How does IT Park revoke residency status from companies?

Since the beginning of 2023, IT Park has revoked the resident status of 236 companies. The reason for this action is the failure to fulfill their obligations within the framework of IT Park resident status.

Indeed, resident status entails not only rights and privileges but also responsibilities. Companies are required to adhere to several straightforward requirements, the primary ones being:

• Operating within the approved list of activities.
• Submitting quarterly reports on their operations.
• Conducting an annual audit and providing a copy of the report to IT Park.

IT Park continuously monitors its residents, and in cases of violations, their resident status is revoked.

Information about such companies is forwarded to the tax authorities, which annul the associated tax privileges while reinstating the obligations for payment to the State Budget of the Republic of Uzbekistan in accordance with established procedures.

It is worth noting that resident status can be reinstated if the shortcomings are rectified.

Why are IT companies granted incentives and how effective are they?

Being a resident of IT Park is highly advantageous. Primarily, it allows companies to save substantial amounts and invest in the further development of their businesses, as there are tax incentives in place here.

For comparison:

Tax rate	Residents	Non-residents
Corporate tax	0%	5-12%
Social tax	0%	12%
Income tax	7,5%	12%
VAT on imports of services	No	Yes

Unlike previous years, privileges in Uzbekistan are now primarily directed towards entire industries rather than individual companies.

In the case of the IT, these privileges are aimed at accelerating the development of the entire sector and catching up on missed opportunities.

Thanks to the fact that IT Park residents pay fewer taxes, they can allocate more resources to expand their staff, explore new niches, and venture into international markets, and much more.

Furthermore, these privileges make the IT sector a highly attractive field for those looking to establish or relocate their businesses to Uzbekistan.

For instance, this has been a significant boost to the TashRush program, which has facilitated the relocation of several foreign companies to Uzbekistan.

It may seem that these privileges reduce the revenue flowing into the state budget, but in reality, they are a form of investment that returns in an increased volume through alternative channels, such as exports.

Moreover, these privileges help expedite the creation of new job opportunities, which is one of the crucial objectives in modern Uzbekistan.

The success of such an approach is evident in the results achieved by IT Park in 2022 and the first half of 2023.

Why do some residents fail to comply with the requirements?

As observed earlier, the conditions under which a company can take advantage of the privileges are straightforward and easily doable.

Nothing special is required from residents — they are simply required to engage in IT-related activities, submit their reports transparently, and undergo audits.

Many companies in Uzbekistan already adhere to these practices, not necessarily relying on any privileges, as it is in their best interest. Transparent reporting allows them to keep a close eye on their business, while audits provide an objective assessment from the outside.

However, there are still residents who do not fulfill these simple requirements. They can be broadly categorized into three main groups:

1. Those who attempt to portray themselves as IT companies solely for the purpose of benefiting from incentives.
2. Those who intentionally or inadvertently fail to submit reports on time and undergo audits.
3. Those who actually not conducting their activities (either ceased or even not commenced).

IT Park endeavors to identify such companies at the application review stage, so in most cases, companies lose their resident status either at the very beginning of their operations or when there are changes in their activities.

Immediately identifying all companies that will not comply with the requirements is not feasible because, for instance, it is unknown whether a company will submit its reports in three months or not.

If they do, everything is fine, the company benefits from incentives, grows, and prospers. If not, the resident status is immediately revoked, and information about the company is forwarded to tax authorities, who then take further action.

Why monitoring is necessary?

In addition to IT Park, several other organizations in Uzbekistan grant companies resident status with similar incentives.

Nevertheless, continuous monitoring of residents is essential because these priveliges attract companies that may not intend to use them appropriately.

This is always a realm of significant responsibility and must be handled accordingly.

Otherwise, there is a high risk of discrediting the very idea of privileges for technology companies, which is the last thing Uzbekistan needs right now.

Information about the article’s author:

Timurmalik Elmuradov — analyst, R&D specialist, MSc of the Higher School of Economics in Moscow.

Author of "Skartaris Peak"— the Telegram channel about business, market and technology in Uzbekistan. He was responsible for development at the “Univer Club Family” group of companies (Russia), online publication Daryo.uz. Co-founder and former CEO of Spot.uz.