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Recent Changes in Taxation - Quarter 4 of 2005

Uzbekistan introduced the number of significant changes in its tax legislation in the period 1 October 2005 - 31 December 2005. Below is the brief summary of the most important updates.

Corporate taxes
Corporate income (profits) tax
Tax Rate
The general rate of corporate income tax in 2006 is 12% (rate reduction by
3% from 15% in 2005).

From 1 January 2006 the tax rate for Dividends and Interest income payable to non-residents is reduced to 10% from 15% rate in 2005.

Deductibility of expenses
Effective 1 January 2006 the following expenses are treated deductible for corporate income tax purposes:

-  Expenses related to maintenance and/or rent of light vehicles and/or microbuses;
-  Interest on long-term loans from banks and other financial institutions except for interest subject to capitalisation and interest which is related to overdue/delayed loans;
- Expenses related to issuance of securities.

Loss cany-forward
One of the most important amendments in the existing tax legislation was modification of the Tax Code Article related to loss carry-forward and introduction of loss carry-forward mechanism from 1 January 2006.

Loss is the excess of expenses that are subject to deduction in accordance with the Tax Code of Uzbekistan over taxable income.

The taxpayers have the right to carry forward losses within the period of five years following the reporting year in which losses are incurred.

The payers of corporate income (profits) tax which have losses in the previous reporting year(s) have the right to fully or partially reduce their taxable income (profits) of the current year. However the gross amount of
losses to be offset in each following year cannot exceed 50% of taxable income (profits) of that year and the tax base can be reduced for the amount of losses only based on annual results.

Losses incurred in more than one calendar year are recoverable in the order of their occurrence. Losses incurred in the period when the taxpayers were exempt from corporate income (profits) tax cannot be recovered in the following periods.

Payroll social security contribution (by employers)
Tax Rate
The rate for the unified social security contribution was reduced from 31% in
2005 to 25% in 2006.

Other corporate taxes
Ecology' tax
Before 1 January 2006 there was an obligation for all legal entities to pay ecology tax, which was charged at the amount of 1 % on of production cost and period expenses less taxes and mandatory contributions. Effective 1 January 2006 this tax is cancelled.

Land and water tax
In 2006 land and water tax rates were increased on average by 50% compared to 2005 rates.

Taxes on Individuals
Personal inсome tax
Tax Rote
Below is the table summarising the rate reduction for Uzbek personal income tax.

Expected Developments
In the period 1 January 2006 31 March 2006 the Ministry of Finance of Uzbekistan is expected to introduce the new Regulation on Unified tax. The previous Regulation had been cancelled by Presidential Decree #ПП 244 of 27 December 2005.