Uzbekistan: Construction and Installation

The answer to this question depends, among other things, on the relevant provisions of the double taxation agreement (DTA) between the Republic of Uzbekistan and the Federal Republic of Germany, which is based on the provisions of the OECD Model Tax Convention for the Avoidance of Double Taxation. 

  

The double taxation agreement (DTA) provides for specific regulations for construction and assembly work. 

With regard to tax regulations and, in particular, the question of whether a permanent establishment arises under the double taxation agreement, planning and monitoring activities are generally considered separately. These activities are often not directly linked to the physical construction of a building or the installation of equipment but accompany and support these processes.

  

However, in certain cases, these activities may lead to a permanent establishment if they are closely related to the construction or assembly work and require a significant and permanent presence at the project site.

The regulations you describe mainly concern the question of when a German company's construction or assembly activities in another country, such as Uzbekistan, create a permanent establishment that can have tax consequences. 

  

The double taxation agreement between Uzbekistan and Germany contains provisions to avoid double taxation and defines the circumstances under which a permanent establishment is created. These regulations take into account the duration of the construction or assembly activities, whereby a period of twelve months is generally decisive for the creation of a permanent establishment.

  

According to Art. 2 of the Tax Code of the Republic of Uzbekistan as amended, international agreements take precedence (priority regulation). This means that the period of 183 days stipulated in the national regulations does not apply to the examination of the establishment of a permanent establishment between Germany and Uzbekistan. In these cases, the period of 12 months applies.

  

The term construction and assembly encompasses not only construction activity in the strict sense, but all work required to complete the construction, including so-called construction-related assembly work, structural and civil engineering work, sewer, earthworks and excavation work as well as road construction work, the renovation of buildings, the installation of a complex machine in an existing building, planning and supervision activities on a construction site as well as repair and maintenance work (only work that goes beyond mere repair and maintenance work is to be taken into account).

  

The question of whether pure planning and monitoring activities are involved is controversial. In general, all planning and monitoring activities on a construction site (i.e. on site) are covered by Art. 5 para. 3 DBA as amended and therefore lead to a permanent establishment. It should be noted that the time limit begins to run as soon as the company carries out activities in the other contracting state that are related to construction or assembly.

  

Planning and supervision activities are integral parts of a construction project and can have tax consequences under certain circumstances. While they do not qualify as construction or assembly in the strict sense, they may nevertheless lead to the creation of a permanent establishment under a double tax treaty, especially if they require a substantial and permanent presence at the project site. The exact classification and assessment of such activities should be carefully examined in order to avoid unforeseen tax obligations. As the interpretation of the test conditions is multifaceted and depends on many factors, we are happy to assist in determining the test conditions.