Duties, royalties and taxes

Duties, royalties and taxes payable by private parties

What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit-based?

Uzbekistan’s Tax Code specifies several special taxes payable by subsoil users, including mining companies, in addition to general taxes such as corporate income tax (12 per cent), VAT (20 per cent), social tax (12 per cent), excise and customs duty, tax on petrol and other mandatory duties, as follows:

  • subsoil-use tax (gold, 25 per cent; silver, 25 per cent; copper, 15 per cent; zinc, 10 per cent; uranium, 10 per cent and coal, 4 per cent) is calculated on the value of the mineral resources produced and is payable on a quarterly basis for small entities and on a monthly basis for other types of entities. The value of the mineral resources for purposes of subsoil-use tax is generally determined using the average weighted sales price for the reporting period;
  • subscription bonus (gold, 10,000 times the minimum monthly wage (MMW); copper, 1,000 times MMW and uranium 500 times MMW) is a one-time fixed payment to the state for the right to explore and extract minerals in accordance with a subsoil-use licence;
  • commercial discovery bonus (0.1 per cent) is a fixed payment that is payable by subsurface users when a commercial discovery is made in the licensed territory. The rate of the commercial discovery bonus is determined on the basis of the value of proven extractable reserves (the value of the mineral resources is generally determined using the market price established at international exchanges);
  • excess profits tax (50 per cent) is payable in respect of certain types of minerals, which are determined in accordance with legislation (in 2019, only natural gas, copper, cement, clinker and polyethylene pellets were subject to excess profits tax); and
  • PSAs (the Uzbek Tax Code specifies the special tax regime for foreign companies conducting activities under PSAs. Thus, a foreign investor, its contractors and subcontractors under a PSA are exempt from payment of all types of taxes and mandatory duties with regard to exploration activities. Further, during the period of the PSA a foreign investor is required to pay corporate profit tax, land tax, water use tax, excise tax, social tax and special taxes for subsoil users (subscription bonus and commercial discovery bonus), excluding excess profits tax. Incentives granted to a foreign investor under the PSA are exemption from payment of VAT and property tax and exemption from customs duties that would otherwise be levied upon imported goods and works purported for activities under the PSA and upon export of products belonging to a foreign investor in accordance with the PSA).

A non-resident company operating or acting through a permanent establishment (usually, service companies) must pay a profit tax from its activity in Uzbekistan at the rate of 12 per cent. Domestic parties are not subject to this tax, although they must withhold 10 per cent withholding tax from dividends distributed to their foreign shareholders (the rate of dividends withholding tax may also be reduced under relevant double tax treaties).

No special tax incentives, excluding the incentives under PSAs referred to above, are generally available to companies conducting mining activities in Uzbekistan. However, it may be possible to negotiate tax incentives directly with the state. These are granted by Uzbek President’s special resolution.

Tax advantages and incentives

What tax advantages and incentives are available to private parties carrying on mining activities?

Generally, no special tax incentives are provided to companies conducting mining activities in Uzbekistan.

Tax stablisation

Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?

There are no direct tax stabilisation provisions under the Uzbek Tax Code, except for general provisions on stability of laws provided by a number of legislative documents. Pursuant to the Law on Protection of Foreign Investors’ Rights foreign investments are protected from any subsequent changes in Uzbek law, which may worsen investment conditions, for a period of 10 years from the date of the investment. In contrast to the Law on Protection of Foreign Investors’ Rights, the PSA Law provides similar stability provisions but for the entire period of validity of the PSA, without 10 years’ limitation. Pursuant to the PSA Law, if after the signing of the PSA, Uzbekistan adopts any laws or other legal acts that lead to deterioration of commercial results of the foreign investor’s operations under the PSA, then the provisions prescribed under the PSA continue to be applicable to the foreign investor. This rule does not apply to the changes made in the laws with respect to standards for safety of works, preservation of mineral resources, environmental protection and health of the population.

Carried interest

Is the government entitled to a carried interest, or a free carried interest in mining projects?

Currently, the concept of carried interest or a free carried interest is not used in Uzbekistan with respect to mining projects.

Transfer taxes and capital gains

Are there any transfer taxes or capital gains imposed regarding the transfer of licences?

Currently, the Uzbek Tax Code does not provide for a clear procedure of determining of capital gains with respect to transferred rights, especially if the entity receiver of the capital gain is located outside of Uzbekistan. However, the most recent trends show that such entities located outside of Uzbekistan are viewed by local tax authorities as receivers of the capital gain and are thus subject to the tax on capital gains in Uzbekistan.

Distinction between domestic parties and foreign parties

Is there any distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign parties?

Generally, the same tax regime applies to domestic companies and foreign companies whose activities in Uzbekistan create a permanent establishment for Uzbek tax purposes. Otherwise, foreign companies are subject to Uzbek withholding tax with respect to certain Uzbek-sourced income such as dividends, interest, royalties and other similar income, subject to reduction or elimination under any applicable double tax treaty. Further, income received from the provision of goods, work and services that creates no permanent establishment in Uzbekistan is not subject to any Uzbek withholding tax.

The Uzbek Tax Code specifies the special tax regime for foreign companies conducting activities under a PSA.

See question 19.