Russia-Uzbekistan Business Deals & Trade Contracts: A Comprehensive Legal Guide

June 30, 2023

BRACE Law Firm ©

The production potential of the Republic of Uzbekistan serves as the foundation for the development of the country's economy and its trade with other countries, including the Russian Federation. Russia and Uzbekistan interact regarding both the import and export of goods.

Russia exports the following to Uzbekistan:

• fats and oils;
• food products, beverages, and tobacco;
• mineral products;
• chemical industry products;
• plastics, rubber, and resin;
• wood and wood products;
• books, paper, and cardboard;
• stone, ceramic, and glass products;
• metals and metal products;
• machinery, equipment, and devices;
• [1]

Russia imports the following from Uzbekistan:

• plant products, including vegetables and fruits;
• plastics, rubber, and resin;
• textiles and textile products;
• metals and metal products;
• machinery, equipment, and devices;
• food products, beverages, and tobacco. [2]

It is important to note that the Republic of Uzbekistan is not a member of the Eurasian Economic Union (the "EAEU"), and the provisions of the Treaty on the Eurasian Economic Union [3] and regulations adopted in connection with it do not apply to trade relations between Russian and Uzbek entrepreneurs. However, it should be noted that in 2011, the member states of the Commonwealth of Independent States signed the Treaty on a Free Trade Area [4], which aims to establish conditions for the free movement of goods.

The Treaty on a Free Trade Area has applied to Uzbekistan since 2013. [5] In this regard, the Republic of Uzbekistan does not apply customs duties on the import of goods originating from the customs territories of the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Republic of Moldova, the Russian Federation, the Republic of Tajikistan, and Ukraine. The Russian Federation applies customs duties on the export of goods intended for the customs territory of the Republic of Uzbekistan according to the nomenclature and rates specified in the Protocol on the Application of the Treaty on a Free Trade Area of October 18, 2011, between its Parties and the Republic of Uzbekistan.

Considering that Russia and Uzbekistan do not share a land border, the delivery of goods is carried out by various modes of transport: air, rail, and road. This must be taken into account when forming the logistics chain for the delivery of goods from one country to another and when drafting a foreign trade contract.

Contract between Companies from Uzbekistan and Russia

Given that the Republic of Uzbekistan is not part of the EAEU, international law norms governing such relationships apply to the regulation of foreign trade relations, for example, the United Nations Convention on Contracts for the International Sale of Goods [6] (the "Vienna Convention"). The Vienna Convention applies to contracts for the sale of goods between parties whose places of business are in different states.

The process of concluding a contract is reflected in Part II of the Vienna Convention, according to which a proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. At the same time, until a contract is concluded, an offer may be withdrawn by the offeror if the communication of withdrawal reaches the offeree before the offeree has dispatched an acceptance.

Furthermore, a statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance. An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. To formalize all agreements on the supply of goods, the parties conclude a foreign trade contract, which is necessary not only for foreign partners but also for customs authorities, carriers, tax authorities, etc.

Uzbek partners are mostly open and friendly; they pay great attention to informal arrangements and prefer personal meetings over all modern technical capabilities such as Zoom and Skype. Many relationships are built on personal acquaintances and connections. In addition, Uzbekistan is a religious Muslim country, so it is important to observe religious norms when interacting with Uzbek partners. Moreover, despite the knowledge of the Russian language by the majority of the population of Uzbekistan, it is better to involve a translator for conducting negotiations.

The following sections must be included in the foreign trade contract:

• preamble;
• subject of the contract, specifying the quantity and quality of the supplied goods;
• delivery of the goods and their acceptance by the buyer, referencing Incoterms where necessary;
• cost of the goods [7], taking into account currency legislation and specifying the transaction currency;
• delivery dates [8];
• obligations of the parties;
• liability of the parties;
• force majeure;
• bank details of the parties.

When concluding and performing a foreign trade contract, it is important to reflect the actual parameters of the transaction and the supplied goods in all documents supporting the transaction in order to exclude the occurrence of adverse consequences for the parties to the contract, both from regulatory authorities [9] and partners. [10]

The legislation of the Republic of Uzbekistan regarding the regulation of contractual relations is similar in content to Russian legislation; thus, in accordance with the Civil Code of the Republic of Uzbekistan, a contract is considered concluded if an agreement has been reached between the parties in the required form on all material terms of the contract. [11]

Regulatory documents governing the foreign trade activity of Uzbekistan also include, for example:

• Customs Code of the Republic of Uzbekistan [12];
• Decree of the President of the Republic of Uzbekistan No. UP-115 dated April 25, 2022, On Additional Measures to Simplify the Application of the "Processing in the Customs Territory" Customs Regime;
• Law of the Republic of Uzbekistan No. 554-II dated December 11, 2003, On Safeguard Measures, Antidumping, and Countervailing Duties;
• Resolution of the Cabinet of Ministers of the Republic of Uzbekistan No. 700 dated November 9, 2020, On Approval of Customs Duty Rates;
• Resolution of the Cabinet of Ministers of the Republic of Uzbekistan No. 1057 dated December 31, 2019, On Improving Customs Procedures for the Clearance of Goods and Vehicles Imported into the Customs Territory of the Republic of Uzbekistan, etc.

Given the differences in the legislation of the partners, the parties to a foreign trade contract may include in the text of the contract all material and additional terms they deem necessary for concluding the contract, taking into account the requirements of international law and the national legislation of each participant.

Confirmation of Origin of Goods in Russia and Uzbekistan

The origin of goods is confirmed in all cases where the application of customs-tariff regulation measures, prohibitions and restrictions, and internal market protection measures depends on the origin of the goods. [13] In this case, the document of origin is a declaration of origin or a certificate of origin. The origin of the goods is confirmed by a declaration of origin [14] or a certificate of origin in accordance with the rules [15] for determining the origin of imported goods or the rules for determining the origin of exported goods.

A declaration of origin [16] is a commercial or any other document related to the goods and containing information about the origin of the goods as declared by the manufacturer, seller, or sender of the country of origin of the goods or the country of export. [17] A certificate of origin is a document of a certain form certifying the origin of the goods and issued by an authorized state body or an authorized organization of the country of origin of the goods or the country of export. [18]

In accordance with the Customs Code of the Republic of Uzbekistan [19], the country of origin of the goods is considered to be the country in which the goods were wholly produced or subjected to sufficient processing in accordance with the requirements established by the Customs Code of the Republic of Uzbekistan. The country of origin of the goods may be considered a group of countries, customs unions of countries, a region, or a part of a country if there is a need to identify them for the purposes of determining the origin of the goods. [20]

Furthermore, a certificate of origin is a document, including in electronic form, confirming the origin of goods from a given country, issued by an authorized body in accordance with the procedure and form established by the country of export or re-export. [21] When exporting goods from the customs territory, a certificate of origin is issued by an authorized body in accordance with legislation if the specified certificate is required under the terms of the contract (agreement), according to the national rules of the importing country, or if the presence of the specified certificate is provided for by international treaties of the Republic of Uzbekistan, as well as at the request of the exporter.

Prohibitions and Restrictions in Interaction between Russian and Uzbek Partners

In addition to the fundamental norms governing trade relations, the parties to a foreign trade contract must also comply with established prohibitions and restrictions; in particular, in accordance with the EAEU Customs Code, goods are moved across the customs border of the Union and (or) placed under customs procedures in compliance with prohibitions and restrictions. Thus, for example, in order to maintain phytosanitary safety, Rosselkhoznadzor establishes prohibitions on the import of products:

• Letter of Rosselkhoznadzor No. FS-YuSh-3/34390 dated December 9, 2020, On the Prohibition of Import of Plant Products from the Republic of Uzbekistan into the Russian Federation;
• Letter of Rosselkhoznadzor No. FS-YuSh-3/34183 dated December 8, 2020, On the Prohibition of Import of Tomatoes and Peppers from the Republic of Uzbekistan into the Russian Federation.

In addition, an enhanced laboratory control regime may be introduced for a range of products:

• Letter of Rosselkhoznadzor No. FS-EN-8/24573 dated December 11, 2014, On the Introduction of an Enhanced Laboratory Control Regime for the Products of an Enterprise Arriving in the Russian Federation from Uzbekistan.

At the same time, the Republic of Uzbekistan also introduces prohibitions and restrictions for the import of goods and products into its country, as defined by Annex No. 2 to the Protocol on the Application of the Treaty on a Free Trade Area of October 18, 2011, between its Parties and the Republic of Uzbekistan.

Compliance with Currency Legislation in Interaction between Russian and Uzbek Partners

According to Russian currency legislation, in accordance with Federal Law No. 173-FZ dated December 10, 2003, On Currency Regulation and Currency Control (the "Currency Regulation Law"), residents, with certain exceptions [22], open accounts (deposits) in banks and other financial market organizations located outside the territory of the Russian Federation without restrictions, in accordance with the personal law of such organizations that have the right to provide services related to attracting funds from residents and placing them for storage, management, investment, and (or) other transactions in the interests of the resident or directly or indirectly at the expense of the resident, and also carry out transfers of funds without opening a bank account using electronic means of payment provided by foreign payment service providers. It is important to note that non-compliance with the currency legislation of the countries involved in a foreign trade contract leads to liability under national law. [23]

Given the differences in currency legislation, when interacting with Uzbek partners, it is important to pay attention not only to Russian legislation on currency regulation but also to the currency legislation of the Republic of Uzbekistan. The main document regulating currency legislation is the Law of the Republic of Uzbekistan No. 841-XII dated May 7, 1993, On Currency Regulation, according to which in Uzbekistan, it is not permitted to peg prices for goods (works, services) sold on the territory of the Republic of Uzbekistan to foreign currencies and conventional units.

According to Russian legislation, when carrying out foreign trade activities and (or) when residents provide foreign currency or Russian rubles in the form of loans to non-residents, residents are obliged, within the timeframes provided for by foreign trade contracts and (or) loan agreements, to ensure [24]:

• receipt from non-residents into their bank accounts in authorized banks of foreign currency or Russian rubles due in accordance with the terms of the specified contracts for goods transferred to non-residents, works performed for them, services rendered to them, information and results of intellectual activity transferred to them, including exclusive rights to them;
• return to the Russian Federation of funds paid to non-residents for goods not imported into the Russian Federation, works not performed, services not rendered, information and results of intellectual activity not transferred, including exclusive rights to them;
• receipt from non-residents into their bank accounts in authorized banks of foreign currency or Russian rubles due in accordance with the terms of loan agreements.

Repatriation of assets for foreign trade operations under the legislation of the Republic of Uzbekistan is the fulfillment of a non-resident's obligations in part or in full by [25]:

• receipt of funds or goods (performance of works, rendering of services) under the non-resident's obligations;
• termination of the non-resident's obligation by set-off of a mutual homogeneous claim;
• termination of an obligation that existed between the parties by another obligation between the same persons providing for a different subject or method of performance;
• receipt of an insurance payout.
• In Uzbekistan, payments in foreign currency to Uzbek accounts are monitored. Residents who have not ensured the repatriation of assets for foreign trade operations for more than forty-five days (ninety days for small business entities) after the expiration of one hundred and eighty days from the date of payment or export to a non-resident shall pay a fine to the national budget [26]:
• in an equivalent of 5% of the amount of non-repatriated assets — in case of delay in repatriation of assets up to three hundred and sixty days from the date of payment or export to a non-resident;
• additionally, in an equivalent of 10% of the amount of non-repatriated assets — in case of delay in repatriation of assets from three hundred and sixty to five hundred and forty-five days from the date of payment or export to a non-resident;
• additionally, in an equivalent of 35% of the amount of non-repatriated assets — in case of delay in repatriation of assets for more than five hundred and forty-five days from the date of payment or export to a non-resident.

Taxation in Interaction with Uzbek Partners

In the field of tax relations between the Government of Russia and the Government of the Republic of Uzbekistan, the Agreement dated May 4, 2001, On the Principles of Collection of Indirect Taxes in Mutual Trade [27] (the "Agreement on Indirect Taxes") was signed, according to which goods imported into the customs territory of the state of one Party, which are exported from the customs territory of the state of the other Party, are subject to indirect taxes in the country of destination in accordance with its national legislation. [28] The Agreement on Indirect Taxes entered into force on March 1, 2003.

At the same time, goods placed under the export customs regime, exported from the customs territory of the state of one Party and imported into the customs territory of the state of the other Party, are subject to indirect taxes at a zero rate in accordance with the procedures established by the Parties. [29] This rule does not apply to natural gas and oil, including stable gas condensate. [30]

The procedure for applying indirect taxes when rendering services is formalized by a separate Protocol. Until this Protocol is put into effect, services are subject to indirect taxes in accordance with the legislation of the states of the Parties [31], with the exception of the following services:

• services for the transportation and maintenance of goods exported from the customs territory of the state of one Party to the customs territory of the state of the other Party, including services for forwarding, loading, unloading, and reloading;
• services for the transportation and maintenance of transit goods, provided that the points of departure or destination of the goods are located on the territory of the states of the Parties, including services for their forwarding, loading, unloading, and reloading;
• services for the transportation of passengers and baggage from the customs territory of the state of one Party to the customs territory of the state of the other Party in the forward and backward directions.

The listed exceptions are subject to value-added tax at a zero rate in the state [32] whose taxpayers provide such services, upon confirmation of the fact of their provision in accordance with the procedures established by the Parties. The taxation of transactions for the sale of goods (works, services) on the territory of the Russian Federation is carried out at the tax rates established by the relevant paragraphs of Article 164 of the Tax Code of the RF. [33]

For the purposes of exercising control over the movement of goods, maintaining records, and exchanging information, the Parties will use the Commodity Nomenclature of Foreign Economic Activity of the Commonwealth of Independent States. [34] Indirect taxes on goods imported into the customs territories of the states of the Parties are collected by the customs authorities of the country of destination or its tax authorities.

A taxpayer may determine the applied general tax rate to exported goods as 20% or 10%. To do this, it is necessary to submit an application to the tax authority at the place of its registration no later than the 1st day of the tax period from which the taxpayer intends not to apply the zero rate. The refusal applies to all export operations without the right of choice and is valid for at least 12 months. [35]

To confirm the validity of applying the 0% tax rate (or taxation specifics), as well as tax deductions in relation to transactions for the sale of raw materials, the following documents are submitted to the tax authorities:

• contract (copy of the contract) of the taxpayer with a foreign person for the supply of goods (stores) outside the customs territory of the EAEU and (or) stores outside the territory of the RF, or a contract (copy of the contract) with a Russian organization for the supply of goods to its branch, representation, office, bureau, bureau, agency, or other separate subdivision located outside the customs territory of the EAEU. If the contract contains information constituting a state secret, an extract from it is submitted instead of a copy of the full text of the contract, containing the information necessary for tax control (in particular, information on delivery terms, dates, price, type of product);
• customs declaration (its copy) with marks of the Russian customs authority that released the goods in the export procedure and the Russian customs authority of the place of exit through which the goods were exported from the territory of the RF and other territories under its jurisdiction.

In connection with the decision of the Eurasian Intergovernmental Council No. 5 dated July 17, 2020, On Not Placing Marks of Customs Authorities in Transport (Shipping), Commercial and (or) Other Documents when Performing Customs Operations in Electronic Form, during customs declaration and release of goods in electronic form, the taxpayer, for the purposes of confirming the validity of applying the 0 percent VAT tax rate when selling goods exported in the export customs procedure, or when requested by the tax authority for a declaration of goods, may submit to the tax authority a copy of the electronic declaration for goods printed on paper containing information indicating the release of goods in accordance with the export customs procedure. Subsequent placement of marks by the customs authorities on the release of goods in the export customs procedure on such a copy of the declaration for goods printed and certified by the taxpayer is not required. [36] At the same time, copies of requested customs declarations, the information from which is included in the relevant registers submitted in electronic form to the tax authority, may be submitted to the tax authorities without the relevant marks of the Russian customs authorities of the place of exit.

Sanctions Restrictions and the Activity of Russian-Uzbek Entrepreneurs

Despite the pressure from unfriendly countries in connection with the introduction of sanctions restrictions on Russia, trade Russian-Uzbek interconnections are only strengthening and expanding. In connection with the refusal of some European partners to supply their goods to the RF, Uzbek entrepreneurs in some areas, such as footwear and clothing, are successfully closing the consumer demand of the Russian buyer. In turn, Russian partners continue to increase the supply of goods necessary for Uzbek consumers.

In addition to goods produced in Uzbekistan, goods that Western partners have prohibited from being imported into Russia directly via parallel import are also supplied to the RF from the territory of the country. Despite the possibility of secondary sanctions restrictions, Uzbekistan continues to actively cooperate with Russian partners.

Regardless of economic and political circumstances, Russia and Uzbekistan are long-standing cooperating states in various areas, including the trade sector. When concluding a foreign trade contract with Uzbek partners, it is important to comply with the norms of international law in the field of trade that apply to Russia and Uzbekistan, the national legislation of the participants in the international transaction, and the business customs of doing business in the partner country.

______________________________

References

1. Export and import to Uzbekistan. Analytics for January 2022. Ru-stat Portal.
2. Import to Russia from Uzbekistan. All goods 2020–2020. Ru-stat Portal.
3. Treaty on the Eurasian Economic Union. Signed in Astana on May 29, 2014.
4. Free Trade Area Treaty. Signed in St. Petersburg on October 18, 2011.
5. Protocol on the Application of the Free Trade Area Treaty dated October 18, 2011, between its Parties and the Republic of Uzbekistan. Signed in Minsk on May 31, 2013.
6. United Nations Convention on Contracts for the International Sale of Goods. Concluded in Vienna on April 11, 1980.
7. Resolution of the Arbitration Court of the Moscow District dated May 29, 2023, No. F05-7262/2023 in case No. A40-180484/2022. The court found that the company provided necessary documentation confirming the transaction price and terms, ruling the customs authority's upward adjustment illegal.
8. Resolution of the Arbitration Court of the Volga District dated January 31, 2023, No. F06-27585/2022 in case No. A55-3870/2022. The court adjusted mutual claims after finding both parties breached delivery and payment terms.
9. Resolution of the Arbitration Court of the Volga-Vyatka District dated March 16, 2023, No. F01-66/2023 in case No. A43-18174/2022. The court upheld the customs authority's value adjustment because the company's declared price was not supported by verified documentation.
10. Resolution of the Arbitration Court of the Volga-Vyatka District dated December 26, 2019, No. F01-7355/2019 in case No. A17-5596/2018. Recovery of unjust enrichment was denied because the goods were legally acquired through a mediator.
11. Article 364 of the Civil Code of the Republic of Uzbekistan.
12. Approved by the Law of the Republic of Uzbekistan No. ZRU-400 dated January 20, 2016, On Approval of the Customs Code of the Republic of Uzbekistan.
13. Clause 1 of Article 29 of the EAEU Customs Code.
14. Resolution of the Arbitration Court of the Moscow District dated June 23, 2022, No. F05-9183/2022 in case No. A41-62152/2021. The court ruled that a single declaration of conformity was sufficient for multiple shipments.
15. Decision of the Council of the Eurasian Economic Commission No. 49 dated July 13, 2018, On Approval of the Rules for Determining the Origin of Goods Imported into the Customs Territory of the Eurasian Economic Union (Non-preferential Rules for Determining the Origin of Goods).
16. Resolution of the Arbitration Court of the Volga-Vyatka District dated June 9, 2023, No. F01-2427/2023 in case No. A43-4664/2022.
17. Clause 1 of Article 30 of the EAEU Customs Code.
18. Clause 1 of Article 31 of the EAEU Customs Code.
19. Code approved by Law of the Republic of Uzbekistan No. ZRU-400 dated January 20, 2016.
20. Article 358 of the Customs Code of the Republic of Uzbekistan.
21. Article 363 of the Customs Code of the Republic of Uzbekistan.
22. Federal Law No. 79-FZ dated May 7, 2013, On the Prohibition of Certain Categories of Persons from Opening and Having Accounts (Deposits) in Foreign Banks.
23. Resolution of the Arbitration Court of the Ural District dated February 15, 2023, No. F09-25/23 in case No. A34-13330/2022. Illegal cash transactions with non-residents led to a warning.
24. Clause 1 of Article 19 of the Law on Currency Regulation.
25. Article 11 of the Law of the Republic of Uzbekistan No. 841-XII dated May 7, 1993, On Currency Regulation.
26. Article 11-1 of the Law of the Republic of Uzbekistan No. 841-XII dated May 7, 1993, On Currency Regulation.
27. Federal Law No. 172-FZ dated December 12, 2002, On the Ratification of the Agreement on the Principles of Levying Indirect Taxes in Mutual Trade.
28. Article 4 of the Agreement on Indirect Taxes.
29. Resolution of the Federal Arbitration Court of the Moscow District dated August 19, 2010, No. KA-A40/9122-10 in case No. A40-29584/09-141-107.
30. Article 3 of the Agreement on Indirect Taxes.
31. Article 5 of the Agreement on Indirect Taxes.
32. Resolution of the Federal Arbitration Court of the North Caucasus District dated September 14, 2009, in case No. A63-15656/2008-S4-9.
33. Letter of the Federal Tax Service of Russia No. 3-1-05/187 dated March 26, 2009.
34. TN VED CIS effective January 1, 2022.
35. Clause 7 of Article 164 of the Tax Code of the Russian Federation.
36. Letter of the Ministry of Finance of Russia No. 03-07-13/95436 dated November 2, 2020.