The Legislative Chamber of the Oliy Majlis has passed the bill on Islamic banking in its second and final readings, moving the document forward to the Senate for approval.

The bill introduces amendments and additions to the Tax Code, Civil Code, and eight other laws, defining the legal framework for Islamic banking operations in Uzbekistan. It establishes key terminology related to Islamic finance, including the definition of an “Islamic bank,” and sets out the requirements for obtaining a license to conduct Islamic banking activities.

Under the draft law, credit institutions operating in Islamic banking will be allowed to engage in trade-based financing in accordance with Islamic financial standards. They will also be permitted to establish legal entities and acquire shares or stakes in other companies’ charter capitals.

Lawmakers noted that ahead of the second reading, proposals concerning financial standards and investment deposits were incorporated into the bill. The document also introduces provisions to regulate the taxation of Islamic financial transactions and encourage their wider use.

During the second reading, 125 out of 127 deputies voted in favor, with one abstaining and one not voting. In the final reading, 126 deputies supported the bill. The document will now be reviewed by the Senate and, if approved, signed by the president.

The bill was initially adopted in the first reading on September 16, receiving 112 votes in favor. At the time, Deputy Chairman of the Central Bank Abrorkhuja Turdaliev said the amendments were developed based on the experience of Malaysia, Turkey, the UAE, and Central Asian countries.

The law defines the key principles and mechanisms of Islamic financial instruments such as Murabaha, Mudaraba, Musharaka, Wakalah, and Salam. It also introduces a separate type of license for Islamic banks, while conventional banks will be allowed to open “Islamic windows” under the same framework.

Currently, Uzbekistan’s law “On banks and banking activities” prohibits banks from engaging in trade, creating legal entities, or holding shares in their charter capital – restrictions that limit trade-based and partnership financing, Turdaliev explained.

Additionally, the Tax Code classifies Islamic finance operations as commercial transactions subject to VAT and turnover tax, making them more expensive than conventional banking services. The new bill proposes a separate tax regime tailored to the specific nature of Islamic finance.

Notarial actions by Islamic banks and microfinance organizations will be exempt from state fees when registering property transferred to clients in compliance with Islamic finance standards. A Council on Islamic Finance will be established under the Central Bank to oversee and regulate the sector.