Uzbekistan is a rapidly growing market with a young and expanding economy. The country’s economy grew at a 7.4% annual rate in 2021, with GDP reaching 734.6 trillion Soum ($69.2 billion), with a key rate hike of 17% in 2022.
Companies can establish a business in this country and benefit from its excellent geographic location, abundant natural resources, and sizable population. The government has also significantly tried reducing bureaucracy and corruption and simplifying procedures to encourage foreign investment and enhance the economic climate.
Uzbekistan’s labor force is also strong and talented, boasting a high literacy rate and a strong work ethic. The economy of Uzbekistan is diverse, with a concentration on agriculture, energy, mining, tourism, and textiles. To facilitate the expansion of these businesses, the government has emphasized building infrastructure like trains, roads, and airports.
In this article, we have meticulously discussed everything you might require while setting up a subsidiary in Uzbekistan.
What are the Types of Subsidiaries in Uzbekistan?
The organizational-legal forms that business subsidiaries can take as decreed by the state of Uzbekistan have been listed in detail below:-
Limited Liability Corporation (LLC):
- This is Uzbekistan’s most popular kind of subsidiary.
- It offers its stockholders the least liability protection but is very simple to set up.
- This business form combines the advantages of a sole proprietorship or partnership with the liability protection provided by a corporation.
- An LLC is a separate legal entity, distinct from its members, meaning that its assets are safeguarded from any obligations or debts incurred by the firm.
Joint-Stock Company (JSC):
- A JSC is a subsidiary that functions similarly to a corporation.
- It is owned by shareholders who possess shares in the firm, and a board of directors manages it.
A Corporation with Additional Liability (CAL):
- A CAL, also called a Company Limited by Guarantee (CLG), is another form of subsidiary authorized by Uzbekistan.
- The firm members agree to be individually responsible for the company’s obligations up to a specific sum under this type of subsidiary.
- An economic partnership in Uzbekistan is a legal, commercial organization with authorized capital divided into members’ shares.
- Some participate personally in business activities on the partnership’s behalf.
A private enterprise (PE):
- This is another business subsidiary legalized in Uzbekistan. It is founded and controlled by a single person.
- In terms of tax planning, the income of a private firm, after paying taxes, belongs to the owner and is not subject to dividend tax, lowering the expenses associated with running a company.
How to Set Up a Subsidiary in Uzbekistan?
Before establishing a subsidiary business in Uzbekistan, ensure that you are familiar with the territories of Uzbekistan to understand territory-specific subsidiary laws. Here is a step-wise guide on how to register a subsidiary in Uzbekistan:
- Step 1: You should also examine which corporation best suits your purposes. Many businesses establish themselves as LLCs because it shields the parent company from liabilities resulting from the subsidiary’s conduct.
- Step 2: After you have decided on the desired business name, select at least five options. The company name registration is usually done online. Moreover, the company name cannot have terms such as ‘The Republic of Uzbekistan’, ‘Uzbekistan’ or its abridgments. You can check the company name availability at the State Register of Legal Entities.
- Step 3: Next step is to obtain the Tax Identification Number (TIN) from the State Tax Committee of Uzbekistan.
- Step 4: Prepare the founding documents to register the company. It includes the charter and other legal documents and minutes of the founders.
- Step 5: Register your subsidiary with the Ministry of Justice and get Company Registration Certificate.
- Step 6: Once the company registration in Uzbekistan is completed, obtain the licenses and permits to operate legally.
- Step 7: Open a bank account and submit the required minimum capital.
Benefits of Setting Up an Uzbekistan Subsidiary
Some of the vital benefits of a subsidiary company in Uzbekistan as a foreign business owner have been given below:-
- Economic expansion: This nation has consistently experienced substantial economic growth. This suggests that the economy is favorable for starting a business in Uzbekistan and that there are likely new business possibilities.
- Locational benefits: Uzbekistan is strategically situated in a critical area between Europe and Asia. This makes access to important transportation corridors like the Silk Road simple. The nation’s strategic location offers exceptional possibilities for foreign businesses involved in trade and transportation, making Uzbekistan the perfect place to establish a business.
- The abundance of natural resources: Uzbekistan has easy access to various natural resources. There is a lot of opportunity for establishing a business in Uzbekistan that relies on the energy, mining, and agricultural industries, including oil, gas, minerals, and agricultural land.
- Government incentives: The Uzbek government has introduced several incentives, including tax cuts, customs exemptions, and faster processes for business registration and licensing, to attract international investment.
- Great opportunities in various sectors: Agriculture, manufacturing, tourism, infrastructure, and renewable energy, are prioritized for development in Uzbekistan. Businesses in these sectors can be eligible for government funding and investment opportunities.
- Exponential market size: With a population of almost 34 million, Uzbekistan has a sizable market. This demonstrates the market’s great potential for foreign-based businesses, which could succeed by offering new services.
- Development and reformation of the business climate: To improve its business climate, Uzbekistan has taken steps including reducing bureaucracy, boosting transparency, and bolstering intellectual property rights. These steps aim to improve the business environment in Uzbekistan and make it more welcoming for entrepreneurs.
Documents to Prepare When Opening a Subsidiary in Uzbekistan
The following mandatory documents need to be submitted during the incorporation of a foreign subsidiary in Uzbekistan:-
- Application form
- A passport copy
- A registered domestic address
- Constitutive documents like charters (for LLC) or shareholders’ agreement
- Proof of registration and confirmation of fee payment
Documents submitted must be accompanied by a bank document verifying the state registration fee payment. The documents must also bear the signature and the seal and should be notarized or legalized. Alternatively, the Uzbek authorities may reject the papers, causing the registration procedure to be significantly delayed.
The registration of a legal body in Uzbekistan should take at most 30 (thirty) minutes, according to Uzbek legislation. It should take little time if the paperwork is comprehensive, properly signed, and fulfills all regulatory criteria.
What Business Forms Can Uzbekistan Subsidiaries Take?
In Uzbekistan, you can legally register your subsidiary as either of the following:-
- Limited Liability Corporation (LLC)
- Joint-Stock Company (JSC)
- A Corporation with Additional Liability (CAL)
- Economic partnership
- A private enterprise (PE)
Choosing the form of entity best suited to your business needs is key to successfully setting up a subsidiary company in Uzbekistan. Many businesses establish themselves as LLCs because it shields the parent company from liabilities resulting from the subsidiary’s conduct. If your firm has a few activities in Uzbekistan, you can set up a representative office to meet your needs.
Uzbekistan Subsidiary Laws
The subsidiary laws of Uzbekistan about each legal form essentially differ owing to different requirements. Some of these Uzbekistan subsidiary laws include:
- Subsidiaries should ensure they fulfill the shareholder and director requirements. For example, every LLC must have at least one board member (director) and one shareholder. The shareholder can be from any country, but the director must be an Uzbekistan resident.
- Ensure that the subsidiary has the minimum capital required to set up different forms of subsidiaries. It has to be deposited before incorporation.
- To ensure compliance for a foreign subsidiary in Uzbekistan, hiring a local accountant or lawyer is the best option because they thoroughly understand the country’s tax regulations.
Post Incorporation Compliance
Once you have successfully set up an Uzbek subsidiary as an offshore business owner, consider this post-compliance checklist for incorporation of a foreign subsidiary in Estonia:-
- Reserve the company name
- Open an in-country company bank account
- Deposit funds in the company bank account
- Register themselves with tax authorities and obtain tax registration certificates
- Register for Social Fund
Taxes on Subsidiaries in Uzbekistan
The incorporation of a wholly-owned subsidiary in Uzbekistan requires a thorough knowledge of taxation in the country. Regarding taxation of foreign subsidiaries in Uzbekistan, non-resident legal companies operating in Uzbekistan via a permanent establishment (subsidiary) have to pay a corporate profits tax on earnings derived from sources related to it, reduced by the net amount of permitted deductions.
The overall rate of business profits tax is 15%. Banks, polyethylene granules, cement companies, mobile telecommunications businesses, marketplaces, and retail centers must pay a 20% tax. E-commerce businesses, on the other hand, pay 7.5% in taxes.
For corporate profits tax, the tax base is the total revenue deducted by permissible deductions like business expenses. Some expenses can only be deducted within the legal limitations.
Tax Incentives for Businesses Setting Up a Subsidiary in Uzbekistan
In some situations, the taxable profit may be lowered when it comes to corporate profits. Foreign subsidiaries in Uzbekistan are entitled to claim an “investment deduction” in the form of accelerated yearly depreciation of intangible and fixed assets. These deductions are as follows:-
- 10% deduction of the expenses spent on new technological equipment, production modernization, or domestically produced software as part of investment projects to create information systems.
- 5% deduction of the expenses budgeted for production expansion in the form of new construction, buildings, and structures utilized for production purposes.
Other Important Considerations
One important thing to consider while setting up a subsidiary business in Uzbekistan is hiring a subsidiary outsourcing company or, in other words, a PEO. Availing of PEO services can help you save time, effort, and money by preventing you from taking repeated trips to Uzbekistan to fulfill the requirements.
Hiring an outsourcing company will give you extra time to tackle problems that may crop up during the incorporation process and enough scope to focus on business marketing and expansion.
To help you ease the process, hiring an outsourcing service or a specialist in Uzbekistan subsidiary legislation is your best bet. PEOs have dedicated teams of consultants, accountants, or lawyers trained to help you maintain compliance for a foreign subsidiary in Uzbekistan to avoid incurring fines or receiving penalties.
How Can Multiplier’s Employer of Record Help You Hire & Expand in Uzbekistan?
You can reap several benefits from establishing a subsidiary system in Uzbekistan as a non-resident company. However, the incorporation of a foreign subsidiary in Uzbekistan requires you to be thoroughly familiar with the legalities involved so you can remain compliant. Multiplier is a top-tier PEO dedicated to helping you meet all requirements needed in this venture. Our world-class team of professionals will take care of all legal matters to take your business forward.