one or more related foreign companies provide services at a construction site or other facility, as specified above, in different periods of time, each of which individually does not exceed the above-mentioned period(s) - 183 days, then the periods of activity for such services are added to the total period of time during which the activity was carried out at this construction site or other facility. For example, in practice, it happens that the tax authority identifies the formation (establishing) of a permanent establishment of a related party, even if this related party, through the presence of personnel at the construction site, did not reach the 183-day threshold for formation of a permanent establishment, but together with another related party exceeded this threshold.

If a person acts in Uzbekistan on behalf of a foreign company and usually enters into agreements (contracts) or plays a leading role in concluding agreements (contracts) on transferring ownership/title to goods (providing services) or on providing the property for rent on behalf of this foreign company, then the activities of such person lead to formation of a permanent establishment for this foreign company in Uzbekistan. However, the provisions of this paragraph do not apply if a foreign company carries out activities in Uzbekistan through an independent agent acting on the basis of a commission (agency) agreement or other similar agreement and not authorized to sign agreements (contracts) on behalf of this foreign company. In this case, if such an agent acts primarily on behalf of one or more foreign companies related to him, then this person is considered a dependent agent.

In the event that a foreign company carries out activities in Uzbekistan on the basis of a joint activity agreement (simple partnership agreement):

1) activities of each participant in such an agreement may form a permanent establishment in Uzbekistan;

2) fulfillment of tax obligation is carried out by each participant in such an agreement independently.

WHAT ACTIVITIES DO NOT LEAD TO FORMATION

OF A PERMANENT ESTABLISHMENT

The following types of activities in Uzbekistan territory, which are considered to be exclusively preparatory or auxiliary in nature and are not part of the main types of commercial activities of a foreign company, do not entail formation of a permanent establishment in Uzbekistan:

1) use of facilities solely for storing or demonstrating goods or products belonging to a foreign company;

2) maintenance of stocks of goods or products belonging to a foreign company solely for storing or demonstrating;

3) maintenance of stocks of goods or products belonging to a foreign company solely for processing by another (third) party (company);

4) maintenance of a permanent place of business solely for purchasing goods, products or collecting information for this foreign company;

5) maintenance of a permanent place of business solely for carrying out any other activity of a preparatory or auxiliary nature;

6) maintenance of a permanent place of business solely for any combination of the above types of activities, provided that the aggregate activity of this permanent place of business arising from such combination is of a preparatory or auxiliary nature. At the same time, preparatory and auxiliary activities shall be carried out for the foreign company itself, and not for other (third) parties.

However, provisions of the preceding paragraph shall not apply to a permanent place of business used or maintained by a foreign company, if this company or a related party carries out commercial activities through this or another place within Uzbekistan territory, and if at least one of the following conditions is met:

1) this or another place constitutes a permanent establishment for the foreign company or a related party;

2) the aggregate activity resulting from a combination of activities carried out by two entities, including foreign companies, through a permanent place or by the same non-resident or a related party through both places, is not of a preparatory or auxiliary nature.

At the same time, these rules are applicable if commercial activities carried out by two entities, including foreign companies, through a permanent place or by the same entity or a related party through both places, represent complementary functions within the framework of a common business activity.

Provision of foreign personnel for working in Uzbekistan by a foreign company to another legal entity does not result in formation of a permanent establishment in Uzbekistan, if the following conditions are met simultaneously:

1) such personnel act on behalf of and in the interests of the legal entity to which they are provided (sent);

2) the legal entity that provided personnel is not responsible for the work results of this personnel;

3) income of the legal entity from the provision of personnel does not exceed 10% (ten percent) of the total amount of its expenses for the provision of this personnel during the tax period.

THE MOMENT OF FORMATION OF A PERMANENT ESTABLISHMENT

The tax status of «permanent establishment» arises for a foreign company from the date of commencement of its activities in Uzbekistan. In this case, such date is considered as:

1) the date of conclusion (signing) by a foreign company of any of the following agreements (contracts) for:

a) providing services in Uzbekistan, including within the framework of a joint activity agreement (simple partnership agreement);

b) providing authority to perform actions on behalf of a foreign company in Uzbekistan;

c) acquisition of goods by a foreign company in Uzbekistan for use or sale inside Uzbekistan;

d) acquisition of services by a foreign company for providing services in Uzbekistan;

2) the date of conclusion (signing) of the first employment agreement (contract) for carrying out activities in Uzbekistan;

3) the date of arrival in Uzbekistan of a non-resident individual (i.e. a foreign citizen), hiring of an employee or other personnel by a foreign company to fulfill the contract (agreement) terms specified in paragraphs 1 or 2 above.

If several conditions specified above are met, the date of commencement of the foreign company's activities in Uzbekistan is recognized as the earliest of these dates, but not earlier than the first of the dates specified in paragraphs 2 and 3 above.

REGISTRATION AT THE TAX OFFICE

A foreign company that has a permanent establishment in Uzbekistan shall register as a taxpayer with the tax office at the place (region) of its business activities.

If a foreign company carries out business activities that result in formation of 2 (two) or more permanent establishments, which are subject to registration in one tax office (i.e. in one city or region), 1 (one) permanent establishment of the foreign company shall be registered for the group of such permanent establishments. However, this rule does not apply to business activities that form a construction site, construction, installation or other facility.

If a foreign company carries out business activities in two different places (cities, regions), and a permanent establishment is established in both places, then it is necessary to register separate permanent establishments in different regions. For example, a foreign company has a permanent establishment registered in Tashkent city and carries out similar activities in Fergana city, in this case it is necessary to register a permanent establishment with the tax office of Fergana city as well.

DEADLINE FOR REGISTRATION OF PERMANENT ESTABLISHMENT

A foreign company that has a permanent establishment in Uzbekistan shall file an application form to the local tax office for registration as a taxpayer not later than 183 (one hundred eighty-three) calendar days from the date of commencing its activities in Uzbekistan.

The application shall be accompanied by originals or notarized copies of the following documents (with translation into Uzbek language):

1) a document confirming state registration of a foreign company in the country of its residence (establishment);

2) special permits or licenses (if available);

3) a power of attorney or other document (if available) for the representative of foreign company;

4) an agreement (if available), execution of which leads to formation of a permanent establishment.

If a foreign company has entered into an agreement for a period exceeding 183 calendar days, an application for registration as a taxpayer and above documents shall be submitted to the local tax office not later than 30 (thirty) calendar days from the date the foreign company commences operations in Uzbekistan.

If a foreign company has entered into several agreements (two or more) under which the total period of its operations exceeds 183 calendar days, an application for registration as a taxpayer and above documents shall be submitted to the local tax office not later than 30 calendar days from the date the foreign company commences operations in Uzbekistan or enters into an agreement under which the total period of operations under several agreements exceeds 183 calendar days.

A permanent establishment is considered to be a VAT payer and is required to register as such with the tax office separately from registering a permanent establishment. When registering a permanent establishment as a VAT payer, the local tax office may request supporting documents at the place of registration of the permanent establishment. Such confirmation can be a lease agreement, which is registered in the official state database - on the website ijara.soliq.uz.

Please contact us to find out which taxes and mandatory fees the permanent establishments of foreign companies pay in Uzbekistan.

Ryskiyeva & Partners Law Firm

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