Controlled foreign companies
Tax residents of Uzbekistan are required to notify tax authorities of Uzbekistan of participation in foreign legal entities. The notification is submitted upon the acquisition (change or termination) of shares in a foreign legal entity, as well as annually when the profits of a controlled foreign company are subject to taxation in Uzbekistan.
In particular, tax residents of Uzbekistan are required to:
- notify tax authorities of Uzbekistan no later than one month from the date of the acquisition (change or termination) of shares in a foreign legal entity
- notify tax authorities of Uzbekistan about controlled foreign companies no later than March 20 of the year following the year in which the profits of a controlled foreign company are subject to taxation in Uzbekistan
If the tax authority has information that a taxpayer is a controlling person of a foreign company but has not notified the tax authority about it, the tax authority shall request the taxpayer to provide explanation or file a notification. The taxpayer has the right to challenge the request in court within 3 months from the date of its receipt. If the taxpayer does not challenge the request of the tax authority within 3 months from the date of its receipt, the taxpayer shall be considered to have recognized itself as a controlling person of the foreign company.
Controlled foreign company
For tax purposes, a controlled foreign company is a foreign legal entity that meets the following criteria:
- a foreign legal entity is not a tax resident of Uzbekistan
- controlling persons of a foreign legal entity are legal entities or individuals who are tax residents of Uzbekistan
A foreign structure that is a non-legal entity that meets the above criteria shall also be recognized as a controlled foreign company.
There are certain cases where a foreign company will not be considered a controlled foreign company. In particular, if the foreign company is an investment fund.
Controlling persons
For tax purposes, the following tax residents of Uzbekistan shall be recognized as controlling persons of a foreign company:
- a legal entity or individual whose share in a foreign company is more than 25%
- a legal entity or an individual whose share in a foreign company is more than 10%, if the share of participation of all persons – residents of Uzbekistan in this company is more than 50%
There are other cases when a tax resident of Uzbekistan may also be recognized as a controlling person. In particular, if a tax resident of Uzbekistan can exercise control over a foreign company in his own interests.
Taxable profits of controlled companies
If a tax resident of Uzbekistan is recognized as a controlling person of a controlled foreign company, it is obliged to pay tax in Uzbekistan on the undistributed profit of the controlled foreign company. The controlling person pays the following tax in Uzbekistan:
- corporate income tax, if the controlling person is a legal entity
- personal income tax, if the controlling person is an individual
The controlling person shall submit tax reports in Uzbekistan for the relevant tax with the following documents attached:
- financial statements of a controlled foreign company, or in the absence of financial statements - other related documents
- an audit report on the financial statements of a controlled foreign company, if, in accordance with the legislation of the state or the corporate documents of the controlled foreign company, the audit of the financial statements is mandatory
Tax exemption
Profits of a controlled foreign company are exempt from taxation in Uzbekistan if any of the following conditions is met in relation to the foreign company:
- it is a non-profit organization that, in accordance with the legislation of the foreign state in which it was created, does not distribute the profit or income between shareholders (founders) or other persons
- it is an active foreign company or an active foreign holding company (an active foreign company is a foreign legal entity whose income from passive activities is less than 20% of the total income for a relevant period)
- the effective tax rate on income (profit) for this foreign company in accordance with the legislation of the state of its permanent location is not less than the tax rate on the income tax in Uzbekistan
- it is a bank or insurance organization operating on the basis of a license or other special permit to carry out banking or insurance activities
If, based on the results of the financial year, a controlled foreign company cannot distribute profits (in whole or in part) among participants or other persons because the legislation of its state establishes an obligation to direct the profits to increase the turnover capital, then such profits shall not be taxed in Uzbekistan.