The main changes in the financial legislation of Kazakhstan in January - May 2023

The main changes in the financial legislation of Kazakhstan in January - May 2023

LEGISLATIVE NOVELTIES IN KAZAKHSTAN IN JANUARY-MAY 2023:

At the beginning of the 2023, the process of making important amendments to the financial legislation of Kazakhstan continued.

For the first time in the history of Kazakhstan, the law on digital assets was adopted, aimed at creating a legal framework for the development of activity for the issuance and turnover of digital assets and digital mining in the Republic of Kazakhstan. In addition, for the first time, amendments were made to the legislation of Kazakhstan, according to which, if the creditor (creditors) are unable to satisfy the claims of an individual who is not an individual entrepreneur, procedures for restoring solvency, extrajudicial or judicial bankruptcy are applied.

Please feel free to contact us if you have any questions, we will be happy to answer them.

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In this issue: 

  • The Law on Digital Assets
  • The Law on Restoration of Solvency and Bankruptcy of Citizens of the Republic of Kazakhstan

The Law on Digital Assets 

On 6 February 2023, Kazakhstan adopted the Law "On Digital Assets in the Republic of Kazakhstan" (the "Law on Digital Assets"), which entered into force on 1 April 2023, except for paragraph 4 of Article 8 of the Law on Digital Assets. The Law on Digital Assets has great importance, as it establishes stricter regulation of the production and turnover of digital assets (including cryptocurrency) in the Republic of Kazakhstan. The adoption of the Law on Digital Assets may significantly affect the development of digital mining in the country, as the introduction of serious restrictions may lead to an outflow of digital miners from the Republic of Kazakhstan. At the same time, the Law on Digital Assets actually legalizes the activity of cryptocurrency exchanges, although not in the entire territory of the Republic of Kazakhstan, but only in the territory of the Astana International Financial Center (the "AIFC"), while it is unclear whether market participants who are not AIFC participants will be able to make transactions on such exchanges and if so, what is the practical significance of such a distinction.

Changes related to mining activity

  • Mining pools. From 1 April 2023, digital mining should be carried out only through digital mining pools using a digital mining data center[1]. Digital mining pool is a legal entity accredited in accordance with the legislation of the Republic of Kazakhstan on digital assets, providing a service for combining the capacities of a hardware and software complex for digital mining by digital miners. The digital mining pool distributes digital assets produced as a result of their joint activity among digital miners. The digital mining pool provides monthly the Ministry of Digital Development, Innovation and Aerospace Industry of the Republic of Kazakhstan and tax authorities with information on the income of digital miners and digital mining pools for the purposes of their taxation[2].
  • In other words, miners will no longer be able to mine cryptocurrency “alone”, they will have to do it as part of some organization that will provide and coordinate their activity, apparently according to their own rules and charging a certain fee for this, which may be unprofitable for most active miners.
  • Mining pools are subject to mandatory accreditation in the Republic of Kazakhstan, which issubject to the following conditions: 1) the physical location of the hardware and software complex of the digital mining pool in the territory of the Republic of Kazakhstan; 2) availability of a test report with a positive test result for compliance with information security requirements; 3) compliance with other requirements defined by the rules for accreditation of digital mining pools.
  • Licensing of digital miners. From 1 April 2023, instead of the notification that was submitted about the implementation of mining activity before the introduction of the new regulation, each miner must obtain a license to carry out digital mining activity from the Ministry of Digital Development, Innovation and Aerospace Industry of the Republic of Kazakhstan[3].
  • A digital mining license is issued for a period of three years for one of two categories:

I - to a digital miner who has a digital mining data center with the right of ownership or other legal grounds;

II  - to a digital miner who does not have a digital mining data center with the right of ownership or other legal grounds and carries out digital mining using the digital mining hardware and software complex owned by him, located in the digital mining data center[4]. 

  • Digital regulations prohibit activities that are not related to digital mining activity, as well as the acquisition of shares in the authorized capital or shares of legal entities, the creation and participation in the activity of non-profit organizations, with the exception of membership in a self-regulatory organization and the National Chamber of Entrepreneurs of the Republic of Kazakhstan[5].
  • The digital mining activity can be carried out in the territory of the Republic of Kazakhstan by individual entrepreneurs and legal entities of the Republic of Kazakhstan[6]. Thus, we understand that activity as digital miners of individuals who are not registered as individual entrepreneurs are prohibited in the territory of the Republic of Kazakhstan.
  • The requirement for the mandatory sale of digital assets obtained as a result of digital mining. In accordance with the Law on Digital Assets, digital assets obtained as a result of digital mining are subject to mandatory sale through digital asset exchanges licensed by the AIFC from 1 January 2024 to 1 January 2025 - in the amount of at least fifty percent; from 1 January 2025 - in the amount of at least seventy-five percent in accordance with the rules for reporting income of digital miners and digital mining pools for tax purposes[7].
  • Thus, apparently in order to support and develop the Kazakhstani crypto-currency market and Kazakhstani crypto-exchanges, a serious restriction has been established for miners in the way they sell mined digital assets - only on the AIFC exchange.

Read more here →

Developed by: Marina Kahiani, Partner ; Zarina Kabashova, Associate; Aida Alimzhanova, Junior Associate, GRATA Internationa Kazakhstan.

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This information is provided for your convenience and does not constitute legal advice. It is prepared for the general information of our clients and other interested persons. This information should not be acted upon in any specific situation without appropriate legal advice.

We hope the review given above will be useful for you. Please feel free to contact us by finance_securities@gratanet.com if you have any questions or comments. We would be happy to get any feedback.

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[1] Paragraph 1 of article 3 of the Law on Digital Assets

2 Order of the Acting Minister of Digital Development, Innovation and Aerospace Industry of the Republic of Kazakhstan dated 26 April 2023 No. 166/NK On Approval of the Rules for Submitting Information on the Income of Digital Miners and Digital Mining Pools for the Purposes of Their Taxation 

[3] Paragraph 2 of article 3 of the Digital Assets Law

[4] Article 9 of the Law on Digital Assets

[5] Paragraph 6 of article 8 the Law on Digital Assets

[6] Paragraph 5 of article 8 the Law on Digital Assets

[7] Paragraph 4 of article 8 the Law on Digital Assets  

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