Will Uzbekistan become the Crypto and Blockchain capital of Central Asia?Tashkent IT and Crypto Industry Outlook 2022

Will Uzbekistan become the Crypto and Blockchain capital of Central Asia?Tashkent IT and Crypto Industry Outlook 2022

Uzbekistan has experienced maximum recovery since gaining independence in many economic and social spheres: construction and real estate, trade and banking, sports and culture are all on the rise. Much of this is due to the new policy on entrepreneurship and some liberalization of attitudes and creating a favourable climate for activity and investment. It seems that one of the ambitions of Uzbek President Shavkat Mirziyoyev is to make the country a second Dubai or Singapore in IT, crypto and blockchain projects, as well as to attract miners and crypto exchanges to the country. Local officials face the task of significantly advancing the country in the IT sphere, creating a crypto oasis in the centre of the Central Asian region, and providing a favourable environment for foreign investors and projects.

In 2017, the National Agency of Prospective Projects, which reports directly to the President of the country, was created to prepare and implement the legislative framework, interact with institutions wishing to develop blockchain projects in the country, and help promising, innovative projects.

One of the largest IT parks in Asia with all necessary infrastructure (from universities, offices, and housing) is actively working and building in Tashkent. Currently, our team member Alex PromoTeam is a resident of it and the crypto community in Tashkent (the capital of Uzbekistan). He has made an overview of the climate in an economic and legal context, which we present in this article.

What’s changed?

Uzbekistan is a developing state in the heart of Central Asia with a centuries-old history and a population of 35 million people engaged mainly in agriculture, industry, construction, and services. Since the election of the new President in 2016, the business climate in Uzbekistan and especially in Tashkent has significantly changed for the better. After seven years, it began to be noticed inside the country and outside of it. Many key positions were occupied by former entrepreneurs who wanted to attract investments and specialists with unique experiences in the country. The accumulated internal potential and Uzbekistan has always had a positive balance of payments and few debts and is now being used for development and mega projects such as the Tashkent-City Business Center and the IT Park. Uzbekistan’s population is very young. The average age is 29; ten years ago, a significant part of the economically active population was guest workers in Russia and rich Asian countries, Europe and America. In connection with the Covid situation and the economic slowdown in Russia and Europe, the Government is facing the difficult task of providing economically viable employment for the young population. IT direction is chosen as a priority, which is undoubtedly an organic and correct choice for the 21st century. Through stimulating activity in the IT sphere and creating a favourable environment for companies in Tashkent, top projects and campaigns, teachers, entrepreneurs, and activists are attracted. This activity has already begun to bear fruit. Jurisdiction of Uzbekistan can give a lot to projects which want simple regulation, minimal taxation and individual approach from regulators, and minimal costs for deployment and operation of the office. About this, in the following sections.

Government and project expectations. IT-Park, Blockchain, Mining.

Let’s look at what is expected from projects that decide to choose Uzbekistan’s jurisdiction or want to relocate employees to open a legal entity and office.

Here are the priorities that seem essential to me for the Government:

  • Attracting foreign investment to the country
  • Organization of educational process in IT, blockchain, and crypto sphere
  • Creating jobs in the IT industry
  • Creating high-value-added products that are competitive in global markets
  • Attracting crypto and blockchain projects to the jurisdiction of Uzbekistan in exchange for liberal legislation, support, and loyal attitude Zero tax rate on profit and, in general, all income from crypto is not included in the taxable base details below.
  • The small fee paid without reference to the turnover of crypto and blockchain companies.
  • Development of mining using renewable energy sources in Tashkent, on average, 250 sunny days a year, makes economic sense in large-scale facilities for the generation of solar energy.
  • Zero tax rates and a green light on all operational issues
  • Support from the National Prospective Projects Agency for project support and legislative initiatives and IT-Park for help with staffing, worker and residential locations, and other support.
  • Blockchain and crypto projects can be given a special “regulatory sandbox” regime, allowing for manual facilitation and collaborative rulemaking governing the industry.
  • Miners could get a 0 tax rate if they use a renewable source of electricity — solar panels. Miners can also use electricity at double the rate of the regular rate, but it’s generally low at 5–10 cents per kWh.
  • Blockchain and crypto projects can get official status in the jurisdiction of Uzbekistan, a legal entity, an account at a local bank, including foreign currency, and the ability to accept and send any fiat currency without restrictions.
  • The brand new infrastructure of IT Park, Tashkent City, and other locations, including offices and class A housing.
  • Free deposit and withdrawal of currencies through the Uzbek banking system.
  • Low labor costs, low cost of living, cost of living is one of the cheapest in the world. This also applies to luxury housing and offices. They are pretty inexpensive by European or American standards.
  • In Uzbekistan, the community has a great interest in cryptocurrencies and NFT. The first conferences and meetups are held, there are already volumes of exchange of cryptocurrencies into fiat, and mining is quite developed. However, there is practically no developer community in the blockchain area, and in general, the developer community is just emerging.

Legislation in the blockchain and crypto.

The National Agency of Prospective Projects of the Republic of Uzbekistan is the coordinating, supervising, and legislative body in the field of crypto and blockchain policy in the Republic. We established contact and working interaction with the Agency and received comprehensive information about the regulatory order and the format of interaction with the interested parties wishing to develop blockchain and crypto initiatives, mining, and open representative offices of exchanges and projects. All the documents below are in Russian and Uzbek. Please use Google Translate to translate into other languages.

The basic document is the Decree of the President of the Republic of Uzbekistan, dated 03.07.2018, № PP-3832 dated 04.07.2018

“On measures to develop the digital economy and the sphere of circulation of crypto-activities in the REPUBLIC OF UZBEKISTAN” https://lex.uz/docs/3806048

“Transactions of legal entities and individuals related to the circulation of crypto-assets, including those carried out by non-residents, are not objects of taxation, and income received from these operations are not included in the taxable base for taxes and other obligatory payments” — crypto-assets are completely taken out of the scope of taxation, operations can be carried out after notifying the Agency and receiving a license and payment of a small fee.

“Currency transactions related to the circulation of crypto-assets, carried out by persons who have received in the prescribed manner a license to carry out activities in the field of circulation of crypto-assets, are not subject to the norms of currency regulation legislation.” — also a very important point, the Republic of Uzbekistan does not consider your crypto-assets as currency, and considers them as property which is not subject to taxation, while you can sell it to buy and withdraw the received profit. This opens up huge opportunities for both exchangers and large crypto exchanges that want additional jurisdiction for their legal operations.

“Since January 1, 2023, citizens and legal entities of the Republic of Uzbekistan may carry out transactions to buy, sell and (or) exchange crypto-assets exclusively through national service providers in the manner prescribed by the acts of law” — a mandatory requirement of the State to declare their plans to work and show transactions, while they are not taxed.

Well, that’s not a bad start. We know that it can be followed by toughening of the regime, but with jurisdictions competing for financial flows, I think such a regime can be maintained for a long time. “Miners using equipment and installations of solar photovoltaic stations have the right to use tax, customs and other benefits and preferences in the use of renewable energy sources in accordance with the legislation” — this is a special proposal by which the authorities want to promote solar energy in Uzbekistan, for example in Tashkent there are 250 sunny days a year, and such activity makes a lot of sense. If users of such plants can also use regular electricity at night and at times of low yield, this could be the offer of the decade for miners. Electricity in Uzbekistan is inexpensive, mainly produced by hydropower plants, but some areas have infrastructure bottlenecks, but that too could be a point of negotiation with potential partners for this type of project. The National Agency of Promising Projects is ready to discuss such projects and support their implementation at all stages.

The second important document is https://lex.uz/docs/3891610 Decree of the President of the Republic of Uzbekistan, dated 02.09.2018, № PP-3926 dated 03.09.2018 on measures to organize the activities of crypto-bourses in the REPUBLIC OF UZBEKISTAN. In accordance with this document :

“Currency transactions related to the circulation of crypto-assets conducted by persons who have received in accordance with the established procedure a license to carry out activities in the field of circulation of crypto-assets shall not be subject to the norms of currency regulation legislation;” — With this paragraph, Uzbekistan invites crypto exchanges and major miners on the one hand, and on the other hand, the banking community of the region to the negotiating table to organize cooperation.

We are planning to organize a crypto conference in Tashkent this year and organize a round table and negotiations of interested parties. If you are interested, you can find all contacts below.

The third document regulating the crypto-sphere is https://lex.uz/docs/6158227 The Order of the Director of the National Agency for Prospective Projects of the Republic of Uzbekistan, registered 08/15/1922, registration number 3380 ADOPTION OF POLICY ON LICENSING ACTIVITIES OF SERVICE PROVIDERS In The Sphere Of Circulation Of Crypto Assets This document regulates the license issuance procedure, the cost of, regulates the terms and requirements for documentation.

Compliance for crypto exchanges and projects is described in the “Decree of the National Project Management Agency under the President of the Republic of Uzbekistan, the Department for Combating Economic Crimes under the Prosecutor General’s Office of the Republic of Uzbekistan,” registered on 09.06.2021, reg. Number 3309 “https://lex.uz/docs/5450936.

Everything is fairly standard and, in general terms, repeats the requirements of international organizations to combat money laundering and terrorism. But some of the requirements may not be easy to fulfill. For example, one of the requirements: is “The presence of an electronic platform and (or) a set of technical and software tools located on servers located on the territory of the Republic of Uzbekistan.” — in decentralized projects, this point may be impossible to fulfill, but I think this can be a subject of discussion when granting a license.

There are also several documents that are about to become legislative acts and are in the final stages of public hearings.

The first one is the draft ordinance “On Approval of the Regulations on the Procedure of Registration of Participants of the Special Regulatory Regime in the Circulation of Crypto Assets (Special Regulatory Sandboxes)” ID-66936 https://regulation.gov.uz/ru/d/66936

Indeed, a very interesting document that allows creating for crypto projects their own regulatory interaction format and stimulating testing and introduction of new technologies without obstacles in the form of unnecessary regulation.

The second one is ordinance “On Approval of the Regulation on the Establishment of Fees for Crypto-Asset Activities, Payment and Distribution Procedure” ID-65288 https://regulation.gov.uz/ru/d/65288

This order specifies specific amounts of license fees for various activities, which are linked to the Basic Settlement Value (BSV), which is approximately $30. For example, a license for an individual miner costs about $300, a crypto exchange $12,000, a mining pool $3,000, and a fiat-crypto exchanger $1,200. The price of the license is for one year and is given in the local currency Som, in dollars, which may vary depending on the exchange rate and the value of the BRV.

The draft RESOLUTION On Approval of the Regulations on the registration of crypto-assets mining ID-63441 https://regulation.gov.uz/ru/d/63441 introduces the terminology of mining and describes the conditions for its implementation in the Republic.

The activity and tax treatment of IT Park participants are regulated by two documents.

The Decree of the President of the Republic “On MEASURES FOR CORRECT IMPROVEMENT OF ENVIRONMENT FOR THE DEVELOPMENT OF INFORMATION TECHNOLOGIES IN THE REPUBLIChttps://lex.uz/docs/3249654 and

Resolution of the Cabinet of Ministers “On Measures to organize the activities of the Technology Park of Software and Information Technologieshttps://lex.uz/docs/4422256

The documents describe the legal and tax regime for IT-Park resident companies and the order of their work, including foreign currency proceeds.

Business climate, how to do business in Uzbekistan.

Of course, doing business in Uzbekistan has its own specifics. For companies that have done business only in jurisdictions with an established and clear legal system in Europe or America, perfectly functioning judicial authorities will have to learn a lot. You can count on a special ruling or act prepared for you. If you are interested in your presence, you can count on special treatment while you help achieve the goals and objectives set before the officials. It is better to fix the maximum number of conditions in the agreements before the start of the project. Many new modern office and residential locations allow you to do business with comfort and even in luxury style for less money, but this applies only to the central districts of Tashkent. In other regions, there is still much to do. Many officials and state bodies are motivated to create a favorable business climate and sincerely try to attract investments and new international players to the country. Western investments and specialists have priority and are strongly protected by the State to create only positive precedents and avoid negative ones.

The National Agency of Perspective Projects of the Republic of Uzbekistan, formed in 2017 by the Decree (http://www.lex.uz/docs/3277726), a state institution with the rights of a legal entity, is accountable to the head of State. It is the authorized body in the field of implementation and development of the digital economy and improvement of the investment climate, NAPP determines the areas of activity in which blockchain will be introduced, and the draft regulatory legal acts providing for the development of the digital economy and the introduction of blockchain are subject to mandatory expertise in NAPP. ANPP interacts with Government and non-government organizations, institutions, business entities, diplomatic missions and consular offices of foreign countries in the Republic of Uzbekistan, international organizations, foreign companies, and specialists. https://napm.uz/

IT Park is a complex of objects, buildings, and facilities designed to launch and bring to the market promising startup projects, the extraterritorial free economic zone for IT companies, including through integration with scientific and educational organizations. The place where active and talented people in the IT sphere will get a real chance to transform their ideas into real business projects due to accounting, legal, marketing, and educational support. https://it-park.uz/

We are an international team of Web3 fans with experience in different activities- community growing, business communications and strategy, promotion, advertising, mathematics, programming, entrepreneurship, and others. Our main task — increase the value of Web3.

Read more about our team here

Alex PromoTeam — Blockchain Activist and Expert | Entrepreneur | Polkadot Head Ambassador for Russia | PromoTeam Lead

Linkedin https://www.linkedin.com/in/alexpromoteam/

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Alex PromoTeam

Polkadot Ecosystem PromoTeam Leader | Crypto and Blockchain enthusiast, entrepreneur | Disclaimer: all articles is my own opinion and not financial advice |