Tax Risks in Contracts with Counterparties in Uzbekistan

When entering into a contract in Uzbekistan, tax consequences depend on more than the wording of the agreement itself. Tax authorities may also consider the economic substance of the transaction, its connection with the company’s business activities, the actual performance of contractual obligations and the documents available to substantiate the transaction.

This makes tax risk assessment in Uzbekistan particularly important when working with new suppliers, contractors and service providers.

Since 2026, Uzbekistan has introduced an automated tax-risk assessment mechanism for electronic invoices. As a result, certain problems identified in relation to a supplier may directly affect the purchaser’s ability to claim VAT credit.

Why a Contract Alone May Not Be Sufficient

For corporate income tax purposes, expenses generally need to be economically justified, connected with income-generating business activities and supported by appropriate documentation.

Therefore, a signed contract by itself may not be enough to substantiate a deductible expense. The supporting documents should demonstrate what the company purchased, why the expense was required for its business and whether the goods, works or services were actually supplied.

This is especially relevant for consulting, marketing, IT and other services where the result is intangible.

For example, a general contractual description such as “consulting services” provides significantly less evidence than a properly structured set of documents containing a detailed scope of work, service period, expected deliverables, reports, correspondence and acceptance documents.

For companies conducting business in Uzbekistan, maintaining a consistent documentary trail can therefore be an important element of tax risk management.

What Should Be Checked Before Signing a Contract?

From a tax perspective, the agreement should make it possible to identify the actual substance of the transaction.

The subject matter should be described with sufficient detail, including the relevant goods, works or services, quantity or scope, performance period and expected result.

Where specifications, purchase orders, statements of work or technical assignments are used, the agreement should clearly provide for them as part of the contractual documentation.

The pricing provisions should also clearly indicate whether the agreed price includes VAT and how the price may subsequently be adjusted.

Where the parties use discounts, bonuses, retrospective price adjustments or changes in quantity, the mechanism and supporting documentation should preferably be established in advance.

The agreement should also define which documents will confirm performance. Depending on the transaction, these may include:

• delivery notes;
• acceptance certificates;
• electronic invoices;
• transportation documents;
• warehouse records;
• service reports;
• specifications;
• other documents relevant to the particular transaction.

The contract, primary accounting documents, electronic invoices and the actual movement of goods or funds should all describe the same economic transaction. Inconsistencies between these elements may increase tax risks in Uzbekistan.

Counterparty Due Diligence as Part of Tax Risk Management

Before entering into a significant transaction, businesses should consider not only whether the counterparty has the legal authority to conclude the agreement, but also whether it appears capable of performing its contractual obligations.

Uzbekistan’s Tax Committee has identified examples of potentially risky transactions involving companies reporting substantial supplies or services despite apparently lacking employees, property, transportation or other resources necessary to perform them.

Transactions inconsistent with the counterparty’s normal business activities or involving economically unusual pricing may also attract additional attention.

This does not mean that a company must necessarily own warehouses, vehicles or all other resources itself. Assets may be leased and certain work may legitimately be subcontracted.

However, where the structure of the transaction is unusual, it becomes particularly important to be able to explain the commercial model and support it with appropriate documentation.

Where the relevant activity requires a licence or permit, the company should also consider verifying the counterparty’s authorisation through the official licensing registers.

A properly designed counterparty due diligence procedure in Uzbekistan can therefore serve both commercial and tax purposes.

VAT and Electronic Invoices: What Changed in 2026?

VAT represents one of the most significant areas of counterparty-related tax risk.

From 1 January 2026, Uzbekistan introduced a mechanism for assessing the tax-risk level of electronic invoices. The system analyses electronic invoices and determines the level of risk associated with the transaction.

Special rules apply where an electronic invoice is classified as having a high level of tax risk.

In such cases, the VAT amount indicated in the invoice is not generally available to the purchaser as an ordinary VAT credit until the relevant tax amount has been paid to the state budget in accordance with the applicable procedure.

Uzbek tax legislation also provides a mechanism under which the purchaser acting as tax agent may pay the relevant VAT in order to obtain the right to claim the credit.

This means that the choice of supplier may affect not only the commercial risk of a transaction but also the purchaser’s cash flow.

At the same time, a low-risk electronic invoice does not constitute an absolute guarantee that the VAT credit cannot subsequently be challenged.

The tax authorities may adjust or cancel VAT credit where there is evidence that the tax resulted from a sham or simulated transaction.

For this reason, businesses should not rely exclusively on the status of the electronic invoice. The actual performance of the transaction should also be properly documented.

What Documents Should Be Collected?

The precise set of documents will depend on the nature of the transaction.

For significant contracts, businesses may consider establishing the evidentiary chain before performance begins.

Depending on the transaction, the file may include:

• the contract and all schedules, specifications and statements of work;
• documents confirming the authority of the person signing the agreement;
• licences and permits where required;
• delivery and acceptance documents;
• service reports;
• transportation and warehouse documentation;
• electronic invoices and documents relating to any corrections;
• payment documents;
• business correspondence;
• documents demonstrating the actual result of services;
• explanations supporting unusual pricing or transaction structures.

This is particularly important for large, unusual or intra-group transactions and for services where performance cannot be demonstrated by the physical movement of goods.

Transfer Pricing and Related-Party Transactions

Additional tax risks in Uzbekistan may arise in transactions between related parties.

As a general principle, prices agreed between independent parties are treated as market prices. Controlled transactions, however, are subject to specific transfer-pricing rules.

Uzbekistan’s Tax Code provides thresholds and additional criteria for determining whether certain transactions between related parties are controlled.

According to the rules described in the current legislation, the general annual threshold for certain transactions between related resident entities is UZS 5 billion. A lower threshold of UZS 500 million may apply in specified circumstances, including certain cases involving special tax regimes or tax benefits.

For substantial intra-group agreements, businesses should therefore consider not only the contractual price itself, but also whether transfer-pricing rules apply and whether the selected pricing methodology can be supported.

Contracts with Foreign Counterparties

Contracts with non-residents require additional tax analysis.

Where a foreign entity that is not registered for tax purposes in Uzbekistan supplies goods or services whose place of supply is deemed to be Uzbekistan, the Uzbek purchaser may, in certain circumstances, have VAT obligations as a tax agent.

The parties should also determine whether payments to the non-resident are subject to withholding tax in Uzbekistan and whether a double taxation treaty is applicable.

The ability to apply a reduced treaty rate or an exemption may depend on satisfying the relevant statutory requirements and obtaining the necessary confirmation of the recipient’s tax residence.

For this reason, the tax treatment of an international agreement should preferably be analysed before the price is finalised.

Otherwise, the parties may discover after signing that they had different assumptions about whether the agreed amount was payable to the foreign counterparty in full or whether tax should be withheld from the payment.

How Can Businesses Reduce Tax Risks?

Tax structuring should ideally be considered at the same time as the commercial terms of the agreement, rather than after the first invoice has been issued.

Before entering into a significant transaction, a business should consider several questions:

• Does the wording of the agreement correspond to the actual transaction?
• Can the business purpose of the expense be demonstrated?
• How will performance be documented?
• Has VAT been treated correctly?
• Do transfer-pricing rules apply?
• Has the counterparty been adequately checked?
• Does the transaction involve tax-agent obligations?
• Are withholding taxes or treaty provisions relevant?

These questions have become increasingly important as tax administration in Uzbekistan continues to rely on electronic information and automated analysis of transactions and invoices.

LOYAL advises local and international businesses on tax and commercial matters in Uzbekistan, including counterparty due diligence, transaction structuring, contract review, VAT implications, transfer pricing and transactions with non-residents.