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Introduction of State Health Insurance in Uzbekistan: Reforms and Opportunities for Investors

published on 2 May 2025 | reading time approx. 5 minutes

In today's globalized economy, companies often set up representative offices in Uzbekistan to facilitate their business and build local relationships. However, these offices can pose permanent establishment (subsequently PE) risks that have significant tax implications. This article highlights the intricacies of PE risks associated with representative offices in Uzbekistan, taking into account the Uzbek Tax Code and international double tax treaties (hereinafter DTAs).

Article 36 of the Tax Code of the Republic of Uzbekistan defines a permanent establishment (PE) as a fixed place of business through which a foreign company conducts all or part of its business activities in Uzbekistan (Art. 36 Tax Code of the Republic of Uzbekistan as amended on 30.12.2019).

Fixed business establishment means that there must be a physical presence in Uz-bekistan (e.g. office, factory, warehouse).
Full or partial business activity means that even partial business activity in Uzbekistan can have tax implications.

A permanent establishment exists under Uzbek law in particular if:

A management office exists in Uzbekistan.
Branches, offices or other permanent business facilities are maintained in Uzbekistan.
Representatives who can make business decisions are regularly active in Uzbekistan.

Definition of a permanent establishment under international DTAs (OECD Model Tax Convention, Art. 5) (Double Taxation Convention, Comments, 7th edition, Vogel/Lehner, page 718)

The OECD Model Tax Convention (Art. 5) uses a similar definition of a permanent establishment: “A permanent establishment is a fixed place of business through which the business of an en-terprise is wholly or partly carried on.”

This results in the following criteria:

Fixed business establishment (Double Taxation Treaties, Commentaries, 7th edition, Vogel/Lehner, page 783, margin no. 28):
Requires a physical presence with a certain degree of permanence.
Place of business (Double Taxation Treaties, Commentaries, 7th edition, Vogel/Lehner, page 788, margin no. 38):
The facility must be used for the business purposes of the company.
Exercise of activity:
The main business activity must be carried out from this facility.

According to the DTAs between Uzbekistan and other countries (e.g. DTA Uzbekistan-Germany), a permanent establishment can be established if a representative office in Uzbekistan carries out business activities that go beyond mere auxiliary and preparatory activities.

Subsumption of the representations under the PE definition

In practice, the question arises as to whether a representative office of a foreign company in Uzbekistan qualifies as a permanent establishment.

Fixed place of business

A representative office usually maintains an office in Uzbekistan: First criterion fulfilled.

Exercise of business activity

If the representative office only conducts market research, networking or information gathering, this is an ancillary activity that does not constitute PE under Art. 5 OECD-MA and the Uzbek Tax Code.
However, if contract negotiations or business transactions take place in Uzbekistan, this could constitute a significant business activity: PE risk increases.

Subjective criterion (representative regulation according to OECD-MA Art. 5(5))

If employees of the representative office in Uzbekistan negotiate or conclude contracts for the parent company, this may constitute a PE under international DTAs.
If the representative office only acts as an intermediary without decision-making authority, this does not constitute PE.

General activities of the representative office and PE risks

Information gathering and dissemination

Gathering information on local market conditions, political developments and general business opportunities is a common task of representative offices in Uzbekistan. According to Article 36 of the Uzbek Tax Code and Article 5 (4) of the OECD Model Tax Convention, this market research is considered preparatory or supportive and does not constitute PE (Double Taxation Treaties, Commentaries, 7th edition, Vogel/Lehner, page 834, margin no. 167) . Similarly, the transfer of this information to Head Office does not give rise to PE, as it is not classified as a significant business activity.

Provision of general information on products and services

Providing general information about the parent company's products and services to local finan-cial institutions entails potential PE risks. According to Article 5(5) of the OECD Model Tax Convention, such an activity could be considered active advertising or business solicitation. In this case, a detailed review would be necessary to rule out a permanent establishment for tax purposes.

Coordination of events and seminars

Representative offices often organize events and seminars with local partners. Market research, networking and information exchange do not generally constitute a PE risk. However, active participation in contract negotiations or business transactions could constitute a PE (in accordance with Article 36 of the Uzbek Tax Code and Article 5(1) of the OECD Model Tax Convention).

Accounts of local customers at the head office

Representative offices support local customers with accounts held at the head office abroad. Activities such as providing account statements and clarifying bookings are preparatory and do not constitute PE. However, active participation in decision-making or entering into commitments could constitute PE (Article 5(5) of the OECD Model Tax Convention).

Letters of guarantee and letters of credit

The provision of information on letters of guarantee and letters of credit is a supporting activity. However, active participation in the management of these instruments could be classified as PE (Article 5(5) of the OECD Model Tax Convention and Article 36 of the Uzbek Tax Code).

Know-your-customer (KYC) processes

The support of KYC processes through the provision of documentation is to be classified as preparatory or supportive and does not lead to the creation of a PE (Article 5(4) of the OECD Model Tax Convention).

Other inquiries

The forwarding of inquiries from local customers to the head office for further processing does not constitute a PE as long as no significant business activity is carried out in Uzbekistan (Arti-cle 36 of the Uzbek Tax Code).

Conclusion

For internationally active companies, a careful analysis of the tax risks associated with doing business in Uzbekistan is essential. While preparatory or supporting activities do not generally constitute a permanent establishment for tax purposes, active participation in business transactions, decision-making processes or price negotiations can establish a tax presence and trigger corresponding tax obligations.

Companies are therefore required to carry out a detailed review of their business activities and ensure that their representative offices are not unintentionally classified as permanent establishments for tax purposes. Early tax advice and comprehensive documentation of business activities are key measures to minimize risk and ensure compliance with applicable tax regulations.

Rödl & Partner in Tashkent is at your disposal for a comprehensive tax analysis and advice.