In the context of the development of international business and the growing number of cross-border transactions, issues related to the legal regulation of foreign legal entities operating in the Republic of Uzbekistan (“RUz“) is becoming particularly important. One of the key tax forms of activity for foreign companies in the territory of the RUz is a permanent establishment of non-resident (“PE“) – a tax structure through which a non-resident has the right to carry out entrepreneurial activities in the country. In this regard, it is important to understand the specific features that arise when concluding PE agreements, including from the point of view of national regulation of foreign economic activity (“FEA”).
PE is not a legal entity under Uzbek law, but it does have tax status. Therefore, if the PE enters a contract with a foreign entity, logically, a contract is concluded between two foreign legal entities, and the only issue is the territoriality of the contract’s implementation. In this case, is the PE obligated to participate in the FEA monitoring system and provide the local regulator with information on foreign trade contracts, acts, and invoices in electronic form? An analysis of the legal framework and the relationship between the PE and FEA monitoring requires an understanding of the legal status of both the PE itself and the local procedures established for participants in foreign economic activity.

Status of the PE: a brief overview
Uzbek Tax Code lists specific types of activities and criteria that fall under the concept of the permanent establishment, which includes any place of management, place of production, place used as a sales outlet, oil or gas wells, places of extraction of natural resources, construction sites, etc. Separately, PE may also include activities such as: (1) the provision of services (e.g., consulting services) in Uzbekistan and (2) a construction site, installation or assembly facility, or related supervisory (control) activities provided for a period of 183 days.  Uzbek Tax Code also stipulates other nuances for the emergence of the PE, such as territorial requirements and mobile nature, duration of activity, representation and hiring of employees, as well as other grounds for starting the PE in the territory of the Republic of Uzbekistan. Thus, PE operates within the national legal framework, despite the foreign jurisdiction of the parent company.

FEA monitoring rules
The Regulation “On the Procedure for Monitoring and Controlling Foreign Trade Operations” approved by Resolution No. 283 of the Cabinet of Ministers (“Regulation 283“) establishes the procedure for monitoring and controlling foreign trade operations through the Unified Electronic Information System for Foreign Trade Operations (“UEISFTO”) in accordance with which business entities (with the exception of self-employed persons) submit information about their foreign trade contracts.

However, it is not clear from Regulation 283 whether this procedure applies to contracts concluded between PEs and foreign entities. According to the Law “On the Contractual-Legal Framework of Business Entities”, the parties to business contracts are legal entities and individuals engaged in entrepreneurial activity without forming a legal entity. Regulation 283 defines business entities as residents of the Republic of Uzbekistan that have concluded foreign trade contracts (invoices), as listed in the regulation itself. Moreover, based on the definitions of export and import contracts in Regulation 283, one of the parties to the contract must be a ‘resident’. This raises the question of whether PEs are subject to foreign economic activity monitoring in Uzbekistan.

Conclusion: Practical interpretation instead of formal logic
Nevertheless, the fact that PEs participate in the FEA monitoring system is confirmed by established administrative and banking practices, where Uzbek commercial banks, customs and tax authorities often require PEs to register foreign economic activity contracts and invoices in the UEISFTO system. Moreover, given that PE of non-resident: (a) is recognised as a taxpayer, (b) has a TIN and submits reports, (c) concludes contracts, (d) opens accounts in Uzbekistan banks, and (e) has the right of signature and electronic digital signature (“EDS”), it can be concluded that it already has conditional residency and, therefore, can participate in the economic turnover of Uzbekistan as a full-fledged entity.  Thus, despite the formal absence of a direct mention of the PE in the definition of ‘business entity’ in Regulation 283, law enforcement practice and the functional characteristics of the PE actually confirm its inclusion in the foreign economic activity monitoring system.
In this case, the regulator most likely did not take into account the peculiarity of the legal status of the PE, which, while not being an independent legal entity, nevertheless actively participates in economic activities on the territory of the Republic of Uzbekistan. Given the growing practical significance of the PE, the most logical approach is a systematic interpretation that the PE is not subject to foreign economic activity monitoring.
Currently, if a foreign company operates in Uzbekistan through the PE, ignoring the requirements of currency and foreign economic control may lead to practical difficulties in interacting with participants in the foreign economic activity process (e.g., servicing banks and customs authorities in customs clearance of goods). It is necessary to organise work with the UEISFTO in advance to avoid disputes with banks and regulators.
 
Faringiz Karimova