This article is an extract from The Mining Law Review, 11th Edition. Click here for the full guide.

I Overview

Uzbekistan has the world's fourth-largest gold reserves and is ranked 12th in the world and second among Commonwealth of Independent States (CIS) countries (after Russia) in terms of gold mining.2 Uzbekistan is among the top 15 countries with the largest uranium3 and copper reserves.4 As reported by the State Geology Committee (GeoCom) in 2018, only 20 per cent of Uzbek territory has been explored, with potential mineral resources estimated at US$5.7 billion. The country's explored reserves total more than US$1 billion.5

Metallurgy is one of the largest domestic industries, and the most mined minerals are copper, gold, silver and uranium. There are two dominant state mining enterprises: the Almalyk Mining and Metallurgy Complex (AGMK) and the Navoi Mining and Metallurgy Complex (NGMK); the latter was recently transformed into a joint-stock company, with uranium and rare earth metals production hived off into a separate state enterprise, Navoiuran. Both AGMK and NGMK are working to enhance their management structures, the methods for assessing and accounting for mineral reserves and their financial reporting, which, as acknowledged by a presidential resolution6 in January 2019, impeded production growth and deterred investment.

Under Uzbek law, all subsoil is under public ownership; use of the subsoil is allowed based on a licence (permit).7 The long-term programmes adopted in recent years are aimed at accelerating the development, modernisation and expansion of production of the large enterprises of the mining and metallurgical industry. In accordance with Presidential Resolution No. PP-4124 dated 17 January 2019, it is planned to increase production by 30 per cent at NGMK by 2026 and attract US$2.9 billion in investments into AGMK as well as increase copper production by 28 per cent and zinc by 75 per cent by 2023.

The President of Uzbekistan signed a new Resolution No. PP-319 on 14 July 2022, which aims to increase the extraction and processing of uranium raw materials up to 7,100 tons by 2030.

II Legal framework

The current legislation on subsoil use is based on the constitution and is composed of the Law on Subsoil, the Law on Production-Sharing Agreements and a number of presidential and governmental resolutions. The primary law in this area is the Law on Subsoil,8 which lays down the basic legal principles on mining and regulates the principal issues of possession, use and disposal of the subsoil. The general structure and direction of regulation over the mining sector are usually initiated by presidential decrees, and then incorporated into more detailed decrees of the Cabinet of Ministers (government). Relations in the mining industry, similar to other market relations, are also governed by the provisions of civil, tax, environmental, corporate, currency, land and other industry-related laws.

All subsoil operations in Uzbekistan are subject to licensing. There are several regulations on licensing, depending on the underground activity (exploration, development, artisanal mining, use of technogenic mineral formations, etc.) or the mineral that is sought after (ore minerals, non-metallic minerals, oil and gas). These regulate the conditions, requirements and procedure of licensing. All taxation questions are regulated principally by the Tax Code.

There are three groups of regulatory bodies in the mining industry: the government, local government bodies and specially authorised bodies.9 The government is the primary regulating body in the industry; it adopts policies for the development of the mining sector and licensing procedures, in addition to other matters. Local government bodies carry out supervising functions over the use and conservation of resources, and the prevention of unauthorised use of the subsoil. The specially authorised bodies are the following three agencies: GeoCom, the State Committee for Ecology and Environmental Protection (EcoCom) and the State Committee for Industrial Safety of the Republic of Uzbekistan. Among them, GeoCom is the main executive body responsible for the development of mining policies and is also the licensing and compliance monitoring body. EcoCom coordinates issues of environmental protection, standards for mining operations and waste management. Mining allotments for the development of mineral deposits are coordinated with the Committee for Industrial Safety in terms of ensuring industrial safety.

III Mining rights and required licences and permits

i Title

Subsoil title generally vests with the state. Under Uzbek law, the award of subsoil rights is possible through online auctions, tenders or through the concept 'first come, first serve' (see Section III.ii for more details). The president, in July 2019, ordered the adoption of international standards (ISO, OHSAS) in management and implementation of investment projects in mining, envisaging a licence agreement framework. The government is developing a model mining development agreement. On 25 March 2022, the government approved a new procedure for issuing permits (licences) for the right to use subsoil plots.

ii Surface and mining rights

Licensing

As a rule, each type of subsoil use requires the obtaining of a special licence (geological exploration, production mining, use of technogenic mineral formations, construction and operation of underground structures not related to mining, formation of protected geological objects, collecting samples of gemstone raw materials, paleontological remains and other geological collection materials).10 Nevertheless, there is no limit on the number of licences that the same person or entity may obtain.11

In addition, EcoCom and GeoCom are two authorised state licensing authorities. EcoCom is charged to issue permits for the right to build and operate underground structures for storage and disposal of waste, while GeoCom is the licensing authority for other types of rights to use subsoil plots.

A new regulation approved in March 2022 provides for the following three methods of granting a permit to subsoil users:

  1. online auction;
  2. tender; and
  3. first come, first serve.

The online auction method is used for geological exploration of prospective areas with a high level of exploration and potential for production of mineral resources, while the first come, first serve concept is generally intended for geological exploration of unexplored or poorly explored subsoil areas.

For extraction of mineral resources and use of technogenic mineral products (not on the balance sheet of the subsoil user), permissions will be awarded based on the results of the online auction or tender.

The list of available subsoil areas is compiled annually by GeoCom.

In addition, a permit can be issued based on first come, first serve in the following cases:

  1. if a legal entity is carrying out geological exploration of subsoil at its own expense;
  2. if there is presidential or governmental decision; and
  3. if the legal entity that partially or fully financed the geological exploration of mineral resources assigns the exclusive right to extract minerals from a prospected field to another person in agreement with the State Geology Committee.

Licenses for the right to use subsoil areas containing non-metallic mineral resources are also issued as a result of online auctions or based on the first come, first serve concept within the framework of the GeoCom investment projects, as well as tripartite agreements between GeoCom, the Uzpromstroymaterial Association12 and local executive authorities.

The new regulation sets the terms for subsoil use as follows:

  1. geological exploration – up to five years;
  2. extraction of minerals and use of technogenic mineral formations:
    • upon initial issuance of the permit – up to 10 years; thereafter, subject to submission of a feasibility study ensuring its extension in due time, taking into account the period of development of the deposit of minerals or technogenic mineral formations; and
    • after submission of the feasibility study – for the period established by the feasibility study commissioning the deposit of minerals or technogenic mineral formations;
  3. collection of rare earth samples, paleontological remains and other geological collection materials – up to two years;
  4. use of subsurface sites for construction and operation of underground facilities for purposes not related to production of minerals, including underground storage of oil, gas, gas condensate, other substances and materials, storage and burial of waste – unlimited period of time; and
  5. construction of protected geological objects – an unlimited time period.

Land plots with mineral deposits cannot be privatised.

Mining rights protection

The law guarantees the right of the subsoil user to operate without interference from state bodies. The right to seek remedies against damage (including lost profit) resulting from such interference (i.e., unreasonable limitation, suspension or termination of the right to use the subsoil) is also guaranteed.13 The infringed company may apply to court for relevant compensation or another type of remedy.

There are also additional guarantees for subsoil users that have financed the geological exploration of mineral resources.14 They have the exclusive right to obtain licences to mine on the discovered field. If the financing person chooses to reject the guaranteed mining right, such a right is provided to another person based on the results of an auction held on the marketplace in accordance with the general provisions.15

iii Additional permits and licences

In addition to the licensing requirements, there are several other permits and procedures (land allotment and environmental issues, water use permits, planning and project documentation approvals) that precede mining operations. Production mining rights can only be awarded after their reserves have been approved by the State Commission for Mineral Reserves under GeoCom. If new types of minerals or associated mineral components unknown at the time of issuing the licence are identified, as well as new properties or qualities of minerals in the production field, subsoil users are obliged to send geological materials to the Commission to reapprove the reserves.

In order to obtain land use rights, the licence holder needs to obtain the mining allotment from the Inspectorate for Control of Mining and Geological Activity at the State Committee for Geology and duly register their right of use to the land with the cadastre bodies. If applicable, the licensee may also need to obtain a permit for special use of water or water consumption. There is a specific permit requirement for importing and operation of drones, which has to be granted by a separate resolution of the government.

The following documentation for projects involving extraction or processing of strategic minerals (which comprises almost all metal and precious minerals, hydrocarbons and rare earth metals), regardless of the funding sources, is subject to state examination:

  1. terms of reference for the development of pre-project documentation;
  2. pre-project documentation (feasibility study and technical and economic assessment) for investment and infrastructure projects; and
  3. design documentation (standard projects).

This requirement does not apply to projects for which a separate procedure has been established for development, examination and approval (by presidential decision), as well as to projects implemented under PSAs.16

iv Closure and remediation of mining projects

Both the liquidation and conservation of mining enterprises are usually carried out on the basis of a special technical project.17 The fulfilment of the subsoil user's obligations on liquidation of consequences of subsoil use must be secured by a guarantee, pledge of a bank deposit or insurance. Security must be issued separately for each subsoil plot.18

IV Environmental and social considerations

i Environmental, health and safety regulations

Environmental regulations

Currently, there is no special law on environmental requirements for mining activities. In general, irrespective of the type of activity, all companies must comply with the environmental regulations. The legal basis for environmental controls is laid down by the Law on Environmental Protection. Compliance with environmental regulations is supervised by the government and EcoCom.19

In cases where harm is caused to the environment (e.g., unintended use, subsoil pollution by chemicals, fertility deterioration), the right to use the land may be revoked by the state.20 Moreover, any company involved in an activity that produces waste (in the course of extraction or processing) must comply with sanitary and environmental standards, monitor levels of waste that are hazardous for the environment and people, provide conditions for safe waste utilisation and avoid waste disposal within unauthorised territories.21 More detailed rules are found in the Uniform Rules of Subsoil Protection for Development of Mineral Deposits. According to these rules, a company involved in mining must, at its own expense, conduct recultivation of the land after termination of all works on all lands suitable for farming, forestry or any other agricultural activity, or support the fishing industry. It is the company's responsibility to maintain necessary facilities and equipment for the prevention, control and remediation of waste products. Moreover, it is strictly forbidden to start mining works if a company does not operate the above-mentioned facilities.22

Health and safety regulations

Uzbek law does not differentiate health and safety regulations depending on the company's type of activity. Therefore, all types of health and safety regulations and other correlated legislative instruments have to be observed by mining companies. Employers should insure their liability for any harm that may be caused to an employee's health as a result of work-related injuries, professional illness or other damage caused during the employee's employment.23

Supervision by the regulatory bodies administering the observance of laws on safety precautions may be divided into external and internal controls. External control is performed by the government24 and the Ministry of Employment and labour relations, while internal control is carried out by the company's employees or trade union, or both.25

Health regulations

Labour law26 requires the employer to provide preliminary (pre-employment) and periodical (throughout employment) medical examinations for some groups of employees, such as: (1) underage employees; (2) age 60+ male and 55+ female employees; (3) disabled people; and (4) people working under challenging environments, during the night and in work related to transportation and other areas.

The frequency of such periodical medical examinations depends on the character of the employee's professional duties and his or her position. Employees engaged in mining activities are required to be medically examined by a physician, neurologist, ophthalmologist, surgeon, psychiatrist, reproductive health specialist and skin specialist. For the purpose of provision of medical services to employees, the employer may freely enter into a contract with a competent medical institution of its choice. At present, the health insurance system is underdeveloped in Uzbekistan because of the absence of any specific law regulating this field. However, based on a company's internal policy, it is possible to apply on a voluntary basis to an insurance company to provide the company's employees with health insurance under a scheme that runs for a period of one year only.27

Safety regulations

Any company operating in Uzbekistan, irrespective of its type of activity, has to observe health and safety rules. In cases where the number of employees equals or exceeds 50 persons, the employer must establish a special department or position responsible for health and safety compliance. Moreover, if the company possesses 50 or more vehicles, an analogous department for traffic safety must be organised within the company. In cases where the number of employees or vehicles is less than 50, the employer may assign such duty to one of its senior managers.28 The specialists in the health and safety department and traffic safety department are responsible for internally controlling the observance of the health and safety rules by the employees.

All employees of the company must be properly informed by the employer of labour conditions and professional risks before conclusion of the employment agreement, or while they are on transfer to another position within the company.29 Moreover, the employer has an obligation to hold regular training sessions on accident prevention and occupational sanitary, fire protection and other health and safety rules. It is strictly forbidden to allow employees to start work without attending such training or without passing an internal health and safety exam held by the employer.30 In practice, the employee must sign the register journal before starting work. The employee's signature shows his or her understanding of his or her personal duties, and of any risks in the event of failure to observe safety rules while performing his or her duties.

ii Environmental compliance

Taking into consideration that sites of mining activities are classified as hazardous production facilities,31 any company involved in mining applies for civil liability insurance against risks to the environment, and the life, health and property of third parties.32

Before acceptance by an insurance scheme, the company's activity is subject to examination to establish its hazardous classification level. Identification of the level of hazard is performed by an expert body upon the company's application in an order prescribed by the inspectorate. The maximum term for inspection of the mining project by the expert body is three months.33

iii Third-party rights

There is no possibility for the application of third-party rights (including the rights of indigenous peoples) or other similar rights. The law guarantees the freedom of a company's activity as long as it is not prohibited by Uzbek law.34

iv Additional considerations

It is important to consider that the law imposes criminal liability for environmental pollution and failure to arrange adequate measures for liquidation of environmental accidents. Criminal liability is also imposed in the event of failure to follow health and safety precautions.35

The Law on Environmental Protection governs the prevention, detection and suppression of violations in the field of environmental protection and the rational use of natural resources, and ensures an increase in the effectiveness of environmental measures.36

V Operations, processing and sale of minerals

i Processing and operations

Uzbekistan is not a party to any World Trade Organization instruments, but it participates in regional agreements, such as those of the CIS. Under Uzbek law, international agreements prevail over national legislation.

In general, equipment and machinery being imported need to go through customs clearance, obligatory certification and licensing under Uzbek customs regulations.

In accordance with UP-6319, legal entities carrying out exploration works, as well as contractors and subcontractors engaged by them are exempt from customs duties on:

  1. temporary imports of special equipment required for exploration works for the period of exploration, survey and development of deposits; and
  2. customs duty on imports of equipment, material and technical resources and special equipment not produced in Uzbekistan required for prospecting, exploration and development of fields according to the lists formed in accordance with established procedures.

The permanent import regime represents full import and requires full payment of customs duties and charges. Certain goods are also subject to certification. If there is an intergovernmental agreement on the recognition of certificates of Uzbekistan with the country of origin, the certificate issued by the manufacturer shall suffice. If there is no such agreement, the certification is carried out by the national certification agencies.

Depending on the type of goods (such as equipment using radioactive substances), a special import licence may apply.

For goods originating from one of the 4737 countries to which Uzbekistan provides most-favoured-nation treatment, customs duties are paid according to the rates established by the law. If the country of origin is not a country with most-favoured-nation treatment, customs duties are paid at a double rate. In addition, there is a list of 10 countries with which Uzbekistan has agreed a bilateral free trade regime.38

Extracted minerals have to be prepared for shipping and processing in accordance with the requirements of the project, applicable state standards and technical conditions. Extracted minerals supplied to the consumer, or for processing, must be regarded as the final product of mining, subject to strict controls and accounting, in accordance with the Law on Subsoil. Technical specifications for the supply of mineral resources must be duly coordinated with and approved by any interested bodies. Regulations generally require the exercise of due care upon processing to ensure that the quality of the extracted minerals does not deteriorate.39

As to the use of foreign labour, the law requires work permits both for the employer (the right to employ foreign labour) and the employee (right to work) issued by the Agency on Foreign Labour Migration. Work permits are issued for up to one-year period and can be extended. The validity of the issued right to work for highly qualified and qualified foreign specialists is up to three years at the request of the applicant, with the possibility of an unlimited number of renewals. At the same time, highly qualified and qualified foreign specialists have the right to work part-time in Uzbekistan without receiving confirmation for part-time work.40

Regarding engaging the services of foreign companies, the law does not restrict such engagement and qualifies it as an import of services. The law requires such import contracts to be executed in writing.

ii Sale, import and export of extracted or processed minerals

The sale, import and export of minerals are subject to general rules of contracting and import–export operations unless specific provisions are envisaged by the mining project documentation or the PSA. Mining companies generally exercise freedom of contracting and sale of minerals unless specific provisions and limitations are stipulated by the project documentation or the PSA and other agreements. Strategic minerals are also subject to export licences.41

iii Foreign investment

For the purposes of works execution under a PSA, the investor must have a special banking account in Uzbekistan, or in the foreign states, specialised only for works under PSAs.42

There are currency limitations. For example, domestic companies cannot make payments with each other in a foreign currency, including to their accounts outside of the country. In addition, control of foreign currency in Uzbekistan is rather strict: foreign currency is generally sold by the foreign exchange market or banks. According to the new version of the Law on Currency Regulation, residents have the right to transfer foreign currency from their accounts with Uzbek banks or banks outside Uzbekistan to their accounts with banks of Uzbekistan without restrictions. The purchase and sale of foreign currency by residents and non-residents on the territory of Uzbekistan is carried out exclusively through the banks of Uzbekistan, and the purchase and sale of foreign currency on the interbank foreign exchange market is carried out exclusively by banks of Uzbekistan and the Central Bank of Uzbekistan.

Investors in the mining industry enjoy general investment protection offered by Uzbek law, and there is no special legislative act for mining investors. Investment law guarantees protection:

  1. against discrimination;
  2. against effects of certain changes in legislation worsening (through complication of repatriation of profits, additional requirements for the size of investments, restrictions on equity participation of a foreign investor in the charter capital of enterprises in the Republic of Uzbekistan, incorporation of additional procedures for issuing and renewing visas of foreign investors etc.) the investing conditions existing at the date of investment for a 10-year period;
  3. against nationalisation; and
  4. of the rights to profit repatriation and access to information.

Additional guarantees, such as government guarantees, state project financing and special tax and payment regimes are provided on the basis of special presidential decrees. It is common practice that any major investment projects or investment agreements in Uzbekistan are generally implemented by issuing of special decrees.

VI Charges

Tax issues in Uzbekistan are governed by the Tax Code effective from 30 December 2019.

The Uzbekistan taxation system mainly falls under two headings: taxes and fees. The Tax Code sets out the following definitions:

  1. 'taxes' are mandatory payments established by the Tax Code, paid to the state budget or to the state trust fund; and
  2. 'fees' are mandatory payments to the budget system established by Uzbek law, the payment of which is a condition for legal actions performed by authorised bodies and officials, including provision of certain rights, or the issuance of licences and other permits.

The following taxes are applied in Uzbekistan:

  1. value-added tax;
  2. excise tax;
  3. profit tax;
  4. personal income tax;
  5. subsoil use tax;
  6. special mining rent tax;
  7. water use tax;
  8. property tax;
  9. land tax; and
  10. social tax.

The procedure for introducing, calculating and paying fees is determined by the Tax Code and other legal acts.

i Royalties

Subsoil use tax

Subsoil use taxpayers are subsoil users that extract mineral resources from the subsoil, useful components from minerals or man-made mineral formations and carry out the processing of mineral resources with the extraction of mineral components. Tax rates are established by Article 452 of the Tax Code. For example, the tax rate for the mining of gold, silver, copper and zinc is 7 per cent.

The tax base for subsoil use tax is determined based on the cost of the volume of extracted (mined) finished product, calculated on the weighted average realisation price for a reporting period.

ii Taxes

Special mining rent tax

New tax effective for licence areas, where production of metals and hydrocarbons will start after 1 January 2022 at the rate of 25 per cent (but can be increased through competitive bidding) of the tax base. This is almost the same as the tax base for subsoil use tax and income tax (CIT), except differences in revenue calculation and deduction of expenditures. Rent tax applies only to upstream operations and initial processing. SMRT does not apply to activities under production-sharing agreements. An uplift is possible to the rent loss tied to the state bond interest (currently at 4.5 per cent) plus 2 per cent. Foreign companies may keep tax records in US dollars on an accrual basis.

Other taxes payable by subsoil users

Subsoil users also pay corporate tax and VAT (currently 15 per cent).

Tax rates on corporate income tax are set at 15 per cent.43

Incomes paid in the form of dividends and interest to residents of Uzbekistan are taxed at a rate of 5 per cent.44 Excess profits tax was abolished as per the new Tax Code from 1 January 2020.

As of 1 October 2021, the excise tax rate for exports of natural gas is set at zero per cent, and legal entities will be exempt from customs duty for imports of natural gas.

The Tax Code

The Tax Code provides for the following tax regimes: the standard tax regime and the simplified tax regime.

The following special tax regimes are established for certain categories of taxpayers in Uzbekistan:

  1. sales tax;
  2. for companies under PSAs; and
  3. for participants in special economic zones and certain categories of taxpayers.

Special tax regimes may include an exemption from certain taxes, the application of reduced tax rates and other tax benefits.

A foreign investor, with the exception of cases provided for by legislation on production-sharing agreements, pays taxes in accordance with the Tax Code at tax rates established for residents of Uzbekistan, unless otherwise provided by the PSA during the term of the PSA.

The standard tax regime envisages the payment by companies of all the aforementioned taxes and compulsory payments. Operation under the standard tax regime does not require companies to meet certain specific requirements under the Tax Code (i.e., investments).

In accordance with the Tax Code, subsoil users pay the following taxes and fees: subsoil use tax, special mining rent tax and annual licence fee.

iii Duties

Annual licence fee

In accordance with Presidential Decree PP-6319, dated 6 October 2021, beginning 1 January 2022, an annual licence fee was introduced for the use of subsoil for geological exploration. The new Regulation on the procedure for issuing permits for the right to use subsoil plots sets up annual licence fees. The annual licence fee for the use of subsoil for geological exploration in accordance with the term specified in the permit must be paid for each hectare of geologically explored subsoil in the following amounts:

  1. for main subsoil (hydrocarbons, precious, non-ferrous and rare metals, as well as other ore minerals): 10 per cent of the amount of the base estimated values (BEVs) (approximately US$2.70 to 2.80);45 and
  2. for non-metallic, including widespread mineral deposits: 15 per cent of the BEVs (approximately US$4.10 to 4.20).

iv Other fees

There are no other applicable fees.

VII Outlook and trends

The government has developed a new draft law on subsoil that – since May 2022 – has been in the parliamentary review process. While the objective of the new draft law was to modernise the legislative and regulatory basis for the mining sector to improve the investment climate, it needs important revisions and enhancement to compare well internationally, both in terms of the law's structure and concepts.