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Timestamp: 2017-09-22 15:13:42
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“EMBASSY” TAX
A foreign state’s Embassy (Diplomatic Mission) in the Republic of Uzbekistan is a state authority of a foreign state established in the territory of the Republic of Uzbekistan for maintaining diplomatic relations between the countries (by implication of Clause 1.1 of the Regulations on Diplomatic Missions and Consular Offices of Foreign States in the Republic of Uzbekistan approved by Resolution of the Cabinet of Ministers of the Republic of Uzbekistan No. 207 dated 08.05.2001). The Embassy ranks as a legal entity.
Whether a foreign state’s Embassy is a taxpayer in the territory of the Republic of Uzbekistan?
In accordance with Article 13 of the Tax Code of the Republic of Uzbekistan taxpayers are individual persons, legal entities and their standalone subdivisions, which, in accordance with the tax legislation, shall pay taxes and other charges.
However, national legislation (including tax laws) provides for the prevalence of international laws and regulations over internal ones. Therefore, when answering the question raised it is necessary to proceed not from provisions of the tax legislation only, but also from provisions of international treaties (both the ones of a universal nature (Vienna Convention on Diplomatic Relations (dated 18.04.1961, ratified by the Republic of Uzbekistan on May 6, 1994)) and bilateral treaties to be concluded by the Republic of Uzbekistan with a sending state).
For the purposes of general analysis (regardless of provisions of bilateral international treaties) let us dwell at certain types of taxes and other mandatory payments, which may be imposed on foreign legal entities:
Property tax on and land tax
National legislation In accordance with Article 265 of the Tax Code of the Republic of Uzbekistan, payers of the foreign entities’ property tax are non-residents of the Republic of Uzbekistan carrying out activities in the Republic of Uzbekistan through a permanent establishment and (or) owning the real estate in the territory of the Republic of Uzbekistan.
In accordance with Article 279 of the Tax Code of the Republic of Uzbekistan, payers of the land tax are legal entities, including non-residents of the Republic of Uzbekistan, that have land plots on the basis of the rights of ownership, possession, use or lease. When leasing out the real estate, the payer of the land tax is the lessor.
Non-profit organization[1] that are not engaged in business activities are not the payers of the said taxes.
Taxable item of the property tax for non-residents of the Republic of Uzbekistan that do not carry out activities in the Republic of Uzbekistan through a permanent establishment is the real estate located in the territory of the Republic of Uzbekistan that belongs to them on the basis of the rights of ownership.
Taxable items of the land tax are land plots that legal entities have on the basis of the rights of ownership, possession, use or lease.
In accordance with Clause 3.9 of the Regulations on Foreign States’ Diplomatic Missions and Consular Offices in the Republic of Uzbekistan,[2] Heads of Diplomatic Missions shall be exempted from all taxes, fees and duties in respect to the Diplomatic Mission’s premises, own or leased, except for those taxes, fees and duties, which constitute a charge for certain types of services, including leasing of premises.
Norms of international law: According to Article 23 of the Vienna Convention on Diplomatic Relations, a sending state and Head of Diplomatic Mission shall be exempted from all public, district and municipal taxes, fees and duties in respect of the Diplomatic Mission’s premises, own or leased, except for those taxes, fees and duties, which constitute a charge for certain types of services.
“Diplomatic Mission’s premises” refer to a building or parts of buildings used for the purposes of the Diplomatic Mission, including residential quarters of the Head of Diplomatic Mission and land plot servicing that building or part of the building (Vienna Convention on Diplomatic Relations, Article 1(i).
Conclusion: The analysis of the aforesaid allows to make a conclusion that the foreign state’s Embassy in the Republic of Uzbekistan is not a payer of the property tax and land tax, so long as:
The Embassy, while being ranked as a legal entity, is not engaged in business activities and is a foreign state’s public authority. Non-profit organizations are not the payers of the property tax and land tax in accordance with national legislation of the Republic of Uzbekistan.
Real estate owned by the sending (foreign) state for the purposes of the Diplomatic Mission in the territory of the Republic of Uzbekistan on the basis of the right of ownership, as well as the land plot servicing the premises of the Diplomatic Mission shall be exempted from the property tax and land tax in accordance with the Vienna Convention dated 1961.
Corporate income (profit) tax
National legislation: Payers of the profit tax are non-residents that carry out activities in the Republic of Uzbekistan through a permanent establishment or gain income, the source of which is located in the territory of the Republic of Uzbekistan.
In accordance with Article 127 of the Tax Code of the Republic of Uzbekistan the taxable item is the non-resident’s income to be charged with the withholding tax without deductions in accordance with Article 155 of the Tax Code of the Republic of Uzbekistan. Non-profit organizations are not the payers of the corporate profit tax.
In accordance with Clause 3.8 of the Regulations on Foreign States’ Diplomatic Missions and Consular Offices in the Republic of Uzbekistan remuneration and fees to be charged by the Diplomatic Missions when performing its official duties shall be exempted from all taxes, fees and duties.
Norms of international law: In accordance with Article 28 of the Vienna Convention dated 1961. Remuneration and fees to be charged by the Diplomatic Missions when performing its official duties shall be exempted from all taxes, fees and duties
Conclusion: The analysis of the aforesaid allows to make a conclusion that the foreign state’s Embassy in the Republic of Uzbekistan is not a payer of the corporate profit tax, so long as:
The Embassy, while being ranked as a legal entity, is not engaged in business activities and is a foreign state’s public authority. Non-profit organizations, which are not engaged in business activities, are not the payers of the corporate profit tax in accordance with national legislation of the Republic of Uzbekistan.
Diplomatic Mission’s income gained within performing its official duties shall be exempted from the corporate profit tax in accordance with the Vienna Convention dated 1961.
Unified social payment
National legislation: According to Article 305 of the Tax Code of the Republic of Uzbekistan the payers of the unified social payment are non-residents of the Republic of Uzbekistan that carry out activities in the Republic of Uzbekistan through a permanent establishment, Mission and branches of foreign legal entities.
According to Article 306 of the Tax Code of the Republic of Uzbekistan the taxable item of the single social payment is the income in the form of remuneration defined in accordance with Article 172 of the Tax Code of the Republic of Uzbekistan.
In accordance with Clause 1.1 of the Regulations on Foreign States’ Diplomatic Missions and Consular Offices in the Republic of Uzbekistan an Embassy is a Diplomatic Mission of a foreign state.
Norms of international law: According to Article 3 (1) of the Vienna Convention on Diplomatic Relations dated 1961 a Diplomatic Mission carries out representative functions on behalf of a foreign (sending) state.
In accordance with Article 33 (3) of the Vienna Convention dated 1961, a Head of Diplomatic Mission hiring persons for service (except for household workers servicing only the members of the Diplomatic Mission, who are not citizens of the host state and do not domicile therein, who are subject to the social security regulations effective in the sending state or in the third state) shall fulfill the obligations imposed on employers by social security regulations effective in the host state. Social security regulations shall not apply to Diplomatic Agents (Heads and Members of Diplomatic Mission).
For household workers servicing the members of the Diplomatic Mission, who are not citizens of the host state and do not domicile therein, it is permitted to participate in the social security system provided for in the host state on a voluntary basis (Article 33 (4)).
Conclusion: The analysis of the aforesaid allows to make a conclusion that the foreign state’s Embassy in the Republic of Uzbekistan is not a payer of the unified social payment, so long as:
An Embassy, while being ranked as a legal entity, is a foreign state’s mission, but not a foreign entity’s mission. The foreign state’s Embassy is not ranked as a permanent establishment of the non-resident of the Republic of Uzbekistan and is not a branch of the foreign entity. Foreign states’ missions in the territory of the Republic of Uzbekistan are not referred to the payers of the unified social payment according to the tax legislation of the Republic of Uzbekistan.
Social security funded by the state social insurance is maintained in the Republic of Uzbekistan not only in the form of the employers’ contributions to the state social insurance, but also in the form of obligations to pay allowances and other benefits in accordance with the legislation (particularly, Labor Code of the Republic of Uzbekistan, Chapter 16). Taking into account that foreign states’ Diplomatic Missions of are not stipulated as the payers of the unified social payment in Article 305 of the Tax Code of the Republic of Uzbekistan, the provisions of Article 33 of the Vienna Convention on Diplomatic Relations dated 1961 shall apply to the foreign states’ Diplomatic Missions in the territory of the Republic of Uzbekistan with regard to the social security maintained in the form of paying the employees allowances and other benefits provided for by the legislation of the Republic of Uzbekistan.
Mandatory contributions to off-budget Retirement Fund, Republican Road Fund and off-budget Fund of Reconstruction, Complete Overhaul and Fitting out of General Education Schools, Vocational Schools, Academic Lyceums and Medical Institutions
National legislation: According to Articles 312, 316 and 325-1 of the Tax Code of the Republic of Uzbekistan the payers of mandatory contributions to off-budget Retirement Fund, Republican Road Fund and off-budget Fund of Reconstruction, Complete Overhaul and Fitting out of General Education Schools, Vocational Schools, Academic Lyceums and Medical Institutions are legal entities – residents of the Republic of Uzbekistan, as well as the party that runs business on behalf of all the parties to the Joint Activity Agreement (Simple Partnership). Non-profit organizations that are not engaged in business activities are not the payers of the said contributions.
The taxable item and taxable base of mandatory contributions to the said funds are net proceeds (Tax Code of the Republic of Uzbekistan, Articles 313, 317 and 325-2). Taxable items do not include other income (Tax Code of the Republic of Uzbekistan, Article 132), as well as the income from rendering insurance services specified in Part 3 of Article 313, Part 3 of Article 317 and Part 3 of Article 325-2 of the Tax Code of the Republic of Uzbekistan.
Norms of international law: In accordance with Article 28 of the Vienna Convention on Diplomatic Relations remuneration and fees to be charged by the Diplomatic Missions when performing its official duties shall be exempted from all taxes, fees and duties
Conclusion: The analysis of the aforesaid allows to make a conclusion that the foreign state’s Embassy is not a payer of mandatory contributions to off-budget Retirement Fund, Republican Road Fund and off-budget Fund of Reconstruction, Complete Overhaul and Fitting out of General Education Schools, Vocational Schools, Academic Lyceums and Medical Institutions, so long as:
The foreign state’s Embassy in the Republic of Uzbekistan is a non-resident, which is not engaged in business activities, therefore there is no taxable base for mandatory contributions to the said funds. The foregoing is confirmed by the official standpoint of the fiscal authorities of the Republic of Uzbekistan as of 2016.
Diplomatic Mission’s income gained within performing its official duties shall be exempted from all taxes, fees and duties in accordance with the Vienna Convention dated 1961.
Whether an Embassy is a withholding agent?
These days the answer to this question regarding the foreign states’ Embassies probably is the greatest complication. That is exactly why the Embassies’ practice of withholding and transferring the personal income tax to the state budget of the Republic of Uzbekistan and insurance contributions – to the off-budget Retirement Fund from the income gained by individuals being citizens of the Republic of Uzbekistan and engaged in labor activities in the Embassy, is not uniform.
The tax authorities’ standpoint on this matter is clear, but for some reason it “does not shine the light of truth”[3]. Thus, according to the official standpoint of Tashkent State Tax Department (dated 2016), if the foreign state’s Embassy is a withholding agent, it shall calculate, withhold and transfer the personal income tax and citizens’ social contributions to the budget and off-budget Retirement Fund (respectively). If it is not – the personal income tax shall be paid on the basis of the individual’s declaration and payment of insurance contributions shall be made on a voluntary basis.
One cannot but agree with that. And still let us try to look into whether the foreign state’s Embassy, remuneration whereby forms the income of a citizen of the Republic of Uzbekistan, is a withholding agent.
National legislation: In accordance with Part 2 of Article 13 of the Tax Code of the Republic of Uzbekistan, withholding agents are referred to as parties, which in accordance with the Tax Code bear responsibilities for calculating, withholding from the taxpayer and transferring taxes and other mandatory payments to the budget and public special-purpose funds.
Responsibilities for calculating, withholding and paying the personal income (applies to the citizens of the Republic of Uzbekistan) tax rest with the legal entities that are the source of payment of that income (Tax Code of the Republic of Uzbekistan, Article 184, Part 1). According to the legislation of the Republic of Uzbekistan, a source of payment is a legal entity that makes payment to a taxpayer (Tax Code of the Republic of Uzbekistan, Article 22).
The income, to be taxed on the basis of the declaration, includes the income of residents of the Republic of Uzbekistan that are gained from the sources located outside the Republic of Uzbekistan (Tax Code of the Republic of Uzbekistan, Article 1, Part 1, Paragraph 6).
It follows from what has just been said above that if the employer of the employees of the Diplomatic Mission (citizens of the Republic of Uzbekistan) is the Ministry of Foreign Affairs (or other similar public authority) of the foreign state, but not its Embassy in the territory of the Republic of Uzbekistan, the Diplomatic Mission will not be a withholding agent, therefore it is exempted from the responsibilities for calculating, withholding and transferring to budget the personal income tax from the income gained by individuals being citizens of the Republic of Uzbekistan and engaged in labor activities in the Embassy. If employment contracts with citizens of the Republic of Uzbekistan are concluded by the Diplomatic Mission itself, it shall withhold the personal income tax to the state budget.
At the same time, according to the Tentative Regulations on Status of Citizens of the Republic of Uzbekistan Working in Diplomatic and Other Equivalent Missions Accredited in the Republic of Uzbekistan (approved by Resolution of the Cabinet of Ministers of the Republic of Uzbekistan No. 56 dated 27.01.1994), citizens of the Republic of Uzbekistan shall be employed by the Diplomatic Mission through an employment contract to be concluded between the employee and Head of the Diplomatic Mission (Ambassador or Charge d’affaires ad interim)[4]. Said another way, the Embassy only, which, we remind, is ranked as a legal entity, may be the employer, therefore be the source of the payment of income, for the employee being a citizen of Uzbekistan.
There is a similar situation as concerns the insurance contributions to the off-budget Retirement Fund (Tax Code of the Republic of Uzbekistan, Article 305, Part 3 and Article 306). In addition, according to Clause 8 of Tentative Regulations No. 56, Diplomatic Missions shall transfer for the specialists, who work for them and are the citizens of the Republic of Uzbekistan, contributions to the relevant funds in accordance with the procedure established by the legislation of the Republic of Uzbekistan.
Thus, the lawmaker’s standpoint on this matter is clear enough. However, on 22 February current year the Cabinet of Ministers of the Republic of Uzbekistan adopted Resolution No. 46 “On Approval of Regulations on Procedure for Payment of Insurance Contributions to Off-Budget Retirement Fund under Ministry of Finance of the Republic of Uzbekistan for Citizens of the Republic of Uzbekistan Working Abroad and Certain Categories of Persons Whose Working Time Cannot Be Accounted, and Procedure for Accounting of Their Years of Service and Amount of Salary To Be Accepted for Calculation of Pensions”. According to Paragraph 3 of Clause 2 of the said Regulations, the citizen of the Republic of Uzbekistan working in the foreign state’s Diplomatic Mission (Embassy) in the Republic of Uzbekistan among others shall be considered as an employee gaining income from an employer, which is not a withholding agent. Said another way, the statutory instrument under comment absolutely clearly bespeaks that the foreign states’ Embassies in the territory of the Republic of Uzbekistan as employers are not withholding agents that bear responsibilities for withholding of insurance contributions from the citizens’ income and transferring them to the off-budget Retirement Fund. And this assertion despite the provisions of the Tax Code of the Republic of Uzbekistan is not dependent on whether the Embassy is the source of payment of income or not. On the contrary, according to Paragraph 1 of Clause 1 of the Regulations “…an employee gaining income from an employer, which is not a withholding agent[5] …shall pay insurance contributions to the Retirement Fund on a voluntary basis”. If we read this tenet using definitions of the Tax Code result will be as follows: “An employee, gaining income from the employer, which is not a source of payment of income (i.e. does not pay the income), shall pay insurance contributions on a voluntary basis”.
On the one hand, statutory instruments concerning matters of taxation shall comply with provisions of the Tax Code. In case of non-compliance, the provisions of the Tax Code (Tax Code of the Republic of Uzbekistan, Article 2, Part 3) shall apply. On the other hand, all uncorrectable contradictions and ambiguities shall be interpreted in favor of the taxpayer. However, whether the collision occurred is “an uncorrectable contradiction” from the standpoint of tax authorities?…
Norms of international law: In accordance with Article 37 (Paragraphs 2, 3, 4) of the Vienna Convention dated 1961, members of the administrative, technical and servicing staff of the Embassies, as well as household workers of Embassy employees shall be exempted from taxes, fees and duties on the income gained for their service in Diplomatic Mission, if they are not citizens of the host state or do not domicile therein. Citizens of the Republic of Uzbekistan working in the foreign state’s Embassy in the territory of the Republic of Uzbekistan shall not be exempted from the personal income tax and contributions to the Retirement Fund.
In accordance with Article 33 (3) of the Vienna Convention dated 1961, a Head of Diplomatic Mission hiring persons for service (except for household workers servicing only the members of the Diplomatic Mission, who are not citizens of the host state and do not domicile therein, who are subject to the social security regulations effective in the sending state or in the third state) shall fulfill the obligations imposed on employers by social security regulations effective in the host state.
In terms of the calculation, withholding and payment of the personal income tax it may be concluded that the foreign states’ Embassies in the territory of the Republic of Uzbekistan are withholding agents. Therefore, the Embassies shall calculate, withhold and pay the personal income tax from the income gained by individuals being citizens of the Republic of Uzbekistan to the republican budget. The Vienna Convention dated 1961 does not provide for any exceptions in terms of the obligations for withholding the personal income tax from the income gained by the citizens of the host country.
The matter of transferring the citizens’ mandatory contributions to the Individual Retirement Savings Account shall also be approached to taking into account the aforesaid: The foreign states’ Embassies that withhold the personal income tax from the income gained by employees being citizens of the Republic of Uzbekistan shall remit the contributions to their employees’ Individual Retirement Savings Accounts.
In terms of the calculation, withholding and payment of insurance contributions to the off-budget Retirement Fund, based on the taxpayer’s innocence presumption, it may be concluded that the foreign states’ Embassies in the territory of the Republic of Uzbekistan are not withholding agents, therefore, the participation of citizens – employees of the Embassy – in the payment of insurance contributions shall be on a voluntary basis. Taking into account the aforesaid, the provisions of Article 33 of the Vienna Convention on Diplomatic Relations (dated 1961) shall apply to the foreign states’ Diplomatic Missions in the territory of the Republic of Uzbekistan with regard to the social security maintained in the form of paying the employees allowances and other benefits provided for by the legislation of the Republic of Uzbekistan (particularly, Labor Code of the Republic of Uzbekistan, Chapter 16).
In the mean time, it should be kept in mind that all contradictions and ambiguities shall be interpreted in favor of the taxpayer. Such a “benefit” should be obvious. Therefore, we believe that, at the very least, it is reasonable to obtain a written application from the employee, confirming his/her interest in making no such deductions by the employer.
[1] In accordance with Article 17 of the Tax Code of the Republic of Uzbekistan, public authorities, among others, are referred to non-profit organizations.
[2] Approved by Resolution of Cabinet of Ministers of the Republic of Uzbekistan No. 207 dated 08.05.2001.
[3] If the foreign state’s Embassy is a withholding agent, it shall calculate, withhold and transfer the personal income tax and citizens’ social contributions to the budget and off-budget Retirement Fund (respectively). If it is not – the personal income tax shall be paid on the basis of the declaration of the individual being a resident of the Republic of Uzbekistan and payment of insurance contributions shall be made on a voluntary basis.
[4] Tentative Regulations, Clause 5.
[5] Including the foreign states’ Embassies in the territory of the Republic of Uzbekistan.
Publication: “Embassy” tax
(russian) Publication: “Embassy” tax