Uzbekistan introduced thin capitalization rules under the new tax code effective from 1 January 2020. The thin-capitalization rules impose a restriction on the deduction of interest expenses in respect of ‘controlled debt’ provided by foreign lenders. Controlled debt is defined as a debt provided by:

• Related foreign entity with direct or indirect ownership of more than 25% in the share capital of the borrower;
• Other related entity of this foreign participant; or
• Other entities acting as guarantors or undertaking the responsibility to ensure the repayment of the borrower’s debt.

The interest deduction restriction applies if the amount of debt exceeds the amount of equity by 3 times (13 times for banks and leasing companies), i.e., the debt-equity ratio exceeds 3:1. The interest expenses incurred exceeding the debt-equity ratio (i.e., on excess debt) is not deductible.