Tax on the sale of a share in an LLC: residents and non-residents

Seller — resident individual

Income from selling property is property income, measured as the excess of the sale amount over the documented acquisition cost; without documents the whole sale value is income (Art. 375(4) of the Tax Code). The general exemption for selling personal property does not cover shares: income from selling shares (interests) in the charter capital of legal entities is expressly excluded from the exemption (Art. 378(7)).

The PIT rate for residents is 12% (Art. 381).

• Buyer is a legal entity: property income is taxed by the tax agent (Art. 387), so the buying company withholds the tax on payment.
• Buyer is an individual: there is no agent, so the seller declares the income — property income not taxed by an agent is taxed on a return (Art. 393), filed by 1 April of the following year (Art. 397).
• Keep the acquisition-cost documents: the contract and payment records from buying the share, or documents on the contribution to charter capital. Without them tax is charged on the whole sale price.

Seller — resident company

For a company the result of selling a share is income (loss) on disposal of other property; the financial result is determined under accounting legislation (Art. 298) and included in the corporate income tax base. The general rate is 15% (Art. 337).

A loss on selling an interest in charter capital cannot be offset against ordinary operating profit: it is covered only by income from selling similar assets (Art. 336). If a company sells a share for less than it paid and has no other share sales, the loss does not reduce the tax base.

Seller — foreign company without a permanent establishment

A non-resident's income from selling a share in the charter capital of an Uzbek resident legal entity is Uzbek-source income (Art. 351, part 2, item 5). The tax agent paying the income withholds the tax. The rate is 20% as other income (Art. 353), unless a double tax treaty provides otherwise.

Article 356 sets a special procedure when a non-resident legal entity sells a share to another non-resident or to a resident:

• The base is the excess of the sale amount over the documented acquisition cost; the non-resident gives the agent copies of supporting documents. Without documents the tax is withheld from the whole sale value.
• Before ownership is registered, the agent files a tax report with the tax office where the LLC whose share is sold is registered.
• The tax is paid to the budget before ownership of the share is registered.
• Within one working day of proof of payment, the tax office issues a certificate without which the registering authority will not record the transfer.
• The rules also apply to foreign structures without legal personality.

Seller — foreign individual (non-resident)

A non-resident individual's Uzbek-source income, other than dividends, interest and freight, is taxed at 12% (Art. 382). The base follows the same rule of Art. 375(4): sale price less documented acquisition cost. If the buyer is an Uzbek company, it withholds the tax as agent. Applying a double tax treaty requires proof of the seller's residence.

Worked example

A foreign company sells 40% of an Uzbek LLC to a resident for USD 2,000,000; five years ago it paid USD 1,200,000 and kept the contract and payment records. The base is USD 800,000 and the tax at 20% is USD 160,000. The buyer files the report with the tax office where the LLC is registered, pays the tax, obtains the certificate and only then registers the transfer. Without acquisition documents the tax would be on the whole USD 2,000,000 — USD 400,000.

The report on a non-resident's income from selling property is prepared in the currency in which the non-resident receives the income; a copy of the sale contract and acquisition-cost documents are attached.

What to check before the deal

• The seller's status: resident or non-resident, any permanent establishment.
• For an individual seller — who the buyer is: a company withholds as agent; on a sale to an individual the seller files a return by 1 April.
• Acquisition-cost documents — contract, payment records, contribution decisions.
• Whether a double tax treaty applies and a residence certificate is available.
• Who the agent is and when the tax is remitted — for a non-resident legal entity, before the share transfer is registered.
• For a corporate seller — whether there is income from similar assets to absorb a possible loss.