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Business Connections #11/2008
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Tax and Customs News

The information contained in this publication is for general guidance only.  You should neither act, nor refrain from acting, on the basis of such information.  The application of laws and regulations will vary depending on particular circumstances and may also undergo frequent change.  You should take appropriate professional advice relating to your particular circumstances and the current status of the laws and regulations.  PricewaterhouseCoopers disclaim all responsibility, including in negligence, for all consequences of any person acting on, or refraining from acting in reliance on, information contained in this publication.

Changes in Taxation

Below is the brief summary of the most important updates, which took place in the period   1 July 2006 – 15 January 2007.
Changes as of 1 January 2007

Corporate income (profits) tax

The corporate income (profits) tax rate is set at 10% (versus 12% in 2006).  A 17% tax rate is established for commercial banks.

Consistent with 2006, reduced rates are available to enterprises exporting goods (works, services) of own production for freely convertible currency, provided that the export share criteria are met.

Salaries of employees are now deductible expense for corporate income tax purposes for banks, credit unions, insurance companies.  Advertising expenses are also treated as fully deductible for all entities – payers of the Uzbek corporate income tax.

The following tax benefits were abolished:

7-year exemption for production enterprises with foreign investment included in the Investment Program;
exemption and reduced rates for newly established enterprises including those with foreign investment set up in rural areas;
reduced rates for newly established enterprises including those with foreign investment.

Article 34 on corporate income (profits) tax withholding and Article 57 on personal income tax withholding of the Tax Code are amended with the following paragraph:

Income of non-residents from works/services performed outside of the Republic of Uzbekistan is not deemed as income from sources in the Republic of Uzbekistan.

Personal income tax

Amendment to Article 55 introduced new (reduced) personal income tax rates, as follows:

Income from:

2007 rate

2006 rate

1 to 5 MAW*

13%

13%

5 MAW (+UZS1) to 10 MAW

18%

20%

In excess of 10 MAW

25%

29%

* MAW – minimal annual wage (UZS12,240 x number of months)

Unified tax payment

As of 1 January 2007 the simplified regime of unified tax payment is extended to wholesale / retail sale and public catering companies as a replacement of all taxes and obligatory contributions previously charged to such companies.  This regime is mandatory for wholesale / retail sale and public catering companies.

Below we provide some of the unified tax payment rates:

for wholesale / retail sale companies – from 1% to 5% of gross revenue (depending on the company’s location);
for public catering companies – 10% of gross revenue;
for legal entities (except for listed otherwise) – 10% of gross revenue.

Payroll social security contribution (by employers)

The unified social payment rate is reduced from 25% (in 2006) to 24% (in 2007).

Land tax

The new rates of land tax and unified land tax are introduced.  In particular, the land tax rates charged on companies in Tashkent range from 3,793,529 Soums per hectare of land to 41,423,705 Soums per hectare of land depending on the zone where the company is located.  The 2007 new rates of land tax are higher by approximately 50% compared to 2006.

Water tax

The water tax rates are increased by 50% compared to the 2006 rates.  Enterprises (except for hydro stations, utility companies, agricultural companies and individual entrepreneurs) will now pay 1,440 Tiyin (14.4 Soums) per 1 cubic meter of surface water and 1,845 Tiyin (18.5 Soums) per 1 cubic meter of water used from underground source.

Excise tax on excise-liable goods produced in Uzbekistan
Some of the rates are changed as follows:

 

2007 rate

2006 rate

Beer

Range: 100 to 220 Soums per 1 liter

Range: 80 to 170 Soums per 1 liter

Petrol

28%

45%

Diesel

25%

40%

Natural gas

25%

19%

 


Changes as of 11 October 2006:

Settlements with budget

Late payment interest will no longer be charged on a taxpayer’s underpaid balance of one type of tax if this taxpayer has overpayment of other taxes.  However, the tax authorities should confirm the overpayment of these other taxes.

The late payment interest cannot exceed the amount of underpaid tax.

The taxpayers have the right to pay tax liabilities in monthly instalments if the amount of underpaid taxes exceed 20% of taxpayer’s current assets as at the latest reporting date.  Instalments should not exceed a 6-month term from the date when the decision on tax collection is made.

Shifting powers to the courts

Certain powers were shifted from the state authorities to the courts as follows.

Stoppage of the bank account transactions of the taxpayers should be made only in accordance with the courts’ approval.  However, the tax authorities retain the right to stop the bank account transactions of the taxpayers in proven cases of money laundering and financing of terrorist activities.

Seizure of taxpayers’ assets cannot be enforced unless executed in accordance with the courts’ approval.

Certain state authorities and regulating bodies may temporarily (up to 10 days) stop the operations and license of the taxpayers.  However, stoppage of the taxpayers’ operations or license for the period exceeding 10 days may be executed only upon receiving the courts’ approval.

Introducing certain mitigations to taxpayers

When “unavoidable uncertainties, contradictions and vagueness of normative acts regarding taxes, duties and other mandatory payments” take place such cases should be ruled in favour of the taxpayers.

The taxpayers will be released from payment of financial sanctions if they voluntarily compensate for underpaid taxes and late payment interest due within one month of filing of the lawsuit case.  [Previously the taxpayers were charged with the financial sanctions irrespective of their position in regard to the tax underpayments.]

If the taxpayers dispute the tax underpayments then the due financial sanctions may be collected only when prescribed by the courts’ ruling.

Execution of the tax authorities’ decision on collection of taxes is stopped when the taxpayers file the lawsuit case with the court.  [Execution of such decisions in the past was stopped upon the courts’ instruction.]

Reduction of fines, penalties and late payment interest

The late payment interest rate was reduced from 0.07% per one day of delay to 0.05%.

Non-filing, late filing or filing of the tax returns under incorrect format is subject to administrative fine when such wrongdoing is made for the first time.  If repeated within one year, the tax authorities should impose the penalty in the amount of 1% of unpaid tax for each late day with the maximum penalty amount not exceeding 10% of unpaid tax.  [Previously, the taxpayers did not have this “warning” fine and this penalty was charged for the first time wrongdoing.]

The fine charged for “concealed” revenues is reduced from 200% to 100%.  Similarly, the fine for operating without a proper license obtained is reduced from 200% (gross) to 100% (net of due taxes paid).

The maximum penalty for non-maintenance or incorrect maintenance of book-keeping (accounting system) which resulted in failure to determine the applicable taxes is set as the lower of 1% of the turnover or 50 times the minimum monthly wage.  The taxpayers are obligated to reinstate their book-keeping.  [According to the previous rules the taxpayers were charged with penalty in the amount of 10% of additionally accrued taxes resulted from the failure to maintain their book-keeping.]

The 10% penalty for incorrect preparation of the VAT-invoices is cancelled. 

In cases when VAT-invoices are incorrect and, as a result, the underpayment of taxes occurs, the taxpayers (suppliers) will be charged with late payment interest only.

The new rules also cancel the 10 times the minimum monthly wage penalty for incorrect preparation of the VAT-invoices.  [Previously the taxpayers (suppliers) were subject to this penalty even if such mistake did not cause the underpayment of taxes.]

Business Connections #6/2007

Business Connections #6

 

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