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Doing business in An introductory guide to and legal issues 2 Doing business in Kazakhstan Preface

This publication is intended to provide a useful practical summary of some of the legal and tax issues that investors starting and building a business in Kazakhstan may face. In particular, we hope that it will help investors to avoid common pitfalls and clarify areas where some forethought and planning will help problems to be avoided. Kazakhstan offers many opportunities, and encouraging foreign investment in the main sectors of the economy is a key priority for the country. This guide has five sections: 1. Welcome to Kazakhstan 2. Our top 10 tax and legal tips for prospering in Kazakhstan 3. Getting started 4. An overview of tax rules in Kazakhstan 5. An overview of other laws affecting business administration.

This guide is a high-level summary of the rules in force as of 1 January 2020. It is not a substitute for comprehensive professional advice, which should be sought before engaging in any significant transaction. It should also be noted that this guide does not cover all in Kazakhstan (of which there are more than 30). Here, we cover only the most important, so advice should be sought as to the actual taxes applicable to any particular business. We wish you every success in this exciting and dynamic environment.

Doing business in Kazakhstan 1 Contents

2 Doing business in Kazakhstan Welcome to Kazakhstan ...... 4 Overview of other laws that affect business Highlights ...... 5 administration ...... 44 System of government ...... 8 ...... 45 Time ...... 8 Employment regulations ...... 45 Business hours ...... 8 Import and formalities and duties . . 46 Public holidays and Licensing ...... 48 days off ...... 8 Banking regulations ...... 49 Kazakhstan fact sheet ...... 9 Currency regulations ...... 50 Currency regimes ...... 51 Our top 10 tax and legal tips ...... 10

Tax tips ...... 11 EY in Kazakhstan ...... 56 Legal tips ...... 13 About EY ...... 57 Getting started ...... 15 Encouraging investment ...... 57 Arriving in Kazakhstan ...... 15 Supporting our clients Post-arrival procedures ...... 16 in the dynamic landscape ...... 57 Types of legal entities ...... 17 Office locations ...... 58 Establishing a legal presence ...... 18 EY Kazakhstan at social media ...... 58 Incentives for investors ...... 23 Appendix ...... 60

Overview of tax rules in Kazakhstan ...... 28 Personal (“PIT”) ...... 29 Social tax ...... 32 Corporate income tax (CIT) ...... 36 Withholding tax (WHT) (other than PIT) ...... 38 Value added tax ...... 39 Subsurface use taxes ...... 41 Tax administration ...... 41

Doing business in Kazakhstan 3 Welcome to 1Kazakhstan

4 Doing business in Kazakhstan Highlights • On 1 January 2015, the Treaty on the • Kazakhstan posted an annual average (EAEU) entered into force. The union US$24,263 GDP growth rate of 5.3% from 2005 of Armenia, Belarus, Kazakhstan, to 2018, with GDP in 2017 reaching million Kyrgyzstan and comprises US$179.3 billion (US$9,813 per a market of 184 million consumers gross FDI inflows recorded by capita). In the first 9 months of 2019 the growth rate accelerated to • In December 2012, the former Kazakhstan in 2018 4.3% from 4.1% in 2018.1 In August , Nursultan 2019, the Ministry of the Economy Nazarbayev, in his annual address to and Budget Planning of Kazakhstan the nation, unveiled the Kazakhstan announced an updated GDP forecast 2050 Strategy, which aims to make for 2020 to 2024, predicting an Kazakhstan one of the world’s 30 most average growth rate of 4.4% in the developed countries. The strategy is to 184 medium term2 be realized through a number of key million consumers comprises initiatives: a comprehensive and • Foreign direct investment (FDI) inflows EAEU market pragmatic economic policy (infra- into Kazakhstan have been strong in structure development, modernized recent decades. Kazakhstan’s success systems for managing state assets in attracting FDI may be attributed and natural resources, accelerated to its vast natural resources and industrialization, modernization the commitment of the country’s of agriculture and new policies on leadership to welcoming FDI and November 2014 water resources), the development promoting the country’s stable of a culture of entrepreneurship, new Infrastructure development program economic growth, as well as to social policies, targeted development launched in Kazakhstan developing non-extractive sectors of knowledge and professional such as agriculture, renewable energy, skills, further strengthening of infrastructure, logistics and transport. state governance and democracy, In 2018, Kazakhstan posted gross FDI consistent and predictable foreign inflow of US$24,263 million policy, and a new national patriotism • Kazakhstan is ranked 25th for Ease of • The Nurly Zhol (Shining Path) Doing Business in the World Bank’s infrastructure development program Doing Business 2020 report. The was launched in November 2014 country has moved up three positions with the aim of creating an efficient compared with the previous year3 transport and logistics infrastructure in Kazakhstan4,5.

1 The Statistics Agency of Kazakhstan 2 The Ministry of the National 3 Doing Business 2020, the World Bank, October 2019 4 Official Information Source of the Prime Minister of the Republic of Kazakhstan, 22.10.2019, https://www.government.kz/en/news/realizaciya-novoy-gosprogrammy-nu- rly-zhol-na-2020-2025-gody-pozvolit-sozdat-bolee-550-tys-rabochih-mest 5 Astana Times, 24.10.2019, https://astanatimes.com/2019/10/kazakh-government-estimates-nurly-zhol-programme-will-cost-16-91-billion-over-next-five-years/

Doing business in Kazakhstan 5 — KZT 5.8 trillion was invested in purchase of 48 ships, including six Kazakhstan’s transport industry merchant fleets, and major repairs KZT 5.8 trillion under the Nurly Zhol program to locks in 2015-2019. Of this, 56% was was invested in Kazakhstan’s • In June 2015, in line with the funded with the involvement of the transport industry Kazakhstan 2050 Strategy, former private sector, the rest by the state President set — 3,000 km of republican roads were out 100 steps for the implementation built or rebuilt, including completion of five institutional reforms aimed of the Western Europe – Western at promoting a modern and international transport professional civil service, rule of 3,000 km corridor law, industrialization and economic growth, a unified nation, and the of republican roads were built — 1,400 km of new railways were transparency and accountability commissioned: Zhezkazgan–Beineu or rebuilt, of the state. The new President (1,040 km), –Shubarkol of Kazakhstan, Kassym-Jomart (214 km), Borzhakty–Yersai (14 km) Tokayev, has continued the course and the second track of the – and confirmed institutional reforms Shu section (111 km) as a key priority in accelerating — 6 runways were upgraded at the Kazakhstan’s economic development 1,400 km airports of Uralsk, Petropavlovsk, • The ‘Digital Kazakhstan’ state program Almaty, , and of new railways were was launched in 2017. It aims to commissioned accelerate economic development — The 2020-2025 program is and improve the quality of life of the expected to create 551,000 jobs people of Kazakhstan with the aid and increase labour productivity of digital technologies. It targets an 20% by 2025 83% digital literacy rate, 82% internet usage and digital delivery of 80% of all — The Kazakh government estimates runways state services by 20226 6 that KZT 6.6 trillion (US$16.9 were upgraded at the airports billion) will be needed to fund the • The first wave of privatization in 2020-2025 Nurly Zhol program. Kazakhstan laid the foundations of It will include the following the market economy in the 1990s. projects: completion of 3,800 At the end of 2015, Kazakhstan km of roads; rebuilding of the announced a new privatization plan runways at Kostanay and Balkhash that seeks to reduce state ownership airports; modernization of the of the national economy from more Dostyk–Moyynty railway line and than 40% to around 15%. However, electrification of the Moyynty– real progress has been slow. The Aktogay railway line; development Kazakh government confirmed plans of water transport through the to accelerate the privatization of state

6 Official site of the President of the Republic of Kazakhstan, https://www.akorda.kz/ru/official_documents/strategies_and_programs

6 Doing business in Kazakhstan property in 2020 and indicated that 40–60 days to 13–14 days. A railway has become an established platform KazMunaiGaz would be at the top of corridor connecting the Pacific coast for business meetings, exchange the list of China to the is already of experience and negotiations. in operation. It will provide access to 118 enterprises from 13 countries, • On 30 November 2015, the World many major markets when integrated including Austria, , Organization (WTO) welcomed with the Kazakhstan—— Belarus, Germany, Italy, Kazakhstan, Kazakhstan as its 162nd member. and Azerbaijan—Georgia— China, Poland, , Russia, Kazakhstan has successfully railway systems. A joint industry and Singapore, Ukraine and the Czech negotiated arrangements on sensitive investment cooperation program is Republic, took part in the exhibition in economic issues, including support underway between Kazakhstan and 2019, with national stands presented for agriculture, financial services China. It comprises 51 projects worth by companies from China, Russia and and telecommunications, and has more than US$27b and infrastructure Poland9 coordinated its WTO and EAEU forms an important part of it8 commitments in line with national • In July 2018 Kazakhstan officially interests. Kazakhstan became an • The annual PowerExpo Almaty launched the Astana International associate member of the OECD international exhibition presents the (AIFC) on the site of Investment Committee in 2017 latest equipment, technologies and the EXPO-2017 exhibition. It is set to and a participant in the Public services for the energy industry. It serve as a financial hub for Central Governance and Environmental Policy Committees in 2019. The country has also joined the OECD’s Base Erosion and Profit-Shifting (BEPS) Project, an initiative involving over 100 countries in an effort to tackle strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low- or no- tax locations7 • The New Silk Road is an ambitious transport infrastructure project that will enable goods to be delivered from the Pacific coast to Europe. Redirecting cargo traffic to the mainland is no easy task, as the current sea route is significantly cheaper. However, the new overland route through Kazakhstan allows delivery times to be reduced from

7 OECD, https://www.oecd.org/eurasia/countries/kazakhstan/ 8 Belt and Road News, 09.06.2019, https://www.beltandroad.news/2019/06/09/kazakh-chinese-one-belt-one-road-cooperation-discussed-in-astana/ 9 Official website of PowerExpo Almaty, https://www.powerexpo.kz/en/exhibition/about-the-exhibition

Doing business in Kazakhstan 7 Asia, the Caucasus, the Eurasian System of government Public holidays and Economic Union and Mongolia. The The Republic of Kazakhstan gained centre has a special legal regime days off independence on 16 December 1991. which differs from the legislation The following table presents Under the constitution adopted on of Kazakhstan and is based on the Kazakhstan’s official public holidays 30 August 1995, Kazakhstan is a principles of English law and best and days off. democratic, secular, legal and social practices of world-leading financial state. State power is divided into Holiday Date centres. Participants enjoy special tax, legislative, executive and judicial currency and visa regimes, as well as New Year holidays 1–2 January branches. Kazakhstan is a a favourable framework for attracting Orthodox Christmas 7 January with presidential rule. foreign labour. The tax regime offers International 8 March a 50-year corporate Legislative functions are performed by Women’s Day and personal tax exemptions for the Parliament of Kazakhstan, which Nauryz Meyrami 21–23 March foreign employees. As of 2019, 300 is the supreme representative body Kazakhstan People’s 1 May companies from 30 countries have and consists of two chambers, the Unity Day become residents of the AIFC. They Senate and the Majilis. The Government Defender of the 7 May represent Russia, China, the United of Kazakhstan acts as the supreme Fatherland Day States, Singapore, the United Arab executive body, headed by the Prime Emirates and other leading economies Minister. Judicial authority is vested in Victory Day 9 May the Supreme Court. Capital Day 6 July • The Khorgos-Eastern Gate special The first day of 31 July in 2020 economic zone (SEZ) comprises a dry Kurban Ait (observed port, a logistics and industrial zone, in accordance with a railway station and the Altynkol the Islamic Calendar) Kazakh-Chinese Khorgos International Time Centre of Boundary Cooperation. In Kazakhstan’s time zones range from five Constitution Day 30 August July 2015, the country’s first dry hours ahead of Greenwich Mean Time port, with an area of 149 hectares (GMT) in the western part of the country The First President of 1 December Kazakhstan Day and planned capacity of 500,000 to six hours ahead of GMT in the other twenty-foot equivalent units (TEU), regions. Nur-Sultan and Almaty are six Independence Day 16–17 December was launched in the SEZ. Thanks to hours ahead of GMT. the dry port, shipments that used to take up to 40 days by sea from Asia to Europe can now be transported in just 10 days. In 2018, Khorgos processed Business hours 311 container trains along the China- Kazakh offices are generally open from Europe transport route and more than 9:00 am to 6:00 pm Monday to Friday, 1.2 million people visited the -free and closed Saturdays and Sundays. trade zone. So far, over US$1.4 billion has been invested in the project10

10 Forbes, 14.03.2019, https://www.forbes.ru/biznes/373183-baraholka-s-oborotom-eu18-mlrd-novaya-mekka-chelnokov

8 Doing business in Kazakhstan Kazakhstan fact sheet

Capital Nur-Sultan Administration Kazakhstan is divided into 14 provinces and 3 cities of national significance: Nur-Sultan, Almaty and Bordering countries Russia, China, Uzbekistan, Kyrgyzstan and Turkmenistan Land area 2,724,900 km2 Population (December 2019) 18.6 million Urban population, % (December 2019) 58% of the total population Age structure (2019) 0–15 years (29.9%); 16–62 years (59.1%); 63 and above (11.0%) Languages Kazakh (official language), Russian (interethnic communication) President Tokayev Kassym-Jomart Kemelevich (since 20 March 2019) Prime Minister Mamin Askar Uzakpayevich (since 25 February 2019) Nominal GDP (2018) US$179.4 billion GDP growth (2018) 4.1% GDP per capita (2018) US$9,813 GDP composition by sector (2018) Agriculture (4.4%); industry (28.2%); services (55.5%) External debt as a percentage of GDP (Q3 2019) 32.6% Labour force (2018) 9.139 million Unemployment rate (December 2019) 4.8% CPI inflation (December 2019) 5.4% Stock exchange Kazakhstan Stock Exchange (KASE) Central Bank National Bank of Kazakhstan Corporate income 20% Individual income tax rate 10% State value-added tax 12% Major cities Nur-Sultan, Almaty, Shymkent, , , Currency unit Kazakhstan tenge (KZT) Annual average exchange rate (2019) US$1=KZT 382.75; EUR1=KZT 428.51; RUR1=KZT 5.92; CNY1=KZT 55.43 Exchange rate as of 1 January 202011 US$1=KZT 382.59; EUR1=KZT 429; RUR1=KZT 6.16; CNY1=KZT 54.97

Sources: Official website of the President of the Republic of Kazakhstan; the National Bank of Kazakhstan; the Statistics Agency of Kazakhstan.

11 Hereafter in this guide, all calculations in US$ are made based on the exchange rate as of 1 January 2020

Doing business in Kazakhstan 9 Our top 10 tax 2and legal tips

10 Doing business in Kazakhstan In this section we set out our top tax and legal tips for prospective Tax tips investors. Should you need more information on any of these issues, EY is happy to assist you 1 3 in the following areas: • Tax planning and compliance, Recent years have shown that Kazakh The scope of withholding taxes (WHTs) both in Kazakhstan and law is subject to frequent changes. This on cross-border payments is wide, and makes it important to have robust tax rates are high (sometimes even when internationally planning to enable businesses to cope the recipient has never entered • Business accounting and with changes in the law and implement Kazakhstan). However, Kazakhstan payroll structural changes as required without has tax treaties with many countries significant tax costs. which allow for withholding taxes to be • A full range of legal consulting reduced or avoided if all the necessary services in Kazakhstan, as well documentation is in place. Otherwise, as tax litigation services tax will be withheld, and obtaining a refund may be a complex and time- • Transaction advisory services consuming process with an uncertain and legal and tax due diligence 2 outcome. Moreover, Kazakhstan has • Immigration support and a unique position on transfer pricing whereby all cross-border transactions performance and reward Corporate and personal income tax rates may potentially be inspected for planning in Kazakhstan are low by international transfer pricing compliance, regardless standards, but penalties for non- • Assurance services of whether the parties are in any way payment and non-reporting, whether related. intentional or not, are high. The first focus of tax planning in Kazakhstan should be to confirm that all tax that ought to be paid in Kazakhstan is paid and reported. In addition, Kazakhstan is a documentation-driven country, 4 and keeping documentation in order (including support documentation) is of There are many downsides to dealing paramount importance. with tax havens when structuring cross- border investments or transactions in Kazakhstan. Thus, tax havens should not usually form part of tax planning in Kazakhstan.

Doing business in Kazakhstan 11 5 7 9

The rules for determining whether There is a safe harbour allowing an In many cases, exemption from a business dealing with Kazakhstan has entity that seconds staff to Kazakhstan may be obtained a taxable presence for corporate income to avoid a taxable presence. Provided upon withdrawal from an investment tax (CIT) purposes in Kazakhstan the arrangements are properly in Kazakhstan provided that the (a ) are very structured, this is likely to be more tax- correct structuring was used when broad and can apply collectively to efficient than using the same staff to the investment was first made. The whole groups of companies if they have provide consulting or other services. complexity of the structuring depends been in the country for over six months. on the nature of the asset. Some, but not all, of Kazakhstan’s tax treaties protect against this. Therefore, if more than one group entity is used to do business in Kazakhstan, the 8 position of all entities involved should be 10 reviewed collectively. Branch profit tax applies to all permanent establishments of foreign According to currently enacted , legal entities at a standard rate of 15%. income received by foreign individuals It is usually reduced by tax treaties. for work performed in Kazakhstan There is an equivalent tax on dividends (regardless of where the income is paid) 6 at the same standard rate, which may is treated as Kazakh-source income and also be reduced by treaties. In the case is subject to Kazakh personal income tax of dividends, the rate is zero after an (PIT). Generally, Kazakh-source income Deductibility of interest on investor loans investment has been held for three is reported and taxed in Kazakhstan is subject to a debt-to-equity ratio of 4:1 years (except for investments in oil using one of the following methods: (i) (7:1 for banks). At best, an investor will and gas or mining operations (unless a self-assessment via an annual PIT return pay 10% WHT on cross-border interest certain portion of minerals is refined), or (ii) at source via a local company (under a double ) and be able dividends paid to entities registered in acting as a so-called “tax agent”. In most to claim a CIT deduction of 20%, while tax havens and investments in certain cases, the law places tax and reporting for certain borrowings accrued interest CIT-exempt entities). obligations for Kazakh-source income expense may be deducted only when of foreign individuals on the local tax paid. Furthermore, exchange gains and agent (e.g. a foreign legal entity with a losses on loans are recognised for tax registered presence in Kazakhstan (a purposes. branch or representative office) or a local entity that uses services of a non- resident employer delivered through foreign employees).

12 Doing business in Kazakhstan Legal tips 1 3 6

Most investors use a Kazakh limited There is an extensive range of business The process of hiring foreign employees liability partnership (LLP) as their and professional activities that are is complex and strictly regulated in investment vehicle. subject to licensing requirements, and it Kazakhstan. Immigration and labour is important for investors to determine law has undergone numerous changes in advance whether they need a licence. resulting in frequent inspections of The penalties for failure to obtain a companies that employ foreign workers licence can be significant, including and increased penalties for violations 2 potential criminal liability. of labour and migration rules (including discriminatory remuneration terms and payment of salaries in foreign currency). Settlements between residents of Kazakhstan (Kazakh legal entities, branches/representative offices of foreign non-financial entities, and 4 Kazakh citizens) must be made in KZT (with a few exceptions – e.g. branches Kazakhstan often takes a formalistic 7 of non-financial entities may transact approach to procedural matters. In most with each other in foreign currency). cases, a company’s representatives must Kazakhstan generally permits foreign Settlements between non-residents have a detailed power of attorney and law to be the governing law for (foreign legal entities and citizens) and will regularly be required to refer to it – commercial contracts, except for Kazakh residents may generally be for example, when signing contracts. subsurface use contracts with the made in any currency but may have to state, foundation agreements of a be reported to the National Bank if they Kazakh legal entity, agreements on the hit certain thresholds. transfer of participating interests in a legal entity and transactions involving 5 immovable property. Regulatory acts of the AIFC governing relations between AIFC participants may be based on the Compliance with local content “principles, norms and cases” of the law requirements is very important for of England and Wales and standards of mining and oil and gas companies and international financial centres. their subcontractors and is constantly monitored by government authorities.

Doing business in Kazakhstan 13 8 9 10

In certain cases, Kazakh law requires Disputes between Kazakh legal entities At the same time, Kazakh legal entities approval to be sought from government are resolved either through amicable have access to the AIFC’s court and authorities for the acquisition of procedures (mediation, amicable international arbitration centre, whose shares/participating interests in legal settlement and participatory procedure) decisions are recognised and enforced in entities operating in fields covered by or by courts and local arbitration, as well Kazakhstan similarly to the decisions of competition and natural monopoly as by international courts if a provision arbitration and international courts. regulations and by legislation relating to allowing such dispute resolution is subsurface use. It is therefore important contained in the relevant agreement to analyse the requirements of Kazakh between the parties. Public disputes laws on a case-by-case basis before with Kazakh government authorities can entering into such transactions. be resolved either in court or through a pre-litigation procedure.

14 Doing business in Kazakhstan Getting started

Arriving in Kazakhstan (e.g., negotiations, conclusion of submitting a written application to contracts, provision of consulting or the Kazakh consular establishment in The Kazakh authorities issue the audit services, provision of installation, the respective country if he or she is a following categories of visa: repair or maintenance services and citizen of one of the following countries: • Category A: diplomatic, official and attendance of conferences, symposiums, investor forums, exhibitions and concerts). • Australia • Lithuania • Austria • Luxembourg • Category B (short-term stay): business Work visas (Category C) are issued to visa, visa for international road foreign individuals entering or staying • Belgium • Malaysia haulage, visa for crew members of in Kazakhstan for employment and • Brazil • Malta aircraft, marine and river vessels and members of their families. In general, • Bulgaria • Monaco a work visa is issued based on a work trains, visa for religious events, visa • Canada • Netherlands for practical training or internships, permit. See the “Work permits” section • Croatia • New Zealand visa for permanent residence in for details. • Cyprus • Norway Kazakhstan, private visa, visa for In Kazakhstan, visas are issued by the adoption of Kazakh citizens, tourist Ministry of Internal Affairs (MIA) of • Czech Republic • Oman visa, transit visa and exit visa to leave Kazakhstan. Elsewhere, they are issued • Denmark • Poland Kazakhstan by Kazakh consulates (for example, the • Estonia • Portugal Consular Department of the Embassy of • Category C (long-term stay): visa for • Finland • Qatar Kazakhstan). Business and work visas permanent residence in Kazakhstan • France • Romania are issued based on a letter of invitation (for ethnic ), family reunion issued by a local Kazakh company or • Germany • Saudi Arabia visa, work visa, visa for missionary a branch or representative office of • Greece • Singapore activities, humanitarian visa, study a foreign company. The state duty for visa, private visa (for ethnic Kazakhs), • Hungary • Slovak Republic the execution of invitations is 0.5 times visa for minors and medical treatment • Iceland • Slovenia the monthly calculation index (MCI)12. visa • Ireland • Spain The fee for issuing a visa ranges from Visas of the above categories may be US$20 to US$1,000 depending on the • Israel • Sweden issued for single or multiple entry country of residence of the invited party • Italy • Switzerland depending on the category and type of and the type of visa requested. A visa • Japan • United Arab visa. Exit visas are issued only for single should be issued within five business • Jordan Emirates use. days. • Korea (South) • United Kingdom Business visas (Category B) are An individual may obtain certain • Latvia • United States issued to foreign individuals arriving types of official business and private • Liechtenstein in Kazakhstan for business purposes visas without a letter of invitation by

12 The MCI was established by the Law of the Republic of Kazakhstan “On the Budget of the Republic for 2020–2022” Effective on 1 January 2020, 1 MCI = KZT 2,651 (approximately US$7)

Doing business in Kazakhstan 15 Kazakhstan has a visa-free regime with Under this visa-free regime, citizens A temporary stay permit allows a foreign certain countries based on international of the above countries may enter individual to stay for a definite period agreements (for example, Belarus and Kazakhstan without a visa for a period (e.g. the length of an employment the Russian ). In addition, not exceeding 30 calendar days from agreement) and must be obtained by Kazakh migration law allows citizens of the date of crossing the border. If, for the inviting party. A temporary stay the following countries to enter and exit whatever reason, a foreign individual permit is issued based on applications Kazakhstan without visas: wishes to stay in Kazakhstan for a from: longer period, he or she may apply for 1) Individuals inviting foreign • Australia • Luxembourg a single-entry business or investor visa individuals for family reunion • Austria • Malaysia while in Kazakhstan. Investor visas are • Bahrein • Malta issued to certain categories of business 2) Individuals or legal entities that • Belgium • Mexico immigration applicants (managers have concluded an employment • Bulgaria • Monaco of foreign companies that carry out agreement with a foreign individual investment activities in Kazakhstan and • Canada • Netherlands 3) Educational organizations members of their families) and provide • Chile • New Zealand certain privileges. 4) Medical organizations • Columbia • Norway • Croatia • Oman 5) Religious organizations • Cyprus • Philippines Post-arrival procedures 6) Local authorities inviting individuals • Czech Republic • Poland Until 10 January 2020, foreign to engage in entrepreneurial • Denmark • Portugal individuals arriving in Kazakhstan for activities (business immigrants). more than five calendar days were • Estonia • Qatar However, foreign individuals in possession normally required to register with • Finland • Romania of a visa issued after 1 July 2018 do not the Ministry of Internal Affairs (MIA). need to obtain a temporary stay permit. • France • Saudi Arabia However, this has been replaced by an Relevant data will be automatically • Germany • Singapore obligation on the part of the inviting recorded in the Berkut electronic • Greece • Slovak Republic party to obtain a temporary stay permit database based on information provided for the foreign citizen. This is normally • Hungary • Slovenia in the letter of invitation. For foreigners required if the duration of the stay • Iceland • Spain entering Kazakhstan under a visa-free exceeds 30 calendar days. • Indonesia • Sweden regime, the new rule described above • Ireland • Switzerland Nonetheless, the inviting party must will apply. The period of stay in Kazakhstan • Israel • Thailand notify the MIA within three working days ends upon the expiry of the visa or, for • Italy • Turkey of the arrival of the foreign individual in visa-free visitors, after 30 calendar days Kazakhstan. or the period indicated in the temporary • Japan • United Arab stay permit. • Korea (South) Emirates Immigration records are kept by the • Kuwait • United Kingdom MIA based on information from inviting Starting from 202013, the temporary • Latvia • United States parties and by the National Security stay of foreign individuals arriving in Committee of Kazakhstan based on Kazakhstan under a visa-free regime • Liechtenstein • Vatican information from Kazakh border control (including the 57 countries listed above) • Lithuania • Vietnam authorities. must not exceed 30 calendar days from

13 It should be noted that our comments are based on the currently enacted rules. We expect further changes to the post arrival procedure rules.

16 Doing business in Kazakhstan the day of crossing the Kazakh border Types of legal entities charter capital, unless the foundation and must not exceed 90 calendar days documents provide otherwise. Under the Civil Code14, foreign and in each 180-calendar day period unless Participants have pre-emptive rights to local investors may use a number otherwise provided in an agreement each other’s interests. of organizational forms to do between Kazakhstan and the foreign business in Kazakhstan, including Importantly, LLPs in Kazakhstan are country concerned or decided by the simple partnerships, limited liability separate legal entities that are distinct . This rule partnerships, additional liability limited from their participants. As a legal entity, does not apply to individuals who have partnerships, production cooperatives an LLP is subject to state registration a temporary stay permit as described and joint stock companies. and taxation in its own right, i.e. it is not above. tax-transparent. In this section we give details of those Various sanctions are prescribed for types of business vehicles that are most In addition, Kazakh law allows a foreign non-compliance with immigration widely used in practice. company to establish branches and requirements. Please refer to the representative offices. Under the Civil relevant section for details. Joint stock companies (JSCs) Code, branches and representative A JSC is a legal entity that issues shares offices are not recognised as separate Should you require assistance in order to attract investments to legal entities. finance its activities. A JSC is separate in planning and managing your human Representative office capital needs, EY can assist with and distinct from its shareholders, A representative office is established business and work visas, work permit i.e. shareholders are not liable for to represent a foreign entity’s interests applications for foreign employees, the JSC’s liabilities. It may have one in Kazakhstan. A representative office tax registration, tax and legal or more shareholders. The minimum protects and represents the interests of compliance for expatriate individuals capital required for a JSC is 50,000 MCI the foreign legal entity and carries out and the drafting of secondment (approximately US$350,000). preparatory and auxiliary activities, such agreements. Limited liability partnerships (LLPs) as marketing and advertising. Generally, The main difference between a JSC a representative office may not engage and an LLP is that an LLP does not in commercial activity. issue shares; instead, participants hold Branch interests in the partnership. An LLP may be formed by one or more participants. A branch is a structural subdivision of a Generally, the participants in an LLP are foreign legal entity that performs all or not liable for the LLP’s debts beyond the part of the foreign entity’s functions. In value of their contributions. There are a particular, it may engage in commercial number of exceptions to this rule under activity. Kazakh law. Should you require more information The minimum capital requirement for on the nature and uses of the various an LLP is 100 MCI (approximately types of business entities in Kazakhstan, US$693), with the exception of small EY offers tax and legal advice on how businesses, for which the minimum is to structure a business, as well as a set at zero. Participants’ interests are full range of company formation and proportional to their contributions to the registration services.

14 The Civil Code of the Republic of Kazakhstan of 27 December 1994

Doing business in Kazakhstan 17 Establishing a legal presence As a rule, all legal entities, branches and representative offices in Kazakhstan must be registered with the state. It is important to determine whether any specific approvals and/or consents must be obtained from government authorities before proceeding with state registration.

State registration State registration in Kazakhstan follows a “one-stop shop” principle: all registration documents must be submitted to a single government authority, the Government for Citizens. Under the law on state registration, the procedure should take from 1 to 14 business days. In practice, general registration can take up to one month. The law prescribes a standard set of documents that must be submitted for the state registration of a company. Having all the right documents is key to a successful registration process. It is essential to ensure that the documents have been duly signed, sealed, notarized and legalized, or apostilled if they were executed abroad15; otherwise, the registration process may be considerably delayed. The state registration fee is currently 6.5 MCI (approximately US$46).

15 Legalization and apostille requirements do not apply to documents executed in countries that are parties to relevant international agreements.

18 Doing business in Kazakhstan Location (legal address) Kazakh law stipulates that entities legal entities are required to notify that are not present at their registered the National Bank of Kazakhstan of A legal entity’s location is the address address for one year or more may be the closure of or changes in details of indicated in its foundation (e.g. charter) liquidated/deregistered based on a court bank accounts held abroad. documents. Under Kazakh law, a legal decision. entity is located in the same place as its See the “Banking regulations” and permanently operating governing body “Currency regulations” sections for (i.e. its director or board of directors). Opening a bank account (legal entities and individuals) more details. Location plays an important part in a legal entity’s registration and other Bank accounts may be opened with a Categories of work immigrants, legal events, such as the determination local bank in Kazakhstan in the national work permits and secondment of the court with which an appeal currency and/or in a foreign currency. The Law of the Republic of Kazakhstan should be filed (usually a court in the Branches and representative offices on Population Migration, adopted on defendant’s location) and the state of foreign legal entities may opt to use 22 July 2011, establishes the following revenue authority to which tax and offshore (foreign) bank accounts. other payments must be made. categories of immigrants entering the Kazakh legal entities are permitted to country for employment purposes: Under Kazakh law, government hold bank accounts outside Kazakhstan • Foreign immigrant workers, i.e. authorities, including state revenue without restrictions. authorities, require legal entities, persons who come to Kazakhstan to branches and representative offices Under currency law, the rules for engage in independently arranged (“entities”) to be present at the legal notifying the National Bank of employment in high-demand addresses indicated in their foundation Kazakhstan of the opening of a bank occupations in priority economic documents and registration records. The account with foreign banks are as sectors (business areas), and persons state revenue authorities may visit them follows: who are engaged by employers to work in Kazakhstan, including by intra- at their legal address under the so-called • Kazakh legal entities and branches corporate transfer “observation procedure”. and representative offices of Kazakh If entities are not actually present legal entities are required to notify • Business immigrants, i.e. persons who at their legal address, i.e. the state the National Bank of Kazakhstan come to engage in entrepreneurial revenue authorities cannot find anyone of the opening of a bank account activities in accordance with Kazakh representing the entities at the time of abroad by applying for an appropriate law observation, they may be penalized. registration number to be assigned to • Seasonal foreign workers, i.e. Specifically, they may be deregistered the bank account by the National Bank immigrants hired to perform seasonal for VAT purposes or their bank accounts of Kazakhstan work during specific periods (seasons) may be frozen. It is therefore important • Kazakh legal entities and branches determined by climatic or other for entities to be actually present at the and representative offices of Kazakh natural conditions, but not for more legal address stated in their foundation legal entities are required to provide than one year documents and registration records, or the National Bank of Kazakhstan with at least to ensure that, if the authorities • Labour immigrants who come to information on any transactions on visit (or if they send correspondence Kazakhstan as domestic workers bank accounts held with foreign banks or call the contact telephone number), to perform household-based work there is someone who can confirm the • Kazakh legal entities and branches (services) for individuals (employers) validity of the legal address. and representative offices of Kazakh under a labour immigrant permit

Doing business in Kazakhstan 19 Work permits Standard procedure For the purposes of work permits issued There are two types of permits Work permits are issued by local under the standard procedure, foreign allowing foreign individuals to work in authorities within the quota allocated individuals are divided into the following Kazakhstan: by the Ministry of Labour and Social categories: Protection on an annual basis. The • A permit to engage foreign labour • Category 1 – CEOs and deputy CEOs quota is the maximum number of of companies • A permit issued to a foreign foreign individuals who can be hired to individual who independently came work in Kazakhstan in particular regions • Category 2 – Leaders of business to Kazakhstan to work in a particular and industries. Quotas are determined divisions/department occupation. The Kazakh government mainly on the basis of annual • Category 3 – Professionals approves the list of such occupations applications from employers, which must be submitted by 1 August. • Category 4 – Skilled workers As in many other countries, employers in Kazakhstan must obtain a permit to However, the government may decide to There is, however, a restriction on the employ foreign citizens. reduce the overall quota for a particular number of foreign employees that year (for instance, the quota for 2020 may be hired by a Kazakh employer/ There is a reasonable amount of was reduced by 40% compared with local host entity — the so-called “ratio flexibility in the process of hiring 2019). requirement”. Currently, the total foreigners in Kazakhstan. Unlike many countries where employers are required to sign employment contracts with foreign nationals to hire them as local employees, Kazakhstan offers different options, including (i) employing a foreigner directly as a local employee, (ii) engaging foreign specialists through a service contract with a foreign contractor not present in Kazakhstan (including secondment agreements, which are commonly used around the world) and (iii) transfer of a foreigner to a local branch/representative office/ subsidiary from a parent company based in a WTO country (intra-corporate transfer). A work permit is obtained by submitting documents to the local authorities under one of two procedures: the standard procedure or intra-corporate transfer. The latter option is available as a result of Kazakhstan joining the World Trade Organization (WTO).

20 Doing business in Kazakhstan number of foreign employees of the foreign employee. The amount of ICT-based work permits are issued a Kazakh employer/local host entity state duty ranges from approximately free of state duties, are not subject to must not exceed: US$950 to US$3500 depending on the foreign labour quota and apply to the sector and the category of the certain economic sectors. • 30% of the total number of Category employee. 1 and 2 employees However, before hiring a foreign specialist to work in Kazakhstan under ICT, the • 10% of the total number of Category Intra-corporate transfer local host entity must carry out a search 3 and 4 employees An intra-corporate transfer (ICT) is a temporary transfer of a foreign for suitable candidates on the Kazakh An exemption from the ratio requirement individual from a legal entity established labour market and obtain a work permit applies for small businesses, state in the territory of a WTO state other only if no suitable candidates are found. enterprises and agencies, self-employed than Kazakhstan to a branch, subsidiary For each manager or specialist work foreign individuals, permits issued within or representative office in Kazakhstan. permit received under ICT, the employer the quotas for particular countries of For the purpose of obtaining a work must fulfil one of a number of special origin and branches and representative permit under ICT, foreign individuals are conditions (e.g. creation of new jobs for offices of foreign legal entities with no classified into: Kazakh citizens, retraining of Kazakh more than 30 employees. citizens, etc.). No special conditions are • Specialists To obtain a work permit, each imposed on the host company when foreign individual must meet the set • Managers hiring executives. qualification requirements. • Executives Work permit exemptions A work permit under the standard Under the ratio requirement for ICT, To encourage foreign investment, procedure is issued for the following the number of foreign employees must Kazakhstan offers various exemptions durations: not exceed 50% of the total number from the requirement to obtain work of managers and specialists. No ratio • Category 1 – 1, 2 and 3 years with permits for foreign workers. Exemptions requirement applies in relation to annual extension by 1, 2, or 3 years apply, for instance, to: executives. • Business immigrants who come • Category 2 – 12 months with annual A foreign individual engaged under extension by 12 months, but no more to Kazakhstan to engage in ICT remains employed by the home entrepreneurial activities than 3 times company but must comply with the • Category 3 – 12 months with annual requirements of the host employer • CEOs of local branches or represen- extension by 12 months, but no more in terms of work schedule and tative offices of foreign companies and than 3 times health and safety requirements. The CEOs and deputy CEOs of local wholly foreign individual must meet relevant foreign-owned companies • Category 4 – 12 months with no qualification requirements and have at option to extend • CEOs of companies that have entered least one year of work experience with into agreements with the Government An employer is charged a state duty the entity based in a WTO member state. of Kazakhstan to invest more than for the issuance or extension of a work Local authorities issue a work permit US$50 million in the country, and CEOs permit. The amount of the duty is under ICT for the transfer period, but of local companies running investment established by the Kazakh government not more than 3 years (36 months) with projects in key industries under and depends on the type of business the option to extend it once by 1 year agreements with local competent of the employer and the category of (12 months). authorities

Doing business in Kazakhstan 21 • Nationals of member countries of the workers in accordance with the list of company as members of the board of Eurasian Economic Union regardless occupations and employee numbers directors of their position or the duration of approved as part of investment • Employees sent on business trips for their employment in Kazakhstan contracts a period or periods totalling no more • Foreign nationals engaged by • Employees of companies registered in than 120 calendar days in the course participants or bodies of the Astana one of Kazakhstan’s 10 free economic of a calendar year. International Finance Centre (AIFC) zones (FEZs) to implement projects worth more than KZT 2.651 million Sanctions for non-compliance • Individuals working in the Astana Hub (in 2020) or companies contracted with immigration legislation international technology park or hired by an FEZ resident, for the period of Kazakh law imposes severe sanctions by park participants in the positions of construction and installation work in on inviting parties and foreign citizens managers and specialists with a higher the FEZ and during the first year after for non-compliance with immigration education the commissioning date of the project legislation. Administrative sanctions • Managers and professionals with a facility, in accordance with the list of imposed on a company may be as high higher education working either with employee categories and numbers as US$5,000 (per foreign individual per local companies that have entered into adopted by a special committee of violation). In the worst-case scenario, contracts to implement investment competent authorities the individual may be subjected to projects in priority areas or with • Individuals working in a national administrative detention for up to 15 companies in the architectural, town managing holding company in days or administrative deportation from planning and construction industries positions not lower than heads the country and the company may be contracted by such an investor, for of departments, holding a higher banned from hiring foreigners for up to the period until the end of the first education and possessing the required 1 year, i.e. no work permit will be issued year after the commissioning date supporting documents, and individuals and invitations from the company will of the project facility, or as skilled hired by a national managing holding not be accepted for visa applications.

22 Doing business in Kazakhstan In addition, a foreign individual must the secondment must also comply projects that may be implemented under personally attend the administrative with relevant Kazakhstan labour law investment contracts: court in connection with an immigration requirements. 1. Regular investment projects offence. Such foreign individuals are not involving the creation of new or allowed to enter Kazakhstan for 5 years EY can assist with (i) the structuring of expansion and upgrading of existing after administrative deportation from a secondment arrangement that meets production facilities. Kazakhstan. the applicable legislative requirements; (ii) drafting secondment agreements 2. Priority investment projects Residence permits and other mandatory documents; involving the creation of new pro- Kazakhstan issues residence permits. (iii) application for required permits, duction facilities with investments of There is no quota system for immigration registration, etc. in Kazakhstan. no less than US$13,858,177 or the into Kazakhstan under residence permits. expansion and upgrading of existing production facilities with investments Family members of no less than US$34,645,443. The spouse of a holder of a Kazakh work Incentives for investors 3. Special investment projects permit does not automatically receive In aiming to create a favourable implemented by legal entities the same type of work permit. If he or investment climate, Kazakhstan provides registered as participants of special she wishes to take up employment, a various benefits for investors depending economic zones, or by owners of a work permit application must be filed on their area of activity. free warehouse, or by legal entities independently. Investment contract that have entered into an agreement on the industrial assembly of motor Secondment In order to enjoy certain investment vehicles. The secondment of foreign personnel is incentives, the investor must enter currently a major issue on the Kazakh into an investment contract with the All such investment projects must fall job market. Investment Committee of the Ministry within the list of priority areas of activity approved by the Kazakh government. The Tax Code16 provides a safe harbour of Foreign Affairs of the Republic of whereby a foreign entity providing Kazakhstan (the “Committee”). The Below we outline types of incentives secondees from outside Kazakhstan may form of investment contract is approved provided to investors depending on the avoid being taxed in Kazakhstan. Certain by a Government Resolution. project to be implemented under an conditions must be met for this to apply. It is important to note that the investment investment contract: Under secondment, the local host contract must be concluded with 1. Regular investment projects a Kazakh legal entity, which may be company acts as a tax agent in relation • exemption from customs duties to the income of the seconded personnel a subsidiary of a foreign company. and is responsible for shadow payroll The term of the investment contract is • exemption from import VAT determined by the effective period of the tax calculation and reporting, including • in-kind grants (free land lease, title investment incentives to be provided. personal income tax and social tax to land plots and equipment) up to liabilities. However, it is important The Entrepreneurial Code of a value not exceeding 30% of total to note that, besides tax legislation, Kazakhstan17 specifies three types of investment

16 Code of the Republic of Kazakhstan on Taxes and Other Compulsory Payments to the Budget (Tax Code), No. 120-VI of 25 December 2017 17 Entrepreneurial Code of the Republic of Kazakhstan, No. 375-V of 29 October 2015

Doing business in Kazakhstan 23 2. Priority investment projects than US$48,503,620 and apply to the Special economic zones Committee to conclude an agreement • exemption from customs duties Special economic zones (SEZ) are on the processing of solid minerals specialized territories of Kazakhstan • in-kind grants (free land lease, title through a negotiation and appraisal with defined boundaries and a special to land plots and equipment) up to process. It should be noted that only regulatory regime designed to support a value not exceeding 30% of total one processing agreement may be certain priority activities. The list of investment concluded for one and the same priority activities is set by an Order mineral processing project or production • tax incentives, and specifically: of the Minister for Investment and facility. Development. The Order specifies — 100% CIT relief for up to 10 years Furthermore, the state grants priority activities for 13 (thirteen) for new production facilities and investment incentives based on different SEZs in Kazakhstan: 3 years for the modernization of the principle of reciprocity, i.e. the production facilities 1. Astana, New City (Nur-Sultan) — subsurface user may be required to construction of industrial facilities ­— zero rate land tax for up to 10 years fulfil a number of social and investment and infrastructure obligations, such as: — zero rate for up to 2. National Industrial Petrochemical 8 years • the creation and preservation of Technopark (Atyrau region) — jobs for citizens of the Republic of • investment subsidies if the manufacture of petrochemical Kazakhstan in the extractive and/or investments are no less than products and construction of processing industries US$34,645,442 (compensation industrial facilities of up to 30% of expenditure • the creation, expansion and/or 3. Morport Aktau (Mangystau on construction works and modernization of processing facilities region) — metallurgy, construction procurement of equipment during • obligations relating to the volume and of industrial facilities the implementation stage) level of processing of solid minerals 4. Innovative Technologies Park 3. Special investment projects • obligations relating to the volume (Almaty) — IT services • exemption from customs duties of products sold as raw materials to 5. Ontustik (South Kazakhstan entities operating on the domestic region) — production of textile and • exemption from import VAT market other materials

Agreement on the processing of solid • the financing of programs of Kazakh 6. Saryarka () — minerals educational institutions for the metallurgy, construction of training of specialists in environmental The Subsurface Use Code currently industrial facilities protection and applied sciences provides investment incentives for 7. Khorgos Eastern Gates subsurface users that implement a • the financing of the construction and/ () — production of priority investment project involving or reconstruction of social and/or food, textiles, non-metallic minerals the processing of solid minerals in cultural facilities and other materials Kazakhstan and have concluded relevant The termination of an agreement on the agreements with the Committee. 8.  (Pavlodar) — manufacture processing of solid minerals also entails of chemical and petrochemical To enjoy investment incentives, the termination of investment incentives materials and construction of subsurface users must invest no less granted. industrial facilities

24 Doing business in Kazakhstan NUR SULTAN

9.  Chemical Park (Taraz) — development of export-oriented — 100% relief on land tax/land use manufacture of chemicals and manufacturing fees non-metallic minerals 13. Qyzyljar (Petropavlovsk) — — 100% property tax relief 10. Astana-Technopolis (Nur-Sultan) — production of food, electronics, — 100% CIT relief production of food, pharmaceuticals, mechanical engineering and — 0% VAT on supplies of goods to machinery and other products and medical services the SEZ construction and commissioning of infrastructure facilities Companies registered as participants of — VAT exemption for supplies of an SEZ enjoy the following benefits: goods in the territory of the SEZ 11.  (Turkistan) — • the SEZ territory is classed as a free construction of infrastructure, — 100% social tax relief (only for customs zone industrial and social facilities the Innovative Technologies Park) • free land lease 12. ICBC Khorgos (Almaty region) — • simplified procedures for engaging development of cross-border • tax incentives (subject to certain foreign labour trade and economic cooperation, criteria), and specifically:

Doing business in Kazakhstan 25 Astana Hub International legal entities must submit an electronic • It does not have branches or Technology Park application together with supporting separate corporate units (other than The Astana Hub International documents, including a business representative offices) Technology Park was conceived plan. The applicant must be involved • It does not implement priority or as part of the Digital Kazakhstan in information and communication strategic investment projects under an national program. The Astana Hub is technology (ICT) activities. investment contract a designated and equipped area that It should be noted that, until 1 January • 50% or more of its shares are not provides a favourable environment 2024, Astana Hub participants are not directly or indirectly owned by the for start-ups, including co-working, required to be located in the territory of government, a national company or exchange of experience, assistance in the Astana Hub. subsidiaries of such a company attracting investors and expert advice. In order to be registered as an Astana • It is not a subsurface user or SEZ In order to be registered as a participant Hub participant, an applicant must meet participant in the Astana Hub, Kazakh or foreign the following requirements: • It is not a payer of tax

26 Doing business in Kazakhstan Astana Hub participants may enjoy AIFC AIFC participants may enjoy the the following benefits: The Astana International Financial following benefits (subject to certain criteria being met): • tax incentives (subject to certain Centre (“AIFC”) was established to criteria), and specifically: provide a favourable environment for • CIT exemption until 1 January 2066 investors. It is expected to become a for financial services provided by AIFC — 100% CIT relief until 1 January hub for foreign and local investors and participants 2029 various financial, market and ancillary • PIT exemption until 1 January 2066 — PIT exemption for both local and service providers by establishing for expatriate employees of AIFC foreign employees of Astana Hub common law as the governing law within participants participants until 1 January 2029 the AIFC and a legal framework similar to those of well-known international • CIT and PIT exemption until 1 January — exemption from social tax — financial centres, such as the Dubai 2066 for dividends and capital gains expected to be applicable only to International Financial Centre. on securities officially listed on a income of foreign employees of stock exchange and shares in AIFC Astana Hub participants There are two options for establishing a legal presence within the AIFC: (i) participants. — withholding tax exemption for registration of a new legal entity or (ii) • Exemption from property tax non-residents on royalties and recognition of existing legal entities as other income paid by Astana AIFC participants. • Exemption from land tax Hub participants for consulting, • VAT exemption for financial services marketing, engineering and New AIFC legal entities may be provided by AIFC participants data security services and work registered in forms provided for in connected with the creation of data common law, such as: • Simplified visa regime for foreign processing centres • Limited partnership citizens coming to Kazakhstan to work for AIFC participants. — 5% (instead of 15%) withholding tax • Limited liability partnership on capital gains and dividends on As well as work permit exemptions shares and interests in Astana Hub • General partnership for foreign workers, the AIFC also participants • Private company provides: — VAT exemption for imports of • Public company • An exchange platform for corporations certain goods and exemption (listing), state bodies (bond issue) and from reverse charge VAT for • Special purpose company retail and large investors interested services acquired by Astana hub • Non-profit incorporated organization in various financial instruments participants Certain activities, such as financial • Commercial and civil dispute — VAT exemption until 1 January services, market activities and ancillary resolution through the AIFC Court 2029 for goods and services services (legal, audit, accounting, or the International Arbitration Centre produced and supplied by Astana consulting, credit rating) are subject to Hub participants. licensing in the AIFC.

Doing business in Kazakhstan 27 Overview of tax rules 3in Kazakhstan

28 Doing business in Kazakhstan In the sections that follow we Personal income tax Double tax treaties may lay down outline the most significant different rules for determining tax (“PIT”) residency. taxes in Kazakhstan. There Payers are a number of other less Residents are taxed on their worldwide significant taxes, such as The tax treatment of various types of income. Non-residents are taxed on income is described below. assets tax, land tax, payments Kazakh-source income only, regardless for use of various resources of where it is paid. Income is deemed to Employment income such as radio frequencies, be from a Kazakh source if it is derived Employment income includes all from work performed in Kazakhstan. environmental taxes and compensation, whether received in cash Kazakh-source income also includes or in kind (including shares), subject to a number of taxes on interest income from residents and minor exceptions, regardless of where “subsurface users”, i.e. oil, non-residents that have a permanent the income is paid. gas and mining companies. establishment in Kazakhstan and dividends from resident legal entities. Under Kazakh law, any income paid It is important to carry out for work performed in Kazakhstan a thorough review of any For tax purposes, individuals are (regardless of whether it is paid from considered residents if they are present proposed business activity to inside or outside Kazakhstan) is deemed in the country for not less than 183 days Kazakh-source income subject to determine the actual taxes in any consecutive 12-month period statutory payroll taxation in Kazakhstan that apply to it. ending in the current tax year. by the tax agent (i.e. a Kazakh entity Kazakh citizens or holders of residence or a branch or representative office permits are always considered residents of a foreign entity which is obliged to of Kazakhstan if their centre of vital withhold income tax and transfer it to interests is located in Kazakhstan. An the budget). individual is deemed to have his or her In order to comply with local centre of vital interests in Kazakhstan requirements, host companies must run if all the following conditions are a so-called “shadow” payroll to process simultaneously met: income for work in Kazakhstan. Foreign • The individual is a Kazakh citizen or income is processed for tax purposes has permission to live in Kazakhstan only, while net pay is paid by the home on a permanent basis country employer. • The individual has a spouse or close Companies that engage freelancers (not relatives who reside in Kazakhstan registered as individual entrepreneurs) are obliged to act as tax agents (as • The individual or members of his or defined above) and withhold PIT from her family own, or otherwise have at their income. their disposal, immovable property in Kazakhstan that is permanently available for residence

Doing business in Kazakhstan 29 Self-employment and business • The excess of the market value of Income derived from the disposal of income shares covered by a stock option at shares acquired through the exercise the time of exercise over the exercise of a stock option equals the positive Income of Kazakh citizens engaged price of the option. The exercise difference between the sale price and in self-employment activities (individual price of the stock option is the price the acquisition price. The acquisition entrepreneurs) is subject to income tax. specified in the relevant document price includes the exercise price of the Tax is levied on an individual’s annual based on which the stock option is option and the option premium. business income, which consists of granted to an employee In the case of sales of property located gross income less expenses incurred • Alimony in blacklisted low-tax jurisdictions, the in earning that income. To be able taxable amount is determined as the full to deduct expenses, individual • Medical expenses within set limits sale price (i.e. the cost basis approach is entrepreneurs must be registered • Dividends and interest on securities not applicable). with the tax authorities and provide if, at the time of the accrual of such supporting documentation for the Capital gains are subject to tax at the dividends or interest, the securities expenses concerned. The tax rates for rates shown in the “Rates” section of are on the official list of a stock self-employment income are the same this guide. exchange operating in Kazakhstan as those for employment income as Since capital transactions of individuals shown in the “Rates” section, except for • Dividends and capital gains on shares are not currently addressed in Kazakh individual entrepreneurs who apply a held for over three years if certain tax legislation, it is not possible for special taxation regime. other conditions are met capital losses to be deducted from Investment income • Capital gains derived from securities capital gains for tax purposes or for that are listed on a stock exchange capital losses to be carried backward Investment income is normally included operating in Kazakhstan at the date or forward to other tax periods. in taxable income. The tax rates are of sale Consequently, income recognised shown in the “Rates” section. for tax purposes may significantly • Interest income on deposits paid to exceed income recognised in financial Some types of investment income are tax resident individuals by licensed statements prepared by a financial exempt from tax (see the “Exempt organizations in Kazakhstan income” section). institution. • Income from Kazakh state securities Exempt income Controlled Foreign Company (CFC) • 90% of the taxable income of an Certain items are exempt from tax, employee if that income is less than Tax resident individuals who directly, including the following: 25 MCI (KZT 66,275/approximately indirectly or constructively control US$173) per month non-resident legal entities and/or other • Business trip per diems within set types of organizations are liable to 10% limits and reimbursement for certain Capital gains PIT on the CFC’s retained earnings and business trip expenses are subject to separate tax reporting The Kazakh Tax Code defines a capital obligations. See the “Controlled Foreign • Accommodation and meal expenses gain as the difference between the Company (CFC) rules” section for more within set limits for shift workers while sale price (disposal value) and the details. they are at work acquisition price (base cost), supported by documents.

30 Doing business in Kazakhstan Deductions Rates The taxable amount of an employee’s The following tax rates apply for resident and non-resident individuals depending on monthly salary may be reduced by the the type of income: minimum monthly wage, which has been set at KZT 42,500 (approximately Type of income Tax rate US$110) for 2020. If an employee’s Employment income of residents and non-residents taxed by the local 10% taxable income for a particular month is employer/host company below the minimum monthly wage, the Income of residents who receive income under a service agreement 10% unused part of the deduction may be Income of lawyers and private notaries 10% carried over to later months within the Capital gains, interest and winnings of residents 10% year. Dividends received by residents from Kazakh companies 5% Other deductions include the following: • Compulsory pension fund Capital gains, dividends, interest and royalties paid to non-residents by 15% contributions Kazakh legal entities Any other Kazakh-source income paid to non-residents that is not received 20% • Voluntary pension fund contributions from a tax agent (local legal entity) made by the individual for his or her own benefit under Kazakh pension law Income received in foreign currency is translated into tenge at the exchange rate current on the last business day preceding the date of payment. • Medical expenses supported by documents within set limits • Payments on mortgages with specific banks • Insurance premiums paid for the individual’s own benefit under savings insurance policies If the amount of the minimum monthly wage exceeds the amount of the employee’s monthly taxable income less compulsory pension contributions, the excess may be carried over and reduce the employee’s taxable income in later months within the calendar year. This does not apply where an individual changes workplace during a tax period, i.e. the individual may not offset an excess arising at the previous workplace against income earned at the new workplace.

Doing business in Kazakhstan 31 Tax registration of foreign nationals in Social tax Social tax must be remitted to the state Kazakhstan budget on a monthly basis by the 25th Social tax is payable by employers. It of the month following the tax period. The most common cases in which a is an additional imposed on foreign national must be registered as a employers that is not reserved for the Mandatory pension fund contributions taxpayer in Kazakhstan are as follows: payment of social benefits to employees. An employer must withhold and pay • When opening accounts with local The tax base for social tax is the amount pension fund contributions on a monthly banks of income paid by the employer to its basis at the rate of 10% on the gross • On receiving Kazakh-source income employees. Exclusions include: salaries of employees (local citizens and not taxed at source in Kazakhstan foreigners holding a residence permit). • Payments made by way of grants In 2020, pension fund contributions • On acquiring Kazakh tax resident • Compulsory pension fund are not charged on monthly income status contributions in excess of 50 times the minimum Tax registration must take place at the monthly wage (KZT 2,125,000/ Employers must calculate social tax at approximately US$5,550). Pension fund foreigner’s location of residence. A a flat rate of 9.5% of gross income, less range of documents must be submitted. contributions are deductible for PIT and exempt amounts. The minimum tax social tax purposes. By law, tax registration should take three base for social tax per employee is the business days; in practice, it may take up minimum monthly wage. The Kazakh Law on Pension Provision to a week. also requires employers to pay additional Monthly social tax liability is reduced professional pension fund contributions by the monthly amount of compulsory at their own expense for employees social insurance contributions (see working in certain occupations in 17 the “Social insurance contributions” industry sectors, including mining, oil section).

32 Doing business in Kazakhstan and gas, pharmaceutical and consumer Mandatory social medical insurance Contributions must be withheld monthly goods manufacturing. The contributions Employers must make employer at the rate of 1% of the employee’s are payable at the rate of 5% on the contributions to the Social Medical income. gross salaries of such employees. Insurance Fund on a monthly basis In 2020 income subject to employer and Tax agents who pay income to at the rate of 2% of income paid to employee contributions to the Social individuals under civil contracts must, employees (applicable to Kazakh Medical Insurance Fund is capped at 10 in addition to 10% PIT, withhold and pay citizens, repatriated ethnic Kazakhs, times the minimum monthly wage (KZT 10% pension fund contributions on the citizens of the Eurasian Economic Union 425,000/approximately US$1,110) per gross amount of that income. and foreign citizens holding a residence month. permit). Social insurance contributions Tax filing In addition to making employer Employers must pay social insurance contributions, starting from 2020 Tax filing by a tax agent contributions, which form part of social employers must withhold contributions tax, at the rate of 3.5% of income paid As mentioned above, any employment to the Social Medical Insurance Fund income, including benefits in kind, paid to employees (Kazakh citizens and from income paid to employees (Kazakh foreigners holding a residence permit). for work performed in Kazakhstan citizens, repatriated ethnic Kazakhs, (irrespective of the place of payment) In 2020, social insurance contributions citizens of the Eurasian Economic are not charged on monthly income in must be taxed and reported by the local Union and foreign citizens holding tax agent. excess of 7 times the minimum monthly a Kazakhstan residence permit). wage (KZT 297,500/approximately US$780). The minimum monthly tax base for social insurance contributions per employee is the minimum monthly wage. Social insurance contributions are expected to be charged at a flat rate of 5% starting from 2020. Under the Eurasian Economic Union Agreement of 29 May 2014 between Armenia, Belarus, Kazakhstan, Kyrgyzstan and the Russian Federation, as from 1 January 2015 (12 August 2015 for Kyrgyzstan) employers that employ citizens of Eurasian Economic Union member states under employment contracts are required to pay social insurance contributions at their own expense at 3.5% of the gross salaries of the employees concerned, whether or not they have a Kazakhstan residence permit.

Doing business in Kazakhstan 33 A tax agent must withhold PIT and 3. Individuals who receive property Concealment of taxable items: pension fund contributions on a monthly income • First time — a fine of 200% of tax basis no later than the date on which 4. Tax resident individuals who receive payable on each concealed taxable income is paid. PIT, pension fund income not taxed at source in item contributions, professional pension Kazakhstan, including income from fund contributions and employer • Repeat violation within a year — outside Kazakhstan and employee medical insurance a fine of 300% of tax payable on each contributions must be paid no later 5. Tax residents who are Kazakh concealed item than 25th of the month following the citizens, repatriated Kazakhs or month in which employment income individuals holding a residence Concealment of information about was paid. Social tax and social insurance permit where they have funds in property outside Kazakhstan and funds contributions must be paid by the 25th foreign bank accounts outside in foreign bank accounts: of the month following the month in Kazakhstan, if the amount is higher • First time — a fine of 100 MCI which employment income accrued. than 141 MCI (KZT 265,100/approximately The tax agent must file a PIT and social 6. Tax residents who are Kazakh US$700) tax declaration (Form No. 200.00) on citizens, repatriated Kazakhs or a quarterly basis by the 15th of the • Repeat violation within a year — individuals holding a residence second month following the reporting a fine of 200 MCI (KZT 530,200/ permit where they have the following quarter. The form also includes pension approximately US$1,400) types of property: fund contributions, professional pension Failure to pay tax and other mandatory fund contributions, mandatory medical — real estate, if the real estate payments owing to a failure to submit insurance contributions and social itself or rights therein or a tax return or the submission of insurance contributions. transactions involving the real a tax return with knowingly false estate are subject to state or information if this caused tax to be Tax filing by individuals similar registration/reporting underpaid by more than 20,000 MCI Where there is no tax agent in requirements under the laws of a (KZT 53,020,000/approximately Kazakhstan, resident and non- foreign state US$138,600): resident individuals are responsible for — securities whose issuers are calculating PIT obligations and filing a • A fine of up to 3,000 MCI (Approx. registered outside Kazakhstan Kazakh tax return. The filing deadline US$21,000), or for a Kazakh tax return is 31 March of — equity interests in legal entities • Correctional labour to the same the year following the reporting year, registered outside Kazakhstan amount, or and any income tax liability must be settled within 10 calendar days of the Administrative sanctions for • Community service for up to 800 filing deadline. individuals hours, or Kazakh tax returns must be filed by the Failure to submit a PIT return on • Restriction of liberty for up to following tax resident individuals: time: 3 years, or 1. Individual entrepreneurs • First time — a warning • Imprisonment for up to 3 years 2. Individuals engaged in private • Repeat violation within a year — practice, such as notaries, lawyers a fine of 15 MCI (KZT 39,765/ and enforcement officers approximately US$100)

34 Doing business in Kazakhstan Administrative sanctions for payroll violations Understatement of taxes in tax returns – up to 50% of the understated amount of PIT and social tax Non-withholding or incomplete withholding of taxes – up to 50% of the PIT not withheld Failure to submit PIT returns on time: • First time — a warning • Repeat violation within a year — a fine of 70 MCI (KZT 185,570/ US$485) Failure to remit, withhold or pay mandatory pension fund contributions in full and on time: • First time — a warning • Repeat violation — up to 50% of the amount of contributions not remitted, withheld or paid on time Failure to remit or pay social insurance contributions and mandatory medical insurance contributions in full and on time: • First time — a warning • Repeat violation — up to 50% of the amount of contributions not paid or remitted on time Concealment of taxable items: • First time — a fine of 200% of tax payable for each concealed taxable item • Repeat violation within a year — a fine of 300% of tax payable for each concealed item

Doing business in Kazakhstan 35 Corporate income tax Certain types of income are excluded Tax depreciation (CIT) from taxable income, including dividends To qualify as a fixed asset for tax and capital gains on shares held for over purposes, an item must be defined as CIT is imposed on the worldwide income three years if certain other conditions such in the entity’s IFRS accounts (with of resident entities and Kazakh-source are met. certain exceptions). income of non-resident entities. The basic principles are consistent with Deductions include all business-related For tax depreciation purposes, fixed those applied in most developed and profit-oriented expenses plus assets are split into four groups. Assets economies. However, the required a number of other minor items. In may be depreciated at any rate (stated standards of supporting documentation addition to normal operating expenses, in the entity’s tax accounting policy) up are particularly high in Kazakhstan. examples of deductible expenses include to the maximum rates indicated in the interest (up to the thin capitalization table below. Payers limit or the amount actually paid for The following items are not classed as Residents are taxed on their worldwide certain borrowings), foreign exchange fixed assets: income, non-residents on income losses, certain entertainment expenses from Kazakh sources. Non-residents up to a limit of 1% of taxable payroll • Land doing business in Kazakhstan through and charitable expenses (up to 3% • Intangible assets with an indefinite a permanent establishment (PE) are of taxable income). This list is not useful life taxed on the PE’s profits, which are exhaustive. Losses on entrepreneurial calculated in essentially the same way as activities and from the sale of Group • Construction in progress, etc. for residents. Non-residents that derive I fixed assets (such as buildings) may Expenses actually incurred for the use, Kazakh-source income otherwise than be carried forward over the following repair, maintenance and liquidation of through a PE are taxed by withholding 10 calendar years inclusively and fixed assets are defined as “subsequent (see the “Withholding tax” section offset against taxable income for those costs” and are generally deductible in below). years. Capital losses from the sale of securities and other non-depreciable the tax period when they are actually For certain activities (sea freight assets may generally be offset against incurred (unless capital in nature). shipping, trading of goods via the corresponding capital gains (with certain Internet, screening of national films exceptions). in cinemas, activities under priority investment projects or in special Maximum economic zones, etc.), CIT may be Group Type of fixed asset depreciation reduced by 100% (see the “Incentives rate for investors” section for details). I Buildings and structures (except for oil and gas wells and transmission 10% facilities) Taxable income Taxable income is calculated as II Machinery and equipment (except for machinery and equipment 25% aggregate annual income after for oil and gas production, computers and data processing equipment) certain adjustments minus statutory III Computers, software and data processing equipment 40% deductions. Aggregate annual income IV Fixed assets not included in other groups, including oil and gas wells, 15% includes practically all forms of income, transmission facilities, and machinery and equipment including capital gains. for oil and gas production

36 Doing business in Kazakhstan Tax legislation provides incentives in requires them to estimate their tax Under the new Kazakh Tax Code, which the form of tax depreciation allowances liability for the year and pay tax in came into force on January 2018, the for fixed assets. For example, the value monthly instalments no later than the CFC concept changed significantly and of production buildings and facilities, 25th of the current month. now explicitly covers not only legal machinery and equipment that are entities registered in blacklisted low- brought into operation for the first EY offers the following services in the tax jurisdictions, but also legal entities time in Kazakhstan and are to be used area of CIT: and other forms of business activity in business activities for at least three (e.g. trusts) if (i) 25% or more of • Helping companies with all aspects years may be depreciated before the equity interests or shares are directly, of tax compliance commencement of operation when indirectly or constructively owned by a construction expenses are incurred or • Tax accounting and risk advisory Kazakh resident, or if a Kazakh resident in equal amounts during the first three services has direct, indirect or constructive years of operation. Capital costs for • Drafting and review of compulsory control over the entity concerned; (ii) the modernization and reconstruction tax accounting policies the effective tax rate of the entity is of such fixed assets may be deducted less than 10% according to financial when they occur. These incentives do • A comprehensive tax litigation statements for the current and two not apply to participants in special service, including, where permitted, previous periods, or if the entity (or economic zones or producers of alcohol, representation of taxpayers a legal entity responsible for keeping tobacco or agricultural products, or to in court accounts of its income and expenditure assets used in subsurface development or managing its assets) is registered in activities or priority investment projects. a blacklisted jurisdiction. It should be However, subsurface users may apply Controlled Foreign Company (CFC) noted that the CFC rules are expected to double depreciation rates to assets rules be amended. brought into operation for the first time Kazakh tax law has controlled foreign The concept of constructive ownership provided they will be used in business company (CFC) rules that affect the or control is also new and provides activities for at least three years. Kazakh taxation of groups ultimately for a much broader definition of CFC owned by Kazakh residents. Under the Tax rates and compliance ownership. It means that CFC taxation rules, a Kazakh resident must report any The standard rate of CIT is currently and reporting obligations now fall CFC (as defined below) to the Kazakh not only on the owner or person who 20% of taxable income. In addition, tax authorities and an appropriate part net income (after the deduction of controls the entity but also potentially of the CFC’s profit for the reporting on their immediate family members. CIT) of a non-resident’s PE (branch) in period must be included in the resident’s Kazakhstan is subject to branch profit Another indication of the wider scope aggregate annual income for Kazakh of the CFC rules in Kazakhstan is the tax at the rate of 15%. This is usually income tax purposes (CIT or PIT reduced by tax treaties. inclusion of a permanent establishment accordingly). The CFC rules prescribe (PE) in the definition of a CFC if the The tax period is a calendar year. The certain deductions, exemptions and PE falls within the criteria stipulated CIT declaration deadline is 31 March of tools for the elimination of double for legal entities or any other form of the year following the reporting period. taxation. business activity. As a rule, all taxpayers (with certain exceptions) are subject to the CIT advance payment procedure, which

Doing business in Kazakhstan 37 Withholding tax (WHT) Taxable income • Any income of tax-haven entities, regardless of where the underlying Taxable income includes (but is not (other than PIT) operations take place WHT applies to most types of Kazakh- limited to): • Capital gains on sales of shares or source income paid to non-residents • Income of non-residents from the sale interests in Kazakh entities or foreign that are not registered for tax purposes of goods or performance of work or legal entities that derive most of their in Kazakhstan and even to some who services in Kazakhstan are if due care is not taken. The rules value from Kazakhstan • Income from management, financial are complex and inconsistent, and • Capital gains from sales of Kazakh (with some exceptions), consulting, there are some instances in which WHT property that is subject to registration could apply to payments that involve engineering, legal (except for no presence in Kazakhstan. It is vital representation in court and notary Certain types of income are exempt to have a thorough understanding of services) and auditing services from withholding tax, including how WHT may affect your business. performed outside Kazakhstan dividends and capital gains on shares There are also significant administrative held for over three years if certain other requirements that must be met in conditions are met. order to enjoy benefits afforded by tax Tax rates and compliance treaties. Type of income Rate of WHT Payers Interest, dividends, capital gains and royalties 15% Tax agents withhold tax from a non- Insurance premiums under insurance risk agreements 15% resident’s gross Kazakh-source income. Income from international transportation services and insurance 5% Any tax-registered entity that pays premiums under risk reinsurance agreements Kazakh-source income is potentially Income of an entity registered in a 20% a tax agent. Other income, including income from the provision of services 20%

38 Doing business in Kazakhstan Most double tax treaties concluded by Value added tax The tax authorities will deregister Kazakhstan provide either for exemption a VAT payer without notification if European Union-style VAT applies in from Kazakh WHT or for reduced (inter alia): Kazakhstan. The VAT rate has fallen WHT rates of 5% to 10% subject to progressively from 20% in the late • A VAT declaration is not submitted certain conditions being met. However, 1990s to 12% currently. within six months of the due date these benefits are also subject to established by the Tax Code documentation rules laid down in the Payers and registration • The VAT payer is declared inactive Tax Code. The rules are very specific as to the documentation required, and it is All taxpayers registered for VAT • The registration of the VAT payer is generally recommended that a tax agent purposes are required to charge VAT on declared invalid by a court their taxable supplies and calculate and should be in possession of the relevant VATable turnover documentation at the time payment is report their VAT obligations. For a VAT payer, taxable turnover is the made (or by the end of the tax year or 31 Taxpayers are required to register total value of supplies (sale, exchange March of the following year at the latest) for Kazakh VAT purposes if their or gift) of goods, work and services if treaty relief is to be applied. Otherwise, total turnover in a calendar year and purchases of work and services tax must be withheld in full and the payer exceeds 30,000 MCI (approximately from non-registered non-residents. A must subsequently claim a refund (which US$208,000). limited range of non-taxable and exempt is a complex and time-consuming process supplies are excluded from this rule. with an uncertain outcome). The deadline for VAT registration is 10 business days after the end of the Definitions: WHT is remitted by tax agents. The month in which the turnover threshold is general time limits for remittance are: exceeded. • For Kazakh VAT, the term “goods” applies to practically any form of • For amounts accrued and paid, no later Even if an entity is not required to property or property rights than 25 calendar days following the register for VAT purposes, it may usually • Taxable supplies of work or services month in which payment was made do so voluntarily by applying to the are any supplies of work or services, appropriate tax committee. • For amounts accrued but not yet both chargeable and free of charge, paid, if they are deducted for CIT as well as anything that is done for Deregistration purposes, no later than 10 calendar consideration and is not a supply of days following the filing deadline for A VAT payer may apply for VAT goods CIT returns deregistration if the following conditions are simultaneously met: A small number of transactions, such • For prepayments, no later than 25 as transfers to a legal entity’s charter calendar days after the end of the • Taxable turnover for the calendar capital, are treated as non-taxable. month in which income accrued to the year preceding the year in which Goods and services are VATable if, non-resident the application is submitted did not under the place of supply rules, they are exceed 30,000 MCI (approximately deemed to be supplied in Kazakhstan. Under the Tax Code, tax agents must US$208,000) The place of supply rules are broadly submit a WHT return by the following similar to European Union rules; in deadlines: (i) for Q1-Q3: no later than • Taxable turnover from the beginning particular, they treat some supplies that the 15th of the second month following of the current calendar year in which are made outside of Kazakhstan, such the quarter in which a WHT obligation the application is submitted did not as consulting services, as made within arose, (ii) for Q4: no later than 31 exceed 30,000 MCI (approximately Kazakhstan, and therefore taxable. March of the following year. US$208,000)

Doing business in Kazakhstan 39 Zero rating Offsetting of VAT exceeding 1,000 MCI (approximately Turnover taxed at 0% VAT includes: VAT paid on goods and services US$6,930), irrespective of the frequency of payment • Export sales of goods purchased by a VAT payer (i.e., input VAT), including reverse-charge VAT • International transportation services • Goods, work and services purchased already paid and VAT paid at customs, from suppliers declared by courts as • Sales of oil and lubricants by airports may generally be offset (credited) when inactive entities when fuelling aircraft of a foreign determining the taxpayer’s VAT liability air carrier engaged in international to the budget. However, no offset is • Goods, work and services where the transportation granted for VAT incurred on supplies courts regard them as having been • Sales of goods to an SEZ that are exempt or deemed to be made purchased by private business entities without actual intent to carry on • Sale of fine gold outside Kazakhstan. entrepreneurial activities Exempt supplies VAT calculation and offset carry-forward Recovery of excess VAT through Turnover and imports exempt from VAT the control account. include: A taxpayer’s VAT liability is calculated as output VAT (i.e., VAT charged by the With effect from 1 January 2019, • Turnover relating to residential taxpayer) minus input VAT (i.e., VAT certain VAT payers that are participants buildings paid by the taxpayer to its suppliers, in the tax authorities’ official online system, which is used for the receipt and • Certain financial services reverse-charge VAT and import VAT) in a given reporting period. processing of electronic VAT invoices, • Transfers of assets under finance may open a control account on a leases (insofar as interest is The amount by which input VAT exceeds voluntary basis. The control account is a concerned) output VAT may generally be carried bank account with a Kazakh commercial forward against future VAT liability. In bank for VAT transactions (e.g. payment • Certain services rendered by non- practice, obtaining a refund (if eligible) of VAT to the state budget or to profit organizations is a laborious process, although there suppliers). • Certain services in the areas of are special refund procedures for certain Taxpayers that may recover VAT via a culture, science and education situations (such as continuous ). control account include: • Goods and services related to medical Non-recoverable input VAT • Taxpayers that use goods acquired/ and veterinary activities Input VAT on certain items cannot be received or leased assets in the • Imports of certain assets included in a offset. These include: production of other goods. The list of government-approved list • Goods, work and services not related goods/leased assets is approved by a to taxable turnover designated body • Goods imported by individuals not for entrepreneurial purposes (certain • Cars purchased as fixed assets • Taxpayers that export goods limits apply) • Goods, work and services when a • Taxpayers that sell goods into the • Turnover relating to international VAT invoice is issued that is not in territory of a special economic zone transportation services compliance with the requirements of which are wholly used for activities the Tax Code that meet the objectives of the special • Imports of goods from an EAEU economic zone member state within the same legal • Goods and services purchased entity (intra-entity transactions) out of petty cash in an amount

40 Doing business in Kazakhstan VAT rate and compliance Import VAT on goods is payable by the consumer. The use of the “virtual The VAT rate is 12%. The tax period importer at 12% rate in Kazakhstan warehouse” system along with electronic for VAT is a calendar quarter. The filing (certain exemptions apply). waybills will be mandatory from 1 April 2020 for many categories of goods (e.g. deadline for VAT returns is the 15th A VAT return for imports of goods into sales of goods imported from EAEU day of the second month following the Kazakhstan from other EAEU member countries, sales of goods imported from reporting period. The VAT payment states must be filed with the tax other countries where import duty rates deadline is the 25th day of the second authorities and the relevant tax must be are lower than EAEU rates, etc.). month following the reporting period. paid to the budget by the 20th of the month following the tax period (month). Reverse charge VAT EY offers help with identifying VAT Under the place of supply rules, certain Electronic invoicing risks and calculating VAT compliance services are deemed to be supplied From 1 January 2019, taxpayers are costs, as well as with cross-border VAT where the purchaser of the services obliged to issue electronic VAT invoices planning. belongs (e.g. consulting, auditing, for their transactions (with certain engineering, design, marketing, exceptions). accounting, advocacy, information processing, etc.). Where such services An electronic VAT invoice can only Subsurface use taxes are rendered by a non-resident be issued using the official online Please refer to EY’s “Global Oil and Gas not registered for VAT purposes in system provided by the state revenue Tax Guide” (Kazakhstan section) and Kazakhstan, the Kazakh purchaser of committee for the receipt and “Mining tax guide” for details. the services is required to assess and processing of electronic VAT invoices. pay VAT to the budget via the reverse Electronic VAT invoices have a charge mechanism. prescribed format and must be signed using an electronic signature. Electronic It is the obligation of the Kazakh invoices must normally be issued within Tax administration purchaser of services to pay the reverse 15 calendar days from the date of a Kazakhstan has complex tax charge VAT, which it should be able to taxable transaction. offset against output VAT subject to the administration rules. Substantial fines general rules on VAT offsetting. Virtual warehouse and penalties may be imposed even for minor infringements. With effect from 1 January 2019, EAEU the “virtual warehouse” module Tax returns The Tax Code lays down certain was introduced in the official online procedures and compliance Tax returns (declarations and system and is obligatory for the calculations) are prepared by the requirements for exports and imports reporting of goods included in a of goods from/to Kazakhstan to/from taxpayer or the tax agent or by their special list (e.g. motor vehicles, representatives. Tax returns may be EAEU countries (Belarus, Kazakhstan, certain household devices, sugar, Russia, Armenia and Kyrgyzstan). Strict prepared on paper or electronically in etc.). The “virtual warehouse” allows the Kazakh or Russian languages. documentation and timing requirements for the systematization of inventory apply (failure to observe these may accounting, automatic calculation of Tax accounting policies result, for example, in the 0% VAT rate ending inventory and monitoring of Tax accounting policies consist of a for exports to EAEU countries being the movement of goods from entry document adopted by a taxpayer/tax denied). into Kazakhstan until sale to the final agent that regulates tax accounting

Doing business in Kazakhstan 41 in accordance with the Tax Code. All Standard audit file Horizontal monitoring taxpayers/tax agents must have tax The standard audit file was introduced Horizontal monitoring was introduced accounting policies. from 1 January 2019. It is a means for from 1 January 2019. It involves the taxpayers to submit accounting data to voluntary exchange of information and Tax audits the tax authorities online on a voluntary documents between state authorities Many taxpayers are audited, and it is basis and enables the taxpayer’s data and a taxpayer (special requirements vital to manage the tax audit process. to be analysed via the tax authorities’ must be met). Horizontal monitoring is Tax audits may take the following forms: information systems. The submission implemented from 1 January of the year • Comprehensive audit of a standard audit file enables (i) a following the signing of the horizontal tax audit based on risk management monitoring agreement. Taxpayers • Thematic (targeted) audit procedures to be conducted within 5 subject to horizontal monitoring are • Cross-check audit calendar days of the delivery of the tax exempt from administrative penalties for audit order, and (ii) an unscheduled a tax offence in the following cases: • Time study tax audit to be conducted within 10 • if the taxpayer agrees with the Tax audits may be divided into two types: calendar days after the delivery of the notification issued as a result of those initiated based on risk assessment tax audit order. horizontal monitoring procedures and procedures, and unscheduled tax does not file a court appeal against Tax assessments audits. Tax audits may cover any the results of horizontal monitoring Upon completion of a tax audit, the period within the statute of limitations. • if the offence was discovered as a tax authorities usually issue a tax audit From 1 January 2020, the statute of result of a tax audit for a period in report (if no tax violations are found, limitations is generally three years, which horizontal monitoring was a statement to that effect is made in except in the case of subsurface users applied and taxpayers subject to tax monitoring, the report). Based on the findings of for which it is five years. Tax audits the report, the tax authorities issue a Risk management system notification of assessments of taxes and can be intrusive and time-consuming, The risk management system was other compulsory payments payable to and may sometimes even result in implemented from 1 January 2019. It is the budget, as well as any penalties and criminal proceedings, as discussed in the based on risk assessment and includes interest. The tax authorities also issue “Penalties and interest” section below. measures developed and applied by the a statement of administrative offences tax authorities to identify and prevent In the case of certain types of taxpayers committed, if any, indicating the amount risk, which is in turn defined as the (those that have investment contracts, of administrative penalties due. are subject to tax monitoring or have probability of damage being caused to a total tax liability in excess of 20,000 Appeals the state as a result of taxes not being paid in full. MCI (approximately US$139,000 for Taxpayers have the right to appeal 2020)), the tax authorities issue a against tax audit assessments to the The tax authorities group taxpayers preliminary tax audit report setting out Ministry of Finance within the prescribed into low-, medium- and high-risk the results of a tax audit. The taxpayer time limits. The Ministry of Finance sets categories by analysing tax reporting has the right to submit objections to the up an appellate committee to consider data, information provided by state preliminary tax audit findings before the the appeal and takes its judgment into authorities and local executive bodies final tax audit report is issued. account in issuing a decision on the and documents and/or other information appeal. Taxpayers also have the right to relating to a taxpayer’s business appeal against tax audit assessments to activities. Information on the exact a court within the prescribed time limits.

42 Doing business in Kazakhstan criteria is confidential, except for the • Under-declaration of taxes – 20% to Tax rulings following criteria: 80% of the under-declared amount Non-binding rulings (clarifications) • tax burden • Understatement of an advance CIT Taxpayers have the right to request payment by more than 20% – 20% of • average monthly salary per employee clarifications regarding tax obligations, the understated tax and the tax authorities are obliged to • amounts of expenses and income • Failure to withhold taxes — 20% to 50% provide them. A taxpayer may apply to stated in tax returns of the non-withheld tax the tax authorities where it is registered • transactions with taxpayers that or to a higher body if necessary (certain • Concealment of taxable items — 200% have dealings with entities that have categories of taxpayers may apply to the of taxes payable on the concealed been deregistered for VAT purposes Ministry of Finance). The tax authorities amount. (including liquidated, inactive and usually provide their opinion on specific insolvent entities) Interest is charged on late tax payments tax queries in the form of a letter which at a rate equal to 1.25 times the is of an advisory nature and does not • tax losses reflected in tax returns in National Bank’s annual refinancing rate have full legal force. multiple tax periods (currently 9.25%) for each day of the • frequent amendment of tax returns delay. Advance rulings already filed In addition, criminal liability applies Starting from 1 January 2019, the Tax • violations identified as a result of in- for tax offences in Kazakhstan. An Code authorizes the Ministry of Finance house inspection organization is generally deemed to to issue “advance rulings” in relation to have committed the crime of planned transactions at the request of • multiple instances of thresholds set when underpaid tax exceeds 50,000 the following categories of taxpayers by the Tax Code for the right to apply MCI (approximately US$347,000 in when submitted in the prescribed special tax regimes almost being 2020). Tax evasion includes failing to manner accompanied by relevant reached submit a declaration, misstating income documents: • criteria that can reduce the level of or expenditure data or concealing • Taxpayers that are subject to risk taxable items or the actual location horizontal monitoring of the taxpayer. Such violations • criteria approved by the authorized trigger investigations by the Economic • Taxpayers that have investment body jointly with the authorized body Investigation Service of the Financial contracts for priority projects for entrepreneurship Monitoring Committee and may even The Ministry of Finance may refuse to • criteria used to verify the difference result in the prosecution of individuals issue an advance ruling. between input and output VAT who are thought to be responsible. The Criminal Code19 provides for individuals Late payment interest is not chargeable Penalties and interest who have committed a tax offence to be on tax assessments made as a result The Administrative Offences Code18 exempted from criminal liability if they of a tax audit if the taxpayer fulfilled imposes administrative penalties for voluntarily pay taxes and other amounts tax obligations in accordance with an non-compliance with tax regulations, due to the budget and acknowledge that advance ruling, unless new facts are including the following: they are at fault. determined.

18 Administrative Offences Code of the Republic of Kazakhstan, No. 235-V of 5 July 2014 19 Criminal Code of the Republic of Kazakhstan, No. 226-V of 3 July 2014

Doing business in Kazakhstan 43 Overview of other laws that affect business 4administration

44 Doing business in Kazakhstan Transfer pricing Transfer pricing documentation Employment regulations requirements include: Kazakhstan’s transfer pricing legislation The Kazakh Labour Code, which came Overview of affects all businesses. The impact for • Country-by-Country Reporting into force in 2016, applies to employees subsurface users is particularly broad. and employers located in Kazakhstan, • Notification of participation in an including branches and representative Transfer pricing rules potentially international group of companies offices of foreign legal entities apply to all cross-border transactions, • Transfer pricing monitoring registered under Kazakh law. regardless of whether the parties are other laws that documentation in any way related. In certain cases Employment relations between (e.g. transactions of subsurface users • Transfer pricing documentation an employee and an employer involving the sale of hydrocarbons justifying the appropriateness of are regulated by an employment and minerals) the rules also apply applied prices agreement. An employment agreement affect business to domestic transactions if they are must be concluded with each employee The applicability of the above connected to cross-border transactions. and must reflect the employee’s rights documentation requirements should and obligations as well as the employer’s The law prescribes the following be determined on a case-by-case rights and obligations under the Labour methods for determining market prices: basis according to the nature of the Code. As a rule, a worker’s rights under administration transactions concerned. • Comparable uncontrolled price an employment agreement may not be method worse than those established by the EY’s Transfer Pricing Services include Labour Code. • Cost plus method reviews to detect transfer pricing Under the Labour Code, an employer is • Resale price method risks, drafting of transfer pricing policies and transfer pricing studies. responsible for the proper execution of • Profit split method We can help companies conclude an employment agreement, which may be concluded for a fixed or indefinite • Net margin method. transfer pricing agreements with the state revenue authorities, as well term. An employment agreement may Except for transactions involving as assisting with tax audits, dispute establish a probation period, which agricultural products, there is no safe resolution and the preparation of generally should not exceed 3 months. harbour in terms of deviation from the transfer pricing documentation and market price. However, the law does, in monitoring reports. theory, recognise that there may be a range of market prices. In determining market prices under the comparable uncontrolled price method, adjustments to prices are allowed in at least some cases, except where one of the parties to a transaction is registered in a tax haven.

Doing business in Kazakhstan 45 However, the probation period may (i) within a certain field, skill area or Import and export be extended to 6 months for heads position (function) specified in their and deputy heads of organizations, labour agreement, or formalities and customs chief accountants and deputy chief duties (ii) within another field, skill area or accountants and heads of branches and position (function), subject to Customs regulation in Kazakhstan representative offices. restrictions imposed by law Kazakhstan forms part of the unified Kazakh law generally limits the working customs territory of the EAEU along The Labour Code limits secondment to week to 40 hours. The Labour Code with Armenia, Belarus, Kyrgyzstan these two cases and states that the host does not allow total overtime to exceed and Russia. The EAEU, which came entity must be: 120 hours per year. into being on 1 January 2015, allows • a legal entity in which the seconding the free movement of goods, services, The monthly salary of an employee entity directly or indirectly owns capital and labour within its borders. must not be lower than the minimum shares or interests (i.e. a parent monthly wage established for the EAEU member states apply unified company) relevant financial year by Kazakh budget customs legislation and and non- legislation. The minimum monthly wage • a legal entity that directly or indirectly tariff regulations. There are various for 2020 is KZT 42,500 (approximately owns shares or interests in the types of customs clearance procedures US$110). Salary must be denominated seconding entity (i.e. a subsidiary) with distinct rules for the payment of and paid in tenge only. customs duties and taxes, including release for internal consumption, The minimum amount of paid vacation Please note that labour relations temporary importation, reimport, under the Labour Code is 24 calendar in the territory of the AIFC are customs (bonded) warehouse, free days. Additional vacation days must regulated by the AIFC’s internal customs zone (for special economic be provided for employees working in rules and may differ significantly zones and free warehouses) and other dangerous or harmful conditions. from those in the Labour Code . procedures. Maternity leave is from 126 to 163 calendar days (70 days before the birth of a child and from 56 to 93 days after the birth). Additional unpaid childcare leave may be provided to one of the parents until the child is 3 years old. Kazakh law requires an employer to insure its employees against work- related injury within the first ten days of the month following the month in which the employer began work. The Labour Code provides for secondment arrangements, i.e. where an employee of one legal entity (the secondee) performs work for another legal entity:

46 Doing business in Kazakhstan Goods imported from third countries prohibiting the import or export of and customs cleared in an EAEU certain goods. member state or produced/sufficiently 3500 Kazakhstan and the WTO processed in an EAEU member state items enjoy decreased import may be moved without customs control/ Import duties duties declaration within the EAEU. On 30 November 2015 Kazakhstan Customs duties and classification of became the 162nd member of the goods WTO. According to its schedule of EAEU member states apply the Common concessions, Kazakhstan undertook to Customs Tariff to goods imported from reduce import duties by 2-5% on nearly third countries. This comprises the 3,500 items, and to 0% on some items, classification of goods and the applicable within five years after accession to the rates of import duty. Import duty rates WTO. are expressed as a percentage of the As part of recent amendments to EAEU customs value of goods, varying from 0% legislation, Kazakhstan approved a full to 35%, or as a specific amount in US$/ list of goods (almost 3,500 items) to euro per unit of measure. which reduced rates of import duty may Each EAEU member state sets its own be applied. Under EAEU legislation, export duty rates for exported goods. goods included in this list that have been Export duties should be calculated using imported under the release for domestic the rates of the EAEU member state consumption customs procedure in which goods are placed under the at reduced rates have the status of export procedure. Export duty rates conditionally released goods and cannot in Kazakhstan vary from 3% to 20% of be exported to other EAEU member the customs value or may be set as a states. specific amount in US$/euro per unit of Export duties measure. Kazakhstan reserved the right to Customs clearance fees are regulated continue levying export duties on certain by the domestic laws of EAEU member goods that are currently subject to export states. In Kazakhstan, the customs duty in Kazakhstan (petroleum and clearance fee is KZT 20,000 (US$52) related products, remnants and scrap of per customs declaration. ferrous and non-ferrous metals, elements Some customs procedures allow for the of locomotive rolling stock, wool and granting of full or partial exemption from hides of domestic animals, et al.). customs duties and taxes, for example On acceding to the WTO, Kazakhstan to members of special economic zones, undertook to begin calculating the owners of free warehouses and holders export duty rate for crude oil using a of investment contracts and in other formula based on the monthly average cases. There are also certain non-tariff market price of crude oil. regulations, such as those limiting or

Doing business in Kazakhstan 47 Licensing does not meet the requirements or for first- or second-category licences fails to provide supporting documents, if they have the necessary experience. Licences for certain activities the licensing authority may issue a However, they must apply via duly Kazakh licensing legislation categorizes substantiated refusal. In this case, the registered branches in Kazakhstan. permits/licences based on the risk level applicant may adjust the application and A foreign subsidiary in the form of of activities to be carried out: supporting documents and re-apply. a newly established LLP would be Since the law does not limit the number regarded as a separate legal entity, and • High-risk activities require licences of submissions, this process may last for therefore no foreign experience would referred to as “first-category permits” a considerable time. be recognised. Such an entity may apply • Medium-risk activities require permits only for a third-category licence. Withdrawal or suspension of a permit/ referred to as “second-category licence may be imposed for an permits” Import/export licences administrative offence committed in The government establishes a list of • Low-risk activities require the relevant carrying out activities authorized by the goods for which importation/exportation government authority to be notified permit/licence. Withdrawal is imposed is subject to licensing. A licence is issued of the commencement/completion of by a judge or an authorized body. The for each item of goods and must be activities period of suspension of a permit/licence granted within 30 business days of an may not be less than one or more than There is an exhaustive list of activities application being received. The following six months. that require licences, permits or types of licences are issued: notifications. The list is contained in the Below we present a summary of • A general licence, which is issued to a Law on Permits and Notifications20 and the commonest types of licences in foreign trade participant based on a includes 79 licences, 212 permits and Kazakhstan. decision of an EAEC member state and 54 notifications. allows a certain item of goods to be Construction licences The range of business and professional exported or imported in the quantity These are divided into three categories activities that require permits/licences is indicated in the licence depending on the complexity of facilities extensive. It is important for investors to • An exclusive licence, which grants a to be assembled and/or constructed. determine in advance whether a licence, foreign trade participant an exclusive permit or notification is needed. Kazakh To obtain a licence for assembly and/or right to export or import certain goods law prescribes various types of liability construction works, the applicant must • A one-time licence, which allows a and substantial penalties for failure to meet all the qualifying requirements foreign trade participant to export or comply with permit/licence regulations. approved by the Kazakh government. import a specified quantity of goods A licensing authority is required to issue To obtain a first- or second-category under a foreign a permit/licence within 15 business licence, the applicant must have 10 Holders of import/export licences are days of the submission of an application or 5 years of experience in assembly, required to submit a report on the together with all required supporting engineering and construction use of the licence to the appropriate documents (except for certain permits/ respectively. No experience is required authorities. licences for which different rules apply), for a third-category licence. Permit and licence applications and provided that the applicant meets the Please note that foreign companies notifications may be submitted online relevant requirements. If the applicant entering the Kazakh market may apply via the website www.elicense.kz.

20 Law of the Republic of Kazakhstan on Permits and Notifications, No. 202-V of 16 May 2014

48 Doing business in Kazakhstan Banking regulations in the financial sector to serve national banks cannot participate in the Kazakh interests. deposit insurance system, and deposits Banking system of an Islamic bank cannot be insured by As a rule, banking operations in Kazakhstan has a two-tier banking the Kazakh deposit insurance system. Kazakhstan must be licensed by the system. The first tier is the National NBK. Foreign banks have been operating There are also international financial Bank of Kazakhstan (NBK), which is the in Kazakhstan since 1993. As from 16 institutions operating in Kazakhstan country’s central bank. December 2020, foreign banks are which provide financing to local The main regulators of banking allowed to open branches in Kazakhstan businesses in the form of loans or equity activities are the NBK and the Agency provided that specific financial and investments. for the Regulation and Supervision regulatory conditions set by Kazakh law The NBK has the right to introduce a of the Financial Market and Financial are met. special regulatory regime in order to Institutions. Islamic banks are also allowed to operate ensure financial stability and protect The NBK, on the one hand, provides in Kazakhstan subject to restrictions laid the interests of consumers of financial traditional banking services to its main down in Kazakh law. Islamic banking is products for a maximum period of 5 client, i.e. the state as represented by its subject to licensing by the NBK. Islamic years. central authorities. On the other hand, it acts as a financial authority (exercising currency control, issuing regulatory acts, granting licences, etc.) and is responsible for the proper functioning of the financial system as a whole. The Agency for the Regulation and Supervision of the Financial Market and Financial Institutions, a special government authority which is directly subordinate and accountable to the President of Kazakhstan, is responsible for regulating banks and the financial market. The second tier includes all other banks except for the Development Bank of Kazakhstan, which has a special legal status. One of the features of the Kazakh banking system is that only private banks operate on the banking services market. The Development Bank of Kazakhstan and the Housing Construction Savings Bank, both with state shareholdings, have special status and perform specific functions

Doing business in Kazakhstan 49 Currency regulations the entry into force of the Currency transactions between residents must Control Law) only be in KZT, except for: On 2 June 2018 the President of Kazakhstan signed the Law on Currency • Kazakhstan non-residents, i.e. • transactions in which one of the Regulation and Currency Control (i) foreign citizens and stateless parties is the NBK, the Ministry of (No. 167-VI – the “Currency Control persons (other than those who Finance or an overseas diplomatic Law”). The law came into force on have permanent residency status in office of Kazakhstan 1 July 2019 (except for provisions Kazakhstan); (ii) foreign legal entities • transactions in which one of the relating to branches of foreign financial and organizations not recognised parties is a resident who has the organizations, which come into force in as legal entities under the laws of right to conduct foreign currency December 2020). foreign states and Kazakhstan-based transactions branches/representative offices of such The Currency Control Law imposes entities that do not create a perma- • transactions involving foreign certain formal requirements but does nent establishment of a non-resident currency that are classed as banking not impede most international business in accordance with the Kazakh Tax operations and other operations which operations. Code; (iii) branches/representative banks and authorized organizations It distinguishes between the following offices of foreign non-financial organi- have the right to carry out in parties to currency transactions: zations that have been accorded non- accordance with a licence issued by resident status under Kazakh currency the NBK or under Law No. 262-VI of • Kazakhstan residents, i.e., (i) Kazakh law by agreements concluded on the Republic of Kazakhstan of 3 July citizens (other than those who have behalf of Kazakhstan with foreign 2019 permanent residency abroad); (ii) organizations which entered into foreigners and stateless persons who • payment for banking services relating force before 1 July 2019 (a list of have permanent residence status to foreign currency transactions such branches/representative offices in Kazakhstan; (iii) legal entities is to be established by the Kazakh • transactions involving the acquisition, registered in Kazakhstan, Kazakhstan- government); (iv) international sale, payment of interest on and/or based branches/representative offices organizations, unless otherwise redemption of securities denominated of such entities and diplomatic, specified by the international treaty in foreign currency trade and other official missions governing their establishment; of Kazakhstan located abroad; • transactions between commission (v) diplomatic and other official (iv) branches of foreign financial agents and their clients when services missions of foreign states organizations which have the right are rendered by commission agents under Kazakh law to engage in involving the conclusion and execution Individuals (residents and non-residents) banking or insurance activities in of export or import contracts may take foreign currency cash in and Kazakhstan (from December 2020); with non-residents, including the out of the country without restrictions (v) branches of foreign non-financial repayment of foreign currency to the subject to the customs legislation of organizations which are treated as principal the Eurasian Economic Union and/or permanent establishments of those Kazakhstan. • the purchase and/or sale of refined organizations in Kazakhstan (except gold bullion using national currency for branches and representative The Currency Control Law states that offices whose non-resident status is transactions between Kazakhstan • the transfer of promissory notes stipulated in international treaties residents and non-residents may denominated in foreign currency in concluded by Kazakhstan prior to take place in any currency. However, fulfilment of monetary obligations

50 Doing business in Kazakhstan • payments for goods sold in duty- • operations of the recipient of mineral information on the currency contract free shops and for goods and resources on behalf of the Republic from the currency control agents or the services provided to passengers in of Kazakhstan connected with the resident sender. Please note that various international traffic transportation, storage and sale of ancillary regulations are currently in the mineral resources that are transferred process of being drafted. • transactions between branches to the state in accordance with the Tax (representative offices) of foreign Code by way of the in-kind fulfilment of entities a tax obligation by a subsurface user Currency regimes • transactions involving payment • payments by individuals for goods, Registration of foreign currency for expenses of an individual in contracts involving capital movement works and services in transactions connection with a business trip concluded and executed in the territory According to the Rules on the outside the Republic of Kazakhstan, of a special economic zone whose Monitoring of Currency Transactions including hospitality expenses, and borders wholly or partially coincide approved by Resolution No. 64 of transactions involving the repayment with sections of the customs border of the Board of the National Bank of 10 of unused advances issued in the Eurasian Economic Union April 2019 (“the Rules”), the NBK connection with a business trip is responsible for monitoring and outside Kazakhstan The range of currency transactions registering currency transactions and covered by the NBK’s monitoring • gratuitous transfers of money or currency contracts. system has increased, with simplified currency valuables by individuals to procedures introduced for the collection Registration is required for currency other individuals or to legal entities of transaction information. In order contracts involving capital movement whose statutory activities involve to monitor currency transactions, the (financial loans, equity participation, charity NBK (or authorized banks in certain transactions involving securities, equity • bank deposits by individuals in favour cases) assigns registration numbers interests and financial instruments, of other individuals to currency contracts under which acquisition of real estate, acquisition of currency transactions take place, exclusive rights to intellectual property, • transactions between professional currency contracts involving the transfers of funds in the context of trust participants in the securities market movement of capital, accounts held management activities, and gratuitous acting on behalf of their customers by residents (excluding banks and transfers of funds) where one of the and individuals or legal entities branches/representative offices of parties is a resident and the contracts involving the transfer of money and foreign entities) with foreign banks and reach certain thresholds. financial instruments from accounts export or import currency contracts in (to accounts) for the recording and According to the Rules, a capital respect of which payments are made storage of money and financial movement currency contract is subject through such accounts. instruments owned by customers to registration where it involves: by way of the performance and Authorized banks that process foreign 1) the receipt of property/money in termination of contracts for the currency payments or transfers are the Republic of Kazakhstan and/or provision of brokerage services required to notify the NBK of the an obligation of a resident to return transactions if the amount is equal to • transactions involving the payment of property/money to a non-resident or exceeds a threshold set by the NBK. taxes and other mandatory payments to a value exceeding the equivalent The NBK is entitled to request a copy to the budget in cases provided for by of US$500,000 (five hundred of the currency contract and other the Tax Code thousand) (KZT 191,295,000)

Doing business in Kazakhstan 51 2) the transfer of property/money from The registration requirement does not Repatriation the Republic of Kazakhstan and/ apply to capital movement currency A Kazakh resident must ensure that or an obligation of a non-resident contracts whose parties include the currency proceeds under export or to return property (money) to a NBK or the Ministry of Finance or to import contracts are repatriated to resident to a value exceeding the currency operations carried out by Kazakhstan (i.e. credited to a bank equivalent of US$500,000 participants in the Astana International account with a local bank) within the (five hundred thousand) Financial Centre within the territory of established time limit. (KZT 191,295,000) the Centre. According to the rules for carrying out A resident (other than an authorized Notification21 export-import currency control approved bank and a branch/representative office The notification regime requires by National Bank Resolution No. 42 of of a foreign entity) that is a party to a 30 March 2019, as from 1 July 2019 currency contract must apply to the NBK information to be provided to the NBK on foreign currency transactions an export or import currency contract before obligations under the contract is subject to registration if the amount are fulfilled by any parties. exceeding the threshold of US$50,000 (KZT 19,129,500) and on the opening of the contract exceeds the equivalent Non-residents may receive and transfer bank accounts with a foreign bank (for of US$50,000 (KZT 19,129,500) or foreign currency from/to their branches legal entities). if the contract amount is not specified (representative offices) in Kazakhstan. (framework agreements).

21 Notification by a resident is not required for payments and/or money transfers made by participants of the Astana International Financial Centre within the territory of the Centre or through bank accounts held by participants of the Centre with foreign banks.

52 Doing business in Kazakhstan If an export or import currency contract • foreign currency received by residents Submission of information (reports) is denominated in a currency other than from exhibitions and sporting, cultural by branches (representative offices) US$ and the exchange rate against and other similar events held outside of foreign non-financial organizations US$ is not specified in the contract, the the Republic of Kazakhstan is used According to the Rules on the US$ equivalent of the contract amount to cover costs incurred during those Submission of Information by Branches should be determined using the market events (Representative Offices) of Foreign exchange rate at the date of signing of Non-Financial Organizations, approved • foreign currency earnings are credited the contract (or failing that, at the date by National Bank Resolution No. 41 to foreign bank accounts of resident of entry into force of the contract). of 30 March 2019, as from 1 July transportation companies in order 2019 branches/representative offices The registration of currency contracts to pay port dues and other charges of foreign non-financial organizations where the contract amount is not outside Kazakhstan and cover operating in the Republic of Kazakhstan specified or exceeds US$50,000 (KZT expenses associated with the handling for more than one year must submit 19,129,500) and where a contract is of those companies’ transport facilities information (reports) on their activities amended after 1 July 2019 must take and passengers outside Kazakhstan to the National Bank. place before obligations begin to be and the maintenance of branches/ fulfilled by one of the parties, but not representative offices of those Based on information received, local later than 30 calendar days from the companies outside Kazakhstan branches of the National Bank make a date on which the currency contract list of branches/representative offices • an obligation of a non-resident is became subject to registration. that provide information on transactions terminated by crediting a counterclaim with residents and non-residents. Late registration of currency contracts under an export or import currency concluded after 1 July 2019 will contract That list includes branches/ incur a warning in the first instance. representative offices engaged in the • an obligation of a non-resident is A repeat violation within a year will following activities: terminated by the replacement of the incur an administrative fine of MCI 100 original obligation between a resident 1) production of crude oil and natural (Administrative Offences Code, Article and the non-resident with another and associated gas 244). In 2020 that amounts to KZT obligation between the same parties 265,100 (approximately US$693). 2) construction services with a different subject-matter or The repatriation requirement is method of performance 3) services related to mining considered to be partially or fully • an insurance payment is received 4) architectural, engineering and other satisfied where: upon the occurrence of an insured technical services; • national and/or foreign currency is event under an agreement on 5) research and development work credited to accounts held by a resident insurance of the risk of non- with foreign banks that were opened performance by a non-resident Late submission of a report incurs a to fulfil the resident’s obligations warning in the first instance. A repeat under the terms of a financial loan violation within a year will incur an received from a non-resident or to administrative fine of 10 MCI. In support the activities of branches/ 2020, that amounts to KZT 26,510 representative offices opened by the (approximately US$69). resident abroad

Doing business in Kazakhstan 53 In addition, if a branch or representative foreign banks and limits on settlements to which there are grounds to suspect office of a foreign non-financial in foreign currency. that money and/or property used in organization submits an incomplete and/ the transaction is derived from criminal or inaccurate report on transactions Financial monitoring activity or that the transaction itself is with residents and non-residents, it will It is important to consider the possible undertaken for the purpose of money receive a warning the first time. A repeat implications of the financial monitoring laundering or the financing of terrorism violation committed within a year will system established by Law No. 191-IV of or other criminal activity. The Kazakh incur an administrative fine of 10 MCI, the Republic of Kazakhstan of 28 August government sets the list of criteria which currently amounts to KZT 26,510 2009 on the Countering of Money for characterising transactions as for 2020 (approximately US$69). Laundering and Terrorist Financing (the suspicious, such as inconsistency of a “Anti-Money Laundering Law”). Under transaction with the nature of a legal Sale and purchase of foreign currency that law, certain types of transactions entity’s business as specified in its All legal entities may buy and sell foreign are subject to financial monitoring constituent documents, transactions currency on the domestic currency depending on the amounts involved. with non-profit organizations, market only through authorized This includes gratuitous payments transactions relating to charitable banks. This restriction does not apply and/or transfers made by individuals activities, et al. Furthermore, any to authorized banks and authorized and legal entities in favour of other transaction may potentially be organizations. Individuals may buy and individuals or legal entities amounting considered suspicious if an authorized sell currency through foreign currency to KZT 7,000,000 (approximately person of a financial monitoring agent exchange offices. US$18,296) or more, transactions decides to treat it as such based on his/ to the value of KZT 10,000,000 22 her experience and knowledge. Special currency regime (approximately US$ 26,138) or more The Currency Control Law authorizes entered into by legal entities that have Anti-monopoly regulations the President of Kazakhstan to introduce existed for less than three months, Anti-monopoly law requires prior a special currency regime in the event and other operations and transactions permission from or notification of of a threat to the economic security and specified in the Anti-Money Laundering the anti-monopoly authority for financial stability of Kazakhstan. Law. mergers and other types of economic concentrations where the deal exceeds A special currency regime may include, Monitoring is conducted by the Financial 10,000,000 MCI (approximately among other things, a requirement Monitoring Committee of the Kazakh US$69,290,000); otherwise, the deal for a sum equal to a percentage of Ministry of Finance and financial may be invalidated or terminated. Anti- the amount of a currency transaction monitoring agents (banks, stock monopoly law prohibits anti-competitive to be deposited with an authorized exchanges, insurance organizations, horizontal agreements (cartels) bank without interest being earned, a etc.). and vertical agreements, concerted requirement to obtain a special permit practices, abuse of a dominant market from the NBK to carry out currency In addition, the Anti-Money Laundering position and unfair competition. All transactions, the mandatory sale of Law contains the term “suspicious types of monopolistic activity (i.e. anti- foreign currency received by Kazakhstan transaction”, meaning a transaction competitive agreements, concerted residents, restrictions on the use of or attempted transaction with respect

22 A special currency regime is introduced by an act of the Government of the Republic of Kazakhstan based on a joint recommendation of the National Bank of Kazakhstan and relevant authorized bodies.

54 Doing business in Kazakhstan practices, abuse of a dominant position) basis, meaning that all applications for government authority. Furthermore, may lead to administrative fines of up licences for exploration and production where such acquisition relates to to 5% of income with confiscation of of solid mineral resources within the a subsurface use area of strategic monopolistic income for a period of up same block are considered in the order importance, the state has the right of to a year, or criminal sanctions if actions in which they are received and each first refusal over the rights or shares/ result in major damage or the receipt of application is considered only after the interests being sold. Before subsurface substantial income. Unfair competition preceding application has been rejected. sites can be acquired, therefore, it is incurs an administrative fine of up to necessary to obtain approval from the Under the Subsurface Use Code, the 1,500 MCI (approximately US$10,400). competent government authority and a acquisition of subsurface use rights waiver from the state confirming that it from subsurface use companies (e.g. Subsurface use regulations will not exercise its right of first refusal farmouts) or of shares/participating As from 29 June 2018, subsurface use over the sites. in Kazakhstan is regulated by the new interests in subsurface use companies Subsurface Use Code. The Subsurface is subject to approval by the competent Use Code establishes different regulatory regimes for subsurface companies depending on the types of mineral resources being explored and produced. Subsurface use rights for the exploration and production of hydrocarbons are granted on the basis of contracts concluded by the competent government authority with winners of auctions, which are determined by the amounts of subscription bonuses proposed by the participants in the auctions. The Subsurface Use Code also envisages the right of the competent government authority to conclude contracts for exploration and production of hydrocarbons and through direct negotiations with national companies of Kazakhstan and their strategic partners. Subsurface use rights for exploration and production of solid mineral resources are granted on the basis of licences issued by the competent government authorities. Such licences are issued on a first come, first served

Doing business in Kazakhstan 55 EY 5in Kazakhstan

56 Doing business in Kazakhstan In 1992, EY was the first international professional services organization to open an office in Kazakhstan. It is part of our EMEIA practice, encompassing Europe, the Middle East, India and Africa. In Kazakhstan, EY has three offices: in Nur-Sultan, Almaty and Atyrau.

About EY Encouraging investment EY is a global leader in assurance, tax, EY is committed to enhancing the US$36,4 transaction and advisory services. business and investment environment Its combined global revenues for the in Kazakhstan. We organize a variety billion financial year 2019 were US$36.4 of professional events and knowledge- billion. With a total headcount of over sharing sessions in order to promote EY global revenues for 284,000 people, EY operates in more international leading practices and the financial year 2019 than 150 countries around the world. industry expertise, as well as to advise the investment community on the most In 1992, EY was the first international recent or anticipated changes to the assurance and advisory services regulatory environment. EY is involved organization to open an office in in the work of the Foreign Investors’ Kazakhstan, reaching out to a wide Council, chaired by the President of the 700 employees range of clients from various industry Republic of Kazakhstan, and co chairs sectors, including multinational EY Kazakhstan employees its working group on Investment Policy. corporations as well as public EY is also actively involved in a number working in three offices in Nur- and private companies. Today, EY of business, professional and industry Sultan, Almaty, Atyrau Kazakhstan has 700 employees associations in Kazakhstan. working in three offices in Nur-Sultan, Almaty and Atyrau. EY Kazakhstan provides over 85 services across all industries, including assurance, tax Supporting our clients and law (financial, tax accounting in the dynamic landscape and HR outsourcing solutions, people At EY, we know that businesses in 85 services advisory services, immigration support, emerging markets need innovative EY Kazakhstan provides across etc.), transaction and business thinking and practical advice in order advisory services and digital as well to succeed. We support our clients all industries as professional education and training by facilitating their sustainable delivered by the EY Academy of development strategy and helping them Business. create new growth opportunities in today’s dynamic economic environment.

Doing business in Kazakhstan 57 Our major services EY Kazakhstan at social media • Assurance Business events, insights and thought leadership, legislative updates and more. • Tax & Law • Facebook @EYKazakhstan • Transactions • Instagram @EYKazakhstan • Advisory • Careers @EYCareersKazakhstan • Academy of Business • EY Academy of Business @EYAcademyKazakhstan

Office locations Nur-Sultan 16 Dostyk street, Talan Towers Offices, Nur-Sultan, Z05H9K3 Republic of Kazakhstan Tel.: +7 7172 58 0400 Fax: +7 7172 58 0410

Almaty Esentai Tower Al-Farabi Ave., 77/7, Almaty, 050060, Republic of Kazakhstan Tel: +7 727 258 5960 Fax: +7 727 258 5961

Atyrau Satpayev str., 19 Atyrau, 060000 Republic of Kazakhstan Tel.: +7 7122 55 21 00 Fax: +7 7122 55 21 01

58 Doing business in Kazakhstan Contact information For more information on how EY can help you find your bearings in Kazakhstan’s tax and legal terrain, please contact one of the following EY leaders:

Tax & Law Services

Erlan Dosymbekov Roman Yurtayev Managing Partner for Kazakhstan Associate Partner, Tax Services, and Business Tax Advisory Tel: +7 727 258 5960 Tel: +7 727 258 5960 [email protected] [email protected]

Dinara Tanasheva Saltanat Dauletova Partner, Tax & Law Services Leader for Associate Partner, International Tax Kazakhstan and Central Asia and Transaction Services, and Central Asia Financial Sector Tel: +7 727 258 5960 Tel: +7 727 258 5960 [email protected] [email protected]

Doniyorbek Zulunov Anuar Mukanov Partner, Tax Services, Associate Partner, International Tax and Transaction Services Transfer Pricing Services Tel: +7 727 258 5960 Tel: +7 727 258 5960 [email protected] [email protected]

Vladimir Fesenko Amangeldy Mussayev Partner, People Advisory Services Partner, Global Compliance and Tel: +7 727 258 5960 Reporting [email protected] Tel: +7 727 258 5960 [email protected]

Doing business in Kazakhstan 59 6Appendix

60 Doing business in Kazakhstan Double tax treaties The following table lists the WHT rates under Kazakhstan’s double tax treaties.

No. Country Dividends, % Interest, % Royalties, % No. Country Dividends, % Interest, % Royalties, % 1 . Armenia 10 10 10 35 . Qatar 5/10 (a) 10 10 2 . Austria 5/15 (a) 10 10 36 . Romania 10 10 10 3 . Azerbaijan 10 10 10 37 . Russian Federation 10 10 10 4 . Belarus 15 10 15 38 . Saudi Arabia 5 10 10 5 . Belgium 5/15 (a) 10 10 39 . Serbia 10/15 (b) 10 10 6 . Bulgaria 10 10 10 40 . Singapore 5/10 (b) 10 10 7 . Canada 5/15 (a) 10 10 41 . Slovak Republic 10/15 (e) 10 10 8 . China 10 10 10 42 . Slovenia 5/15 (b) 10 10 9 . Croatia 5/10 (b) 10 10 43 . Spain 5/15 (a) 10 10 10 . Czech Republic 10 10 10 44 . Sweden 5/15 (a) 10 10 11 . Estonia 5/15 (b) 10 15 45 . Switzerland 5/15 (a) 10 10 12 . Finland 5/15 (a) 10 10 46 . Tajikistan 10/15 (e) 10 10 13 . France 5/15 (a) 10 10 47 . Turkey 10 10 10 14 . Georgia 15 10 10 48 . Turkmenistan 10 10 10 15 . Germany 5/15 (b) 10 10 49 . Ukraine 5/15 (b) 10 10 16 . Hungary 5/15 (b) 10 10 50 . United Arab 5/15 (a) 10 10 17 . India 10 10 10 Emirates 51 . United Kingdom 5/15 (a) 10 10 18 . Iran 5/15 (c) 10 10 52 . United States 5/15 (a) 10 10 19 . Ireland 5/15 (b) 10 10 53 . Uzbekistan 10 10 10 20 . Italy 5/15 (a) 10 10 54 . Vietnam 5/15 (f) 10 10 21 . Japan 5/15 (a) 10 10 55 . Non-treaty countries 15 (g) 15 (g) 15 (g) 22 . Korea (South) 5/15 (a) 10 10 23 . Kyrgyzstan 10 10 10 (a) The lower rate applies to dividends paid to companies owning at least 10% of 24 . Latvia 5/15 (b) 10 10 the payer. The 15% rate applies to other dividends. 25 . Lithuania 5/15 (b) 10 10 (b) The lower rate applies to dividends paid to companies owning at least 25% of the payer. The 15% rate applies to other dividends. 26 . Luxembourg 5/15 (d) 10 10 (c) The lower rate applies to dividends paid to companies owning at least 20% of 27 . Macedonia 5/15 (b) 10 10 the payer. The 15% rate applies to other dividends. 28 . Malaysia 10 10 10 (d) The lower rate applies to dividends paid to companies owning at least 15% of 29 . Moldova 10/15 (b) 10 10 the payer. The 15% rate applies to other dividends. (e) The lower rate applies to dividends paid to companies owning at least 30% of 30 . Mongolia 10 10 10 the payer. The 15% rate applies to other dividends. 31 . Netherlands 5/15 (a) 10 10 (f) The lower rate applies to dividends paid to companies owning at least 70% of 32 . Norway 5/15 (a) 10 10 the payer. The 15% rate applies to other dividends. 33 . Pakistan 12.5/15 (a) 12.5 15 (g) For payments to entities registered in tax havens (as per the list of countries with preferential tax regimes) the rate is 20%. 34 . Poland 10/15 (c) 10 10

Doing business in Kazakhstan 61 62 Doing business in Kazakhstan List of countries with preferential tax regimes Approved by Order No. 142 of the Minister of Finance of the Republic of Kazakhstan of 8 February 2018

1. Principality of Andorra 28. Republic of the Marshall Islands 7) Turks and Caicos Islands 2. State of Antigua and Barbuda 29. Principality of Monaco 8) Isle of Man 3. Commonwealth of the Bahamas 30. Republic of Malta 9) Channel Islands (Guernsey, 4. State of Barbados 31. Mariana Islands Jersey, Sark and Alderney) 5. State of Bahrain 32. Kingdom of Morocco (only as 10) South Georgia Island 6. State of Belize regards the city of Tangier) 11) South Sandwich Islands 7. State of Brunei Darussalam 33. Union of Myanmar 12) Chagos Islands 8. Republic of Vanuatu 34. Republic of Nauru 47. United States of America (only as regards the following areas): 9. Co-operative Republic of Guyana 35. Kingdom of the Netherlands (only as regards Aruba and the 1) US Virgin Islands 10. Republic of Guatemala dependent territories of the 2) Guam 11. State of Grenada Antilles) 3) Commonwealth of Puerto Rico 12. Republic of Djibouti 36. Federal Republic of Nigeria 4) Wyoming State 13. Dominican Republic 37. New Zealand (only as regards the 5) Delaware State 14. Commonwealth of Dominica Cook Islands and Niue) 48. Republic of Suriname 15. Kingdom of Spain (only with regard 38. Republic of Palau 49. United Republic of Tanzania to the Canary Islands) 39. Republic of Panama 50. Kingdom of Tonga 16. People’s Republic of China (only as 40. Independent State of Samoa regards the Macao and Hong Kong 51. Republic of Trinidad and Tobago 41. Republic of San Marino special administrative regions) 52. Sovereign Democratic Republic of 42. Republic of Seychelles 17. Republic of Colombia Fiji 43. State of Saint Vincent and the 18. Federal Islamic Republic of Comoros 53. Republic of the Philippines Grenadines 19. Republic of Costa Rica 54. Republic of France (only as regards 44. Federation of Saint Kitts and Nevis 20. Malaysia (only as regards the the following areas): 45. State of Saint Lucia Labuan enclave) 1) Kerguelen Islands 46. United Kingdom of Great Britain 21. Republic of Liberia 2) French Polynesia and Northern Ireland (only as 22. Lebanese Republic regards the following areas): 3) French Guiana 23. Principality of Liechtenstein 1) Anguilla Islands 55. Republic of Montenegro 24. Republic of Mauritius 2) Bermuda Islands 56. Democratic Republic of Sri Lanka 25. Islamic Republic of Mauritania 3) British Virgin Islands 57. Jamaica 26. Portugal (only with regard to the 4) Gibraltar Madeira Islands) 5) Cayman Islands 27. Republic of Maldives 6) Montserrat Island

Doing business in Kazakhstan 63 GDP of Kazakhstan 278 255 25,9 237 234 221 215 208 21,2 167 21,1 196 19,9 184 183 GDP, US$b 18,2 18,2 179 1 7, 3 GDP growth, % 137 Share of oil and gas industry in GDP, % 6,0 4,8 4,7 4,2 4,1 4,1 3,8 4,1 4,3 4,4 4,6

1,2 1,1

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Historical Estimate Forecast

Sources: Statistics Agency of Kazakhstan (historical data), Ministry of National Economy of Kazakhstan (estimate and forecast) Gross FDI inflow in Kazakhstan, US$b $28,9

$24,1 $23,8 $24,3 $21,4 $21,0 19% 57% 40% 15% Oil and gas extraction 48% 13% $15,4 39% 15% Metals and mining industry 17% 12% 11% 24% Retail and wholesale trade 9% 13% 56% 17% Other industries 15% 15% 23% 10% 50% 46% 31% 16% 19% 24% 27% 18%

2012 2013 2014 2015 2016 2017 2018 Source: National Bank of Kazakhstan Key macroeconomic indicators of Kazakhstan 2012 2013 2014 2015 2016 2017 2018 GDP growth, % 4.8 6.0 4.2 1.2 1.1 4.1 4.1 GDP per capita, US$ 12,387 13,891 12,807 10,510 7,715 9,248 9,813 KeyInflation macroeconomic rate, % indicators of 6.0 4.8 7.4 13.6 8.5 7.1 5.3 KazakhstanGold and foreign currency reserves (US$ billion) 28.3 24.7 29.2 27.9 29.7 31.0 30.9 KZT/US$ annual average exchange rate 149,11 152.13 179.19 221.73 342.16 326.00 344.71 Any other Kazakh-source income paid to non-residents 20% 20% 20% 20% 20% 20% 20% that is not received from a tax agent (local legal entity) Sources: Statistics Agency of Kazakhstan, National Bank of Kazakhstan

64 Doing business in Kazakhstan Doing business in Kazakhstan 65 EY | Assurance | Tax | Transactions | Advisory

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