Oct 31, 2024
Navigate the legal framework and mandatory registration processes for successful franchise agreements in Uzbekistan.
Franchising offers a powerful avenue for business growth and market entry in Uzbekistan. However, to leverage this model effectively, a clear understanding of its legal foundation and mandatory registration requirements is crucial. Operating without proper adherence can lead to significant penalties.
Legal Framework and Core Definition
Franchise agreements in Uzbekistan are primarily governed by the Civil Code of the Republic of Uzbekistan, alongside laws on Trademarks, Competition, and Trade Secrets.
Legally, a franchise agreement is defined as a comprehensive business license agreement. Under this, the Licensor (owner of exclusive rights) grants the Licensee (the user) a "complex license" – a set of exclusive rights for a fee. This package typically includes the right to use the Licensor's brand name, trademarks, commercial secrets, and other intellectual property in the Licensee's business operations.
Key Requirements for Your Franchise Agreement
For a franchise agreement to be valid in Uzbekistan, specific conditions must be met:
Written Form and Mandatory Registration: All franchise agreements and their significant amendments must be in writing and legally registered. Failure to do so renders the agreement invalid.
Eligible Parties: Only commercial organizations and registered individual entrepreneurs can act as parties to a franchise agreement.
Clear Subject Matter: The agreement must precisely define the exclusive rights being granted, the scope of use, and any specified territory or field of activity.
Term: Agreements can be for a fixed period or indefinite.
Remuneration: Payment can be structured in various forms, including fixed fees, periodic royalties, revenue deductions, or mark-ups on goods.
Information & Training: The Licensor is obliged to provide the Licensee with all necessary technical and commercial documentation, information, and training for proper operation.
Sublicensing: While possible, any sublicense agreements automatically terminate if the main franchise agreement ends.
Understanding Registration Procedures
Franchise agreements require multi-tiered registration in Uzbekistan:
Public Service Centers (PSC): The primary registration of the agreement itself, including any amendments, is handled here, typically within one business day if documents are complete. A state fee (1/3 of the basic estimated amount) applies, with a 10% discount for online applications via my.gov.uz.
Intellectual Property Department: The portion of the agreement transferring intellectual property rights (e.g., trademarks) must be registered with the Intellectual Property Department of the Ministry of Justice. Non-compliance here can invalidate the IP transfer or even the entire agreement.
Unified System of Foreign Trade Operations: If your franchise agreement involves international trade (import/export), it also requires registration in this system.
International Aspects, IP Protection, and Liabilities
Governing Law: Parties to an international franchise agreement can choose the applicable law, though Uzbek law provides default rules if no choice is made.
Intellectual Property: Beyond registration, protecting commercial secrets through adherence to the Law "On Commercial Secrets" is vital, with penalties for disclosure.
Competition: The law allows certain exclusive clauses (e.g., non-compete for licensee) but invalidates others (e.g., licensor dictating licensee's prices).
Liability: The Licensor bears subsidiary liability for the quality of goods/services provided by the Licensee. For products manufactured by the Licensor, there is joint and several liability to the Licensee for certain claims.
Currency and Taxation Considerations
For foreign Licensors, the agreement is treated as a foreign trade contract. While domestic payments are in Uzbek Soum, foreign currency payments are permitted under foreign trade contracts, and there are generally no significant restrictions on fund repatriation.
From a tax perspective, if royalties are paid to a non-resident Licensor without a permanent establishment in Uzbekistan, the Licensee is required to withhold income tax at a 20% rate from each payment. This rate may be reduced or exempted by international double taxation agreements.