GILS Corporate law: Kazakhstan

KAZAKHSTAN

(1) Forms of doing business and Establishment

1.1 What are the options for establishing a company's presence in a country (branch, representative office, subsidiary, etc.), and what are their key advantages and limitations?

The most popular forms of presence in the common jurisdiction of the Republic of Kazakhstan (the “RoK”) are the establishment of a branch or the establishment of a subsidiary in the form of LLP (Limited Liability Partnership) and JSC (Joint Stock Company). 

In the jurisdiction of the Astana International Financial Centre ("AIFC"), a branch (so-called "recognised company") may be registered or a subsidiary company (usually in the form of a Private company) (the “PC” or the “Company”) may be established. 

The main advantages and limitations of these forms:

1.2 What is the process for creating a legal entity or another form of presence in the country, including the laws to follow, legal entities to be considered, documents required, stages and terms for registration? 

The table below summarises the required documents, steps and timelines for the process of establishing the forms of legal entities, branches and representative offices set out in paragraph 1.1 of this Brochure.

LLP charter capital. 

The initial charter capital of an LLP must not be less than 100 monthly calculation indices (in 2024 - KZT 369,200 or approximately USD 835). Small businesses (enterprises with an average annual number of employees not exceeding 100 and annual income not exceeding 300,000 monthly calculation indices) are not subject to the minimum charter capital requirement. 

All participants must make a full contribution to the authorised capital of an LLP within the term established by a resolution of the general meeting of LLP participants, but such term must not exceed one year from the date of state registration of the LLP. 

JSC share capital. 

A JSC must have a share capital of at least 50 000 monthly calculation indices (in 2024 - KZT 185 400 000 or approximately USD 419 545). The amount of pre-payment for shares contributed by the JSC's founders must not be less than the minimum amount of the JSC's share capital and must be fully paid by the founders within 30 days from the date of the JSC's state registration. 

Share capital of a PC. 

There are no minimum share capital requirements for a PC. However, due to the technical requirements of the legal entity registration database, the share capital should not be less than USD 1/KZT 1. The AIFC Acts do not provide requirements for the period of formation of the share capital of a PC by its shareholders. 

1.3 What additional authorizations/approvals are required to create a legal entity or start operations, and how do they vary depending on the type of business (if any)? 

RoK 

In Kazakhstan, a licence is required for certain types of activities or actions (operations) in the following areas: construction, subsoil use, agriculture, health care, industry and others established by Article 28.1 of the Law on Permits and Notifications. Pursuant to Article 1.8 of the Law on Permits and Notifications, a licensee may be a natural person or a legal entity, as well as a branch of a foreign legal entity which provides financial services. 

AIFC 

Legal entities registered in the AIFC, as well as branches/representative offices of foreign legal entities in AIFC, established in the form of a Recognised company, may carry out certain types of activities with relevant licences. Thus, AIFC acts establish a list of financial, market and ancillary services requiring relevant licences. Moreover, a branch/representative office of a foreign company registered in the AIFC as a Recognised company may apply for a licence only for the type of regulated activity for which the foreign legal entity (head company) has already obtained a licence from the regulatory authority of its country. 

1.4 What are the most common types of Legal Entities in your country and the differences between them in terms of taxation, liability, and management?

The most popular organisational forms of legal entities in Kazakhstan are LLPs and JSCs. In the AIFC, the most popular organisational form is a Private Company. The main features and distinctions between them are presented in the table below. With respect to taxation, it is generally applied to these forms in a similar manner, except for PCs, which are subject to the tax preferences set out in paragraph 2.2 of this Brochure.

1.4.4. Briefly, what are the characteristics of the other types of Legal Entities? 

Non-profit organisations 

There are the following forms of non-profit organisation that may be established by foreign legal entities: 

• Non-Profit Joint-Stock Company;
• Private Institution;
• Corporate Foundation;
• Association. 

Their main characteristic is raising funds for a purpose beneficial to either their members or a public cause. 

1.5 What are the operating costs associated with the maintenance of a legal entity or presence in the country? 

In RoK: 

• LLP re-registration fee (upon decrease of charter capital, change of name, or change in composition of participants)– KZT 10,009.51 or approximately USD 22.6;
• Lease of office (rates vary depending on lessor); 
• Reporting expenses (to statistics, tax and other relevant authorities);
• Taxes and mandatory insurance, pension and social security contributions;
• Insurance costs (rates vary depending on insurance provider);
• Salary and wage (minimum salary in 2024 is KZT 85,000 or approximately USD 192). 

In AIFC: 

1. Post-registration fee (paid for changes to registered details of the Company, e.g., change of shareholders, directors, address) – from USD 50 (if application is submitted online)

2. Fee for submission of accounts for each financial year - USD 10 (accounts submitted if the annual turnover of the Company is more than USD 5 million and the articles of association do not provide otherwise);

3. Fee for submission of annual return - USD 10 (annual return is submitted if annual turnover exceeds USD 500 000 or there is on average not more than 20 shareholders during a year);

4. Fee for submission of annual confirmation statement - USD 10 (annual confirmation statement is submitted if the Company does not submit annual accounts as per the item above).

(2) General taxation issues 

2.1 What tax obligations are associated with doing business in the country? 

Below are the main types of taxes and their standard rates. We note that there are approximately 53 bilateral agreements on avoidance of double taxation with various states. 

Value-Added Tax (the “VAT”) at the 12% rate: 

The obligation to register as VAT payer emerges if the sum of taxable turnover for VAT purposes exceeds the minimal threshold of approximately USD 164 000 in one calendar year. 

Corporate Income Tax (the “CIT”) at the 20% rate: 

CIT applies to Kazakhstani legal entities and non-residents, including those acting through permanent establishment in Kazakhstan. 

Individual Income Tax (the “IIT”) at the 10% rate: 

IIT applies to individuals having taxable objects in the form of income taxable at the source of payment or self-assessment. 

2.2 What tax and customs incentives are available in a country? 

CUSTOMS INCENTIVES. 

Kazakhstan is a member of EAEU. EAEU provides freedom of movement of goods, services, capital and working capital, while customs duties do not apply within EAEU (i.e. Russia, Belorussia, Armenia, Kyrgyzstan, Kazakhstan). 

INVESTMENT PROJECTS. 

There are investment preferences in Kazakhstan granted in the form of general and targeted tax preferences. General preferences include governmental grants-in-kind and options to engage labour outside quotas and permits. They can be applied by any investor. 

Targeted tax preferences are granted under investment contracts between investors and the Government of Kazakhstan, when implementing an investment project, an investment priority project or a special investment project in the form of: 

1. CIT exemption; 

2. land tax exemption; 

3. property tax exemption; 

4. exemption from VAT on import; 

5. customs import duties exemption; 

6. accelerated depreciation of fixed assets; 

7. deferral of CIT and property tax payments; 

8. as well as granting the right to stability of the tax regime applied to investment activities; 

9. reduction in tax liabilities for 20% of incurred costs. 

Depending on the type of an investment project being implemented, the set of tax incentives and duration of their application may vary in time. Investors can apply targeted tax preferences together with general preferences. 

SPECIAL ECONOMIC ZONES. 

The tax code also provides for tax incentives for special economic zones (hereinafter – the ‘SEZ’). There are 14 SEZ in Kazakhstan. These zones are generally exempted from income tax, land tax, fee for land use, and property tax. 

ASTANA HUB INTERNATIONAL TECHNOLOGY PARK. 

Astana Hub International Technological Park (hereinafter - 'Astana Hub') is an international information technology park. ASTANA HUB offers the following benefits: 

1.CIT exemption for Astana Hub members; 

2.IIT exemption for Astana Hub members in respect of earned income of their employees; 

3.social tax exemption for Astana Hab members in respect of the income of their Kazakh employees; 

4.VAT exemption for Astana Hab members in respect of goods, works and services sold; 

5.VAT exemption for Astana Hab members in respect of imports of certain goods; 

6.exemption for Astana Hub members from VAT on behalf of a non resident; 

7.exemption of non-residents from CIT withheld at a source paid by Astana Hab members for consulting, marketing, engineering and other services; 

8.exemption of residents and non-residents from CIT/CIT withheld at source in relation to income from value growth received by them on sale of participatory interests/shares in a member of the Astana Hub. 

AIFC offers the following benefits: 

1.CIT exemption for AIFC members in respect of certain financial services; 

2.CIT exemption in respect of the income of foreign employees of AIFC members providing certain financial services; 

3.exemption of AIFC members providing certain financial services from land tax on land plots located in the territory of AIFC; 

4.exemption of AIFC members providing certain financial services from property tax in respect of the property located in the territory of AIFC; 

5.VAT exemption for AIFC members providing certain financial services; 

6.exemption of residents and non-residents from taxation of dividends and capital gains received thereby in respect of participatory interests/shares in an AIFC member; 

7.exemption of residents and non-residents from taxation of dividends, remuneration, and capital gains received thereby in respect of AIX-listed securities. 

2.3 What are the accounting and reporting requirements for different types of presence, and how often must they be submitted? 

RoK REQUIREMENTS: 

Under the general rule, legal entities, branches, representative offices (including branches and representative offices of foreign legal entities) (the “Organizations”) must submit annual financial statements to the following authorities no later than April 30 of the year following the reporting period (that is, calendar year from January 1 to December 31):

• competent authority in the field of state statistics at the place of state registration;
• authorities of state control and supervision of RoK in accordance with their competence. 

The management of the Organization facilitates organisation of accounting, including internal documents regulating the process of reflecting all transactions performed by the Organization. 

AIFC REQUIREMENTS: 

AIFC Company must submit the following reports to the AIFC: 

• annual accounts, if the Company’s annual turnover is more than USD 5 million: 
  annual accounts must be prepared, approved by directors, audited, and provided to shareholders with an auditor’s report within 6 months from the end of each financial year of the Company. Within 14 days from the date of provision of accounts to shareholders a copy of the accounts with the auditor’s report must be provided to the AIFC Registrar. 
• annual returns (including, among other things, financial statements for last financial year) - if the Company’s annual turnover exceeds USD 500 000 or there is on average not more than 20 shareholders during a year: 
  annual returns are submitted to the AIFC within 6 months from the end of financial year or other date acceptable to the AIFC Registrar. 
• annual confirmation statement (if the Company does not submit annual accounts as per the item above).

2.4. What is the taxation of dividends for foreign investors? 

Taxation in Kazakhstan: 

The dividends of foreign investors are taxed by withholding tax at the 15% rate (“WHT”). 

Dividends on securities which as of the date of their payment are in the official lists of securities exchange functioning on the territory of RoK, are exempt from WHT on the condition that such securities were traded on the securities exchange during the tax period in accordance with the criteria specified by the RoK Government (articles 241.2.3), 645.9.3) and 654.3) of the Tax Code). 

Taxation in AIFC: 

In AIFC foreign investors are exempt from CIT/IIT on dividends: 

• received in respect of participatory interests/shares in an AIFC member;
• received in respect of securities listed at a securities exchange as of the date of dividend payment, provided such securities were traded on the securities exchange in accordance with the criteria specified by the joint order of AIFC, the central authorised body for state planning and the state body in charge of ensuring tax receipts and other mandatory payments to the budget.

(3) Regulatory and miscellaneous 

3.1 What are the general data protection and privacy requirements in the country, and how do they affect company operations? 

The primary requirements include: 

• obligatory obtaining the consent of the personal data subject (i.e., a person, whom they relate to) or his/her legal representative for the collection and processing of the personal data, except as otherwise provided by law;
• obligatory storage of all personal data collected or to be collected in Kazakhstan in a database located on the territory of the Republic of Kazakhstan;
• obligatory ensuring the personal data protection by applying a set of legal, organisational and technical measures, as well as complying with all requirements provided for by the legislation on personal data and protection thereof;
• compliance with the rights and freedoms of personal data subjects, as well as other requirements provided for by the legislation on personal data and protection thereof. 

Secondary requirements specified by the law are requirements for the accumulation, change, supplement, use, distribution, depersonalisation, blocking and destruction of personal data, as well as for the cross-border transfer of personal data to the territory of foreign states. Violation of the above requirements entails administrative and criminal liability as provided by the legislation of the Republic of Kazakhstan. 

3.2 What labour law features should be considered when hiring local and foreign employees? 

Hiring procedure involves an order issued by the employer. Upon issue of the order, the employer shall ensure the registration of the employee's employment agreement in the Unified Employment Contracts Accounting System. In the future, the specified system should also reflect information on the transfer of the employee to another job, as well as on the termination of the employment agreement. 

For foreign employees, a work permit and work visa shall be first obtained (before entering into the employment agreement). The procedure and timing for obtaining a work permit is approximately 1.5 months. The issue and(or) extension of work permits depends on the competence, qualifications and positions (managerial or not) of foreign personnel, as well as on the ratio of foreign and Kazakh personnel in the company. The legislation provides some exceptions when such a ratio is not required. 

The main condition for granting a work permit is the compliance of the qualifications of a foreign employee with the requirements established by the legislation of the Republic of Kazakhstan (required experience, appropriate education certificates). The term of work permits varies from 1 to 3 years, which can be further extended. A number of categories of foreign citizens can engage in labour activities in the Republic of Kazakhstan without a work permit, including: 

• employed by AIFC members;
• citizens of the states that are parties to the Treaty on the Eurasian Economic Union; 
• chief executive officers (deputies) of Kazakh legal entities with 100% foreign participation in their charter capital;
• those, who are in a business trip for business purposes, the period of which does not exceed a total of 120 calendar days within one calendar year;
• chief executive officers of organisations that concluded investment contracts for investments over USD 50 million with the Government of the Republic of Kazakhstan and directors of Kazakh legal entities engaged in investing in priority activities and that have signed the contract with the competent investment authority. 

3.3 What are the requirements for currency regulation and currency control? 

3.4 What corporate law features should be considered when planning mergers, acquisitions, and company restructuring in the country? 

3.5 What are the most efficient mechanics for dispute resolution?

The main fora of dispute resolution include local courts, AIFC Court and International Arbitration Center of AIFC (the “IAC”). In practice investors note the high qualification of AIFC Court. 

AIFC Court. 

AIFC Court is independent in its activity and is not part of the RoK judicial system. In adjudicating disputes, AIFC Court is bound by the acting law of the AIFC, and may take into account final judgments of the AIFC Court in related matters and final judgments of courts of other common law jurisdictions. AIFC Court does not have jurisdiction in relation to any disputes that are of a criminal or administrative nature, and have exclusive jurisdiction in relation to: 

• any disputes arising between the AIFC Participants, AIFC bodies, and/or their foreign employees;
• any disputes relating to operations carried out in the AIFC and regulated by the law of the AIFC;
• any disputes transferred to the AIFC Court by agreement of the parties; and
• the interpretation of AIFC Acts. 

AIFC Court decisions are enforced in the RoK under the same procedure and on the same terms as the decisions of RoK courts. 

IAC. 

IAC considers disputes referred to IAC arbitration by the parties’ arbitration agreement. Arbitration tribunal resolves the merits of the dispute in accordance with the provisions of the law chosen as the law applicable to the substance of the dispute, and in the absence of any such choice of applicable law, applies the law that it considers most appropriate with regard to the circumstances of the case and the overriding objective. The party that wishes to have IAC arbitration tribunal’s award enforced in RoK must apply to AIFC Court for an order on enforcement of the arbitral award.

 

Authors:

Maksim Burak, Zhibek Mukhamedkarim, Diana Bektibayeva.