A European technology group identified Uzbekistan as a priority growth market. The opportunity was clear: an expanding consumer base, liberalising investment conditions, and a government actively courting foreign capital. Yet the group's existing holding structure – designed for Western European operations – was poorly matched to Uzbekistan's tax legislation and corporate rules. Without restructuring, a significant share of returns would be eroded at source, and the risk of triggering an unintended permanent establishment in-country was real.
This case study describes how Ferraz & Whitmore advised a European investor on building a tax-efficient inbound investment structure in Uzbekistan. The engagement covered corporate income tax exposure, withholding tax on cross-border payments, and treaty eligibility, with the structure finalised over approximately four months. The outcome was a defensible holding arrangement that reduced unnecessary tax leakage and positioned the group for further regional expansion.
The following sections describe the client's challenge, the legal strategy selected, the key milestones encountered, and three transferable lessons for international investors entering Uzbekistan or comparable CIS markets.
Client profile and the challenge of entry
The client was a mid-sized European technology company with revenues generated across several EU member states. It planned to establish an operating subsidiary in Uzbekistan to deliver software services to local corporate clients.
The immediate challenge was structural. The group's existing intermediate holding company sat in a jurisdiction with no active tax treaty with Uzbekistan. Under Uzbekistan's tax legislation, dividend payments, royalties, and service fees remitted to non-resident entities are subject to withholding tax at rates that – absent treaty relief – can materially reduce net returns. Additionally, the group intended to second employees to Uzbekistan for extended periods. This raised the question of whether those employees' activities would constitute a permanent establishment, exposing the parent to corporate income tax obligations in Uzbekistan beyond the local subsidiary.
A further complexity arose around tax residency. The group had considered using a management company in a third jurisdiction to centralise decision-making. Under Uzbekistan's tax legislation, however. A company managed and controlled from within Uzbekistan may be treated as a tax resident. a risk that third-country holding arrangements can inadvertently create if local managers are given excessive authority.
For a detailed overview of ongoing tax law advisory in Uzbekistan, including current corporate income tax rates and treaty network updates, see our dedicated service page.
Legal strategy: treaty selection and structural design
The strategy centred on three decisions: holding company jurisdiction, intra-group agreement design, and employee secondment governance.
Holding company repositioning. The team identified a jurisdiction that maintains an active, comprehensive tax treaty with Uzbekistan. That treaty provided reduced withholding tax rates on dividends and royalties. Eligibility required that the holding company have genuine economic substance – a board capable of making real decisions, local staff, and operating costs proportionate to the income flowing through the entity. Ferraz & Whitmore assisted in designing substance protocols that satisfied these conditions without creating new permanent establishment risks in the holding jurisdiction.
Intra-group agreement structuring. The group charged the Uzbek subsidiary a licence fee for use of its proprietary software platform. Under the applicable tax treaty, royalty withholding tax was reduced provided the beneficial owner of the royalty income was resident in the treaty partner jurisdiction. The team structured the licence agreement so that the holding company – not the ultimate parent – was the contractual licensor and the genuine beneficial owner. This required careful drafting of the licence terms and a transfer pricing policy consistent with arm's length principles under Uzbekistan's tax legislation.
Permanent establishment risk mitigation. The group planned to send two senior engineers to Tashkent for seven to nine months to oversee the platform's local deployment. Under Uzbekistan's tax legislation and the applicable treaty, a dependent agent present for an extended period can constitute a permanent establishment. The team restructured the secondment arrangements: the engineers were formally employed by the Uzbek subsidiary during the assignment, limiting the parent's exposure. Service agreements between the parent and subsidiary were drafted to ensure the parent received a cost-plus remuneration for technical services. at a level below the treaty's permanent establishment threshold period. rather than acting as a contractor with independent authority in Uzbekistan.
The corporate law dimension of this structure – subsidiary incorporation, governance, and regulatory licensing – is covered in our overview of corporate law in Uzbekistan.
Key milestones and complications
The engagement ran from initial scoping through to regulatory registration over approximately four months. Three milestones defined the timeline.
Months one and two – structure design and treaty analysis. The team mapped the full withholding tax exposure under the pre-existing structure and quantified the annual cost of non-optimisation. This analysis drove the decision to reposition the intermediate holding company. Treaty eligibility conditions were reviewed in detail, and the substance requirements of the chosen holding jurisdiction were documented.
Month three – documentation and intra-group agreements. Licence agreements, transfer pricing documentation, and secondment contracts were drafted and reviewed by local Uzbek counsel coordinated through Ferraz & Whitmore. A significant complication arose at this stage: Uzbekistan's tax authorities require that treaty benefits be claimed proactively. With the non-resident entity providing a certificate of tax residency from its home jurisdiction before withholding tax relief applies. Delays in obtaining that certificate from the holding company's home tax authority threatened to push the structure's effective date beyond the subsidiary's first payment cycle. The team resolved this by obtaining an advance confirmation from the Uzbek subsidiary's accountants on interim withholding procedures and by expediting the certificate request through formal administrative channels.
Month four – subsidiary registration and first operational payments. The Uzbek subsidiary was registered and the first intra-group royalty payment was processed at the treaty-reduced withholding tax rate. The structure became operational within the target window, avoiding a full quarter of payments at the default withholding rate.
A comparable structural challenge in a neighbouring CIS market is described in our case study on inbound investment structuring in Russia, where treaty network differences required a different holding jurisdiction approach.
To explore how a similar tax and corporate optimisation strategy could apply to your investment in Uzbekistan, contact us at info@ferrazwhitmore.com.
Three transferable lessons
Lesson 1 – Treaty selection must precede entity formation. Many international investors establish a local subsidiary before selecting the optimal holding jurisdiction. In Uzbekistan, the withholding tax differential between treaty and non-treaty rates on dividends and royalties can be substantial. Restructuring after the subsidiary is operational is possible but introduces delay, additional cost, and potential gaps in treaty protection during the transition. Investors should conduct full treaty analysis and holding jurisdiction selection before the local entity is incorporated.
Lesson 2 – Substance is not optional in treaty planning. Uzbekistan's tax legislation and the tax treaty network both require that treaty benefits flow to entities with genuine economic substance. A holding company that exists only on paper – no staff, no local directors, no real decision-making – will not satisfy beneficial ownership requirements. Tax authorities are increasingly willing to look through intermediary entities where substance is absent. Building genuine substance into the holding structure is not a compliance formality; it is the foundation on which treaty access rests.
Lesson 3 – Permanent establishment risk travels with your people. Extended employee secondments and senior management visits to Uzbekistan can create permanent establishment exposure that overrides the protections of an otherwise well-designed structure. The relevant test under Uzbekistan's tax legislation focuses on whether an individual has the authority to conclude contracts on behalf of the foreign entity, and on the duration of their physical presence. Investors should implement clear secondment governance policies – covering employment contracts, authority limits, and duration controls – before personnel enter the country in a commercial capacity.
About Ferraz & Whitmore
Ferraz & Whitmore is an international law firm based in Lisbon, advising business clients across 46 jurisdictions. Our tax and corporate practice covers inbound investment structuring, withholding tax planning, and permanent establishment analysis across CIS and high-growth markets, including Uzbekistan. Working as a law firm in Uzbekistan matters requires knowledge of both local tax legislation and the applicable treaty network. our team combines that specialist knowledge with Portuguese civil law and English common law experience to deliver cross-border solutions that are commercially sound and legally defensible. We work with international entrepreneurs, institutional investors, and in-house legal teams who need a lawyer in Uzbekistan and beyond, with results-oriented counsel across multiple legal systems. To discuss your investment structure in Uzbekistan or a comparable CIS jurisdiction, contact us at info@ferrazwhitmore.com.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.