Non-Deductible Expenses for Corporate Income Tax in Uzbekistan

First — the general test of Article 305

Even if an expense is not in Article 317, it is deductible only if two conditions are met: it is justified and documented. Justified means economically reasonable costs measured in money; a cost is economically reasonable if it is incurred for activity aimed at generating income, is necessary to maintain or develop the business with a clearly established link, or arises from legislation (Art. 305).

Documented means supported by documents prepared under Uzbek law, under the rules of the foreign country where the expense was incurred, or in another form, such as a business-trip order, travel documents or a report on services rendered.

• VAT credited as input VAT is not an expense, including on purchases of depreciable assets (except cases in Art. 314).
• Amounts recognised in the accounts due to changes in the value of assets and liabilities are not expenses, except those actually paid.
• Costs included in the cost of long-term assets and inventories are expensed through depreciation and cost of sales.

Staff and individuals

• Material benefit income of employees and other individuals under Art. 376 (item 3 of Art. 317), except tickets for employees and close relatives to cultural and entertainment events within 0.5% of sales revenue.
• Field allowances and compensation for an employee's use of a personal car above statutory limits (item 4).
• Supplements to pensions (item 5).
• Certain types of financial aid under Art. 377 (item 6).
• Events unrelated to business activity — healthcare, sport, culture, recreation — unless the law obliges the taxpayer to hold them (item 13).
• Assistance to trade union committees (item 14).
• Voluntary insurance premiums paid for the benefit of others (item 25).

Penalties, taxes and borrowing costs

• Penalties, fines and other sanctions payable to the budget system (item 19).
• Taxes and fees assessed as a result of tax audits (item 12) and taxes paid for other persons (item 11).
• Fines, penalties and other sanctions for breach of commercial contracts, paid or acknowledged (item 36).
• Interest on overdue and deferred loans above the contractual rate for current debt (item 35).
• Interest and certain costs above the amounts recognised under Art. 310 (item 26).
• Dividends declared (item 24).

Assets, inventories and losses

• Losses of goods above natural-loss norms — set by the authorised body or, failing that, by the taxpayer (item 1).
• Losses from theft and shortages where the culprits are not identified or recovery from them is impossible (item 10).
• Losses from writing off inventory as unusable — expiry, physical or technological obsolescence; except for emergencies such as natural disasters, fire, accidents and road accidents (item 34).
• Write-downs (impairment) of property (item 31).
• Costs of acquisition, construction, installation and modernisation included in depreciable assets — deducted through depreciation (item 20).
• The value of property and services transferred free of charge, including VAT on the transfer, except transfers by decision of the President or the Cabinet of Ministers (item 27).

Charity, non-business and contentious expenses

• Charitable aid (item 7), except patronage, sponsorship of lonely elderly people and persons with disabilities needing care, aid to educational institutions, orphans and children without parental care, and donations to the Public Children Support Fund.
• Free provision of premises to canteens and other third parties and paying their utilities (item 2).
• Services unrelated to production — landscaping of towns and villages, aid to agriculture (item 15).
• Expenses unrelated to income-generating activity unless required by law (item 18), and expenses related to exempt income (item 16).
• Expenses on transactions with no actual delivery or service, where a final court decision naming the taxpayer establishes this (item 17).
• Contributions to non-profit and international organisations unless required by law or a condition of doing business or obtaining necessary services (item 29).
• The excess of capped expenses over the cap (item 22) and allocations to reserves not provided for by the chapter, except reserves within Arts. 315, 316 and 326 (item 23).

Working with the list in practice

Non-deductible expenses do not disappear from the accounts — they stay in the income statement but are added back in the tax computation. A separate register is useful: expense account, item of Art. 317, amount for the period. Example: a company received contractual liquidated damages from a supplier and itself paid a fine to a customer for late delivery — the fine paid does not reduce the base under item 36, although it is an expense of the period in the accounts.

• Go through the expense account turnovers and mark amounts falling under items 1–36.
• Check the limits: natural loss, personal transport, capped expenses.
• Collect documents for the exceptions — for example, emergency reports for writing off spoiled inventory.
• Reconcile the adjustment in the return with the register — it is the first thing an inspector looks at in a desk audit.