B2C Digital Services VAT in Uzbekistan: Key Compliance Rule

Uzbekistan has one of the fastest-growing digital services markets in Central Asia, fueled by a young population, a massive e-commerce sector, which in 2024 was estimated to be worth around USD 1.2 billion, or 3.8% of the retail market, and the government’s Digital Uzbekistan 2030 strategy adopted in 2020.

Digital Uzbekistan 2030 focuses on five key areas, including the digital economy. As part of this ambitious plan to actively develop the digital economy, Uzbekistan introduced VAT obligations for foreign digital service providers in 2020.

Uzbekistan VAT Legal Framework

The legal basis for VAT on e-services in Uzbekistan is found in the Tax Code, particularly provisions governing the place of supply and taxation of digital services provided by non-residents. Accordingly, since January 1, 2020, internet companies must register for and pay VAT on electronic services provided to consumers located in Uzbekistan. 

In other words, since January 2020, foreign digital service providers have been subject to VAT rules and regulations for B2C e-service supplies. In contrast, those engaged in B2B supplies are not required to register nor to pay VAT in Uzbekistan, as the reverse charge mechanism applies to such transactions.

E-services, or digital services, that fall under the scope of these rules are defined broadly and include digital products and activities delivered over the internet, particularly those involving remote access or online interaction. Therefore, the provision of rights to use software, such as applications, databases, and online games, along with their updates or additional features, when accessed via the internet rather than installed locally, is subject to VAT.

Additionally, digital content such as e-books, online publications, educational materials, images, music, and audiovisual works that consumers can stream, view, or listen to remotely are also included in the definition of digital services. 

Furthermore, online advertising services, including the use of internet-based platforms, databases, or software to display ads, as well as the sale of advertising space or time on digital platforms, are covered. Another key category of services covered by these rules is facilitation of online sales, including online marketplaces and digital platforms that allow users to buy or sell goods, services, or property rights.

VAT Requirements for Foreign Digital Service Providers 

The 2020 VAT rules did not set a VAT registration threshold for foreign digital service providers. Therefore, foreign businesses providing digital services to consumers in Uzbekistan must register for, collect, and remit VAT from the very first supply, regardless of their sales volume. The registration must be completed within 30 days of the first sale.

Foreign suppliers register for VAT by submitting a notification to the Tax Authority through the official online portal. The registration portal is fully digital and requires foreign providers to register and provide core identifying and operational details so that the Tax Authority can assess and record the business. Currently, more than 2300 foreign companies are registered.

Once registered, foreign businesses must apply a 12% VAT rate to all their taxable B2C supplies and comply with tax reporting and payment rules by submitting their tax reports electronically. The filing frequency is quarterly, with tax returns and related documentation must be submitted no later than the 20th day of the month following the end of the previous quarter. The payment of due VAT must be made by the same deadline as the tax return filing.

Common Mistakes to Avoid

The place of supply of digital services is determined by several indicators that show that the customer is located in the country. These include the consumer's place of residence, the location of the bank used by the consumer, the consumer's IP address, or the international country code of the telephone number used to purchase or pay for services. Not using any of these data and falsely holding that a consumer is not located in Uzbekistan, or worse, neglecting the fact that the consumer is located there, can have severe consequences.

However, the Uzbek government does not wait for foreign businesses to comply. Instead, it is proactively detecting which companies provide digital services in the country. Therefore, at the end of 2024, Uzbekistan's Tax Authority reportedly began notifying a wide range of international companies operating in e-commerce, IT, and digital entertainment about their obligation to pay VAT on digitally supplied services provided to consumers in Uzbekistan. 

Payment data analysis, including reviewing bank card transactions, is one of the main methods by which government bodies track active foreign digital services suppliers. Consequently, foreign providers are expected to pay closer attention to registration requirements and ongoing compliance obligations in Uzbekistan and act proactively, rather than reactively. 

Another common mistake is mistaking B2C for B2B transactions and concluding that there are no VAT obligations. In other words, foreign providers must correctly determine the customer's status and determine whether the customer is an individual or a business entity, as different rules apply.

Many foreign providers also overlook the absence of a VAT registration threshold and miss the strict 30-day registration deadline. Also, even when acting on time, they sometimes underestimate administrative complexity. Despite the registration process being simplified, ongoing compliance requires accurate tracking of customer location data, VAT calculation across multiple payment systems, and proper reporting aligned with Uzbek tax periods.

Key Compliance Recommendations

To ensure compliance, foreign digital service providers should take the following steps: identify whether their services fall within scope, determine each customer's location and status, and assess the VAT impact on other supplies. Additionally, they must determine whether they must register for VAT, collect all the documents and information required for completing the VAT registration, and file the application on time.

In case of any uncertainty, foreign providers should act promptly and communicate with Uzbek Tax Authorities to resolve any missing information and obtain clarifications concerning the content of the VAT return, fluctuations in VAT amounts, digital services supply and payment chains, and other aspects.

Source: International Trade Administration, KPMG, OECD, EY - VAT on Electronic Services, EY - Uzbekistan tax authorities sending VAT notices