Major innovations introduced for properties acquired in lieu of debt
Photo: sangzor.uz
Fundamental changes are taking place in Uzbekistan's system for recovering loan debts and bringing distressed assets back into economic circulation. Under a new presidential decree, to encourage the out-of-court recovery of debt based on mutual agreement, an unprecedented package of tax incentives has been approved for commercial banks, investment companies under their auspices, and real estate buyers. Banks are now granted broad powers to directly sell property voluntarily transferred in lieu of debt at market value, as well as to formalize transactions by bypassing court and Compulsory Enforcement Bureau (MIB) restrictions. So, who will be exempt from which taxes, how will VAT be calculated on installment payments, and how will this reform affect the real estate market? At the end of the article, we will reveal all the details regarding the main intrigue — the unique rights granted to notaries, the asset recovery mechanism, and the full essence of the decision.
Tax holidays until 2030: Who will get what benefits?
According to the new document, a number of financial reliefs will apply until January 1, 2025 (January 1, 2030) to objects accepted in lieu of debt:
6-month benefit for banks: Commercial banks that accept real estate objects onto their balance sheet in lieu of debt are exempt from paying property and land taxes for a period of 6 months;
1-year period for investment companies: For properties taken onto the balance sheet of investment companies established with the founding participation of banks, this privilege will remain in effect for 12 months from the date of acceptance;
Encouraging buyers: New owners who purchase such real estate by paying its full value will also be completely exempt from property and land taxes for a period of 12 months;
VAT relief for business: If a legal entity signs an agreement on the voluntary transfer of its property to close its debt, the enterprise will not pay value-added tax (VAT) on this transaction;
VAT calculation from the margin: When a bank sells property under the condition of installment payments for a period exceeding 1 year, VAT is calculated not from the total value of the property, but only from the positive difference (margin) between the sale price and the balance value.
"Real estate acquired in lieu of debt should not remain 'frozen' on the bank's balance sheet for a long time. Tax incentives are the most effective tool to quickly return these assets to the market," economic reviews emphasize.
Procedure for direct sales and bypassing MIB restrictions
To promptly resolve debt in an out-of-court manner, additional conveniences are being created for state-participated banks:
Direct sale of property at market value: Official permission has been granted to sell voluntarily transferred property directly at market value — on credit, leasing, or installment terms — without excessive bureaucracy;
Emergency authority granted to notaries: Even if restrictions have been placed on the property by tax authorities or the Compulsory Enforcement Bureau (MIB) due to the debtor's debts for taxes or mandatory payments, notaries will be able to freely certify transactions when the property is transferred to the bank;
Cadastral registration: The Agency on Cadastre will smoothly execute state registration of rights to this category of real estate;
Recovery of assets from the State Assets Management Agency (SAMA): Property or shares transferred by banks to the State Assets Management Agency for realization, if not sold within 1 year, shall be returned to the bank's balance sheet upon its request.
Expected impact on the national economy
The most important issue that has interested many entrepreneurs and financial specialists is the practical benefit of this new mechanism and its positive impact on the market. The most important conclusion is that collateral properties worth hundreds of billions of soms, which previously lay "frozen" due to years-long court proceedings and heavy fee payments, will now be brought into circulation within a few weeks. This measure will serve to sharply reduce the share of non-performing loans (NPLs) of banks, save business entities from court expenses, and increase supply and investment activity in the real estate market.
Do you think the practice of out-of-court and direct sale of properties acquired in lieu of debt will create convenience for borrowing entrepreneurs or excessively increase the influence of banks? How do you think installment payments and tax incentives will affect real estate prices? Leave your feedback in the comments and share this important economic news with your colleagues and entrepreneurial friends!
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