Government Subsidies for Businesses in Uzbekistan: Accounting and Tax

What counts as government assistance

NAS No. 10 applies to legal entities of any form of ownership, except budget organisations, banks and non-bank credit institutions (clause 2). Government assistance means budget subsidies, state grants and targeted receipts obtained by the organisation (clause 4). The standard does not cover tax benefits that reduce taxable profit or profit tax, or state participation in the charter capital (clause 3).

• A budget subsidy is money from the budget to finance the production and sale of goods, works or services, or to partly reimburse targeted expenses (clause 5).
• A state grant is money and material resources from the State Budget for implementing projects, allocated on a competitive basis (clause 5).
• Targeted receipts are money or resources from the state for specific purposes related to the main activity, used for their intended purpose (clause 5).
• Assistance related to assets is assistance whose main condition is to buy or build long-term assets; assistance related to income is any other assistance (clause 5).

When assistance is recognised in the accounts

Assistance is not recognised until there is reasonable assurance that the organisation will comply with the conditions and receive it; the mere fact of receiving the money does not prove that the conditions have been met (clause 7). The form in which it is received does not affect the accounting: assistance is recorded the same way whether it comes as cash or as a reduction of liabilities to the state (clause 8).

The main principle is that assistance is recognised as income on a systematic basis in the periods in which the expenses it compensates are recognised (clause 9), using the accrual method (clause 11). If property is transferred in non-cash form, such as land, it is usually measured at fair value — both the asset and the assistance (clause 15).

Assistance for assets and assistance for income

• Assistance for buying equipment, construction and other long-term assets is recorded as targeted receipts and recognised as income over the useful life of the asset (clause 16). The balance sheet under Regulation No. 3567 has a line for this, “Targeted receipts (8800)”. The alternative is to reduce the carrying amount of the asset and, as a result, its depreciation (clause 16).
• For depreciable assets, income is recognised in proportion to the depreciation charged; for non-depreciable assets, in the periods in which the costs of meeting the conditions are incurred (clause 12).
• Assistance for income (for example, compensation of part of the interest on a loan or reimbursement of current costs) is shown in the income statement either under “Other income” or deducted from the related expenses; both methods are acceptable (clauses 17 and 18).
• Compensation for expenses or losses already incurred is recognised as income in the period in which it becomes receivable, and its effect is disclosed in the notes (clauses 13 and 14).

Profit tax and turnover tax

The Tax Code classifies budget subsidies as targeted funds — property received for use for the purpose set by the source or by law (Article 48 of the Tax Code). But whether support is exempt or taxed depends on its type.

• Amounts received from the State Budget to cover costs are treated as income in the form of reimbursement of previously deducted expenses and are included in income for the period of receipt (Article 301 of the Tax Code). The expenses themselves are deducted in the usual way, so the compensation effectively reverses the tax benefit of those expenses.
• Grants, humanitarian aid and targeted receipts are not included in income, provided the requirements of Article 48 of the Tax Code are met (clause 9 of Article 304).
• Targeted funds become income if there are no separate records or they are used for other purposes; the exception is budget funds, to which the rules of budget legislation apply (clause 26 of Article 297 of the Tax Code).
• Property and services received free of charge by decision of the President or the Cabinet of Ministers, or under international treaties, are not included in income (clause 8 of Article 304).
• For turnover tax payers, the tax base is aggregate income under Chapter 43 of the Tax Code excluding income under Article 304 (Article 463 of the Tax Code), so the same rules decide whether support enters the turnover tax base.

Separate records are a must

Both the standard and the Code require the company to show what the funds were spent on. Without separate records, targeted money risks becoming taxable income (clause 26 of Article 297 of the Tax Code), and the financial statements will not be able to show that the conditions of the assistance were met.

In practice this means a separate sub-account for each programme, documents confirming that the money was spent as intended (contracts, invoices, acceptance certificates, payment orders), and reconciliation with the reports required by the support programme itself.

If assistance has to be repaid

• The organisation repays the assistance if it has not met the established conditions. Previous reporting periods are not restated — the estimates are revised in the current period (clause 19 of NAS No. 10).
• Repayment of assistance for income is first charged against any unused balance of the assistance in the liabilities; any amount above that balance is recognised as an expense (clause 19).
• Repayment of assistance for assets is recorded by reducing the balance of the targeted receipts account or by increasing the carrying amount of the asset, with the depreciation that would have been charged on the repaid amount taken to financial results (clause 19).

What to disclose in the financial statements

• The accounting policy for government assistance, including the method of presentation in the statements (clause 20).
• The nature and amount of assistance recognised and other forms of assistance from which the organisation directly benefited (clause 20).
• Unfulfilled conditions and other contingencies attached to recognised assistance (clause 20).