Israel – Uzbekistan Tax Treaty

Business Activity in Uzbekistan

The economy of Uzbekistan continued to perform well, with GDP reaching 888.3 trillion Som ($80.4 billion) in 2022, recording a real growth rate of 5.7%. By sector, the major contributor was a 3.2% growth in the service industry, while manufacturing added 1.3%, agriculture 0.9%, and construction 0.4% to account for the remaining contributors. Also, farm productivity enhancement to meet the growing demand for Uzbekistan’s food products opens up export opportunities for providers of food preservation, processing, packaging, and transport solutions. The Government of Uzbekistan has drafted a national plan for the years 2019-2030 and integrated it into the chemical industry with 31 projects estimated at $12 billion. This plan aims to process minerals to produce higher-value products.

Bilateral Agreements Between Uzbekistan and Israel

1. International Investment Agreements
2. Double Tax Agreement

Reciprocal Promotion and Protection of Investments

The Reciprocal Promotion and Protection of Investments (RPPI) was signed on July 3, 1994, and went into effect on February 17, 1997. The RPPI is an agreement between Israel and Uzbekistan that is designed to encourage and safeguard investments made by individuals and companies from each country in the territory of the other. These agreements typically include provisions related to non-discrimination, compensation for expropriation, dispute resolution, and the transfer of funds.

To read the agreement in English click here.

Convention on the Prevention of Double Taxation

The Agreement between the Governments of Israel and Uzbekistan regarding the avoidance of double taxation was signed on September 14, 1998, and entered into force on December 31, 2000.

To read the agreement in English click here.

Applicability of the MLI

Israel has signed the Multilateral Convention, commonly known as the MLI. The MLI is a convention that is meant to fix double taxation treaties according to the BEPS framework.

Israel signed the MLI on the 7th of June 2017, with its provisions entering into force on the 1st of January 2019. Uzbekistan on the other hand has not yet signed the agreement.

Residency for Tax Purposes in Uzbekistan

Residence of an Individual

A person is considered a resident of Uzbekistan if they meet one of these conditions:

1. They spend 183 days or more in Uzbekistan within any 12-month period that overlaps with the tax year.
2. They spend less than 183 days in Uzbekistan but still more time there than in any other country.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

A resident corporation in Uzbekistan includes:

1. Uzbek legal entities (those registered in Uzbekistan).
2. Foreign legal entities that are considered tax residents of Uzbekistan under international agreements.
3. Foreign legal entities with their main place of management in Uzbekistan.

All other legal entities are considered non-resident corporations for tax purposes.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Uzbekistan

Uzbekistan Tax Authority is called the State Tax Committee of the Republic of Uzbekistan.

Income Taxation: 12%

Taxation of Companies and Branches: 15%

VAT: 12

Capital Gains Tax: 12%

Withholding Tax

Relocation to Uzbekistan

Uzbekistan provides several tax incentives that would make it an attractive location to which to relocate a business. For example, certain areas have a special tax regime where corporate and income taxes are at a low of 1%. Other taxes, which include property tax, land tax, and water usage tax, are also considerably reduced using special coefficients. These tax benefits also extend to foreign direct investments in enterprises, which are granted exemptions based on the investment amount, the share of foreign capital, and the geographical placement of a given business. Companies that invest in industries such as manufacturing, agriculture, or technology will be granted these exemptions, ensuring growth and development within the region.

Furthermore, Uzbekistan provides targeted incentives for key sectors such as oil and gas, electrical engineering, and textiles. For example, oil and gas exploration companies enjoy exemptions from income, property, land, and water usage taxes for the duration of exploration works. The textile industry benefits from reduced tax rates and customs exemptions on essential imports, making it an ideal environment for companies in these sectors. Uzbekistan’s focus on renewable energy also opens up opportunities with tax exemptions for energy producers. With these various incentives in place, Uzbekistan offers a competitive advantage for companies looking to expand, invest, and thrive in a growing economy.

The Jewish population in Uzbekistan is around 13,000 people, with roughly 3,000 being Bukharan Jews. The largest community is located in Tashkent, home to about 8,000 Jews. Smaller communities can be found in cities such as Samarkand, Bukhara, Fergana, and Andijan.

Real Estate Taxation in Uzbekistan

Property Tax for Legal Entities

Legal entities- residents and non-residents of Uzbekistan pay property tax, which is calculated based on the average annual book value of their immovable property. From 1 January 2022, the tax rate is 1.5% (3% for unfinished construction). From August 1, 2022, certain categories of taxpayers, who earlier had been released from property taxation, pay 1% of the tax.

New wells for oil and gas are exempt from property tax for the first two years and get a 50 percent tax reduction for the next three years.

The minimum taxable base per square meter of property is UZS 1 million for rural areas and UZS 2.5 million for Tashkent. Where the value of the property is below the above-mentioned rate, the independent valuation may be used by the taxpayer as a basis for taxation. Property tax shall not be imposed on property used by non-commercial organizations for non-business purposes.

Property Tax for Individuals

There is a special tax affecting property owner in Uzbekistan, which excludes non-residents if the treaties do not stipulate otherwise. The payment of taxation is made based on the cadastral value of the property, and the minimum cadastral value comprises UZS 42 million. The tax rate, following the type of property and size, may fall within the range of 0.25% to 1.5%. Reduced rates are in operation in the Fergana region.

Land Tax

Land tax applies to both resident and non-resident entities that own, use, and lease land. Non-profit organizations using land for non-business purposes are exempt. The tax rate depends on the location, quality, and use of the land. There are updated tax rates for non-agricultural land from January 2022, with a slight increase. The tax is calculated annually, with payment due quarterly or monthly, depending on the business’s tax regime.

Land used for apartment blocks is exempt from tax. Individual landowners and farmer households are also subject to land tax based on the land’s location and type.

From July 1, 2022, higher property and land tax rates on unused buildings and construction sites have been removed.

Transfer of Funds from Israel to Uzbekistan

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met. Our firm handles withholding tax matters with the Israeli Tax Authority.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit a 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax.

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more.

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Uzbekistan

Limited Liability Company (LLC) – A common business structure, where the owners’ liability is limited to their share in the company’s capital. It is popular among small and medium-sized businesses.

Joint Stock Company (JSC) – A company whose capital is divided into shares. This structure is typically used by larger businesses and allows for the trading of shares publicly or privately.

Private Entrepreneur (PE) – A business owned and run by an individual, similar to a sole proprietorship. This type is suitable for small businesses with fewer legal requirements.

Foreign Representative Office – A branch office established by a foreign company in Uzbekistan to represent its interests without directly engaging in business activities like sales or manufacturing.

Cooperative (Co-op) – A business owned and operated by a group of individuals for their mutual benefit, often in agriculture or small-scale production sectors.

Incentive Laws in Uzbekistan

Various tax exemptions apply to several special zones in Uzbekistan, such as free economic, pharmaceutical, and industrial zones.

These include:

• Land tax, property tax (for legal persons), and water usage tax exemption.
• Customs duties, except for the value-added tax and processing fees, exemption concerning construction materials, technological equipment, and raw materials, used directly in producing export-oriented goods, to the extent that goods listed above are not produced in the country.

These are the exemptions to stimulate investment and entrepreneurship in certain industries or areas. Since September 14, 2021, a special tax regime has been in operation in some districts of the Fergana region of Uzbekistan, which includes Sokh District, part of Rishtan District, and part of Fergana District. In this area, the tax rates in the CIT, PIT, ST, and turnover tax are

Reduced and equal to only 1%. In addition, properties and land taxes as well as water usage taxes for the entire special zone area shall be collected at a reduced rate of 0.1 times.

Uzbekistan Double Tax Treaties