From January 1, 2023, the districts and cities of Uzbekistan have been divided into 5 categories, according to which tax incentives and subsidies will be applied to businesses located in them. The relevant decree was signed by the President of Uzbekistan on December 30, 2022.

The decree was reportedly aimed at reducing economic inequality between the territories, introduce new approaches to the development of districts and cities.

In the period from January 1, 2023 to January 1, 2026, a differentiated taxation procedure will be introduced, in accordance with which:

a) business entities registered and operating in areas classified as category 5 (with the exception of large taxpayers, permanent institutions, budgetary organizations and state enterprises, as well as legal entities in the authorized capital (capital) of which the state share is 50 % and more) shall pay:

• income tax, turnover tax and social tax - at a tax rate of 1%;
• tax on property of legal entities and land tax on legal entities - at a tax rate of 1% of the amount assessed for these taxes;

b) entrepreneurs registered and operating in areas classified as category 5 shall be exempt from paying a fixed amount of personal income tax;

c) for business entities registered and operating in areas classified as category 4 (with the exception of large taxpayers, permanent institutions, budgetary organizations and state enterprises, as well as legal entities in the authorized capital (capital) of which the state share is 50% or more) the base tax rate of value added tax shall be set at 3%. At the same time, in cases provided for by law, reduced tax rates are retained for this tax;

d) Jokargy Kenes of Karakalpakstan and councils of people's deputies of the provinces will be entitled to introduce reduction coefficients in the areas classified as category 4:

• the minimum size of the tax on property of legal entities and land tax on legal entities established by the Tax Code - up to 0.3;
• personal income tax in a fixed amount for individual entrepreneurs - up to 0.5.

From January 1, 2023, the State Fund for Entrepreneurship Support provides:

a) small business entities registered and operating in areas classified as 4th and 5th categories, within the framework of the general established conditions:

• compensation to cover part of the interest rate exceeding the main rate, but not exceeding 40% of the main rate of the Central Bank, on loans and leasing of commercial banks;
• guarantee up to 75% of the amount of loans from commercial banks, but in an amount not exceeding 2.5 billion soums;

b) for small businesses, based on the level of risk, regardless of the guarantees of this Fund used by them for previously received loans - a guarantee for additional loans within certain general amounts and conditions.

Increased rates of subsidies provided to the population and entrepreneurs, as well as business measures based on the categories of districts and cities, were also approved. They are listed in annexes 2 and 3 to the decree.

According to the decree, all types of subsidies will be implemented according to the “2 + 1” principle: they are provided in the first two years, and if, based on the results of the assessment of these subsidies, their performance indicators are recognized as positive, their validity period is extended for an additional one year.

Subsidies, the duration of which is not defined, are recognized as introduced before January 1, 2025.

The decree states that subsidies are subject to return from their recipients with interest payments (penalty) accrued from the date of granting these subsidies at the main rate of the Central Bank in the following cases:

• misuse of provided subsidies;
• non-compliance with the conditions for the application of subsidies;
• providing false documents to receive subsidies.

At the same time, the amount of accrued interest payments (penalty) cannot exceed half of the amount of the granted subsidy.