Transparency of the Regulatory System
Uzbekistan has a substantial body of laws and regulations aimed at protecting the business and investment community. Primary legislation regulating competition includes the Law on Competition, the Law on Guarantees of the Freedoms of Entrepreneurial Activity, the Law on Private Enterprise, the Law on Investments and Investment Activities and a body of decrees, resolutions, and instructions. In late 2016, the GOU publicly recognized the need to improve and streamline business and investment legislation, which is still perceived by the business community as complicated, often contradictory, and not fully consistent with international norms. In 2020, the GOU initiated a “regulatory guillotine” policy to simplify and streamline the legislation. Since then, nearly ten thousand laws and regulations have been abolished. But this did not greatly affect the convenience of tracking legislative changes for businesses. In some cases, the government may require businesses to comply with decrees or instructions that are not publicly available. To avoid problems with tax and regulatory measures, foreign investors often secure government benefits through Presidential Decrees and GOU resolutions. These, however, have proven to be easily revocable, based on a number of recent cases.
For additional information, please review the World Bank’s Regulatory Governance assessment on Uzbekistan: https://rulemaking.worldbank.org/en/data/explorecountries/uzbekistan .
Practices that appear as informal regulatory processes are not associated with nongovernmental organizations or private sector associations, but rather with influential local politicians or well-connected local elites.
Most rule-making and regulatory authority exists on the national level. Businesses in some regions and special economic zones can be regulated differently, but relevant legislation must be adopted by the central government and then regulated by national-level authorities.
According to the World Bank’s 2021 report “Assessing Uzbekistan’s Transition Overview,” only a few local legal, regulatory, and accounting systems are transparent and fully consistent with international norms. Although the GOU has started to unify local accounting rules with international standards, local practices are still document- and tax-driven, with an underdeveloped concept of accruals.
Uzbekistan is just beginning to develop its Environmental, Social, and Governance (ESG) regulations. In 2021, the country presented its first ever ESG report, which described the progress of ongoing reforms in various areas, such as Infrastructure for Growth, Active Governance & Strong Civil Society, and Sustainable Livelihoods. Key findings of the report include that GOU efforts to work with international NGOs on the issue of forced labor in the agricultural sector are re-positioning the country as an attractive partner for reliable textiles sourcing, and that the GOU is making efforts to reduce greenhouse gas emissions and achieve the goals of the Paris Agreement. (Uzbekistan’s ESG report can be reviewed here: https://changeinuzbekistan.com/report/ ).
Parliament and GOU agencies publish some draft legislation for public comment, including draft laws, decrees and resolutions on the government’s development strategies, tax and customs regulation, resolutions of regional governments, and other legislation. Public review of the legislation is available through the website https://regulation.gov.uz .
Uzbekistan’s laws, presidential decrees, and government decisions are available online. Uzbekistan’s legislation digest ( http://www.lex.uz/ ) serves as a centralized online location for current legislation in effect. As of now, there is no centralized nor comprehensive online location for Uzbekistan’s legislation, similar to the Federal Register in the United States, where all key regulatory actions or their summaries are published. There are other online legislative resources with executive summaries, interpretations, and comments that could be useful for businesses and investors, including http://www.norma.uz/ and http://www.minjust.uz/ru/law/newlaw/ .
Formally, the Ministry of Justice and the Prosecutor’s Office of Uzbekistan are responsible for oversight to ensure that government agencies follow administrative processes. In some cases, however, the- U.S. business community assesses that local officials have inconsistently interpreted laws, often in a manner detrimental to private investors and the business community at large.
GOU officials have publicly suggested that improvement of the regulatory system is critical for the overall business climate. In 2021-2022, Uzbekistan adopted laws and regulations to streamline business related legislation, and abolished over nearly ten thousand laws, decrees and resolutions, which shrank the national legal framework by over 10 percent.
Regulatory reform efforts implemented in previous years, which include Presidential Decree UP-5690 “On Measures for the Comprehensive Improvement of the System of Support and Protection of Entrepreneurial Activity,” adopted in March 2019, set enforcement mechanisms for effective protection of private businesses, including foreign investors. The Law on Investments and Investment Activities, adopted in December 2019, guarantees free transfer of funds to and from the country without any restrictions. This law also guarantees protection of investments from nationalization. The GOU has implemented several additional reforms in recent years, including the currency exchange liberalization, tax reform, simplification of business registration and foreign trade procedures, and establishment of the business Ombudsperson.
The government’s development strategies include a range of targets for upcoming reforms, such as ensuring reliable protection of private property rights; further removal of barriers and limitations for private entrepreneurship and small business; creation of a favorable business environment; suppression of unlawful interference of government bodies in the activities of businesses; improvement of the investment climate; decentralization and democratization of the public administration system; and expansion of public-private partnerships.
OECD reporting and local legal analysts have indicated that previously implemented regulatory system reforms often left room for interpretation and were, accordingly, enforced subjectively. New and updated legislation continues to leave room for interpretation and contains unclear definitions. In many cases, private businesses report they still face difficulties associated with enforcement and interpretation of the legislation. More information on Uzbekistan’s regulatory system can be reviewed at the World Bank’s Global Indicators of Regulatory Governance ( https://rulemaking.worldbank.org/en/data/explorecountries/uzbekistan ).
The Ministry of Justice and the system of Economic Courts are formally responsible for regulatory enforcement, while the Institute of Business Ombudsperson was established in May 2017 to protect the rights and legitimate interests of businesses and render legal support. The state body responsible for enforcement proceedings is the Bureau of Mandatory Enforcement under the General Prosecutor’s Office. Several GOU policy papers call for expanding the role of civil society, non-governmental organizations, and local communities in regulatory oversight and enforcement. The government also publishes drafts of business-related legislation for public comments, which are publicly available. However, the development of a new regulatory system, including enforcement mechanisms outlined in various GOU reform and development roadmaps, has yet to be completed.
Uzbekistan’s fiscal transparency still does not meet generally accepted international standards, according to the 2022 Fiscal Transparency Report for Uzbekistan.
In 2022, the GOU demonstrated very little progress in its efforts to ensure compliance with the requirements of fiscal transparency, perhaps due to the increased uncertainty of external and internal factors, which prevented the measured formation of fiscal policy. The Open Budget web portal https://openbudget.uz , created to be the main source of budget-related information, provides comprehensive information on the enacted budget, its implementation with a breakdown by categories and territories, as well as the report of the Accounts Chamber (the supreme audit). However, the portal is still not fully operational. It does not provide detailed information on budget amendments adopted during the fiscal year, regional budgets, specialized funds, etc. Accountability of many government branches remained relatively low, as did the quality of their reports. According to the Anticorruption Agency of Uzbekistan, 74 ministries and nine local administrations did not publish information on public procurements (as of November 2022), in violation of the law, which establishes fines for senior GOU officials for non-disclosure of reports on the execution of budgets, off-budget funds and state trust funds, or other violations that undermine the transparency of the budget process.
In June 2022, the President signed Decree (UP-154 of June 14, 2022) on measures to increase the transparency of government agencies through monitoring and evaluating their work using rating indicators. In August 2022, the Parliament amended the Administrative Code to require stricter enforcement of liability for violating the legislation on open data, including Presidential Decree (UP-6247 of July 16, 2021) on ensuring transparency of government agencies and state-owned enterprises (SOEs). Enforcement of the legislation can be assessed in the years to come.
International Regulatory Considerations
Uzbekistan is not currently a member of the WTO or any existing economic blocs although it is pursuing WTO accession. In 2020, Uzbekistan assumed observer status in the Eurasian Economic Union. No regional or other international regulatory systems, norms, or standards have been directly incorporated or cited in Uzbekistan’s regulatory system – although GOU officials often claim the government’s regulatory system incorporates international best practices. Uzbekistan joined the CIS Free Trade Zone Agreement in 2014, but that does not constitute an economic bloc with supranational trade tariff regulation requirements.
Legal System and Judicial Independence
Uzbekistan’s contemporary legal system belongs to the civil law family. The hierarchy of Uzbekistan’s laws descends from the Constitution of the Republic of Uzbekistan, constitutional laws, codes, ordinary laws, decrees of the president, resolutions of the Cabinet of Ministers, and normative acts, in that order. Contracts are enforced under the Civil Code, the Law “About the Contractual Legal Base of Activities of Business Entities” (No. 670-I issued August 29, 1998, and last revised in 2020), and several other regulations.
Uzbekistan’s contractual law is established by the Law on Contractual Base for Businesses (Law 670-1 of 1998, last updated in 2022). It establishes the legal basis for the conclusion, execution, change, and termination of economic agreements, the rights, and obligations of business entities, and the competence of relevant public authorities and state bodies in the field of contractual relations. Economic disputes, including intellectual property claims, can be heard in the lower-level Economic Court, and appealed to the Supreme Court of the Republic of Uzbekistan. Economic court judges are appointed for five-year terms. This judicial branch also includes regional, district, town, city, Tashkent city (a special administrative territory) courts, and arbitration courts.
On paper, the judicial system in Uzbekistan is independent, but government interference and corruption are common. Government officials, attorneys, and judges often interpret legislation inconsistently and in conflict with each other’s interpretations. In recent years, for example, many lower-level court rulings have been in favor of local governments and companies which plaintiffs claimed failed to compensate them for the full market value of allegedly expropriated and demolished private property, as required under the law.
In July 2021, President Mirziyoyev approved a new Law on Courts (ZRU-703), which tightens the requirements for judicial candidates, describes the disciplinary liability of judges, and expands their socially protected status. Uzbekistan also adopted a law (ZRU-717) on reforming the Supreme Judicial Council of Uzbekistan by strengthening its independence and authority, as well as several new laws to simplify court proceedings and to improve the institutions for judicial reviews. The Law on International Commercial Arbitration (ZRU-647 adopted February 16, 2021) established the procedures for setting arbitration agreements, appointing arbitrators, and conducting arbitration proceedings. In 2020, the President ordered additional measures to eliminate corruption in the courts and ensure the independence of judges (Decree UP-6127).
Court decisions or enforcement actions are appealable though a process that can be initiated in accordance with the Economic Procedural Code and other applicable laws of Uzbekistan and can be adjudicated in the national court system.
Laws and Regulations on Foreign Direct Investment
Several laws, presidential decrees, and government resolutions relate to foreign investors. The main laws are:
Law on Investments and Investment Activities (ZRU-598, December 25, 2019)
Law on Guarantees of the Freedoms of Entrepreneurial Activity (ZRU-328, 2012)
Law on Special Economic Zones (ZRU-604, February 17, 2020)
Law on Production Sharing Agreements (№ 312-II, 2001)
Law on Concessions (№ 110-I, 1995)
Law on Investment and Share Funds (ZRU-392, 2015)
Law on Public-Private Partnership (ZRU 537, 2019)
In 2022, the GOU adopted nearly seventy laws, over three hundred presidential decrees and resolutions, thousands of government resolutions, and other judicial decisions. Significant changes for investors include reducing VAT from 15 to 12 percent, as well as formalizing the rules of e-commerce and cybersecurity. Otherwise, the new legislation has not impacted the investment environment as it was mainly focused on reforming the government branches and the activities of local administrations.
New legislation that could affect foreign investors includes:
The Law on the State Budget for 2023, (ZRU-813, of December 31, 2022). Subsequent laws made amendments in the Tax Code and other regulations.
The Law on Electronic Commerce (ZRU-792 of September 29, 2022). The law allows online contracts, which now have equivalent legal status with paper documents. Operators of marketplaces and payment services, as well as delivery services, received the right to provide the service of escrow accounts.
The Law on Tax Consulting Activities (ZRU-787 of August 4, 2022). The law expands the types of tax consulting services and establishes the independence of consultants.
The Law on Advertising (ZRU-776 of June 7, 2022). The law establishes new requirements for the language of advertisement content: registered trademarks and logos can be given in the language of origin, but the content of the advertisement must be in Uzbekistan’s official language. The law prohibits using foreign words and expressions that can indicate prices (tariffs) in foreign currencies.
The Law on Cybersecurity (ZRU-764 of April 15, 2022). The law defines cybercrime, cyberspace, cyber threat, cyber security, cyber defense, and cyber-attack. The State Security Service of Uzbekistan became the authorized state body responsible for cybersecurity. The law also establishes the priority of local sourcing for goods and services procured by the public sector for maintaining cybersecurity measures.
The Law on Insolvency (ZRU-763 of April 12, 2022). The law regulates debt repayment and bankruptcy procedures for entities, individual entrepreneurs, and individuals, but does not apply to state institutions. It replaces the Law on Bankruptcy of 1994.
Presidential Decrees on Measures to Support Exports (UP-97 of April 6, 2022, and UP-268 of December 21, 2022). The Decree says that local businesses exporting products with high added value can get state subsidies to compensate 70 percent of their transportation costs for the countries of the European Union, and 50 percent for neighboring countries. Exporters of fabrics and knitted products to European countries, Turkey, Egypt, and Morocco also may apply for subsidies to cover 70 percent of transportation costs.
Presidential Resolution on Measures to Improve Business Inspection Procedures (PP-374 of September 13, 2022). The Resolution established new rules for inspecting businesses, including 10 working days advance notification of the inspection, coordination of control actions with Business Ombudsperson, inspection recording requirements, etc.
As of now, there is no real “one-stop-shop” website for investors that provides relevant laws, rules, procedures, and reporting requirements in Uzbekistan. In December 2018, the GOU created a specialized web portal for investors called Invest Uz ( http://invest.gov.uz/en/ ), which provides some useful information. The website of the Ministry of Industry, Investments and Trade ( https://miit.uz/en ) offers some general information on laws and procedures, but mainly in the Uzbek and Russian languages.
Competition and Antitrust Laws
Competition and anti-trust legislation in Uzbekistan is governed by the Law on Competition (ZRU-319 of 2012). The main entity that reviews transactions for competition-related concerns is the State Competition Promotion and Consumers Protection Committee (established in January 2019 and reorganized in 2022). This government agency is responsible for advancing competition, controlling the activities of natural monopolies, protecting consumer rights, and regulating the advertising market. There were no significant competition-related cases involving foreign investors in 2022.
Expropriation and Compensation
Private property is protected against baseless expropriation by legislation, including the Law on Investments and Investment Activities and the Law on Guarantees of the Freedoms of Entrepreneurial Activity. Despite these protections, however, the government potentially may seize foreign investors’ assets due to violations of the law or for allegedly arbitrary reasons, including, as reported by investors, a unilateral revision of an investment agreement, a reapportionment of the equity shares in an existing joint venture with an SOE, or in support of a public works or social improvement project (similar to an eminent domain seizure). By law, the government is obligated to provide fair market compensation for seized property, but many who have lost property allege the compensation has been significantly below fair market value.
Profitable, high-profile foreign businesses have reported more instances of alleged expropriation, but smaller companies are also impacted. Under the previous administration, large companies with foreign capital in the food processing, mining, retail, and telecommunications sectors claimed the government expropriated their property. In cases where the property of foreign investors is expropriated for arbitrary reasons, the law obligates the government to provide fair compensation in a transferable currency. However, in most cases the private property was expropriated based upon court decisions after the owners were convicted for breach of contract, failure to complete investment commitments, or other violations, making them ineligible to claim compensation.
Decisions of Uzbekistan’s Economic Court on expropriation of private property can be appealed to the Supreme Court of the Republic of Uzbekistan in accordance with the Economic Procedural Code or other applicable local law. Some foreign investors have characterized the process as slow, unpredictable, non-transparent, and lacking due process.
There were several cases in recent years when investors claimed the government imposed excessive import controls for the supplies of enterprises with foreign investment, which the investors alleged to be measures applied for indirect expropriation.
ICSID Convention and New York Convention
Uzbekistan is a member of the International Center for the Settlement of Investment Disputes (ICSID) and a signatory to the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).
By law, foreign arbitral awards or other acts issued by a foreign country can be recognized and enforced if Uzbekistan has a relevant bilateral or multilateral agreement with that country. According to the new Law on International Commercial Arbitration, the arbitral award, regardless of the country in which it was made, is recognized as binding, and must be enforced upon submission of a written application. Implementation of the law shall be in full compliance with existing bilateral agreements of Uzbekistan with foreign states and multilateral agreements.
Investor-State Dispute Settlement
Dispute settlement methods are regulated by the Economic Procedural Code, the Law on Arbitration Courts, and the Law on Contractual Basics of Activities of Commercial Enterprises. The Law on Guarantees to Foreign Investors and Protection of their Rights requires that involved parties settle foreign investment disputes using the methods they define themselves, generally in terms predefined in an investment agreement. Investors are entitled to use any international dispute settlement mechanism specified in their contracts and agreements with local partners, and these agreements should define the methods of settlement.
The Law on Guarantees to Foreign Investors and Protection of their Rights permits resolution of investment disputes in line with the rules and procedures of the international treaties to which Uzbekistan is a signatory, including the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the 1992 CIS Agreement on Procedure for Settling Disputes Arising Out of Business Activity, and other bilateral legal assistance agreements with individual countries. Currently there is no such bilateral treaty that covers U.S. citizens.
If the parties fail to specify an international mechanism, Uzbekistan’s economic courts can settle commercial disputes arising between local and foreign businesses. The economic courts have subordinate regional and city courts. Complainants may seek recognition and enforcement of foreign arbitral awards pursuant to the New York Convention through the economic courts. When the court decides in favor of a foreign investor, the Ministry of Justice is responsible for enforcing the ruling.
Currently Uzbekistan does not have a ratified Bilateral Investment Treaty (BIT) or a Free Trade Agreement (FTA) with an investment chapter with the United States. The governments of the United States and Uzbekistan signed a BIT in 1994, but ratification documents have not been exchanged and the agreement never entered into force.
Since the GOU launched reforms aimed at improving the business environment, investment disputes have been more limited in scope, but still exist, including several long-unresolved investment disputes involving U.S. companies.
Post is aware of many commercial or investment disputes involving foreign investors which occurred nearly a decade ago. These included alleged asset seizures, expropriations, or liquidations; lengthy forced production stoppages; pressure to sell off foreign shares in joint ventures; and failure to honor contractual obligations. These cases involved a variety of sectors, including food production, retail, catering, mining, telecommunications, agriculture, and chemicals. Although government actions in such cases were taken under the guise of law enforcement, some observers have claimed arbitrary or extralegal motives were involved.
By the Law on International Commercial Arbitration, which entered into force in August 2021, foreign arbitral awards, including those issued against the government, regardless of the country in which it was made, are recognized as binding, and must be enforced upon written application to the court. Foreign arbitral awards or other acts issued by a foreign country also can be recognized and enforced if Uzbekistan has a relevant bilateral or multilateral agreement with that country. If international arbitration is permitted, awards can be challenged in domestic courts.
Although in many cases investor-state disputes in Uzbekistan were associated with immediate asset freezes, almost all of them were followed by formal legal proceedings.
International Commercial Arbitration and Foreign Courts
Alternative dispute resolution institutions of Uzbekistan include arbitration courts (also known as Third-Party Courts), and specialized arbitration commissions. Businesses and individuals can apply to arbitration courts only if they have a relevant dispute-settlement clause in their contract or a separate arbitration agreement. The Civil Procedural Code and the Commercial Procedural Code also have provisions that regulate arbitration. The Law on International Commercial Arbitration, drafted in late 2018 entered into force in August 2021. It states that contractual and non-contractual commercial disputes can be referred to international commercial arbitration by agreement of the parties. The parties can determine the number of arbitrators and the language or languages that can be used in the arbitration. The interim measure prescribed by the arbitration court shall be recognized as binding. The award must be made in writing.
The main domestic arbitration body is the Arbitration Court. General provisions of the Law on Arbitration Courts are based on principles of the UNCITRAL model law, but with some national specifics – namely that Uzbekistani arbitration courts cannot make reference to non-Uzbekistani laws. According to the Law, parties of a dispute can choose their own arbiter and the arbiter in turn choses a chair. The decisions of these courts are binding. The Law says that executive or legislative bodies, as well as other state agencies, are barred from creating arbitration courts and cannot be a party to arbitration proceedings. Either party to the dispute can appeal the verdict of the Arbitration Court to the general court system within thirty days of the verdict. Separate arbitration courts are also available for civil cases, and their decisions can be appealed in the general court system. Arbitration courts do not review cases involving administrative and labor/employment disputes.
The Tashkent International Arbitration Center (TIAC) under the Chamber of Commerce and Industry of Uzbekistan was created in late 2019 as a non-governmental non-profit organization. The main function of this organization is to facilitate dispute resolution for businesses, including foreign investors. The Center may employ qualified arbitration lawyers, both local and foreign. The Center has the right to resolve disputes through mediation or other alternative methods permitted by the law.
The Law on International Commercial Arbitration was approved by Parliament in 2020, signed by the president in February 2021, and entered into force in August 2021 (ZRU-674). According to the law, the arbitral award, regardless of the country in which it was made, is recognized as binding, and must be enforced upon submission of a written application. Implementation of the law shall be in full compliance with existing bilateral and multilateral agreements of Uzbekistan with foreign states.
Most investment disputes involving Uzbekistan’s state-owned enterprises (SOEs) brought into Uzbekistan’s courts have either been decided in favor of the SOEs or have been settled out of court. When the court decides in favor of a foreign investor, the Ministry of Justice is responsible for enforcing the ruling. In some cases, the Ministry’s authority is limited and co-opted by other elements within the government. Judgments against SOEs have proven particularly difficult to enforce.
The Law on Insolvency regulates bankruptcy procedures. By the law, both the debtor and creditors can initiate the insolvency case through court. The court has 2 months to review the case, but this term can be extended by another month in certain circumstances. The applicant must pay a court fee at seven minimum wages (one minimum wage is 920,000 s’oum or $81 as of March 2023) to the court’s deposit account. This amount shall be added to the claim. The interests of creditors can be represented by committees of creditors. After filing the court case, the creditor cannot apply to the debtor directly. Monetary judgments are usually made in local currency. An insolvent entity may initiate a pre-trial sanitation process by notifying the founders and creditors. For the period of pre-trial rehabilitation, the entity would be exemption from paying taxes, fines, penalties for back taxes, other mandatory payments, and loans repayments. It also has the right to change the profile of its business, buy out overdue debts, or attract financial assistance. In some cases, the debtor may apply for state support. Bankruptcy itself is not criminalized except false bankruptcy, non-disclosure of bankruptcy, and premeditated bankruptcy cases.