7. Tax Basics: Tax Code
This is the basic law regarding taxation, which is one of the most important factors that determine the structure and feasibility of M&A transactions. It stipulates taxation and preferential treatment for asset and stock transfers.
- Link : https://lex.uz/act/6457130 (Part II: Corporate Tax)
- Original text (excerpt) : Налоговый кодекс Республики Узбекистан. Раздел II. Налог на прибыль 8. Налогооблагаемый доход.
Статья 153. Доход от реализации имущества.
Доходом от реализации имущества признается… выручка от реализации… основных средств… нематериальных активов… ценных бумаг… - Translation : Tax Code of the Republic of Uzbekistan. Part II Corporate Income Tax. Chapter 8 Taxable Income.
Article 153 Income from the transfer of assets <br>Income from the transfer of assets means… income from the transfer of fixed assets, intangible assets, and securities. - Content and relevance to M&A :
- Transfer of shares : The seller is subject to corporate income tax (currently at a basic rate of 15%) on the difference between the transfer consideration and the acquisition price of the shares.
- Asset Transfers : Capital gains from the sale of assets are subject to corporate income tax and may also be subject to value-added tax (VAT).
- Loss carryforwards : Whether they can be carried forward after an acquisition depends on certain conditions.
- Incentives : Incentives such as tax holidays may be available for large investment projects or investments in specific regions.
8. Succession of Labor Rights: Labor Code
This is an important law that stipulates how the rights and employment contracts of employees of the acquired company are to be transferred when carrying out M&A.
- Link : https://lex.uz/act/6343229
- Original text (excerpt) : Трудовой кодекс Республики Узбекистан. Раздел II. Трудовой договор. Глава 10. Изменение трудового договора.
Статья 99. Изменение существенных условий труда.
…Вслучае изменения подведомственности организации… - Translation : Labor Code of the Republic of Uzbekistan. Part II: Labor Contracts. Chapter 10: Amendments to Labor Contracts.
Article 99 Substantial changes in working conditions
…if the ownership of the organization changes…the working relationship continues… - Content and relevance to M&A :
- Succession of employment : In the case of a stock transfer, the employer corporation itself remains unchanged, so employment contracts are automatically transferred. Even in the case of an asset transfer, the employment of employees working in the transferred business is generally transferred to the new owner.
- Restrictions on dismissals : In principle, unilateral dismissals due to a change in ownership are not permitted, and there is an obligation to respect the terms of existing employment contracts.
- Social Fund : The obligation to pay employees' social insurance premiums, etc. will also be inherited.
9. Establishing a local subsidiary for a foreign company: Foreign Corporation Branch and Representative Office Law
This law provides regulations for foreign companies establishing a branch or representative office instead of a local subsidiary (LLC or JSC), which is an important alternative or preparatory step for M&A.
- Link : https://lex.uz/act/3475992
- Original text (excerpt) : Excerpt from the original text Узбекистан филиалов и представительств иностранных юридических лиц.
п.4. представительства… представляет в уполномоченный государственный орган… заявление… учредительные документы… - Translation : Rules of procedure for opening and operating branches and representative offices of foreign legal entities in the Republic of Uzbekistan
4. To open a branch or representative office… a foreign legal entity must submit… an application… and articles of incorporation… to the competent state authority. - Content and relevance to M&A :
- As a pre-merge/merger and acquisition step , you may first establish a representative office to research the local market and build relationships.
- Difference from a subsidiary : A branch does not have independent legal personality, but is part of the foreign parent company. Therefore, the parent company has unlimited liability for the branch's debts. It is often chosen as a form of business management rather than as an entity for executing M&A.
- Registration requirements : Registration with the appropriate authorities, such as the Ministry of Justice, is mandatory.
10. Land Rights: Land Code
If the target business in an M&A transaction owns or leases land, this is extremely important in determining whether the rights can be inherited. There are restrictions on land ownership for foreign corporations.
- Link : https://lex.uz/act/3588936
- Original text (excerpt) : Земельный кодекс Республики Узбекистан. Раздел V. Возникновение земельных прав. Глава 18. Ограничения земельных прав.
175. Статья в частную собственность иностранным юридическим лицам…
Иностранным юридическим лицам… земельные участки предоставляются в частную собственность только для строительства и обслуживания объектов, входящих в утвержденный Кабинетом Министров перечень… - Translation : Land Code of the Republic of Uzbekistan. Part V. Creation of Land Rights. Chapter 18. Restrictions on Land Rights.
Article 175 Restrictions on the granting of private land ownership to foreign legal entities <br>The granting of private land ownership to foreign legal entities shall be permitted only for the construction and maintenance of facilities included in the list approved by the Council of Ministers. - Content and relevance to M&A :
- Restrictions on foreign companies : Foreign companies cannot generally own land. However, they can acquire long-term leases (up to 50 years). With certain exceptions (such as large investment projects), the acquisition of ownership rights is very limited.
- Due diligence : M&A due diligence involves verifying the target company's land rights (whether ownership or leasehold) and carefully considering whether the foreign company will be able to inherit those rights after the acquisition.
General points to note
As Uzbekistan's legal system is rapidly modernizing and changing, these laws are subject to frequent amendments. In addition, detailed procedures are often provided for in supplementary legislation, such as presidential decrees and Cabinet resolutions.
When actually pursuing an M&A transaction, be sure to:
- Check lex.uz for the latest version of applicable laws.
- Obtain advice from local law firms and experts to confirm accurate interpretation and application.
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