Invest Asia Group in Uzbekistan
Last Update: 12th October 2020
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Khiva in Uzbekistan
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Uzbekistan is one of the fastest developing countries which achieved its independence on 1991. Since independence from the Soviet Union, it has been growing both economically and socially craving its place through becoming popular for its unique culture and strong economy. The country’s economy was fully concentrated on agricultural output under Soviet dominance – especially, cotton and grain. However, today’s world economy requires each country to be developed technologically not only in agricultural but also in industrial areas, of which Uzbekistan is expanding.
As of 2020, Uzbekistan is the 114th freest economically (world rank) and 26th among 42 countries in the Asia Pacific region meaning that although there are a great number of reforms being taken for the sake of an improvement in the Gross Domestic Product in recent years, it is still lagging behind the other developing countries. However, the last decade has made a sense with about 8% compound annual growth in GDP.
Uzbekistan is the world’s fifth largest exporter and seventh largest producer of cotton, and approximately 32% of exported goods were shared between gold and gold products (in 2019).
As of 2020, Uzbekistan is the 114th freest economically (world rank) and 26th among 42 countries in the Asia Pacific region meaning that although there are a great number of reforms being taken for the sake of an improvement in the Gross Domestic Product in recent years, it is still lagging behind the other developing countries. However, the last decade has made a sense with about 8% compound annual growth in GDP.
Uzbekistan is the world’s fifth largest exporter and seventh largest producer of cotton, and approximately 32% of exported goods were shared between gold and gold products (in 2019).
Uzbekistan: Overview
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Uzbekistan is a double-landlocked country without access to any oceans sea. The industrial zones where most of the products are manufactured and prepared for export are Navai, Karaulbazar, Kashkadarya and Fergana regions, while the capital city Tashkent is the most urbanized and economically the best location to launch a new business and call for the investors globally.
Currently, only approximately 10% of the land is being utilized for agriculture, because about half of Uzbekistan’s terrain is consistent of deserts. However, the historical monumental places located in the dry areas of Bukhara and Khiva are the destinations appealing increasing number tourists each year. The country in recent years is paying a considerable amount of attention to tourism and making use of its unique monuments as well as charming mountains, lakes and salubrious spots. Overall, as a developing country, Uzbekistan is craving its own economically dominant place globally after the reformations made by the second president since independence, Shavkat Mirziyayev. |
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Uzbekistan Regions
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Uzbekistan consists of 12 x regions (viloyatlar, singular – viloyat), 1 x autonomous republic (the Republic of Karakalpakstan) and 1 x independent city Tashkent (capital city).
Each region is divided into small districts (tumanlar, singular – tuman) and their main cities as follows:
Within the main regions, there are a few major cities and districts that are popular for international investment, business and living in Uzbekistan. |
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Uzbekistan Top Cities
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Over recent years, Uzbekistan urbanization has been increasing, however, many cities are largely undeveloped with 'old economy' jobs and lack of amenities for living/entertainment.
However, many cities are famous historically with centuries' old cities being popular among visitors. Some of the top cities of Uzbekistan with corresponding population size are as follows:
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The capital Tashkent city is currently the most favorable option for making an investment on especially real estate where there is a potential for the population size to grow dramatically in near future.
Samarqand, Bukhara and also Khiva (although a limited number of population) are the places of touristic investment, because of an increased flow of foreigners being enthusiastic about watching the charming monuments. |
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Business Operations in Uzbekistan
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Launching a new business in Uzbekistan was not a straightforward task to do before and after the independence. It took about 15-20 years for anybody in country to be eligible to run their own businesses with the corruption rate fading with and increasing pace day by day. Now it is not that difficult to operate your business nationally as well as internationally.
However, there are still a number of requirements to make an investment to the country especially the real estates can only be owned by the citizens of Uzbekistan. That is the reason why there is still no franchise of McDonalds. This is not to say that it is impossible, though. |
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Forming a Company in Uzbekistan
The new company formation process in Uzbekistan has become easier as reforms expanded throughout the country. If investors have a good business plan, low interest rate bank borrowing are available for qualified investors.
There are now more opportunities for people of huge ambitions to launch their enterprises as well as foreign investments with changing government rules and regulations. One aspect not to be forgotten is in which area you are supposed to start your business, because of monopolies available in certain ones of them as everywhere in the world. |
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Company Formation Procedure
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There are certain steps to be taken and considerations to be thought of before forming a new company in Uzbekistan which are outlined as follows:
1. Deciding the field of a business & learning the existing market as well as specific type of company to be incorporated (the most common is a Joint Stock Company - Aksiyadorlik Jamiyati); 2. Deciding on the destination of an office or a factory; 3. Find an office address, decide the basic elements (of incorporation) and prepare required documentation; 4. Signage of the memorandum of association between the founders of the company; 5. State registration, registration and issuance of permits for business entities(Enterprises with foreign investment are subject to state registration by the Business Entity Registration Inspectorates under district and city authorities (hokimiyatlar), enterprises with foreign investment are subject to state registration by the judiciary; |
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6. The recognition of legal entities and individuals who have signed a memorandum of association on the establishment of a joint-stock company as founders of a joint-stock company;
7. Constituent assembly; 8. The charter approved by the founding meeting (muassis) is the constituent document of the company; 9. The registration of the company within the state register in accordance with the state laws; 10. Determination on the statute fund of the society, shares, obligations and other stocks of the company and the net assets of the society; 11. Formation of the Register of Shareholders and the maintenance of shares; 12. Getting the company certificate, stamp and the license(for trading/product) to apply for a bank account; 12. Pursue tax and social insurance related procedures; There are some other further requirements to be considered depending on the type of the business and organization apart from the aforementioned procedures to form a new company. Invest Asia Group strongly advises investors to engage either an experienced local consulting company or an international law firm to navigate these processes. |
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International Investors
Forming a company in Uzbekistan is not a straightforward task for foreign investors. Whilst there are certain incentives for international investors/companies to launch businesses, there are also restrictions according to industry. These rules and incentives are monitored by the government with some strict requirements so please contact our team to find out the latest negative investment areas.
Corporate Taxes
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Various corporate taxes within Uzbekistan have always frustrated the business owners in and outside the country although their amounts are not exceedingly substantial. The taxes imposed on legal entities are listed below:
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Where to establish
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While launching a new business, one should certainly take the location into account according to the type of the business. The capital city Tashkent is the one with the top population size where the small business types match the most, and to establish the offices there. There a new business person can find the most demand on different products and services.
On the other hand, building a new factory or an industrial plant depends on the type of the factory. If it is supposed to manufacture textile products, then the destinations closest to cotton output are the perfect matches. Or the logistics warehouse best fits at the area, where there is a constant cultivation of fruits and vegetables, or otherwise for industrial products like cement and shoal. |
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Tax-Friendly Policies
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Various Tax Friendly Policies exist in Uzbekistan. There are different guarantees provided by the government of Uzbekistan for newly created enterprises with foreign investments (Decree of the President of the Republic of Uzbekistan No. DP-4434 of 10.04.2012).
Newly created enterprises with foreign investments in which the foreign investor’s contribution is at least USD $5 million, if the tax legislation changes, they are entitled to apply for 10 years from the date of their state registration the norms and provisions for the payment of the following taxes:
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In addition there are mandatory contributions to the Republican Road Fund and the extra budgetary Fund. The Extra Budgetary Fund is in relation to the reconstruction, overhaul and equipment of secondary schools, professional colleges, academic lyceums and medical institutions that operated on the date of their state registration.
Within the framework of investment projects worth over 50 million USD and a foreign investor’s share of at least 50 percent, the construction of the necessary external, outside the production site, engineering and communication networks is carried out at the expense of budget funds and other internal sources of financing (Decree of the President of the Republic of Uzbekistan No. DP-4434 of 10.04.2012). |
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Financial Markets in Uzbekistan
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The Financial Markets within Uzbekistan are largely undeveloped – most of the companies are owned solely by the CEO owning 100% of the stocks of the companies. There are listings on the Tashkent Stock Exchange but it has a low market cap. The provision of financial services such as lending, savings, money transfers, cash operations, insurance, collection, financial guarantees and currency trading are not set on the basis of international standards.
“It is true that there are still many norms in the field that still need to be addressed, especially those that need to be improved.” – said Alisher Kurmanov, chairman of the Senate Committee on Foreign Affairs, Foreign Economic Relations, Foreign Investment and Tourism. – Especially in the field of corporate governance and finance, it is necessary to intensify the work on training qualified specialists, raising financial literacy of the population, attracting free funds of individuals and legal entities to the country's economy through the sale of securities. |
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Tashkent Stock Exchange
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The Tashkent Stock Exchange was established in April 1994 and is the only stock exchange within Uzbekistan. Compared to the Russian Federation, post Sovient Union collapse, Uzbekistan gradually privatized state owned enterprises, meaning wealth disparity is less compared to in Russia where oligarchs control a large proportion of the wealth.
With just over 100 stocks listed on the Tashkent Stock Exchange and a small market cap (compared with neighboring countries) of approximately USD $5 billion, it's a small player with a bright future. |
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Uzbekistan Stock Types
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Within Uzbekistan there are a range of different financial products available which are listed below:
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Other ways to get exposure to Uzbekistan Stocks
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After the collapse of the Soviet Union, Uzbekistan has chosen a way of improving small businesses and has been going through the way of privatization – almost all the government entities have been sold to the private sector by means of stocks and shares. This, concurrently, means that the private sector today has its own interoperability of its organization. They can either build their businesses on the basis of their own investments or the foreign ones.
Foreign investors have the opportunity to cooperate with local citizens now to launch a new business. Currently, investors from China, Russia, Turkey, South Korea, French, Germany and the UAE have the most shares of foreign investments in Uzbekistan. Investments are commonly made within the real estate and industrial sectors. |
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Foreign Exchange
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The Uzbekistani So'm is the national currency of Uzbekistan and following the collapse of the Soviet Union, it was gradually implemented in 1993. Whilst Uzbekistan has experienced high rates of inflation, strong investment inflows over the recent years has reduced volatility and provided a more stable investment environment with reduced currency risks.
In 2019, Uzbekistan continued reforms by lifting currency controls to attract additional investment inflows and allow the currency to trade independently. |
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Commodities
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Uzbekistan’s economy has seen a substantial improvement after the privatization strategies being imposed after 1991. At the end of January-March 2020, the foreign trade turnover of Uzbekistan amounted to 8.1 billion US dollars, compared to 924.1 million US dollars in the corresponding period of 2019 or decreased by 10.2%. The country has the reserves of crude oil, gold, cotton, gas and the fertile land to cultivate fruits and vegetable. The statistics shown below creates the range of products being exported in the last quarter by order:
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Cryptocurrency in Uzbekistan
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In Uzbekistan, cryptocurrency is not in use at all currently. Although most people know that the cryptocurrency is one source of profit, they do not yet want to get use of them. However, there is an opportunity on some of the banks to exchange cryptocurrency to real cash.
An international conference on the blockchain industry and the opening ceremony of the UzNEX crypto-exchange took place on January 20, 2020 at the Korean Cultural Center in Tashkent. The purpose of the event, organized by the Digital Trust Fund to Support the Development of the Digital Economy under the President of the Republic of Uzbekistan, is to develop blockchain technology and inform the public about the role and functions of this technology in the socio-economic sphere. |
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UzNEX is the only stock exchange in Central Asia that has the national currency, credit cards and the US dollar. Citizens of Uzbekistan have the right to sell cryptocurrency on the exchange, and foreign residents can use all services of the cryptocurrency exchange that do not contradict the laws of Uzbekistan.
Moreover, Cryptocurrency mining is widespread with substantial investment from Chinese mining firms into Uzbekistan to take advantage of the cheap electrical costs. |
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Property in UzbekistanAccording to the Law of the Republic of Uzbekistan "On Property", the owner owns, uses and disposes of the property belonging to him.
Foreign citizens and stateless persons will enjoy property rights in the territory of the Republic of Uzbekistan on an equal base with citizens of the Republic of Uzbekistan, unless otherwise provided by the laws of the Republic of Uzbekistan or international agreements. |
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International Investors & Uzbekistan Property
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Foreign citizens have the right to own property in the territory of the Republic of Uzbekistan. The state guarantees the inviolability of this property and its free transfer to other states. Foreign legal entities have the right to own property necessary for carrying out economic activities and other activities not prohibited by the legislation of the Republic of Uzbekistan in the territory of the Republic of Uzbekistan.
The property of foreign legal entities is protected by the state. Reproduction and transfer of property is legal. The removal of capital controls and free floating exchange further encourages foreign investment into the Uzbekistan property market. |
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Property Taxes
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Taxes imposed on the properties is not that much complicated for both the citizens and the foreigners in Uzbekistan. The properties listed below are the subjects to the tax:
1. Houses, apartments, cottages; 2. Real estate objects not intended for business and (or) income-generating property; 3. Unfinished residential buildings. 4. Other buildings, structures and premises. Corresponding tax rates are outlined below as follows:
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In the absence of the inventory value established by the property valuation bodies, tax collection in the city of Tashkent and regional centers is set on the basis of the conditional value of the property was accepted in the amount of 20328.0 thousand Uzbek soums, and in other cities and rural areas in the amount of 8 833.0 thousand Uzbek soums.
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Best Locations to Purchase Property
Currently, the Capital city of Tashkent is the best location to purchase properties and real estates for both domestic and foreign investors.
Being the most populated area in Uzbekistan (and the capital), Tashkent today holds a great number of apartment buildings, and recently some business areas with their skyscrapers where global investors own properties and run businesses. |
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In terms of investment by country, Turkish investors hold the top position in investing in real estate in Uzbekistan. “Tashkent City” – the small business center constructed within the city was invested by the Turkish investors up to the restricted threshold. South Korea is the country which makes investments on the education and medical fields. Nowadays, there are some Korean hospitals constructed in the City.
The cities of Bukhara, Samarkand and Khiva are the cities where most foreign investors invest into the tourism industry. These are places where there is high tourism demand (except due to the current situation – Covid-19) and many large hotels are invested in by foreign investors. |
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Venture Capital/Private Equity in Uzbekistan
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Venture Capital in Uzbekistan is, as yet, not that popularized among the nation. However, there are some capitalists already in the country who are willing to find the talents among the youngsters of the country. There are some conferences, public meetings and startup weekends being held among investors and the startup initiators annually.
Startups mentioned below are some of the most successful ones in the country:
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Currently, almost all the given startups are invested by the national investors who are already successful in their businesses. The one which is one of the most popular is Murad Buildings real estate and construction company which is also currently building the NestOne – the first skyscraper in the Central Asia.
Other Jurisdictions in Central Asia
Kazakhstan
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Turkmenistan
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Tajikistan
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Kyrgyzstan
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