Legal matters to be aware of for successful M&A in Uzbekistan

Introduction

Uzbekistan is a rapidly growing market located in Central Asia, and has been attracting increasing interest from Japanese companies in recent years. However, M&A in Uzbekistan, which has a different legal system and business practices, poses unique legal risks. This article explains the legal precautions that Japanese companies considering M&A in Uzbekistan should be aware of.

1. Foreign investment restrictions and industry restrictions

In Uzbekistan, there are some industries where foreign capital entry is restricted . When considering M&A, the first step is to confirm whether the target company's business area is exempt from foreign capital restrictions. If the industry is restricted, special approval may be required or there may be restrictions on the investment ratio.

2. Authorization and Approval Process

M&A transactions in Uzbekistan may require approval from the Antimonopoly Committee , a process designed to assess the transaction's impact on market competition. It's not uncommon for the process to take several months, from preparing the necessary documents to obtaining approval, so it's important to allow ample time for your transaction.

3. Consideration of labor laws

Local labor laws and practices are important considerations. In most cases, employees' employment contracts must be retained after an M&A, and appropriate measures based on local labor laws are required. Unilateral termination of employment or changes to working conditions may violate the law or may cause labor-management disputes.

4. Understanding the tax system

It is also important to understand the unique tax system in Uzbekistan. Details such as tax implications on capital gains, transfer pricing rules for intra-group transactions, and tax treatment for M&A debt should be considered with the help of an expert. Proper tax due diligence and the design of an acquisition structure are essential to avoid unexpected tax burdens.

5. The Importance of Due Diligence

Legal due diligence on local companies is essential, with particular attention to the following points:

• Title verification : Are ownership and use rights to important assets such as land, buildings, and intellectual property rights properly obtained?
• Contractual relationships : Are there any amendment clauses or transfer restriction clauses in contracts with important business partners?
• Legal compliance status : Are there any violations of important laws and regulations, such as industry laws and environmental regulations?
• Litigation risk : Are there any ongoing cases or potential litigation risks?

6. Important points to note regarding contract terms

It is advisable to include locally adapted contract clauses that reflect local legal customs and judicial practices, and it is also necessary to agree in advance on the governing law and the means of dispute resolution (jurisdiction or arbitration).

7. Choice of Dispute Resolution Method

It is advisable to determine in advance the means of dispute resolution in case a dispute does arise. In Uzbekistan, the number of cases in which international commercial arbitration is chosen is increasing. When including an arbitration clause, it is necessary to clearly stipulate the arbitration institution, place of arbitration, language of arbitration, etc.

summary

To successfully complete an M&A in Uzbekistan, it is important to have a deep understanding of the local legal environment and business practices, obtain the support of appropriate experts, and properly manage risks. In particular, thorough due diligence and contract design tailored to local conditions are key to avoiding unexpected problems.