At the latest plenary session of the Senate of the Oliy Majlis of the Republic of Uzbekistan, a draft law on the introduction of Islamic banking in the country was reviewed and approved. The legislation is aimed at expanding financial instruments and supporting the sustainable development of the financial sector.

The Senate considered the Law “On Amendments and Additions to Certain Legislative Acts of the Republic of Uzbekistan Aimed at the Introduction of Islamic Banking Activity in Uzbekistan.”

During the session, speakers emphasized that in recent years, the country has undertaken large-scale efforts to implement modern banking services and develop the banking system based on international best practices.

It was noted that there is a growing need to expand the scope of financial services and introduce new types of alternative banking services in accordance with international Islamic financial standards. Consequently, this Law incorporates new norms into two codes and seven laws, defining the legal framework for conducting Islamic banking activities.

Key provisions of the Law include:

• Licensing: The Law introduces a specific type of license granting the right to perform Islamic banking activities. Under this license, banks may operate exclusively as Islamic financial institutions or simultaneously provide both traditional and Islamic banking services (the “Islamic window” model).

• Governance: To coordinate Islamic financial activities, the Law establishes requirements for the creation and operation of an Islamic Financial Council (Shari’ah Board) within both the Central Bank and individual banks practicing Islamic banking.

• Taxation: Recognizing the unique nature of Islamic financial transactions, a dedicated chapter is added to the Tax Code. Under these provisions, income derived from Islamic financial activities is treated as interest income for taxation purposes. Additionally, the markup on goods sold to clients by banks and microfinance organizations is exempted from VAT.

According to the senators, this Law will facilitate increased access to financial services for the public and business entities, enhance the competitive environment in the country, and attract new strategic investors to the banking and financial sectors.

Following the discussions, the senators officially approved the Law.

Source: Senate of the Oliy Majlis of the Republic of Uzbekistan