Partner
Attorney at Law (Germany)
Permanent establishment in Uzbekistan: Rules and tax risks
- Foreign firms risk hidden PE in Uzbekistan via agents influencing deals
- BEPS rules: substance over form expands PE via dependent agents
- PE triggers 15% tax, penalties, and double taxation risks.
- Mitigate via limited agent roles and documented HQ decisions
Permanent Establishment in Uzbekistan is a key tax risk for foreign companies. Even without a local office, using agents can create a PE under OECD BEPS rules. Learn when PE arises, what DAPE means, and how to avoid 15% tax liability and penalties in Uzbekistan.
In cross-border business, companies often utilize intermediaries (agents, commission agents) to avoid registering a full-scale branch. However, international regulations have shifted: taxes are now paid where business decisions are effectively made.
Glossary of key terms
Permanent establishment (PE) – a tax status triggered when a foreign company conducts business activities in Uzbekistan through a fixed place of business (office, construction site), by providing services for more than 183 days, or through the actions of a “dependent agent” authorized to conclude contracts. The existence of a PE status obligates the non-resident to register with the tax authorities and pay corporate income tax (15%) on income derived from sources within the Republic of Uzbekistan.
Dependent agent permanent establishment (DAPE) – an individual or legal entity that is not formally an employee of the foreign company but manages its affairs in a manner that creates tax liabilities for that company.
OECD model tax convention on income and on capital (OECD MA) – the “Gold Standard” of global tax rules, which Uzbekistan relies upon during tax audits and inspections.
Key Change: “Substance Over Form”
According to Article 5(5) of the OECD Model Convention (2017 BEPS Edition) and Article 36 of the Tax Code of the Republic of Uzbekistan, a company is deemed to have a permanent establishment if its agent in Uzbekistan:
- acts on behalf of the company – concludes contracts or negotiates on its behalf.
- plays a principal role – even if the agent does not sign the contract personally, they negotiate key terms (price, discounts, timelines) which the head office then approves routinely or “pro forma”.
Important: A formal power of attorney is no longer a mandatory requirement. If an agent effectively manages sales, the tax authorities will deem this as conducting business within the territory of the Republic of Uzbekistan.
Practical consequences for business
If the tax authorities of Uzbekistan recognize the activities of your representative/agent as a “permanent establishment”, then:
- the company must pay tax on income generated from activities in Uzbekistan (typically 15%)
- operating without tax registration as PE entails significant penalties and fines
- failure to properly structure operations create a risk of double taxation —where taxes are paid in both Uzbekistan and the company’s country of registration
Recommendations from RÖDL
We recommend that international companies conduct a Tax Health Check of their agency agreements:
- Authority Review: What exactly does your representative in Tashkent do? Do they have the de facto power to negotiate commercial terms?
- Update Contracts: Ensure that the agent’s functions are strictly limited to “preparatory and auxiliary” activities.
- Document Processes: It is crucial to maintain evidence that final decisions are made at the head office following substantive analysis, rather than as a mere formality.