Tax regimes for companies in Uzbekistan: turnover tax vs VAT and profit tax

Uzbekistan has two company tax regimes and you pick one at registration, before you have traded a som. The wrong pick is expensive in both directions — and one kind of business is barred from the cheap one at any size.

The two regimes

Almost every foreign founder registering in Uzbekistan has never heard of either of these, and is asked to choose between them on the third screen of the registration form. The choice is reversible, but not costlessly, and one of the two is closed to a whole category of business regardless of size.

The difference that matters is not the headline percentage. Turnover tax is charged on revenue — everything that comes in, whatever it cost you to earn. VAT and profit tax are charged on margin: VAT on what you add, profit tax on what is left after expenses. A business with thin margins and high costs can pay more under 4% of revenue than under 12% plus 15%, and a business with almost no costs pays far less.

Turnover tax: 4% of what comes in

The rate is 4% of total income (Tax Code, Art. 467). Retail trade is rated by where it happens: 4% in cities of 100,000 people or more, 2% in other settlements, 1% in remote and mountain areas — a deliberate thumb on the scale for trading away from the cities. There is no VAT to charge, no VAT to reclaim, and one monthly return due on the 15th.

That last part is the real appeal. The compliance load on turnover tax is roughly a third of the general regime, no premises requirement attaches to it, and the address line in your budget stays at the cheaper end. For a services company billing abroad with few local costs, it is usually the right answer and stays the right answer.

VAT and profit tax: the general regime

12% VAT (Art. 258) and 15% profit tax (Art. 337) — 20% profit tax for banks, mobile operators and markets. VAT returns are monthly, due the 20th, with payment alongside. Profit tax is quarterly, due the 20th of the month after the quarter, with advance payments monthly by the 23rd.

It is more work and it is not automatically more tax. VAT you pay on purchases offsets VAT you charge on sales, so a company buying materials, renting real premises and paying local suppliers recovers a great deal of what it hands over. If your customers are themselves VAT-registered they would rather you were too, because your invoice becomes recoverable for them.

The threshold, and what crossing it does

Turnover tax is available below 1,000,000,000 UZS of total income in a year (Art. 461) — roughly $80,000, which is a lower ceiling than most founders assume when they hear “small company”. Above it the general regime is compulsory.

If you import goods, there is no choice

A company that brings goods across the customs border cannot use turnover tax at any size. Not above a threshold — at all, from the first import, on day one.

Importing is the exclusion that catches most foreign founders, but it is not the only one. Article 461 also closes turnover tax to:

• producers of excisable goods, and companies extracting minerals
• sellers of petrol, diesel and gas
• agricultural producers working 25 hectares or more of irrigated land
• lottery operators
• the managing partner of a simple partnership, for the partnership’s activity

If your activity is on that list, the regime question is already answered and the rest of this article is about budgeting for the answer rather than choosing it.

The 18 m² rule

The general regime carries a requirement that surprises people because it is not a tax rule at all: premises of at least 18 m². A company on turnover tax needs a registered address and nothing more; a company on VAT needs floor space, and the address stops being a formality and starts being rent.

In practice that is the difference between roughly $150–200 and $500–800 a month, and it is the largest single swing between the two regimes in an ordinary budget. The cost article puts it beside everything else, including the statutory rent floor that sits under any lease.

Payroll does not care which regime you are on

Whichever regime you land on, employing anybody costs the same around the wage: 12% social tax paid by the company (Art. 405), 12% personal income tax withheld from the employee (Art. 381–382), and a 0.1% pension contribution — 24.1% in charges, filed monthly by the 15th. This applies to the director from the first month the company exists, which is why it is a floor rather than a variable.

Taking the profit out

Dividends to a non-resident carry 10% withholding (Art. 382 p.1), commonly reduced by a double-tax treaty between Uzbekistan and your country — worth checking before you structure anything, because the treaty rate is often materially lower. Dividends to an Uzbek legal entity are taxed at 5% (Art. 337 p.11), and to a resident individual at 5% (Art. 381).

That withholding sits on top of whichever regime the company is on, and it is the reason the comparison above cannot be finished on rates alone: a company distributing everything each year and a company reinvesting have different answers.

Which one you will actually be on

• Importing goods? VAT and profit tax, from day one, no discussion.
• Expecting more than 1,000,000,000 UZS a year? You will get there, so plan the premises and the filing load now rather than mid-quarter.
• Selling services abroad with few local costs? Turnover tax, and it will probably stay the right answer.
• Selling to Uzbek companies that are VAT-registered? Worth choosing the general regime deliberately even below the threshold — your invoice becomes recoverable for your customer, which is sometimes the difference between winning the contract and not.
• Buying a lot locally? Run the arithmetic both ways. Recoverable input VAT can make the general regime cheaper in absolute terms, whatever the headline rates suggest.

The regime is chosen on the registration form and can be changed afterwards; what cannot be undone is discovering the choice was wrong three months in, with returns unfiled and no premises. It is a ten-minute conversation before you register and an expensive one after.