M&A in Uzbekistan: Key Points to Note for Foreign Companies

✨ Key Points

• Understanding the legal system is essential : A prerequisite for success is to confirm in advance Uzbekistan's company law, investment law, tax system, and certification requirements for foreign companies (capital of 400 million soums or more, foreign investment ratio of 15% or more, etc.).
• Due diligence is thorough : we understand the local commercial environment and financial reporting practices, and conduct thorough legal, financial, tax and HR investigations to identify potential risks.
• Don't underestimate cultural and personnel integration : Retaining management, maintaining employee motivation, and addressing cultural differences between the two companies are crucial to realizing value after an acquisition.
• Get expert help : Working closely with local legal, accounting and M&A advisors is essential to navigate complex procedures and negotiations.

📝 Basic M&A process and points to note at each stage

The M&A process in Uzbekistan generally proceeds as shown in the diagram below, with specific points to note at each stage.

ℹ️ Foreign company certification and main legal entity forms in Uzbekistan

If you are conducting M&A in Uzbekistan, you may be eligible for tax benefits if you are certified as a foreign-affiliated company . To be certified, you must meet the following conditions.

The main types of legal entities that can be established or acquired through M&A in Uzbekistan are as follows:

1. Limited Liability Company (LLC) : Investors are liable only to the extent of their investment. This is a relatively simple structure that is common among small and medium-sized businesses.
2. Joint Stock Company (JSC) : The capital is divided into shares. To qualify as a foreign-owned company, the capital must be at least 400 million soums .
3. Branches and representative offices : Their main purpose is market research and liaison work, rather than full-scale business development.

⚠️ Details: Specific points to note

1. Legal and regulatory considerations

• Foreign investment restrictions and national security screening : In Uzbekistan, there may be screening and restrictions on acquisitions by foreign companies in areas related to critical infrastructure and national security . Prior approval may be required depending on the industry, so it is essential to check in advance.
• Complex permit and license procedures : Depending on the business, additional permits and licenses may be required for business operations after the M&A is completed. Please research the conditions, duration, and costs of obtaining these permits and licenses in advance.
• Registration and license renewals : When there is a change in ownership due to M&A, existing business licenses and permits will often need to be renewed . Be prepared for this renewal process to take some time.

2. Financial and tax considerations

• Understanding the tax system and tax incentives : Be sure to fully understand Uzbekistan's tax system (corporate tax, value-added tax, consumption tax, etc.) and check whether investment incentives (tax credits, tax holidays, etc.) are available for foreign companies and specific industries and regions. Depending on the M&A structure, these incentives may not be able to be carried over.
• Funding and overseas remittance : Whether you are raising funds locally or remitting funds from your parent company, you need to be aware of foreign exchange risks and remittance regulations . You should also check the rules (permissions, restrictions, and taxation) regarding overseas remittance of profits in advance.

3. Personnel and organizational considerations

It is no exaggeration to say that the success or failure of an M&A depends on the people involved.

• Retention of management and key personnel : If key personnel with know-how and personal networks leave after an acquisition, there is a risk that business value will be significantly damaged. It is important to formulate a retention plan at an early stage and implement incentives (bonuses, revisions to compensation plans, etc.) to retain management and core personnel.
• Considering cultural differences : Japan and Uzbekistan have different corporate cultures , decision-making methods , communication styles , and working practices . Neglecting these cultural differences can lead to unexpected friction and confusion during the post-acquisition integration process, potentially delaying or even preventing the realization of synergies. Respecting cultural differences and engaging in ongoing, honest communication to foster mutual understanding is crucial.
• Scrutiny of labor issues : Due diligence should include a thorough investigation into potential labor risks and HR-related liabilities , such as unpaid overtime and unpaid social insurance premiums. It is also important to check whether the company complies with local labor laws (such as dismissal regulations and minimum wages).

💡 Advice for success

1. Assemble a team of local experts : Start working early with Uzbekistan law firms , accounting firms , and, if possible , M&A advisors . Local expert advice is your best investment to avoid risks and ensure a smooth process.
2. Focus on relationship building : Local businesses tend to value personal relationships , so make sure you take the time to build trust with the owners and management of your business, and potentially with government officials in the relevant ministries.
3. Be patient : As a former Soviet republic, Uzbekistan's bureaucracy and decision-making processes are different from those in Japan and may take longer than expected. Be flexible and patient as you go through the process.

Uzbekistan is a market with great potential, but executing successful M&A in its complex environment requires careful preparation , local knowledge , and cultural sensitivity .