KPMG IN KAZAKHSTAN AND CENTRAL ASIA Investment guide August 2013 kpmg.kz b | Investment guide Contents Country outline 2 Intellectual property Geography and climate Environmental regulations History Transfer pricing Government and politics Other business practices Population and language Tendering process for state companies Currency Use of stamps and seals Banking system Original documents Foreign trade Taxation Capital market Taxation of business entities in Kazakhstan Opening up Taxation of individuals in Kazakhstan Protection of taxpayer rights Key investment considerations 8 Customs Key investment sectors Accounting standards and audit requirements Overall approach Development zones Laws and regulations Investment law Migration regulations 26 Company law Visa requirements Form of foreign investment Legal entities KPMG in Kazakhstan 28 Branch offices and representative offices About us Not-for-profit organizations How KPMG can help? Practical issues Thought leadership Employment legislation Appendices 30 Employment of expatriates Useful links Securities regulation Current Kazakhstan treaties Currency regulation Kazakh content requirements Business activity without forming a legal entity © 2013 KPMG Audit LLC, KPMG Tax and Advisory LLC and KPMG Valuation LLC. All rights reserved. Investment guide | 1 © 2013 KPMG Audit LLC, KPMG Tax and Advisory LLC and KPMG Valuation LLC. All rights reserved. 2 | Investment guide Country outline© 2013 KPMG Audit LLC, KPMG Tax and Advisory LLC and KPMG Valuation LLC. All rights reserved. Investment guide | 3 Geography and climate Table 1. Country snapshot The ninth-largest country in the world and the second largest Capital: Astana state in the Commonwealth of Independent States (CIS), Kazakhstan is bordered by the Russian Federation to the Area (sq km): 2,724,900 north, the Caspian Sea to the west, China to the east and the former Soviet Central Asian republics of Kyrgyzstan, Population (mln): 17.01 Uzbekistan, and Turkmenistan to the south. Kazakhstan is a country of contrasts, a land where Europe meets Asia. The Cities over 1 mln: 1 (Almaty) northern half of the country is mostly steppe, the south and west are largely arid or semi-arid desert, and the majestic President: Nursultan Nazarbayev Tien Shan Mountains surround the southeast rim. Prime Minister: Serik Akhmetov The remoteness of Kazakhstan from the oceans and the Currency: Tenge (KZT) vastness of its territory define the climatic conditions of the country. The climate of Kazakhstan is distinctly continental. 14 regions and 3 cities of Temperatures vary immensely by region, with the most Number of regions: state/special importance dramatic differences between the deserts and mountains. (Almaty, Astana, Baikonur) The southern regions have milder winters and hotter summers than the northern and central regions. The steppes Corruption index rank: 133 out of 1742 experience especially harsh winters due to strong, cold winds from the north. There are great variations between seasons. Ease of doing 49 out of 1853 The summers are hot, with temperatures reaching 40 degrees business: Celsius, and the winters are often bitterly cold, with KASE market temperatures falling to negative 40 degrees Celsius. 35,5004 capitalization (USD mln) Tremendous natural resources and relative social and Number of listed political stability in Kazakhstan make this country one of the companies 1275 most attractive destinations for capital investment among the (July 2013): republics of the former Soviet Union. Although the pace of reform in the country has been uneven and the country’s development has been hindered by excessive bureaucracy and corruption, Kazakhstan has experienced significant growth since the mid-1990s. At the same time, Kazakhstan must continue to undertake political, economic, and social reforms and clean up its environment if the country is to achieve its full potential as an agricultural and industrial power driven by its enormous mineral wealth. History The history of the Central Asian landmass is one of prosperity, Although at first the union with Russia provided the Kazakhs hardship and conflict, invading nomads and seasonal with external protection and a degree of internal autonomy, migrations, vast steppes and animal husbandry. Horses were eventually Russia began to dominate the region, restricting first bred and domesticated in the region. Ancient history the power of the native khans and sultans, appointing and records fair-haired and blue-eyed peoples. The migration of dismissing Kazakh chieftains almost at will. The reforms in Turkic tribes in the sixth century brought to the region its the early 1900s resulted in the immigration of hundreds of Turkic languages. The spread of Arab culture brought Islam. thousands of Slavic colonists. The transfer of fertile land in For the next few centuries the region prospered. Located favor of the new settlers agitated relations between the along the ancient Silk Route, the Turkic city-states traded with largely nomadic Kazakhs and the agricultural Slavs. the Orient and Europe and developed a rich culture that Discontent among the Kazakhs grew until a rebellion erupted lasted until the Mongol invasion in the 13th century. Genghis in 1916, sparked by a Tsarist order mobilizing Kazakhs into Khan’s hordes devastated the region: trade withered, culture construction units for the Russian army. Although the declined. The weakening of the Mongols led to the rebellion was put down with force, the fall of Tsarism led to the establishment of the Kazakh and Uzbek Khanates and the brief establishment of the Nationalist Alash Republic. founding of the Kazakh nation in the 15th Century. The However, by 1921 Kazakhstan was firmly in Soviet hands. Kazakhs fought a century-long war with the invading Jungarian nomads before becoming Russian subjects. 1 http://stat.kz/Pages/default.aspx 2 http://www.transparency.org/cpi2012/results 3 http://www.doingbusiness.org/rankings 4 http://www.kase.kz/ru/shares 5 http://www.kase.kz/emitters © 2013 KPMG Audit LLC, KPMG Tax and Advisory LLC and KPMG Valuation LLC. All rights reserved. 4 | Investment guide During the next 70 years change and turmoil transformed Fund, the World Health Organization, the International Bank Kazakhstan’s landscape and permanently altered the life of for Reconstruction and Development, the European Bank for the Kazakh people. Soviet attempts to collectivize agriculture Reconstruction and Development, UNICEF, UNESCO, and in the early 1930s resulted in a major famine. A million other organizations. Kazakhstan also chaired the Kazakhs died of starvation; hundreds of thousands fled to Organization for Security and Cooperation in Europe (OSCE) neighboring countries. The 1930s were also the beginning of in 2010. The Government of Kazakhstan is also negotiating major development of Kazakhstan’s mining and metals its planned accession to the World Trade Organization industries. The relative emptiness of the steppe and the (WTO), and it is likely that the country will join the WTO in the inhospitable climate made Kazakhstan a convenient dumping next few years. Kazakhstan also plans to enter OECD in the ground for political prisoners from all over the USSR, tens of near future. In 2017 the International Specialized Exhibition thousands of whom died building the industries and the cities (Expo 2017) is scheduled to take place in Astana, the capital in Kazakhstan. The war years resulted in the relocation of city of Kazakhstan. major industries and evacuees from the European part of the Soviet Union; many of them stayed at the war’s end. As part Government and politics of the “virgin lands” campaign, more settlers came in the 1950s from all over the USSR to develop agriculture in In 1993 Kazakhstan promulgated its first post-Soviet Kazakhstan’s northern regions. constitution, which officially declared Kazakhstan an independent constitutional republic with a democratic system The Soviet legacy provided for the industrial development of of government and a strong presidency. In a referendum held Kazakhstan and a great rise in the standard of living for the in August 1995, voters approved a new constitution that indigenous people. It also included ecological disasters of provided for substantial changes in the way power is major proportions. Dozens of open-air and hundreds of distributed among the three branches of government. underground nuclear weapons tests were performed at the Semipalatinsk test site in North-eastern Kazakhstan between The President is the head of state and wields most political 1949 and 1989. Water from the Syr Darya and Amu Darya power in the country. Occupying that post since 1991, rivers that previously fed the Aral Sea was channeled toward Nursultan Nazarbayev was re-elected for another seven-year cotton production areas in Uzbekistan and southern term in April 2011. The Prime Minister heads the executive Kazakhstan. The sea lost most of its water and shriveled to branch and is responsible to the President for the day-to-day 40 percent of its former size. As a result, Kazakhstan now activities of the Government. The Parliament consists of two faces major ecological problems that require substantial chambers: the Majilis and the Senate, whose members are international aid. elected to five-year and six-year terms, respectively. Although nominally the Parliament is the supreme legislative body, its In 1989 Nursultan Nazarbayev became the First Secretary of powers in comparison to those of the executive are relatively the Communist Party of Kazakhstan and at the end of 1991, weak. Kazakhstan is a unitary state; however, for the country’s President. The last republic to declare administration purposes the country has been divided into 14 independence and leave the USSR, Kazakhstan found itself oblasts, or regions, and the cities of Astana and Almaty, which a new state in December of 1991, unsure of its position in the have the equivalent of a regional status. Each region is world and facing political, economic, interethnic, and headed by an Akim (Governor) who is appointed by the ecological challenges. President. The 1990s were difficult years of transition from a socialist to Population and language a market-oriented economy.