Tax Depreciation in Uzbekistan: Rates by Group and Differences from Book Depreciation

What is depreciated for tax purposes

For tax purposes, a fixed asset is property worth more than 50 BCV (at the date of recognition) per unit or set that is used in production, in rendering services or for administrative needs for more than twelve months (Article 306(2) of the Tax Code). The accounting policy may set a lower value threshold for tax purposes.

Inseparable improvements to leased property made by the lessee with the lessor's consent are also depreciable assets. Property received under a lease (leasing) is depreciated by the lessee.

• not depreciated: land and other natural resources, productive livestock, library collections, museum items, cultural heritage objects;
• not depreciated: capital investments not transferred into depreciable assets, and assets whose cost has already been fully expensed;
• temporarily excluded: assets under conservation — for the conservation period; assets under reconstruction or modernisation for more than twelve months and not in use meanwhile.

Maximum rates by depreciation group

All depreciable assets except intangibles are depreciated on a straight-line basis at the maximum rates set by Article 306. The group (subgroup) is determined at the date the asset is put into service, taking the statistical classifier of fixed assets into account.

• Group I — buildings: 5% a year; structures: 10%;
• Group II — pipelines, power transmission and telecommunication lines: 15%;
• Group III — machinery and equipment (other than transport equipment): 20%;
• Group IV — aircraft, ships and boats, locomotives and railway rolling stock: 10%; motor vehicles, car bodies, trailers and semi-trailers, other transport equipment: 20%;
• Group V — computers and peripheral equipment: 40%;
• Group VI — assets not included in other groups: 15%.

How to calculate: base, start and stop

Depreciation is calculated monthly and separately for each asset as initial cost multiplied by the rate. The rates are ceilings: a taxpayer may use lower rates, but not higher ones.

The initial cost of an asset acquired after 31 December 2021 is the cost of acquisition, construction, delivery and bringing it to working condition; creditable VAT is excluded. Revaluations made after 1 January 2021 are not recognised as income or expense for tax purposes and do not affect depreciation.

Depreciation starts on the date the asset is put into service — regardless of the date of state registration of rights (relevant for buildings). It stops when the cost is fully written off or the asset is disposed of.

Intangible assets and repairs

For intangibles, the taxpayer calculates the rate itself, based on initial cost and useful life (the term of a patent, certificate or contract), but not longer than the company's term of operation. If the useful life cannot be determined, the rate is set on the basis of five years (Article 307).

Repair costs for depreciable assets are deducted at actual cost in the period incurred (Article 309). Completion, modernisation, reconstruction and technical re-equipment, by contrast, increase the initial cost and are written off through depreciation.

Investment deduction

Article 308 allows faster write-off: the investment deduction is treated as a depreciation expense and applied in the period the asset is put into service.

• 20% — of the cost of new technological equipment, modernisation, technical or technological re-equipment, and domestic software within investment projects to build information systems;
• 10% — of funds spent on expanding production through new construction and reconstruction of production buildings and structures;
• equipment is considered new if no more than three years have passed since it was manufactured;
• if the asset is sold, transferred free of charge or otherwise disposed of within three years after the deduction, the deduction is cancelled — it is subtracted from accumulated depreciation in the period of disposal (except for disposal due to natural disaster, fire or accident).

How tax depreciation differs from book depreciation

Under NAS No. 5, the depreciable amount is allocated over the useful life that the company determines itself. Methods include straight-line, units of production and accelerated methods: double declining balance and sum of the years' digits. For tax purposes, only the straight-line method and rates not exceeding the maximum are allowed.

Hence the typical differences: different lives and methods, different thresholds for recognising a fixed asset, revaluations (they change the book value but not the tax base), and the investment deduction, which does not exist in accounting. The differences should be tracked asset by asset — otherwise, during an audit, the company cannot show where the figure in the return came from.